Agency Financial Report

D E P A R T M E N T O F T H E T R E A S U R Y

F I S C A L 

Y E A R 2009

D E C E M B E R 1 5 , 2 0 0 9
The United States

Department of the Treasury

Our Vision

Set the global standard in financial and economic leadership

Our Mission

Serve the American people and strengthen national security by managing the 

U.S. Government’s finances effectively, promoting economic growth and stability, and 

ensuring the safety, soundness, and security of the U.S. and international financial systems

Our Values

SERVICE

Work for the benefit of the American people

INTEGRITY

Aspire to the highest levels ethical standards of honesty, trustworthiness, and dependability

EXCELLENCE

Strive to be the best, continuously improve, innovate, and adapt

OBJECTIVITY

Encourage independent views

ACCOUNTABILITY

Responsible for our conduct and work

COMMUNITY

Dedicated to excellent customer service, collaboration, 

and teamwork while promoting diversity
F I S C A L 

Y E A R 2009

Agency Financial Report

D E P A R T M E N T O F T H E T R E A S U R Y

D E C E M B E R 1 5 , 2 0 0 9
ii

This page left intentionally blank

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009
iii

Table of Contents

Message from the Secretary of the Treasury v

About this Report vii

Part 1: Management’s Discussion and Analysis

Introduction 3

Organization 4

The Treasury Department’s 2007-2012 Strategic Framework 7

Fiscal Year 2009 Summary of Performance by Strategic Goal 8

How Well is Treasury Performing? 10

Financial Highlights 12

Fiscal Year 2009 Performance by Strategic Goal 13

U S and World Economies Perform at Full Economic Potential 13

Effectively Managed U S Government Finances 35

Prevented Terrorism and Promoted the Nation’s Security through 

Strengthened International Financial Systems 38

Management and Organizational Excellence 41

Department of the Treasury Key Performance Measures for 2009 44

Summary of Management and Performance Challenges and High-Risk Areas 47

Analysis of Financial Statements 52

Improper Payments Information Act and Recovery Auditing Act 57

Management Assurances 59

Material Weaknesses, Audit Follow-up, and Financial Systems 60

TABLE OF CONTENTS

TABLE OF CONTENTS
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

iv

Part 2: Annual Financial Report

Message from the Assistant Secretary for Management and Chief Financial Officer 67

Inspector General’s Transmittal Letter 69

Auditors’ Report on the Department’s Financial Statements 71

Management’s Response to Auditor’s Report 85

Financial Statements 86

Notes to the Financial Statements 94

Required Supplemental Information (Unaudited) 206

Part 3: Other Accompanying Information

APPENDICES

Appendix A: Other Accompanying Information (Unaudited) 213

Appendix B: Improper Payments Information Act and Recovery Auditing Act 217

Appendix C: Management and Performance Challenges and Responses 225

Appendix D: Material Weaknesses, Audit Follow-up, Financial Systems, 

and Recovery Act Risk Management 265

Appendix E: Glossary of Acronyms 277

Website Information 283

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

iv TABLE OF CONTENTS
v

Message from the Secretary of the Treasury

December 15, 2009

The Treasury Department has spent the past fiscal year confronting the worst 

economic and financial crisis in generations. 

While policy interventions at the end of 2008 succeeded in achieving the vital, 

but narrow, objective of preventing a catastrophic systemic meltdown, by the time 

President Obama took office, the financial system remained extremely fragile and 

the Administration faced a rapidly evolving set of challenges. 

In the financial sector the flow of credit to businesses and families had frozen; the 

issuance of new asset-backed securities had essentially come to a halt; and liquidity 

in a broader range of securities markets had fallen sharply.

In addition, the broader economy was in a free fall. In January we lost 741,000 nonfarm jobs, the largest single 

monthly decline in 60 years. Our Gross Domestic Product was contracting at rates not seen in decades. American 

families had lost $11 trillion in household wealth since 2007. And there was genuine concern we were headed 

toward a second Great Depression. 

The Obama Administration responded with a comprehensive strategy unprecedented in size and scope. 

First, we worked with Congress to enact the most sweeping economic recovery package in our nation’s history. 

The Recovery Act included a program of immediate tax incentives for businesses and households, support for 

state and local governments, and investments in critical economic priorities, from infrastructure and energy to 

health care and education. More than 110 million families – 95 percent of working families – received hundreds 

of dollars in the Making Work Pay tax benefit. 

Second, we moved quickly to stabilize our financial system with as much private capital as possible. Following the 

release of the “stress test” results, our nation’s largest banks were able to raise over $80 billion in private capital 

and, as of September 30, 2009, have paid roughly $70 billion back to the government for previous investments. 

More broadly, last December, 70 percent of corporate bond issuance was supported by the government. In 

September of this year, corporations raised over $100 billion in debt, 82 percent of which was issued without a 

government guarantee.

Third, we jumpstarted channels of credit that are critical for American families and businesses. Our Term AssetBacked Securities Loan Facility (TALF) has helped to improve conditions substantially. Issuance of securities 

backed by consumer and business loans has averaged $14 billion per month since the government launched TALF 

in March, compared to about $1.6 billion per month in the six months prior to the program’s launch.

Fourth, we created a public-private investment program to purchase legacy assets to help clean up the balance 

sheets of major financial institutions and re-liquefy key markets. Program announcements helped improve prices 

for these assets in advance of actual purchases. And due to continued improvements in financial market conditions, we are able to proceed with the program at a scale smaller than initially envisioned. 

MESSAGE FROM THE SECRETARY OF THE TREASURY

MESSAGE FROM THE SECRETARY OF THE TREASURY
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

vi

Fifth, we worked to ease the housing crisis by helping to bring mortgage rates to historic lows and establishing 

new programs to allow responsible homeowners to refinance into affordable mortgages or modify at-risk loans to 

lower monthly mortgage payments. 

And finally, we worked with the major economies of the world on a coordinated program of macroeconomic 

stimulus and financial stabilization, alongside regulatory reform.

Because of these steps, an economy that was in free-fall in January is now on the road to recovery. It grew at an 

annual rate of 2.8 percent in the third quarter, and private economists generally expect moderate growth over the 

next year. Business and consumer confidence has started to improve. The housing market is showing some signs 

of stabilizing. Home prices have increased modestly over the past six months, reversing consistent declines since 

2006, and sales of existing single-family homes have increased by 20 percent over the past year. The cost of credit 

in securities markets has fallen substantially for businesses, and credit is flowing again in these markets. 

These early signs of progress have allowed us to begin evolving our strategy from rescuing the economy to repairing and rebuilding the foundation for future growth.

As we enter this new phase we are winding down some of the extraordinary support put in place for the financial 

system. But we are also mindful that unemployment is still too high and that small businesses, an important 

engine of job growth in America, still face enormous difficulty accessing credit. 

Going forward we must continue to reinforce recovery until it is self-sustaining and led by private demand. 

That is our primary objective. And we are working to achieve it by using our resources in the most effective and 

efficient manner possible. 

We quickly established the Office of Financial Stability (OFS) and implemented strong program and financial 

reporting internal controls. The Department received an unqualified opinion on both our OFS/Troubled Asset 

Relief Program and Treasury-wide fiscal year 2009 financial statements—a remarkable achievement. 

This year, the Department met or exceeded 67 percent of its performance targets, a reduction of three percentage 

points compared to last year, reflecting the challenges the Department faced in confronting the financial and 

economic crisis. While the percentage of unmet targets increased over last year, on average performance targets 

were within 10 percent of desired results. Discretionary budget resources increased 4.8 percent over 2008. 

While we continue to resolve major challenges in some areas, overall we are making progress in addressing 

management and control weaknesses and in meeting federal financial systems requirements. The Department 

has validated the accuracy, completeness, and reliability of the financial and performance data contained in this 

report. 

Timothy F. Geithner

Secretary of the Treasury

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

vi MESSAGE FROM THE SECRETARY OF THE TREASURY
vii

About this Report

The fiscal year 2009 Treasury Agency Financial Report 

provides information that enables Congress, the 

President, and the public to assess the Department’s 

performance relative to its mission and stewardship of 

the resources entrusted to it.

For fiscal year 2009, the Department participated in 

the Office of Management and Budget’s alternative 

Performance and Accountability Report option for reporting annual results. In this process, the Performance 

and Accountability Report is divided into two 

reports, an Agency Financial Report and an Annual 

Performance Report. The Agency Financial Report 

is produced prior to the end of the calendar year and 

includes a Management’s Discussion and Analysis 

with a high level discussion of key agency accomplishments, and performance and financial results. Financial 

statements and analysis are also included in the Agency 

Financial Report. The Annual Performance Report will 

be generated and submitted with the Congressional 

Budget Justification in February 2010. The Annual 

Performance Report will contain detailed information 

on performance for agency outcomes.

The fiscal year 2009 Management’s Discussion and 

Analysis is focused on the contributions Treasury has 

made on behalf of the American people to restore 

confidence in the financial system and enable economic recovery. The implementation of efforts aimed 

at financial stability, easing the housing crisis, and the 

Recovery Act are included, as well as activities related 

to financial regulatory reform.

Similar to last year, agency–wide performance results are summarized in the “How Well is Treasury 

Performing?” section. Results by strategic goal, along 

with trends in performance, budget, and cost are also 

included. A key performance measure table is included 

along with a discussion of results. Management 

challenges are summarized and assessed for progress 

and status, and improvements to high-risk areas are 

discussed. Consolidated financial statements, analysis, 

and footnote disclosures are presented to provide a 

comprehensive picture of the Department’s financial 

position. Hyperlinks are used throughout the report 

providing an option to obtain additional detail.

ABOUT THIS REPORT

ABOUT THIS REPORT
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009 DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

viii

This page left intentionally blank
Part 1

Management’s Discussion & Analysis

3

Introduction

Fiscal year 2009 began with the passage of historic 

legislation to support a tenuous financial system. 

Following the placement of Fannie Mae and Freddie 

Mac into conservatorship, failures of Lehman Brothers 

and Washington Mutual, and significant troubles at 

American International Group (AIG) and other firms, 

Congress enacted the Emergency Economic Stabilization 

Act of 2008 (EESA), providing $700 billion in spending authority to support financial markets. In the 

months that followed, Treasury played a key role in 

stabilizing the financial system and limiting damage in 

the broader economy.

In February 2009, with the economy contracting at 

the fastest speed in the last quarter century, Congress 

passed the American Recovery and Reinvestment Act 

of 2009 (Recovery Act) to provide economic stimulus. Implementation of tax and other provisions by 

Treasury under the Recovery Act limited the fallout 

from the financial crisis and encouraged investment in 

renewable energy projects and low-income communities. Programs implemented by Treasury under the 

Recovery Act, Housing and Economic Recovery Act of 

2008 (HERA), and EESA provided support for homeowners and helped avoid unnecessary foreclosures.

In February 2009, Treasury issued the Financial 

Stability Plan, helping boost confidence in the stability 

of financial institutions and unlock frozen securitization markets. Since then, Treasury has put in place a 

series of financial initiatives to help lay the foundation 

for economic recovery: 1) a broad program to stabilize 

the housing market by encouraging lower mortgage 

rates and making it easier for millions to refinance and 

avoid foreclosure; 2) a new capital program to provide 

banks with a safeguard against a deeper recession; 3) a 

major new lending program with the Federal Reserve 

targeted at the securitization markets critical for consumer and small business lending; and 4) a program to 

set up funds to provide a market for legacy loans and 

securities that currently burden the financial system. 

In June 2009, the President announced a comprehensive plan to reform the United States’ outdated and 

ineffective financial regulatory system. The goals of the 

plan are simple: to protect responsible consumers and 

investors; to lay the foundation for a safer, more stable 

financial system that is less prone to panic and crisis; 

and to safeguard American taxpayers from bearing risks 

that ought to be borne by shareholders and creditors. 

Treasury submitted proposed legislative text to implement the plan in August 2009 and is actively working 

with Congress to pass this critical legislation. 

Treasury has initiated the next phase of the strategy to 

stabilize and rehabilitate financial markets. As the need 

for the emergency programs that were put in place 

during the most acute phase of the crisis declines, those 

programs will wind down. At the same time, the use 

of those programs, by design, continues to decline as 

the financial system recovers. But the financial system 

is still fragile, and some of the improvements that 

have been realized in many financial markets are still 

largely dependent on the support of extraordinary 

policies. Going forward, the U.S. Government must 

work to promote the public trust, use taxpayer money 

prudently to repair the financial system, and reassure 

market participants so that they have the confidence to 

get credit flowing again to families and businesses.

Treasury will continue to implement the programs set 

in place to restore essential balance in the U.S. and 

global economies. In implementing these programs, 

the Department of the Treasury will exercise diligent 

stewardship and provide exceptional accountability and 

transparency in performing its work on behalf of the 

American people. 

INTRODUCTION

PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

4 Or

Organization

THE DEPARTMENT OF THE TREASURY ORGANIZATIONAL CHART

Secretary

Deputy Secretary

Treasury Inspector General 

for Tax Administration

Special Inspector General 

for Troubled Asset 

Relief Program

Office of the Chief of Staff

Internal Revenue 

Service

Special Envoy to China 

for the Strategic 

Economic Dialogue

Bureau of Engraving 

and Printing

Assistant Secretary 

Tax Policy

Alcohol and Tobacco 

Tax and Trade

Assistant Secretary 

Economic Policy

Assistant Secretary 

Public Affairs & Director 

of Policy Planning

Assistant Secretary 

Legislative Affairs

Assistant Secretary 

for Management and 

Chief Financial Officer

General Counsel

Treasurer

Director Office of Small 

& Disadvantaged 

Business Utilization

United States Mint

Office of the 

Comptroller of the 

Currency

Office of Thrift 

Supervision

Bureau of 

the Public Debt

Financial 

Management 

Service

Inspector General

Undersecretary Domestic 

Finance

Assistant Secretary 

Financial Markets

Assistant Secretary 

Financial Institutions

Assistant Secretary 

Financial Stability

Community Development 

Financial Institutions Fund

Assistant Secretary 

Fiscal

Undersecretary Terrorism 

Financial Intelligence

Assistant Secretary 

Terrorist Financing

Assistant Secretary 

Intelligence and Analysis

Financial Crimes 

Enforcement Network

Undersecretary 

International Affairs

Assistant Secretary 

International Affairs 

Financial Markets & 

Investment Policy

Assistant Secretary 

International Affairs 

International Economics 

& Development
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Orga

The Department of the Treasury is the executive 

agency responsible for promoting economic prosperity and ensuring the financial security of the United 

States. The Department is organized into two major 

components, the departmental offices and the bureaus. 

The departmental offices are primarily responsible for 

policy formulation, while the bureaus are primarily the 

operating units of the organization.

Departmental Offices

Domestic Finance advises and assists in areas of domestic finance, banking, and other related economic 

matters. In addition, this office develops policies 

and guidance for Treasury Department responsibilities in the areas of financial institutions, 

federal debt finance, financial regulation, capital 

markets, financial management, fiscal policy, and 

cash management decisions.

International Affairs advises and assists in the formulation and execution of U.S. international economic, financial, monetary, trade, investment, 

bilateral aid, environment, debt, development, 

and energy policy, including U.S. participation 

in international financial institutions.

Terrorism and Financial Intelligence (TFI) marshals 

the Department’s intelligence and enforcement 

functions with the twin aims of safeguarding the 

financial system against illicit use and combating rogue nations, terrorist facilitators, money 

launderers, drug kingpins, and other national 

security threats.

Economic Policy reports on current and prospective 

economic developments and assists in the determination of appropriate economic policies. The 

office is responsible for the review and analysis 

of domestic economic issues and developments 

in the financial markets.

Tax Policy develops and implements tax policies and 

programs, reviews regulations and rulings to 

administer the Internal Revenue Code, negotiates tax treaties, and provides economic and legal 

policy analysis for domestic and international 

tax policy decisions. Tax Policy also provides 

revenue estimates for the President’s budget.

Treasurer of the United States advises the Secretary 

on matters relating to coinage, currency, and the 

production of other financial instruments. The 

Treasurer also serves as one of the Department’s 

principal advisors and a spokesperson in the area 

of financial literacy and education.

The Community Development Financial 

Institutions Fund (CDFI) expands the capacity of community development financial institutions and community development entities to 

provide credit, capital, tax credit allocations, 

and financial services to underserved domestic 

populations and communities.

The Office of Small and Disadvantaged Business 

Utilization assists, counsels, and advises small 

businesses of all types: disadvantaged, womenowned, veteran-owned, service-disabled veteranowned, and small businesses located in historically underutilized business zones on procedures 

for contracting with Treasury.

Internally, the Treasury’s Departmental Offices 

are responsible for the overall management of the 

Department. The Office of the Assistant Secretary of 

Management and Chief Financial Officer is responsible for internal management and controls, and 

also serves as the Department’s Chief Performance 

Officer. Support organizations include General 

Counsel, Legislative Affairs, and Public Affairs. Also, 

three inspectors general, the Treasury Inspector 

General for Tax Administration, the Office of the 

Inspector General, and the Special Inspector General 

for the Troubled Asset Relief Program provide independent audits, investigations, and oversight of the 

Department of Treasury and its programs.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

6 Or

Bureaus

Bureaus employ 98 percent of Treasury’s workforce 

and are responsible for carrying out specific operations 

assigned to the Department.

The Alcohol and Tobacco Tax and Trade Bureau 

(TTB) collects excise taxes on alcohol, tobacco, 

and firearms that are lawfully due the government, protects consumers of alcoholic beverages 

through voluntary compliance programs that are 

based on education and enforcement to ensure 

a fair marketplace, and assists industry members 

in understanding and complying voluntarily with federal tax, product, and marketing 

requirements.

The Bureau of Engraving and Printing (BEP) 

designs and manufactures high quality notes and 

other financial documents that deter counterfeiting and meet customer requirements for quality, 

quantity, and performance.

The Bureau of the Public Debt (BPD) borrows 

the money needed to operate the Federal 

Government through the sale of marketable, savings, and special purpose U.S. Treasury securities. In addition, it accounts for and services the 

public debt and provides reimbursable support 

services to federal agencies.

The Financial Crimes Enforcement Network

(FinCEN) safeguards the financial system from 

the abuses of financial crime, including terrorist 

financing, money laundering, and other illicit 

activity.

The Financial Management Service (FMS) provides 

central payment services to federal program 

agencies, operates the Federal Government’s collections and deposit systems, provides government-wide accounting and reporting services, 

and manages the collection of delinquent debt 

owed to the U.S. Government.

The Internal Revenue Service (IRS) is the largest 

of the Department’s bureaus and determines, 

assesses, and collects tax revenue for the Federal 

Government.

The United States Mint designs, produces, and issues 

circulating and bullion coins, numismatic coins 

and other items, Congressional gold medals, 

and other medals of national significance. The 

United States Mint maintains physical custody 

and protection of the nation’s gold assets.

The Office of the Comptroller of the Currency 

(OCC) charters, regulates, and supervises 

national banks to ensure a safe, sound, and competitive banking system that supports citizens, 

communities, and the economy.

The Office of Thrift Supervision (OTS) charters, 

examines, supervises, and regulates federal and 

many state-chartered thrift associations in order 

to maintain their safety and soundness and 

compliance with consumer laws.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

The Treasury Deparent

The Treasury Department’s 

2007-2012 Strategic Framework

The Treasury Department’s Strategic Framework is a summary of our goals, objectives, and outcomes. This framework provides the basis for performance planning and continuous improvement. 

Strategic Goals Strategic Objectives Value Chains** Value Chain Outcomes

FINANCIAL

Effectively Managed 

U.S. Government 

Finances

Available cash resources to operate 

the government

Collect

Disburse

Borrow

Account

Invest

• Revenue collected when due through a fair and 

uniform application of the law at the lowest 

possible cost 

• Timely and accurate payments at the lowest 

possible cost

• Government financing at the lowest possible cost 

over time

• Effective cash management

• Accurate, timely, useful, transparent, and 

accessible financial information

ECONOMIC

U.S. and World 

Economies Perform at 

Full Economic Potential

Improved economic opportunity, 

mobility and security with robust, 

real, sustainable economic growth 

at home and abroad

Strengthen

Regulate

• Strong U.S. economic competitiveness

• Free trade and investment

• Decreased gap in global standard of living

• Competitive capital markets

• Prevented or mitigated financial and economic 

crises

Trust and confidence in U.S. currency 

worldwide

Manufacture • Commerce enabled through safe, secure U.S. 

notes and coins

SECURITY

Prevented Terrorism 

and Promoted the 

Nation’s Security 

Through Strengthened 

International Financial 

Systems

Pre-empted and neutralized threats 

to the international financial system 

and enhanced U.S. national security

Secure • Removed or reduced threats to national security 

from terrorism, proliferation of weapons of mass 

destruction, narcotics trafficking ,and other 

criminal activity on the part of rogue regimes, 

individuals, and their support networks

• Safer and more transparent U.S. and international 

financial systems

MANAGEMENT

Management and 

Organizational 

Excellence

Enabled and effective Treasury 

Department

Manage • A citizen-centered, results-oriented, and 

strategically aligned organization

• Exceptional accountability and transparency

** Value Chains – Programs grouped by a common purpose.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

8 Fiscal Year20 Su

Fiscal Year 2009 Summary of Performance 

by Strategic Goal

STRATEGIC 

GOAL

KEY ACCOMPLISHMENTS KEY CHALLENGES TREND

U.S. and World 

Economies 

Perform at 

Full Economic 

Potential

Cost: 

2008: $3.7 Billion

2009: $4.4 Billion

• Supported stabilization of the financial system 

through implementation of the Emergency Economic 

Stabilization Act of 2008 and the Financial Stability 

Plan

• Improved mortgage availability and stability of the 

housing market through implementation of the 

Housing and Economic Recovery Act of 2008

• Implemented economic stimulus measures under the 

American Recovery and Reinvestment Act of 2009

• Issued “Financial Regulatory Reform: A New 

Foundation” and drafted legislation for fundamental 

financial regulatory reform

• Contributed to stabilization of the money market 

through implementation of a Temporary Guarantee 

Program for Money Market Funds

• Implemented measures to bolster regulation of 

national banks and thrifts

• Expanded international economic partnerships to 

better manage the financial crisis

• Hosted G-20 meetings and supported elevation of 

the G-20 to premier international economic forum

• Supported trebling resources for the International 

Monetary Fund and restructuring of the Financial 

Stability Forum into the Financial Stability Board

• Coordinated the Economic Track of the U.S.-China 

Strategic and Economic Dialogue

• Provided grants, investments, financial services and 

technical support for underserved and low-income 

communities through the CDFI Fund

• Repair and reform the regulatory system to 

improve supervision of financial markets and 

institutions

• Continue to mitigate risks at national banks and 

thrifts

• Reduce mortgage delinquency and foreclosure 

rates

• Reduce direct government support for 

securitization and other financial markets

• Maintain open economies despite rising 

protectionist interests

• Reform Medicare and Social Security to ensure 

long-term solvency

• Continue international movement towards a 

global agreement on climate change 

• Increase financial knowledge and access, 

especially in low-income and underserved 

communities

• Improve productivity management related to coin 

and currency production

• Improve supply management for bullion coin 

production

• Manage cost issues related to the penny and 

nickel

• Encourage robust circulation of the $1 coin 

cost-effectively

• Increase financial literacy and access to financial 

services in low-income and underserved 

communities

Performance 

Budget 

Cost 

Effectively 

Managed U.S. 

Government 

Finances

Cost*: 

2008:$14.0 Billion

2009: $14.4 Billion

• Collected $2.3 trillion in tax revenue and $20.6 billion 

in federal excise taxes on tobacco, alcohol, firearms, 

and ammunition

• Processed over 144.4 million individual returns and 

issued over 111.4 million refunds

• Increased individual electronic tax returns processed 

by 8 percentage points, from 58 to 66 percent 

• Issued over 54.8 million payments valued at more 

than $13.7 billion under the American Recovery and 

Reinvestment Act of 2009 

• Converted over one million federal benefit check 

recipients to direct deposit 

• Conducted more than 290 auctions resulting in the 

issuance of more than $8 trillion in marketable 

Treasury securities

• Began the monthly issuance of the three and seven 

year notes

• Collected $5.07 billion in delinquent debt

• Continue to work toward the Congressional 

goal of having 80 percent of tax returns filed 

electronically 

• Continue to convert from paper to electronic 

savings bonds 

• Process 90 percent of Treasury payments and 

associated information electronically 

• Reduce the use of illegal international tax 

shelters 

• Reduce the erroneous payments rate within the 

Earned Income Tax Credit (EITC) program 

• Continue on path to complete CADE 

implementation by 2011

• Improve audit coverage of high net-worth/highincome taxpayers

• Reduce average taxpayer telephone wait time 

• Accurately forecast government receipts

Performance 

Budget 

Cost 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year20 Summ

STRATEGIC 

GOAL

KEY ACCOMPLISHMENTS KEY CHALLENGES TREND

Prevented 

Terrorism and 

Promoted 

the Nation’s 

Security Through 

Strengthened 

International 

Financial 

Systems

Cost: 

2008: $555 Million

2009: $570 Million

• Strengthened measures against Iran to protect U.S. 

national security

• Enhanced mechanisms to combat mortgage and loan 

modification fraud

• Lifted sanctions on 125 individuals or entities from 

the list of Specially Designated Nationals (SDNs)

• Retired magnetic media filing

• Strengthened the review process for foreign 

investment in the United States

• Modernize Bank Secrecy Act (BSA) information 

and analysis

• Encourage Pakistan to make its anti-money 

laundering law permanent

• Continue to provide additional guidance to the 

charitable sector

• Establish external performance measure 

evaluation

Performance 

Budget 

Cost 

Management 

and 

Organizational 

Excellence

Cost:

2008: $508 Million

2009: $296 Million

• Treasury OIG completed 10 Material Loss Reviews 

(MLRs)

• Treasury OIG issued 68 audit products related to 

Treasury operations

• Treasury Inspector General for Tax Administration 

issued 142 audit reports of the IRS that could 

produce $14.7 billion in financial benefits 

• Employed dynamic new approach to the 2011 

Treasury budget process

• Expanded human capital initiatives

• Continue to complete an increased number of 

MLR

• Continue to improve management of information 

technology

Performance 

Budget 

Cost 

*Cost is stated as “Performance Cost,” and in addition to budgetary resources, includes imputed costs, depreciation, losses, and other expenses not requiring 

budgetary resources. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

10 How ell i

How Well is Treasury Performing?

Treasury Performance Cost Trend K Dollars

$15,500,000

$16,000,000

$16,500,000

$17,000,000

$17,500,000

$18,000,000

$18,500,000

$19,000,000

$19,500,000

$20,000,000

2005 2006 2007 2008 2009

$16,822,622

$17,436,584

$17,843,729

$18,820,586

$19,644,803

Treasury Total (Direct and Non-Appropriated) Budget Trend K Dollars

0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

2005 2006 2007 2008 2009

$14,732,430

$16,224,763$16,989,508

$18,133,476

$19,562,620

Treasury Department Cost per Person in the United States Dollars

$52.0

$54.0

$56.0

$58.0

$60.0

$62.0

$64.0

$66.0

2005 2006 2007 2008 2009

$56.96

$58.24

$59.09

$61.61

$63.80

Treasury Performance vs. Performance Cost Trends Percent

1%

10%

100%

Year-over-year growth in performance cost

Performance Results (Percent of Performance Targets Exceeded or Met)

72% 70% 67% 60% 60%

9.60%

3.30% 3.50%

5.50% 4.40%

2005 2006 2007 2008 2009

Fiscal Year 2009 Treasury-wide Performance Results Including 

Discontinued and Baseline Measures 

10%

Baseline

7%

Discontinued

1%

Improved

(Not Met)

15%

Unmet

12%

Met

55%

Exceeded

Fiscal Year 2009 Treasury-wide Performance Results Excluding 

Discontinued and Baseline Measures 

2%

Improved

(Not Met)

18%

Unmet

14%

Met

66%

Exceeded

Treasury Actual Performance Trends 2006–2009 

17%

No Significant

Change

23%

Unfavorable

60%

Favorable

Treasury Target Performance Trends 2006–2009 

24%

No Significant

Change

33%

Unfavorable

43%

Favorable

Please see next page for explanation of charts.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

How ell is T

HOW WELL IS TREASURY

PERFORMING DISCUSSION

PERFORMANCE COST AND BUDGET 

TRENDS

Performance cost represents the best indication of the 

total actual cost to operate the Treasury Department. 

It includes normal operating expenses from the 

Department’s Statement of Net Cost, but also includes 

adjustments for costs which do not require budgetary 

resources such as imputed costs, depreciation, amortization, losses, and other non-budgetary expenses. 

Performance cost in fiscal year 2009 was $19.6 billion, 

a 4.4 percent increase from fiscal year 2008, and has 

risen 4 percent per year since fiscal year 2005. The 

Department’s total enacted budget, however, which 

includes direct appropriations, non-appropriated, 

and reimbursable amounts, rose by an average of 

7.4 percent per year since fiscal year 2005. 

PERFORMANCE TO TARGET

In fiscal year 2009, the Treasury Department continued reporting using the revised performance rating 

system rolled out in 2008. Performance to target is 

rated as: Exceeded, Met, Improved from the prior year 

(but not met), Unmet, Baseline, or Discontinued. 

Prior to 2008, performance measures were rated only 

as met or unmet. Results are shown in two pie charts, 

one including all performance measures, and one not 

including baseline and discontinued measures. While 

68 percent of targets were exceeded, met, or improved 

based on all measures, 82 percent of targets were 

exceeded, met, or improved based on measures that 

were not baselined or discontinued.

ACTUAL AND TARGET PERFORMANCE 

TRENDS

Trends in actual performance and targets have been 

analyzed since 2005 where data were available. 

Trends can move upward, downward, or remain flat. 

Depending on the type of measure, a trend can be 

favorable, unfavorable, or remain unchanged. Results 

indicate that 60 percent of actual performance trends 

were favorable, 23 percent were unfavorable, and 17 

percent were unchanged. Target trends were 43 percent 

favorable, 33 percent unfavorable, and 24 percent 

unchanged.

TREASURY COST PER PERSON

The chart reflecting the approximate cost of the 

Treasury Department per person in the United States is 

based on calculations determined by dividing Treasury 

Performance Cost by an estimate of the U.S. population at the end of fiscal year 2009. This ratio attempts 

to describe the estimated cost of operating the Treasury 

Department borne by everyone in the United States 

on a per person basis. The estimated cost per person 

for fiscal year 2009 is $63.80, up from $61.61 in fiscal 

year 2008.

TREASURY PERFORMANCE AND REAL 

COST 

This chart provides information on Treasury’s performance to target trends compared with the year-to-year 

increase in the Department’s performance cost. The 

percent of targets met or exceeded dropped by two 

percentage points compared to the prior fiscal year, 

while performance cost increased by 4.4 percent.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

12 Fin

Financial Highlights

Total Assets (in billions) Dollars (in billions)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

FY05 FY06 FY07 FY08 FY09

$8,394.4 $8,988.0 $9,528.8

$11,117.0

$13,846.6

The increase of $2.7 trillion in total assets in fiscal year 2009 

is largely due to the increase in future funds required from 

the General Fund of the U.S. Government to pay for the 

federal debt owed to the public and other federal agencies.

Total Liabilities (in billions) Dollars (in billions)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

FY05 FY06 FY07 FY08 FY09

$8,279.0 $8,873.1 $9,407.7

$10,807.3

$13,418.5

Total liabilities increased by $2.6 trillion from fiscal year 

2008 to fiscal year 2009. The majority of the increase is due 

to borrowings from other federal agencies and debt issued to 

the public.

Net Federal Debt Interest Costs (in billions) Dollars (in billions)

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

FY05 FY06 FY07 FY08 FY09

$342.4

$390.9 $420.4 $440.9

$363.2

The decrease of $77.7 billion in net interest paid on the 

federal debt is due to the decrease in the average interest rate 

for debt held by federal entities and federal debt held by the 

public.

Total Budgetary Resources (in billions) Dollars (in billions)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

FY05 FY06 FY07 FY08 FY09

$453.3 $503.1 $523.0

$772.2

$1,835.0

The majority of the increase in total budgetary resources 

for fiscal year 2009 is due to Troubled Asset Relief Program 

(TARP) activity and additional investments in the 

Government-Sponsored Enterprises.

Net Outlays (in billions) Dollars (in billions)

$0

$200

$400

$600

$800

$1,000

FY05 FY06 FY07 FY08 FY09

$361.2 $413.0 $436.0 $462.9

$922.2

The majority of the $459.3 billion increase in net outlays 

was due to Troubled Asset Relief Program (TARP) activity 

and additional investments in the Government-Sponsored 

Enterprises.

Net Custodial Revenue Received (in trillions) Dollars (in billions)

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

FY05 FY06 FY07 FY08 FY09

$2.04

$2.28 $2.45 $2.37

$1.99

Net custodial revenue collected on behalf of the U.S. 

Government decreased by $379.3 billion. This decrease can 

be contributed to the weakened economic conditions that 

existed during fiscal year 2009.
13

Fiscal Year 2009 Performance by Strategic Goal

U.S. AND WORLD ECONOMIES 

PERFORM AT FULL ECONOMIC 

POTENTIAL

Treasury remains at the forefront of the U.S. 

Government’s response to the financial crisis and 

economic recession. Through implementation of the 

Housing and Economic Recovery Act of 2008 (HERA), 

Emergency Economic Stabilization Act of 2008 (EESA), 

and American Recovery and Reinvestment Act of 2009

(Recovery Act); coordination with federal, state, and 

international partners; regulation of national banks and 

thrifts; temporary measures to stabilize money markets; 

and various other initiatives, Treasury worked in fiscal 

year 2009 to stabilize the financial system and restore 

economic growth. Ahead is a process of repairing and 

reforming the financial system to close the gaps and 

weaknesses in supervision and regulation of financial 

firms, continuing economic stabilization and stimulus, 

and defining an appropriate path for unwinding the 

government programs which have been put in place to 

support the economy. 

TROUBLED ASSET RELIEF PROGRAM/

FINANCIAL STABILITY PLAN

On October 3, 2008, Congress passed EESA to 

prevent a potentially catastrophic failure of the 

financial system. Under the legislation, the Office of 

Financial Stability (OFS) was created within Treasury 

to purchase and insure up to $700 billion in certain 

types of assets under the Troubled Asset Relief Program 

(TARP). Operating in conjunction with Federal 

Reserve and FDIC programs, TARP has provided resources facilitating stabilization of the financial system 

and restoration of credit to businesses and consumers. 

For the period ended September 30, 2009, the face 

value of the amounts obligated under TARP was $454 

billion and funds disbursed totaled $364 billion.

TABLE 1: TARP SUMMARY

AS OF SEPTEMBER 30, 2009

$ IN BILLIONS

Purchase Price or Guarantee AmountsTotal $ DisbursedInvestment RepaymentsOutstanding BalanceCash Received from Investments

Capital Purchase 

Program

$ 204.6 $ 204.6 $ 70.7 $ 133.9 $ 9.7

Targeted Investment 

Program

$ 40.0 $ 40.0 $ 0.0 $ 40.0 $ 1.9

Asset Guarantee 

Program

$ 5.0 $ 0.0 $ 0.0 $ 0.0 $ 0.5

AIG Investments $ 69.8 $ 43.2 $ 0.0 $ 43.2 $ 0.0

Term Asset-Backed 

Securities Loan 

Facility

$ 20.0 $ 0.1 $ 0.0 $ 0.1 $ 0.0

Public Private 

Investment Program

$ 6.7 $ 0.0 $ 0.0 $ 0.0 $ 0.0

Automotive Industry 

Financing Program

$ 81.1 $ 75.9 $ 2.1 $ 73.8 $ 0.7

Home Affordable 

Modification 

Program

$ 27.1 $ 0.0 NA NA $ 0.0

Totals $ 454.3 $ 363.8 $ 72.8 $ 291.0 $ 12.7

Some figures may not sum to total due to rounding.

The incoming Obama Administration faced an 

extremely fragile financial system and deep ongoing economic recession. On February 10, 2009, 

Secretary Geithner announced a series of new financial 

programs, most of which relied on TARP, that were 

designed to help rebuild confidence in the financial 

system, draw in private capital, and restart critical 

channels of credit supply. These programs helped 

bolster confidence in financial markets on the state of 

the country’s financial institutions and ensure the availability of essential capital support for small businesses, 

consumers and home owners.

PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. AND WORLD ECONOMIES PERFORM AT FULL ECONOMIC POTENTIAL
14

TARP operations are managed with four primary goals:

• Goal 1 – Ensure the overall stability and liquidity 

of the financial system

a. Make capital available to viable institutions

b. Provide targeted assistance as needed

c. Increase liquidity and volume in securitization markets

Contributing programs:

• Capital Purchase Program

• Public-Private Investment Program

• Consumer and Business Lending Initiative

• Term Asset-Backed Securities Loan 

Facility

• Unlocking Credit for Small Business 

Initiative

• Targeted Investment Program

• American International Group (AIG) 

Investment Program

• Asset Guarantee Program

• Automotive Industry Financing Program

• Goal 2 – Prevent avoidable foreclosures and help 

preserve homeownership

Contributing program:

• Home Affordable Modification Program

• Goal 3 – Protect taxpayer interests

• Goal 4 – Promote transparency 

The purpose of TARP was to restore the liquidity and 

stability of the financial system. While EESA provided 

the Secretary of the Treasury with the authority to 

spend $700 billion to meet the objectives of the Act, it 

is clear today that TARP will not cost taxpayers $700 

billion, based on what has already been disbursed and 

current program estimates. The current cost estimate of 

the program is $69 billion, with net costs in the AIG 

Program, Automotive Industry Financing Program, 

and Home Affordable Modification Program partially 

offset by net gains in other programs. (See Table 2, 

page 19.) On December 9, 2009, Secretary Geithner 

certified to Congress extension of TARP authority to 

October 3, 2010 under Section 120(b) of EESA.

FIGURE 1. Total TARP Funds Obligated in Fiscal Year 2009 

(in billions)

6.7

Public Private

Investment Program

81.1

Automotive Industry

Financing Program

27.1

Home Affordable

Modification Program

69.8

AIG Investments

5.0

Asset Guarantee

Program 20.0

Term Asset-Backed

Securities Loan Facility

204.6

Capital Purchase

Program

40.0

Targeted Investment

Program

Capital Purchase Program (CPP)

Treasury created the Capital Purchase Program (CPP) 

in October 2008 to stabilize the financial system by 

providing capital to viable financial institutions of all 

sizes across the country. The program was intended to 

strengthen banks’ capital base to enable them to absorb 

losses from bad assets while continuing to lend to consumers and businesses. Through the program, Treasury 

has provided capital to 685 financial institutions across 

48 states, the District of Columbia, and Puerto Rico, 

including more than 300 small and community banks.

Treasury provided capital to qualified financial institutions through the purchase of senior preferred 

equity or subordinated debentures. Obligations were 

structured to encourage repayment, with dividends set 

at five percent for the first five years and nine percent 

thereafter. In addition, to participate in financial gains, 

Treasury received from participating institutions warrants to purchase common equity, additional preferred 

shares, or additional subordinated debentures. All 

funding recipients were subject to limitations on 

executive pay to protect taxpayers and encourage early 

repayment. Treasury initially committed over a third of 

total TARP funding, $250 billion, to the CPP; which 

was lowered to $218 billion in March 2009. Treasury 

is continuing to monitor CPP investments, collect 

dividends, and ensure compliance with contractual 

obligations.

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

As of September 30, 2009, more than 40 banks had 

repaid TARP investments made by Treasury, including over $70 billion in repayments. The repayments 

had reduced program commitments to below $135 

billion. In addition, dividends and interest from CPP 

participants was over $6.8 billion and proceeds from 

the repurchase of warrants and stock was $2.9 billion. Many investments aimed at stabilizing banks are 

expected to deliver returns for taxpayers.

Capital Purchase Program information on 

FinancialStability.gov.

Capital Assistance Program (CAP) and 

the Supervisory Capital Assessment 

Program (SCAP)

In early 2009, the Federal Reserve, OCC and FDIC 

conducted a one-time, forward-looking assessment or 

“stress test” (the SCAP) on the 19 largest U.S. bank 

holding companies. The goal was to determine whether 

these banks, which hold two-thirds of U.S. banking system assets, had sufficient capital to withstand 

losses and sustain lending through a severe economic 

downturn. Participant banks were encouraged to raise 

needed capital from private investors, with a backstop 

financial arrangement available through Treasury’s 

Capital Assessment Program.

For the assessment, supervisors used historically high 

loss estimates on securities and loans and historically 

low estimates on potential earnings to determine 

baseline capital levels. The stress test results published 

on May 9, 2009 revealed that nine of the 19 banks had 

sufficient capital buffers while the remaining 10 banks 

needed to raise their capital buffers by a combined $75 

billion. Since the release of the results, U.S. banks have 

raised over $80 billion in common equity and $40 

billion in non-government guaranteed debt. Treasury 

had not funded any investments through CAP as of 

the end of fiscal year 2009.

Capital Assistance Program information on 

FinancialStability.gov.

Public-Private Investment Program 

(PPIP)

To help clean up the balance sheets of major financial 

institutions and restore liquidity to financial markets, Treasury proposed creation of a Public-Private 

Investment Program to purchase legacy loans and 

securities under the Financial Stability Plan. Under the 

legacy securities PPIP program, Treasury is investing 

equity on a dollar-for-dollar basis with private investors 

in qualified Public-Private Investment Funds and providing access to debt financing for up to 100 percent 

of the fund’s total equity. Funds are required to obtain 

commitments of at least $500 million in private capital 

to qualify and are expected to employ a predominately 

long-term buy-and-hold strategy. Treasury will receive 

pro rata any profits or losses in the funds alongside 

private investors. A total of nine asset managers were 

designated to establish funds for the program in July 

2009 (selected out of 100 applicants) and the first 

fund closing occurred on September 30, 2009. The 

maximum capital commitment for the first round is 

$30 billion. As of September 30, 2009, no private fund 

managers had made any investments and Treasury had 

not disbursed any funds.

After announcement of the program, non-agency 

mortgage-backed securities (MBS) rose substantially 

in price. Prime fixed rate securities issued in 2006 that 

traded as low as $60 in March had increased in value 

by over 40 percent by the end of September. That 

improvement in financial market condition created 

the positive backdrop to enable introduction of the 

program at a smaller scale than originally envisioned. 

The Department will assess the need for additional 

rounds following the results of the first round.

Public-Private Investment Program information on 

FinancialStability.gov.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

16 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

Term Asset-Backed Securities Loan 

Facility (TALF)

Treasury and the Federal Reserve announced creation 

of TALF in November 2008 to help unlock credit 

markets for households and small businesses. Under 

TALF, the Federal Reserve announced intention to 

lend up to $200 billion to eligible investors purchasing 

AAA-rated asset-backed securities (ABS) collateralized 

by newly and recently originated consumer and small 

business loans. (Including securities backed by auto 

loans, student loans, credit card loans, equipment 

loans, floorplan loans, loans guaranteed by the Small 

Business Administration, insurance premium finance 

loans, residential mortgage servicing advances, and 

commercial mortgage loans.) Borrowers are eligible to 

borrow up to the market value of the ABS, less a fixed 

percentage, ensuring they take the first loss if the securities lose value. Under TALF, Treasury provided up to 

$20 billion to the Federal Reserve in credit protection 

to be employed in the event of borrower default. 

Prior to introduction of the program, the market for 

newly-issued ABS had largely shut down. Interest rate 

spreads on the most highly-rated AAA tranches of 

ABS and CMBS rose to levels outside their historical 

range, in certain cases well over seven to 15 times 

their average, respectively. The disruption of these 

markets contributed to the lack of credit to households 

and businesses of all sizes, impacting U.S. economic 

activity. Through October 2009, the TALF program 

had supported nearly $86 billion of new consumer 

and small business credit, including over 3.6 million 

consumer and small business loans and leases, and over 

132 million active credit card accounts. TALF has also 

provided liquidity for $4.1 billion of legacy CMBS 

securities. This aid to the securitization market has had 

a clear impact on liquidity, spreads and the availability 

of consumer and small business credit. Since the peak 

of the crisis, spreads for the asset classes backed by 

the program have come down by 60 percent or more, 

including a reduction in credit card and auto loan ABS 

rates from six percentage points above the benchmark 

to only one percentage point above the benchmark. 

In August 2009, Treasury and the Federal Reserve 

announced extension of TALF through March 31, 

2010 for newly-issued ABS and legacy commercial 

mortgage-backed securities (CMBS) and through June 

30, 2010 for newly-issued CMBS. 

Term Asset-Backed Securities Loan Facility information on the Federal Reserve website.

FIGURE 2. Issuance of ABS Backed by Consumer and Small 

Business Loans (US$, billions) Dollars (in billions)

Standard ABS TALF-Eligible ABS

$0

$5

$10

$15

$20

$25

2007 2008 2009

Average Pre-TALF 

(Sep. 2008 - Feb. 2009)

Average Post-TALF 

(Mar. 2009 - Oct. 2009)

AUGJUNJULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNJULAUGSEPOCT

Unlocking Credit for Small Business 

Initiative

To help restore the confidence needed for financial 

institutions to increase lending to small businesses, 

Treasury announced an initiative to expand securitization of small business loans on March 16, 2009. 

Securitization of small business loans provides community banks and other lenders with an important 

source of capital for additional loans. However, as a 

result of the severe dislocations in the credit markets, 

both lenders that originate loans under SBA programs 

and the “pool assemblers” that package such loans for 

securitization experienced significant difficulty selling 

SBA loans or securities in the secondary market. This, 

in turn, significantly reduced the ability of such lenders 

and pool assemblers to obtain funds to make new 

small business loans. Under the program, Treasury has 

planned to make up to $15 billion in TARP resources 

available to purchase securities backed by the SBA 

guaranteed portions of loans made under the SBA’s 

7(a) loan program, as well as first-lien mortgage securities made by private sector lenders in connection with 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

SBA’s 504 community development loan program. 

(The SBA’s 7(a) program is the SBA’s most basic and 

widely used loan program.) 

Since Treasury’s announcement of this program, the 

credit markets for small businesses have improved 

somewhat. The secondary market for guaranteed SBA 

loans, for example, had essentially ceased working last 

fall and had only $86 million in January re-sales. That 

market improved notably this spring in the wake of 

Treasury’s announcement, with $399 million settled 

from lenders to broker-dealers in September 2009. As 

a result of this improvement, as well as reluctance on 

the part of market participants to accept TARP funds, 

Treasury found that demand for its proposed program 

declined. As of September 30, 2009, no funds had 

been disbursed under the program, although funding 

remains available. 

Unlocking Credit for Small Business Initiative on 

FinancialStability.gov.

Targeted Investment Program (TIP)

Treasury provided assistance on a case-by-case basis to 

stabilize key financial institutions during the height of 

the financial crisis. Through TIP, Treasury sought to 

prevent a loss of confidence in critical financial institutions which could have resulted in significant financial 

market disruption. Assistance was provided through 

the purchase of preferred shares paying an annual 

dividend of eight percent. These investments impose 

greater reporting requirements and harsher restrictions 

on the companies than under CPP terms, including 

restrictions on dividend payments to $0.01 per share 

per quarter, limits on executive compensation and 

corporate expenses, and other measures. In addition, 

Treasury received warrants from participant companies 

to purchase common shares. 

Under the TIP, Treasury purchased $20 billion in preferred shares from Citigroup in December 2008 and 

$20 billion in preferred shares from Bank of America 

in January 2009. Treasury has exchanged the preferred 

shares for Citigroup received under the TIP and CPP 

programs into common shares and trust preferred 

securities to strengthen Citigroup’s capital base. As 

of September 30, 2009, Treasury had received $1.9 

billion in dividends, interest and fees from holdings 

under the TIP program.

Targeted Investment Program information on 

FinancialStability.gov.

AIG Investment Program

In November 2008, Treasury purchased $40 billion in 

cumulative preferred shares from AIG. In April 2009, 

the $40 billion in cumulative shares were exchanged 

for $41.6 billion in non-cumulative preferred shares 

paying a 10 percent dividend. At the same time, an equity capital facility was created providing an additional 

$29.8 billion as needed, of which $3.2 billion had been 

drawn as of September 30, 2009. The Federal Reserve 

provided loans to AIG and a public trust was created 

to hold convertible preferred shares representing 79.8 

percent of the current voting power of AIG common 

shares. These shares are held in trust for the sole benefit 

of taxpayers. (The Department of the Treasury does not 

control the trust and cannot direct the trustees.) As of 

September 30, 2009, AIG had not made any dividend 

payments on any of the perpetual preferred stock. 

Subsequently, AIG failed to make a dividend payment 

on November 2, 2009. Per the terms of the preferred 

stock, if AIG misses four dividend payments, Treasury 

may appoint to the AIG board of directors the greater 

of two members or 20 percent of the total number of 

directors of the Company. 

AIG Program information on the Federal Reserve

website.

Asset Guarantee Program (AGP)

The Asset Guarantee Program was created in 

November 2008 to stabilize the financial system by 

providing guarantees against severe credit losses by 

large financial institutions. The AGP has been applied 

with extreme discretion and Treasury does not anticipate wider use of this program. Announced in January 

2009, Treasury guaranteed up to $5 billion of potential 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

18 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

losses on a $301 billion pool of loans for Citigroup. 

Under the program, Citigroup will absorb the first 

$39.5 billion of losses on the pool, with Treasury 

taking second loss on the next $5 billion. Additionally, 

Federal Deposit Insurance Corporation (FDIC) will 

absorb $10 billion in third losses and the Federal 

Reserve will provide secured loans for 90 percent of 

the remaining value in the pool, following FDIC and 

Treasury payments. The guarantee will expire in 2014 

for non-residential assets and 2019 for residential assets. In return, Treasury received $4 billion in preferred 

shares and warrants, which have since been converted 

into trust preferred securities.

In January 2009, Treasury, the Federal Reserve and 

FDIC announced agreement to share potential losses 

on a $118 billion pool of loans at Bank of America. 

Bank of America terminated the request prior to funding, paying $425 million in fees to Treasury, FDIC and 

the Federal Reserve.

Asset Guarantee Program information on 

FinancialStability.gov.

Automotive Industry Financing 

Program (AIFP)

Treasury established the Automotive Industry 

Financing Program on December 19, 2008, to help 

prevent a significant disruption to the American automotive industry, which would have posed a systemic 

risk to financial market stability and had a negative 

effect on the economy. AIFP loans and equity investments (purchases of preferred and common shares) 

totaling $76 billion were provided to General Motors 

(GM), Chrysler and their respective financing entities. 

GM and Chrysler were provided funds with the requirement that they develop plans to achieve long term 

viability. Following finalization of the plans, GM and 

Chrysler conducted orderly bankruptcies (40 days for 

GM and 42 days for Chrysler). The U.S. Government 

currently holds 61 percent of common stock in GM 

and 10 percent of common stock in Chrysler under 

the program. 

As an extension of AIFP, in March 2009 Treasury 

created an Auto Supplier Support Program providing qualified automotive supply companies financial 

protection on their receivables from domestic auto 

manufacturers. Treasury also established a Warranty 

Commitment Program designed to give consumers 

considering new car purchases confidence that their 

warranties from GM and Chrysler would be honored. 

As of July 10, 2009, the Warranty Commitment 

program was terminated after New GM and New 

Chrysler completed the purchase of substantially all 

of the assets of GM and Chrysler from their respective 

bankruptcies.

Automotive Industry Financing Program information 

on FinancialStability.gov.

Home Affordable Modification 

Program (HAMP)

To mitigate foreclosures and help ensure homeownership preservation, Treasury announced the Home 

Affordable Modification Program in February 2009 to 

provide incentives for mortgage servicers, borrowers 

and investors to modify loans that are delinquent or at 

imminent risk of default. Funded jointly by EESA and 

HERA, with $50 billion from TARP and $25 billion 

from HERA, HAMP provides financial support for 

loan modifications which reduce a borrower’s monthly 

mortgage payment to no more than 31 percent of their 

monthly gross income. Modifications are intended 

to provide sustainably affordable mortgage payments 

for responsible mortgage holders, and mitigate the 

spillover effects of preventable foreclosures on neighborhoods, communities, the financial system and the 

economy. With over 85 percent of mortgage loans 

in the country covered by the program, HAMP is 

expected to help three to four million eligible homeowners modify their mortgages on more affordable 

terms before the end of 2012. 

At a meeting between Treasury and participating 

servicers on July 28, 2009, the servicers committed to 

reaching a cumulative target of 500,000 trial modifications by November 1, 2009. As of September 30, 2009, 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

over 487,000 HAMP trial modifications had been completed, well on the way to achieving the target. Servicers 

have also agreed to work with Treasury to implement 

actions designed to improve program effectiveness, 

including streamlining application procedures. To provide transparency and servicer accountability, servicerspecific results are reported on a monthly basis on 

FinancialStability.gov and MakingHomeAffordable.

gov. Treasury is also establishing specific performance 

metrics to measure the performance of each servicer, 

such as average borrower wait time in response to inquiries and the response time for completed applications, 

and has implemented a “second look” review of samples 

of rejected applications to ensure borrower applications 

are not inadvertently or incorrectly denied. 

Home Affordable Modification Program information 

on MakingHomeAffordable.gov.

FIGURE 3. HAMP Loans Entering Trial and Permanent Modification Trial Modifications

Permanent Modifications

0

100,000

200,000

300,000

400,000

500,000

600,000

50,130

143,276

253,673

386,865

487,081

0

4,000

8,000

12,000

16,000

20,000

24,000

13 396 1,733

MAY 

& PRIOR

JUN JUL AUG SEP

TARP accomplishments in 

fiscal year 2009

Viewed in conjunction with other Federal Government 

programs, TARP should be evaluated primarily on its 

impact on stabilizing the financial system. Today, the 

financial system and the economy are showing signs of 

stability. The economy grew in the third quarter and 

private economists generally expect moderate growth 

in the remainder of this year and next. The cost of borrowing has declined to pre-crisis levels for many banks, 

non-financial corporations, states and local governments, and the government-sponsored enterprises 

(GSEs). U.S. equity markets have surged, and prices 

for bank securities have improved significantly. Credit 

creation in securities markets has increased, facilitating 

new credit for consumers and businesses. Housing markets are also stabilizing. Home prices, as measured by 

the national LoanPerformance index, increased by five 

percent over the last six months, reversing three straight 

years of decline. While clear challenges remain, particularly with continuing bank failures, high foreclosure 

rates, high unemployment and concerns in commercial 

real estate markets, the worst of the crisis has passed.

The ultimate return on the TARP investments that 

remain outstanding will depend on how the economy 

and financial markets evolve. The improvement in 

economic and financial prospects that has already 

occurred has had a significant impact on the expected 

cost. As of September 30, 2009, the estimated cost of 

TARP programs is $110 billion lower than the initial 

estimates made at the time the programs were initiated. 

(See table 2.) About $10 billion of that decline in costs 

stems from early repayments of TARP funds. The rest 

of the decline is primarily a function of improvements 

in the economic and financial environment since 

TARP programs were initiated.

TABLE 2: ESTIMATED CHANGE IN COST FOR THE TARP 

PROGRAMS

$ IN BILLIONS

Original 

Estimate1

Current 

Estimate

Net 

Change

Capital Purchase Program - 57.4 + 15.0 + 72.4

Targeted Investment Program - 19.6 + 1.9 + 21.5

Asset Guarantee Program + 1.0 + 2.2 + 1.2

AIG Investments - 31.5 - 30.4 + 1.1

Automotive Industry Financing 

Program

- 43.7 - 30.4 + 13.3

Term Asset-Backed Securities 

Loan Facility

 + 0.1 + 0.3 + 0.2

Subtotal - 151.1 - 41.4 + 109.7

Home Affordable Modification 

Program

- 27.1 - 27.1 0.0

Total - 178.2 - 68.5 + 109.7

1 Original estimates completed on or near the initiation of each program. 

Amounts shown based on total program disbursements through fiscal year 

2009.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

20 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

Measuring the impact of TARP in isolation is challenging. Most TARP programs were part of a coordinated 

government response to restore confidence in the 

financial system. The health of the overall system and 

its impact on the U.S. economy are therefore the 

most important metrics by which the effectiveness of 

these policies can be assessed. However, a few TARP 

programs were uniquely targeted to specific markets 

and institutions, allowing for more direct assessment of 

performance. 

Below are several accepted indicators of financial 

market stress. The London Inter-Bank Offered Rate – 

Overnight Index Swap (LIBOR-OIS) spread measures 

the difference between short-term borrowing rates 

between banks and expected short-term borrowing 

rates for banks from the Federal Reserve. The spread 

reflects the additional risk banks perceive when lending 

to other banks, versus borrowing costs from the Federal 

Reserve. Historically, LIBOR-OIS spreads have been 

0.1 percent or less. With greater stress in financial markets in October 2008, the three-month LIBOR-OIS 

spread spiked to 3.64 percent. At the end of the fiscal 

year, LIBOR-OIS spreads were 0.25 percent, within 

reach of historical levels.

FIGURE 4. Libor-OIS Spread (basis points) Basis Points

Lehman FSP

1-Month 3-Month

0

50

100

150

200

250

300

350

400

2006 2007 2008 2009

Credit-default swap spreads for financial institutions, 

which measure investor confidence in their health, 

have also fallen significantly. A measure of creditdefault swaps for the largest U.S. banks reached 450 

basis points last fall, as shown in Figure 5, and is just 

over 100 basis points today. The TARP was a necessary 

step, but not the only step, to achieving this recovery. 

FIGURE 5. Credit Default Spreads for Financial Institutions

(basis points) Basis Points

Lehman FSP

0

50

100

150

200

250

300

350

400

450

500

2006 2007 2008 2009

Notes: Includes Bank of America, Citigroup, Goldman Sachs, JPMorgan, 

Morgan Stanley, and Wells Fargo.

In conjunction with lower credit default swap rates, 

borrowing costs have declined for many businesses. 

Investment-grade corporate bond rates have fallen by 

over 70 percent since last fall, and high-yield bond 

rates have fallen by more than half. Businesses have 

issued about $900 billion in investment-grade debt 

and over $100 billion in high-yield debt this year. 

While much of the new issuance earlier in the year was 

supported by the government, private investors have 

funded most new corporate debt in recent months. 

FIGURE 6. Corporate Bond Spreads (basis points) Basis Points

AA 5-Year BBB 5-Year

0

100

200

300

400

500

600

2006 2007 2008 2009

An indicator of borrowing costs for homeowners is the 

spread between the 30-year fixed mortgage rate and 

10-year Treasuries. Higher spreads indicate that banks 

perceive greater risks in issuing mortgages and homeowners face higher borrowing costs. In mid-December 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

2008, the 30-year mortgage to 10-year Treasury spread 

reached almost 3.3 percent, its highest level since 

January 2002. On September 30, 2009, the spread was 

1.85 percent, well below its height during the crisis.

FIGURE 7. Spread between 30 year Mortgage and 10 year Treasury 

Rates

2007 2008 2009

JAN 1MAR 1MAY 1JUL 1SEP 1NOV 1JAN 1MAR 1MAY 1JUL 1SEP 1NOV 1JAN 1MAR 1MAY 1JUL 1SEP 1

0

50

100

150

200

250

350

300

Finally, the Chicago Board Options Exchange 

Volatility Index (VIX) is a gauge of the expected 

volatility of the S&P 500 equity index. The VIX is 

often referred to as the “Fear Index”, since high levels 

imply investors “fear” sharp moves in the market in 

either direction (up or down). Historically, the VIX 

has ranged between 10 and 30. In November 2008 

the VIX reached nearly 81, its highest level on record. 

On September 30, 2009, the VIX was nearly 26, still 

relatively high by historic levels, but well below its 

height during the crisis.

FIGURE 8. Market Volatility Index of S&P 500 (VIX)

2007 2008 2009

JAN 1MAR 1MAY 1JUL 1SEP 1NOV 1JAN 1MAR 1MAY 1JUL 1SEP 1NOV 1JAN 1MAR 1MAY 1JUL 1SEP 1

0

20

10

30

40

60

50

70

90

80

Taxpayer protection and promoting 

transparency

In implementing EESA, Treasury has sought to carefully and assertively manage taxpayer resources. No 

investments have been made unless they are compliant 

with statutory requirements, necessary for restoring 

or maintaining financial stability, and structured to 

protect the taxpayer. Programs have been designed to 

achieve these objectives by:

• setting commercial terms and conditions on 

financial assistance;

• taking warrants to capture gains from assistance;

• requiring private capital or risk sharing; 

• restricting executive compensation and other 

related activities;

• minimizing self-dealing and other conflicts of 

interest;

• managing the role of the U.S. Government as a 

shareholder, but only a “reluctant shareholder”.

Given its unusual position in managing financial 

market stress, EESA designated four reviewing bodies to oversee TARP operations: a Financial Stability 

Oversight Board, a Special Inspector General for TARP 

(SIGTARP), a Congressional Oversight Panel (COP), 

and the Government Accountability Office (GAO). 

The Assistant Secretary for Financial Stability meets 

weekly with the SIGTARP and makes frequent reports 

and/or updates to Congress and the COP to ensure 

transparency and accountability for OFS activities. OFS 

involves the oversight bodies early in the design process 

for new programs or investments to benefit from any 

suggestions. 

Treasury has made every effort to communicate program activities in a fully transparent and timely manner, through correspondence with oversight authorities, 

activity reports, testimony, speeches and publication 

of program information. To provide transparency and 

accountability for TARP and other programs designed 

to repair and reform the financial system, Treasury 

created FinancialStability.gov. The website includes 

reports and information on Treasury programs, includ-
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

22 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

ing transaction reports, program guidelines, speeches, 

press releases and other information. As of September 

30, 2009, Treasury had published 86 Transaction 

Reports, 10 Section 105(a) monthly Congressional 

Reports, seven Tranche Reports, three dividend and 

interest reports, and two MHA Program Reports, all 

of which are posted on FinancialStability.gov. This 

information is intended to answer the basic questions 

many Americans have about how TARP monies are 

invested. In keeping with principles of good stewardship, Treasury has never missed a deadline for a report. 

Additionally, Treasury posts program guidelines on 

the website within two business days of any program 

launch, all obligations made under TARP, and all 

contracts with Treasury service providers involved 

with TARP programs. Additional information on the 

Making Home Affordable program can be found at 

MakingHomeAffordable.gov. 

Managing TARP assets

Treasury manages TARP investments under several 

core principles:

First, the U.S. government is a shareholder reluctantly 

and out of necessity. The government intends to 

dispose of its interests as soon as practicable, with the 

dual goals of achieving financial stability and protecting taxpayer interests.

Second, there is no intention to be involved in the 

day-to-day management of any company. Government 

involvement in daily management of a company could 

possibly reduce the value of these investments, impede 

the ability of companies to return to full private ownership, and frustrate attainment of broader economic 

policy goals. 

Third, consistent with these goals, the Department 

takes a commercial approach to the exercise of shareholder rights. Voting participation only corresponds 

to four core matters: board membership; amendments 

to the charter and by-laws; liquidations, mergers and 

other substantial transactions; and significant issuances 

of common shares.

While some new investments are still being made 

to support financial markets and the economy, the 

Administration intends to exit TARP investments as 

soon as prudent judgment allows.

Exiting TARP

TARP was designed as an emergency response to a 

major financial crisis. Because financial conditions 

have started to improve, Treasury has begun the 

process of exiting from some emergency programs. 

As of September 30, 2009, Treasury had received 

over $73 billion in principal repayments and warrant 

repurchases from CPP participants. For banks that 

have elected not to repurchase their CPP warrants, 

Treasury began auctioning their warrants in December 

2009. In addition, many programs were structured to 

encourage early repayment of funds, including interest 

rates on preferred stock and subordinated debentures 

which increase over time and restrictions on executive 

compensation. Most TARP programs also have defined 

lives with clear end dates. For example, new lending 

under CPP is scheduled to end December 31, 2009 

and TALF is scheduled to end in June 30, 2010. For 

investments in the automobile industry and for other 

companies that have received exceptional assistance, 

clear principles have been outlined ensuring support 

is limited and temporary. Specifically under AIFP, 

Chrysler Financial has already repaid its assistance, and 

an initial public offering for GM is expected next year. 

The financial and economic recovery is fragile and faces 

significant headwinds. The unemployment rate reached 

10.2 percent in October and may remain elevated 

for some time. Delinquencies of subprime residential 

mortgages reached over 26 percent and conforming 

mortgages nearly seven percent in the third quarter. A 

contraction in bank lending, particularly for smaller 

businesses which do not have access to bond markets, 

has had a significant impact on economic growth. The 

number of bank failures and “problem institutions” 

as classified by FDIC has increased significantly, and 

will likely remain elevated through 2010. Financial 

stability is a necessary precondition for the resumption 

of economic growth. Treasury and other institutions 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

of government have accomplished a great deal in a 

short amount of time. Still, there is more work ahead. 

While a number of TARP initiatives have begun to 

wind down, Treasury continues to focus on stabilizing housing markets as well as improving access to 

credit for small businesses. For these reasons, Treasury 

determined in December 2009 to extend TARP spending authority beyond the initial expiration date of 

December 31, 2009. The authority to make new TARP 

investments will now expire on October 3, 2010, two 

years from the enactment of EESA, under provisions of 

the Act’s Section 120(b).

FINANCIAL REGULATORY REFORM

On June 17, 2009, the President announced a comprehensive plan to reform an outdated and ineffective 

financial regulatory system. Treasury submitted proposed legislative text to implement the plan in July and 

August 2009, and is currently working with Congress 

to promulgate legislation by the end of the calendar 

year. The plan has five key objectives: promote robust 

supervision and regulation of financial firms; establish 

comprehensive regulation of financial markets; protect 

consumers and investors; provide the government with 

the ability to manage financial crises; and improve 

international cooperation.

Promote robust supervision and 

regulation of financial firms

Financial institutions that are critical to market 

functioning should be subject to strong oversight. No 

financial firm that poses a significant risk to the financial system should be unregulated or weakly regulated. 

• Create a Financial Services Oversight Council. The 

Administration’s regulatory reform plan will create 

a Financial Services Oversight Council to facilitate 

the coordination of financial regulatory policy, 

provide a forum for the resolution of jurisdictional 

disputes, and identify emerging risks in financial 

markets. This Council would include the heads 

of the principal federal financial regulators and be 

chaired by Treasury. The Council will replace the 

President’s Working Group on Financial Markets 

and have a permanent, full-time staff at Treasury.

• Supervise and regulate all of the largest, most 

interconnected financial firms. Under the reform 

plan, the largest, most interconnected financial 

firms will be subjected to strong, comprehensive and consolidated oversight by the Federal 

Reserve, regardless of whether the firm owns an 

insured depository institution. Larger and more 

interconnected firms will be subjected to higher 

prudential standards and prompt corrective action 

will be required should their capital levels decline. 

Shareholders and creditors should bear the risks 

and the ultimate costs of failure, ending the implicit guarantee of public support for the largest, 

most interconnected financial firms. 

• Raise standards for all financial firms. Tougher 

standards should be imposed on all financial firms 

so that the system is not compromised by the 

failure of one firm. Capital and liquidity requirements must be raised and exposures between 

financial firms should carry added capital charges. 

These tougher standards should incentivize 

firms to shrink, increase their capacity to absorb 

losses, and reduce their leverage, complexity and 

interconnectedness. 

• Establish a National Bank Supervisor and eliminate 

loopholes in banking regulation. Merging the Office 

of the Comptroller of the Currency (OCC) and 

the Office of Thrift Supervision (OTS) into a 

National Bank Supervisor (NBS) and eliminating the federal thrift charter would streamline 

the regulatory system and reduce potential for 

regulatory arbitrage. The proposed legislation 

also requires the Federal Reserve, the FDIC, and 

NBS adopt joint rules on bank regulatory fees to 

eliminate arbitrage between regulators based on 

bank examination fees. 

• Establish an Office of National Insurance. The 

regulatory reform legislation includes a proposal to 

establish an Office of National Insurance (ONI) to 

serve as an advisor to the Secretary and coordinate 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

24 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

and develop federal policy in the insurance sector. 

As part of Treasury, ONI will monitor all aspects 

of the insurance industry, including identifying 

issues and gaps in the regulation of insurers that 

could contribute to a systemic crisis in the insurance industry or within the broader financial 

system. ONI would also assist the Secretary in 

negotiating international insurance agreements on 

prudential measures.

• Register hedge funds. Hedge funds and other private 

pools of capital, including private equity and venture capital funds, will be required to register with 

the Securities and Exchange Commission (SEC). 

Due to insufficient oversight and regulation prior 

to the financial crisis, the government lacked the 

data necessary to monitor these funds’ activities 

and assess potential risks in the market. The legislation would help to protect investors from fraud 

and abuse, provide increased transparency, and 

supply the information necessary to assess whether 

risks in the aggregate or risks in any particular 

fund pose a threat to our overall financial stability. 

• Realign executive compensation. Treasury delivered 

draft “say-on-pay” legislation to Congress that 

would require all publicly traded companies 

establish non-binding shareholder votes on executive compensation packages, encouraging greater 

accountability and disclosure of compensation 

practices. In addition, the draft legislation would 

help ensure the independence of board compensation committees. Overall, federal standards and 

guidelines should better align executive compensation practices of financial firms with long-term 

shareholder value and prevent these practices from 

providing incentives that could threaten the safety 

and soundness of supervised institutions.

Regulatory reform information at FinancialStability.

gov.

Establish comprehensive supervision 

of financial markets

New requirements for transparency and improved risk 

management capacity should be built into the financial 

market infrastructure to improve understanding of 

the risks associated with new financial instruments. 

In addition, regulation of financial markets should be 

enhanced to better manage system-wide stress and the 

failure of one or more large institutions.

• Strengthen supervision and regulation of securitization markets. Securitization, by breaking 

down the traditional relationship between borrowers and lenders, created conflicts of interest that 

market discipline failed to correct. To better align 

investor and issuer interests, regulation should 

require that originators or sponsors retain an 

economic stake in a material portion of the credit 

risk of these securitized credit exposures. The SEC 

should continue its efforts to increase the transparency and standardization of securitization markets 

and be given clear authority to require robust 

reporting by issuers of asset-backed securities. 

• Strengthen credit rating agency regulation.

The Administration’s financial regulatory reform 

effort includes legislation to increase transparency, 

improve oversight, and reduce reliance on credit 

rating agencies. Credit rating agencies often failed 

to accurately describe the risks associated with 

certain products, preventing investors from understanding the underlying risks which contributed 

to the severity of the crisis. The legislation includes 

provisions expanding transparency and disclosure 

requirements for credit rating agencies, establishing 

mandatory registration with the SEC, instituting 

tougher examination of internal controls and 

processes, and ending the practice of firms providing consulting services to companies they rate. 

• Regulate over-the-counter derivatives markets, 

including credit default swaps. One of the most 

significant developments in the financial sector 

in recent decades has been the growth and rapid 

innovation in credit default swaps and other 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

over-the-counter (OTC) derivatives. The proposed 

legislation will regulate OTC derivative markets 

for the first time. This legislation will provide 

regulation and transparency for all OTC derivative transactions, stronger prudential and business 

conduct regulation of all major participants in 

OTC derivative markets, and improved regulatory 

and enforcement tools to prevent manipulation, 

fraud and other abuses. 

• Strengthen oversight of systemically important 

payment, clearing and settlement systems. To 

mitigate systemic risk and promote financial 

stability, the plan proposes giving the Federal 

Reserve stronger statutory authority to oversee 

systemically important payment, clearing and 

settlement systems. The Federal Reserve is the only 

agency with sufficiently broad and deep knowledge 

of financial institutions and capital markets to 

effectively assume this responsibility. Under the 

Administration’s plan, the Federal Reserve will be 

required to consult with the Financial Services 

Oversight Council to identify systemically important systems and set appropriate standards. In the 

case of clearing and settlement systems for regulated markets, the Federal Reserve will be required to 

coordinate its risk management oversight with the 

CFTC or the SEC, which will remain the primary 

regulators for these markets. 

• Harmonize futures and securities regulation.

The legislation proposes to harmonize statutory 

and regulatory regimes for futures and securities markets to better address gaps in regulation 

between the CFTC and SEC. 

Protect consumers and investors from 

financial abuse

To rebuild trust in U.S. markets, it is critical to ensure 

strong, consistent regulation and supervision of 

consumer financial services and investment markets. 

• Create a Consumer Financial Protection Agency.

Failure of the consumer protection regime significantly contributed to the financial crisis. On June 

30, 2009, the President proposed creation of the 

Consumer Financial Protection Agency (CFPA) to 

protect consumers against deceptive and unscrupulous financial practices and improve innovation, 

efficiency and access in the marketplace. This 

agency will consolidate the current fragmented 

regulatory regime into a single, independent federal consumer protection agency with the authority to write rules, oversee compliance, and address 

violations by non-bank and banking institutions. 

• Strengthen investor protection. The 

Administration’s financial regulatory reform legislation includes a provision to strengthen the SEC’s 

authority to protect investors. The legislation 

outlines steps to establish consistent standards of 

conduct and accountability for broker-dealers and 

investment advisors, and improve the timing and 

the quality of disclosures. The proposed legislation 

also establishes a permanent Investor Advisory 

Committee to ensure investor representation at the 

SEC.

Provide the government with the tools 

it needs to manage financial crises

The government should have the tools necessary to address the potential failure of a bank holding company 

or other non-bank financial firm when the stability of 

the financial system is at risk.

• Enhance resolution authority. Plans should be 

in place to resolve the failure of any large interconnected financial firm which could threaten 

the stability of the financial system. Bankruptcy 

will remain the primary option, but the recent 

financial crisis demonstrates the need for enhanced 

resolution capacity. Major financial firms will be 

required to develop rapid resolution plans to better 

prepare for the potential of failure. This authority 

will also give Treasury the ability to appoint FDIC 

or SEC as conservator for a failing firm that poses 

a threat to the system. Under the legislation, the 

Federal Reserve would be required to receive prior 

written approval from the Secretary of the Treasury 

before providing emergency lending under its 

“unusual and exigent circumstances” authority. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

26 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

Raise international regulatory 

standards and improve international 

cooperation

As witnessed during the financial crisis, problems in 

any single country can easily and quickly spread across 

borders. As financial regulatory reform progresses 

within the United States, stronger standards need to 

be established across global markets to ensure international financial stability.

• Enhance international cooperation and reform 

of global financial markets. To ensure that 

U.S. safeguards are not undermined abroad, the 

U.S. Government has taken the lead in calling 

for strong, modern regulation and supervision 

around the world through the G-20, the Financial 

Stability Board, the Basel Committee on Banking 

Supervision, and other organizations. Led by the 

United States, the leaders of the Group of Twenty 

(G-20) pledged to take action to build a stronger, 

more globally consistent supervisory and regulatory framework to oversee today’s international 

markets. The United States is seeking consensus 

on four core issues: regulatory capital standards, 

oversight of global financial markets, supervision 

of internationally active financial firms, and crisis 

prevention and management. 

TREASURY HOUSING GOVERNMENTSPONSORED ENTERPRISE PROGRAMS

To provide stability to the financial markets, increase 

the availability of mortgage finance and protect taxpayer interests, Treasury implemented three emergency 

programs in September 2008 with respect to Fannie 

Mae, Freddie Mac and the Federal Home Loan Banks 

(FHLBs). Authority for the action was provided by 

Section 1117 of the Housing and Economic Recovery 

Act of 2008, which authorized Treasury to purchase 

obligations and other securities issued by Fannie Mae, 

Freddie Mac and any FHLB. The programs include: 

• Preferred Stock Purchase Agreements (PSPAs) with 

Fannie Mae and Freddie Mac providing backstop 

funding for program operations

• A Mortgage-Backed Securities (MBS) Purchase 

Program limited to securities issued by Fannie Mae 

and Freddie Mac

• An emergency credit facility for Fannie Mae, 

Freddie Mac and the FHLBs

Preferred Stock Purchase Agreements 

The PSPAs were created to instill confidence in investors that Fannie Mae and Freddie Mac would remain 

viable entities critical to the functioning of the housing 

and mortgage markets. Investors purchased securities 

issued or guaranteed by Fannie Mae and Freddie Mac 

in part because ambiguities in their Congressional 

charters created a perception of government backing. 

These ambiguities fostered enormous growth in the 

obligations issued or guaranteed by Fannie Mae and 

Freddie Mac, which by the scale and breadth of public 

holdings eventually posed a systemic risk to global 

financial markets in the event of their failure. The focus 

of the PSPAs is to enhance market stability by providing additional security to holders of Fannie Mae and 

Freddie Mac securities to avoid a mandatory triggering 

of receivership. Because the U.S. government created 

these ambiguities, it had a responsibility to both avert 

and ultimately address this systemic risk. In February 

2009, the PSPAs were increased from $100 billion per 

GSE to $200 billion per GSE to provide additional 

security for financial markets. As of September 30, 

2009, Fannie Mae and Freddie Mac had utilized $95.6 

billion dollars of the $400 billion set aside under the 

PSPAs.

GSE MBS Purchase Program

The GSE MBS Purchase Program was created to help 

support the availability of mortgage credit by temporarily providing additional capital to the mortgage 

market. By purchasing these securities, Treasury has 

sought to broaden access to mortgage funding for current and prospective homeowners as well as to promote 

market stability. 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

Program priorities:

• Support mortgage availability for both current and 

prospective homeowners

• Promote secondary market stability

• Ensure zero principal loss on outlays

As of September 30, 2009, Treasury had purchased 

$192.2 billion in agency MBS and received back $22.2 

billion in principal and $5.0 billion in interest.

GSE Credit Facility

The GSE Credit Facility was created to ensure credit 

availability to Fannie Mae, Freddie Mac, and the 

FHLBs by providing secured funding on an as-needed 

basis under terms and conditions established by the 

Treasury Secretary. Funding is provided directly by 

Treasury from its general fund held at the Federal 

Reserve Bank of New York in exchange for eligible 

collateral limited to guaranteed MBS issued by Fannie 

Mae and Freddie Mac and advances made by the 

FHLBs. Loans will be for short-term durations, but 

would in general be expected to be for between one 

week and one month. To date, this facility has not 

been used. The facility is scheduled to be terminated 

on December 31, 2009.

TEMPORARY GUARANTEE PROGRAM 

FOR MONEY MARKET MUTUAL FUNDS

At the height of the crisis in September 2008, Treasury 

established a Temporary Guarantee Program for 

Money Market Mutual Funds to provide stability 

in the wake of the failure of Lehman Brothers and 

well-publicized troubles at several large funds. Program 

participants were charged a fee of four to six basis 

points on an annualized basis, with coverage provided 

to guarantee maintenance of each fund’s typical stable 

share price of $1. Eligibility was open to all money 

market mutual funds regulated under Rule 2a-7 of the 

Investment Company Act of 1940 and registered with 

the SEC, upon payment of an up-front participation 

fee and satisfaction of certain criteria related to their 

net asset value on September 19, 2008. Shortly after 

its inception, the program provided guarantees to 93 

percent of the money market mutual fund market, covering $3.62 trillion in assets. At its expiration, utilization had fallen to 68 percent of the market. Treasury 

had no losses under the program and in fact earned the 

U.S. Government $1.2 billion in fees. 

The program expired on its scheduled end date of 

September 18, 2009 under improved general market 

conditions and restored confidence in the money 

market industry. 

EXPANDED INTERNATIONAL 

ECONOMIC PARTNERSHIPS

Managing financial crises, trade flows, financial security, climate change, and aid for developing economies 

in a global economy requires coordination with 

international partners. In all of these areas, Treasury 

worked with international partners to improve joint 

stewardship of the global economy. Throughout the 

financial crisis, Treasury officials have been in constant 

communication with international colleagues, showing 

clear and compelling results. Treasury helped facilitate 

international cooperation in responding to the global 

financial crisis, averting a more serious economic 

downturn, and anchoring the largest, most coordinated 

fiscal and monetary stimulus ever undertaken.

Demonstrated U.S. leadership at G-20 

meetings

The G-20 is a multilateral forum bringing together the 

leaders from the 20 largest economies in the world, 

accounting for 85 percent of world output. At the 

G-20 Summits in Washington (November 2008), 

London (April 2009), and Pittsburgh (September 

2009), Treasury took a lead role in developing a 

dynamic global recovery formula and securing G-20 

leaders’ commitments on measures to combat the 

economic and financial crisis. Through these summits, 

G-20 members agreed to pursue a globally-coordinated 

policy response to stabilize the financial system and 

provide monetary policy support, fiscal stimulus, and 

emergency capital for emerging and developing econo-
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

28 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

mies. In addition to coordinating national fiscal and 

monetary policies, major accomplishments included 

decisions to:

• Treble resources for the IMF from $250 billion 

to $750 billion, enabling it to provide emergency loans to countries adversely affected by the 

financial crisis

• Restructure the Financial Stability Forum into the 

Financial Stability Board, by adding G-20 members not previously part of the Financial Stability 

Forum, broadening its capacity to manage global 

banking regulation and supervision

• Establish a Framework for Strong, Sustainable, and 

Balanced Growth, formulated around peer reviews 

of national economic policies and regulatory 

standards to collaboratively identify and prevent 

imbalances in the global economy

• Establish processes to ensure that all systemically 

important financial institutions, markets and 

instruments are subject to appropriate regulation

• Improve coordination in international crisis 

management

• Determine common rules for compensation 

practices at large financial institutions

• Improve international accounting standards

• Jointly manage concerns related to tax havens and 

non-cooperative jurisdictions

• Jointly manage oversight of credit rating agencies

At the G-20 summit in Pittsburgh, the leaders announced that the G-20 would replace the G-7 as the 

main economic council of wealthy nations. Through 

the G-20 process, Treasury has participated in developing a strong multilateral system to coordinate a global 

policy response to reverse the economic slide and do 

what is necessary to restore public confidence, economic growth, and job creation.

Deepened U.S. engagement with 

key emerging market and priority 

countries

Given that the global economy is increasingly impacted 

by emerging market countries, more inclusive representation in international bodies is essential for long-term 

global recovery and growth. Treasury strongly supported the transition from reliance on the G-7 negotiation process to the G-20 process, the trebling of the 

IMF’s resources, and creation of the Financial Stability 

Board. Treasury also supported quota reforms at the 

World Bank and IMF to allow greater participation 

by developing nations and increased financial support 

for multilateral development banks (MDBs) that will 

boost lending by $100 billion over the next three years. 

To manage key partnerships, the Treasury Department 

has established bilateral strategic dialogues with 

China, India, Russia, Afghanistan, Pakistan and Iraq. 

(The U.S.-China Strategic and Economic Dialogue is 

discussed in a following section.) 

Promoted free international trade and 

investment

Treasury promoted open investment policies at 

home and for U.S. investors abroad through bilateral 

and multilateral outreach. Announcement of the 

intention to complete the Doha Round of World 

Trade Organization negotiations by the end of 2010 

increased activity in fiscal year 2009 surrounding 

trade negotiations. Treasury staff participated in the 

launching, negotiation or implementation of 15 trade 

and investment agreements, including free trade 

agreements with Oman, Costa Rica and Peru; the 

Trans-Pacific Agreement; the Asia-Pacific Economic 

Cooperation cross-border services initiative; and the 

Mauritius Bilateral Investment Treaty. Treasury has 

supported efforts by G-20 leaders to refrain from new 

protectionist measures and keep markets open. Finally, 

Treasury played a key role in establishing the U.S.-EU 

Investment Dialogue and the U.S.-China Investment 

Forum to discuss high-priority investment issues, 

and efforts to codify investment criteria for sovereign 

wealth funds. 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

U.S.–China Strategic and Economic 

Dialogue

In April 2009, President Barack Obama and Chinese 

President Hu Jintao announced the establishment 

of the U.S.-China Strategic and Economic Dialogue 

(S&ED). The Dialogue provides an overarching framework bringing together the two countries’ highest-level 

officials to address a range of critical bilateral and 

global economic, environmental and diplomatic 

issues. In fiscal year 2009, the Dialogue contributed 

to coordinated monetary and fiscal policy actions 

to restore growth and the successful restructuring of 

multilateral economic institutions. The S&ED builds 

on its predecessor, the Strategic Economic Dialogue 

(SED), which was created in 2006, and includes two 

tracks, one economic track led by Secretary Geithner, 

and a strategic track led by Secretary Clinton. The 

last meeting of the S&ED was held in Washington in 

July 2009. The next meeting will be held in Beijing in 

2010.

Supported a Global Agreement on 

Climate Change

With the parties to the United Nations Framework 

Convention on Climate Change scheduled to meet in 

Copenhagen in December 2009, Treasury is working 

closely with other federal agencies and international 

partners to secure an effective global agreement. 

Treasury’s efforts were critical to establishing and 

launching the Climate Investment Funds, two new 

multilateral trust funds hosted by the World Bank 

that promote clean energy in developing countries, 

and establishment of an Experts Group on Climate 

Finance at the G-20. The Clean Technology Fund 

(CTF), the first of the two new funds, aims to reduce 

global emissions growth by helping to close the price 

gap in developing countries between dirtier conventional technologies and commercially available cleaner 

alternatives. The CTF is currently co-chaired by the 

Treasury’s Deputy Assistant Secretary for Environment 

and Energy. 

CONTINUED EFFORTS TO BOLSTER 

REGULATION OF NATIONAL BANKS 

AND THRIFTS

OCC and OTS are the primary regulators of national 

banks and thrifts, respectively. Given continuing 

concerns about the soft economy and bank solvency 

following the financial crisis, both made extensive 

efforts to monitor evolving conditions at financial 

institutions they regulate and implement measures 

intended to restore financial health. In fiscal year 2009, 

the Inspector General again indicated regulation of 

national banks and thrifts as a Management Challenge. 

Despite efforts to identify and correct potential issues 

at an early stage, a number of national banks and 

thrifts were closed by federal regulators in fiscal year 

2009 due to difficult market conditions. In total, 107 

financial institutions regulated by FDIC with $111.3 

billion in deposits failed over the year. Of these, 13 

were national banks with $14.8 billion in deposits, 

14 were federal thrifts with $35.8 billion in deposits, 

and 80 were state banks with $60.8 billion in deposits. 

Work-out solutions, whereby some or all deposits and 

assets were assumed by another existing bank, were 

arranged by FDIC and regulators for almost all failed 

institutions. 

FIGURE 9. Failed Banks in USA from 2000-2009

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 JAN 1 thru NOV 6

2 4 4 0 0 3

26

120

3

11

0

20

40

60

80

100

120

140

OCC and OTS supervisory activities in fiscal year 

2009 focused on monitoring and responding to 

adverse conditions in credit and financial markets. 

OCC’s on-site supervisory assessments focused on 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

30 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

the quality of national banks’ credit risk management 

practices (including effective credit risk rating systems 

and problem loan identification), adequacy of loanloss reserves, and effective loan work-out strategies. 

Primary emphasis was placed on ensuring the strength 

of capital buffers to weather earnings pressures and 

asset quality deterioration. Other critical areas included 

sound liquidity risk management through diversified 

funding sources and realistic contingency funding 

plans, and maintenance of consistent underwriting 

standards regardless of intent to hold or sell a loan. 

OTS examinations emphasized assessment of risk 

management structures, liquidity plans, capital management, concentration risk and maintenance of strong 

underwriting standards. Given the natural exposure of 

thrifts to the real estate market, OTS utilized the Net 

Portfolio Value model (enhanced in 2008) extensively 

to value financial instruments and evaluate interest risk 

related to real estate and other investments. (Thrifts 

are required to hold 65 percent of their holdings 

in mortgages.) For troubled institutions, OCC and 

OTS employed a number of remedial measures, 

including Prompt Corrective Action determinations 

when institution capital deteriorated below specified 

thresholds, requirements to increase available capital 

and liquidity, required changes in bank management, 

and required approval for changes in business plans. To 

combat mismanagement, formal enforcement actions 

such as cease-and-desist orders, removal or prohibition 

orders, civil money penalties and formal agreements 

were utilized. In severe cases, financial institutions were 

required to enter into sales, mergers, liquidation or 

enter FDIC receivership. 

To minimize real estate losses and avoid unnecessary 

foreclosures, both agencies encouraged financial institutions and at-risk mortgage holders to work constructively to find effective work-out solutions. Both OCC 

and OTS urged adoption of loan modification programs and other foreclosure mitigation practices and 

provided information for consumers on ways to identify and avoid foreclosure fraud. In November 2008, 

the federal banking agencies issued the Interagency 

Statement on Meeting the Needs of Creditworthy 

Borrowers, providing guidance to financial institutions 

on managing mortgage delinquency. OCC and OTS 

worked closely with HUD and other Treasury officials 

to develop the Making Home Affordable Program, 

including establishing transparent capital standards 

for treatment of mortgage loans modified under the 

program to encourage bank participation. OCC was 

also actively involved in identifying potential bank 

responses to the foreclosure crisis, including working 

with community development organizations to rehabilitate foreclosed properties and working with HUD 

to stabilize neighborhoods.

In fiscal year 2009, OCC’s Annual Survey of Credit 

Underwriting Practices indicated a continuation of 

tighter underwriting standards begun in mid-2007. In 

contrast with the period of “originate and sell”, where 

banks originated loans and then sold them to other 

investors, survey results showed that the majority of 

banks applied the same tight underwriting standards 

regardless of intent to hold or sell. With increased 

weakness in commercial real estate markets, both 

agencies warned of the accumulating risks in many 

small and medium-sized institutions’ portfolios. At an 

inter-agency level, both OCC and OTS have worked 

directly with the Federal Reserve and FDIC to review 

large syndicated loans held by multiple banks through 

the Shared National Credit Program. This year’s review 

covered 8,955 credit facilities with commitments 

totaling $2.9 trillion. OCC and OTS will continue to 

coordinate their licensing and supervisory procedures 

with other federal agencies to keep regulations current, 

transparent and supportive of financial industry stability and growth.

OCC and OTS have issued direct warnings to financial 

institutions of the risks posed by excessive asset or 

liability concentrations in their portfolios. During the 

last four years, OCC has conducted asset quality reviews of all the OCC community and mid-sized banks 

with significant commercial real estate concentrations, 

to ensure they have adequate credit underwriting, 

problem loan identification, and loan-loss reserves. 

More recently, the federal banking agencies issued 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

guidance on managing concentration risks that may 

emerge from correspondent banking relationships, to 

reduce any carryover effect from one bank’s failure.

Given the global nature of the financial crisis, OCC 

and OTS worked closely with both domestic and 

international banking supervisors to identify problems 

and coordinate actions to restore functioning markets 

and strengthen risk management. The Federal Reserve, 

OCC and SEC worked with key global regulators 

and market participants to strengthen operational 

infrastructure and processes used to oversee OTC 

derivatives. OCC was actively involved in developing 

and implementing a package of measures announced 

by the Basel Committee of Banking Supervisors in 

July 2009 to capture the credit risk of complex trading 

activities and institute higher capital requirements for 

certain activities. OCC and OTS also joined other 

global supervisors in endorsing the Basel Committee’s 

Principles for Sound Liquidity Risk Management and 

Supervision, underscoring the importance of liquidity management. Through the Financial Stability 

Board’s Working Group of Provisioning, chaired by 

the Comptroller of the Currency, OCC has actively 

promoted use of credit valuation processes to reduce 

the pro-cyclicality of loan-loss requirements. During 

the year, OCC and OTS provided significant support 

for TARP, including reviewing financial institutions’ 

Capital Purchase Program (CPP) applications; participating on the TARP CPP Council (which provides 

advisory support to OFS); conducting “stress tests” for 

regulated entities; providing legal analysis on financial 

institution participation in TARP; and establishing 

credit rules promoting use of the Making Home 

Affordable Program. OCC and OTS also continued 

to jointly issue the Mortgage Metrics Report, providing detailed information on 34.7 million mortgages 

serviced by their regulated institutions, including new 

sections in 2009 on loan modifications.

To strengthen its unfair or deceptive acts and practices 

rules, OTS, Federal Reserve and National Credit 

Union Association issued final rules in December 

2008 governing practices for credit cards and overdraft 

protection programs. For credit cards, these addressed 

unfair practices in the areas of providing reasonable 

time periods for making payments, payment allocations, interest rate increases on outstanding balances, 

security deposits and fees charged to an account prior 

to the issuance of credit.

PROVIDED ASSISTANCE TO 

LOW-INCOME AND UNDERSERVED 

COMMUNITIES

The Community Development Financial Institutions 

(CDFI) Fund expands the capacity of financial 

institutions to provide credit, capital, and financial 

services to underserved populations and low-income 

communities. With the economic downturn, demand 

for the Fund’s services increased as mainstream lenders 

reduced lending activities. At the same time, constrained debt and equity markets limited CDFIs’ access 

to private capital. To address the shortfall, Treasury 

increased funding through the CDFI program in fiscal 

year 2009 to help meet demand. This year, the CDFI 

Program competitively made 194 awards totaling 

$160.8 million (including $98 million in Recovery 

Act awards) to CDFIs and Native American CDFIs 

for loans, investments, financial services, and technical assistance (a 158 percent increase over fiscal year 

2008). Under the New Markets Tax Credit Program 

(NMTC), which provides tax credit allocation authority to designated financial institutions for investments 

in low-income communities, Treasury awarded $6.5 

billion in fiscal year 2009 (including $3 billion in 

Recovery Act awards), compared with $3.5 billion in 

fiscal year 2008, a nearly 86 percent increase. Treasury 

will continue to provide funding through the CDFI 

program to mitigate tight capital conditions in underserved markets.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

32 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

MANAGEMENT OF CURRENCY AND 

COIN MANUFACTURING IN TODAY’S 

ECONOMY

Record low demand for currency and 

coins

The economic and financial crises significantly affected note and coin demand in fiscal year 2009. 

Manufacturing of currency notes experienced a 1.5 billion unit (19.5 percent) reduction in quantity ordered 

by the Federal Reserve, a drop from 7.7 billion notes in 

fiscal year 2008 to 6.2 billion notes in fiscal year 2009. 

This reduction in the Federal Reserve order was large 

enough to increase BEP’s average cost per note produced by 7 percent over the prior fiscal year. The U.S. 

Mint shipped an estimated 5.2 billion coins, down 

from 10.0 billion in fiscal year 2008, representing a 45-

year low for coin demand. As a result, the U.S. Mint 

transferred $475 million to the Treasury General Fund 

in fiscal year 2009, significantly lower than the $750 

million transferred in fiscal year 2008. To compensate 

for weak demand, both the U.S. Mint and BEP are 

optimizing manufacturing and administrative efficiencies, focusing on maintenance, capital improvements, 

and employee cross-training. 

Responding to record high demand for 

bullion products

As the economy and financial markets weakened, investors sought the perceived safety of precious metals. U.S. 

Mint revenue from the sale of gold, platinum, and silver 

bullion products increased by 79 percent in fiscal year 

2009, from $949 million in fiscal year 2008 to $1,695 

million in fiscal year 2009. However, these recordbreaking demand levels and successful sales efforts in 

the bullion product line posed a new set of challenges. 

The number of bullion coins produced by the U.S. 

Mint was constrained in fiscal year 2009 by limited 

availability of precious metal blanks from suppliers. 

These constraints compelled the U.S. Mint to suspend 

the sale of certain bullion coins during the fiscal year. 

In order to satisfy its legislative mandate to fulfill public 

demand for bullion products, the U.S. Mint shifted 

available blank supply to production of bullion coins 

from proof coins and worked with suppliers to augment 

blank volumes and sources. Subsequent increases in allocation and ordering limits towards the end of the year 

allowed the U.S. Mint to satisfy all investor demand for 

22-karat one-ounce gold and silver bullion coins by the 

third quarter of fiscal year 2009. However, at the end 

of the fiscal year, one-ounce gold and silver eagle proof 

coins remained unavailable. 

Completion of the most ambitious 

currency redesign in U.S. history

The redesign of the $100 note will mark the completion of a multi-year initiative to implement the most 

ambitious currency redesign in United States history. 

Finalized and presented for approval in fiscal year 

2009, BEP expects to produce and deliver 2.4 billion redesigned $100 notes in fiscal year 2010. In 

cooperation with the Federal Reserve, BEP administers 

a public education program to support the introduction of new currency designs. To maintain trust and 

confidence in U.S. currency, BEP is continuously 

engaged in improving note design to keep the nation’s 

currency a step ahead of counterfeiters. While no specific timetable has been set, the next currency redesigns 

will include improvements to the nation’s currency to 

better serve the blind and visually impaired.

Implementing the Presidential and 

Native American $1 Coin Acts

The Presidential $1 Coin Act (Public Law 109-145) and 

the Native American $1 Coin Act (Public Law 110-82) 

mandate that the U.S. Mint take cost-effective measures 

to identify, analyze and overcome barriers to circulation 

of $1 coins. The increased circulation of $1 coins could 

save the Federal Government money because $1 coins 

last longer than $1 notes. A four-city pilot focusing on 

new messaging and retail activation showed American 

acceptance of $1 coins is growing. However, despite 

U.S. Mint advertising campaigns, consumer acceptance 

of $1 coins has remained low and inventories at the 

Federal Reserve Bank have continued to rise.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

U.S. nd Word Econom

AMERICAN RECOVERY AND 

REINVESTMENT ACT

The American Recovery and Reinvestment Act of 2009 

(Recovery Act) was signed into law on February 17th, 

2009. The Recovery Act is an unprecedented effort 

to jumpstart the economy, create or save millions of 

jobs, and address long-neglected challenges. It includes 

extraordinary measures to modernize the nation’s 

infrastructure, enhance energy independence, expand 

educational opportunities, preserve and improve 

affordable health care, and provide tax relief. Of the 

$787 billion provided through the Recovery Act, 

Treasury is managing programs that will contribute 

over $300 billion in benefits to the American people 

through the year 2019.

Making Work Pay credit. Taxpayers can receive this 

benefit through a reduction in the amount of federal 

income tax that is withheld from their paychecks, or 

through claiming the credit on their tax returns. It is 

estimated that over 120 million households will benefit 

from this provision through 2010.

Expanded tax break for 2009 first-time homebuyers. Taxpayers who qualify for the First-Time 

Homebuyer Credit and purchase a home this year 

before December 1 may claim a maximum $8,000 

credit on their 2009 tax return. The estimated benefit 

claimed by 479,622 taxpayers through fiscal year 2009 

was over $3.5 billion. The credit has been extended 

through April 30, 2010, with closing required by 

June 30, 2010.

American Opportunity Credit. Under the Recovery 

Act, more parents and students will qualify over 

the next two years for a tax credit, the American 

Opportunity Credit, to pay for college expenses. The 

new credit modifies the existing Hope Credit for tax 

years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many 

with higher incomes and those who owe no tax. It also 

adds required course materials to the list of qualifying 

expenses and allows the credit to be claimed for four 

post-secondary education years instead of two. The 

full credit is available to individuals whose modified 

adjusted gross income is $80,000 or less, or $160,000 

or less for married couples filing a joint return. The 

credit is phased out for taxpayers with incomes above 

these levels. Many of those eligible will qualify for the 

maximum annual credit of $2,500 per student. The 

estimated benefit in 2009 is $328 million.

COBRA health insurance continuation premium 

subsidy. To help people maintain health care coverage, 

the Recovery Act provides a 65 percent subsidy for 

COBRA continuation premiums for themselves and 

their families, up to nine months, for workers who 

have been involuntarily terminated. Eligible workers 

are required to pay 35 percent of the premium to their 

former employers. Employers are required to pay the 

full premium, but are entitled to a credit of 65 percent 

on their payroll tax return. To qualify, a worker must 

have been involuntarily terminated between September 

1, 2008 and December 31, 2009. Over $313 million 

in COBRA credits have been claimed by employers 

through fiscal year 2009.

Build America Bonds. State and local governments 

issuing taxable bonds are eligible to receive direct 

federal subsidies of 35 percent of bond interest. 

Through September 30, 2009, over $35.6 billion in 

Build America Bonds had been issued to help finance 

projects across the nation, including schools, utilities, 

public safety and transportation.

Sales tax deduction for vehicle purchases. Taxpayers 

can deduct state and local sales and excise taxes paid 

on the purchase of new cars, light trucks, motor homes 

and motorcycles through 2009. 

Economic recovery payments. The Recovery Act 

provided $250 one-time economic recovery payments 

to eligible retirees, veterans and other high-need recipients. FMS, in coordination with the Social Security 

Administration, the Railroad Retirement Board, and 

the Department of Veterans Affairs, issued over 54.9 

million economic recovery payments to beneficiaries, 

totaling more than $13.7 billion. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

34 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

Community Development Financial Institutions 

(CDFI) awards. The CDFI Fund makes monetary 

awards (grants, loans and other investments) on a 

competitive basis to certified CDFIs. The Recovery Act 

appropriated $98 million to expand funding for the 

CDFI and Native American CDFI Assistance (NACA) 

programs. All $98 million was awarded to CDFI 

recipients by July 1, 2009.

New Markets Tax Credit (NMTC). The NMTC 

Program, administered by the CDFI Fund, facilitates 

investment in low-income communities by permitting 

credits against federal income taxes for equity investments in designated Treasury-certified Community 

Development Entities (CDEs). 

CDEs are required to use substantially all NMTC 

proceeds to make loans and investments in businesses 

and real estate developments in low-income and 

distressed urban and rural communities. The Recovery 

Act provided a total of $3 billion for the credits. The 

first NMTC award of $1.5 billion was allocated in 

May 2009 to 32 organizations. The second allocation 

of $1.5 billion was awarded in October 2009 to 24 

organizations.

Health Coverage Tax Credit (HCTC). HCTC was 

created to help displaced workers and retirees who have 

lost their jobs due to promulgation of free trade agreements. The Trade Adjustment Assistance Reform Act 

of 2002 created HCTC to assist eligible beneficiaries 

between the ages of 55 and 64 receive affordable health 

care. The program originally provided a refundable tax 

credit for 65 percent of the cost of qualified insurance. 

In May 2009, the tax credit was increased from 65 

percent to 80 percent of qualified health insurance 

premiums, allowing participants to only pay 20 

percent for health insurance each month. The increased 

credit expires on December 31, 2010. The number of 

new enrollees has increased more than four times since 

April 2009, to over 6,000 recipients.

Payments for Specified Energy Property in Lieu of 

Tax Credits. Because of the impact of current economic conditions on taxable income, the value of energy 

property tax credits to investors who finance renewable energy projects has decreased. Designed with the 

Department of Energy, this program’s objective is to 

provide an alternative means to attract financing for renewable energy projects by providing direct payments 

in lieu of tax credits. The program began accepting 

applications on July 31, 2009 and by September 30, 

2009 had made awards for 37 projects totaling more 

than $1 billion. The high demand for this program is 

expected to continue in fiscal year 2010.

Payments for Low-Income Housing Projects in Lieu 

of Tax Credits. Current economic conditions have 

severely undermined the effectiveness of tax credits 

intended to attract private capital investment for the 

construction, acquisition or rehabilitation of qualified 

low-income housing projects. The Recovery Act gives 

state housing credit agencies the choice to receive cash 

assistance for all or a part of their 2009 low-income tax 

credit allocation. Through September 30, 2009, the 

Department has received 57 applications and approved 

payments to 40 state housing agencies for over $2.5 

billion. However, only $29 million has been drawn 

down so far. Initial feedback suggests that states are 

evaluating their financial capacity and determining 

how to provide funding needed to complete qualifying 

projects.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Effectively Man

EFFECTIVELY MANAGED 

U.S. GOVERNMENT FINANCES

The Treasury Department manages the nation’s 

finances by collecting money due to the United 

States, making its payments, managing its borrowing, 

investing when appropriate, and performing central 

accounting functions. With the financial crisis and 

recession, fiscal year 2009 provided unique challenges 

in implementing Recovery Act provisions, forecasting government receipts, and conducting a record 

number of auctions of government securities. Treasury 

continues to focus on its ongoing efforts to increase the 

total volume of electronic payments and receipts and 

improve taxpayer service and enforcement.

TAX RETURNS FILED ELECTRONICALLY

In fiscal year 2009, Treasury processed 144.4 million 

individual returns and issued 114.4 million refunds 

totaling $339.6 billion. Sixty-six percent of individual 

returns were filed electronically, up from 58 percent 

in fiscal year 2008. Although this is a clear improvement, Treasury has not yet reached the Congressional 

goal of 80 percent of tax returns filed electronically. 

Treasury continues to promote the use of the IRS Free 

File program and engage in national and local outreach 

efforts to increase electronic filing by businesses and tax 

return preparers. 

IMPROVED SERVICE TO MAKE 

VOLUNTARY TAX COMPLIANCE 

EASIER

Treasury makes every effort to ensure that taxpayers 

have access to the necessary information and support 

to meet their tax obligations. In fiscal year 2009, the 

IRS fielded over 107 million taxpayer calls. The second 

“Super Saturday” tax information event was held on 

March 21, 2009, providing on-site support at more 

than 250 local IRS offices and 1,700 Volunteer Income 

Tax Assistance (VITA) sites. Over the year, 82,000 

volunteers at the VITA and Tax Counseling for the 

Elderly sites helped file over 3 million returns and provided face-to-face assistance to 3.4 million taxpayers. 

To track their refunds, more than 54 million taxpayers 

used the online service “Where’s My Refund?”, an 

increase of 39 percent over 2008. Outreach efforts 

and service locations for U.S. overseas taxpayers were 

increased to facilitate information availability and 

support. IRS is making every effort to restore its level 

of service, which dropped from 82 percent in 2007 to 

53 percent in 2008, due largely to increased volume of 

inquiries related to economic stimulus payments. The 

level of service for fiscal year 2009 was 70 percent.

EXPANDED ENFORCEMENT OF TAX 

LAWS TO ENSURE TAX COMPLIANCE

Treasury has expanded its international enforcement 

presence, continued to pursue high net-worth/high 

income non-compliant taxpayers, and initiated efforts 

to improve coordination with the tax return preparer 

community. In fiscal year 2009, Treasury focused on 

detecting and bringing to justice individuals and businesses who hide assets overseas to avoid paying taxes. 

The largest bank in Switzerland agreed to pay a $780 

million fine and provide the names of 4,450 U.S. account holders in response to a summons. Another bank 

entered into a deferred prosecution agreement and 

forfeited $340 million in connection with violations 

of the International Emergency Economic Powers Act. 

An Offshore Merchant Account Initiative increased 

focus on U.S. businesses that deposit unreported 

business receipts from debit and credit card sales in 

bank accounts domiciled in secrecy jurisdictions. For 

high-net-worth individuals, 11.2 percent of taxpayers 

with incomes over $200,000 were audited and 29 

percent of taxpayers with incomes over $1 million were 

audited. Audits were also increased on self-employed 

taxpayers by over 21 percent. In fiscal year 2009, the 

IRS developed a comprehensive set of recommendations to ensure consistent standards for tax preparer 

qualifications, ethics and service, with the intention of 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

36 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

establishing a foundation for improving enforcement 

coordination with the tax preparer community.

The Children’s Health Insurance Program 

Reauthorization Act (CHIPRA) was enacted in 

February 2009. CHIPRA imposes significantly 

increased tax rates on tobacco products and introduced 

requirements for permits and taxes on products which 

had not previously been taxed or regulated (cigarettes 

went from a tax rate of $.39 to $1.01). Implementing 

the provisions was a major undertaking for TTB, including mailing of almost 500,000 information packets 

and fielding 50,000 inquiries about the tax increase 

and permit requirements, resulting in an additional $6 

billion in Federal tax revenues. CHIPRA also levies a 

floor stocks tax (FST), a one-time excise tax placed on 

a commodity undergoing a tax increase, on all tobacco 

products held for sale as of April 1, 2009. In fiscal year 

2009, TTB processed more than 133,000 receipts and 

collected a record $1.2 billion dollars of FST.

TTB is using automated data analysis techniques to 

target non-filers for audit, and is reviewing sales data to 

find unusual patterns that may indicate a business was 

stock piling product prior to the effective date of the 

new tax rates. TTB will use this information to identify 

tobacco dealers to target for audit in fiscal year 2010.

IMPROVED ELECTRONIC RETURN 

PROCESSING THROUGH BUSINESS 

SYSTEMS MODERNIZATION

Treasury continues to make efforts to improve business 

systems for tax processing. Upgrades to the Customer 

Account Data Engine (CADE) in 2009 enabled the 

system to process 40 million returns, 34.9 million 

refunds and over seven million payments. Treasury is 

committed to completing CADE implementation by 

2011. Modernized e-File (MeF) release 5.5 enabled 

system processing of 33 percent more Form 1120s 

and 307 percent more Form 990s. (Returns submitted 

through the MeF system have an average processing error rate of seven percent, versus 19 percent for 

transcription-based paper processing.) MeF return 

receipts increased to about 4.5 million, an increase of 

21 percent over 2008. 

CHALLENGES ASSOCIATED WITH 

IMPLEMENTING RECOVERY ACT TAX 

PROVISIONS

Upon enactment of the Recovery Act, Treasury worked 

to ensure timely implementation of tax provisions, 

including creating and issuing forms and publications, developing and disseminating information 

through the internet, print media and television, and 

implementing safeguards against tax fraud. Despite 

the successes implementing these provisions, increased 

customer inquiries and payments added strains to 

existing management systems. The increased volume of 

taxpayer calls resulted in increased waiting times and 

busy signals, with the average caller waiting nearly 9 

minutes. Average wait time in 2007 was 4.5 minutes. 

The additional payments also increased the incidence 

of improper payments, particularly for the First-Time 

Homebuyer Credit. The IRS will continue to make 

efforts to reduce service wait time and improper 

payments. 

MANAGED INCREASED ISSUANCE OF 

DEBT FINANCING 

In fiscal year 2009, the Department conducted over 

290 government securities auctions, resulting in the 

issuance of over $8 trillion dollars in marketable 

securities. The results of each auction were released 

within the target time of two minutes plus or minus 

30 seconds after the auction close. The prompt release 

of auction results reduced the amount of time bidders were exposed to adverse market movements, 

encouraging more competitive bidding and allowing 

the Department to secure lower borrowing rates for 

the U.S. Government. Treasury also successfully began 

the monthly issuance of three and seven year notes in 

order to meet the demand for borrowing and allow for 

greater flexibility in borrowing options.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Effectively Man

FIGURE 10. Number of Auctions and Amount Issued by Fiscal Year Number of Auctions

Amount Issued (in trillions)

Total Amount Issued (RHS)

Number of Auctions (LHS)

0

50

100

150

200

250

300

350

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

FY05 FY06 FY07 FY08 FY09

IMPROVED RETAIL SECURITIES 

SERVICES

BPD’s Retail Securities Services program serves more 

than 50 million retail investors in marketable securities 

and savings bonds. In fiscal year 2009, BPD achieved 

its long-term goal of completing 90 percent of timesensitive retail customer service transactions within 

10 business days, one year ahead of schedule. BPD 

will transition to a new performance measure in fiscal 

year 2010 targeting completion of these transactions 

within 5 business days. TreasuryDirect, which provides 

investors electronic savings bonds, continues to grow. 

In fiscal year 2009, the system was enhanced to enable 

entities such as trusts, corporations, fiduciaries, and 

estates to open accounts and conduct transactions.

EXPANDED USE OF ELECTRONIC 

FUND TRANSFERS

During fiscal year 2009, FMS continued to expand 

the use of electronic fund transfers to deliver federal 

payments, improve service to payment recipients, and 

reduce government program costs. The Go Direct 

campaign, which encourages current federal benefit 

check recipients to switch to direct deposit, concluded 

a successful fourth year with over one million conversions. The total number of conversions since inception 

of the campaign is over 3 million. Overall, 81 percent 

of Treasury payments and associated information were 

made electronically, an increase of two percent from 

fiscal year 2008. This helped decrease the number of 

paper checks issued, minimizing costs associated with 

postage and the re-issuance of lost, stolen and misplaced checks. 

CHALLENGES FORECASTING 

GOVERNMENT RECEIPTS DURING THE 

RECESSION

The financial and economic crisis made fiscal year 2009 

an extremely challenging year to forecast government 

tax receipts. Expanded tax credit programs under the 

Recovery Act and rising unemployment levels reduced 

tax receipts and increased the difficulty of forecasting 

accurately. Given the severity of the recession and 

uncertainty surrounding future private consumption 

and investment, predicting the timing and rate of recovery in fiscal year 2010 could be equally challenging. 

Treasury missed its performance target of five percent 

maximum variance between estimated and actual fiscal 

receipts in fiscal year 2009, with an actual variance of 

5.5 percent.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

38 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

PREVENTED TERRORISM AND 

PROMOTED THE NATION’S SECURITY 

THROUGH STRENGTHENED 

INTERNATIONAL FINANCIAL 

SYSTEMS

While promoting financial and economic growth at 

home and abroad, the Treasury Department performs 

a unique role in preserving national security. In fiscal 

year 2009, Treasury continued to safeguard the nation’s 

financial security while carrying out critical law enforcement responsibilities pertaining to predatory lending practices. These expectations require that Treasury 

continue to modernize its technological infrastructure 

to ensure a safer and more transparent financial system 

while protecting U.S. national security.

STRENGTHENED MEASURES 

AGAINST IRAN TO PROTECT U.S. 

NATIONAL SECURITY 

Since the designation of a large Iranian bank, Bank 

Saderat, in September 2006, Treasury has led an ongoing effort to warn the world about the threat Iran poses 

to U.S. security and the integrity of the international 

financial system. This effort has developed a global 

consensus. In fiscal year 2009, the Financial Action 

Task Force (FATF), the global standard-setting body to 

combat money laundering and terrorist financing, issued its fourth warning alerting countries to strengthen 

measures to protect their financing sectors. Treasury 

has continued to strengthen its efforts to ensure that 

Iran is restricted from the U.S. financial system, while 

encouraging other countries to do the same. 

The Department of the Treasury responded to the 

FATF warning one month after it was issued. Treasury 

hindered Iran’s ability to financially support illicit 

activities by revoking an existing “U-turn” license for 

Iran, further restricting Iran’s access to the U.S. financial system. This license had allowed funds transfers to 

pass though the U.S. financial system for the benefit of 

Iranian entities. Following this action, U.S. financial 

institutions are no longer allowed to process such 

transactions. 

Treasury maintained its designations of Iranian financial institutions and individuals due to proliferation 

concerns and implemented several new designations. 

The Department, through the FATF, will continue to 

strengthen its measures and encourage other countries 

to enhance vigilance over all business with Iran.

ENHANCED MECHANISMS TO 

COMBAT MORTGAGE AND LOAN 

MODIFICATION FRAUD

A series of initiatives have been announced to help 

American homeowners and address the housing crisis. 

The United States government continues to intensify its efforts to ensure predatory scams do not rob 

Americans of their savings and potentially their homes. 

On April 6, 2009, Secretary Geithner announced a 

coordinated proactive effort to be led by Treasury, to 

combat fraudulent loan modification schemes and 

coordinate ongoing efforts across a range of federal 

and state agencies that investigate fraud and assist with 

enforcement and prosecutions. Treasury simultaneously 

issued an advisory to alert financial institutions to the 

risks of emerging schemes related to loan modification. 

These efforts are designed to facilitate the detection, 

deterrence, investigation and prosecution of those who 

would exploit consumers facing possible home foreclosures, in particular to target fraudulent scams against 

consumers seeking loan modification assistance.

This advisory was intended to identify “red flags” that 

may indicate a loan modification or foreclosure rescue 

scam and warrant the filing of a Suspicious Activity 

Report (SAR). These red flags alert financial institutions to scams victimizing their customers and provide 

an opportunity to stop predatory loan modification. 

The advisory reminded financial institutions of the 

requirement to implement appropriate risk-based policies, procedures and processes. Financial institutions 

must conduct customer due diligence on a risk-assessed 

basis to prevent fraudulent actors from accessing the 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Prevntd Terror

financial system and to aid in the identification of 

potentially suspicious transactions. 

The advisory required the term “foreclosure rescue 

scam” to be included in the narrative sections of all 

relevant SARs. This inclusion allowed law enforcement 

to more easily search for and identify fraudulent activity when reviewing SAR information, improving the 

focus of investigative resources. Utilizing the initiative’s 

advanced targeting methods, 30 case referrals were 

made to law enforcement investigators involving over 

140 suspects. Treasury, at the request of civil and criminal law enforcement, also contributed to 35 investigations involving multiple suspects and hundreds of 

BSA reports. These results have illustrated the benefits 

of proactive threat identification and preemption of 

fraudulent activity. However, the management of 

capital investments is still considered to be a management challenge.

LIFTED SANCTIONS ON 125 

INDIVIDUALS OR ENTITIES FROM 

THE LIST OF SPECIALLY DESIGNATED 

NATIONALS (SDNs) 

Treasury’s Office of Foreign Assets Control (OFAC) 

administers and enforces economic and trade sanctions 

based on U.S. foreign policy and national security 

goals against targeted foreign countries and regimes, 

terrorists, international narcotics traffickers, those 

engaged in activities related to the proliferation of 

weapons of mass destruction, and other threats to the 

national security, foreign policy or economy of the 

United States. Key to OFAC’s success is the reaction of

the private sector when financial measures are utilized, 

such as designations, to disrupt or dismantle the forces 

at work in illicit finance or other criminal behavior. 

When private sector organizations, particularly those in 

the international banking community, voluntarily go 

beyond their legal requirement and demonstrate good 

corporate citizenship by refusing to handle illicit business, they strengthen the effectiveness of governmentimposed measures. 

In fiscal year 2009, OFAC had success with financial 

institutions in South Africa, Latin-America, Mexico, 

Europe, China, and the Middle East in closing accounts and denying access to the financial system for 

criminals involved in activities that could jeopardize 

U.S. national security. Additionally, OFAC took several 

actions to lift sanctions on 125 individuals or entities, 

where an individual or entity had to divest themselves 

of any ownership interest in any OFAC designated 

companies. As a result, dozens of front companies 

within the target networks have been liquidated and no 

longer facilitate illicit business activities.

STRENGTHENED THE REVIEW 

PROCESS FOR FOREIGN INVESTMENT 

IN THE UNITED STATES

Treasury chairs the sixteen-member Committee on 

Foreign Investment in the United States (CFIUS) 

which reviews certain foreign investments into the 

United States to identify and resolve national security 

concerns.

The Foreign Investment and National Security Act of 

2007 (FINSA) required Treasury to issue new regulations governing the CFIUS process. CFIUS agencies 

took into account over 30 public comments received 

from domestic and foreign parties in response to proposed regulations that Treasury published on April 21, 

2008. Treasury issued final regulations on November 

21, 2008, which went into effect on December 22, 

2008. On December 8, Treasury also published 

guidance on the types of transactions that CFIUS has 

reviewed which have raised national security concerns. 

Though the guidance does not have the force of law, it 

provides helpful insight about how the CFIUS process 

works. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

40 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

MODERNIZE BANK SECRECY ACT

(BSA) INFORMATION AND ANALYSIS

The current BSA data infrastructure is ill-equipped to 

meet 21st century realities and unable to quickly adapt 

to changing financial indicators and patterns of illicit 

activity. The number of financial institutions falling 

under the purview of the BSA has grown exponentially 

in the last six years and will continue to experience 

robust growth in the future. Treasury developed a 

strategy in fiscal year 2007 to modernize the BSA data 

architecture to better serve its internal and more than 

10,000 external users that rely on accurate, timely, 

and reliable BSA data to identify money laundering, 

terrorist financing, tax evasion, and vulnerabilities in 

the financial industry. 

The modernization will reengineer the BSA data 

architecture, update antiquated infrastructure 

required to support data capture and dissemination, implement innovative web-services, enhance 

electronic-filing, and provide analytical tools. This 

investment will begin to enrich and standardize BSA 

data to maximize value, evaluate and deploy advanced 

analytical technologies, and establish more effective 

security technologies to enhance data confidentiality and integrity. After two years of analysis, the 

Department anticipates beginning implementation of 

this modernization in fiscal year 2010. 

ENCOURAGE PAKISTAN TO MAKE 

ITS ANTI-MONEY LAUNDERING LAW 

PERMANENT

A key aspect of strengthening anti-money laundering/

counter-terrorist financing (AML/CFT) regimes is 

conducting country assessments to determine the level 

of compliance with international AML/CFT standards 

that country has. These evaluation reports also identify 

deficiencies and ways to strengthen each country’s 

regime. Adopting one of these mutual evaluations 

triggers a follow-up review, which establishes an 

avenue for Treasury to encourage additional measures 

to strengthen a country’s AML/CFT regime. Despite 

the work Treasury has done in fiscal year 2009 and 

before, there is still room for improvement to implement AML/CFT laws in key countries.  In particular, 

Pakistan needs to build on the progress it made as a 

result of its mutual evaluation. Its anti-money laundering law must be made permanent and investigations 

and prosecutions for money laundering and terrorist 

financing offenses must occur.  

CONTINUE TO PROVIDE ADDITIONAL 

GUIDANCE TO THE CHARITABLE 

SECTOR

The Department strives to create a robust and aggressive strategy to conduct outreach to the charitable 

sector to combat terrorist exploitation and abuse of 

charities. The Department works with various community organizations in order to raise awareness of the risk 

of terrorist financing and measures to minimize such 

risks. Outreach events include participation in several 

interagency outreach efforts, hosted by the Department 

of Justice as well as the Department of Homeland 

Security. One key component is that Treasury issues 

guidance to the charitable sector as part of this comprehensive strategy to raise awareness and minimize 

the risk of terrorist exploitation through charities. 

During fiscal year 2009, the Treasury Guidelines 

Working Group (TGWG) met, which represents major 

U.S.-based charities, foundations and philanthropic 

groups, and began revising its Anti-Terrorist Financing 

Guidelines: Voluntary Best Practices for U.S-Based 

Charities (Guidelines).  It is expected that the TGWG 

will submit a proposal concerning the revision of the 

Guidelines by the close of the 2009 calendar year. This 

is just one component to ensuring risks are minimized 

by the charitable sector, Treasury will need to continue 

to develop and implement its strategy to combat 

further exploitation. 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Maagement 

ESTABLISH EXTERNAL 

PERFORMANCE MEASURE 

EVALUATION

Treasury introduced and began to apply a composite 

performance measure to assess the Department’s 

impact in preventing terrorism and safeguarding U.S. 

and international financial systems. The measure incorporates four focus areas: the impact of policymaking, 

outreach and diplomacy; economic sanctions; information and analysis; and regulatory activity on transparency of financial systems. Moving forward, refinement 

of the specific methodologies for data collection and 

validation related to these focus areas will need to be 

further refined and reviewed externally. 

MANAGEMENT AND 

ORGANIZATIONAL EXCELLENCE

The Department of the Treasury strives to maintain 

public trust and confidence in U.S. and international 

economic and financial systems through exemplary 

leadership, best-in-class processes, and a culture of 

excellence, integrity and teamwork. Achieving and 

maintaining exemplary accountability and transparency is critical for the Treasury Department as the 

primary financial agency for the U.S. Government. 

Management of Treasury programs provided significant 

challenges in fiscal year 2009 associated with implementation and oversight of new programs to manage 

the economy. 

COMPLETED AN INCREASED NUMBER 

OF MATERIAL LOSS REVIEWS (MLRS)

OIG is mandated to conduct MLRs of any Treasuryregulated bank failure resulting in material losses 

greater than $25 million, or two percent of the institution’s assets. An MLR examines the cause(s) of the 

failure, with specific attention paid to effectiveness of 

bank supervision and potential preventative measures 

to improve regulation. The review also looks for 

examples of fraud that may lead to criminal or civil 

prosecution. 

In fiscal year 2009, 107 banks failed, of which 27 

were regulated by OCC or OTS. Of these Treasuryregulated bank failures, 23 required an MLR by 

OIG. In fiscal year 2009, OIG completed 10 MLRs, 

including five MLRs for failures that occurred in fiscal 

year 2008. The estimated loss to the Federal Deposit 

Insurance Fund of the 10 reviewed bank failures 

totaled $14.7 billion, including a $10.7 billion loss 

resulting from the failure of IndyMac Bank, the largest 

institution to date to be the subject of an MLR. As of 

September 30, 2009, 18 MLRs were still in progress.

OIG has reported on several trends from the MLRs. 

Three primary causes of the failures were identified: 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

42 FISCAL YEAR 2009 PERFORMANCE BY STRATEGIC GOAL

asset quality issues (e.g. risky non-traditional loan 

products, poor underwriting, commercial real estate); 

liquidity issues (e.g. reliance on volatile brokered 

deposits to fund aggressive growth); and management 

issues (e.g. management systems not commensurate 

with level of risk, non-responsive to regulator concerns). With respect to supervision, OIG reported that 

OCC or OTS usually identified the problems early on 

but did not forcefully act to address them. Both regulators have been responsive to OIG’s recommendations 

for improving supervision processes. 

TIGTA AUDITS

TIGTA conducts audits and investigations to ensure 

fair administration of the nation’s tax system and 

accountability for the more than $2 trillion in tax 

revenue collected each year. The audits identify highrisk issues and deficiencies related to the administration of programs and operations, ensuring taxpayers 

are appropriately served and their rights adequately 

protected. In fiscal year 2009, TIGTA issued 142 audit 

reports focusing on the areas of improved tax compliance (including the international arena), security 

maintenance, systems modernization and operations. 

The audit reports isolated $14.7 billion in potential 

financial benefits, the majority stemming from a 

possible $8.9 billion savings over five years from the 

disallowance of the Additional Child Tax Credit to 

filers without a valid social security number. 

TIGTA conducted a special audit on a major Recovery 

Act activity for IRS associated with the First-Time 

Homebuyer Tax Credit. TIGTA found that although 

the IRS developed controls to identify many questionable claims for the First-Time Homebuyer Tax Credit, 

some key documentation requirements to substantiate 

the purchase of a house were inadequate. As a result, 

19,351 Tax Year 2008 income tax returns included 

erroneous or fraudulent claims for the credit, totaling 

over $139 million for homes that had not yet been 

purchased. In addition, taxpayers who appeared not to 

be first-time homebuyers claimed the credit on their 

returns. The IRS has implemented filters to identify 

these taxpayers and ensure the credits are properly applied. In addition, IRS identified 48,580 taxpayers who 

may not have been aware of the changes to the credit 

and did not claim the full amount. IRS is planning an 

outreach campaign to inform those taxpayers of the 

additional credit, if they do not otherwise amend their 

returns.

EFFECTIVE MANAGEMENT OF 

TREASURY’S INFORMATION 

TECHNOLOGY 

The Department relies on information technology (IT) 

infrastructure to manage more than $8 trillion dollars 

in debt, collect more than $2 trillion in revenue, and 

conduct more than $58 billion in daily cash transactions. In fiscal year 2009, the Department defined 

strategic IT management priorities to strengthen 

cyber security, reduce infrastructure operations costs, 

increase bureau collaboration and productivity, and 

improve Treasury IT workforce proficiency. As part of 

operations management, the Department uses OMB’s 

IT Dashboard to gauge the effectiveness of its IT 

systems. Each month, Treasury’s Chief Information 

Officer evaluates the Department’s 59 major investments on cost and schedule performance metrics. 

As of October 1, 2009, Treasury had 58 out of 59 

investments (98.3 percent) reported as Green or Yellow 

for Cost Variance and 1 investment (1.7 percent Red) 

reported as Red. As of October 1, 2008, 37 out of 62 

investments (59.7 percent) reported Green for Cost 

Variance and the remainder (40.3 percent) reported 

red. As of October 1, 2009, Treasury had 59 out of 

59 investments (100.0 percent) reported as Green 

or Yellow for Schedule Variance and no investments 

reported as Red. As of October 1, 2008, 50 out of 

62 investments (80.6 percent) reported Green for 

Schedule Variance and the remainder (19.4 percent) 

reported red. Additionally, the information security 

management challenge was closed in fiscal year 2009.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Maagement 

EXPANDED HUMAN CAPITAL 

INITIATIVES 

The Office of the Deputy Assistant Secretary for 

Human Resources/Chief Human Capital Officer 

(DASHR/CHCO) endeavors to broaden and diversify 

Treasury’s talent pool; develop and retain an effective workforce; effectively manage and utilize human 

capital; and develop human capital practitioners 

as strategic business partners. In fiscal year 2009, 

DASHR/CHCO was directly involved in ramping up 

emergency programs to support economic stabilization 

efforts, improving applicant outreach and supporting 

new hires through the Hamilton Fellows Program 

and other initiatives, and expanding the diversity of 

Treasury’s workforce. A major challenge in future 

years will be managing the retirement of a significant 

percentage of Treasury’s employees as baby boomers 

leave the workforce. Improving retention of new hires 

and providing executive leadership development for 

current employees is essential to ensuring Treasury has 

a strong and professional talent pool.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

44 Dertent f th

Department of the Treasury 

Key Performance Measures for 2009

The following table contains ten key performance metrics providing a representative overview of the Department’s 

performance for 2009. Discussion of the factors contributing to each measure’s performance results, and plans to 

improve the measure’s results in future years, follows the table.

ANNUAL FINANCIAL REPORT FOR FISCAL YEAR 2009

Treasury Department Key Performance Measure Table

Performance Measure 

Official Title

Bureau2005 Target2005 Actual2006 Target2006 Actual2007 Target2007 Actual2008 Target2008 Actual2009 Target2009 ActualPercent Target Achieved 20092009 Actual vs. TargetTarget TrendActual Trend

Percentage collected 

electronically of total 

dollar amount of Federal 

government receipts (%) 

FMS 82 79 83 79 80 79 79 80 80 83 104% Exceeded  

Customer Service 

Representative (CSR) 

Level of Service (%) 

IRS 82.0 82.6 82.0 82.0 82.0 82.1 82.0 52.8 70.0 70.0 100% Met  

Percent of Business 

Returns Processed 

Electronically (%) 

IRS 17 17.8 18.6 16.6 19.5 19.1 20.8 19.4 21.6 22.8 106% Exceeded  

Percent of Individual 

Returns Processed 

Electronically (%) 

IRS 51 51.1 55 54.1 57 57.1 61.8 57.6 64 65.9 103% Exceeded  

Number of full-time 

equivalent jobs created 

or maintained in 

underserved communities 

by businesses financed by 

CDFI program awardees

CDFI 26,995 23,656 29,158 22,329 34,009 35,022 28,676 29,539 30,000 70,260 234% Exceeded  

Rehabilitated national 

banks as a percentage of 

problem national banks 

one year ago (CAMELS 3, 

4 or 5) (%) 

OCC 40 44 40 46 40 52 40 47 40 29 73% Unmet  

Clean audit opinion on 

TARP financial statements

DO Baseline Met 100% Met B B

Percentage of SIGTARP 

and GAO oversight 

recommendations 

responded to on time

DO Baseline 100 100% Met B B

Average days to close a 

FOIA case

DO Baseline 67 100% Met B B

Impact of TFI programs 

and activities

DO Baseline 7.81 100% Met B B
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Dertent f the T

In fiscal year 2009, FMS’ total dollar collections 

decreased from $3.2 trillion to $2.9 trillion as a result 

of both businesses and individuals being impacted by 

the economic downturn. However, paper tax receipts 

collected through a lockbox network and paper 

federal tax deposits decreased by more than 28 percent 

compared with 2008, while electronic tax collections 

only decreased by 11 percent. This caused FMS’ metric 

“Percentage collected electronically of total dollar 

amount of Federal government receipts” to exceed its 

performance target by four percent, and show a four 

percent improvement over 2008.FMS regularly reaches 

out to the banking community to promote electronic 

collection, and is implementing marketing programs to 

encourage migration of paper-based collections to electronic collection systems and Pay.gov. Two initiatives to 

promote this migration would eliminate paper coupons 

for employment taxes, transferring them completely to 

electronic collection systems by 2011, and require certain classes of non-tax collections be paid electronically. 

Both proposals would help to significantly increase the 

percentage of electronic collections going forward.

The IRS metric “Customer Service Representative 

(CSR) Level of Service” met its performance target in 

fiscal year 2009 and improved on the prior fiscal year’s 

result by 33 percent. Demand for IRS customer service 

was unusually high in 2009, due largely to inquiries 

related to the Recovery Act, Rebate Recovery Credit 

and interest in electronic filing. Given the sunset for 

Recovery Act provisions and the Recovery Rebate 

Credit, the IRS does not anticipate a significant increase in the CSR Level of Service for fiscal year 2010.

IRS electronic filing metrics “Percent of Business 

Returns Processed Electronically” and “Percent of 

Individual Returns Processed Electronically” exceeded 

their performance targets by six percent and three 

percent, respectively, and each improved significantly 

over their fiscal year 2008 results by 18 percent and 

14 percent, respectively. Their favorable results can be 

attributed to changes in filing patterns, economic and 

demographic trends, legislative requirements, and IRS 

administrative processes. IRS expects the percentage of 

both business and individual returns filed electronically 

to increase in fiscal year 2010 based on recent experience, historical growth trends, increased marketing, 

and expanded programs aimed at boosting electronic 

filing. IRS will continue to pursue additional legislative 

mandates to increase electronic filing for businesses 

taxpayers, such as a provision for 2011 requiring taxpayers filing more than ten individual returns during a 

calendar year file electronically. 

CDFI’s metric “Number of full-time equivalent jobs 

created or maintained in underserved communities by 

businesses financed by CDFI program awardees” in 

fiscal year 2009 exceeded its performance target by 134 

percent and improved over the prior fiscal year’s actual 

result by 138 percent. The primary reason for this 

increase was the additional $90 million in Recovery 

Act funds added to the $57 million received under 

the regular budget. Targeted performance without the 

additional Recovery Act funding was 30,000 full-time 

jobs created or maintained; with Recovery Act funding, 70,000 full-time jobs were created. In addition, 

the amount of money CDFIs were able to attract from 

private investment reached nearly $1.3 billion, more 

than double the 2008 target of $635 million, due to 

commitments made before the full onset of the financial crisis. Based on the increased funding and private 

sector matching, in 2009 CDFIs were able to invest 

in projects that created or maintained 70,260 jobs, 

more than double the target of 30,000 jobs. With an 

anticipated drop in Recovery Act funding and private 

sector matching in 2009, it is unlikely that these results 

will be repeated in 2010.

Legend Symbol

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

46 Dertent f th

During fiscal year 2009, OCC’s metric “Rehabilitated 

national banks as a percentage of problem national banks one year ago (CAMELS 3, 4 or 5)” only 

achieved 73 percent of its performance target, dropping by 38 percent compared with fiscal year 2008. 

During fiscal year 2009, national banks continued to 

operate in a highly challenging and volatile environment. Deterioration in the housing and commercial 

real estate markets and the decline in general economic 

conditions directly impacted national banks’ financial 

condition and performance. OCC is identifying banks 

most vulnerable to current economic conditions, and 

is allocating bank supervision resources to areas and 

institutions of highest risk. For problem banks, OCC 

is working to develop specific plans to correct deficiencies in a timely manner and return the bank to a safe 

and sound condition. For all national banks, OCC is 

continuing to focus on quick response to deteriorating 

bank credit quality and on ensuring banks maintain 

adequate liquidity, loan loss reserves, and capital 

buffers. 

In fiscal year 2009, DO’s Office of Financial Stability, 

responsible for managing TARP, established new 

performance measures. These measures included the 

following:

• Clean audit opinion on TARP financial statements: For 2009, OFS received a clean audit 

opinion on TARP financial statements, a significant accomplishment given OFS’s very challenging first year of operations after standing up the 

organization.

• Percentage of SIGTARP and GAO oversight 

recommendations responded to on time: In fiscal 

year 2009, OFS responded to 100 percent of 

these oversight bodies’ recommendations on time. 

Going forward, OFS will continue working to ensure that all recommendations from the oversight 

bodies are responded to efficiently and effectively.

• Average days to close a FOIA case (after received 

by OFS): During fiscal year 2009, OFS went 

to great lengths to reduce the time required to 

respond to FOIA requests, and by the end of the 

fiscal year, averaged 67 days to close a FOIA case, a 

response time faster than the overall Treasury average. Going forward, OFS will continue working 

to further reduce the time taken to respond to all 

incoming FOIA requests.

TFI began applying its composite performance metric 

“Impact of TFI programs and activities” during fiscal 

year 2009. This metric consists of four overall focus 

areas, with additional detailed focus area components. 

These components align to performance goals established by TFI. In fiscal year 2009 this metric achieved 

a 7.81 rating out of 10 possible points. The external 

review process for this measure still needs to be developed, but the implementation of this measure is a large 

step in the effort to measure performance for a policy 

office that also has operational responsibilities. 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Sumay ofManagemen

Summary of Management and Performance 

Challenges and High Risk Areas 

Annually, the Treasury Office of Inspector General 

(OIG) and the Treasury Inspector General for Tax 

Administration (TIGTA) identify the most significant 

management and performance challenges facing the 

Department. The Government Accountability Office 

(GAO) identifies High Risk areas biennially. These 

challenges do not necessarily indicate deficiencies in 

performance; rather, some represent inherent risks that 

must be monitored continuously. Treasury made much 

progress on these issues in fiscal year 2009, and will 

continue to focus on resolving them during fiscal year 

2010.

Summaries of the IG-identified management challenges and GAO-identified high risks are below, along with 

Treasury’s progress and status ratings for each management challenge. For details, please refer to Appendix C 

for this year’s OIG and TIGTA memoranda identifying 

major management and performance challenges, and 

the Secretary’s responses.

TREASURY-WIDE MANAGEMENT CHALLENGES – AS IDENTIFIED BY OIG

MANAGEMENT CHALLENGE IMPORTANCE PROGRESS* STATUS*

Treasury’s New Authorities Related 

to Distressed Financial Markets

Protection of the taxpayer from unnecessary risk associated with 

the implementation of the program

Reasonable Meets Expectations

Regulation of National Banks and 

Thrifts

Prevent or better mitigate unsafe and unsound practices and 

protect the financial health of the banking industry

Reasonable Meets Expectations

Management of Recovery Act 

Programs

Ensure the programs achieve their intended purposes, provide 

for accountability and transparency, and are free from fraud and 

abuse

New New

Management of Capital Investments Effective use of taxpayer funds for large capital investments Significant Meets Expectations

Anti-Money Laundering and Terrorist 

Financing/ Bank Secrecy Act 

Reporting

U.S. and international financial systems that are safe Reasonable Meets Expectations

Information Security Ensure compliance to federal standards for protection of 

systems and information

Closed Closed

Corporate Management Overall agency performance/improved value for the taxpayer Closed Closed

* Determined by management
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

48 Sumay ofManage

IRS MANAGEMENT CHALLENGES – AS IDENTIFIED BY TIGTA

MANAGEMENT CHALLENGE IMPORTANCE PROGRESS* STATUS*

Modernization Improved taxpayer service and efficiency of operations Reasonable Meets Expectations

Security Appropriate protection of financial, personal, and other Reasonable Meets Expectations

information 

Tax Compliance Initiatives Improved compliance and fairness in the application of the tax Reasonable Meets Expectations

laws

Implementing Tax Law Changes Responsiveness to new tax provisions, including the Recovery Reasonable Meets Expectations

Act, and adjusting to expiring ones

Providing Quality Taxpayer Service Improved taxpayer service Reasonable Meets Expectations

Operations

Human Capital Enables the IRS to achieve its mission Significant Meets Expectations

Erroneous and Improper Payments Effective use of taxpayer funds Reasonable Adequate

and Credits

Globalization Increased outreach efforts to foreign governments on cross New New

border transactions

Taxpayer Protection and Rights Fairness in the application of the tax laws Reasonable Meets Expectations

Leveraging Data to Improve Program Resources that are focused on producing the best value for Significant Exceeds 

Effectiveness and Reduce Costs stakeholders Expectations

* Determined by management

LEGEND LEGEND

Progress Rating Description Status Rating Description

New A new management challenge in fiscal year 2009 New A new management challenge in fiscal year 2009

None No progress was made on the management Inadequate Regardless of progress made in fiscal year, the status challenge of the management challenge remains incomplete and 

Marginal Minimal progress was made on the management falls significantly short of expectations

challenge compared to the prior year Adequate The current status of the management challenge is 

Reasonable Progress was made in addressing the management acceptable but falls slightly short of expectations set 

challenge, improving from the prior year for the fiscal year

Significant A large amount of progress was made compared to Meets The current status of the management challenge 

the prior year assessment Expectations meets expectations set for the fiscal year

Exceeds The current status of the management challenge 

Expectations exceeds expectations set for the fiscal year

Closed Actions taken resulted in the elimination of the 

management challenge
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Sumay ofManagemen

HIGH RISK AREAS – AS IDENTIFIED 

BY GAO

ENFORCEMENT OF THE TAX LAWS

Problem: The IRS needs to improve its enforcement of 

tax laws, not only to catch tax cheats, but also to 

promote broader compliance by giving taxpayers 

confidence that others are paying their fair share.

Goal: Improve research on noncompliance, increase 

the use of third party information reporting, 

focus on improving standards among tax return 

preparers, and increase emphasis on international noncompliance. 

Challenges and Actions Taken/Planned:

Reduce the opportunity for evasion

• Offshore Private Banking Initiative – The largest 

bank in Switzerland agreed to provide the names 

of 4,450 of their U.S. account holders and to 

pay a $780 million fine, including $380 million 

to the IRS. Another bank entered into a deferred 

prosecution agreement to forfeit $340 million, 

the largest seizure in IRS history, in connection 

with violations of the International Emergency 

Economic Powers Act. Over 7,500 people 

submitted “voluntary disclosure” applications 

under the partial amnesty program that ended 

October 15, 2009.

• Offshore Merchant Account Initiative – A 

summons was issued to a large processor of 

merchant accounts to identify U.S. businesses 

that deposit unreported business receipts from 

debit and credit card sales in accounts in banks 

domiciled in secrecy jurisdictions. 

Target specific areas of noncompliance and improve 

voluntary compliance with extensive research

• The IRS maintained its focus on high-net worth 

individuals, flow through entities, and large 

corporations (assets > $10 million). The IRS 

conducted over 145,000 high-net worth audits, 

an increase of 11.2 percent. Audits of large 

corporations increased by 3.6 percent and the 

number of flow through audits remained over 

31,000.

• In fiscal year 2010, IRS will continue to expand 

its efforts to address international tax evasion, 

to expand the focus on corporate and high 

net-worth returns, to integrate significant 

new information reporting authorities into 

compliance programs, and to implement higher 

standards within the practitioner community to 

ensure that the proper amount of tax is paid.

IRS BUSINESS SYSTEMS 

MODERNIZATION

Problem: The Business Systems Modernization 

(BSM) program is developing and delivering 

a number of modernized systems to replace 

the aging business and tax processing systems 

currently in use. This effort is highly complex 

and scheduled to be carried out over a numbers 

of years, ultimately creating a more efficient 

and effective IRS. Though the IRS experienced 

delays and cost overruns in the early years of the 

effort, improved practices and oversight are now 

contributing to better delivery of outcomes.

Goal: Meet all BSM project milestones within a cost 

and schedule variance of 10 percent of the initial 

estimate.

Challenges and Actions Taken/Planned:

Fully implement all projects and programs for the 

BSM program

• In fiscal year 2009, the IRS revised its Customer 

Account Data Engine (CADE) strategy. BSM 

will continue the revised CADE strategy to 

implement the new taxpayer account database 

by the end of 2011 for the 2012 filing season. 

The new database will result in the migration 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

50 Sumay ofManage

of all 140 million individual taxpayers to a 

modernized, relational database that will support 

daily processing and result in faster refunds for 

all individual refund filers. Daily updating of all 

individual taxpayer accounts by 2012 also will 

improve taxpayer service and accuracy, reduce 

interest paid on late refunds, improve data 

security, and create new tools to combat fraud 

and improve enforcement activities. Completion 

of the taxpayer account database is the prerequisite for other major initiatives, including 

significant expansion of online services and 

transactions and the next generation of enforcement technologies.

MODERNIZING THE OUTDATED 

U.S. REGULATORY SYSTEM 

(NEWLY IDENTIFIED IN 2009)

Problem: The current financial system is a fragmented, 

complex arrangement of federal and state regulators that arose over the past 150 years, often in 

response to past crises.

Goal: Establish regulatory reform goals and a measurement plan.

Challenges and Actions Taken/Planned:

Promote robust supervision and regulation of 

financial firms

• A new Financial Services Oversight Council of 

financial regulators to identify emerging systemic risks and improve interagency cooperation.

• New authority for the Federal Reserve to supervise all firms that could pose a threat to financial 

stability, even those that do not own banks. 

• Stronger capital and other prudential standards 

for all financial firms, and even higher standards 

for large, interconnected firms. 

• A new National Bank Supervisor to supervise all 

federally chartered banks. 

• Elimination of the federal thrift charter and 

other loopholes that allowed some depository 

institutions to avoid bank holding company 

regulation by the Federal Reserve. 

• The registration of advisers of hedge funds and 

other private pools of capital with the Securities 

and Exchange Commission.

Establish comprehensive supervision of financial 

markets

• Enhanced regulation of securitization markets, 

including new requirements for market transparency, stronger regulation of credit rating 

agencies, and a requirement that issuers and 

originators retain a financial interest in securitized loans.

• Comprehensive regulation of all over-thecounter derivatives.

• A new regime to resolve nonbank financial 

institutions whose failure could have serious 

systemic effects.

• Revisions to the Federal Reserve’s emergency 

lending authority to improve accountability.

• New authority for the Federal Reserve to oversee 

payment, clearing, and settlement systems.

Protect comprehensive supervision of financial 

markets

• A new Consumer Financial Protection Agency 

to protect consumers across the financial sector 

from unfair, deceptive, and abusive practices.

• Stronger regulations to improve the transparency, fairness, and appropriateness of consumer 

and investor products and services.

• A level playing field and higher standards for 

providers of consumer financial products and 

services, whether or not they are part of a bank.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Sumay ofManagemen

Provide the government with the tools it needs to 

manage financial crises

• A new regime to resolve nonbank financial 

institutions whose failure could have serious 

systemic effects.

• Revisions to the Federal Reserve’s emergency 

lending authority to improve accountability.

Raise international regulatory standards and 

improve international cooperation

• International reforms to support our efforts 

at home, including strengthening the capital 

framework; improving oversight of global 

financial markets; coordinating supervision of 

internationally active firms; and enhancing crisis 

management tools.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

52

Anlys

Analysis of Financial Statements

 

CONDENSED BALANCE SHEET: (in Millions) 2009 2008

 Due From the General Fund $ 11,992,719 $ 10,100,763

 Other Intra-governmental Assets 923,457 551,115

 Cash, Foreign Currency, and Other Monetary Assets 341,308 387,270 

 Gold and Silver Reserve 11,062 11,062 

 Investments and Related Interest 13,565 10,576

 Tax, Other Related Interest Receivables, Net 30,408 30,878 

Asset Guarantee 1,7650

Investments-Credit Reform 203,1410

Investments in Government Sponsored Enterprises 64,679 7,032

Credit Program Receivables, Direct Loans 219,170 3,385

Beneficial Interest in Trust 23,4720

 Other Assets 21,855 14,957

Total Assets$ 13,846,601 $ 11,117,038 

 Federal Debt and Interest Payable $ 11,962,385 $ 10,075,108

 Other Intra-governmental Liabilities 1,275,613 681,621 

 Other Liabilities 180,547 50,598 

Total Liabilities 13,418,545 10,807,327

 Unexpended Appropriations 455,144 271,968 

 Cumulative Results of Operations (27,088) 37,743 

Total Net Position

$ 428,056 $ 309,711

Total Liabilities and Net Position

$ 13,846,601 $ $11,117,038 

CONDENSED STATEMENT OF NET COST: (in Millions) 2009 2008

 Net Financial Program Cost $ 13,055 $ 12,287 

 Net Economic Program (Revenue)/Cost 195,705 14,048 

 Net Security Program Cost 322 342 

 Net Management Program Cost

Total Net Cost of Treasury Operations

509 466

209,591 27,143 

 Net Federal Costs (primarily interest on the Federal Debt) $ 313,341 $ 442,208 

CONDENSED STATEMENT OF CUSTODIAL ACTIVITY: (in Millions) 2009 2008

 Individual and FICA Taxes $ 2,036,557 $ 2,294,326

 Corporate Income Taxes 225,482 354,063

 Other Revenues 139,648 144,218

Total Revenue Received 2,401,687 2,792,607

 Less Refunds

Net Revenue Received

(437,972) (426,074)

1,963,715 2,366,533

Beneficial Interest in Trust 23,472–

 Accrual Adjustment

Total Custodial Revenue

(1,097) 3,132

1,986,090 2,369,665 

 Amounts Provided to Fund the Federal Government 1,963,228 2,366,126

 Other Agencies 487 407

Beneficial Interest in Trust 23,472–

 Accrual Adjustment (1,097) 3,132

Total Disposition of Custodial Revenue

Net Custodial Revenue Activity 

1,986,090 2,369,665

$ 0 $ 0 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Anlysis 

 

CONDENSED STATEMENT OF CHANGES IN NET POSITION: (in Millions) 2009 2008

 Beginning Balance $ 37,743 $ 48,782

 Budgetary Financing Sources 668,894 482,150

 Other Financing Sources (Uses)

 Total Financing Sources

(210,793) (23,838)

458,101 458,312

 Net Cost of Operations

 Net Change

Cumulative Results of Operations

 Beginning Balance

(522,932) (469,351)

(64,831) (11,039) 

(27,088) 37,743 

$ 271,968 $ 72,317

 Appropriations Received 855,762 681,473

 Appropriations Used (668,153) (481,735)

 Other (4,433) (87)

 Total Budgetary Financing Sources

Total Unexpended Appropriations

Net Position - Year End

 

183,176 199,651

455,144 271,968

$ 428,056 $ 309,711

 

CONDENSED STATEMENT OF BUDGETARY RESOURCES:

 Unobligated Balances, Brought Forward

(in Millions) 2009 2008

$ 284,630 $ 57,450

 Recoveries of Prior Year Obligations 8,096 413 

 Budget Authority 1,814,086 722,859 

 Other Budget Authority

Total Budgetary Resources

 Obligations Incurred

(271,778) (8,558) 

$ 1,835,034 $ 772,164

1,387,195 487,534

 Unobligated Balance 413,998 273,235 

 Unobligated Balance, Not Available

Total Status of Budgetary Resources

 Total Unpaid Obligated Balances, Net

33,841 11,395 

$ 1,835,034 $ 772,164

$ 56,977 $ 57,393

 Obligations Incurred, Net $ 1,387,195 $ 487,534 

 Gross Outlays $ (1,248,916) $ (487,608) 

 Recoveries of Prior Year Unpaid Obligations, Actual $ (8,096) $ (413) 

 Changes in Uncollected Customer Payments Federal $ (28,748) $ 71 

Total Unpaid Obligated Balance, Net, End of Year $ 158,412 $ 56,977

Net Outlays $ 922,165 $ 462,868

 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

54 Anlys

SUMMARY OF AUDITOR’S REPORT ON 

THE TREASURY DEPARTMENT’S FINANCIAL STATEMENTS

The Department received an unqualified audit opinion on its fiscal year 2009 financial statements. As summarized in the table below, the auditor reported two material weaknesses. The auditor also reported significant 

deficiencies related to financial reporting at the Office of Financial Stability and information system controls at 

the Financial Management Service. The auditor also reported an instance of noncompliance with laws and regulations related to Section 6325 of the Internal Revenue Code and that the Department’s financial management 

systems did not substantially comply with the requirements of the Federal Financial Management Improvement Act 

of 1996.

SUMMARY OF FINANCIAL STATEMENT AUDIT

AUDIT OPINION UNQUALIFIED

Restatement No

Material Weaknesses

Beginning 

Balance New Resolved Consolidated

Ending 

Balance

Financial Systems and Reporting at the IRS 1 1 0 0 2

Financial Management Practices at the Departmental Level (new)

LIMITATIONS ON THE PRINCIPAL FINANCIAL STATEMENTS 

The principal financial statements have been prepared to report the financial position and results of operations 

of the Department of the Treasury, pursuant to the requirements of 31 U.S.C. 3515 (b). While the statements 

have been prepared from the books and records of the Department of the Treasury, in accordance with generally 

accepted accounting principles (GAAP) for federal entities and the formats prescribed by OMB, the 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 should be read with the realization that they are for a component of a sovereign entity, 

that liabilities not covered by budgetary resources cannot be liquidated without the enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the sovereign entity.

MAJOR HIGHLIGHTS

The following provides the highlights of Treasury’s financial position and results of operations for fiscal year 2009.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Anlysis 

MAJOR HIGHLIGHTS

The following provides the major highlights of 

Treasury’s financial position and results of operations 

for fiscal year 2009. 

Assets. Total assets increased from $11.1 trillion 

at September 30, 2008 to $13.8 trillion at 

September 30, 2009. The primary reason for 

the increase is the rise in the federal debt, which 

causes a corresponding rise in the “Due from the 

General Fund of the U.S. Government” account 

($12.0 trillion). This account represents future 

funds required from the General Fund of the 

U.S. Government to pay borrowings from the 

public and other federal agencies. 

The majority of loans and interest receivable ($410.6 billion) included in “Intragovernmental” assets are the loans issued by 

the Bureau of the Public Debt to other federal 

agencies for their own use or to private sector 

borrowers, whose loans are guaranteed by the 

federal agencies.

Total Assets

11%

Other Assets

3%

Intra-governmental

Loans and Interest

Receivable

86%

Due from the 

General Fund

Liabilities. Intra-governmental liabilities totaled $5.7 

trillion, and include $4.4 trillion of principal 

and interest payable to various federal agencies, 

such as the Social Security Trust Fund. These 

borrowings do not include debt issued separately 

by other governmental agencies, such as the 

Tennessee Valley Authority or the Department 

of Housing and Urban Development. 

Liabilities also include federal debt held by the 

public, including interest, of $7.6 trillion; this 

debt was mainly issued as Treasury Notes. The 

increase in total liabilities in fiscal year 2009 

over fiscal year 2008 ($2.6 trillion and 24.2 

percent), is the result of increases in borrowings 

from various federal agencies ($140.7 billion), 

and federal debt held by the public, including interest, ($1.75 trillion). Debt held by the 

public increased primarily because of the need to 

finance budget deficits.

Total Liabilities

11%

Other Liabilities

56%

Federal Debt

and

Interest Payable

(held by 

the public)

33%

Federal Debt

and

Interest Payable

(held by other 

federal agencies)
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

56 Anlys

Net Cost of Treasury Operations. The 

Consolidated Statement of Net Cost presents 

the Department’s gross and net cost for its 

four strategic missions: financial program, 

economic program, security program, and 

management program. The majority of the Net 

Cost of Treasury Operations is in the economic 

program which includes Troubled Asset Relief 

Program (TARP) activity and investments in 

the Government Sponsored Enterprises (GSEs). 

Financial program costs include costs associated 

with Treasury’s role as the primary fiscal agent 

for the Federal Government in managing the 

nation’s finances by collecting revenue, making 

federal payments, managing federal borrowing, 

performing central accounting functions, and 

producing coins and currency sufficient to meet 

the demand. 

Net Cost of Treasury Operations (in millions) Dollars (in millions)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

FINANCIAL ECONOMIC

PROGRAM COSTS

SECURITY MANAGEMENT

$13,055

$195,705

$322 $509

Net Cost of Treasury Operations (in billions) Dollars (in billions)

$0

$100

$200

$300

FY05 FY06 FY07 FY08 FY09

$13.80 $14.00 $12.00 $27.10

$209.59

Net Federal Debt Interest Costs. The decrease of 

$77.7 billion in net interest paid on the federal 

debt is due to the decrease in the average interest 

rate for debt held by federal entities and federal 

debt held by the public.

Net Federal Debt Interest Cost (in billions) Dollars (in billions)

$0

$100

$200

$300

$400

$500

FY05 FY06 FY07 FY08 FY09

$342.4

$390.9 $420.4 $440.9

$363.2

Custodial Revenue. Total net revenue collected by 

Treasury on behalf of the Federal Government 

includes various taxes, primarily income taxes, 

user fees, fines and penalties, and other revenue. 

Over 94.2 percent of the revenues are from 

income and social security taxes. 

Total Revenue

9%

Corporate

Income Taxes

85%

Individual Income

and FICA Taxes

6%

Other Revenue

Net Revenue Received (in trillions) Dollars (in trillions)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

FY05 FY06 FY07 FY08 FY09

$2.04

$2.28 $2.45 $2.37

$1.99
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

ImproperPayments

Improper Payments Information Act 

and Recovery Auditing Act

TREASURY’S RISK ASSESSMENT 

METHODOLOGY AND RESULTS FOR 

FISCAL YEAR 2009

Each year, Treasury develops a comprehensive inventory of all funding sources and conducts a risk assessment for improper payments on all of its programs 

and activities. The risk assessment performed on all of 

Treasury’s programs and activities in fiscal year 2009 

resulted in low and medium risk susceptibility for 

improper payments except for the Internal Revenue 

Service’s (IRS) Earned Income Tax Credit (EITC) 

program. The high-risk status of this program is welldocumented and has been deemed a complex program 

for the purposes of the IPIA.

EARNED INCOME TAX CREDIT 

The EITC is a refundable tax credit that offsets 

income tax owed by low-income taxpayers and, if 

the credit exceeds the amount of taxes due, provides 

a lump-sum payment in the form of a refund to 

those who qualify. The fiscal year 2009 estimate is 

that a maximum of 28 percent ($13.3 billion) and a 

minimum of 23 percent ($11.2 billion) of the EITC 

total program payments are overclaims. 

The IRS has a robust base enforcement program for 

the EITC which consists of examinations (audits), 

math error notices, and document matching. In fiscal 

year 2009 the IRS expanded its approach to decrease 

improper payments.

IMPROPER PAYMENTS 

INFORMATION ACT

BACKGROUND

The Improper Payments Information Act of 2002 (IPIA) 

requires agencies to review their programs and activities 

annually to identify those susceptible to significant improper payments. According to Office of Management 

and Budget (OMB) Circular A-123, Management’s 

Responsibility for Internal Control, Appendix C, 

Requirements for Effective Measurement and Remediation 

of Improper Payments (A-123, Appendix C), “significant” means that an estimated error rate and a dollar 

amount exceed the threshold of 2.5 percent and $10 

million of total program funding. A-123, Appendix 

C also requires the agency to implement a corrective 

action plan that includes improper payment reduction 

targets.

However, some federal programs are so complex that 

developing an annual error rate is not feasible. The 

government-wide Chief Financial Officers Council 

developed an alternative for such programs to assist 

them in meeting the IPIA requirements. Agencies may 

establish an annual estimate for a high-risk component 

of a complex program (e.g., a specific program population) with OMB approval. Agencies must also perform 

trend analyses to update the program’s baseline error 

rate in the interim years between detailed program 

studies. When development of a statistically valid error 

rate is possible, the reduction targets are revised and 

become the basis for future trend analyses. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

58 ImproperPayme

RECOVERY AUDITING ACT

BACKGROUND

In accordance with the Recovery Auditing Act of 2002, 

OMB Circular A-123, Appendix C, requires agencies 

issuing $500 million or more in contracts to establish 

and maintain recovery auditing activities and report on 

the results of those recovery efforts annually. Recovery 

auditing activities include the use of (1) contract 

audits, in which an examination of contracts pursuant to the audit and records clause incorporated in 

the contract is performed, (2) contingency contracts 

for recovery services in which the contractor is paid a 

percentage of the recoveries, and (3) internal review 

and analysis in which payment controls are employed 

to ensure that contract payments are accurate.

For Recovery Auditing Act compliance, Treasury 

requires each bureau and office to review their postpayment controls and report on recovery auditing 

activities, contracts issued, improper payments identified, and recoveries achieved. Bureaus and offices may 

use recovery auditing firms to perform many of the 

steps in their recovery program and identify candidates 

for recovery action. 

RESULTS FOR FISCAL YEAR 2009 

During fiscal year 2009, $5.3 billion in contracts (defined as issued and obligated contracts, modifications, 

task orders, and delivery orders) were issued. Improper 

payments in the amount of $1.5 million were identified from recovery auditing efforts and $1.4 million 

has been recovered, including prior year recoveries, 

with $117,630 outstanding as accounts receivable on 

September 30, 2009. 

Note: Additional detail on Treasury’s IPIA and 

Recovery Auditing Act Programs can be found in 

Appendix B.
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Manage

Management Assurances

THE SECRETARY’S LETTER OF ASSURANCE

The Department of the Treasury’s management is responsible for establishing and maintaining effective 

internal control and financial management systems that meet the objectives of the Federal Managers’ 

Financial Integrity Act (FMFIA). Treasury has evaluated its management controls, internal controls over 

financial reporting, and compliance with federal financial systems standards. As part of the evaluation 

process, we considered results of extensive testing and assessment across the Department and independent 

audits.

Treasury provides assurance that the objectives of the Federal Managers’ Financial Integrity Act over 

operations have been achieved, except for the material weaknesses noted below. In accordance with OMB 

Circular A-123, Appendix A, we provide qualified assurance on internal control over financial reporting 

based on the results of the assessment for the period ending June 30, 2009. Treasury is not in substantial 

compliance with the Federal Financial Management Improvement Act due to the material weakness involving revenue accounting systems. 

As of September 30, 2009, Treasury has five material weaknesses as follows (with resolution time frames 

indicated):

Operations:

Internal Revenue Service

• Improved Modernization Management Controls Processes (fiscal year 2011)

• Computer Security (fiscal year 2012)

Financial Management Service

• Systems, Controls, and Procedures to Prepare the Government-wide Financial Statements 

(fiscal year 2012)

Financial Reporting:

Internal Revenue Service

• Financial Accounting of Revenue-Custodial (fiscal year 2010)

Treasury Departmental Offices

• Financial Management Practices (fiscal year 2010)

The external auditors identified one new material weakness in 2009. Treasury is taking action to address 

this issue in fiscal year 2010. Overall, Treasury continues to make progress in reducing management and 

control weaknesses and in meeting federal financial systems requirements.

Timothy F. Geithner 

December 15, 2009
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

60 Material Weanes

Material Weaknesses, Audit Follow-up, 

and Financial Systems

SUMMARY OF MANAGEMENT ASSURANCES

SUMMARY OF MATERIAL WEAKNESSES

Material Weaknesses

Beginning 

Balance New Resolved Consolidated Reassessed

Ending 

Balance

IRS - Financial Accounting of Revenue - Custodial 1 0 0 0 0 1 

IRS - Improve Modernization Management Controls and Processes 1 0 0 0 0 1

IRS - Computer Security 1 0 0 0 0 1

FMS - Systems, Controls, and Procedures to Prepare the 

Government-wide Financial Statements

1 0 0 0 0 1

DO - Financial Management Practices 0 1 0 0 0 1

Total Material Weaknesses 4 1 0 0 0 5

As of September 30, 2009, Treasury has five material weaknesses under Section 2 of the Federal Managers’ 

Financial Improvement Act as shown in the tables below.

EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING (FMFIA § 2)

Statement of Assurance Qualified

Beginning Ending 

Material Weaknesses Balance New Resolved Consolidated Reassessed Balance

IRS - Financial Accounting for Revenue - Custodial 1 0 0 0 0 1 

DO - Financial Management Practices 0 1 0 0 0 1

Total Material Weaknesses 1 1 0 0 0 2

EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS (FMFIA § 2)

Statement of Assurance Qualified

Beginning Ending 

Material Weaknesses Balance New Resolved Consolidated Reassessed Balance

IRS - Improve Modernization Management Controls and Processes 1 0 0 0 0 1

IRS - Computer Security 1 0 0 0 0 1

FMS - Systems, Controls, and Procedures to Prepare the 1 0 0 0 0 1

Government-wide Financial Statements

Total Material Weaknesses 3 0 0 0 0 3

CONFORMANCE WITH FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS (FMFIA § 4)

Statement of Assurance Systems conform to financial management system requirements

Beginning Ending 

Non-Conformances Balance New Resolved Consolidated Reassessed Balance

Total Non-conformances 0 0 0 0 0 0
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Material Weaknsses ,

COMPLIANCE WITH FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT (FFMIA)

Agency Auditor

Overall Substantial Compliance No No

1. System Requirements No

2. Accounting Standards No

3. USSGL at Transaction Level No

Each year material weaknesses, both the resolution of 

existing ones and the prevention of new ones, receive 

special attention from management. In fiscal year 

2009, Treasury continued to make resolution of material weaknesses a performance requirement for every 

executive, manager, and supervisor.

OFFICE OF MANAGEMENT 

AND BUDGET CIRCULAR A-123, 

APPENDIX A 

The Department continues to strengthen and improve 

the execution of the Treasury mission through the 

application of sound internal controls over financial 

reporting. In response to Office of Management 

and Budget (OMB) Circular A-123, Management’s 

Responsibility for Internal Control, Appendix A, Internal 

Control over Financial Reporting, Treasury developed 

and implemented an extensive annual testing and 

assessment methodology that identified and documented internal controls over financial reporting at 

the transaction level integrated with the Government 

Accountability Office’s Standards for Internal Control. 

The testing and assessment were completed across all 

material Treasury bureaus and offices by June 30, 2009. 

Treasury provides qualified assurance that internal 

controls over financial reporting are effective as of June 

30, 2009, due in large part to the computer security 

and financial accounting of revenue - custodial weaknesses at the Internal Revenue Service.

FEDERAL MANAGERS’ FINANCIAL 

INTEGRITY ACT (FMFIA)

The management control objectives under FMFIA are 

to reasonably ensure that: 

• programs achieve their intended results

• resources are used consistent with overall mission 

• programs and resources are free from waste, fraud, 

and mismanagement 

• laws and regulations are followed 

• controls are sufficient to minimize any improper 

or erroneous payments 

• performance information is reliable 

• system security is in substantial compliance with 

all relevant requirements 

• continuity of operations planning in critical areas 

is sufficient to reduce risk to reasonable levels 

• financial management systems are in compliance 

with federal financial systems standards 

Deficiencies that seriously affect an agency’s ability 

to meet these objectives are deemed “material weaknesses.” Treasury can provide assurance that the objectives of the FMFIA have been achieved, except for the 

material weaknesses noted in the Secretary’s Letter of 

Assurance, which include one new weakness identified 

by the external auditors in November 2009. Although 

the last open material weakness is targeted to be closed 

in fiscal year 2012, Treasury is focusing on making 

sufficient progress to downgrade the weakness sooner.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

62 Material Weaknsse

FEDERAL FINANCIAL MANAGEMENT 

IMPROVEMENT ACT (FFMIA) 

FFMIA mandates that agencies “... implement and 

maintain financial management systems that comply 

substantially with federal financial management 

systems requirements, applicable federal accounting 

standards, and the United States Government Standard 

General Ledger at the transaction level.” FFMIA also 

requires that remediation plans be developed for any 

entity that is unable to report substantial compliance 

with these requirements.

As of September 30, 2009, the Treasury Department’s 

financial management systems were not in substantial 

compliance with FFMIA due to deficiencies with the 

IRS’s financial management systems. The IRS has a remediation plan in place to correct the deficiencies. For 

each FFMIA recommendation, the remediation plan 

identifies specific remedies, target dates, responsible officials, and resource estimates required for completion. 

This plan is reviewed and updated quarterly. (Refer to 

Appendix D for detailed information.) 

AUDIT FOLLOW-UP

During fiscal year 2009, Treasury continued its efforts 

to improve both the general administration of management and internal control issues throughout the 

Department and the timeliness of the resolution of all 

findings and recommendations identified by the Office 

of the Inspector General (OIG), the Treasury Inspector 

General for Tax Administration (TIGTA), the Special 

Inspector General for the Troubled Asset Relief 

Program (SIGTARP), the Government Accountability 

Office, and external auditors.

Treasury management at every level will maintain the 

momentum on accomplishing Planned Corrective 

Actions (PCAs) to resolve and implement sound 

solutions for all audit recommendations. Although 

Treasury has made great progress, considerably more 

work remains. Specifically, Treasury must provide 

timely and accurate performance to address PCA 

schedules and implementation and integrate the effects 

of those actions more fully into management decisionmaking processes. Treasury needs to identify more 

precisely what it costs to accomplish its varied missions 

and develop ways to improve overall performance. This 

will entail building upon the progress made in expanding the communication and coordination among 

offices variously involved in strategic planning, budget 

formulation, budget execution, performance management, and financial management.

FINANCIAL MANAGEMENT 

SYSTEMS FRAMEWORK

The Department’s overall financial management 

systems framework consists of a Treasury-wide financial 

data warehouse, supported by a financial reporting tool 

and separate bureau financial systems. Currently, 14 

bureaus are serviced by the Bureau of the Public Debt’s 

Administrative Resource Center (BPD ARC) for core 

financial system processing. Bureaus submit their 

monthly financial data to the data warehouse within 

three business days of the month-end. The Department 

then produces monthly financial statements and 

reports for management analysis. This framework satisfies both the bureaus’ diverse financial operational and 

reporting needs, as well as the Department’s internal 

and external reporting requirements. The financial data 

warehouse is part of the overarching Treasury-wide 

Financial Analysis and Reporting System (FARS), 

which also includes applications for the bureaus to 

report the status of their performance measures and 

the status of their planned audit corrective actions. 

In addition to the existing FARS applications, the 

Department is reviewing options for implementing 

a new fleet management application. The fleet application would maintain a consolidated inventory 

of Treasury vehicles to enhance management control 

and reporting. Treasury is evaluating existing government owned and operated systems to support this 

functionality. 
PART 1 • MANAGEMENT’S DISCUSSION AND ANALYSIS

Material Weaknsses ,

Treasury’s FARS applications operate at a contractor 

operated hosting facility. In accordance with the guidance contained in the American Institute of Certified 

Public Accountants’ Statement of Auditing Standards 

(SAS) No. 70, Service Organizations, the service 

provider’s independent auditors examined the controls 

for the dedicated hosting service. In the opinion of 

the auditors, the description of the controls presents 

fairly, in all material respects, the relevant aspects of the 

provider’s controls that had been placed in operation 

as of September 30, 2009. Also, the controls described 

are suitably designed to provide reasonable assurance 

that the specified control objectives would be achieved 

if the described controls were complied with satisfactorily and customer organizations applied the controls 

contemplated in the design of the provider’s controls.

The Department continues to eliminate redundant and 

outdated financial management systems with the goal 

of consolidating financial management activities to 

improve productivity. As of September 30, 2009, the 

number of financial management systems decreased to 

55, down from 60 at the end of fiscal year 2008. Many 

of these systems support bureau-specific program functions, while others support internal bureau financial 

management. These systems are either maintained and 

operated by the individual bureaus, or provided on a 

cross-serviced basis by BPD ARC. 

BPD ARC has been designated by OMB as a Financial 

Management Line of Business Shared Service Provider 

(SSP). A SSP provides financial management systems 

and services for other federal organizations. BPD ARC 

currently services 29 federal entities for core financial 

systems, including 14 Treasury bureaus and reporting 

entities. Using a SSP enables the bureaus to streamline 

their financial management activities and achieve more 

efficient and cost effective business performance by 

reducing maintenance and operational costs. Treasury 

will continue to evaluate opportunities to consolidate 

financial management systems and better utilize existing federal resources. The Department will work with 

the remaining bureaus to develop plans to migrate to 

Treasury’s SSP for core financial systems in accordance 

with the Financial Management Line of Business 

requirements.

As part of the Department’s E-Government initiative, 

BPD ARC also provides systems and service support to 

14 Treasury bureaus in the processing of their human 

resources and travel activities. BPD ARC’s human 

resource management system supports the bureaus’ 

specific human resources needs and provides consolidated systems and resources. BPD ARC’s consolidated 

travel system and activity processing has reduced 

redundant systems and merged travel processes.

The Department’s FARS applications have also been 

used to support other federal agencies. Since the 

initial start of the Department of Homeland Security 

(DHS), Treasury serviced DHS in the preparation of 

its consolidated financial statements. Beginning with 

fiscal year 2009, DHS implemented the FARS financial applications in its own systems environment and 

is now generating its financial statements and reports. 

As a result of this arrangement, DHS was able to take 

advantage of existing government systems and did not 

have to develop new systems to support its financial 

reporting requirements. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

64

This page left intentionally blank

Matknesses-up an
Part 2

Annual Financial Report

67

Message from the Assistant Secretary for Management 

and Chief Financial Officer

December 15, 2009

Secretary Geithner’s message describes the extraordinary actions the Department 

of the Treasury has taken to help stabilize the nation’s financial systems and provide the foundation for a sustainable economic recovery. Following the enactment 

of the Housing and Economic Recovery Act in July 2008 and the Emergency 

Economic Stabilization Act in early fiscal year 2009, Treasury took bold and assertive action to restore confidence in the financial system and ease the housing crisis.

Building upon this effort, with the enactment of the American Recovery and 

Reinvestment Act (Recovery Act) just weeks after the new Administration took 

office, Treasury quickly implemented additional new programs to stimulate the 

economy. Treasury’s Recovery Act programs include:

•	 tax benefits to more than 110 million families, or 95 percent of working 

families; 

•	 providing numerous tax incentives for businesses and households; 

•	 supporting local and state government development;

•	 creating new methods of low cost borrowing; and

•	 investing in renewable energy, low income housing, and health care. 

These programs have positively impacted the lives of millions of Americans. Treasury has taken a risk-based approach and is focused on balancing the requirements of speed, quality, and accountability to ensure that Recovery 

Act funds are distributed quickly and accurately.

The magnitude and complexity of these new economic stabilization programs coupled with the large volume and 

dollar amounts of these programs made the preparation and audit of the fiscal year 2009 financial statements a 

difficult undertaking. Despite these challenges, the Department received an unqualified audit opinion on both 

our new Office of Financial Stability/Troubled Asset Relief Program and again on our Treasury-wide fiscal year 

2009 financial statements. The Department has five material weaknesses, including one new area of concern, 

regarding financial management practices at the departmental level. This new area of weakness is directly related 

to Treasury's expanded roles and programs. We are taking corrective action to address this area in 2010. We also 

made substantial progress on the four existing material weaknesses open as of September 30, 2008. Those weaknesses involve complex solutions that will require several years of sustained efforts to resolve. The Department is 

PART 2 • ANNUAL FINANCIAL REPORT

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND CHIEF FINANCIAL OFFICER
68

also continuing to devote special attention to programs included in the Government Accountability Office's High 

Risk List and management and performance challenges identified by the Department’s Inspectors General. These 

challenges do not necessarily indicate deficiencies in performance – rather, they represent inherent risks based on 

the nature of Treasury’s programs and will be monitored continuously.

While Treasury has already executed extraordinary measures to stabilize our economy, we will continue to take 

bold and assertive action to restore America’s confidence in the financial system, ease the housing crisis, and put 

our country back on a path of sustainable economic and job growth. 

Dan Tangherlini

Assistant Secretary for Management

and Chief Financial Officer

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND CHIEF FINANCIAL OFFICER
69PART 2 • ANNUAL FINANCIAL REPORT

INSPECTOR GENERAL'S TRANSMITTAL LETTER
70DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

INSPECTOR GENERAL'S TRANSMITTAL LETTER
PaRT 2 • annual fInanCIal RePoRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 71

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036 

Independent Auditors’ Report 

Inspector General 

U.S. Department of the Treasury:

We have audited the accompanying consolidated balance sheets of the U.S. Department of the Treasury 

(Treasury Department) as of September 30, 2009 and 2008, and the related consolidated statements of net 

cost, and changes in net position, combined statements of budgetary resources, and the statements of 

custodial activity (hereinafter referred to as “consolidated financial statements”) for the years then ended. 

The objective of our audits was to express an opinion on the fair presentation of these consolidated 

financial statements. These consolidated financial statements are incorporated in the accompanying U.S.

Department of the Treasury Fiscal Year 2009 Agency Financial Report (AFR).

We did not audit the amounts included in the consolidated financial statements related to the Internal 

Revenue Service (IRS) and the Office of Financial Stability (OFS), component entities of the Treasury 

Department. The financial statements of the IRS and the OFS were audited by another auditor whose 

reports thereon have been provided to us. Our opinions, insofar as they relate to the amounts included for 

the IRS and the OFS, are based solely on the reports of the other auditor. 

In connection with our fiscal year 2009 audit, we, and the other auditor, also considered the Treasury 

Department’s internal control over financial reporting and tested the Treasury Department’s compliance 

with certain provisions of applicable laws, regulations, contracts, and grant agreements that could have a 

direct and material effect on these consolidated financial statements. Our conclusions on internal control 

over financial reporting and compliance and other matters, insofar as they relate to the IRS and the OFS, 

are based solely on the reports of the other auditor. 

Summary 

As stated in our opinion on the consolidated financial statements, based on our audits and the reports of the 

other auditor, we concluded that the Treasury Department’s consolidated financial statements as of and for 

the years ended September 30, 2009 and 2008, are presented fairly, in all material respects, in conformity 

with U.S. generally accepted accounting principles. 

As discussed in Note 29, the Treasury Department is a participant in significant legislation and transactions 

whose purpose is to assist in stabilizing the financial markets. 

Notes 1A, 8, 9, and 12, respectively, discuss the following matters: 

• Treasury Department’s consolidated financial statements do not include the assets, liabilities, or results 

of operations of commercial entities in which the Treasury Department has a significant equity interest 

as the Treasury Department has determined that none of these entities meet the criteria of a federal 

entity and are therefore not included in the Treasury Department’s consolidated financial statements. 

• The valuation of certain Treasury Department’s investments, loans, and asset guarantees 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 be 

differences between the net estimated value of these investments, loans, and asset guarantees at 

KPMG LLP, a U.S. limited liability partnership, is the U.S. 

member firm of KPMG International, a Swiss cooperative. 
DEpARtmEnt oF thE tREASuRY • AgEnCY FInAnCIAL REpoRt • FISCAL YEAR 2009

72 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 2 of 14 

September 30, 2009, and the amounts that the Treasury Department will ultimately realize from these 

assets. Such differences may be material and will also affect the ultimate cost of the programs to the 

Treasury Department. 

Our, and the other auditor’s, consideration of internal control over financial reporting identified significant 

deficiencies in the following areas: 

• Financial Management Practices at the Departmental Level (Repeat Condition) 

• Financial Systems and Reporting at the IRS (Repeat Condition) 

• Financial Accounting and Reporting at the Office of Financial Stability (OFS) 

• Information System Controls at the Financial Management Service (FMS)

We consider the significant deficiencies related to Financial Management Practices at the Departmental 

Level, and Financial Systems and Reporting at the IRS noted above to be material weaknesses. 

The results of our tests, and the tests performed by the other auditor, of compliance with certain provisions 

of laws, regulations, contracts, and grant agreements disclosed an instance of noncompliance with Internal

Revenue Code (IRC) Section 6325, that is required to be reported under Government Auditing Standards,

issued by the Comptroller General of the United States, and Office of Management and Budget (OMB) 

Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, as amended. In addition, the 

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

Financial Management Improvement Act of 1996 (FFMIA) requirements related to compliance with 

Federal financial management system requirements (FFMSR), applicable Federal accounting standards, 

and the U.S. Government Standard General Ledger (SGL) at the transaction level. 

The following sections discuss our opinion on the Treasury Department’s consolidated financial 

statements; our, and the other auditor’s, consideration of the Treasury Department’s internal controls over 

financial reporting; our, and the other auditor’s tests of the Treasury Department’s compliance with certain 

provisions of applicable laws, regulations, contracts, and grant agreements; and management’s and our 

responsibilities. 

Opinion on the Financial Statements 

We have audited the accompanying consolidated balance sheets of the Department of the Treasury as of 

September 30, 2009 and 2008, and the related consolidated statements of net cost, changes in net position, 

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

ended.

We did not audit the amounts included in the consolidated financial statements related to the IRS, a 

component entity of the Treasury Department, which reflect total assets of $36.8 billion and $35.6 billion, 

net costs of operations of $12.5 billion and $12.2 billion, budgetary resources of $12.8 billion and $12.2 

billion, and custodial revenues of $2.3 trillion and $2.7 trillion, before applicable eliminating entries, as of 

and for the years ended September 30, 2009 and 2008, respectively. The financial statements of the IRS as 

of and for the years ended September 30, 2009 and 2008, were audited by another auditor whose report 

dated November 5, 2009, has been provided to us, and our opinion, insofar as it relates to the amounts 

included for the IRS, is based solely on the report of the other auditor. 
PaRT 2 • annual fInanCIal Re

P

oRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 73

U.S. Department of the Treasury

December 15, 2009 

Page 3 of 14 

We did not audit the amounts included in the consolidated financial statements related to the OFS, a 

component entity of the Treasury Department, which reflect total assets of $337.4 billion, net costs of 

operations of $41.6 billion and budgetary resources of $699.4 billion, before applicable eliminating entries, 

as of and for the year ended September 30, 2009. The financial statements of the OFS as of and for the 

year ended September 30, 2009, were audited by another auditor whose report dated December 4, 2009, 

has been provided to us, and our opinion, insofar as it relates to the amounts included for the OFS, is based 

solely on the report of the other auditor. 

In our opinion, based on our audits, and the reports of the other auditor, 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, 2009 and 2008, and its net costs, changes in net position, budgetary 

resources, and custodial activity for the years then ended, in conformity with U.S. generally accepted 

accounting principles. 

As discussed in Note 29, the Treasury Department is a participant in significant legislation and transactions 

whose purpose is to assist in stabilizing the financial markets. 

Notes 1A, 8, 9, and 12, respectively, discuss the following matters: 

• Treasury Department’s consolidated financial statements do not include the assets, liabilities, or results 

of operations of commercial entities in which the Treasury Department has a significant equity interest 

as the Treasury Department has determined that none of these entities meet the criteria of a federal 

entity and are therefore not included in the Treasury Department’s consolidated financial statements. 

• The valuation of certain Treasury Department’s investments, loans, and asset guarantees 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 be 

differences between the net estimated value of these investments, loans, and asset guarantees at 

September 30, 2009, and the amounts that the Treasury Department will ultimately realize from these 

assets. Such differences may be material and will also affect the ultimate cost of the programs to the 

Treasury Department. 

The information in the AFR in Part 1: Management’s Discussion and Analysis (MD&A), and the Required 

Supplemental Information in Part 2: Annual Financial Report, is not a required part of the consolidated 

financial statements, but is supplementary information required by U.S. generally accepted accounting 

principles. We have applied certain limited procedures, which consisted principally of inquiries of 

management regarding the methods of measurement and presentation of this information. However, we did 

not audit this information and, accordingly, we express no opinion on it. 

Our audits, and the audits of the other auditor, were conducted for the purpose of forming an opinion on 

the consolidated financial statements taken as a whole. The information in the Message from the Secretary 

of the Treasury, the Message from the Assistant Secretary for Management and Chief Financial Officer in 

Part 2, and Other Accompanying Information in Part 3 is presented for purposes of additional analysis and 

is not required as part of the consolidated financial statements. This information has not been subjected to 

auditing procedures and, accordingly, we express no opinion on it. 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

74 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 4 of 14 

Internal Control Over Financial Reporting 

Our, and the other auditor’s, consideration of the internal control over financial reporting was for a limited 

purpose described in the Responsibilities section of this report, and was not designed to identify all 

deficiencies in the internal control over financial reporting that might be deficiencies, significant 

deficiencies, or material weaknesses. This report also includes our consideration of the results of the other 

auditor’s testing of internal control over financial reporting that is reported on separately by the other 

auditor. The other auditor performed an examination of internal control over financial reporting for the 

purpose of providing an opinion on the effectiveness of IRS’s and OFS’s internal controls. This report, 

insofar as it relates to the results of the other auditor, is based solely on the reports of the other auditor. 

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 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. A material weakness is a deficiency, or 

combination of deficiencies, in internal control, such that there is a reasonable possibility that a material 

misstatement of the Treasury Department’s financial statements will not be prevented or detected and 

corrected on a timely basis. 

In our fiscal year 2009 audit, we, and the other auditor, identified the significant deficiencies in internal 

control over financial reporting, discussed below. The significant deficiencies related to Financial 

Management Practices at the Departmental Level and Financial Systems and Reporting at the IRS are 

considered to be material weaknesses. Because of the IRS material weakness in internal controls discussed 

below, the other auditor’s opinion on IRS’ internal control stated that the IRS did not maintain effective 

internal control over financial reporting as of September 30, 2009. 

Material Weaknesses 

Financial Management Practices at the Departmental Level (Repeat Condition) 

We identified the following two significant deficiencies that we collectively consider to be a material 

weakness at the Departmental level. Both are repeat conditions related to Department-wide control 

environment weaknesses. 

Department-wide Entity Level Controls Affecting Financial Reporting

The Office of Accounting and Internal Control (AIC) within the Office of the Deputy Chief Financial 

Officer (ODCFO), and the Office of Performance Budgeting and Strategic Planning (OPBSP) are 

responsible for establishing and maintaining financial policies that guide financial reporting throughout the 

Treasury Department, and ensure the overall integrity of financial data reported at the consolidated level. 

The Treasury Department’s financial management offices are understaffed and have not grown 

proportionally in relation to the Treasury Department’s rapid growth in new programs and operations in 

fiscal year 2009. Specifically, the Department lacked sufficient personnel in key accounting and 

managerial functions, who had the experience and core technical competencies to ensure that the 

Department’s financial statements were prepared accurately, and in compliance with generally accepted 

accounting principles on a consistent basis. 
PaRT 2 • annual fInanCIal Re

P

oRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 75

U.S. Department of the Treasury

December 15, 2009 

Page 5 of 14 

For example, we noted the following: 

• Two senior key accounting positions with responsibility for supervisory review and management of the 

Department’s consolidation process were vacant from April 2009 through July 2009 creating a gap in 

continuity and technical knowledge. Specifically, one key senior staff accounting position and one key 

supervisory accounting position went unfilled for a period of one month and four months, respectively. 

• A key position within OPBSP that has significant responsibilities for review and oversight of 

departmental budget activities was vacant for two months; 

• Staffing shortages continue to exist within AIC and the Treasury Department’s Office of Financial 

Management (OFM). These offices have significant program management and accounting 

responsibilities; and 

• A comprehensive, formalized succession plan has not been prepared for key personnel in AIC and 

other OFM officials who have significant institutional knowledge of the Treasury Department’s 

accounting and reporting processes that are at or near retirement eligibility status and bear excessive 

workloads.

These conditions occurred during a period when the Treasury Department was undergoing significant 

program changes as well as addressing unique accounting and reporting issues related to new programs. 

We identified several material financial reporting errors resulting from a lack of experienced and qualified 

senior staff to support the Departmental financial accounting and reporting consolidation effort. The lack 

of adequate experienced senior accounting staff within AIC and OFM, including the lack of capable 

support staff with sufficient knowledge and experience led to significant delays in preparing supporting 

accounting documentation and information as well as communication of issues when addressing critical 

accounting matters. 

In previous years, we reported a significant deficiency in this area, and although steps have been taken 

towards filling key open positions, the Treasury Department has not addressed long-term human capital 

needs in the area of financial management. The risk of material misstatement in the consolidated financial 

statements increases without sufficient personnel who have the requisite financial accounting background, 

knowledge, and expertise to perform these functions at the Department level. 

Financial Accounting and Reporting

The Departmental level accounting and financial reporting infrastructure, including policies, procedures, 

processes and internal controls, need improvement. We identified the following weaknesses that had a 

pervasive impact on the effectiveness of internal controls over the Treasury Department’s consolidated 

financial reporting. 

• Supervisory and monitoring control procedures were not consistently performed over certain financial 

data and other information transmitted by Treasury Department components. Monitoring control 

procedures to examine and resolve differences between subsidiary records and the general ledger, 

misclassified assets, and various over and understatements of proprietary and budgetary account 

balances were not performed timely. 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

76 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 6 of 14 

• Written policies and procedures to account for and report various non-routine, complex, and unique 

transactions, such as accounting and reporting of General Fund transactions, U.S. Mint’s Seigniorage, 

accrued interest and discount on debt, transfers to the General Fund, and non-entity transactions were 

either not documented or required further improvement. 

• AIC has not developed adequate written procedures for the consolidation process nor procedures for 

performing certain key financial statements analyses such as that for proprietary and budgetary 

relationships, and cumulative results of operations. 

• As a result of the Housing and Economic Recovery Act of 2008, the Treasury Department is involved 

in various unique financial transactions that are to be accounted for under the Federal Credit Reform 

Act of 1990, as amended (FCRA). FCRA has significant documentation requirements and the Treasury 

Department did not have documentation in place for a majority of the year. 

• AIC procedures for monitoring compliance with existing, as well as new laws and regulations that 

apply to the Treasury Department need improvement. Specifically, we noted a lack of communication 

during the year between the Treasury Department’s Office of General Counsel (OGC) and AIC on 

matters related to new legislation, the assessment of compliance requirements, if any, and subsequent 

actions to be taken by the Treasury Department. We noted an instance where legislation impacting the 

Treasury Department’s financial reporting had not been identified or communicated to AIC and the 

legislation, the Supplemental Appropriation Act of 2009 (PL 111-32 Section 14), was also not 

identified in OGC’s listing of laws and regulations provided at year-end. 

• Our review of Department-wide testing and reporting on internal control over financial reporting, in 

accordance with OMB Circular No. A-123, Management’s Responsibility for Internal Control (A-123), 

identified implementation issues similar to the prior year. The Treasury Department established an 

implementation plan (Plan) to assess, document, test, and report on internal control over financial 

reporting. However, this Plan was not updated timely for new events and transactions. Specifically, 

procedures and controls identified in the Plan for testing various transactions, information technology, 

and assessing compliance with laws and regulations need further improvement. In addition, 

implementation of A-123 requirements including the preparation of supporting documentation for work 

conducted at Treasury components should be improved. 

These conditions resulted in material financial statement account balance variances that remained 

unexplained, and account balances without adequate supporting documentation. In addition, material 

adjustments were recorded without proper analysis and documentation. We also noted several instances 

where the reviews conducted were not effective, allowing errors to remain undetected until discovered 

during audit procedures. 

The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires that agencies establish internal 

controls according to standards prescribed by the Comptroller General and specified in the Government 

Accountability Office’s (GAO) Standards for Internal Control in the Federal Government (Standards). 

The GAO defines “internal control” as an integral component of an organization’s management that 

provides reasonable assurance that the following objectives are achieved: effectiveness and efficiency of 

operations, reliability of financial reporting, and compliance with applicable laws and regulations. The 

GAO Standards identify the control environment as one of the five key elements of control, which 
PaRT 2 • annual fInanCIal Re

P

oRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 77

U.S. Department of the Treasury

December 15, 2009 

Page 7 of 14 

emphasizes the importance of control conscientiousness in management’s operating philosophy and 

commitment to internal control. These standards cover controls such as human capital practices, 

supervisory reviews, and segregation of duties, policies, procedures, and monitoring. 

A-123 states that monitoring the effectiveness of internal control should occur in the normal course of 

business. In addition, periodic reviews, reconciliations or comparisons of data should be included as part of 

the regular assigned duties of personnel. Periodic assessments should be integrated as part of 

management’s continuous monitoring of internal control, which should be ingrained in the agency’s 

operations. An effective, continuous monitoring program can level the resources needed to maintain 

effective internal controls throughout the year. 

Recommendations 

We recommend that the Assistant Secretary for Management and Chief Financial Officer (ASM/CFO): 

Department-wide Entity Level Controls Affecting Financial Reporting 

1. Conduct a review of the current status of staffing, skill competencies, contract support, and training, 

within the AIC, OPBSP, and OFM to identify gaps between existing skills sets and those needed to 

fully perform the daily operations of AIC, OPBSP, and OFM as well as to establish or refine policy 

and procedures, where necessary. 

The review should be conducted either internally or by an independent specialist, and should identify 

the additional managerial skill sets needed, such as financial accounting background, knowledge, and 

expertise required to strengthen the financial accounting and reporting infrastructure, and, once 

strengthened, to effectively manage the processes necessary to be conducted throughout the year. 

2. Once the review is completed (per recommendation 1 above), hire staff, or consider transferring 

suitable staff from other offices within the Treasury Department to meet these needs. In addition, 

provide training and guidance to staff as necessary to enhance the quality and timeliness of work 

products in light of the increased responsibilities discussed above. 

Financial Accounting and Reporting

3. Conduct a detailed review of the existing processes to analyze and review the consolidated financial 

reporting process. 

4. Establish new policies or improve existing policies and procedures to ensure that: 

a. Quality control reviews are performed on the consolidated financial reporting process as well as on 

the consolidated financial statements by responsible officials to ensure that all errors and 

inconsistencies are identified and corrected in a timely manner; 

b. Effective reviews are conducted by senior AIC officials on documentation prepared to support 

consolidated financial statement amounts to ensure that the supporting documents and information 

are accurate and complete, and such review is documented; and 

c. Key consolidation accounting and reporting activities are captured in a manner that is easily 

followed by staff not familiar with the consolidation process. 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

78 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 8 of 14 

5. Require that documentation is developed to support all new and/or unique accounting and reporting 

requirements as well as non-routine or complex accounting and reporting matters, and periodically 

updated (at least annually). For example, any new financial statement footnote disclosures that are 

developed should include a policy memo, financial statement footnote disclosure format, as well as 

evidence of review by responsible officials within AIC of both the policy and the format to be 

followed.

6. Require periodic monitoring by senior management of the implementation of policy and procedures. 

For example, policies and procedures related to FCRA transactions should require periodic 

examination of the performance of the credit programs to re-estimate cash flow projections and 

assumptions. 

7. Require that communication is initiated on a periodic basis with OGC, to obtain information and 

documentation of any laws and regulations that apply at the Treasury Department/component level, 

including documentation of OGC’s assessment of compliance requirements especially those having a 

financial impact. Such communication should be documented and referred to by management in 

monitoring the population of laws and regulations that are material to the financial statements. 

8. Update the Treasury Department’s A-123 Plan annually to incorporate new events and transactions, 

and require components to fully comply with the requirements of the Plan. Further, implement a more 

robust monitoring process of the A-123 work being conducted by components to ensure that the 

Treasury Department’s A-123 guidance is fully implemented and complied with, and supports 

components’ assurance statements on internal control. 

Financial Systems and Reporting at the IRS (Repeat Condition) 

The IRS continued to make strides in addressing its internal control deficiencies. However, internal control 

and financial management system deficiencies continued to make it necessary for IRS to use resourceintensive compensating processes to prepare its financial statements. 

The challenges the IRS faces as a result of these remaining deficiencies adversely affect IRS’s ability to 

(1) produce reliable financial statements without significant compensating procedures, and (2) obtain 

current, complete, and accurate information needed to make well-informed decisions. As the IRS continues 

to progress towards increasingly automated financial management processes, the continued material 

weakness in internal control over information security that jeopardizes the reliability of the financial 

information that IRS processes, could have serious implications in determining whether IRS’s financial 

statements are fairly stated. This weakness also continues to increase the risk that sensitive taxpayer 

information may be compromised. 

The material weaknesses in internal control over financial reporting identified by the auditors of the IRS’s 

financial statements, which are repeat conditions and collectively considered a material weakness for the 

Treasury Department as a whole, are summarized as follows: 

• Weaknesses in internal control over unpaid tax assessments resulted in the IRS’s inability to effectively 

manage unpaid tax assessments on an ongoing basis and in errors in taxpayer accounts leading to 

increased taxpayer burden. Specifically, systems limitations and weaknesses in processing controls 
PaRT 2 • annual fInanCIal Re

P

oRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 79

U.S. Department of the Treasury

December 15, 2009 

Page 9 of 14 

resulted in the following issues: (1) IRS’s reported balances for taxes receivable and other unpaid 

assessments were not supported by its core general ledger system for tax administration-related 

transactions, (2) IRS lacked a subsidiary ledger for unpaid tax assessments that would allow it to 

produce reliable, useful, and timely information with which to manage and report externally, and 

(3) IRS experienced errors and delays in recording taxpayer information, payments, and other 

activities.

• New and previously identified weaknesses in internal control over information security continue to 

place IRS systems at risk. Specifically, controls over information systems are not effectively 

established and maintained. Further, during the fiscal year 2009 audit, additional significant 

weaknesses in internal control over information security, along with previously identified weaknesses, 

continued to jeopardize the confidentiality, availability, and integrity of information processed by 

IRS’s key systems, increasing the risk of material misstatement for financial reporting. 

The material weaknesses in internal control noted above may adversely affect decisions by IRS’s 

management that are based, in whole or in part, on information that is inaccurate because of these 

deficiencies.

Additional details related to the material weakness identified above have been provided to IRS 

management by the auditors of the IRS’s financial statements in their report dated November 5, 2009. 

Recommendations

Recommendations to address prior year issues that encompass the material weakness discussed above have 

previously been provided to IRS management by the auditors of the IRS’s financial statements. New 

recommendations to address issues identified in the fiscal year 2009 IRS financial statement audit that 

comprise the material weakness discussed above will be provided to IRS management by the auditors of 

IRS’s financial statements in separate reports. We recommend that the ASM/CFO provide effective 

oversight to ensure that corrective actions are taken by the IRS to fully address this material weakness. 

SIGNIFICANT DEFICIENCIES 

Financial Accounting and Reporting at the OFS 

The OFS has made progress in building a financial reporting structure, including developing an internal 

control system over Troubled Assets Recovery Program (TARP) activities and transactions and addressing 

key accounting and financial reporting issues necessary to enable it to prepare financial statements. 

However, OFS’s financial reporting structure continued to evolve throughout the year as new TARP 

programs were implemented, which posed a challenge to OFS’s ability to establish a comprehensive 

system of internal control while simultaneously reacting to market events and implementing TARP 

initiatives. This challenge contributed to the significant deficiencies in OFS’s internal control that the other 

auditor identified. These OFS deficiencies collectively constitute a significant deficiency for the Treasury 

Department as a whole and are summarized as follows. 

• Control deficiencies were identified related to accounting and financial reporting processes. OFS did 

not effectively implement its review and approval process for preparing its financial statements and 

related disclosures for TARP. The other auditor identified incorrect amounts and inaccurate, 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

80 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 10 of 14 

inconsistent, and incomplete disclosures in OFS’s draft financial statements, footnotes, and MD&A for 

TARP that are significant, but not material, and that were not detected by OFS. OFS had not finalized 

its procedures related to its processes for accounting for certain program transactions, preparing its 

financial statements, and its oversight and monitoring of financial-related services provided to OFS by 

asset managers and certain financial agents. OFS did not have proper segregation of duties over a 

significant accounting database it uses in valuing its assets in that the same individual was responsible 

for performing both the data entry and the reconciliation of the data output. 

• OFS did not effectively implement its verification procedures for certain assumptions and related data 

that were input into the economic and financial credit subsidy models used for the valuation of OFS’s 

loans, equity investments, and asset guarantees. Specifically, the other auditor identified data input 

errors to the estimation models, such as incorrect dividend rates and maturity dates that were not 

detected by OFS’s verification procedures. 

Additional details related to the significant deficiency identified above have been provided to OFS 

management by the auditors of the OFS’s financial statements in their report dated December 4, 2009. 

Recommendations

We recommend that the ASM/CFO provide effective oversight to ensure that corrective actions are taken 

by the OFS to fully address this significant deficiency. 

Information System Controls at the FMS 

Information controls and security programs managed by the FMS need improvement. Current year tests 

conducted over IT general controls revealed that the necessary policies and procedures to detect and correct 

control and functionality weaknesses have not been consistently documented, implemented, or enforced. 

Specifically, issues were identified in the areas of (1) security management; (2) access; (3) change 

configuration; (4) segregation of duties; and (5) contingency planning. Individually or collectively, the 

conditions identified could compromise FMS’s ability to ensure security over sensitive financial data and 

reliability of key systems. 

The above weaknesses collectively serve to weaken the IT general control environment at FMS. 

Recommendations

The detailed findings and related recommendations have been provided to FMS management in a separate 

report. We recommend that the ASM/CFO provide effective oversight and the resources necessary to 

ensure that information security requirements over financial systems are implemented at FMS. 

Compliance

The results of certain of our tests, and the tests performed by the other auditor, of compliance as described 

in the Responsibilities section of this report, exclusive of those referred to in FFMIA, disclosed the 

following instance of noncompliance that is required to be reported herein under Government Auditing 

Standards or OMB Bulletin No. 07-04. 
PaRT 2 • annual fInanCIal Re

P

oRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 81

U.S. Department of the Treasury

December 15, 2009 

Page 11 of 14 

• Noncompliance with IRC Section 6325 - The IRC grants the IRS the power to file a lien against the 

property of any taxpayer who neglects or refuses to pay all assessed Federal taxes. Under IRC Section 

6325, the IRS is required to release a Federal tax lien within 30 days after the date the tax liability is 

satisfied, or has become legally unenforceable, or the Secretary of the Treasury has accepted a bond for 

the assessed tax. Despite actions the IRS has taken to date to improve its lien release process, instances 

continued to be identified where the IRS did not timely release the applicable Federal tax lien within 

30 days of the tax liability being either paid off or abated as required by the IRC (Repeat Condition). 

The results of our other tests, and the tests performed by the other auditor, of compliance as described in 

the Responsibilities section of this report, exclusive of those referred to in FFMIA, disclosed no instances 

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

Standards or OMB Bulletin No. 07-04.

The results of our tests of FFMIA, and the tests performed by the other auditor, disclosed instances where 

the Department’s financial management systems did not substantially comply with FFMIA Section 803(a) 

requirements (Repeat Condition) related to compliance with (1) FFMSR, (2) applicable Federal accounting 

standards, and (3) the SGL at the transaction level, as described below. 

Instances of noncompliance with FFMSR are summarized below: 

• IRS’s core general ledger system does not conform to the requirements of FFMSR, contained in OMB 

Circular A-127, Financial Management Systems.

• Material weaknesses in IRS’s internal control over information security continue to threaten 

(1) integrity of the financial statements and the accuracy and availability of financial information 

needed to support day-to-day decision making, and (2) confidentiality of proprietary information. 

An instance of noncompliance with Federal accounting standards is summarized below: 

• IRS’s automated systems for tax related transactions did not support the net taxes receivable amount on 

IRS’s balance sheet and other required supplemental information related to uncollected taxes - 

compliance assessments and tax write-offs - in accordance with Statement of Federal Financial 

Accounting Standards No. 7, Accounting for Revenue and Other Financing Sources and Concepts for 

Reconciling Budgetary and Financial Accounting.

An instance of noncompliance with the SGL at the transaction level is summarized below: 

• IRS’s core general ledger system for tax-related activities does not comply with the SGL at the 

transaction level and also does not post transactions in conformance with SGL posting models. 

The Secretary of the Treasury also stated in his Letter of Assurance, included in Part 1: Management’s

Discussion and Analysis, of the accompanying AFR that the Treasury Department cannot provide 

assurance that its financial management systems are in substantial compliance with FFMIA. The IRS has 

established a remediation plan to address the conditions that lead to its systems’ substantial noncompliance 

with the requirements of FFMIA. This plan outlines the actions to be taken to resolve these issues, many of 

which are long-term in nature and are tied to IRS’s system modernization efforts. The Treasury 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

82 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 12 of 14 

Department’s remedial actions and related timeframes are presented in Appendix D: Material Weaknesses, 

Audit Follow-up, Financial Systems, and Recovery Act Risk Management of the AFR.

Recommendation

We recommend that the ASM/CFO provide effective oversight to ensure that (1) IRS implements 

appropriate controls so that Federal tax liens are released in accordance with Section 6325 of the IRC; and 

(2) IRS implements its plan of action to solve financial management problems so as to enable resolving the 

identified instances of financial management systems’ noncompliance with the requirements of FFMIA. 

Detailed recommendations to address the noncompliance findings discussed above have been provided to 

IRS management by the auditors of the IRS’s financial statements. 

Management’s Response to Internal Control and Compliance Findings 

The Department’s management has indicated, in a separate letter immediately following this report, that it 

concurs with the findings presented in this section of our report. Further, it has responded that it will take 

corrective action, as necessary, to ensure the matters presented are addressed by the respective component 

management within the Treasury Department. We did not audit the Treasury Department’s response and, 

accordingly, we express no opinion on it. 

* * * * * 

We noted certain additional matters involving internal control over financial reporting and its operation 

that we will report to the Treasury Department’s management in a separate letter. 

Responsibilities

Management’s Responsibilities. Management is responsible for the consolidated financial statements; 

establishing and maintaining effective internal control; and complying with laws, regulations, contracts, 

and grant agreements applicable to the Treasury Department. 

Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2009 and 2008 

consolidated financial statements of the Treasury Department based on our audits and the reports of the 

other auditor. We, and the other auditor, conducted our audits in accordance with the standards applicable 

to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the 

United States. Also, we conducted our audit in accordance with auditing standards generally accepted in 

the United States of America and OMB Bulletin No. 07-04. Those standards and OMB Bulletin No. 07-04 

require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 

financial statements are free of material misstatement. An audit includes consideration of internal control 

over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 

but not for the purpose of expressing an opinion on the effectiveness of the Treasury Department’s internal 

control over financial reporting. Accordingly, we express no such opinion. 
PaRT 2 • annual fInanCIal RePoRT

auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs 83

U.S. Department of the Treasury

December 15, 2009 

Page 13 of 14 

An audit also includes: 

• Examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 

financial statements; 

• Assessing the accounting principles used and significant estimates made by management; and 

• Evaluating the overall consolidated financial statement presentation. 

We believe that our audits, and the reports of the other auditor, related to the amounts included for the IRS 

and OFS, provide a reasonable basis for our opinion. 

In planning and performing our fiscal year 2009 audit, we considered the Treasury Department’s internal 

control over financial reporting, exclusive of the internal control over financial reporting related to the IRS 

and OFS, by obtaining an understanding of the design effectiveness of the Treasury Department’s internal 

control, determining whether internal controls had been placed in operation, assessing control risk, and 

performing tests of controls as a basis for designing our auditing procedures for the purpose of expressing 

our opinion on the consolidated financial statements. Internal control over financial reporting related to the 

IRS and the OFS was considered by the other auditor whose reports thereon dated November 5, 2009, and 

December 4, 2009 respectively, have been provided to us. We, and the other auditor, did not test all 

internal controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial 

Integrity Act of 1982. The objective of our audit was not to express an opinion on the effectiveness of the 

Treasury Department’s internal control over financial reporting. Accordingly, we do not express an opinion 

on the effectiveness of the Treasury Department’s internal control over financial reporting. The objective 

of the other auditor’s audits was to express an opinion on the effectiveness of the IRS’s and the OFS’s 

internal control over financial reporting. Because of the IRS material weakness in internal controls 

discussed above, the other auditor’s opinion on the IRS’ internal control stated that the IRS did not 

maintain effective internal control over financial reporting as of September 30, 2009. 

As part of obtaining reasonable assurance about whether the Treasury Department’s fiscal year 2009 

consolidated financial statements are free of material misstatement, we, and the other auditor, performed 

tests of the Treasury Department’s 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 the consolidated financial statement amounts, and certain provisions of other laws and regulations 

specified in OMB Bulletin No. 07-04, including the provisions referred to in Section 803(a) of FFMIA.

We, and the other auditor, limited our tests of compliance to the provisions described in the preceding 

sentence, and we, and the other auditor, did not test compliance with all laws, regulations, contracts, and 

grant agreements applicable to the Treasury Department. However, providing an opinion on compliance 

with laws, regulations, contracts, and grant agreements was not an objective of our audits and, accordingly, 

we, and the other auditor, do not express such an opinion. 

______________________________ 
D

E

pARtm

Ent o

F th

E tREAS

uRY • Ag

E

nCY FIn

A

nCIAL R

Epo

Rt • FISCAL YEAR 2009

84 auDITors’ rePorT on The DeParTMenT’s fInanCIal sTaTeMenTs

U.S. Department of the Treasury

December 15, 2009 

Page 14 of 14 

This report is intended solely for the information and use of the Treasury Department’s management, the 

Treasury Department’s Office of Inspector General, OMB, the GAO, and the U.S. Congress and is not 

intended to be and should not be used by anyone other than these specified parties. 

December 15, 2009 
85

A S S I S TA N T S E C R E TA R Y

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C.

December 15, 2009

KPMG LLP

2001 M Street, N.W.

Washington, D.C. 20036

Ladies and Gentlemen:

On behalf of Secretary Geithner, I am responding to your draft audit report on the Department of the Treasury’s 

fiscal year 2009 consolidated financial statements. Our bureaus and program offices all can be proud of the 

Department’s success in achieving an unqualified opinion on the Department’s financial statements for the tenth 

consecutive year. We are particularly proud of the unqualified opinion from the Government Accountability 

Office (GAO) on the Office of Financial Stability’s financial statements – a remarkable achievement considering 

the magnitude and complexity of the new economic stabilization programs.

These successful results also are due in large part to the high level of professionalism, technical expertise, and 

partnership demonstrated by KPMG in conducting the audit. Treasury appreciates your efforts during the audit 

process to provide timely, constructive advice on how to improve our financial reporting. Treasury is equally appreciative of the expertise and commitment demonstrated by the other organizations involved in the audit process 

– the Office of Inspector General, GAO, and the firms that audited several of our bureaus.

In 2009, KPMG identified a new material weakness at the departmental level, Financial Management Practices. 

We agree with your related recommendations, and have already started taking corrective action to resolve the 

issues and close this material weakness in 2010. Treasury continued to make significant progress during fiscal year 

2009 to address previously identified financial and information management deficiencies. As reported by GAO, 

the Internal Revenue Service made significant strides in addressing its internal control deficiencies in financial 

reporting and tax revenue collection and refund issuance.

We acknowledge the material weaknesses, significant deficiencies, and instances of noncompliance with laws and 

regulations described in your report. We agree with your recommendations, and will focus on necessary corrective actions to address each of the issues quickly and aggressively.

Dan Tangherlini

Assistant Secretary for Management

and Chief Financial Officer

PART 2 • ANNUAL FINANCIAL REPORT

MANAGEMENT'S RESPONSE TO AUDITOR'S REPORT
86

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2009 AND 2008

(IN MILLIONS)

ASSETS 2009 2008

Intra-governmental Assets

Fund Balance (Note 2) $ 504,582 $ 275,368

Loans and Interest Receivable (Note 3) 410,591 264,854

Advances to the Black Lung Trust Fund (Notes 1 & 4) 0 10,484

Advances to the Unemployment Trust Fund (Notes 1 & 4) 7,981 0

Due From the General Fund (Note 4) 11,992,719 10,100,763

Accounts Receivable and Related Interest (Note 5) 298 396

Other Intra-governmental Assets 5 13

Total Intra-governmental Assets $ 12,916,176 $ 10,651,878

Cash, Foreign Currency, and Other Monetary Assets (Note 6) 341,308 387,270

Gold and Silver Reserves (Note 7) 11,062 11,062

Asset Guarantee (Note 8) 1,765 0

Investments – Credit Reform (Note 8) 203,141 0

Investments in Government Sponsored Enterprises (Note 9) 64,679 7,032

Investments in International Financial Institutions (Note 10) 5,575 5,546

Other Investments and Related Interest (Note 11) 13,565 10,576

Credit Program Receivables, Direct Loans, Net (Note 12) 219,170 3,385

Loans and Interest Receivable (Note 13) 168 172

Reserve Position in the International Monetary Fund (Note 14) 13,469 4,750

Tax, Other, and Related Interest Receivables, Net (Note 15) 30,408 30,878

Beneficial Interest in Trust (Note 29) 23,472 0

Inventory and Related Property, Net (Note 16) 598 698

Property, Plant, and Equipment, Net (Note 17) 2,036 2,077

Other Assets 9 1,714

Total Assets $ 13,846,601 $ 11,117,038

Heritage Assets (Note 17)

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

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

FINANCIAL STATEMENTS
87

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2009 AND 2008

(IN MILLIONS)

LIABILITIES 2009 2008

Intra-governmental Liabilities

Federal Debt and Interest Payable (Notes 4 and 19) $ 4,403,080 $ 4,262,414

Other Debt and Interest Payable (Note 20) 12,060 14,164

Due to the General Fund (Notes 4, 6, and 27) 1,263,128 667,112

Other Intra-governmental Liabilities (Note 22) 425 345

Total Intra-governmental Liabilities $ 5,678,693 $ 4,944,035

Federal Debt and Interest Payable (Notes 4 and 19) 7,559,305 5,812,694

Certificates Issued to the Federal Reserve (Note 6) 5,200 2,200

Allocation of Special Drawing Rights (Note 6) 55,953 7,630

Gold Certificates Issued to the Federal Reserve Banks (Note 7) 11,037 11,037

Refunds Payable (Notes 4 and 26) 4,040 3,076

D.C. Pensions and Judiciary Retirement Actuarial Liability (Note 21) 9,049 8,803

Liabilities to GSEs (Note 9) 91,937 13,800

Other Liabilities (Note 22) 3,331 4,052

Total Liabilities $ 13,418,545 $ 10,807,327

Commitments and Contingencies (Note 31)

NET POSITION

Unexpended Appropriations:

Earmarked Funds (Note 27) $ 200 $ 200

Other Funds 454,944 271,768

Subtotal 455,144 271,968

Cumulative Results of Operations: 

Earmarked Funds (Note 27) 41,653 37,586

Other Funds (68,741) 157

Subtotal (27,088) 37,743

Total Net Position (Note 23) $ 428,056 $ 309,711

Total Liabilities and Net Position $ 13,846,601 $ 11,117,038

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

PART 2 • ANNUAL FINANCIAL REPORT

FINANCIAL STATEMENTS
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

88 FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF NET COST

FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008

(IN MILLIONS)

Cost of Treasury Operations: (Note 24) 2009 2008

Financial Program:

Gross Cost $ 15,313 $ 14,569

Less Earned Revenue (2,258) (2,282)

Net Program Cost $ 13,055 $ 12,287

Economic Program:

Gross Cost $ 210,490 $ 19,139

Less Earned Revenue (14,785) (5,091)

Net Program Cost $ 195,705 $ 14,048

Security Program:

Gross Cost $ 325 $ 346

Less Earned Revenue (3) (4)

Net Program Cost $ 322 $ 342

Management Program:

Gross Cost $ 569 $ 631

Less Earned Revenue (60) (165)

Net Program Cost $ 509 $ 466

Total Program Gross Costs $ 226,697 $ 34,685

Total Program Gross Earned Revenues (17,106) (7,542)

Total Net Cost of Treasury Operations $ 209,591 $ 27,143

Federal Costs: (Note 24)

Federal Debt Interest $ 380,519 $ 453,347

Less Interest Revenue from Loans (17,326) (12,439)

Net Federal Debt Interest Costs $ 363,193 $ 440,908

Net GSE Non-Entity Revenue (Note 9) (61,983) (7,032)

Other Federal Costs (Note 24) $ 12,131 $ 8,332

Total Net Federal Costs $ 313,341 $ 442,208

Net Cost of Treasury Operations, Federal Debt Interest, Other Federal Costs, 

and Net GSE Non-Entity Revenue $ 522,932 $ 469,351

The accompanying notes are an integral part of these financial statements.
PART 2 • ANNUAL FINANCIAL REPORT

FINANCIAL STATEMENTS 89

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION

FOR THE YEAR ENDED SEPTEMBER 30, 2009

(IN MILLIONS)

CUMULATIVE RESULTS OF OPERATIONS 

Combined 

Earmarked Funds

Combined All 

Other Funds Elimination

Consolidated 

Total

Beginning Balances $ 37,586 $ 157 $ 0 $ 37,743

Budgetary Financing Sources:

Appropriations Used 408 667,745 0 668,153

Non-exchange Revenue 263 234 (4) 493

Donations and Forfeitures of Cash/Equivalent 257 0 0 257

Transfers In/Out Without Reimbursement (16) (7) 2 (21)

Other 10 2 0 12

Other Financing Sources (non-exchange)

Donation/Forfeiture of Property 127 0 0 127

Accrued Interest and Discount on Debt 0 6,027 0 6,027

Transfers In/Out Without Reimbursement (63) 29 (2) (36)

Imputed Financing Sources 61 1,206 (474) 793

Transfers to the General Fund and Other (Note 23) (31) (217,673) 0 (217,704)

Total Financing Sources 1,016 457,563 (478) 458,101

Net Cost of Operations 3,051 (526,461) 478 (522,932)

Net Change 4,067 (68,898) 0 (64,831)

Cumulative Results of Operations $ 41,653 $ (68,741) $ 0 $ (27,088)

UNEXPENDED APPROPRIATIONS

Beginning Balances $ 200 $ 271,768 $ 0 $ 271,968

Budgetary Financing Sources:

Appropriations Received (Note 23) 408 855,354 0 855,762

Appropriations Transferred In/Out 0 11 0 11

Other Adjustments 0 (4,444) 0 (4,444)

Appropriations Used (408) (667,745) 0 (668,153)

Total Budgetary Financing Sources 0 183,176 0 183,176

Total Unexpended Appropriations $ 200 $ 454,944 $ 0 $ 455,144

Net Position $ 41,853 $ 386,203 $ 0 $ 428,056

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

90 FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION

FOR THE YEAR ENDED SEPTEMBER 30, 2008

(IN MILLIONS)

CUMULATIVE RESULTS OF OPERATIONS 

Combined 

Earmarked Funds

Combined All 

Other Funds Elimination

Consolidated 

Total

Beginning Balances $ 35,385 $ 13,397 $ 0 $ 48,782

Budgetary Financing Sources:

Appropriations Used 458 481,277 0 481,735

Non-exchange Revenue 134 144 (24) 254

Donations and Forfeitures of Cash/Equivalent 159 0 0 159

Transfers In/Out without Reimbursement 0 (10) 0 (10)

Other 38 (26) 0 12

Other Financing Sources (non exchange)

Donation/Forfeiture of Property 112 0 0 112

Accrued Interest and Discount on Debt 0 (3,870) 0 (3,870)

Transfers In/Out Without Reimbursement (52) 31 0 (21)

Imputed Financing Sources 60 1,147 (478) 729

Transfers to the General Fund and Other (Note 23) (23) (20,765) 0 (20,788)

Total Financing Sources 886 457,928 (502) 458,312

Net Cost of Operations 1,315 (471,168) 502 (469,351)

Net Change 2,201 (13,240) 0 (11,039)

Cumulative Results of Operations $ 37,586 $ 157 $ 0 $ 37,743

UNEXPENDED APPROPRIATIONS

Beginning Balances $ 200 $ 72,117 $ 0 $ 72,317

Budgetary Financing Sources:

Appropriations Received (Note 23) 458 681,015 0 681,473

Appropriations Transferred In/Out 0 24 0 24

Other Adjustments 0 (111) 0 (111)

Appropriations Used (458) (481,277) 0 (481,735)

Total Budgetary Financing Sources 0 199,651 0 199,651

Total Unexpended Appropriations $ 200 $ 271,768 $ 0 $ 271,968

Net Position $ 37,786 $ 271,925 $ 0 $ 309,711

The accompanying notes are an integral part of these financial statements.
PART 2 • ANNUAL FINANCIAL REPORT

FINANCIAL STATEMENTS 91

COMBINED STATEMENT OF BUDGETARY RESOURCES

FOR THE YEAR ENDED SEPTEMBER 30, 2009

(IN MILLIONS)

Budgetary

Non-Budgetary 

Financing Total

Budgetary Resources

Unobligated balance, brought forward $ 260,173 $ 24,457 $ 284,630

Recoveries of prior year unpaid obligations 8,097 (1) 8,096

Budget authority:

Appropriations (Note 23) 952,185 0 952,185

Borrowing authority 493 548,242 548,735

Spending Authority from Offsetting Collections

Earned: Collected 11,681 272,768 284,449

Change in receivables from Federal sources (44) 0 (44)

Change in unfilled customer orders: 

Advance received (31) 0 (31)

Without advance from Federal sources (134) 28,926 28,792

Subtotal 964,150 849,936 1,814,086

Non-expenditure transfers, net (43) 0 (43)

Temporarily not available pursuant to Public Law 2 0 2

Permanently not available (92,001) (179,736) (271,737)

Total Budgetary Resources $ 1,140,378 $ 694,656 $ 1,835,034

Status of Budgetary Resources

Obligations incurred (Note 25): Direct $ 729,697 $ 652,829 $ 1,382,526

Reimbursable 4,669 0 4,669

Subtotal 734,366 652,829 1,387,195

Unobligated Balance: Apportioned 349,889 19,612 369,501

Exempt from apportionment 44,497 0 44,497

Subtotal 394,386 19,612 413,998

Unobligated balance not available 11,626 22,215 33,841

Total Status of Budgetary Resources $ 1,140,378 $ 694,656 $ 1,835,034

Change in Obligated Balance

Obligated balance, net: (Note 1 AC)

Unpaid obligations brought forward, Oct. 1 $ 57,314 10 $ 57,324

Uncollected customer payments from Federal sources brought forward (346) (1) (347)

Total unpaid obligated balance, net 56,968 9 56,977

Obligations incurred, net 734,366 652,829 1,387,195

Gross outlays (675,286) (573,630) (1,248,916)

Recoveries of prior year unpaid obligations, actual (8,097) 1 (8,096)

Change In uncollected customer payments Federal source 178 (28,926) (28,748)

Obligated balance, net, end of period:

Unpaid obligations 108,297 79,209 187,506

Uncollected customer payments Federal sources (168) (28,926) (29,094)

Total unpaid obligated balance, net, end of period 108,129 50,283 158,412

Net Outlays

Gross outlays 675,286 573,630 1,248,916

Offsetting collections (9,369) (272,768) (282,137)

Distributed offsetting receipts (40,114) (4,500) (44,614)

Net Outlays $ 625,803 $ 296,362 $ 922,165

The accompanying notes are an integral part of these financial statements.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

92 FINANCIAL STATEMENTS

COMBINED STATEMENT OF BUDGETARY RESOURCES

FOR THE YEAR ENDED SEPTEMBER 30, 2008

(IN MILLIONS)

Budgetary

Non-Budgetary 

Financing Total

Budgetary Resources

Unobligated balance, brought forward $ 57,450 $ 0 $ 57,450

Recoveries of prior year unpaid obligations 413 0 413

Budget authority:

Appropriations (Note 23) 679,563 0 679,563

Borrowing authority 4 34,304 34,308

Spending Authority from Offsetting Collections

Earned: Collected 8,705 335 9,040

Change in receivables from Federal sources (32) 0 (32)

Change in unfilled customer orders: Advance received 19 0 19

Without advance from Federal sources (39) 0 (39)

Subtotal 688,220 34,639 722,859

Non-expenditure transfers, net 844 0 844

Temporarily not available pursuant to Public Law (9) 0 (9)

Permanently not available (4,626) (4,767) (9,393)

Total Budgetary Resources $ 742,292 $ 29,872 $ 772,164

Status of Budgetary Resources

Obligations incurred (Note 25): Direct $ 477,384 $ 5,415 $ 482,799

Reimbursable 4,735 0 4,735

Subtotal 482,119 5,415 487,534

Unobligated Balance: Apportioned 214,114 24,122 238,236

Exempt from apportionment 34,999 0 34,999

Subtotal 249,113 24,122 273,235

Unobligated balance not available 11,060 335 11,395

Total Status of Budgetary Resources $ 742,292 $ 29,872 $ 772,164

Change in Obligated Balance

Obligated balance, net:

Unpaid obligations brought forward, Oct. 1 $ 57,811 $ 0 $ 57,811

Uncollected customer payments from Federal sources brought forward (418) 0 (418)

Total unpaid obligated balance, net 57,393 0 57,393

Obligations incurred, net 482,119 5,415 487,534

Gross outlays (482,199) (5,409) (487,608)

Recoveries of prior year unpaid obligations, actual (413) 0 (413)

Change In uncollected customer payments Federal source 71 0 71

Obligated balance, net, end of period:

Unpaid obligations 57,318 6 57,324

Uncollected customer payments Federal sources (347) 0 (347)

Total unpaid obligated balance, net, end of period 56,971 6 56,977

Net Outlays

Gross outlays 482,199 5,409 487,608

Offsetting collections (8,194) (335) (8,529)

Distributed offsetting receipts (16,211) 0 (16,211)

Net Outlays $ 457,794 $ 5,074 $ 462,868

The accompanying notes are an integral part of these financial statements.
PART 2 • ANNUAL FINANCIAL REPORT

FINANCIAL STATEMENTS 93

STATEMENTS OF CUSTODIAL ACTIVITY

FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008

(IN MILLIONS)

2009 2008

Sources of Custodial Revenue (Note 26):

Revenue Received 

Individual Income and FICA Taxes $ 2,036,557 $ 2,294,326

Corporate Income Taxes 225,482 354,063

Estate and Gift Taxes 24,677 29,824

Excise Taxes 67,248 66,293

Railroad Retirement Taxes 4,711 4,939

Unemployment Taxes 6,765 7,331

Deposit of Earnings, Federal Reserve System 34,318 33,598

Fines, Penalties, Interest and Other Revenue 1,929 2,233

Total Cash Revenue Received $ 2,401,687 $ 2,792,607

Less Refunds (437,972) (426,074)

Net Cash Revenue Received $ 1,963,715 $ 2,366,533

Non-Cash Custodial Transactions

Beneficial Interest in Trust (Note 29) 23,472 0

Accrual Adjustment (1,097) 3,132

Total Custodial Revenue $ 1,986,090 $ 2,369,665

Disposition of Custodial Revenue:

Amounts Provided to Fund Non-Federal Entities 487 407

Amounts Provided to Fund the Federal Government (Notes 26 and 29) 1,963,228 2,366,126

Total Disposition of Cash Revenue $ 1,963,715 $ 2,366,533

Non-cash Revenue – Beneficial Interest in Trust 23,472 0

Accrual Adjustment (1,097) 3,132

Total Disposition of Custodial Revenue 1,986,090 2,369,665

Net Custodial Revenue $ 0 $ 0

The accompanying notes are an integral part of these financial statements.
94

Notes to the Financial Statements

TABLE OF CONTENTS

1. Summary of Significant Accounting Policies . 

2. Fund Balance . .

3. Loans and Interest Receivable – Intra-governmental . .

4. Due from the General Fund and Due to the General Fund . .

5. Accounts Receivable and Related Interest – Intra-governmental . .

6. Cash, Foreign Currency, and Other Monetary Assets . .

7. Gold and Silver Reserves, and Gold Certificates Issued to the Federal Reserve Banks . .

8. Investments – Credit Reform and Asset Guarantee . .

9. Investments in Government Sponsored Enterprises . .

10. Investments in International Financial Institutions . .

11. Other Investments and Related Interest . .

12. Credit Program Receivables, Direct Loans, Net . .

13. Loans and Interest Receivable . .

14. Reserve Position in the International Monetary Fund . .

15. Tax, Other, and Related Interest Receivables, Net . .

16. Inventory and Related Property, Net . .

17. Property, Plant, and Equipment, Net . .

18. Non-Entity Assets . .

19. Federal Debt and Interest Payable . .

20. Other Debt and Interest Payable . .

21. D.C. Pensions and Judiciary Retirement Actuarial Liability . .

22. Liabilities . .

23. Net Position . .

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations . .

25. Additional Information Related to the Combined Statements of Budgetary Resources . .

26. Collection and Disposition of Custodial Revenue . .

27. Earmarked Funds . .

28. Reconciliation of Net Cost of Operations to Budget . .

29. Financial Stability and Stimulus Activities . .

30. Schedule of Fiduciary Activity . .

31. Commitments and Contingencies . .

32. Imputed Financing Costs . .

33. Subsequent Events . .

Required Supplemental Information (Unaudited) . .

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

NOTES TO THE FINANCIAL STATEMENTS
95

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

A. REPORTING ENTITY

The accompanying financial statements include the operations of the U.S. Department of the Treasury (Treasury 

Department), one of 24 CFO Act agencies of the Executive Branch of the United States Government, and certain 

custodial activities managed on behalf of the entire U.S. Government. The following paragraphs describe the 

activities of the reporting entity.

The Treasury Department was created by Act (1 Stat.65) on September 2, 1789. Many subsequent acts affected 

the development of the Treasury Department, delegating new duties to its charge and establishing the numerous 

bureaus and divisions that now comprise the Treasury Department. As a major policy advisor to the President, 

the 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 United States domestic and international economic and fiscal policy; governing the fiscal operations of the government; maintaining foreign assets 

control; managing the federal debt; collecting income and excise taxes; representing the United States on international monetary, trade, and investment issues; overseeing Departmental overseas operations; and directing the 

manufacturing of coins, currency, and other products for customer agencies and the public.

The Emergency Economic Stabilization Act of 2008 (EESA) was signed into law on October 3, 2008. EESA 

authorized the establishment of the Troubled Asset Relief Program (TARP) to be administered by the Treasury 

Department. EESA established two new offices within the Treasury Department: the Office of Financial Stability 

to administer the TARP, and a new Special Inspector General for TARP (SIGTARP). Under EESA, the Special 

Inspector General has the responsibility, among other things, to conduct, supervise, and coordinate audits and 

investigations of the purchase, management, and sale of assets under TARP. 

The Treasury Department includes the Departmental Offices (DO) and nine operating bureaus. For financial 

reporting purposes, DO is composed of: International Assistance Programs (IAP), Office of Inspector General 

(OIG), the Special Office of Inspector General for the Troubled Asset Relief Program (SIGTARP), Treasury 

Forfeiture Fund (TFF), Exchange Stabilization Fund (ESF), Community Development Financial Institutions 

Fund (CDFI), Office of D.C. Pensions (DCP), Treasury Inspector General for Tax Administration (TIGTA), 

Federal Financing Bank (FFB), Office of Financial Stability (OFS), and the DO policy offices, which include the 

Government Sponsored Enterprise and Mortgage Backed Securities programs.

The nine operating bureaus are: Office of the Comptroller of the Currency (OCC); Bureau of Engraving and 

Printing (BEP); Financial Crimes Enforcement Network (FinCEN); Financial Management Service (FMS); 

Internal Revenue Service (IRS); U.S. Mint (Mint); Bureau of the Public Debt (BPD); Office of Thrift Supervision 

(OTS); and the Alcohol and Tobacco Tax and Trade Bureau (TTB).

The Treasury Department’s financial statements reflect the reporting of its own entity activities, which include 

appropriations it receives to conduct its operations and revenue generated from those operations. They also reflect 

the reporting of certain non-entity (custodial) functions it performs on behalf of the U.S. Government and others. Non-entity activities include collecting federal revenue, servicing the federal debt, disbursing certain federal 

funds, and maintaining certain assets and liabilities for the U.S. Government, as well as for other federal entities. 

PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summa
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

96 Note 1.Summa

The Treasury Department’s reporting entity does not include the “General Fund” of the U.S. Government, which 

maintains receipt, disbursement, and appropriation accounts for all federal agencies. 

Transactions and balances among the Treasury Department’s entities have been eliminated from the Consolidated 

Balance Sheets, the Consolidated Statements of Net Cost, and the Consolidated Statements of Changes in Net 

Position. 

Following GAAP for federal entities, the Treasury Department has not consolidated into its financial statements 

the assets, liabilities, or results of operations of any financial organization or commercial entity in which it holds 

either a direct, indirect, or beneficial majority equity investment. Even though some of the equity investments are 

significant, these entities meet the criteria of “bailed out” entities under paragraph 50 of the Statement of Federal 

Financial Accounting Standards (SFFAS) No. 2, which directs that such “bailout” investments should not be 

consolidated into the financial reports of the Federal Government, either in part or as a whole.

B. BASIS OF ACCOUNTING AND PRESENTATION

The financial statements have been prepared from the accounting records of the Treasury Department in conformity with accounting principles generally accepted in the United States for federal entities, and the Office of 

Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements, as amended. Accounting 

principles generally accepted for federal entities are the standards prescribed by the Federal Accounting Standards 

Advisory Board (FASAB). FASAB is recognized by the American Institute of Certified Public Accountants as 

the official accounting standards-setting body of the U.S. Government. As such, the FASAB is responsible for 

identifying the Generally Accepted Accounting Principles (GAAP) hierarchy for Federal reporting entities.

In July 2009, the FASAB issued SFFAS No. 34, The Hierarchy of Generally Accepted Accounting Principles for 

Federal Entities, Including the Application of Standards Issued by the Financial Accounting Standards Board. SFFAS 

No. 34 incorporates the hierarchy of the sources of accounting principles and the framework for selecting the 

principles used in the preparation of general purpose financial reports of Federal reporting entities that are 

presented in conformity with federal GAAP.

These financial statements are provided to meet the requirements of the Government Management Reform 

Act of 1994. They 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 2009 and fiscal year 2008 information.

While these financial statements have been prepared from the books and records of the Treasury Department 

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 books and records. 

Intra-governmental assets and liabilities are those 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.

The financial statements should be read with the realization that they are for a component of a sovereign entity, 

that liabilities not covered by budgetary resources cannot be liquidated without the enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the sovereign entity. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary 

Liabilities represent the probable and measurable future outflow or other sacrifice of resources as a result of past 

transactions or events. Since Treasury Department is a component of the United States Government, a sovereign 

entity, Treasury’s liabilities cannot be liquidated without legislation that provides resources or an appropriation. 

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 or other 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. The United States government, acting in its sovereign capacity, 

can abrogate liabilities of Treasury arising from other than contracts.

C. INVESTMENTS

Investments – Credit Reform

Troubled Asset Relief Program (TARP) equity investments, including investments in preferred and common 

stock and warrants of public companies are accounted for pursuant to the provisions of the Federal Credit Reform 

Act (FCRA) and the associated FASAB accounting standard SFFAS No. 2, Accounting for Direct Loans and Loan 

Guarantees, as amended. As consideration for investments made, Treasury received common stock warrants, 

preferred shares (referred to as warrant preferred shares) or additional notes. Treasury concluded that GAAP 

accounting for such investments using SFFAS No. 2 was appropriate analogous accounting guidance based on the 

similarity between the equity investments made by Treasury and direct loans. Consequently, TARP equity investments, including investments in preferred and common stock and warrants of public companies are accounted 

for by Treasury using credit reform accounting in accordance with SFFAS No. 2, as amended, and reported in 

accordance with FCRA in these financial statements. Treasury calculates and accounts for equity investments 

using a market risk adjusted discount rate. In addition, the inclusion of market risk required by EESA in the 

valuation calculation results in accounting for these investments at estimated fair value, which is consistent with 

the accounting for other equity investments held by Treasury (i.e., Investments in GSEs). 

Treasury recognizes dividend revenue associated with equity investments when declared by the entity in which 

Treasury has invested and when received in relation to any repurchases and restructuring. Treasury reflects changes 

in the present value of the projected cost value of direct loans, equity investments, and asset guarantees in the 

subsidy cost on the Statement of Net Cost annually, as required by FCRA. The estimated values associated with 

these additional instruments are disclosed in Note 8.

Investments in Government Sponsored Enterprises

The senior preferred stock liquidity preference (preferred stock) and associated common stock warrant 

(warrant(s)) in GSEs are presented at their fair value as permitted by OMB Circular No. A-136. This Circular 

includes language that generally requires agencies to value non-federal investments at acquisition cost, and 

also permits the use of other measurement basis, such as fair value, in certain situations. OMB issued guidance 

to the Department of the Treasury on October 7, 2009, noting that while OMB Circular No. A-136 focuses 

primarily on federal securities, which are normally accounted for at amortized cost, it is reasonable to interpret 

OMB Circular No. A-136 to permit non-federal investments, on an instrument by instrument election, to be 

reported on a basis other than cost. OMB’s guidance allows the use of fair value accounting for non-federal 

securities beginning with reporting for fiscal year 2009. OMB Circular No. A-136 also directs agencies with 

non-federal securities to consult FASB’s Statement of Financial Accounting Standards No. 115, Accounting for 

Certain Investments in Debt and Equity Securities, for additional guidance. The Investments in GSEs disclosed as of 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

98 Note 1.Summa

September 30, 2008, were recorded at acquisition cost at the date of purchase with disclosure of fair values as of 

fiscal year end 2008.

Treasury performs annual valuations, as of September 30th, of the preferred stock and warrants. Any changes 

in valuation, including impairment, is recorded and disclosed in accordance with SFFAS No. 7, Accounting for 

Revenue and Other Financing Sources. Since the valuation is an annual process, the changes in valuation of the 

preferred stock and warrants are deemed usual and recurring. Accordingly, changes in valuation are recorded as 

an exchange transaction that is either an expense or revenue. Since the costs of preferred stock and warrants are 

exchange transactions, any change in valuation is also recorded as an exchange transaction. 

In addition, the preferred stock, warrants, and related dividends, and changes in valuation are accounted for as 

non-entity transactions. Furthermore, any related revenue, gains, or losses to the preferred stock or warrants are 

reported as non-entity exchange revenue. Dividends are accrued when declared; therefore, no accrual is made for 

future dividends. 

Increases in the non-entity preferred stock liquidity preference occur when quarterly payments to the GSEs 

are made pursuant to the preferred stock purchase agreements (i.e., when a GSE’s liabilities exceed its assets at 

the end of any quarter). These quarterly payments (liquidity commitments) are made from funds appropriated 

directly to the Treasury Department. Therefore, quarterly liquidity payments are recorded as costs in the Treasury 

Department’s entity accounts and appear as costs on the Statement of Net Cost economic program section.

Investments in International Financial Institutions

The Treasury Department invests in Multilateral Development Banks (MDB) to support poverty reduction, private sector development, and transition to market economies and sustainable economic growth and development, 

thereby advancing the United States’ economic, political, and commercial interests abroad. These investments are 

non-marketable equity investments valued at cost.

Other Investments and Related Interest

The ESF holds most of the Treasury Department's other investments. Securities that the Treasury Department has 

both the intent and ability to hold to maturity are classified as investment securities held to maturity and are carried at historical cost, adjusted for amortization of premiums and accretion of discounts, in accordance with OMB 

Circular No. A-136. The GSE securities held by ESF are in this category. “Other Foreign Currency Denominated 

Assets” are considered “available for sale” securities and recorded at fair value as permitted by OMB Circular No. 

A-136 beginning in fiscal year 2009. (Prior to fiscal year 2009, A-136 required reporting at cost.) These holdings are normally invested in interest bearing securities issued or held through foreign governments or monetary 

authorities.

D. TAX AND OTHER NON-ENTITY RECEIVABLES

Federal taxes receivable, net and the corresponding liability, due to Treasury are not accrued until related tax returns are filed or assessments are made by the IRS and agreed to by either the taxpayer or the court. Additionally, 

the prepayments are netted against liabilities. Accruals are made to reflect penalties and interest on taxes receivable 

through the balance sheet date.

Taxes receivable consist of unpaid assessments (taxes and associated penalties and interest) due from taxpayers. 

The existence of a receivable is supported by a taxpayer agreement, such as filing of a tax return without sufficient 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary 

payment, or a court ruling in favor of the IRS. The allowance reflects 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 Federal 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. Compliance 

assessments and write-offs are not reported on the balance sheet. Statutory provisions require the accounts to be 

maintained until the statute for collection expires.

E. INVENTORY AND RELATED PROPERTY

Inventory and related property include inventory, operating materials and supplies, and forfeited property. The 

Treasury Department values inventories at either standard cost, or lower of cost or latest acquisition cost, except 

for finished goods inventories, which are valued at weighted-average unit cost. All operating materials and supplies are recorded as an expense when consumed in operations.

Forfeited property is recorded at estimated fair market value as deferred revenue, and may be adjusted to reflect 

the current fair market value at the end of the fiscal year. Property forfeited in satisfaction of a taxpayer’s assessed 

liability is recorded when title to the property passes to the U.S. Government and a corresponding credit is made 

to the related taxes receivable. Direct and indirect holding costs are not capitalized for individual forfeited assets.

Mortgages and claims on forfeited assets are recognized as a valuation allowance and a reduction of deferred 

revenue from forfeited assets when the asset is forfeited. The allowance includes mortgages and claims on forfeited 

property held for sale and a minimal amount of claims on forfeited property previously sold. Revenue from 

the forfeiture of property is deferred until the property is sold or transferred to a state, local, or federal agency. 

Revenue is not recognized if the forfeited property is ultimately destroyed or cannot be legally sold. 

F. LOANS AND INTEREST RECEIVABLE, INTRAGOVERNMENTAL – ENTITY AND 

NON-ENTITY 

Intra-governmental entity Loans and Interest Receivable from other federal agencies represent loans and interest 

receivable held by the Treasury Department. No credit reform subsidy costs were recorded for loans purchased 

from federal agencies or for guaranteed loans made to non-federal borrowers, because of outstanding balances 

guaranteed (interest and principal) by those agencies. 

Intra-governmental non-entity Loans and Interest Receivable from other federal agencies represent loans issued by 

the Treasury Department to federal agencies on behalf of the U.S. Government. The Treasury Department acts as 

an intermediary issuing these loans, because the agencies receiving these loans will lend these funds to others to 

carry out various programs of the Federal Government. Because of the Treasury Department’s intermediary role 

in issuing these loans, the Treasury Department does not record an allowance related to these intra-governmental 

loans. Instead, loan loss allowances and subsidy costs are recognized by the ultimate lender, the federal agency that 

issued the loans to the public.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

100 Note 1.Summa

G. ADVANCES TO THE BLACK LUNG TRUST FUND

Advances were provided to the Department of Labor’s Black Lung Disability Trust Fund from the General 

Fund of the U.S. Government. BPD accounted for the advances on behalf of the General Fund of the U.S. 

Government. Advances to the Black Lung Disability Trust Fund were accounted for pursuant to the Benefits 

Revenue Act which states: “In the event that fund resources are not adequate to meet fund obligations, then, 

advances of interest and principal are paid to the General Fund of the U.S. Government when the Secretary of the 

Treasury determines that funds are available in the trust fund for such purposes.” The advances to the Black Lung 

Trust Fund were repayable with interest at a rate determined by the Secretary of the Treasury to be equal to the 

current average market yield on outstanding marketable obligations of the United States with remaining periods 

to maturity comparable to the anticipated period during which the advance will be outstanding. Advances made 

prior to 1982 carried rates of interest equal to the average rate borne by all marketable interest-bearing obligations 

of the United States then forming a part of the public debt. 

The Benefits Revenue Act authorized restructuring of the Trust Fund debt by the repayment of the market value 

of outstanding repayable advances with the proceeds of Authorized Trust Fund borrowing and a one-time appropriation of $6,498 million. As a result of the refinancing, the General Fund of the U.S. Government recognized 

a gain of $2,496 million for the difference between the market value of the outstanding advances plus accrued 

interest of $12,994 million and the carrying value of the outstanding advances plus accrued interest of $10,498 

million. 

H. ADVANCES TO THE UNEMPLOYMENT TRUST FUND

Advances have been issued to the Department of Labor's Unemployment Trust Fund from the General Fund 

of the U.S. Government to states for unemployment benefits. The Bureau of the Public Debt accounts for the 

advances on behalf of the General Fund. As outlined in 42 USC § 1323, these repayable advances bear an interest rate of 3.375 percent, and were computed as the average interest rate, as of the end of the calendar month 

preceding the issuance date of the advance, for all interest bearing obligations of the United States then forming 

the public debt, to the nearest lower one-eighth of one percent. Interest on the repayable advances is due on 

September 30th of each year. Advances will be repaid by transfers from the Unemployment Trust Fund to the 

General Fund when the Secretary of the Treasury, in consultation with the Secretary of Labor, has determined 

that the balance in the Unemployment Trust Fund is adequate to allow repayment.

I. RECEIVABLE ON DEPOSIT OF EARNINGS, FEDERAL RESERVE SYSTEM

Reserve Banks are required by the Board of Governors of the Federal Reserve System to transfer to the U.S. 

Treasury excess earnings, after providing for the cost of operations, payment of dividends, and reservation of an 

amount necessary to equate surplus with capital paid in. In the event of losses, or a substantial increase in capital, 

a Reserve Bank will suspend its payments to the U.S. Treasury until such losses or increases in capital are recovered through subsequent earnings. Weekly payments to the U.S. Treasury may vary significantly. The Receivable 

on Deposit of Earnings, Federal Reserve System, represents the earnings due Treasury as of September 30, but not 

collected by the U.S. Treasury until after the end of the month. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary o

J. PROPERTY, PLANT, AND EQUIPMENT 

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 expenses as incurred. 

Internal use software encompasses software design, development, and testing of projects adding significant new 

functionality and long-term benefits. Costs for developing internal use software are accumulated in work in 

development until a project is placed into service, and testing and final acceptance are successfully completed. 

Once completed, the costs are transferred to depreciable property. 

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.

The Treasury Department leases land and buildings from the General Services Administration (GSA) to conduct 

most of its operations. GSA charges a standard level users fee which approximates commercial rental rates for 

similar properties. Therefore, GSA-owned properties are not included in the Department’s PP&E. 

The Treasury Department’s bureaus are diverse both in size and in operating environment. Accordingly, the 

Department’s capitalization policy provides minimum capitalization thresholds which range from $25,000 to 

$50,000. The Treasury Department also uses a capitalization threshold range for bulk purchases: $250,000 

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. In addition, Treasury bureaus may expense bulk 

purchases if they conclude that total period costs would not be materially distorted and the cost of capitalization 

is not economically feasible. 

Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of 

leasehold improvements, which are depreciated over the useful life of the lease or the useful life of the improvement, whichever is shorter. Service life ranges are high due to the Treasury Department’s diversity of PP&E. 

Construction in progress and internal use software in development are not depreciated. 

Heritage Assets

The Treasury Department owns the Treasury building -- a multi-use heritage asset. The building housing the 

United States Mint in Denver, Colorado, is also considered a multi-use heritage asset. Multi-use heritage assets are 

assets of historical significance for which the predominant use is general government operations. All acquisition, 

reconstruction, and betterment costs for the Treasury Department building are capitalized as general PP&E and 

depreciated over their service life. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

102 Note 1.Summa

K. NON-ENTITY GOVERNMENT-WIDE CASH

Non-entity government-wide cash is held in depositary institutions and Federal Reserve accounts. Agencies can 

deposit funds that are submitted to them directly into either a Federal Reserve Treasury General Account (TGA) 

or a local TGA depositary. The balances in these TGA accounts are transferred to the FRBNY’s TGA at the end of 

each 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 Federal Reserve Banks, foreign and domestic financial institutions, and in U. S. Treasury Tax and loan accounts. Outstanding checks are netted against operating cash until they are cleared by the Federal Reserve System.

The Treasury General Account (TGA) is maintained at the Federal Reserve Bank of New York (FRBNY) and 

functions as the government’s checking account for deposits and disbursements of public funds. The Treasury Tax 

and Loan (TT&L) program includes about 9,000 depositories that accept tax payments and remit them the day 

after receipt to FRBNY’s TGA. Certain TT&L depositaries also hold Non-entity Government-wide Cash in interest bearing accounts. Cash in the TGA and the TT&L program is restricted for Government-wide operations. 

U. S. Treasury Tax and Loan Accounts include funds invested through the Term Investment Option program and 

the Repo program. Under the Term Investment Option program Treasury auctions funds for a set term, usually in 

the range of one day to three weeks. Under the Repo program, Treasury invests funds through overnight reverse 

repurchase agreements. However, under both programs, Treasury reserves the right to call the funds prior to 

maturity under special circumstances. 

The Supplementary Financing Program (SFP) Account is maintained at FRBNY. SFP is a temporary program 

announced by Treasury and the Federal Reserve on September 14, 2008, to provide emergency cash for Federal 

Reserve initiatives aimed at addressing the ongoing crisis in financial markets. The program consists of a series of 

Treasury bills, apart from Treasury's current borrowing program.

To promote stability in the mortgage market, a Federal Reserve account was established at JP Morgan Chase. 

Treasury uses this account to purchase Government Sponsored Enterprise (GSE) mortgage-backed securities in 

the open market. 

Other cash is mostly comprised of Automated Clearinghouse transfers and other deferred items.

L. FEDERAL DEBT 

Debt and associated interest are reported on the accrual basis of accounting. Interest costs are recorded as expenses 

when incurred, instead of when paid. Certain Treasury securities are issued at a discount or premium. These 

discounts and premiums are amortized over the term of the security using an interest method for all long term 

securities and the straight line method for short term securities. The Treasury Department also issues Treasury 

Inflation-Protected Securities (TIPS). The principal for TIPS is adjusted daily over the life of the security based on 

the Consumer Price Index for all Urban Consumers. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary o

M. LOAN COMMITMENTS

The FFB recognizes loan commitments when the FFB and the other parties fully execute the promissory notes 

and reduces loan commitments when the FFB issues loans or when the commitments expire. Most obligations of 

the FFB give a borrower the contractual right to a loan or loans immediately or at some point in the future. The 

FFB limits the time available for a loan under an obligation, where applicable.

N. PENSION COSTS, OTHER RETIREMENT BENEFITS, AND OTHER POST 

EMPLOYMENT BENEFITS

The Treasury Department recognizes the full costs of its employees’ pension benefits. However, the liabilities associated with these costs are recognized by the Office of Personnel Management (OPM) rather than the Treasury 

Department. 

Most employees of the Treasury Department hired prior to January 1, 1984, participate in the Civil Service 

Retirement System (CSRS), to which the Treasury Department contributes 8.51percent of salaries for regular 

CSRS employees. 

On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public Law 

99-335. Employees hired after December 31, 1983, are automatically covered by FERS and Social Security. A 

primary feature of FERS is that it offers a savings plan to which the Treasury Department automatically contributes 1 percent of base pay and matches any employee contributions up to an additional 4 percent of base pay. For 

most employees hired after December 31, 1983, the Treasury Department also contributes the employer’s matching share for Social Security. For the FERS basic benefit, the Treasury Department contributes 11.2 percent for 

regular FERS employees. 

Similar to federal retirement plans, OPM, rather than the Treasury Department, reports the 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. The Treasury Department reports the full cost of 

providing other retirement benefits (ORB). The Treasury Department also recognizes an expense and 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, the Treasury Department 

bureaus, OCC and OTS, separately sponsor certain benefit plans for their employees. OCC sponsors a defined 

life insurance benefit plan for current and retired employees. Additionally, OTS provides certain health and life 

benefits for all retired employees who meet eligibility requirements

O. SPECIAL DRAWING RIGHTS (SDR)

The ESF was established for use by the Secretary of the Treasury to account for the purchase or sale of foreign 

currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) holdings, and to provide financing 

to foreign governments. SDR transactions of the ESF require the explicit authorization of the Secretary of the 

Treasury. 

The International Monetary Fund (IMF) has authority to cancel, in part or in whole, SDRs created under previous allocations. Decisions of the IMF to cancel an SDR are adopted by the IMF’s Board of Governors on a basis 

of proposal by the IMF Managing Director, with concurrence by the IMF Executive Board. The same majority 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

104 Note 1.Summa

requirements as those for allocations apply to the Executive Board’s concurrence and to the Board of Governor’s 

decision on an SDR cancellation proposal.

Allocations and Holdings

Allocations of SDR are recorded as liabilities. These liabilities represent the amount that is payable in the event of 

liquidation of, or U.S. withdrawal from the SDR department of the IMF, or cancellation of the SDR. 

SDR holdings represent transactions resulting from ESF SDR activities. These activities are primarily the result of 

IMF allocations. Other transactions reported in this account are recorded as incurred. They include SDR acquisitions and sales, interest received on SDR holdings, interest charges on SDR allocations, and valuation adjustments. The U.S. Government receives remuneration in SDRs from the IMF. This is based on claims on the IMF, 

represented by the U.S. Reserve Position. The allocations and holdings are revalued monthly based on the SDR 

valuation rate calculated by the IMF.

Certificates

The SDR Act of 1968 authorized the Secretary of the Treasury to issue certificates, not to exceed the value of SDR 

holdings, to the Federal Reserve Banks in return for interest-free dollar amounts equal to the face value of certificates issued. The certificates may be issued to finance the acquisition of SDR from other countries or to provide 

resources for financing other ESF operations. Certificates issued are to be redeemed by the Treasury Department 

at such times and in such amounts as the Secretary may determine. Certificates issued to Federal Reserve Banks 

are stated at their face value. It is not practical to estimate the fair value of certificates issued to Federal Reserve 

Banks, since these certificates contain no specific terms of repayment. 

P. 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. These future workers’ compensation estimates were generated from an application of 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. 

Q. ANNUAL, SICK, AND OTHER LEAVE

Annual and compensatory leave earned by Treasury employees, but not yet used, is reported as an accrued liability. The accrued balance is adjusted annually to current pay rates. Any portions of the accrued leave, for which 

funding is not available, are recorded as an unfunded liability. Sick and other leave are expensed as taken. 

R. REVENUE AND FINANCING SOURCES

Treasury Department activities are financed either through exchange revenue it receives 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 IRS reimbursable costs to process installment 

agreements and accompanying photocopy and reproduction charges. Exchange revenues are recognized when 

earned; i.e., goods have been delivered or services have been rendered. Non-exchange revenues are recognized 

when received by the respective Treasury Department collecting bureau. Appropriations used are recognized as 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary o

financing sources when related expenses are incurred or assets are purchased. Revenue from reimbursable agreements is recognized when the services are provided. The Treasury Department also incurs certain costs that are 

paid in total or in part by other federal entities, such as pension costs. These subsidized costs are recognized on the 

Consolidated Statement of Net Cost, and the imputed financing for these costs is recognized on the Consolidated 

Statement of Changes in Net Position. As a result, there is no effect on net position. Other non-exchange financing sources such as donations and transfers of assets without reimbursements also are recognized for the period in 

which they occurred on the Consolidated Statement of Changes in Net Position.

The Treasury Department recognizes revenue it receives from disposition of forfeited property as non-exchange 

revenue on the Consolidated Statement of Changes in Net Position. The costs related to the Forfeiture Fund 

program are reported on the Consolidated Statement of Net Cost.

S. CUSTODIAL REVENUES AND COLLECTIONS

Non-entity revenue reported on the Treasury Department’s Statement of Custodial Activity includes cash collected by the Treasury Department, primarily 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 earmarked for certain trust funds. The Statement of Custodial Activity is presented on the “modified accrual 

basis.” Revenues are recognized as cash is collected. The “accrual adjustment” is the net increase or decrease, during the reporting period, in net revenue related-assets and liabilities, mainly taxes receivable. The Balance Sheets 

include an estimated amount for taxes receivable and payable to the General Fund of the U.S. Government at 

September 30, 2009 and September 30, 2008.

T. TAX ASSESSMENTS, ABATEMENTS, AND REFUNDS PAYABLE

Under Internal Revenue Code Section 6201, the Treasury Department is authorized and required to make inquiries, determinations, and assessments of all taxes which have not been 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. The Treasury Department also has authority to abate the paid or 

unpaid portion of 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.

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. Amounts the Treasury Department has concluded to be valid refunds owed 

to taxpayers are recorded as a liability (Refunds Payable on the Balance Sheet), with a corresponding receivable 

from the General Fund. This receivable is included on the Balance Sheet in the line entitled “Due from the 

General Fund.”

U. PERMANENT AND INDEFINITE APPROPRIATIONS

Permanent and indefinite appropriations are used to disburse tax refunds, income tax credits, and child tax credits. These appropriations are not subject to budgetary ceilings established by Congress. Therefore, refunds payable 

at year end are not subject to funding restrictions. Refund payment funding is recognized as appropriations are 

used. Permanent indefinite authority for refund activity is not stated as a specific amount and is available for an 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

106 Note 1.Summa

indefinite period of time. Although funded through appropriations, refund activity, in most instances, is reported 

as a custodial activity of the Treasury Department, since refunds are, in substance, a custodial revenue-related 

activity resulting from taxpayer overpayments of their tax liabilities. 

The Treasury Department also receives two permanent and indefinite appropriations related to debt activity. One 

is used to pay interest on the public debt securities; the other is used to redeem securities that have matured, been 

called, or are eligible for early redemption. These accounts are not annual appropriations and do not have refunds. 

Debt activity appropriations are related to the Treasury Department’s liability and are reported on the Treasury 

Department’s Balance Sheet. Permanent indefinite authority for debt activity is available for an indefinite period 

of time.

Treasury receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs of 

credit programs as determined by the reestimation process required by the FCRA. 

Additionally, the Treasury Department receives other permanent and indefinite appropriations to make certain 

payments on behalf of the U.S. Government. These appropriations are provided to make payments to the Federal 

Reserve Banks for services provided. They also include appropriations provided to make other disbursements on 

behalf of the U.S. Government, including payments made to various parties as the result of certain claims and 

judgments rendered against the United States.

V. INCOME TAXES

As an agency of the Federal Government, the Treasury Department is exempt from all income taxes imposed by 

any governing body, whether it is a federal, state, commonwealth, local, or foreign government.

W. USE OF ESTIMATES 

The Treasury Department has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, expenses, and the disclosure of contingent liabilities to prepare these financial statements. Actual 

results could differ from these estimates. Significant transactions subject to estimates include loan receivables 

(including Mortgage Backed Securities (MBS) and TARP); investments in non-federal securities (including 

Government Sponsored Enterprises (GSEs) foreign and domestic public entities) and related impairment, if any; 

tax receivables; loan guarantees; depreciation; liability for liquidity commitment (GSEs); imputed costs; actuarial 

liabilities; cost and earned revenue allocations; contingent legal liabilities; and credit reform subsidy costs.

The Treasury recognizes the sensitivity of credit reform modeling to slight changes in some model assumptions 

and uses regular review of model factors, statistical modeling, and annual reestimates to reflect the most accurate 

cost of the credit programs to the U.S. Government. Two of the emergency economic programs that Treasury 

implemented in the latter part of September 2008, the purchase program for MBS and the GSE credit line facility, both operate under the provisions of credit reform and the use of estimates as dictated by the Federal Credit 

Reform Act (Note 12). Additionally, all TARP credit activity, including investments in common and preferred 

stock and warrants of public companies and loans and loan guarantees or guaranty-like insurance activities, are 

also subject to credit reform subsidy cost estimates and valuation of direct loans, equity investments and asset 

guarantees. (Notes 8 and 12) 
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary o

The forecasted future cash flows used to determine these amounts as of September 30, 2009, are sensitive to 

slight changes in model assumptions, such as general economic conditions, specific stock price volatility of the 

entities in which the Treasury Department has an equity interest, estimates of expected default, and prepayment 

rates. Forecasts of future financial results have inherent uncertainty and the TARP Direct Loans and Equity 

Investments, Net, and Asset Guarantee Program line items as of September 30, 2009, are reflective of relative 

illiquid, troubled assets whose values are particularly sensitive to future economic conditions and other assumptions. Additional discussion related to sensitivity analysis can be found in the Management’s Discussion and 

Analysis section of the Agency Financial Report.

The GSE preferred stock agreements provide that the Treasury Department will increase its investment in the 

GSE’s 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, individually, exceed its respective assets. Based on 

U.S. GAAP, these contingent liquidity commitments predicated on the future occurrence of any shareholders’ 

deficits of the GSEs at the end of any reporting quarter, are potential liabilities of Treasury. Valuation analyses 

were performed to attempt to provide a “sufficiently reliable” estimate of the outstanding commitment in order 

for Treasury to record the remaining liability in accordance with SFFAS 5. The valuation incorporated various 

forcasts, projections and cash flow analysis to develop an estimate of potential liability. Note 9 discusses the results 

of the valuation and the liability recorded as of September 30, 2009.

X. CREDIT RISK

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or a counterparty 

to perform in accordance with underlying contractual obligations. The Treasury Department takes on possible 

credit risk when it makes direct loans or credits to foreign entities or becomes exposed to institutions which 

engage in financial transactions with foreign countries (Note 11). Given the history of the Treasury Department 

with respect to such exposure and the financial policies in place in the U. S. Government and other institutions in 

which the United States participates, the Treasury Department expectations of credit losses is nominal. 

The Treasury Department also takes on credit risk related to committed but undisbursed direct loans, its liquidity 

commitment to GSE, its MBS portfolio, investments, loans, and asset guarantees of the TARP, its insurance of 

non-FDIC insured money market funds, and its Terrorism Risk Insurance Program. Except for the Terrorism 

Risk Insurance Program, these activities focus on the underlying problems in the credit markets, and the ongoing 

instability in those markets exposes the Department to potential unknown costs and losses. The extent of the 

risk assumed by the Treasury Department 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 (Notes 8, 9 & 12). 

In addition, for EESA programs, the statute requires that market risk be considered in the subsidy cost of the 

asset, through an adjustment to the discount rate. Within the TARP programs, Treasury has invested in many 

assets that would traditionally be held by private investors and their valuation would inherently include market 

risk. Thus, for all TARP direct loan, guarantee, and equity purchase programs, Treasury calculates a Market Risk 

Adjusted Discount Rate (MRADR). Therefore, the Treasury cost estimates for the TARP programs are adjusted 

for unexpected loss and the estimated risk of expected cash flows. Under SFFAS No. 2, including market risk 

in the cash flow estimates is consistent with the type of assets and liabilities being valued. The inclusion of the 

MRADR is the mechanism for providing the fair market value of the assets.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

108 Note 1.Summa

Y. EARMARKED FUNDS

Treasury has accounted for revenues and other financing sources for earmarked funds separately from other 

funds. Earmarked funds are financed by specifically identified revenues, often supplemented by other financing 

sources, which remain available over time. These specifically identified revenues and other financing sources are 

required by statute to be used for designated activities or purposes. SFFAS No. 27, Identifying and Reporting 

Earmarked Funds, defines the following three criteria for determining an earmarked fund: (1) A statute committing the Federal Government to use specifically identified revenues and other financing sources not used in the 

current period for future use to finance the designated activities, benefits, or purposes; (2) Explicit authority for 

the earmarked fund to retain revenues and other financing sources not used in the current period for future use 

to finance the designated activities, benefits, or purposes; and (3) A requirement to account for and report on 

the receipt, use, and retention of the revenues and other financing sources that distinguished the earmarked fund 

from the Federal Government’s general revenues. 

Z. ALLOCATION TRANSFERS 

The Treasury Department is 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 the U.S. 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. Beginning in fiscal year 2007, 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. 

The Treasury Department allocates funds, as the parent, to the Department of Energy. OMB allows certain 

exceptions to allocation reporting for certain funds. Accordingly, the Treasury Department has reported certain 

funds for which the Treasury Department is the child in the allocation transfer, but in compliance with OMB 

guidance (A-136 III.4.2 section 5 for three exceptions), will report all activities relative to these allocation transfers in the Treasury Department’s financial statements. Also, the Treasury Department receives allocation transfers, 

as the child, from the Agency for International Development and Department of Transportation. The Treasury 

Department had no significant allocation transfers to report in fiscal years 2009 and 2008. 

AA. CREDIT REFORM ACCOUNTING

The authoritative guidance for the credit reform portion of these statements is contained primarily in SFFAS No. 

2, Accounting for Direct Loans and Loan Guarantees, as amended by SFFAS No. 18, Amendments to Accounting 

Standards for Direct Loans and Loan Guarantees, and SFFAS No. 19, Technical Amendments to Accounting 

Standards for Direct Loans and Loan Guarantees. This guidance was promulgated as a result of the Federal Credit 

Reform Act of 1990 (FCRA). 

The FCRA requires that the ultimate costs of a credit program be calculated, and the budgetary resources obtained, before the direct loan obligations are incurred. The cost of loan guarantee programs is the net present 

value of the estimated future cash flows from payments (for claims and interest rate subsidies). The primary pur-
PART 2 • ANNUAL FINANCIAL REPORT

Note 1.Summary o

pose of the FCRA, which became effective on October 1, 1991, is to more accurately measure the cost of federal 

credit programs and to place the cost of such credit programs on a basis equivalent with other federal spending.

SFFAS No. 2, which generally mirrors the requirements of the FCRA, established guidance for estimating the 

cost of direct and guaranteed loan programs, as well as for recording direct loans and liabilities for loan guarantees 

for financial reporting purposes. SFFAS No. 2 states that the actual and expected costs of federal credit programs 

should be fully recognized in both budgetary and financial reporting. To accomplish this, agencies first predict 

or estimate the future performance of direct and guaranteed loans when preparing their annual budgets. The 

data used for these budgetary estimates are reestimated after the fiscal year-end to reflect changes in actual loan 

performance and actual interest rates in effect when the loans were issued. The data used for these estimates were 

reestimated at the fiscal year-end to reflect adjustments for market risk, asset performance, and other key variables 

and economic factors. The reestimate data are then used to report the cost of the loans disbursed under the direct 

or guaranteed loan program as a “Program Cost” in the agencies’ Statement of Net Cost.

The FCRA establishes budgetary and financing control for each credit program through the use of the program, 

financing and negative subsidy receipt accounts for direct loans obligated after September 30, 1991. The FCRA 

establishes the use of the program, financing, and general fund receipt for direct loans obligated after September 

30, 1991. These accounts are classified as either budgetary or non-budgetary in the Combined Statements of 

Budgetary Resources. The budgetary accounts include the program accounts and receipt accounts. The nonbudgetary accounts consist of the credit reform financing accounts.

The program account is a budget account that receives and obligates appropriations to cover the subsidy cost 

of a direct loan or guarantee and disburses the subsidy cost to the financing account. The program account also 

receives appropriations for administrative expenses. The financing account is a non-budgetary account that 

records all of the cash flows resulting from Credit Reform direct loans or loan guarantees. It disburses loans, collects repayments and fees, makes claim payments, holds balances, borrows from BPD, earns or pays interest, and 

receives the subsidy cost payment from the program account.

The General Fund receipt account is a budget account used for the receipt of amounts paid from the financing 

account when there is a negative subsidy or negative modification from the original estimate or a downward 

reestimate. They are available for appropriations only in the sense that all General Fund receipts are available for 

appropriations. Any assets in this account are non-entity assets and are offset by intragovernmental liabilities. 

At the end of the fiscal year, the fund balance transferred to the U.S. Treasury through the General Fund receipt 

account is no longer included in Treasury’s fund balance reporting. 

The Department of Treasury accounts for TARP direct loans, equity investments and Asset Guarantees, MBS 

purchased as a part of GSEs assistance program, and the GSE Credit Facility program, in accordance with the 

FCRA and the provisions under the FASAB accounting standard SFFAS No. 2, as amended. Treasury determined 

it was acceptable to include an estimate of market risk in the calculation of subsidy cost under SFFAS No. 2.

AB. FIDUCIARY ACTIVITIES

Treasury has adopted SFFAS No. 31, Accounting for Fiduciary Activities, which is effective for years beginning 

after September 30, 2008. SFFAS No. 31, prescribes that fiduciary type activities and related transactions will no 

longer be reported in proprietary financial statements. Fiduciary activities are the collection or receipt, and the 

management, protection, accounting, investment, and disposition by the Federal Government of cash or other 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

110 Note 1.Summa

assets in which non-Federal individuals or entities have an ownership interest that the Federal Government must 

uphold. Fiduciary cash and other assets are not assets of the Federal Government. While these activities are no 

longer reported in the proprietary financial statements, they are required to be reported on schedules in the notes 

to financial statements (Note 30). 

AC. RECLASSIFICATIONS

Certain fiscal year 2008 balances on the Statements of Budgetary Resources (SBR) and Net Cost (SNC) have 

been reclassified to conform to the fiscal year 2009 presentations. In fiscal year 2009, certain SBR budgetary and 

non-budgetary amounts were disaggregated whereas in fiscal year 2008 they were reported in the aggregate. The 

change was made to appropriately disclose the significant TARP and GSEs non-budgetary credit reform activity that occurred in fiscal year 2009. In addition, the Investments in GSEs accrued year-end liquidity payment 

disclosed as of September 30, 2008 were reported in the Statement of Net Cost (SNC) separate from the four 

Treasury strategic goals. In fiscal year 2009, Treasury concluded that the cost of this program helps accomplish 

the Treasury strategic goal of ensuring that the U.S. economy performs at its full economic potential. Thus, as 

of September 30, 2009 the cost of investments in GSEs and the related year-end accrual are included in the 

Economic Program section of the SNC. The GSE transaction reclassification in the SNC also caused a similar 

reclassification for the GSE transaction in Note 28, Reconciliation of Net Cost of Operations to Budget, as well.

AD. RELATED PARTIES

The primary “related parties” with whom the Treasury Department conducts business are other federal agencies, 

mainly through the normal lending activities of the BPD and the Federal Financing Bank. These activities are 

disclosed in these financial statements. The Treasury Department utilizes the services of the Federal Reserve to 

execute a variety of transactions on behalf of the BPD and the Exchange Stabilization Fund. The Federal Reserve 

is serving as the Treasury Department’s fiscal agent in executing these transactions and receives fees for its services. 

The Treasury Department also consults with the Federal Reserve on matters affecting the economy, such as the 

structuring of bailout financing for American International Group and other companies affected by the current 

economic situation. However, these actions do not involve transactions between the Treasury Department and the 

Federal Reserve. 

Finally, the Secretary of the Treasury serves on the Federal Housing Finance Administration (FHFA) Oversight 

Board, and consults with the Director of FHFA in matters involving Fannie Mae and Freddie Mac. This provides 

the Treasury Department a voice in the FHFA’s actions as the conservator for Fannie Mae and Freddie Mac, and 

thus some influence over major decisions involving Fannie Mae and Freddie Mac. The Treasury Department has 

no transactions with FHFA; transactions and balances arising from transactions with Fannie Mae and Freddie 

Mac are accounted for and disclosed in these financial statements.
PART 2 • ANNUAL FINANCIAL REPORT

Note 2. Fund

2. FUND BALANCE

Fund Balance with Treasury is the aggregate amount of the Treasury Department’s accounts with the U.S. 

Government’s central accounts from which the Treasury Department is authorized to make expenditures and pay 

liabilities. It is an asset because it represents the Treasury Department’s claim to the U.S. Government’s resources. 

Fund balance with Treasury is not equivalent to unexpended appropriations, because it also includes nonappropriated revolving and enterprise funds, suspense accounts, and custodial funds such as deposit funds, special 

funds, and trust funds. 

Appropriated funds consist of amounts appropriated annually by Congress to fund the operations of the 

Department. Appropriated funds include clearing funds, which represent reconciling differences with Treasury 

balances. 

Revolving funds are used for continuing cycles of business-like activity, in which the fund charges for the sale of 

products or services and uses the proceeds to finance its spending, usually without requirement for annual appropriations. A public enterprise revolving fund is an account that is authorized by law to be credited with offsetting 

collections from the public and those monies are used to finance operations. The Working Capital Fund is a 

fee-for-service fund established to support operations of Department Components. Also included are the financing funds for credit reform. The GSA and TARP programs were the main drivers for the increase in appropriated 

and revolving funds.

Trust funds include both receipt accounts and expenditure accounts that are designated by law as a trust fund. 

Trust fund receipts are used for specific purposes.

Deposit funds represent amounts received as an advance that are not accompanied by an order and include nonentity collections that do not belong to the Federal Government. See Note 30, Schedule of Fiduciary Activity for 

Non-Entity collections. 

Special funds include funds designated for specific purposes including the disbursement of non-entity monies 

received in connection with the Presidential Election Campaign.

Fund Balances: As of September 30, 2009 and September 30, 2008, fund balances consisted of the following (in 

millions): 

2009 2008

Appropriated Funds $ 455,983 $ 272,561

Revolving Funds 47,897 1,837

Trust Funds 5 2

Clearing Funds 93 26

Deposit Funds 146 587

Special Funds 455 299

Other Funds (Receipts and Suspense Funds) 3 56

Total Fund Balances $ 504,582 $ 275,368
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

112 Note 2. 

Status of Fund Balance with Treasury

Portions of the Unobligated Balance Unavailable include amounts appropriated in prior fiscal years that are not 

available to fund new obligations. However, it can be used for upward and downward adjustments for existing 

obligations in future years. The Obligated Balance Not Yet Disbursed represents 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 do not post to budgetary status accounts, the following adjustments are required 

to reconcile the budgetary status to non-budgetary Fund Balance with Treasury as reported in the accompanying 

Balance Sheets: 

•	 Adjustments for Non-Budgetary Funds are receipt, clearing, and deposit funds that represent amounts on 

deposit with Treasury that have no budget status. 

•	 Borrowing authority is in budgetary status but not in Fund Balance with Treasury.

•	 Budgetary resources have investments included; however, the money has been moved from the Fund 

Balance with Treasury asset account to Investments.

•	 Imprest funds represent monies moved from Fund Balance with Treasury to Cash and Other Monetary 

Assets with no change in the budgetary status.

•	 Adjustments for IMF– monies moved from Fund Balance with Treasury to Other Monetary Assets related 

to IMF accounts that are with the Federal Reserve Bank of New York. They also include the IMF Reserve 

Position based on SDRs.

•	 Adjustment for Unavailable for Obligations reduced the budgetary resources; however, did not impact the 

Fund Balance with Treasury.

As of September 30, 2009 and September 30, 2008, the status of fund balances consisted of the following (in 

millions):

2009 2008

Unobligated Balance – Available $ 382,047 $ 242,939

Unobligated Balance – Unavailable 33,841 11,395

Obligated Balance not yet Disbursed 158,324 56,868

Subtotal $ 574,212 $ 311,202

Adjustment for Non-Budgetary Funds 241 669

Adjustment for Borrowing Authority (51,510) (29,810)

Adjustment for Intra-Treasury Investments (8,554) (5,530)

Adjustment for Imprest Funds (4) (4)

Adjustment for IMF (13,513) (4,838)

Adjustments for Temporary Reduction 30 0

Authority Unavailable for Obligation 3,680 3,679

Total Status of Fund Balance $ 504,582 $ 275,368

For ESF, the above balances only include unobligated balances related to the ESF insurance program that began in 

fiscal year 2008, and expired on September 18, 2009. Otherwise, ESF does not have Fund Balance with Treasury. 

Accordingly, while other ESF balances are included on the Statement of Budgetary Resources (SBR), they are 
PART 2 • ANNUAL FINANCIAL REPORT

Note 2. Fund

not a component of Fund Balance with Treasury. The ESF balances displayed on the SBR include components of 

cash, foreign currency, and other monetary assets (Note 6).

As of September 30, 2009 and September 30, 2008, the Treasury Department did not have any budgetary authority in Fund Balance with Treasury that was specifically withheld from apportionment by OMB. The balances 

in non-entity funds, such as certain deposit funds (e.g., seized cash), are being held by the Treasury Department 

for the public or for another federal entity, such as the General Fund of the U.S. Government. Such funds have 

an offsetting liability equal to fund balance. See Note 14 regarding restrictions related to the line of credit held on 

the U.S. Quota in the International Monetary Fund. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

114 Note 3.Loans and

3. LOANS AND INTEREST RECEIVABLE - INTRA-GOVERNMENTAL 

As of September 30, 2009 and September 30, 2008, intra-governmental loans (issued by the Federal Financing 

Bank) and interest receivable consisted of the following (in millions):

Entity Intra-governmental:

Loans 

Receivable 

Interest 

Receivable

2009 

Total

Loans 

Receivable 

Interest 

Receivable

2008 

Total

Department of Agriculture $ 28,438 $ 52 $ 28,490 $ 26,326 $ 50 $ 26,376

National Credit Union Administration 18,384 22 18,406 1,109 0 1,109

United States Postal Service 10,200 37 10,237 7,200 1 7,201

General Services Administration 2,037 36 2,073 2,098 37 2,135

Department of Energy 908 0 908 0 0 0

Department of Housing and Urban Development 587 71 658 691 84 775

Executive Office of the President 546 6 552 680 8 688

Department of Education 453 2 455 338 3 341

Department of Defense 0 0 0 17 0 17

Other Agencies 12 0 12 18 0 18

Subtotal-Entity $ 61,565 $ 226 $ 61,791 $ 38,477 $ 183 $ 38,660

The FFB issues the above loans to federal agencies for their own use or to private sector borrowers, whose loans 

are guaranteed by the federal agencies. 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 the FFB. Loan principal and interest are backed by the full faith and credit of the U.S. Government, 

except for loans to the U.S. Postal Service. The FFB has not incurred and does not expect to incur any credit-related losses on its loans and accordingly, has not recorded an allowance for uncollectible intra-governmental loans.

Non-Entity Intra-governmental:

Loans 

Receivable 

Interest 

Receivable 2009 Total

Loans 

Receivable 

Interest 

Receivable

2008 

Total

Department of Education $ 234,918 $ 12 $ 234,930 $ 128,331 $ 0 $ 128,331

Department of Agriculture 55,627 2 55,629 51,192 9 51,201

Department of Homeland Security 19,004 0 19,004 17,360 359 17,719

Small Business Administration 10,873 0 10,873 9,463 0 9,463

Department of Labor 6,371 0 6,371 0 0 0

Other Agencies 5,961 1 5,962 3,944 0 3,944

Department of Housing and Urban Development 4,425 0 4,425 4,832 0 4,832

Export Import Bank of the U. S. 3,805 0 3,805 2,929 0 2,929

Railroad Retirement Board 3,359 58 3,417 3,096 69 3,165

Department of Energy 2,131 18 2,149 2,186 20 2,206

Department of Veterans Affairs 1,545 0 1,545 1,575 0 1,575

Department of the Interior 316 328 644 323 393 716

Federal Communications Commission 46 0 46 113 0 113

Subtotal Non-Entity $ 348,381 $ 419 $ 348,800 $ 225,344 $ 850 $ 226,194

Total Intra-governmental Loans and Interest 

Receivable Entity and Non-Entity $ 410,591 $ 264,854
PART 2 • ANNUAL FINANCIAL REPORT

Note 3.Loans and Int

BPD accounts for and reports on the principal borrowings from and repayments to the General Fund of the 

United States for approximately 80 funds managed by other federal agencies, as well as the related interest due to 

the General Fund. These agencies are statutorily authorized to borrow from the General Fund, through BPD, to 

make loans for a broad range of purposes, such as education, housing, farming, and small business support.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

116 Note 4.ue fomhe 

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

The Treasury Department is responsible for managing various assets and liabilities on behalf of the U.S. 

Government as a whole. Due from the General Fund represents amounts required to fund liabilities managed by 

Treasury Department on behalf of the U.S. Government. Liabilities managed by the Treasury Department are 

comprised primarily of the federal debt. Due to the General Fund represents assets held for the General Fund of 

the U.S. Government. 

As of September 30, 2009 and September 30, 2008, Due from and Due to the General Fund, included the following non-entity assets and liabilities (in millions):

Liabilities Requiring Funding from the General Fund: 2009 2008

Federal Debt and Interest Payable $ 7,559,305 $ 5,812,694

Federal Debt and Interest Payable - Intra-governmental 4,403,080 4,262,414

Refunds Payable 4,040 3,076

Adjustment for Eliminated Liabilities 26,294 22,579

Total Due from the General Fund $ 11,992,719 $ 10,100,763

Assets to be Distributed to the General Fund:

Fund Balance $202 $215

Advances to the Black Lung Trust Fund 0 10,484

Advances to the Unemployment Trust Fund 7,981 0

Cash Held by the Treasury Department 269,311 364,594

Foreign Currency 26 31

Custodial Gold and Silver held by the U.S. Mint without certificates 25 25

Loans and Interest Receivable - Intra-governmental 348,800 226,194

Loans and Interest Receivable 127 130

Investments in GSEs 64,679 7,032

Credit Reform Downward Subsidy Reestimate 118,139 0

Accounts Receivable - Intra-governmental 285 372

Tax and Other Non-Entity Receivables 30,353 30,489

Beneficial Interest in Trust 23,472 0

Miscellaneous Assets 3 12

Adjustment for Eliminated Assets 399,725 27,534

Total Due to the General Fund $ 1,263,128 $ 667,112

The Adjustment for Eliminated Intra-Treasury liabilities mainly represents investments in U.S. Government 

securities held by Treasury reporting entities that were eliminated against Federal Debt and Interest Payable. The 

Adjustment for Eliminated Intra-Treasury assets mainly represents loans and interest payable owed by Treasury 

reporting entities, which were eliminated against Loans and Interest Receivable held by the BPD.

The non-entity Credit Reform Downward Subsidy Reestimates represents amounts for the downward subsidy 

reestimates for the Treasury’s discretionary GSE MBS Credit Program Receivables ($8,392 million) and TARP 

Direct Loan, Equity Investments and Asset Guarantees ($109,747 million). Downward subsidy reestimates 

indicates that too much subsidy will be or has been paid to the credit reform financing account. Because these 
PART 2 • ANNUAL FINANCIAL REPORT

Note 4.ue fomhe Gene

credit programs are discretionary, the downward reestimates are not available to Treasury and they are returned to 

the U.S. Government General Fund Receipt Account (GFRA) in the fiscal year following the accrual of the reestimates. Generally, during the year, these GFRAs contain prior year reestimates. At year-end, the prior year funds 

are “swept” by the General Fund. Since fiscal year 09 is the first year Treasury has reported reestimates there were 

no prior year balances in the GFRAs. Also at year-end, the Treasury accrues the current year’s reestimates, including downward reestimates as applicable. For the downward reestimates, in the loan financing funds, the Treasury 

records an inter-governmental accrual adjustment that records a transfer out to the non-entity fund, a reduction 

of subsidy allowance or loan guarantee liability, and an account payable to the GFRA non-entity fund. In the loan 

program funds, the Treasury records a reduction of loan subsidy expense and the associated impact on the net 

cost. The non-entity GFRAs contain a corresponding inter-governmental account receivable in anticipation of the 

receipt of the downward reestimates in the following year and a Downward Reestimate Liability for Non-Entity 

Asset due to the general fund. For consolidated financial statement presentation, Treasury is required to eliminate 

the financing fund’s inter-governmental payable due to the GFRA and the GFRA’s inter-governmental receivable 

due from the financing funds; since both are included in Treasury reporting entity. The Downward Reestimate 

Liability for Non-Entity Asset Due to the General Fund is reflected on the Balance Sheet’s intra-governmental 

liability Due to the General Fund line. 

On the Balance Sheet, the Treasury Department reported $30,408 million in Tax, Other, and Related Interest 

Receivables as of September 30, 2009 ($30,878 million as of September 30, 2008). However, only $30,353 

million is reported as Due to the General Fund of the U.S. Government ($30,489 million as of September 30, 

2008). The difference is attributable to the exclusion of amounts which will be paid to others outside the U.S. 

Government, and miscellaneous entity receivables (see Notes 5 and 15).
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

118 Note 5. Acounts R

5. ACCOUNTS RECEIVABLE AND RELATED INTEREST—INTRA-GOVERNMENTAL 

Intra-governmental accounts receivable and interest mainly represents non-entity payments made by the Treasury 

Department under the Contract Disputes Act ($285 million of the $298 million and $368 million of the $396 

million displayed on the balance sheet for 2009 and 2008, respectively). Other federal agencies are required to 

reimburse the Treasury Department for payments made on their behalf, related to the Contract Disputes Act and 

the No Fear Act. These amounts are a receivable on the Treasury Department’s books, specifically the Financial 

Management Service, and a payable on the other federal agencies' books until reimbursement is made. The 

remaining amount displayed as intra-governmental accounts receivable and interest is related to miscellaneous 

intra-governmental transactions.  
PART 2 • ANNUAL FINANCIAL REPORT

Note 6. Cash, oreign Cu

6. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS 

Cash, foreign currency, and other monetary assets held as of September 30, 2009 and September 30, 2008 were as 

follows (in millions): 

Entity: 2009 2008

Cash $ 23 $ 19

Foreign Currency and Foreign Currency Denominated Assets 13,701 12,758

Other Monetary Assets:

Special Drawing Rights 57,961 9,464

Other 44 88

Subtotal - Entity $ 71,729 $ 22,329

Non-Entity:

Operating Cash of the U.S. Government $ 269,052 $ 364,273

Foreign Currency 26 31

Miscellaneous Cash held by all Treasury sub-components 501 637

Subtotal - Non-Entity $ 269,579 $ 364,941

Total Cash, Foreign Currency, and Other Monetary Assets $ 341,308 $ 387,270

Non-entity Operating Cash and Other Cash of the U.S. Government held by the Treasury Department disclosed 

above consisted of the following (in millions): 

2009 2008

Operating Cash of the U.S. Government $ 2,063 $ 39,209

Operating Cash - Federal Reserve Bank Account 273,269 332,480

Subtotal $ 275,332 $ 371,689

Outstanding Checks (6,280) (7,416)

Total Operating Cash of the U.S. Government $ 269,052 $ 364,273

Other Cash 366 386

Subtotal $ 269,418 $ 364,659

Amounts Due to the Public (107) (65)

Total Cash Due to the General Fund (See Note 4) $ 269,311 $ 364,594

Entity

Entity cash, foreign currency, and other monetary assets primarily include Foreign Currency Denominated Assets 

(FCDA), Special Drawing Rights (SDR), and forfeited cash. SDR and FCDA are valued as of September 30, 

2009 and September 30, 2008, using current exchange rates plus accrued interest. “Other” includes U.S. dollars restricted for use by the International Monetary Fund (IMF), which are maintained in two accounts at the 

FRBNY.

The foreign currency holdings are normally invested in interest bearing securities issued by or held through foreign governments or monetary authorities. FCDA with original maturities of three months or less, were valued at 

$8.7 billion as of September 30, 2009 ($9.3 billion as of September 30, 2008). Other FCDAs having terms of less 

than or equal to a year but greater than three months are classified as available for sale. As of September 30, 2009, 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

120 Note 6. Cash, oreig

FCDA with maturities greater than three months were valued at $2.4 billion ($3.5 billion as of September 30, 

2008). 

The SDR are international reserve assets created by the IMF. They were created as a supplement to existing reserve 

assets and on several occasions SDR have been allocated by the IMF to members participating in the IMF’s SDR 

department. The SDR derives their value as reserve assets, essentially, from the commitments of participants to 

hold and accept SDR and to honor various obligations connected with their proper functioning as a reserve asset. 

The Special Drawing Rights Act of 1968 authorizes the Secretary of the Treasury Department to issue certificates, 

not to exceed the value of SDR holdings, to the Federal Reserve Banks in return for interest free dollar amounts 

equal to the face value of certificates issued. The certificates may be issued for the purpose of financing the 

acquisition of SDR from other countries or to provide resources for financing exchange stabilization activities. 

Certificates issued are to be redeemed by the Treasury Department at such times and in such amounts as the 

Secretary of the Treasury Department may determine. As of September 30, 2009, the value of the certificates 

issued to Federal Reserve Banks amounted to $5.2 billion ($2.2 billion as of September 30, 2008).

On a daily basis, the IMF calculates the value of the SDR using the market value, in terms of the U.S. dollar, 

from the amounts of each of four freely usable weighted currencies, as defined by the IMF. These currencies are 

the U.S. dollar, the European euro, the Japanese yen, and the British pound sterling. Treasury Department’s SDR 

holdings (assets resulting from various SDR related activities including remuneration received on interest earned 

on the U.S. reserve position – see Note 14) and allocations from the IMF (liabilities of the U.S. coming due only 

in the event of a liquidation of, or U.S. withdrawal from the SDR department of the IMF, or cancellation of 

SDR) are revalued monthly based on the SDR valuation rate calculated by the IMF.

Pursuant to the IMF Articles of Agreement, SDR allocated to or otherwise acquired by the United States are 

permanent resources unless:

a. cancelled by the Board of Governors based on an 85 percent majority decision of the total voting power of 

the Executive Board of the IMF

b. the SDR Department of the IMF is liquidated

c. the IMF is liquidated or

d. the United States 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 United States, the payment of the 

Treasury Department’s commitment related to SDR allocations is conditional on events listed above, in which 

the United States has a substantial or controlling voice. Allocations of SDR were made in 1970, 1971, 1972, 

1979, 1980, and 1981, and 2009. On August 28, 2009, the ESF received 27.5 billion SDRs (equivalent of $43 

billion in U.S.) as the U.S. share of a general allocation from the IMF. On September 9, 2009, the ESF received 

2.9 billion SDRs (equivalent of $4.5 billion in U.S.) as the U.S. share of a special allocation from the IMF. As of 

September 30, 2009, the amount of SDR holdings and related accruals of the United States was the equivalent of 

$ 57.9 billion, and the amount of SDR allocations to the United States was the equivalent of $ 55.9 billion. As of 

September 30, 2008, the amount of SDR holdings and related accruals of the United States was the equivalent of 

$ 9.4 billion and the amount of SDR allocations to the United States was the equivalent of $7.6 billion. 

In fiscal year 2009, Treasury entered into a voluntary arrangement with the IMF for the purpose of providing additional hard currency liquidity to certain countries. The voluntary arrangement allows Treasury to purchase up to 
PART 2 • ANNUAL FINANCIAL REPORT

Note 6. Cash, oreign Cu

approximately 16 billion SDRs. As of September 30, 2009 and September 30, 2008, the value of SDR allocations 

was the equivalent of $55.9 and $7.6 billion, respectively.

During fiscal year 2009, the Treasury Department received remuneration on the U.S. reserve position in the IMF, 

at the prevailing rates, in the amount of $39.6 million equivalent of SDR ($59 million equivalent of SDR during 

fiscal year 2008), and paid the General Fund of the Federal Government $0.0038 million ($0.01 million in fiscal 

year 2008) in interest on these funds until they were transferred to the General Fund. 

Securities Purchased Under Agreement to Resell are issued in book entry form and denominated in Euro, and 

issued or guaranteed in full by Belgium, France, Germany, Italy, the Netherlands and Spain. Maturities of the 

Securities will not exceed 10.5 years. The duration of individual repo transactions will not exceed 90 days. These 

agreements are generally treated as collateralized financial transactions and are carried at amounts at which the 

securities were acquired. ESF has $2.6 billion securities which are pledged on behalf of their fiscal agent, Federal 

Reserve Bank of New York (FRBNY). The fair value of such securities is monitored throughout the contract term 

to insure that asset values remain sufficient to protect against counterparty default.

Non-Entity

Non-entity cash, foreign currency, and other monetary assets include the Operating Cash of the U.S. 

Government, managed by the Treasury Department. Also included is foreign currency maintained by various U.S. 

and military disbursing offices. It also includes seized monetary instruments, undistributed cash, and offers in 

compromises which are maintained as the result of the Treasury Department’s tax collecting responsibilities.

The Operating Cash of the U.S. Government represents balances from tax collections, other revenues, federal 

debt receipts, and other various receipts net of checks outstanding, which are held in the Federal Reserve Banks, 

foreign and domestic financial institutions, and in U.S. Treasury tax and loan accounts at commercial banks. 

Operating Cash of the U.S. Government is either insured (for balances up to $250,000), as of September 30, 

2009, by the FDIC or collateralized by securities pledged by the depository institutions and held by the Federal 

Reserve Banks, or through securities held under reverse repurchase agreements.

The Supplementary Financing Program (SFP) is a temporary program announced on September 17, 2008, by 

Treasury and the Federal Reserve, to provide emergency cash for Federal Reserve initiatives aimed at addressing 

the ongoing crisis in financial markets. At the height of this program's activity, during the week of November 6, 

2008, there were a total of 15 cash management bills outstanding that totaled $560 billion. As of September 30, 

2009, there were a total of five SEP cash management bills outstanding that totaled $165 billion. The decrease is 

a result of outstanding SFP bills that have matured and have not been reinvested in the program. On September 

16, 2009, Treasury announced its intention to reduce the balance to $15 billion in the short run to preserve flexibility in the conduct of debt management policy.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

122 Note 7.Gold ad Silv

7. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES ISSUED 

TO THE FEDERAL RESERVE BANKS

The Treasury Department is responsible for safeguarding most of the U.S. Government’s gold and silver reserves 

in accordance with 31 USC 5117. The Consolidated Balance Sheets also reflect the value of the gold being held in 

the FRBNY. 

Gold reserves being held by the Treasury Department are offset by a liability for gold certificates issued by the 

Secretary of the Treasury Department to the Federal Reserve Banks as provided in 31 USC 5117. Since 1934, 

Gold Certificates have been issued in non-definitive or book-entry form to the Federal Reserve Banks. The 

Treasury Department’s liability incurred by issuing the Gold Certificates is limited to the gold being held by 

the Treasury Department at the legal standard value established by law. Upon issuance of Gold Certificates to 

the Federal Reserve Banks, the proceeds from the certificates are deposited into the operating cash of the U.S. 

Government. All of the Treasury Department’s certificates issued are payable to the Federal Reserve Banks. 

The deep storage gold and silver reserves are reported at the values stated in 31 U. S. C. §§ 5116 – 5117 (statutory rates) which are $42.2222 per fine troy ounce (FTO) of gold and no less than $1.292929292 per FTO of 

silver. Accordingly, the silver is valued at $1.292929292 per FTO. The gold and silver reserves are in the custody 

of the U.S. Mint and FRBNY. The U.S. Mint holds gold and silver reserves without certificates (See Note 4). 

As of September 30, 2009 and September 30, 2008, the gold and silver reserves consisted of the following (in 

millions): 

FTOs

Statutory 

Rate

9/30/09

 Statutory 

Value 

Market 

Rate 

9/30/09 

Market 

Value

Gold 248,046,116 $ 42.2222 $ 10,473 $ 995.75 $ 246,992

Gold Held by Federal Reserve Banks 13,452,784 $42.2222 568 $ 995.75 13,396

Subtotal - Gold 261,498,900 $ 11,041 $ 260,388

Silver 16,000,000 $ 1.292929292 21 $ 16.45 263

Total Gold and Silver Reserves $ 11,062 $ 260,651

FTOs

Statutory 

Rate

9/30/08

 Statutory 

Value 

Market 

Rate 

9/30/08 

Market 

Value

Gold 248,046,116 $ 42.2222 $ 10,473 $ 884.50 $ 219,397

Gold Held by Federal Reserve Banks 13,452,784 42.2222 568 $ 884.50 11,899

Subtotal - Gold 261,498,900 $ 11,041 $ 231,296

Silver 16,000,000 1.292929292 21 $ 12.96 207

Total Gold and Silver Reserves $ 11,062 $ 231,503
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

8. INVESTMENTS – CREDIT REFORM AND ASSET GUARANTEE

The Federal Credit Reform Act of 1990 (FCRA) and associated FASAB accounting standard SFFAS No. 2, as 

amended, governs direct loans and asset guarantees made after fiscal year 1991. FCRA loans are valued at the 

present value of expected future cash flows, discounted at the interest rate of marketable Treasury securities. The 

subsidy allowance account represents the difference between the outstanding loan receivables balance and the net 

present value of the estimated cash flows of the loans over their remaining term. The subsidy allowance is subtracted from the outstanding loans receivable balance to obtain the net loans receivable balance. 

Under the provisions of the EESA, Treasury implemented the TARP which resulted in the development of 

several equity investment programs and transactions including: the Capital Purchase Program; the American 

International Group, Inc. Investment Program (formerly known as Systemically Significant Failing Institution 

Program); the Targeted Investment Program; the Automotive Industry Investment Program; the Public-Private 

Investment Program; and the Asset Guarantee Program.

Treasury applies the provisions of SFFAS No. 2 to account for equity investments (including asset guarantees). 

This standard requires measurement of the asset or liability at the present value of the estimated future cashflows. The cash flow estimates for each equity investment transaction reflect the actual structure of the instruments. Analytical cash flow models generate estimated cash flows to and from Treasury over the estimated term 

of the facility. Further, each cash-flow model 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 

models also incorporate an adjustment for market risk to reflect the additional return required by the market to 

compensate for variability around the expected losses reflected in the cash flows (the “unexpected loss”). The basic 

methods for these models as well as a description of each equity investment program are outlined below.

Equity Investments

Preferred stock cash flows are projected using an analytical model developed to incorporate the risk of losses 

associated with adverse events, such as failure of the institution or increases in market interest rates. The model 

estimates how cash flows vary depending on 1) current interest rates, which may affect the decision whether to 

repay the preferred stock; and 2) the strength of a financial institution’s assets. Inputs to the model include institution specific accounting data obtained from regulatory filings; an institution’s stock price volatility, historical bank 

failure information as well as market prices of comparable securities trading in the market. Treasury estimates the 

values and projects the cash flows of warrants using an option-pricing approach based on the current stock price 

and its volatility. Investments in common stock which are exchange traded is valued at the market price. The 

result of using market prices, either quoted prices for the identical asset or quoted prices for comparable assets, is 

that the equity investments are recorded at estimated fair value.

Asset Guarantees

The value of the asset guarantee reflect the net present value of estimated default-claim payments by the 

Government, net of income from recoveries on defaults, fees, or other income. Guarantee fees to date have been 

paid in the form of preferred stock subsequently converted to trust preferred stocks and a warrant to purchase 

common stock of the financial institution, whose value is modeled using the same methodology for other equity 

purchase programs, discussed above. Default-claim payments are based on estimated losses on the guaranteed 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

124 Note 8. Inve

assets. Key inputs into these estimates are forecasted gross domestic product, unemployment rates and home price 

depreciation, in a base scenario and a stress scenario.

Subsidy Cost

The recorded subsidy cost of a direct loan, equity investment or asset guarantee is based on a set of estimated 

future cash flows. Government actions that change these estimated future cash flows change subsidy costs and 

are recorded as a modification. The cost of a modification is recognized as a modification expense, included in 

subsidy cost, when the direct loan, equity investment, or asset guarantee is modified. During fiscal year 2009, 

modifications occurred within the Capital Purchase Program, Consumer and Business Lending Initiative, the AIG 

Investment Program, and the Automotive Industry Financing Program. See detailed discussion related to each 

program and related modifications below. Total net modification costs for the period ended September 30, 2009 

approximated $412.1 million.

CAPITAL PURCHASE PROGRAM (CPP)

In October 2008, Treasury began implementation of the TARP with the Capital Purchase Program (CPP), designed to stabilize the financial system by assisting in building the capital base of certain viable U.S. financial institutions to increase the capacity of those institutions to lend to businesses and consumers and support the economy. 

Under this program, Treasury purchases senior perpetual preferred stock from qualifying U.S. controlled banks, 

savings associations, and certain bank and savings and loan holding companies (Qualified Financial Institution 

or QFI). The senior preferred stock has a stated dividend rate of 5.0 percent through year five, increasing to 9.0 

percent in subsequent years. The dividends are cumulative for bank holding companies and subsidiaries of bank 

holding companies and non-cumulative for others and payable when and if declared by the institution’s board of 

directors. Under the original terms of the senior preferred stock, the QFI may not redeem the shares within the 

first three years of the date of the investment, unless it has received the proceeds of one or more Qualified Equity 

Offerings (QEOs)1

 which results in aggregate gross proceeds to the QFI of not less than 25.0 percent of the issue 

price of the senior preferred shares. QFIs that are Sub-chapter S Corporations issued subordinated debt in order to 

maintain compliance with the Internal Revenue Code. The maturity of the subordinated debentures is 30 years and 

interest rates are 7.7 percent for the first 5 years and 13.8 percent for the remaining years. 

In February 2009 and May 2009, the United States Congress passed the American Recovery and Reinvestment Act 

of 2009 and the Helping Families Save Their Homes Act of 2009, respectively. These acts contained amendments to 

the EESA (EESA Amendments) which require the Secretary to allow QFIs to repay at any time, subject to regulatory approval, regardless of whether the 25.0 percent or greater QEO was accomplished. The ability of a QFI to 

repay the Treasury investment prior to year 3 or a 25.0 percent QEO was not considered in the original subsidy 

cost estimate. Therefore, a modification cost of $77.7 million was recorded as a result of these amendments.

In addition to the senior preferred shares, Treasury received warrants as required by section 113(d) of EESA from 

public QFIs to purchase a number of shares of common stock. The warrants have an aggregate market price equal 

to 15.0 percent of the total senior preferred share investment. The exercise price and market value used to determine the number of shares of common stock subject to the warrant was calculated based on the average of closing 

prices of the common stock on the 20 trading days ending on the last day prior to the date the QFIs application 

1 A Qualified Equity Offering is defined as the sale by the QFI after the date of the senior preferred stock investment of Tier 1 perpetual 

preferred stock or common stock for cash.
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

was preliminarily approved for participation in the program. The warrants include customary anti-dilution provisions. In the event that a public QFI completes, prior to December 31, 2009, one or more QEOs with aggregate 

gross proceeds of not less than 100.0 percent (100.0 percent QEO) of the senior perpetual preferred stock investment, the number of shares subject to the warrants will be reduced by 50.0 percent. As of September 30, 2009, 

19 QFIs reduced the number of shares available under the warrants as a result of this provision. The warrants have 

a 10 year term. The Treasury may exercise one half of the warrants prior to the earlier of a 100.0 percent QEO, or 

December 31, 2009. Subsequent to December 31, 2009, Treasury may exercise any warrants held in whole or in 

part. Treasury considers the impact of potential future QEOs in the valuation process.

The Treasury received warrants from non-public QFIs for the purchase of additional senior preferred stock (or 

subordinated debentures, if appropriate) with a stated dividend rate of 9.0 percent (13.8 percent interest rate 

for subordinate debentures) and a liquidation value equal to 5.0% of the total senior preferred share (additional 

subordinate debenture) investment. These warrants were immediately exercised and resulted in Treasury holding 

additional senior preferred stock (subordinated debentures) (collectively referred to as “warrant preferred stock”) 

of non-public QFIs. The Treasury did not receive warrants from banks considered Community Development 

Financial Institutions (CDFIs). As of September 30, 2009, Treasury has invested in 20 institutions considered 

CDFIs. The EESA Amendments previously discussed also allows the Secretary to liquidate warrants associated 

with repurchased senior preferred stock at the market price. In addition, a QFI, upon the repurchase of its senior 

preferred stock, also has the contractual right to repurchase the common stock warrants at the market price.

In June 2009, Treasury entered into an exchange agreement with Citigroup. Under the terms of the agreement, 

Treasury exchanged $25,000 million of its investment in senior preferred stock for a new series (Series M) of 

mandatorily convertible preferred stock. The initial conversion price was $3.25 per share. In July 2009, Treasury 

received the Series M shares, which were subsequently converted in September 2009 to approximately 7,700 

million common shares of Citigroup. This exchange transaction was not considered in the original subsidy cost 

estimate for CPP. As a result, Treasury recorded a modification cost of approximately $1,866 million for the fiscal 

year ended 2009. The Treasury also has investments in Citigroup through the Targeted Investment Program (TIP) 

and Asset Guarantee Program (AGP).

During the period ending September 30, 2009, Treasury has invested approximately $204,619 million in 685 

institutions, including small, community, regional, and national banks, as well as CDFIs, in 48 states, the District 

of Columbia, and Puerto Rico. Approximately $70,718 million of Treasury investments have been repurchased 

or redeemed bringing the total gross investment balance as of September 30, 2009 to approximately $133,901 

million. In addition, during the period ending September 30, 2009, Treasury received under CPP approximately 

$6,800 million in dividends on senior preferred and warrant preferred stock and approximately $2,900 million in 

proceeds from the repurchase of warrants and warrant preferred shares. Thirty-eight QFIs have not declared and 

paid one or more dividends to Treasury under CPP as of September 30, 2009.

Further details on the outstanding senior preferred stock investments and subordinated debentures under CPP 

and the net investment amount including estimated cash flows associated with the sale or exercise of the warrants, 

as of September 30, 2009, are presented in the table at the end of this section.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

126 Note 8. Inve

AMERICAN INTERNATIONAL GROUP, INC. (AIG)

Treasury provides assistance to certain systemically significant financial institutions on a case-by-case basis in order 

to provide stability to institutions that are critical to a functioning financial system and are at substantial risk of 

failure as well as to prevent broader disruption to financial markets. 

In November 2008, Treasury invested $40,000 million in AIG’s Cummulative Series D perpetual cumulative 

preferred stock with a dividend rate of 10.0 percent compounded quarterly. On April 17, 2009, AIG and Treasury 

restructured their November 2008 agreement. Under the restructuring, Treasury exchanged $40,000 million of 

cumulative Series D preferred stock for $41,603 million of non-cumulative 10.0 percent Series E preferred stock. 

The amount of Series E preferred stock is equal to the original $40,000 million, plus approximately $733.0 million in undeclared dividends as of the February 1, 2009 scheduled quarterly dividend payment date, $15.0 million in dividends compounded on the undeclared dividends, and an additional $855.0 million in dividends from 

February 1, 2009, but not paid as of April 17, 2009. AIG’s restructured agreement kept the quarterly dividend 

payment dates of May 1, August 1, November 1, and February 1, as established by the original November 2008 

agreement. The original subsidy cost estimate did not consider this restructuring which resulted in a modification 

cost of $127.2 million.

In addition to the exchange, Treasury agreed to make available an additional $29,800 million capital facility to allow AIG to draw additional funds if needed to assist in AIG’s restructuring. Treasury investment consists of Series 

F non-cumulative perpetual preferred stock with an initial liquidation amount of $0.0. This liquidation amount 

increases with any drawdown by AIG on the facility. The dividend rate applicable to these stock is 10.0 percent 

and is payable quarterly, if declared, on the outstanding liquidation amount. As of September 30, 2009, approximately $3,200 million has been funded by Treasury to AIG under this additional capital facility. Consistent 

with SFFAS No. 2, the unused portion of the AIG capital facility is not recognized as an asset as of September 30, 

2009.

As of September 30, 2009, AIG has not made any dividend payments on any of the perpetual preferred stock. 

Subsequently, AIG failed to make a dividend payment on November 2, 2009. Per the terms of the preferred 

stock, if AIG misses 4 dividend payments, Treasury may appoint to the AIG board of directors the greater of two 

members or 20.0 percent of the total number of directors of the Company. 

TARGETED INVESTMENT PROGRAM (TIP)

The Targeted Investment Program (TIP) was designed to prevent a loss of confidence in financial institutions that 

could result in significant market disruptions, threatening the financial strength of similarly situated financial 

institutions, impairing broader financial markets, and undermining the overall economy. Treasury considers institutions as candidates for the TIP on a case-by-case basis, based on a number of factors described in the program 

guidelines. These factors include the threats posed by destabilization of the institution, the risks caused by a loss of 

confidence in the institution, and the institution’s importance to the nation’s economy.

Treasury completed the first transaction under the TIP in December 2008, when it invested $20,000 million in 

Citigroup cumulative perpetual preferred stock and received a warrant for the purchase of Citigroup common 

stock. Under the agreement with Citigroup, Treasury receives an 8.0 percent annual dividend, payable quarterly, 

if and when declared by Citigroups’ Board of Directors. As part of this agreement, Citigroup must implement 

rigorous compensation standards and other restrictions on corporate expenditures. In June 2009, Treasury and 
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

Citigroup agreed to an exchange of the cumulative perpetual preferred stock issued under the TIP for a new 

series of trust preferred securities. Citigroup issued subordinated debentures to a trust established by Citigroup, 

and the trust issued trust preferred securities to Treasury. Interest and principal payments on the subordinated 

debentures are passed-through to the trust preferred security holders. The trust preferred securities pay a quarterly 

distribution at an annual rate of 8.0 percent to Treasury. The subordinated debentures contains an interest deferral 

provision allowing Citigroup to defer payment of interest for up to 5 years. Treasury will not receive distributions 

from the trust preferred securities during a deferral period. Deferred interest is required to be paid upon termination of the deferral period. The subordinated debentures will mature in 2039. As a result, the trust is scheduled to 

pay out the proceeds to the holders of the trust preferred securities. In addition, the subordinate debentures can 

be prepaid by Citigroup at any time prior to maturity, subject to consultation with the Federal Reserve, as long 

as the U.S. Government holds the trust preferred securities. The terms of the new securities are substantially the 

same as the preferred share originally received by Treasury and therefore the exchange transaction did not result in 

a modification. Treasury has investments in Citigroup through the CPP and the Asset Guarantee Program (AGP).

In January 2009, Treasury completed its second transaction under the TIP, investing $20,000 million in Bank of 

America. Under the agreement with Bank of America, Treasury purchased $20,000 million of cumulative perpetual preferred stock and received a warrant for the purchase of Bank of America common stock. The preferred 

stock purchased from Bank of America contains a stated annual dividend rate of 8.0 percent, payable quarterly, 

if declared. Bank of America’s agreement under the TIP stipulates that the institution must implement rigorous 

executive compensation standards and other restrictions on corporate expenditures. Treasury also has investments 

in Bank of America through the CPP. (See Note 33.)

During the period ending September 30, 2009, Treasury received approximately $1,900 million in dividends 

under the TIP.

AUTOMOTIVE INDUSTRY FINANCING PROGRAMS (AIFP)

The objective of the Automotive Industry Financing Program was to prevent a significant disruption of the 

American automotive industry, which could have a negative effect on the economy of the United States. The 

discussion below details the various investments made by the Treasury in the automotive industry.2

GMAC Preferred Stock

In December 2008, the Treasury purchased preferred membership interest for $5,000 million which were converted to senior preferred stock with an 8.0 percent annual distribution right (dividends) from GMAC. Under 

the agreement, GMAC issued warrants to Treasury to purchase, for a nominal price, additional preferred equity in 

an amount equal to 5.0 percent of the preferred equity purchased. These warrants were exercised at closing of the 

investment transaction. The additional preferred stock provided for a 9.0 percent annual distribution right. The 

purpose of this investment was to enable GMAC to restore liquidity to its finance businesses and restore stability to the domestic automobile industry in the United States. As of September 30, 2009, Treasury has received 

$265.2 million in dividends associated with these preferred and warrant preferred stock.

2 Included in the TARP Direct Loans net, are equity interests acquired during the restructuring of GM and Chrysler. These equity amounts 

are included with the original loans portfolio in Note 12.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

128 Note 8. Inve

GMAC Mandatorily Convertible Preferred Stock

In May 2009, the Treasury published a non-binding term sheet to invest $13,140 million to support GMAC, 

subject to definitive documentation and GMAC’s capital needs. The Treasury has invested $7,500 million (of the 

$13,140 million) in 9.0 percent Mandatorily Convertible Preferred Stock in GMAC to support its ability to originate new loans to Chrysler dealers and consumers, and help address GMAC’s capital needs. The preferred stock 

have a liquidation amount of $50 per share and are convertible, in whole or in part, at any time, at the option of 

GMAC, subject to the approval of the Federal Reserve. Furthermore, GMAC shall not convert any of the stock 

to the extent such conversion would result in the Treasury owning in excess of 49 percent of GMAC’s common 

equity except (1) with the prior written consent of the Treasury, (2) pursuant to GMAC’s Capital Plan, or (3) 

pursuant to an order of the Federal Reserve compelling such a conversion. The determination of the percentage 

of common equity owned by the Treasury would take into account the common stock currently owned by the 

Treasury as a result of the conversion of the GMAC Rights Offering, previously discussed. Absent a previous 

conversion, the preferred stock will automatically convert after 7 years. The conversion rate is .00432 units of 

common stock per unit of convertible preferred stock. The remaining $5,600 million (per the non-binding term 

sheet) is subject to FRB’s review of GMAC’s capital plan assessment of whether additional capital is needed. As of 

September 30, 2009, the remaining $5,600 million has not been funded. The Treasury has received approximately 

$165.4 million in dividends associated with these preferred and warrant preferred stock.

PUBLIC-PRIVATE INVESTMENT PARTNERSHIP (PPIP) EQUITY

The Public-Private Investment Program is part of Treasury’s efforts to help restart the markets and provide liquidity for legacy assets. Under this program Treasury will make equity and debt investments in investment vehicles 

(referred to as Public Private Investment Funds or “PPIFs”) established by private investment managers. The 

equity investment will be used to match private capital and will equal not more than 50.0 percent of the total 

equity invested. The debt investment will be, at the option of the investment manager, equal to 50.0 percent or 

100.0 percent of the total equity (including private equity). The PPIFs are only allowed to purchase commercial 

mortgage-backed securities and non-agency residential mortgage-backed securities issued prior to January 1, 

2009 that were originally rated AAA or an equivalent rating by two or more nationally recognized statistical 

rating organizations without external credit enhancement and that are secured directly by the actual mortgage 

loans, leases or other assets and not other securities. The PPIFs are also permitted to invest in certain temporary 

securities, including bank deposits, U.S. Treasury Securities, and certain money market mutual funds. At least 90 

percent of the assets underlying any eligible asset must be situated in the United States. On September 30, 2009, 

Treasury signed definitive agreements with two investment managers, committing to potentially disburse up to 

$6,700 million. As of September 30, 2009, no private fund managers had made any investments and Treasury 

had not disbursed any funds. 

ASSET GUARANTEE PROGRAM (AGP)

The AGP provides guarantees for assets held by systemically significant financial institutions that face a risk 

of losing market confidence due in large part to a portfolio of distressed or illiquid assets. The AGP is applied 

with extreme discretion in order to improve market confidence in the systemically significant institution and in 

financial markets broadly.

Section 102 of the EESA established the AGP to guarantee troubled assets originated or issued prior to March 

14, 2008, including mortgage-backed securities, and established the Troubled Assets Insurance Financing Fund 
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

(TAIFF). In accordance with Section 102(c) and (d) of the EESA, premiums from financial institutions, are collected and all fees are recorded by Treasury in the TAIFF. In addition, Section 102(c)(3) of the EESA requires that 

the original premiums assessed are “set” at a minimum level necessary to create reserves sufficient to meet anticipated claims. In the event there are insufficient funds within the TAIFF for the payment of claims, amounts are 

borrowed from the U.S. Treasury until sufficient funds are received into the TAIFF. In the event that the estimate 

of claims exceeds the estimated future cash inflows, an upward reestimate would be recorded and amounts would 

be transferred to the TAIFF as a subsidy expense.

Treasury completed its first transaction under the AGP in January 2009, when it finalized the terms of a guarantee 

agreement with Citigroup. Under the agreement, Treasury, the Federal Reserve Bank (FRB), the Federal Deposit 

Insurance Corporation (FDIC), and the Federal Reserve Bank of New York (FRBNY) provided protection against 

the possibility of large losses on an asset pool of approximately $301,000 million of loans and securities backed 

by residential and commercial real estate and other such assets, which remain on Citigroup’s balance sheet. The 

following loss-sharing terms apply to the transaction: Citigroup absorbs the first $39,500 million in losses, and 

losses over the $39,500 million are shared by the U. S. government (90.0 percent) and Citigroup (10.0 percent) 

(the “second loss”). For the second loss, Treasury absorbs up to $5,000 million, then the FDIC absorbs up to 

$10,000 million, and lastly the FRBNY funds any U.S. government losses above Treasury and the FDIC commitments through a non-recourse loan. The guarantee is in place for ten years for residential assets and five years for 

non-residential assets.

As a premium for the guarantee, Citigroup issued $7,034 million of cumulative perpetual preferred stock with 

an 8.0 percent stated dividend rate and a warrant for the purchase of common stock; $4,034 million was issued 

to Treasury and approximately $3,000 million was issued to the FDIC. Treasury received the warrant. As part 

of the agreement, Citigroup submitted an executive compensation plan to Treasury and the FDIC for approval 

and must comply with certain common stock dividend restrictions. Treasury has received approximately $174.8 

million in dividends on the preferred stock received as compensation for this arrangement. These dividends have 

been deposited into the TAIFF. The preferred stock originally issued to Treasury and the FDIC were exchanged 

for the trust preferred securities discussed above under the TIP. Treasury has also invested in Citigroup through 

the CPP and the TIP.

The net present value of the estimated cash inflows from the preferred stock and warrant received by Treasury 

from Citigroup as a premium is greater than the estimated net present value of future claim payments, resulting 

in an asset of approximately $1,765 million, after reestimates, as of September 30, 2009.

In January 2009, Treasury, FDIC, FRBNY (together the USG Parties), and Bank of America signed a Summary 

of Terms (Term Sheet) pursuant to which the USG Parties agreed to guarantee or lend against a pool of up to 

$118,000 million of financial instruments consisting of securities backed by residential and commercial real estate 

loans and corporate debt and related derivatives. In May 2009, prior to completing definitive documentation, 

Bank of America notified the USG Parties of its desire to terminate negotiations with respect to the guarantee 

contemplated in the Term Sheet. All parties agreed that Bank of America received value for entering into the 

Term Sheet with the USG Parties and that the USG Parties should be compensated for out-of-pocket expenses 

and a fee equal to the amount Bank of America would have paid for the guarantee from the date of the signing 

of the Term Sheet through the termination date. Under the terms of the settlement, the U.S. Treasury received 

$276.0 million for its role in the guarantee agreement through Treasury, the FRBNY received $57.0 million, and 

the FDIC received $92.0 million. All Treasury funds received for the settlement were deposited in the TAIFF 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

130 Note 8. Inve

and subsequently paid to the U.S. Treasury General Fund. The $276 million received by Treasury pursuant to the 

settlement is reflected in the Statement of Net Cost as a reduction of subsidy cost.

The tables below provide an analysis of the TARP equity investments including allowance for subsidy costs, 

modifications, reestimates, and administrative costs. The TARP programs were created in fiscal year 2009 and 

thus there are no fiscal year 2008 comparative balances to disclose. 

Troubled Asset Relief Programs - Equity Investments, Net (in millions)

Programs

Equity 

Investments, 

Gross

Interest 

Receivable

Foreclosed 

Property

Allowance for 

Subsidy Cost and 

Loan Guarantee Liability 

—Present Value

2009

Value of Assets 

Related to Equity 

Investments

CPP $ 133,901 $ 0 $ 0 $ 7,770 $ 141,671

AIG 43,206 0 0 (30,054) 13,152

TIP 40,000 0 0 341 40,341

AIFP 12,500 0 0 (4,523) 7,977

Total $ 229,607 $ 0 $ 0 $ (26,466) $ 203,141

Total Amount of Disbursements, Equity Investments (in millions):

Programs 2009

CPP $ 204,618

AIG 43,206

TIP 40,000

AIFP 12,500

Total $ 300,324
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

Subsidy Expense, Equity Investments (in millions):

Programs

Interest 

Differential Defaults

Fees and Other 

Collections Other

2009

Total

CPP $ 12,279 $ 52,655 $ $0 $ (9,414) $ 55,520

AIG (17,280) 46,906 0 1,799 31,425

TIP 3,724 19,352 0 (3,536) 19,540

AIFP 5,319 3,694 0 (2,196) 6,817

Total $ $4,042 $ 122,607 $ 0 $ (13,347) $ 113,302

Modifications and Reestimates, Equity Investments (in millions):

Programs

Total 

Modifications

Interest Rate 

Reestimates

Technical 

Reestimates

Total 

Reestimates

CPP $ 1,866 $ 0 $ (72,419) $ (72,419)

AIG 127 0 (1,125) (1,125)

TIP 0 0 (21,467) (21,467)

AIFP 0 0 (2,710) (2,710)

Total $ 1,993 $ 0 $ (97,721) $ (97,721)

Total Subsidy Expense, Equity Investments, (in millions):

Programs 2009

CPP $ (15,033)

AIG 30,427

TIP (1,927)

AIFP 4,107

Total $ 17,574

Subsidy Rates by Program and Component, Equity Investments*:

Programs Interest Differential Defaults

Fees and Other 

Collections Other

2009

Total

CPP 5.97% 25.60% 0.00% -4.58% 26.99%

AIG -45.52% 123.56% 0.00% 4.74% 82.78%

TIP 9.31% 48.38% 0.00% -8.84% 48.85%

AIFP 42.55% 29.55% 0.00% -17.57% 54.53%

(*) The rates reflected in the “Subsidy Rate” table above are weighted rates for the program. To compensate for the weighting of the various risk category 

subsidy rates, the “by component” dollar amounts reflected were computed as a ratio of the component rate to the total weighted subsidy rate multiplied by 

the subsidy expense for the program.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

132 Note 8. Inve

Schedule for Reconciling Subsidy Cost Allowance Balances (in millions):

Fiscal Year 2009 CPP AIG TIP AIFP Totals

Beginning Balance of the subsidy cost allowance $ 0 $ 0 $ 0 $ 0 $ 0

Add: subsidy expense for disbursements 

(a) Interest rate differential cost 12,279 (17,280) 3,724 5,319 4,042

(b) Default costs (net of recoveries) 52,655 46,906 19,352 3,694 122,607

(c) Fees and other collections 0 0 0 0 0

(d) Other subsidy costs (9,414) 1,799 (3,536) (2,196) (13,347)

Total of the above subsidy expense components $ 55,520 $ 31,425 $ 19,540 $ 6,817 $ 113,302

Adjustments:

(a) Loan modifications 1,866 127 0 0 1,993

(b) Fees received 9,691 0 1,862 431 11,984

(c) Foreclosed property acquired 0 0 0 0 0

(d) Loans written off 0 0 0 0 0

(e) Subsidy allowance amortized (2,428) (373) (276) (15) (3,092)

 (f) Other 0 0 0 0 0

Ending Balance subsidy cost allowance before 

reestimates $

0

64,649 $ 31,179 $ 21,126 $ 7,233 $ 124,187

Add or subtract subsidy reestimates by component:

(a) Interest rate reestimate 0 0 0 0 0

(b) Technical default reestimate (72,419) (1,125) (21,467) (2,710) (97,721)

Total of the above reestimate components (72,419) (1,125) (21,467) (2,710) (97,721)

Ending Balance of the 

subsidy cost allowance $ (7,770) $ 30,054 $ (341) $ 4,523 $ 26,466

Administrative Expense of TARP programs (in millions):

Programs 2009

Troubled Asset Relief Programs $ 167

Total $ 167
PART 2 • ANNUAL FINANCIAL REPORT

Note 8. Investme

Troubled Asset Relief Programs – Asset Guarantee Program (AGP)

As of September 30, 2009, Asset Guarantees consisted of the following (in millions):

Asset Guarantees Outstanding (in millions):

Programs Outstanding Principal of Guaranteed Assets

2009 

Amount of Outstanding Principal Guaranteed

AGP $301,000 $5,000

Asset for Asset Guarantee (in millions):

Programs

2009

 Asset for Asset Guarantee Present Value

AGP *$1,765

(*)The net present value of the preferred stock received by Treasury from the TAIFF as a premium ($4,034 million) is greater than the liability ($2,269), resulting in 

a net asset of $1,765 million included as a line item on the face of the balance sheet, after reestimates, as of September 30, 2009.

Subsidy Expense, Guarantee (in millions):

Programs

Interest 

Differential Defaults

Fees and Other 

Collections Other

2009

Total

AGP $ 0 $ 2,181 $ (2,662) $ (270) $ (751)

Modifications and Reestimates (in millions):

Programs

Total

 Modifications

Interest Rate 

Reestimates

Technical 

Reestimates

2009

Total Reestimates

AGP $ 0 $ 0 $ (1,174) $ (1,174)

Total Guarantee Subsidy Expense (in millions):

Programs 2009

AGP $(1,925)

Subsidy Rates for Guarantee by Program and Component:

Programs Interest Differential Defaults

Fees and Other 

Collections Other

2009

Total

AGP 0.00% 43.62% -53.23% -5.37% -14.98%
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

134 Note 8. Inve

Schedule for Reconciling Asset Guatrantee Program Balances (in millions) 

BEGINNING BAL ANCES, CHANGES, AND ENDING BAL ANCE 2009 

Beginning Balance of the Asset Guarantee liability $ 0

Add: subsidy expense for disbursements 

(a) Interest rate supplement costs 0

(b) Default costs (net of recoveries) 2,181

(c )Fees and other collections (2,662)

(d) Other subsidy costs (270)

Total of the above subsidy expense components (751)

Adjustments:

(a) Loan guarantee modifications 0

(b) Fees received 175

(c ) Interest supplements paid (15)

(d ) Foreclosed property acquired 0

(e) Claim payments to lenders 0

(f) Interest accumulation on the liability balance 0

(g) Other 0

Ending Balance of loan guarantee liability before reestimates (591)

Add or subtract subsidy reestimates by component:

(a) Interest rate reestimate 0

(b) Technical default reestimate (1,174)

Total of the above reestimate components (1,174)

Ending Balance of Asset for Asset Guarantee $ (1,765)
PART 2 • ANNUAL FINANCIAL REPORT

Note 9.Investments in 

9. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES

The Housing and Economic Recovery Act (HERA), P.L. 110–289, dated July 30, 2008, authorized Treasury to enter 

into several different types of financing arrangements with Government Sponsored Enterprises (GSEs) to:

•	 provide stability to the financial markets;

•	 prevent disruptions in the availability of mortgage finance; and

•	 protect the taxpayer

As authorized by HERA, the Secretary of the Treasury entered into a Senior Preferred Stock Purchase Agreements 

(SPSPA) with Fannie Mae and Freddie Mac on September 7, 2008 and began providing substantial financial 

support to the enterprises; thereby minimizing potential systemic financial risks associated with the deteriorating 

financial condition of Fannie Mae and Freddie Mac. Per SFFAC No. 2, Entity and Display, these entities meet 

the criteria of “bailed out” entities under paragraph 50. Accordingly, Treasury has not consolidated them into the 

financial statements, but include “disclosure of the relationship(s) with the bailed out entities and any actual or 

potential material costs or liabilities” in the consolidated financial statements.

Under the SPSPA, Treasury initially received from each GSE: (1) 1,000,000 shares of non-voting variable 

liquidation preference senior preferred stock with a liquidation preference value of $1,000 per share and (2) a 

non-transferrable 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. The senior preferred stock accrues dividends at 10 percent per 

year, payable quarterly. This rate will increase to 12 percent if, in any quarter, the dividends are not paid in cash, 

until all accrued dividends have been paid. As of September 30, 2009, dividends of $4,336 million have been 

received. In addition, beginning on March 31, 2010, the GSEs will pay Treasury a periodic commitment fee on a 

quarterly basis. This fee will be initially set by December 31, 2009, based on mutual agreement between Treasury 

and each GSE, in consultation with the Chairman of the Federal Reserve Board. The fee will be established for 

five-year periods, and may be waived by Treasury for one year at a time if warranted by adverse mortgage market 

conditions. It may be paid in cash or may be added to the liquidation preference.

These agreements, which have no expiration date, provide that Treasury will increase its investment in the senior 

preferred stock if at the end of any quarter the Federal Housing Finance Agency (FHFA) determines that the 

liabilities of either GSE exceed its assets. The maximum amount available to each GSE under this agreement is 

$200,000 million. Actual payments to the GSEs to date are $95,600 million, of which $15,000 million has been 

accrued as a liability for the quarter ended September 30, 2009 ($13,800 million at September 30, 2008). As of 

September 30, 2009, $140,100 million and $149,300 million remain available to Fannie Mae and Freddie Mac, 

respectively, after quarterly payments made or accrued. 

The Treasury Department determined the estimated amount of the remaining liability to the GSEs under the 

SPSPA as of September 30, 2009. The valuation analysis resulted in estimates ranging from the “best case” 

scenario of $76,937 million to an “extreme case” scenario of $206,700 million. The results also noted that no 

value within the range is a better estimate than any other amount. However, future payments under the SPSPA 

are deemed to be probable. SFFAS 5 provides that when a probable contingent liability is a range of amounts 

and no amount within the range is a better estimate than any other amount, the estimated liability should be 

based on the minimum value in the range. Accordingly, $76,937 million is recorded as a contingent liability as of 

September 30, 2009.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

136 Note 9.Investments

As described below, the SPSPA payments are treated as entity expenses and liabilities, while the increases in 

liquidity preference of the GSE preferred stock resulting from actual liquidity payments are non-entity transactions. Accordingly, the contingent liability recorded is the gross estimated amount, without considering the 

increase in preferred stock liquidity preference, future dividend payments, or future commitment fees.

As funds for these payments are appropriated directly to the Treasury Department, these payments are treated as 

entity expenses and reflected as such on the Statement of Net Cost (SNC) and Cumulative Results of Operations. 

In fiscal year 2008, these costs were reported on the SNC, as a below the line entity cost, separate from the four 

Treasury strategic goals. In fiscal year 2009, Treasury concluded that the cost of this program helps accomplish 

the Treasury strategic goal of ensuring that the U.S. economy performs at its full economic potential. Thus, as of 

September 30, 2009, the entity cost of these Investments in GSEs are included in the Economic Program section 

of the SNC. These payments also results in an increase to the non-entity investment in GSE preferred stock, with 

a corresponding increase in Due to the General Fund, as the Treasury Department holds the investment on behalf 

of the U.S. Government General Fund. Such investments are subject to impairment testing as noted below.

The Investments in GSEs disclosed as of September 30, 2008 were recorded at acquisition cost at the date of 

purchase with disclosure of market values as of fiscal year end 2008. OMB issued guidance to Treasury on 

October 7, 2009 allowing the use of fair value accounting for non-federal securities beginning with reporting for 

fiscal year 2009. As a result, the GSE investments are reported at fair value at September 30, 2009. The preferred 

stock and warrants for common stock were valued as of September 30, 2009. In accordance with SFFAS 7, the 

annual valuation is classified as usual and recurring and thus recorded as an expense or revenue to the financial 

statements. In addition, since Treasury holds the investment on behalf of the U.S. Government General Fund, 

any valuation impairment is recorded as a non-entity cost/revenue and reported on the SNC below the line. As of 

September 30, 2009 and September 30, 2008, GSE investments consisted of the following (in millions):

GSE Investment

Value at

Begin of Year

 Current Year 

 Investments

Net 

Investments 

Valuation 

Gain/(Loss) 

9/30/09

Fair Value at 

Reporting Date

Fannie Mae Sr. Preferred Stock $ 840 $ 44,900 $ 45,740 $ (20,658) $ 25,082

Freddie Mac Sr. Preferred Stock 824 50,700 51,524 (23,273) 28,251

Fannie Mae Warrants Common Stock 3,104 0 3,104 3,603 6,707

Freddie Mac Warrants Common Stock 2,264 0 2,264 2,375 4,639

Total GSE Investment $ 7,032 $ 95,600 $ 102,632 $ (37,953) $ 64,679

GSE Investment

Cost at

Purchase Date

9/30/08

Investment 

Balance 

Valuation 

Gain/(Loss)

9/30/08

Fair Value at 

Reporting Date

Fannie Mae Sr. Preferred Stock $ 840 $ 840 $ (99) $ 741

Freddie Mac Sr. Preferred Stock 824 824 (97) 727

Fannie Mae Warrants Common Stock 3,104 3,104 3,403 6,507

Freddie Mac Warrants Common Stock 2,264 2,264 2,135 4,399

Total GSE Investment $ 7,032 $ 7,032 $ 5,342 $ 12,374

 
PART 2 • ANNUAL FINANCIAL REPORT

Note 9.Investments in 

Summary of GSE Non-Entity Costs

2009 2008

General Fund Revenue from Increase in Liquidity Preference of GSE Preferred Stock $ (95,600) $ –

Net Valuation Loss on GSE Warrants/Pfd Stock 37,953 –

GSE Pfd Stock Dividends (4,336) –

Pfd Stock Commitment Fee – $ (7,032)

$ (61,983) $ (7,032)
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

138 Note 10.Inves

10. INVESTMENTS IN INTERNATIONAL FINANCIAL INSTITUTIONS 

The Treasury Department participates in Multilateral Development Banks (MDB) to support poverty reduction, private sector development, and transition to market economies and sustainable economic growth and 

development, thereby advancing the United States’ economic, political, and commercial interests abroad. The 

MDB consist of the World Bank Group (International Bank for Reconstruction and Development, International 

Finance Corporation, and Multilateral Investment Guarantee Agency), and five regional development banks (the 

African, Asian, European, Inter-American, and North American institutions), as enumerated in the table below. 

These investments are non-marketable equity investments valued at cost.

As of September 30, 2009 and September 30, 2008, investments in international financial institutions consisted 

of the following (in millions):

2009 2008

African Development Bank $ 175 $ 172

Asian Development Bank 458 458

European Bank for Reconstruction and Development 636 633

Inter-American Development Bank 1,482 1,482

International Bank for Reconstruction and Development 1,985 1,985

International Finance Corporation 569 569

Multilateral Investment Guarantee Agency 45 45

North American Development Bank 225 202

Total $ 5,575 $ 5,546

Refer to Note 31 for a description of the additional commitments related to these institutions. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 11. Oher Inv

11. OTHER INVESTMENTS AND RELATED INTEREST

Investments in U.S. Government securities held by Treasury Department entities have been eliminated against 

the federal debt liability for financial reporting purposes (See Note 4). The ESF holds most of the Treasury 

Department’s Other Investments, including Foreign Investments. Foreign investment holdings are normally 

invested in interest bearing securities issued or held through foreign governments or monetary authorities (see 

Note 6). During fiscal year 2009, ESF transferred other FCDA and Investment Securities to the available-for-sale 

classification, and reported at fair value. The Other Investments represent securities that the Treasury Department 

has both the positive intent and ability to hold to maturity and are carried at historical cost, adjusted for amortization of premiums and accretion of discounts.

As of September 30, 2009 and September 30, 2008, entity investments in foreign investment holdings and other 

investments consisted of the following (in millions):

Type of Investment

Cost/

Acquisition

Value

Unamortized 

(Premium)/ 

Discount

Interest 

Receivable

9/30/09 

Investment 

Balance 

Unrealized

Gain/ 

(Loss)

9/30/09

Fair 

 Value

Foreign Investments: 

Euro Bonds & Notes $ 4,827 $ 52 $ 116 $ 4,995 $ 184 $ 5,179

Japanese Government Bonds 7,192 9 12 7,213 43 7,256

Other Investments 1,137 (7) 0 1,130 0 1,130

Total Non-Federal $ 13,156 $ 54 $ 128 $ 13,338 $ 227 $ 13,565

Type of Investment

Cost/

Acquisition 

Value

Unamortized 

(Premium)/ 

Discount

Net 

Investment

Interest 

Receivable

9/30/08 

Investment 

Balance 

Unrealized

Gain/ 

(Loss)

9/30/08 

Market 

Value

Foreign Investments: 

Euro Bonds & Notes $ 4,477 $ 29 $ 4,506 $ 115 $ 4,621 $ 20 $ 4,641

Japanese Government Bonds 5,908 3 5,911 11 5,922 13 5,935

Other Investments 39 (6) 33 0 33 0 33

Total Non-Federal $ 10,424 $ 26 $ 10,450 $ 126 $ 10,576 $ 33 $ 10,609
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

140 Note 12. Credit Prgram Re

12. CREDIT PROGRAM RECEIVABLES, DIRECT LOANS 

The table below summarizes, by program, Treasury’s credit program assets net of subsidy allowance. As of 

September 30, 2009 and September 30, 2008, Credit Program Receivables and Direct Loans consisted of the 

following (in millions):

2009 2008

GSE MBS Purchase Program Receivables $ 184,419 $ 3,385

Troubled Asset Relief Program Direct Loans 34,751 0

Total Credit Program Receivables and Direct Loans $ 219,170 $ 3,385

CREDIT PROGRAM RECEIVABLES, GSE MBS PURCHASE PROGRAM AND GSE 

CREDIT FACILITY:

The Housing and Economic Recovery Act (HERA), P.L. 110–289, dated July 30, 2008, authorized Treasury to enter 

into several different types of financing arrangements with Government Sponsored Enterprises (GSEs) to provide 

stability to the financial markets; prevent disruptions in the availability of mortgage finance; and protect the 

taxpayer. Two of these arrangements include the GSE Mortgage-Backed Securities (MBS) Purchase Program and 

GSE Credit Facility (GSECF). 

The GSE Mortgage-Backed Securities Purchase Program is a program to further support the availability of mortgage 

financing for millions of Americans and to mitigate pressures on mortgage rates. Under this program, Treasury, via 

Asset Managers, purchases GSE MBS in the open market. By purchasing these credit-guaranteed securities, Treasury 

seeks to broaden access to mortgage funding for current and prospective homeowners and to promote stability in 

the mortgage market. The Asset Managers are also authorized to enter into other trade/sell transactions such as Pair 

Offs, Turns, Assignments, and Dollar Rolls to further support the market under the HERA provisions/mandate. 

While the size and timing of the MBS purchases is subject to the discretion of the Secretary, the authority granted 

by Congress to purchase MBS expires on December 31, 2009. The scale of the program has been based on developments in the capital and housing market but will moderate once the program expires. 

Treasury purchases mortgage-backed pass-through securities through the Government Sponsored Enterprise 

Mortgage-Backed Securities (GSE MBS) Purchase Program. Consistent with the Federal Credit Reform Act, these 

securities are treated as direct loans, and the value of Treasury's position and the associated credit subsidy requirements are determined based on the net present value of the securities' forecasted future cash flows. Treasury estimates nominal future cash flows using a financial model that incorporates each security's payment characteristics 

together with assumptions about the future prepayment, default, and loss severity performance of underlying loan 

collateral and the GSEs' ability to uphold their guarantee. Nominal cash flow forecasts are discounted at interest rates of Treasury securities with comparable maturities using the Office of Management and Budget's Credit 

Subsidy Calculator. Cash flows are estimated under the assumption that all securities will be held to maturity.

Security-level data used as the basis for cash flow model forecasts are obtained directly from Treasury's program 

custodian. Assumptions about security and program performance are drawn from widely available market sources 

as well as information published by the GSEs. Key inputs to the cash flow forecast include:

•	 Security characteristics such as unpaid principal balance, pass-through coupon rate, weighted-average loan 

age, and weighted-average maturity
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

•	 Forecast prepayment rates and default rates

The GSE Credit Facility was established to ensure credit availability to the GSEs and the Federal Home Loan 

Banks. This lending facility will provide secured funding on an as needed basis under terms and conditions 

established by the Secretary to protect taxpayers. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks 

are eligible to borrow under this program. The GSECF provides liquidity, if needed, until December 31, 2009. 

There were no loans made through the GSECF in fiscal year 2009 or 2008, and therefore the GSECF program is 

not disclosed in tables below.

Treasury's GSE Mortgage Backed Security (MBS) Purchase Program portfolio consists of mortgage pass-through 

securities issued by Freddie Mac and Fannie Mae. At the end of fiscal year 2009, Treasury held $173.3 billion 

in outstanding MBS principal and estimated the net present value of future cash flows on these holdings to be 

$184.4 billion. The difference between the outstanding MBS principal balance and the value of the MBS to 

Treasury is the negative subsidy allowance- Treasury expects the portfolio to generate the spread income between 

coupon rates on the MBS and Treasury's discount rate which exceeds its estimate of potential credit losses on the 

securities. 

The tables below provide an analysis of the GSE MBS Credit Program Receivables including allowance for subsidy costs, modifications, reestimates, and administrative costs. As of September 30, 2009 and September 30, 2008, 

the Direct Mortgage-Backed Securities (MBS) Purchases Outstanding consisted of the following (in millions):

2009 

Allowance for Value of Assets 

Credit Program Interest Foreclosed Subsidy Cost Related to Credit 

Programs Receivable, Gross Receivable Property (Present Value) Program Receivable

MBS $ 173,326 $ 0 $ 0 $ 11,093 $ 184,419

2008 

Allowance for Value of Assets 

Credit Program Interest Foreclosed Subsidy Cost Related to Credit 

Programs Receivable, Gross Receivable Property (Present Value) Program Receivable

MBS $ 3,311 $ 0 $ 0 $ 74 $ 3,385

Total amount of MBS Purchase Program, Disbursed (in millions):*

Programs 2009 2008

MBS $ 192,263 $ 3,311

(*) Total fiscal year 2009 disbursements for MBS purchases was $192,263 million. These disbursements include fiscal year 2009 settled MBS purchases of 

$190,651 million and $1,612 million of fiscal year 2008 pre funded settled purchases. Negative subsidy for the fiscal year 2009 purchases has been calculated 

based on the negative subsidy rate of 2.36%. In 2008, $5,000 million was initially prefunded for the MBS purchase program. During fiscal year 2008 , $3,300 

million of MBS purchases were made and negative subsidy was calculated on the settled amounts only. The negative subsidy amount calculated on 2008 

purchase was based on a negative subsidy factor of 1.62%. In fiscal year 2009, the remaining $1,612 million of the initial $5,000 million prefunding were 

settled. The associated negative subsidy of $26 million related to these settled purchases was not reported on the fiscal year 2008 financial statements and 

has been captured in the 2009 negative subsidy reestimate. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

142 Note 12. Credit Prgram Re

Subsidy Expense (in millions):

Programs

*Interest 

Differential *Defaults

Fees and Other 

Collections Other

2009

Total

MBS $ (4,977) $ 477 $ 0 $ 0 $ (4,500)

Programs Interest Differential Defaults

Fees and Other 

Collections Other

2008 

Total

MBS $ (62) $ 8 $ 0 $ 0 $ (54)

*The change in defaults and interest differential between fiscal year 2009 and fiscal year 2008 is driven by the an increase in the mortgage rate default 

assumptions and fluctuation in pricing/interest rate curves, respectively, between years.

Modifications and Reestimates (in millions):

Programs

 

 

Total Modifications

Interest Rate 

Reestimates

Technical

Reestimates 

2009

Total 

Reestimates

MBS $ 0 $ 0 $ (8,392) $ (8,392)

Programs Total Modifications

Interest Rate 

Reestimates

Technical

Reestimates 

2008

Total 

Reestimates

MBS $ 0 $ 0 $ 0 $ 0

Total MBS Purchases Subsidy Expense (in millions):

Programs 2009 2008

MBS $ (12,892) $ (54)

Subsidy Rates for MBS Purchases:

Programs

Interest 

Differential Defaults

Fees and Other 

Collections Other

2009

Total

MBS, Cohort 2009 -2.61% 0.25% 0.00% 0.00% -2.36%

Programs

Interest 

Differential Defaults

Fees and Other 

Collections Other

2008

Total

MBS, Cohort 2008 -1.86% 0.24% 0.00% 0.00% -1.62%
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

Schedule for Reconciling Subsidy Cost Allowance Balances (in millions):

2009 2008

Beginning Balance of the subsidy cost allowance $ (74) $ 0

Add: subsidy expense for disbursements 

(a) Interest rate differential cost (4,977) (62)

(b) Default costs (net of recoveries) 477 8

(c )Fees and other collections 0 0

(d) Other subsidy costs 0 0

Total of the above subsidy expense components (4,500) (54)

Adjustments:

(a) Loan modifications 0 0

(b) Fees received 0 0

(c ) Foreclosed property acquired 0 0

(d) Loans written off 0 0

(e) Subsidy allowance amortized 1,873 (20)

Ending Balance subsidy cost allowance before reestimates $ (2,701) (74)

Add or subtract subsidy reestimates by component:

(a) Interest rate reestimate 0 0

(b) Technical default reestimate (8,392) 0

Total of the above reestimate components (8,392) 0

Ending Balance of the subsidy cost allowance $ (11,093) $ (74)

Administrative Expense of GSE Program Receivables – MBS (in millions):

Programs 2009 2008

GSE Related Credit Program Receivables-MBS $ 12 $ 0

TROUBLED ASSET RELIEF PROGRAM DIRECT LOANS

FCRA and associated FASAB accounting standard SFFAS No. 2, as amended, governs direct loans made after 

fiscal year 1991. FCRA loans are valued at the present value of expected future cash flows, discounted at the interest rate of marketable Treasury securities. The subsidy allowance account represents the difference between the 

outstanding loan receivables balance and the net present value of the estimated cash flows of the loans over their 

remaining term. The subsidy allowance is subtracted from the outstanding loans receivable balance to obtain the 

net loans receivable balance. 

Under the provisions of the EESA, Treasury implemented the TARP which resulted in the development of several 

direct loan programs and transactions including: the Automotive Industry Financing Program; the Consumer and 

Business Lending Initiative; and the Public-Private Investment Partnership.

Treasury applies the provisions of SFFAS No. 2 to account for direct loans. This standard requires measurement of 

the asset or liability at the present value of the estimated future cash flows. The cash flow estimates for each direct 

loan transaction reflect the actual structure of the instruments. Analytical cash flow models generate estimated 

cash flows to and from the Government over the life of a facility. Further, each cash-flow model reflects the specific terms and conditions of the program, technical assumptions regarding the underlying assets, risk of default or 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

144 Note 12. Credit Prgram Re

other losses, and other factors as appropriate. The models also incorporate an adjustment for market risk to reflect 

the additional return required by the market to compensate for variability around the expected losses reflected in 

the cash flows (the “unexpected loss”). The basic methods for these models are outlined below.

Direct Loans

The estimated future cash flows for direct loans are derived using analytical models that estimate the cash flows to 

and from Treasury over the life of the loan. These cash flows include the scheduled principal, interest, and other 

payments to Treasury, including estimated proceeds from equity interest obtained or additional notes. These 

models also include estimates of default and recoveries, incorporating the value of any collateral provided by the 

contract. The probability and timing of default and losses related to a default are estimated by using applicable 

historical data when available, or publicly available proxy data, including credit rating agency historical performance data.

In the case of the Term Asset-Backed Securities Loan Facility (TALF), Treasury uses an analytical model to project 

cash flows to and from Treasury-based on the estimated loan collateral performance, the estimated mix of collateral funded through the TALF, and the terms of the contracts.

The models include an adjustment for market risk which is intended to capture the risk of unexpected losses, but 

are not intended to represent fair value, i.e. the proceeds that would be expected to be received if the loans were 

sold to a market participant.

AUTOMOTIVE INDUSTRY FINANCING PROGRAMS (AIFP)

The objective of the Automotive Industry Financing Program was to prevent a significant disruption of the 

American automotive industry, which would pose a systemic risk to financial market stability and have a negative 

effect on the economy of the United States. The discussion below details the various loans made by the Treasury 

to the automotive industry.3

General Motors (GM or old GM) General Purpose Loan including Working Capital Advances

The Treasury provided GM with a total of $13,400 million in a three-year direct loan bearing interest at 3 Month 

LIBOR (subject to a 2.0 percent floor), plus 3.0 percent and secured by various types of collateral. Approximately 

$4,000 million of this loan was funded in December 2008, an additional $5,400 million in January 2009, and 

an additional $4,000 million in February 2009. In April 2009, the Treasury and GM amended this loan agreement to increase the maximum loan amount from $13,400 million to $15,400 million, and on May 20, 2009 to 

increase the maximum loan amount from $15,400 million to $19,400 million (these amendments are referred 

to as the Working Capital Advances) to provide GM with adequate working capital to assist in the restructuring effort. The additional amounts were funded upon amendment, bringing the total funded under this loan 

to $19,400 million. The agreement required GM to develop and implement a restructuring plan to achieve 

long-term financial viability and required compliance with certain enhanced executive compensation and expense 

control requirements.

3 Included in the TARP Direct Loans net, are equity interests acquired during the restructuring of GM and Chrysler. These equity amounts 

are included with the original loans portfolio in this note.
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

Furthermore, the Treasury received warrants for shares of GM common stock and an additional senior unsecured 

note in the principal amount of $748.6 million. The purpose of this loan was to enhance the ability of GM and 

its subsidiaries to pursue timely and aggressive production of energy-efficient advanced technology vehicles; 

preserve and promote the jobs of American workers employed directly by GM and its subsidiaries; safeguard the 

ability of GM and its subsidiaries to provide retirement and health care benefits for retirees and their dependents; 

and stimulate manufacturing and sales of automobiles produced by GM. On June 1, 2009, GM filed for Chapter 

11 bankruptcy. All rights under this loan were transferred to a newly created entity (GM NewCo) and subsequently extinguished in connection with a successful credit bid for the assets of old GM. In addition, Treasury 

received $134.4 million in interest while the loan was outstanding. See further discussion below under GM 

Debtor-In-Possession.

Chrysler Holding LLC General Purpose

The Treasury provided a three-year, $4,000 million loan to Chrysler in January 2009, bearing interest at 3 Month 

LIBOR (subject to a 2.0 percent floor) plus 3.0 percent. The loan was secured by various collateral including 

parts inventory, real estate, and certain equity interests held by Chrysler. This agreement required Chrysler 

to submit a restructuring plan to achieve long-term viability and required compliance with certain enhanced 

executive compensation and expense-control requirements. Furthermore, the Treasury received a senior unsecured 

note from Chrysler in the principal amount of approximately $266.8 million, containing the same terms as the 

General Purpose loan. The purpose of this loan was to: enhance the ability of Chrysler and its subsidiaries to 

pursue timely and aggressive production of energy-efficient advanced technology vehicles; preserve and promote 

the jobs of American workers employed directly by Chrysler and its subsidiaries; safeguard the ability of Chrysler 

and its subsidiaries to provide retirement and health care benefits for retirees and their dependents; and stimulate 

manufacturing and sales of automobiles produced by Chrysler.

On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy. Upon entering bankruptcy, a portion of Chrysler 

was sold to a newly created entity (New Chrysler). Under the terms of the bankruptcy agreement, $500.0 million 

of this loan was assumed by New Chrysler (see discussion under Chrysler Exit for discussion of note terms). The 

balance remains outstanding and is in default. Any recovery of the remainder of this loan will depend on: (a) 

Chrysler Holding’s obligation to pay the greater of $1,375 million or 40.0 percent of the equity value of Chrysler 

Financial to Treasury should Chrysler Holding receive certain distributions from Chrysler Financial and (b) 

proceeds received from the sale of assets remaining in the bankrupt company. In addition, Treasury received $52.1 

million in interest payments on this note.

Chrysler Financial

In January 2009, the Treasury loaned $1,500 million to Chrysler LB Receivables Trust (Chrysler Trust), a special 

purpose entity created by Chrysler Financial, to finance the extension of new consumer auto loans. The five-year 

loan bore interest at 1 Month LIBOR plus 1.0 percent for the first year, 1.5 percent for the remaining term and 

was secured by a senior secured interest in a pool of newly originated consumer automotive loans, and Chrysler 

served as a guarantor for certain covenants of Chrysler Financial. Under the agreement, Chrysler Financial was 

required to comply with the executive compensation and corporate governance requirements of Section 111(b) 

of the EESA, as well as enhanced restrictions on executive compensation including the need to reduce by 40.0 

percent its bonus pool for Senior Executive Officers and Senior Employees. In lieu of warrants, the Treasury 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

146 Note 12. Credit Prgram Re

received additional notes in an amount equal to five percent of the maximum loan amount. The additional notes 

would vest 20.0 percent on the closing date and 20.0 percent on each anniversary of the closing date and had 

other terms similar to the loan. The purpose of this loan was to assist Chrysler Financial in providing retail financing to purchasers of automobiles, light duty trucks and recreational vehicles; to stimulate manufacturing and sales 

of automobiles produced by Chrysler’s affiliates; preserve and promote the jobs of American workers employed 

directly by Chrysler’s affiliates and in related industries; and safeguard the ability of Chrysler to provide retirement 

and health care benefits for their retirees and their dependents. On July 14, 2009, the loan and additional note of 

$15.0 million were paid in full. In addition, Treasury received $7.4 million in interest payments while this loan 

was outstanding.

Auto Supplier Support Program

In April 2009, the Treasury committed $5,000 million in financing for the Auto Supplier Support Program, 

as follows: $3,500 million for GM suppliers and $1,500 million for Chrysler suppliers. These commitments 

were subsequently reduced to $2,500 million for GM and $1,000 million for Chrysler per the loan agreement. 

Under the program, suppliers are able to sell their receivable to a special purpose vehicle, created by the respective 

automaker, at a discount. The purchases of the receivables are funded by equity investments made by the automaker, cash payments made by the automaker on previously purchased receivables or from draws on the Treasury 

funding commitment. The duration of the program is 12 months, extendable at the option of the Treasury. 

Interest is charged on advances under the facility at a rate of 3 Month LIBOR (subject to a 2.0 percent floor) plus 

3.5 percent. In addition, the Treasury received a contingent payment note comprised of an exit fee equal to 4.0 

percent of the adjusted commitment amount and 50.0% of the residual equity in the special purpose vehicle after 

the program’s end date. This program provides suppliers with access to government backed protection ensuring 

that money owed to them for the products they ship will be paid regardless of what happens to the recipient car 

company. This provided suppliers with needed funding to operate their businesses and help unlock credit more 

broadly in the supplier industry. Purchases of receivables and collection of amounts due from GM and Chrysler 

is performed by a third party service provider. Suppliers must maintain qualifying commercial terms with the 

automakers to participate in the program. The Treasury has provided approximately $413.1 million, collectively, 

of funding to this program. The bankruptcy of Chrysler and GM did not impact this program, as both companies 

were allowed to continue paying suppliers while in bankruptcy. As of September 30, 2009, Treasury had received 

$5.9 million in interest under the Auto Supplier Support Program.

Auto Warranty Program

In April 2009 and May 2009, the Treasury loaned approximately $280.0 million to Chrysler and $360.6 million to GM, respectively, to capitalize certain SPVs created by Chrysler and GM to finance participation in the 

Warranty Commitment Program (warranty program). The Treasury also received additional notes as consideration 

for its loans in an amount equal to 6.67 percent of the funded amounts. The warranty program covered all 

warranties on new vehicles purchased from Chrysler and GM during the period in which Chrysler and GM were 

restructuring. The program was run by a third party program administrator with the backing of financial resources allocated by the Treasury, Chrysler and GM. Chrysler and GM contributed 15.0 percent of the projected 

cost for warranty service on each covered vehicle, with the Treasury providing additional funds to cover 110.0 

percent of the projected cost. The SPVs holding the funds operated separately from Chrysler and GM and would 

transfer the necessary funds to a third-party to handle all warranty claims even if Chrysler and GM entered into 
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

bankruptcy or went out of business. Both Chrysler and GM have completed the Section 3634 sales in June 2009 

and July 2009, respectively. Upon completion of the sale, the Treasury received principal amounts due from both 

GM and Chrysler and terminated the warranty program. Interest in the amount of $3.1 million was received by 

Treasury from Chrysler. No interest was received in connection with the GM repayment. The GM additional 

note was assigned to the New GM as part of the bankruptcy proceedings and extinguished as part of the credit 

bid for the assets of old GM. The Chrysler additional note is still outstanding.

Chrysler Debtor-In-Possession

In May 2009, the Treasury and the Canadian government jointly agreed to make a loan in the total amount of 

$4,100 million ($3,000 million by the Treasury and $1,100 million by Canada) to Chrysler LLC in its capacity as 

debtor-in-possession (DIP) in its bankruptcy case. In May 2009, the Treasury increased its loan commitment in 

the DIP credit agreement to $3,800 million, and the Canadian government increased its commitment to $1,200 

million, bringing the maximum loan amount to $5,000 million. The loan interest rate was the 3 Month Eurodollar 

rate plus 3.0 percent. The stated maturity was September 2009, with earlier maturity depending on the bankruptcy 

proceedings. Of the $3,800 million committed by the Treasury, approximately $1,900 million was funded during 

the bankruptcy. This DIP loan provided the necessary liquidity to sustain Chrysler during the bankruptcy period. 

Upon the Section 363 sale of the Chrysler assets, the funding commitment was reduced to amounts previously 

drawn. As such, no additional amounts were drawn from this facility. Recovery of the DIP loan is subject to the 

bankruptcy process associated with the Chrysler assets remaining after the sale to New Chrysler.

Chrysler Exit

In May 2009, the Treasury committed to make a loan to in New CarCo Acquisition LLC (New Chrysler or 

Chrysler Group LLC), the company that purchased the assets of Chrysler. The final terms of the credit agreement 

resulted in a loan to New Chrysler for $7,140 million. This amount consists of $6,640 million of new funding 

and $500.0 million of assumed debt5

 from the Treasury January 2, 2009 credit agreement with Chrysler Holding 

LLC. The loan was secured by a first priority lien on the assets of Chrysler Group LLC. Funding of the loan 

was available in two installments or tranches (B and C), each with varying availability and terms. The following 

describes the terms of Tranches B and C.

The maximum funding under Tranche B was $2,000 million and was funded on the closing date of the agreement. Interest on Tranche B is 3 Month Eurodollar plus 5.0 percent margin (in certain situations, defined in the 

agreement, a rate other than the 3 Month Eurodollar rate will be applied. This rate, referred to as the Alternative 

Base Rate, will be the greater of the Prime Rate, the Federal Funds Effective rate plus 0.5 percent or the 3 Month 

Eurodollar rate plus 1.0 percent. If this Alternative Base Rate is applied, the margin will be 4.0 percent versus the 

5.0 percent if the 3 Month Eurodollar Rate). Tranche B is due and payable on December 10, 2011, provided that 

the Chrysler Group LLC may elect to extend the maturity of up to $400.0 million of Tranche B to the Tranche C 

maturity date. If so elected, the applicable margin will increase to 6.5 percent for Eurodollar and 5.5 percent for 

ABR loans, respectively.

The maximum funding under Tranche C is $4,640 million, of which $2,580 million was funded on the closing 

date. Interest on Tranche B is 3 Month Eurodollar plus 7.91 percent margin (in certain situations, defined in the 

agreement, a rate other than the 3 Month Eurodollar rate will be applied. This rate, referred to as the Alternative 

4 Section 363 refers to Section 363 of the Federal Bankruptcy Code, which allows companies in bankruptcy to sell assets in reorganization.

5 The assumed debt contains the same terms as the Tranche C loan with respect to mandatory prepayment, interest and maturity.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

148 Note 12. Credit Prgram Re

Base Rate, will be the greater of the Prime Rate, the Federal Funds Effective rate plus 0.5 percent or the 3 Month 

Eurodollar rate plus 1.0 percent. If this Alternative Base Rate is applied, the margin will be 6.91 percent versus 

the 7.91 percent if the 3 Month Eurodollar Rate is used). On June 10, 2016, the Tranche C loan shall be prepaid 

to the extent funded amount is greater than 50.0 percent of the closing date commitment amount, taking into 

consideration amounts previously prepaid as a voluntary prepayment. The remaining balance of the Tranche C loan 

is due and payable on June 10, 2017.

Interest on both the Tranche B and Tranche C will be payable in-kind through December 2009 and will be 

added to the principal balance of the respective Tranche. In addition, additional in-kind interest will accrue in 

the amount of $17.0 million per quarter. Such amount will be added to the Tranche C loan balance subject to 

interest at the appropriate rate.

The Treasury also obtained other consideration, including a 9.85 percent equity interest in Chrysler Group LLC 

(included in Notes) and additional notes6

 with principal balances of $288.0 million and $100.07 million. As of 

September 30, 2009, the Treasury has funded approximately $4,600 million under this facility.

GM Debtor-In-Possession

On June 1, 2009, GM filed for Chapter 11 bankruptcy. As part of the filing the Treasury and the Canadian 

government agreed to lend up to $33,300 million under the terms of the DIP credit agreement; the Treasury’s 

commitment amount was $30,100 million. The Treasury funded the $30,100 million of which approximately 

$986 million remains outstanding. In July 2009, the DIP credit agreement was amended to reflect the fact that 

the amounts there under (other than $986 million that remained with GM for wind-down in bankruptcy and 

$7,100 million that was assumed by GM NewCo) were extinguished in connection with a successful credit bid 

for the assets of old GM.

The Treasury has assigned its rights in this loan as well as the General Purpose and Working Capital loans and previously received common stock warrants to a newly created entity (GM NewCo or General Motors Company). 

The purpose of this GM NewCo is to obtain sufficient assets of GM out of bankruptcy to satisfy the original 

disbursed to GM and discussed above, which it accomplished through a successful credit bid for the assets in a 

sale pursuant to Section 363 of the Bankruptcy Code. Upon closing of the Section 363 sale, the General Motors 

Company has assumed $7,100 million of the DIP loan, simultaneously paying $400 million (return of warranty 

program funds), resulting in a balance of $6,700 million. The loan has a term of 6 years and bears interest at 3 

Month Eurodollar (subject to a 2.0 percent floor) plus 5.0 percent and has a first lien security interest in the assets 

of General Motors Company. The Treasury also received $2,100 million in 9.0 percent cumulative perpetual 

preferred shares and 60.8 percent of the common equity interest in General Motors Company. The assets received 

by the Treasury as a result of the assignment and Section 363 sale are considered recoveries of the original loans 

for subsidy cost estimation purposes. As of September 30, 2009, Treasury had received $34.1 million in dividends 

on GM preferred stock.

6 The additional note bears the same interest rate and maturity as the Tranche C loan.

7 Interest begins to accrue on this note after certain events, defined in the credit agreement, have taken place.
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

GMAC Limited Liability Company (LLC) Rights Offering

In December 2008, the Treasury agreed, in principal, to lend up to $1,000 million to GM for participation in 

a rights offering by GMAC in support of GMAC’s reorganization as a bank holding company. The loan was 

secured by the GMAC common interest acquired in the rights offering. The loan agreement specified that at any 

time, at the option of the lender (Treasury), the unpaid principal and accrued interest was exchangeable for the 

membership interest purchased, by GM, during the rights offering. The note was funded for $884.0 million. In 

May 2009, the Treasury exercised its exchange option under the loan and received 190,921 membership interests, 

representing approximately 35.36 percent of the voting interest, in GMAC in full satisfaction of the loan. In addition, Treasury received $9.1 million in interest while the loan was outstanding. The conversion to GMAC shares 

was not considered in the original subsidy cost. As a result a modification was recorded reducing the estimated 

subsidy cost by approximately $1,600 million.

THE CONSUMER AND BUSINESS LENDING INITIATIVE (CBLI)

Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility (TALF) was created by the Federal Reserve Board (FRB) to 

provide low cost funding to investors in certain classes of Asset Backed Securities (ABS). Treasury agreed to 

participate in the program by providing liquidity and credit protection to the FRB.

Under the TALF, the FRBNY, as implementer of the TALF program, originated loans on a non-recourse basis to 

holders of certain AAA rated ABS secured by recently originated consumer and commercial loans and commercial 

mortgage backed securities (New Issue CMBS). In addition to securities secured by recently originated loans, 

CMBS issued prior to January 2009 and originally AAA rated (Legacy CMBS) are eligible collateral. TALF loans 

have a term of 3 or 5 years and are secured solely by eligible collateral. Haircuts (a percentage reduction used for 

collateral valuation) are determined based on the riskiness of each type of eligible collateral and the maturity of 

the eligible collateral pledged to the FRBNY. The “haircuts” provide additional protection to Treasury by exposing the TALF borrowers to risk of loss. Interest rates charged on the TALF loans depend on the weighted average 

maturity of the pledged collateral, the collateral type and whether the collateral pays a fixed or variable coupon.

As part of the program, the FRBNY has entered into a put agreement with the TALF, LLC, a special purpose 

vehicle created by the FRBNY. In the event of a TALF borrower default, the FRBNY will seize the collateral and 

sell it to the TALF, LLC under this agreement. The TALF, LLC receives a monthly fee equal to the difference 

between the TALF loan rate and the FRBNY’s fee (spread) as compensation for entering into the put agreement. 

The accumulation of this fee will be used to fund purchases. In the event there are insufficient funds to purchase 

the collateral, the Treasury has committed to invest up to $20,000 million in non-recourse subordinate notes 

issued by the TALF, LLC. The subordinate notes bear interest at 1 Month LIBOR plus 3.0 percent and mature 

10 years from the closing date, subject to extension. The Treasury disbursed $100.0 million upon creation of 

the TALF, LLC and the remainder can be drawn to purchase collateral in the event the spread is not sufficient 

to cover purchases. Any amounts needed in excess of the Treasury commitment and the fee would be provided 

through a loan from the FRBNY. Upon wind-down of TALF, LLC (collateral defaults, reaches final maturity or is 

sold), the cash balance will be disbursed according to the following payment priority:

1. FRBNY principal balance

2. Treasury principal balance

3. FRBNY interest 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

150 Note 12. Credit Prgram Re

4. Treasury interest 

5. Remaining cash balance – 90.0 percent to Treasury, 10.0 percent to FRBNY

Subsequent to the initial cost estimates prepared for the TALF, certain changes were made to the terms of the 

program, including increasing the term to 5 years and the addition of different types of acceptable collateral. 

These program changes resulted in a modification, increasing the original cost estimate by $8.0 million.

The TALF, LLC is owned and controlled by the FRBNY. The credit agreement entered into between the Treasury 

and the TALF, LLC provides the Treasury with certain rights consistent with a creditor but would not constitute 

control. As such TALF, LLC is not a federal entity and the assets, liabilities, revenue and cost of TALF, LLC are 

not included in the Treasury financial statements. The discussion below provides information on 1) the amount 

of TALF loans issued by the FRBNY, by collateral class, and 2) the assets, liabilities, income and expense of the 

TALF, LLC.

The FRBNY has originated $50,900 million in TALF loans8

, of which about $42,700 million is outstanding as 

of September 30, 2009. The average “haircut” was approximately 9.9 percent of the originated balance. As of 

September 30, 2009, all TALF loans performed as agreed. The table below shows the outstanding balance of the 

TALF loans as of September 30, 2009, by collateral type:

Collateral Type

Loan Amount

(in millions) % of Total

Auto $ 7,430 17.3%

Credit Cards 21,610 50.6 % 

Equipment 890 2.1 %

Floorplan 1,010 2.4 %

Premium Finance 990 2.3 %

Servicing Advances 580 1.4 %

Small Business 460 1.1 % 

Student Loans 5,630 13.1 %

New Issue CMBS 0 0.0 %

Legacy CMBS 4,130 9.7 %

Total $ 42,730 100%

As of September 30, 2009, the TALF, LLC has assets of approximately $198.9 million consisting primarily of investments in U.S. Treasury and Agency securities9

. Total liabilities of the TALF, LLC are $101.8 million consisting 

of Treasury subordinated note plus accrued interest. During the period ended September 30, 2009, TALF, LLC 

collected $99.1 million in fees and investment income and incurred $2.3 million in expenses, $1.8 million of 

which is accrued interest on Treasury subordinated note. As of September 30, 2009 there were no TALF borrower 

defaults and consequently no purchases of collateral by TALF, LLC.

The tables below provide an analysis of the TARP direct loans including allowance for subsidy costs, modifications, and reestimates. The description of the TARP direct loan programs are described above. The TARP programs were created in fiscal year 2009 and thus there are no fiscal year 2008 comparitive balances to disclose. 

8 These represent loans originated by the FRBNY and not Treasury. The intention of this disclosure is to show the activity in the program 

and the types of collateral that could eventually be purchased by the TALF, LLC with funding provided by Treasury.

9 Agency securities refer to securities issued by either Ginnie Mae, Fannie Mae, Freddie Mac, or the Federal Home Loan Banks.
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

Troubled Asset Relief Programs - Direct Loans Receivables, Net (in millions):

Programs

Direct Loans 

Receivable, Gross

Interest 

Receivable

Foreclosed 

Property

Allowance for 

Subsidy Cost 

(Present Value)

2009

Value of Assets 

Related to Direct 

Loans 

AIFP $ 61,262 $ 0 $ 0 $ (26,955) $ 34,307

CBLI 100 0 0 344 444

Total $ 61,362 $ 0 $ 0 $ (26,611) $ 34,751

 

Total Amount of Disbursements, Direct Loans (in millions):

Programs 2009

AIFP $63,402

CBLI 100

Total $63,502

Subsidy Expense, Direct Loans (in millions):

Programs Interest Differential Defaults

Fees and Other 

Collections Other

2009

Total

AIFP $ (33) $ 38,787 $ 0 $ (184) $ 38,570

CBLI 6 0 0 (110) (104)

Total $ (27) $ 38,787 $ 0 $ (294) $ 38,466

Modifications and Reestimates, Direct Loans (in millions):

Programs Total Modifications

Interest Rate 

Reestimates

Technical 

Reestimates

2009 

Total Reestimates

AIFP $ (1,589) $ 0 $ (10,610) $ (10,610)

CBLI 8 0 (243) (243)

Total $ (1,581) $ 0 $ (10,853) $ (10,853)

Total Subsidy Expense, Direct Loans (in millions):

Programs 2009

AIFP 26,371

CBLI (339)

Total $ 26,032
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

152 Note 12. Credit Prgram Re

Subsidy Rates by Program and Component, Direct Loans:

Programs Interest Differential Defaults

Fees and Other 

Collections Other

2009

Total

AIFP -0.05% 59.07% 0.00% -0.28% 58.74%

CBLI 5.87% 0.00% 0.00% -110.10% -104.23%

Schedule for Reconciling Subsidy Cost Allowance Balances (in millions):

DIRECT LOANS

AIFP CBLI

2009

Totals

Beginning Balance of the subsidy cost allowance $ 0 $ 0 $ 0

Add: subsidy expense for disbursements 

(a) Interest rate differential cost (33) 6 (27)

(b) Default costs (net of recoveries) 38,787 0 38,787

(c) Fees and other collections 0 0 0

(d) Other subsidy costs (184) (110) (294)

Total of the above subsidy expense components $ 38,570 $ (104) $ 38,466

Adjustments:

(a) Loan modifications (1,589) 8 (1,581)

(b) Fees received 261 0 261

(c) Foreclosed property acquired 0 0 0

(d) Loans written off 0 0 0

(e) Subsidy allowance amortized 323 (5) 318

(f) Other 0 0 0

Ending Balance subsidy cost allowance before reestimates $ 37,565 $ (101) $ 37,464

Add or subtract subsidy reestimates by component:

(a) Interest rate reestimate 0 0 0

(b) Technical default reestimate (10,610) (243) (10,853)

Total of the above reestimate components (10,610) (243) (10,853)

Ending Balance of the subsidy cost allowance $ 26,955 $ (344) $ 26,611
PART 2 • ANNUAL FINANCIAL REPORT

Note 12. Credit Prgram Receiv

HOME AFFORDABLE MODIFICATION PROGRAM (HAMP)

The Home Affordable Modification Program (HAMP) is designed to assist eligible homeowners who are experiencing financial hardships to remain in their homes by providing reductions in their monthly mortgage payments 

for up to five years. The HAMP provides for one-time, monthly, and annual incentives to servicers, borrowers, 

and investors who participate in the program. On an ongoing basis, beyond such incentive, the Treasury shares 

equally in the cost of the reductions with the mortgage investors. Lastly, investors are paid a Home Price Decline 

Protection payment to partially offset losses from home price declines. 

For the HAMP, Fannie Mae provides direct programmatic support as a third party agent on behalf of Treasury, 

Freddie Mac provides compliance oversight as a third party agent on behalf of Treasury, and the servicers work 

directly with the borrowers to modify and service the borrowers’ loans. 

As of September 30, 2009, the Treasury had entered into agreements with 63 servicers to provide up to approximately $27,100 million in payments and incentives to borrowers, servicers, and investors. It should be 

noted that all HAMP payments are made to servicers either for themselves or for the benefit of borrowers and 

investors. Furthermore, all payments are contingent on borrowers remaining current on their mortgage payments. 

As of September 30, 2009, approximately $0.95 million in incentive payments had been paid to three servicers 

in incentive payments for 743 borrowers who had completed official loan modifications. Servicers have until 

December 31, 2012, to enter into mortgage modifications with borrowers. 

The HAMP is not subject to the FCRA per ESSA. The liability for payments to servicers and investors, and 

principal balance reduction payments for the account of borrowers under the HAMP are accounted for in accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government. Under SFFAS No. 5, the liability 

is recognized in the period in which the exchange occurs. The exchange of consideration between the parties and 

the Treasury occurs on a month to month basis. Executed contract and program documentation identifies servicing requirements by the servicer, certain incentives for investors to participate in the modifications and/or not 

assert any rights to object or dissent to the modification and the nature and timing of the actions the borrower 

must agree to and take, in order for the Treasury to be liable for payment. A key requirement of program continuance is the servicer’s ongoing responsibility under the servicing agreement to closely monitor and perform loss 

mitigation when required to assist the borrowers to remain current on their payments. As of September 30, 2009, 

the Treasury had accrued approximately $1.4 million of first lien incentive for modifications under the HAMP 

program, and reported in other liabilities in the financial statements. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

154 Note 13.Loa

13. LOANS AND INTEREST RECEIVABLE

Entity and Non-Entity Non-Federal:

As of September 30, 2009 and September 30, 2008, loans and interest receivable from non-federal entities 

consisted of the following, excluding TARP Loans (in millions): 

Entity

Nonentity2009 

Total Entity

Nonentity2008

 Total

Direct Loans $ 61 $ 125 $ 186 $ 62 $ 128 $ 190

Interest Receivable 0 2 2 0 2 2

Less: Allowance and Subsidy Cost (20) 0 (20) (20) 0 (20)

Total Non-Federal Loans and Related Interest Receivable $ 41 $ 127 $ 168 $ 42 $ 130 $ 172

Loans and Interest Receivable amounts include certain loans and credits issued by the United States to various 

foreign governments and other entities. The agreements with each debtor government vary as to dates, interest 

rates, method of payment, and billing procedures. All such loans and credits represent legally valid and outstanding obligations of foreign governments, other entities, and the U.S. Government has not waived or renounced its 

rights with respect to any of them. The loans are due and payable in U.S. denominations.
PART 2 • ANNUAL FINANCIAL REPORT

Note 14. Rerve Posi

14. RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND

The United States participates in the IMF through a quota subscription. Quota subscriptions are paid partly 

through the transfer of reserve assets, such as foreign currencies or SDR, which are international reserve currency 

assets created by the IMF, and partly by making domestic currency available as needed through a non-interestbearing letter of credit. This letter of credit, issued by the Treasury Department and maintained by the FRBNY, 

represents the bulk of the IMF’s holdings of dollars. Approximately one quarter of 1 percent of the U.S. quota is 

maintained in cash balances in an IMF account at FRBNY.

While resources for transactions between the IMF and the United States are appropriated, they do not result in 

net budgetary outlays. This is because U.S./IMF quota transactions constitute an exchange of monetary assets in 

which the United States receives an equal offsetting claim on the IMF in the form of an increase in the U.S. reserve position in the IMF, which is interest-bearing and can be drawn at any time for balance of payments needs. 

When the IMF draws dollars from the letter of credit to finance its operations and expenses, the drawing does 

not represent a net budget outlay on the part of the United States because there is a commensurate increase in the 

U.S. reserve position. When the IMF repays dollars to the United States, no net budget receipt results because the 

U.S. reserve position declines concurrently in an equal amount.

As of September 30, 2009, the U.S. quota in the IMF was 37.1 billion SDR, valued at approximately $66.6 

billion. (The quota as of September 30, 2008, was 37.1 billion SDR, valued at approximately $57.9 billion.) The 

quota consisted of the following (in millions):

2009 2008

Letter of Credit /1 $ 53,056 $ 53,012

U.S. Dollars Held in Cash by the IMF /1 44 88

Reserve Position /2 13,469 4,750

U.S. Quota in the IMF $ 66,569 $ 57,850

1/ This amount is included in entity appropriated funds under Note 2, Fund Balance with Treasury, and unexpended appropriations – Obligations/ Undelivered 

orders.

2/ This amount is included in the Cumulative Results of Operations. 

On June 24, 2009, the Supplemental Appropriations Act, 2009 (Public Law 111-32) was enacted and it provides 

authorization and appropriations for an increase in the United States quota share in the IMF by the dollar equivalent of 4.97 billion SDRs which at the SDR/dollar exchange rate applicable September 30, 2009 is equivalent to 

$7.9 billion. However, this increase in the United States quota share is not effective as of September 30, 2009 and 

will not come into effect until other IMF member countries undertake certain actions with respect to the IMF.

The U.S. reserve position is denominated in SDR, as is the U.S. quota. Consequently, fluctuations in the value of 

the dollar with respect to the SDR results in valuation changes in dollar terms for the U.S. reserve position in the 

IMF as well as the IMF letter of credit. The Treasury Department periodically adjusts these balances to maintain 

the SDR value of the U.S. quota and records the change as a deferred gain or loss in its cumulative results of 

operations. These adjustments, known as maintenance of value adjustments, are settled annually after the close 

of the IMF financial year on April 30. Such adjustments do not involve a flow of funds. At April 30, 2009, the 

annual settlement with the IMF resulting from the appreciation of the dollar against the SDR since April 30, 

2008, called for an downward adjustment of the U.S. quota by $4.3 billion and a corresponding increase to 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

156 Note 14. Rerve 

Unexpended Appropriations on the Statement of Changes in Net Position (At April 30, 2008, the depreciation 

of the dollar against the SDR since April 30, 2007, called for an upward adjustment of the U.S. quota by $3.4 

billion and a corresponding increase to Unexpended Appropriations.) The dollar balances shown above for the 

U.S. quota includes accrued valuation adjustments. At September 30, 2009, the Treasury Department recorded a 

net deferred valuation gain in the amount of $498 million for deferred maintenance of value adjustments needed 

at year end ($15.5 million loss at September 30, 2008).

The United States earns “remuneration” (interest) on its reserve position in the IMF except for the portion of 

the reserve position originally paid in gold. Remuneration is paid quarterly and is calculated on the basis of the 

SDR interest rate. The SDR interest rate is a market-based interest rate determined on the basis of a weighted 

average of interest rates on short-term instruments in the markets of the currencies included in the SDR valuation 

basket. Payment of a portion of this remuneration is deferred as part of a mechanism for creditors and debtors 

to share the financial consequences of overdue obligations to the IMF, such as unpaid overdue interest, and to 

similarly share the burden of establishing any contingency accounts deemed necessary to reflect the possibility 

of non-repayment of relevant principal amounts. As overdue interest is paid, previously deferred remuneration 

corresponding to the creditors’ share of the burden of earlier nonpayment is included in the next payment of 

remuneration. The deferred remuneration corresponding to the creditors’ share of establishing the contingency 

accounts is usually paid when there are no longer any relevant overdue obligations or when the IMF Executive 

Board determines to pay the remuneration. There was no deduction in the remuneration paid by the IMF as a result of burden-sharing during fiscal years 2009 or 2008. For fiscal years 2009 and 2008, the Treasury Department 

received $40 million and $59 million as remuneration, respectively. (See Note 6.)

In addition to quota subscriptions, the IMF maintains borrowing arrangements to supplement its resources in 

times of crisis when IMF liquidity is low. The United States currently participates in two such arrangements – the 

General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB). There were no U.S. loans 

outstanding under these arrangements in fiscal year 2009 and fiscal year 2008. The dollar equivalent of SDR 6.7 

billion has been appropriated to finance U.S. participation in the GAB and NAB; as of September 30, 2009 and 

September 30, 2008, this amounted to $10.6 billion and $10.5 billion, respectively, in standing appropriations 

available for lending through the GAB or NAB as needed. As is the case for the U.S. quota in the IMF, budgetary 

treatment of U.S. participation in the GAB and NAB does not result in net budgetary outlays, since transactions 

under the GAB or NAB result in concurrent adjustments to the U.S. reserve position in the IMF.

Public Law 111-32 also provided the authorization and appropriations for an increase in the United States participation in the NAB by the dollar equivalent of SDR 75 billion which at the SDR/dollar exchange rate applicable 

on September 30, 2009 is equivalent to $119 billion. However, this increase in the United States participation in 

the NAB is not effective as of September 30, 2009 and will not come into effect until all IMF member countries 

participating in the NAB come to a final agreement on certain modifications to the decision governing the NAB. 

Although $119 was appropriated under Public Law 111-32, the United States has publicly stated that it will limit 

its commitment to $100 billion whenever a final decision is reached. 
PART 2 • ANNUAL FINANCIAL REPORT

NOte 15. Tax, Oher , and Rel

15. TAX, OTHER, AND RELATED INTEREST RECEIVABLES, NET

Tax, other, and related interest receivables include receivables from tax assessments, excise taxes, fees, penalties, 

and interest assessed and accrued that were not paid or abated, reduced by an estimate for uncollectible amounts. 

In addition to amounts attributed to taxes, interest income due on monies deposited in Federal Reserve Banks is 

also included in this line item.

As of September 30, 2009 and September 30, 2008, Tax, Other, and Related Interest Receivables, and Net, 

consisted of the following (in millions): 

Non-Entity: 2009 2008

IRS Federal Tax Receivable, Gross $ 128,115 $ 112,067

Less: Allowance on Taxes Receivable (99,027) (83,046)

Receivable, Deposit of Earnings, Federal Reserve Banks 1,254 1,465

Other Receivables and Interest 33 28

Less: Allowance on Other and Related Interest Receivable (15) (19)

Total Tax, and Other Non-Entity Receivables, Net $ 30,360 $ 30,495

Entity: 

Miscellaneous Entity Receivables and Related Interest 48 383

Total Tax, Other, and Related Interest Receivables, Net $ 30,408 $ 30,878

IRS federal taxes receivable constitute the largest portion of the receivables. IRS federal taxes receivable consists 

of tax assessments, penalties, and interest which were not paid or abated, and which were agreed to by either the 

taxpayer and IRS, or the courts. An allowance for doubtful accounts is established for the difference between the 

gross receivables and the portion deemed collectible. The portion of tax receivables estimated to be collectible and 

the allowance for doubtful accounts are based on projections of collectability from a statistical sample of taxes 

receivable. The Treasury Department does not establish an allowance for the receivable on deposits of Federal 

Reserve Bank earnings.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

158 Note 16.Invento

16. INVENTORY AND RELATED PROPERTY, NET

Inventory and related property includes inventory, operating materials and supplies, and forfeited property held 

by Treasury Department. The Treasury Department’s operating materials and supplies are maintained for the 

production of bureau products. The Treasury Department maintains inventory accounts or balances (e.g., metals, 

paper, etc.) for use in manufacturing currency and coins. The cost of these items is included in inventory costs, 

and is recorded as cost of goods sold upon delivery to customers. Inventory for check processing activities is also 

maintained. As of September 30, 2009 and September 30, 2008, inventory and related property consisted of the 

following (in millions): 

2009 2008

Operating materials and supplies held for use $ 17 $ 16

Operating materials and supplies held in reserve for future use 24 24

Forfeited property 62 100

Inventory – raw materials 239 355

Inventory – work in process 128 86

Inventory – finished goods 142 135

Allowance for inventories and related property (14) (18)

Total Inventories and Related Property, Net $ 598 $ 698
PART 2 • ANNUAL FINANCIAL REPORT

Note 17. Propety , Plan

17. PROPERTY, PLANT, AND EQUIPMENT, NET

As of September 30, 2009 and September 30, 2008, property, plant, and equipment consisted of the following (in 

millions):

Depreciation 

Method Service Life Cost Accumulated 

Depreciation

2009

 Net Book 

Value

Buildings, structures, and facilities

Furniture, fixtures, and equipment

Construction in progress

Land and land improvements

Internal use software

Internal use software in development

Assets under capital lease

Leasehold improvements

S/L

S/L

N/A

N/A

S/L

N/A

S/L

S/L

3 - 50 years

2 - 20 years

N/A

N/A

2 -10 years

N/A

2 - 25 years

2 - 25 years

$ 676

3,048

38

12

1,352

112

25

482

$ (308)

(2,268)

0

0

(807)

0

(23)

(303)

$ 368

780

38

12

545

112

2

179

Total $ 5,745 $ (3,709) $ 2,036

Depreciation 

Method Service Life Cost

Accumulated 

Depreciation

2008

 Net Book 

Value

Buildings, structures, and facilities

Furniture, fixtures, and equipment

Construction in progress

Land and land improvements

Internal use software

Internal use software in development

Assets under capital lease

Leasehold improvements

S/L

S/L

N/A

N/A

S/L

N/A

S/L

S/L

3 - 50 years

2 - 20 years

N/A

N/A

2-10 years

N/A

2 - 25 years

2 - 25 years

$ 669

3,376

35

12

1,151

205

30

580

$ (297)

(2,608)

0

0

(664)

0

(20)

(392)

$ 372

768

35

12

487

205

10

188

Total $ 6,058 $ (3,981) $ 2,077

The service life ranges vary significantly due to the diverse nature of PP&E held by the Treasury Department. 

HERITAGE ASSETS

The Treasury Department Complex (Main Treasury Building and Annex) was declared a national historical 

landmark in 1972. The Treasury Department Complex is treated as a multi-use heritage asset and is expected to 

be preserved indefinitely. The building housing the United States Mint in Denver, Colorado, is also considered a 

multi-use heritage asset.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

160 Note 18. No

18. NON-ENTITY ASSETS

Non-entity assets are those that are held by the Treasury Department but are not available for use by the Treasury 

Department. For example non-entity Fund Balance with Treasury represents unused balances of appropriations 

received by various Treasury Department entities to conduct custodial operations such as the payment of interest on 

the federal debt and refunds of taxes and fees. Non-entity loans and interest receivable represents loans managed by 

the Treasury Department on behalf of the U.S. Government. These loans are provided to federal agencies, and the 

Treasury Department is responsible for collecting these loans and transferring the proceeds to the General Fund of 

the U.S. Government. Non-entity cash, foreign currency, and other monetary assets include the operating cash of 

the U.S. Government, managed by the Treasury Department. It also includes foreign currency maintained by various U.S. and military disbursing offices, as well as seized monetary instruments. Non-Entity Investments in GSEs 

include the GSE senior preferred stock and warrants held by Treasury on behalf of the General Fund. As the stock 

and warrants are liquidated all proceeds are returned to the General Fund.

As of September 30, 2009 and September 30, 2008, non-entity assets consisted of the following (in millions):

2009 2008

Intra-governmental Assets:

Fund Balance (Note 2) $ 513 $ 889

Loans and Interest Receivable (Note 3) 348,800 226,194

Accounts Receivable and Related Interest (Note 5) 285 372

Advances to the Black Lung Trust Fund (Note 1G) 0 10,484

Advances to the Unemployment Trust Fund (Note 1H) 7,981 0

Due from the General Fund (Note 4) 11,992,719 10,100,763

Total Non-Entity Intra-governmental Assets $ 12,350,298 $ 10,338,702

Cash, Foreign Currency, and Other Monetary Assets (Note 6) $ 269,579 $ 364,941

Gold and Silver Reserves (Note 7) 11,062 11,062

Loans and Interest Receivable (Note 13) 127 130

Investments in GSEs (Note 9) 64,679 7,032

Tax, Other, and Related Interest Receivable, Net (Note 15) 30,360 30,495

Beneficial Interest in AIG Trust 23,472 0

Miscellaneous Assets 3 12

Total Non-Entity Assets $ 12,749,580 $ 10,752,374

Total Entity Assets 1,097,021 364,664

Total Assets $ 13,846,601 $ 11,117,038
PART 2 • ANNUAL FINANCIAL REPORT

Note 19. Fderal D

19. FEDERAL DEBT AND INTEREST PAYABLE

The Treasury Department 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 

managed by the Treasury Department does not include debt issued by other governmental agencies such as the 

Tennessee Valley Authority or the Department of Housing and Urban Development. 

The federal debt as of September 30, 2009 and September 30, 2008 was as follows (in millions):

Intra-governmental 2009 2008

Beginning Balance $ 4,179,570 $ 3,922,548

New Borrowings/Repayments 140,322 257,022

Subtotal at Par Value $ 4,319,892 $ 4,179,570

Premium/(Discount) 33,779 32,489

Interest Payable Covered by Budgetary Resources 49,409 50,355

Total $ 4,403,080 $ 4,262,414

Owed to the Public 2009 2008

Beginning Balance $ 5,808,691 $ 5,049,305

New Borrowings/Repayments 1,743,171 759,386

Subtotal at Par Value $ 7,551,862 $ 5,808,691

Premium/(Discount) (33,906) (36,124)

Interest Payable Covered by Budgetary Resources 41,349 40,127

Total $ 7,559,305 $ 5,812,694

Debt held by the public approximates the U.S. Government’s competition with other sectors in the credit markets. In contrast, debt held by federal entities, primarily trust funds, represents the cumulative annual surpluses of 

these funds (i.e., excess of receipts over disbursements plus accrued interest) that have been used to finance general 

government operations. 

FEDERAL DEBT HELD BY OTHER FEDERAL AGENCIES

Certain federal agencies are allowed to invest excess funds in debt securities issued by the Treasury Department on 

behalf of the U.S. Government. The terms and the conditions of debt securities issued are designed to meet the 

cash needs of the U.S. Government. The vast majority is non-marketable securities issued at par value, but some 

are issued at market prices whose prices and interest rates reflect market terms. The average interest rate for debt 

held by the federal entities in fiscal year 2009 was 4.3 percent (4.83 percent in fiscal year 2008).

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, at par value (not including interest receivable), owed to federal 

agencies as of September 30, 2009 and September 30, 2008 was as follows (in millions): 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

162 Note 19. Fder

 2009 2008

Social Security Administration $ 2,504,248 $ 2,367,138

Office of Personnel Management 828,952 797,107

Department of Defense Agencies 375,519 335,672

Department of Health and Human Services 376,512 380,540

All Other Federal Entities - Consolidated 234,661 299,113

Total Federal Debt Held by Federal Entities $ 4,319,892 $ 4,179,570

The above balances do not include premium/discount and interest payable.

FEDERAL DEBT HELD BY THE PUBLIC

As of September 30, 2009 and September 30, 2008, Federal Debt held by the Public consisted of the following:

(at par value, in millions) Term

Average

Interest Rates 2009

Marketable:

Treasury Bills

Treasury Notes

Treasury Bonds

Treasury Inflation Protected Security (TIPS) 

1 Year or Less

2 - 10 Years

Over 10 Years

5 Years or More

0.3%

3.0%

6.5%

2.1%

$ 1,986,174

3,772,964

677,491

551,308

Total Marketable

Non-Marketable On Demand to Over 10 Years 3.7%

$ 6,987,937

563,925

Total Federal Debt (Public) $ 7,551,862

(at par value, in millions) Term

Average

Interest Rates 2008

Marketable:

Treasury Bills

Treasury Notes

Treasury Bonds

Treasury Inflation Protected Security (TIPS)

1 Year or Less

2 - 10 Years

Over 10 Years

5 Years or More

1.6%

4.1%

7.1%

2.0%

$ 1,484,332

2,623,364

578,504

523,951

Total Marketable

Non-Marketable On Demand to Over 10 Years 4.1%

$ 5,210,151

598,540

Total Federal Debt (Public) $ 5,808,691

The above balances do not include premium/discount and interest payable.

The Treasury Department issues marketable bills at a discount or at par and pays the par amount of the security 

upon maturity. The average interest rate on Treasury bills represents the original issue effective yield on securities 

outstanding as of September 30, 2009 and September 30, 2008, respectively. Treasury bills are issued with a term 

of one year or less.

The Treasury Department issues marketable notes and bonds as long-term securities that pay semi-annual interest based on the securities' stated interest rates. These securities are issued at either par value or at an amount 

that reflects a discount or a premium. The average interest rate on marketable notes and bonds represents the 
PART 2 • ANNUAL FINANCIAL REPORT

Note 19. Fderal D

stated interest rate adjusted by any discount or premium on securities outstanding as of September 30, 2009 and 

September 30, 2008. Treasury notes are issued with a term of 2 to 10 years and Treasury bonds are issued with a 

term of more than 10 years. The Treasury Department also issues inflation–indexed securities (TIPS) that have 

interest and redemption payments, which are tied to the Consumer Price Index, a widely used measurement 

of inflation. TIPS are issued with a term of five years or more. At maturity, TIPS are redeemed at the inflationadjusted 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. 

Over the course of fiscal year 2009, changes in economic conditions, financial markets, and fiscal policy as well 

as a reduction in nonmarketable debt issuance have caused an increase in Treasury’s marketable borrowing needs. 

Financial market strains have impacted the real economy, and the nation has experienced lower economic growth, 

lower receipts, and increased outlays. The Treasury Department has responded to the increase in marketable borrowing requirements by increasing issuance sizes of regular bills, the frequency, terms, and issuance sizes of cash 

management bills, and the issuance sizes of nominal coupon security offerings. 

Federal Debt Held by the Public includes federal debt held outside of the U. S. Government by individuals, 

corporations, Federal Reserve Banks (FRB), state and local governments, foreign governments and central banks. 

As of September 30, 2009, the FRB had total holdings of $769 billion, with a very small amount lent to dealers 

and not collateralized by other Treasury securities. As of September 30, 2008, the FRB owned $221 billion, net 

of $256 billion in securities lent to dealers and not collateralized by other Treasury securities, for total holdings 

of $477 billion. These securities are held in the FRB System Open Market Account (SOMA) for the purpose of 

conducting monetary policy.

The amount of outstanding federal debt is limited by the statutory debt ceiling. Outstanding debt is projected 

to reach the statutory debt ceiling in late December 2009. Congressional actions to increase the debt ceiling are 

currently pending. In the event Congressional action is delayed, the Treasury Department has various options 

available to it to issue additional debt to fund government operations until Congressional action is completed.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

164 Note 20. Oher

20. OTHER DEBT AND INTEREST PAYABLE

Borrowings outstanding are with the Civil Service Retirement and Disability Fund (CSR&DF), which is administered by the Office of Personnel Management (OPM). At September 30, 2009 and September 30, 2008, FFB had 

borrowings of $11.9 billion and $14.0 billion and an associated unamortized premium of $229 million and $288 

million, respectively. These borrowings are at stated interest rates ranging from 4.625 percent to 5.250 percent, 

effective interest rate of 4.125 percent, and with maturity dates range from June 30, 2010 to June 30, 2019. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 21. D.C.Pensions an

21. D.C. PENSIONS AND JUDICIARY RETIREMENT ACTUARIAL LIABILITY 

Pursuant to Title XI of the Balanced Budget Act of 1997, as amended (the Act), on October 1, 1997, Treasury

became responsible for certain District of Columbia retirement plans. The Act was intended to relieve the District 

of Columbia government of the burden of unfunded pension liabilities transferred to the District by the U.S. 

Government in 1979. To fulfill its responsibility, Treasury manages two funds — the D.C. Teachers’, Police 

Officers’ and Firefighters’ Federal Pension Fund (the D.C. Federal Pension Fund) and the District of Columbia 

Judicial Retirement and Survivors Annuity Fund (the Judicial Retirement Fund). The Treasury Department is required to make annual amortized payments from the General Fund of the U.S. Government to the D.C. Federal 

Pension Fund and the Judicial Retirement Fund. The actuarial cost method used to determine costs for the 

retirement plans is the Aggregate Entry Age Normal Actuarial Cost Method. The actuarial liability is based upon 

long term assumptions selected by the Treasury Department. The pension benefit costs incurred by the plans are 

included on the Consolidated Statements of Net Cost.

D.C. FEDERAL PENSION FUND

The purpose of the D.C. Federal Pension Fund is to make federal benefit payments and pay necessary administrative expenses for the District of Columbia Police Officers', Firefighters', and Teachers' Retirement Plans for benefits earned based upon service on or before June 30, 1997. The amount paid into the D.C. Federal Pension Fund 

from the General Fund of the U.S. Government was $400.3 million for fiscal year 2009 ($340.2 million during 

fiscal year 2008). As of September 30, 2009, the unobligated budgetary resources of the D.C. Federal Pension 

Fund were approximately $3,557.8 million, and the pension actuarial liability was $8,892.5 million, resulting in 

an unfunded liability of $5,334.7 million. (As of September 30, 2008, the unobligated budgetary resources of the 

D.C. Federal Pension Fund were approximately $3,564.2 million, and the pension actuarial liability was $8,640.8 

million, resulting in an unfunded liability of $5,076.6 million.) In fiscal year 2009, the assumption for the annual 

rate of investment return in fiscal year 2010 was 4.5 percent for the D.C. Federal Pension Fund with a gradual 

increase to 6.0 percent by fiscal year 2016; and the assumption for the future annual rate of inflation and future 

cost-of-living adjustments was 3.5 percent. In fiscal year 2008, the assumption for the annual rate of investment 

return in fiscal year 2009 was 4.7 percent for the D.C. Federal Pension Fund with a gradual increase to 6 percent 

by fiscal year 2014; and the assumption for the future annual rate of inflation and future cost of-living adjustments was 3.5 percent. In fiscal year 2009, the assumption for the future annual rate of salary increases ranged 

from 3.5 percent to 6.5 percent for police officers and firefighters, based on years of service, and ranged from 3.5 

percent to 5.5 percent for teachers, based on years of service. In fiscal year 2008, the assumption for the future 

annual rate of salary increases was 6.5 percent for police officers and firefighters, and 5.5 percent for teachers.

JUDICIAL RETIREMENT FUND

The purpose of the Judicial Retirement Fund is to make federal benefit payments and pay necessary administrative 

expenses for the Judges' Retirement Plans for all benefits earned. The amount paid into the Judicial Retirement 

Fund from the General Fund of the U.S. Government was $7.04 million for fiscal year 2009 ($6.98 million during fiscal year 2008). As of September 30, 2009, the unobligated budgetary resources of the Judicial Retirement 

Fund were approximately $122.4 million, and the pension actuarial liability was $156.6 million, resulting in 

an unfunded liability of $34.2 million. (As of September 30, 2008, the unobligated budgetary resources of the 

Judicial Retirement Fund were approximately $118.5 million, and the pension actuarial liability was $161.6 mil-
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

166 Note 21. D.C.Pension

lion, resulting in an unfunded liability of $43.1 million.) In fiscal year 2009, the assumption for the annual rate 

of investment return in fiscal year 2010 was 5.2 percent for the Judicial Retirement Fund with a gradual increase 

to 6 percent by fiscal year 2017; and the assumption for the future annual rate of inflation and future cost-ofliving adjustments was 3.5 percent. In fiscal year 2008, the assumption for the annual rate of investment return 

in fiscal year 2009 was 5.2 percent for the Judicial Retirement Fund with a gradual increase to 6 percent by fiscal 

year 2015; and the assumption for the future annual rate of inflation and future cost of-living adjustments was 

3.5 percent. In fiscal year 2009, the assumption for the future annual rate of salary increases was 3.5 percent for 

judges. This assumption was unchanged from fiscal year 2008.
PART 2 • ANNUAL FINANCIAL REPORT

Note 22. Li

22. LIABILITIES

Liabilities Not Covered by Budgetary and Other Resources 

As of September 30, 2009 and September 30, 2008, liabilities not covered by budgetary and other resources 

consisted of the following (in millions): 

2009 2008

Intra-governmental Liabilities Not Covered by Budgetary and Other Resources:

Federal Debt Principal, Premium/Discount (Note 19) $ 4,353,671 $ 4,212,059

Other Intra-governmental Liabilities 105 105

Total Intra-governmental Liabilities Not Covered by Budgetary and Other Resources $ 4,353,776 $ 4,212,164

Federal Debt Principal, Premium/Discount (Note 19) 7,517,956 5,772,567

Gold and Silver Reserves held by the U.S. Mint 10,494 10,494

D.C. Pensions Liability (Note 21) 5,369 5,120

Liabilities to GSEs 91,937 13,800

Other Liabilities 1,057 1,085

Total Liabilities Not Covered by Budgetary and Other Resources $ 11,980,589 $ 10,015,230

Total Liabilities Covered by Budgetary and Other Resources 1,437,956 792,097

Total Liabilities $ 13,418,545 $ 10,807,327 

Other Liabilities 

Total “Other Liabilities” displayed on the Balance Sheets consists of both liabilities that are covered and not 

covered by budgetary resources. 

The amounts displayed of $3,331 million and $4,052 million, respectively, at September 30, 2009 and September 

30, 2008 consisted of the following (in millions):

2009

Current Non-Current Total

Intra-governmental

Unfunded Federal Workers Compensation Program Liability (FECA) $ 46 $ 57 $ 103

Accounts Payable 61 0 61

Accrued Interest Payable (3) 0 (3)

Other Accrued Liabilities 263 1 264

Total Intra-governmental $ 367 $ 58 $ 425

With the Public

Actuarial Federal Workers Compensation Program Liability (FECA) 0 533 533

Liability for Deposit Funds (Held by the Federal Government for Others) and Suspense Accounts 71 0 71

Accrued Funded Payroll and Benefits 488 0 488

Capital Lease Liabilities 1 0 1

Accounts Payable and Other Accrued Liabilities 2,194 44 2,238

Total with the Public $ 2,754 $ 577 $ 3,331
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

168 Note 22

2008

Current Non-Current Total

Intra-governmental

Unfunded Federal Workers Compensation Program Liability (FECA) $ 45 $ 57 $ 102

Accounts Payable 76 0 76

Other Accrued Liabilities 165 2 167

Total Intra-governmental $ 286 $ 59 $ 345

With the Public

Actuarial Federal Workers Compensation Program Liability (FECA) 0 594 594

Liability for Deposit Funds (Held by the Federal Government for Others) and Suspense Accounts 526 0 526

Accrued Funded Payroll and Benefits 424 0 424

Capital Lease Liabilities 4 1 5

Accounts Payable and Other Accrued Liabilities 2,460 43 2,503

Total with the Public $ 3,414 $ 638 $ 4,052
PART 2 • ANNUAL FINANCIAL REPORT

Note 23. Net 

23. 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 expired.

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 workers compensation, (c) 

credit reform cost reestimates, and (d) expenses for contingent liabilities. 

The amount reported as “appropriations received” are appropriated from the Treasury General Fund of the U.S. 

Government receipts, such as income taxes, that are not earmarked by law for a specific purpose. This amount will 

not necessarily agree with the “appropriation received” amount reported on the Statement of Budgetary Resources 

(SBR) because of differences between proprietary and budgetary accounting concepts and reporting requirements. 

For example, certain dedicated and earmarked receipts are recorded as “appropriations received” on the SBR, 

but are recognized as exchange or non-exchange revenue (i.e., typically in special and non-revolving trust funds) 

and reported on the Statement of Changes in Net Position in accordance with Statement of Federal Financial 

Accounting Standards (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 credit reform downward reestimates to be collected 

by the General Fund and current year negative subsidy transferred of $118,139 million and $7,220 million, 

respectively, for the year ended September 30, 2009. Also included is $95,600 million in GSE General Fund 

exchange revenue from the gross increase in value of the GSE preferred stock. In addition, these transfers also 

include distribution of interest revenue to the General Fund of the U.S. Government of $30.1 billion and $13.5 

billion, for the years ended September 30, 2009 and September 30, 2008, respectively. The interest revenue 

is accrued on inter-agency loans held by the Treasury Department on behalf of the U.S. Government. A corresponding balance is reported on the Consolidated Statement of Net Cost under “Federal Costs: Less Interest 

Revenue from Loans.” The amount reported on the Consolidated Statement of Net Cost is reduced by eliminations with Treasury bureaus. Also included in “Transfers to the General Fund and Other” is $4,336 million (GSE 

Dividends) and $7,032 million (initial GSE preferred stock) transferred to the general fund for the years ended 

September 30, 2009 and September 30, 2008, respectively. In addition, $(37,953) million of GSE senior preferred stock valuation loss and other transfers of $238 million are included as of September 30, 2009.

The Treasury Department also includes seigniorage in “Transfers to the General Fund and Other.” Seigniorage is 

the face value of newly minted circulating coins less the cost of production. The United States Mint is required to 

distribute the seigniorage that it recognizes to the General Fund of the U.S. Government. The distribution is also 

included in “Transfers to the General Fund and Other.” In any given year, the amount recognized as seigniorage 

may differ for the amount distributed to the General Fund by an insignificant amount due to timing differences. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

170 Note 23. 

Seigniorage in the amounts of $447.1 million and $728.6 million was recognized, respectively, for the years ended 

September 30, 2009 and September 30, 2008. Total distributions from the Mint to the General Fund, including 

seigniorage and numismatic profit, amounted to $ 475 million and $750 million, respectively, for the years ended 

September 30, 2009 and September 30, 2008.

The transfers are summarized in the following table:

2009 2008

Downward Reestimates of Credit Reform Subsidies $ 118,139 $ 0 

Credit Reform Negative Subsidies 7,220 0 

Interest Revenue 30,124 13,500 

Increase in Liquidity Preference of GSE Preferred Stock 95,600 0

GSE Preferred Stock Dividends 4,336 0 

GSE Warrants and Stock Valuation (net) (37,953) 0 

GSE Warrants and Stock - Fee for SPPS Agreement 0 7,032 

Other 238 256 

$ 217,704 $ 20,788
PART 2 • ANNUAL FINANCIAL REPORT

Note 24. Cnsoldate Statement

24. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS

The Treasury Department’s Consolidated Statement of Net Cost displays information on a consolidated basis. 

The complexity of the Treasury Department’s organizational structure and operations requires that supporting 

schedules for Net Cost be included in the notes to the financial statements. These supporting schedules provide 

consolidating information, which fully displays the costs of each sub-organization (Departmental Offices and 

each operating bureau).

The classification of sub-organizations has been determined in accordance with SFFAS No. 4, Managerial Cost 

Accounting Concepts and Standards for the Federal Government 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 Treasury-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 resulting from the provision of goods and/or services on a reimbursable basis 

among Departmental sub-organizations are reported as costs by providing sub-organizations. Accordingly, such 

costs/revenues are eliminated in the consolidation process.

To the extent practical or reasonable to do so, earned revenue is deducted from the gross costs of the programs 

to determine their net cost. There are no precise guidelines to determine the degree to which earned revenue 

can reasonably be attributed to programs. The attribution of earned revenues requires the exercise of managerial 

judgment.

OMB Circular No. A-136, Financial Reporting Requirements, requires that the presentation of the Statements 

of Net Cost align directly with the goals and outcomes identified in the Strategic Plan. Accordingly, Treasury 

Department has presented the gross costs and earned revenues by the applicable strategic goals in its fiscal years 

2007 - 2012 Strategic Plan. The majority of Treasury bureaus’ and reporting entities’ net cost information falls 

within one strategic goal in the Statement of Net Cost. Two of Treasury’s components, TTB and DO allocate 

costs to multiple programs using a net cost percentage calculation.

In the last quarter of 2008, the Treasury Department began incurring cost in association with the GSE Senior 

Preferred Stock Purchase Program. The amount included in the SNC as economic program entity cost is $173,737 

million for fiscal year 2009 and $13,800 million for fiscal year 2008. The 2009 amount represents the current year 

liquidity payment of $81,800 million to the GSEs; fourth quarter liquidity payment accrual of $15,000 million 

payable to Fannie Mae; and accrual of $76,937 million contingent liability for future liquidity payments to GSEs. 

In addition, $43,931 million of preferred stock valuation loss (expense) and $5,978 million of common stock 

valuation gain (revenue) are reported in the SNC as non-entity. Also, reported in the SNC as non-entity revenue 

is $4,336 million in GSE dividends. The fiscal year 2008 amount represents the expense portion of the quarter 

ended September 30, 2008 accrual of the payment to Freddie Mac, which was disbursed in December 2008. There 

was no payment for Fannie Mae for fiscal year 2008. Nor was there a fiscal year 2009 year-end accrual to Freddie 

Mac as of September 30, 2009. In fiscal year 2008, Treasury disclosed these GSE costs separately as a below the 

line item on the SNC. However, Treasury concluded that the cost of this program helps accomplish the Treasury 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

172 Note 24. Cnsoldate State

strategic goal of ensuring that the U.S. economy performs at its full economic potential. Thus, as of September 30, 

2009 the cost of these investments in GSEs are aligned in the Economic Program section of the SNC. (See Note 9)

In fiscal year 2009, new program activity cost incurred by the OFS and SIGTARP are aligned in the Statement of 

Net Cost as Economic cost and Management cost, respectively. The establishment of the OFS helps to ensure that 

the U.S. economy performs at its full potential by stabilizing the financial system through implementation of the 

Financial Stability Plan. SIGTARP’s objective is to promote and ensure management and organizational excellence by providing accountability and transparency. Fiscal year 2009 OFS equity program costs were $15,650 

million; direct loan program costs were $26,032 million. Details of these costs are provided in Notes 8 and 12, 

respectively. These OFS program costs, and the GSE Senior Preferred Stock Purchase Program costs described 

above, comprise the major portion of Economic Program costs in the Statement of Net Cost.

As of September 30, 2009 and September 30, 2008, the Economic Program gross cost consisted of the following 

(in millions):

Economic Program Gross Cost 2009 2008

GSE SPSPA - Liquidity Payments $ 81,800 $ - 

GSE SPSPA - Year-End Accrual 15,000 13,800 

GSE SPSPA - Contingent Commitments 76,937 - 

GSE SPSPA Gross Cost 173,737 13,800 

GSE MBS Subsidy, Reestimates & Admin Cost (12,880) - 

GSE MBS - Other Intragovernmental Gross Cost 5,569 - 

Total GSE SPSPA & MBS Economic Gross Cost $ 166,426 $ 13,800 

DO Combined (exluding GSE) 4,187 2,202 

BEP 475 530 

MNT 2,453 2,036 

OCC 732 680 

OFS 47,994 - 

OTS 239 251 

TTB 50 49 

 56,130 5,748 

Combined Economic Program Gross Cost 222,556 19,548 

Eliminations (12,066) (409)

Consolidated Economic Program Gross Cost $ 210,490 $ 19,139

The Treasury Department’s SNC also presents interest expense on the Federal Debt and other federal costs incurred as a result of assets and liabilities managed on behalf of the U.S. Government. These costs are not reflected 

as program costs related to the Treasury Department’s strategic plan missions. Such costs are eliminated in the 

consolidation process to the extent that they involve transactions with Treasury Department sub-organizations.
PART 2 • ANNUAL FINANCIAL REPORT

Note 24. Cnsoldate Statement

Other federal costs for the years ended September 30, 2009 and September 30, 2008 consisted of the following 

(in millions): 

2009 2008

Credit Reform Interest on Uninvested Funds (Intra-governmental) $ 6,534 $ 5,043

Resolution Funding Corporation 2,120 1,393

Judgment Claims and Contract Disputes 2,305 786

Corporation for Public Broadcasting 461 448

Legal Services Corporation 388 347

All Other Payments 323 315

Total $ 12,131 $ 8,332
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

174 Note 24. Cnsoldate State

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations 

(in millions):

For Year Ended September 30, 2009 Bureau of 

Engraving

and 

Printing

Bureau 

of the

Public 

Debt

Departmental

Offices

Financial 

Crimes 

Enforcement

Network

Financial 

Management

Service

Internal 

Revenue

Service

U.S. 

Program Costs: Mint

Financial Program:

Intra-governmental Gross Costs $ 0 $ 111 $ 1,440 $ 0 $ 184 $ 4,145 $ 0

Less: Earned Revenue 0 (22) (1,948) 0 (167) (55) 0

Intra-governmental Net Costs $ 0 $ 89 $ (508) $ 0 $ 17 $ 4,090 $ 0

Gross Costs with the public $ 0 $ 221 $ 829 $ 0 $ 1,153 $ 8,725 $ 0

Less: Earned Revenue 0 (8) (1) 0 0 (313) 0

Net Costs with the public $ 0 $ 213 $ 828 $ 0 $ 1,153 8,412 $ 0

Net Cost: Financial Program $ 0 $ 302 $ 320 $ 0 $ 1,170 $ 12,502 $ 0

Economic Program:

Intra-governmental Gross Costs $ 83 $ 0 $ 12,151 $ 0 $ 0 $ 0 $ 73

Less: Earned Revenue (3) 0 (6,146) 0 0 0 (10)

Intra-governmental Net Costs $ 80 $ 0 $ 6,005 $ 0 $ 0 $ 0 $ 63

Gross Costs with the public $ 392 $ 0 $ 206,456 $ 0 $ 0 $ 0 $ 2,380

Less: Earned Revenue (481) 0 (10,824) 0 0 0 (2,456)

Net Costs with the public $ (89) $ 0 $ 195,632 $ 0 $ 0 $ 0 $ (76)

Net Cost: Economic Program $ (9) $ 0 $ 201,637 $ 0 $ 0 $ 0 $ (13)

Security Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 121 $ 68 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 (16) (1) 0 0 0

Intra-governmental Net Costs $ 0 $ 0 $ 105 $ 67 $ 0 $ 0 $ 0

Gross Costs with the public $ 0 $ 0 $ 147 $ 55 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 147 $ 55 $ 0 $ 0 $ 0

Net Cost: Security Program $ 0 $ 0 $ 252 $ 122 $ 0 $ 0 $ 0

Management Program:

Intra-governmental Gross Costs $ 0 $ 56 $ 145 $ 0 $ 0 $ 0 $ 0

Less: Earned Revenue 0 (159) (222) 0 0 0 0

Intra-governmental Net Costs $ 0 $ (103) $ (77) $ 0 $ 0 $ 0 $ 0

Gross Costs with the public $ 0 $ 104 $ 329 $ 0 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 0 0 0 0 0

Net Costs with the public $ 0 $ 104 $ 329 $ 0 $ 0 $ 0 $ 0

Net Cost: Management Program $ 0 $ 1 $ 252 $ 0 $ 0 $ 0 $ 0

Net Cost of Operations $ (9) $ 303 $ 202,461 $ 122 $ 1,170 $ 12,502 $ (13)
PART 2 • ANNUAL FINANCIAL REPORT

Note 24. Cnsoldate Statement

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations 

(in millions):

For Year Ended September 30, 2009 Office of the 

Comptroller 

of the 

Currency

Office of 

Thrift 

Supervision

Alcohol, 

Tobacco Tax 

and Trade

Bureau

Combined

Total

Eliminations

and

 Adjustments

9/30/2009

Program Costs: Consolidated

Financial Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 14 $ 5,894 $ (1,548) $ 4,346

Less: Earned Revenue 0 0 0 (2,192) 258 (1,934)

Intra-governmental Net Costs $ 0 $ 0 $ 14 $ 3,702 $ (1,290) $ 2,412

Gross Costs with the public $ 0 $ 0 $ 39 $ 10,967 $ 0 $ 10,967

Less: Earned Revenue 0 0 (2) (324) 0 (324)

Net Costs with the public $ 0 $ 0 $ 37 $ 10,643 $ 0 $ 10,643

Net Cost: Financial Program $ 0 $ 0 $ 51 $ 14,345 $ (1,290) $ 13,055

Economic Program:

Intra-governmental Gross Costs $ 100 $ 37 $ 13 $ 12,457 $ (12,066) $ 391

Less: Earned Revenue (22) (11) 0 (6,192) 6,166 (26)

Intra-governmental Net Costs $ 78 $ 26 $ 13 $ 6,265 $ (5,900) $ 365

Gross Costs with the public $ 632 $ 202 $ 37 $ 210,099 $ 0 $ 210,099

Less: Earned Revenue (752) (245) (0) (14,758) (1) (14,759)

Net Costs with the public $ (120) $ (43) $ 37 $ 195,341 $ (1) $ 195,340

Net Cost: Economic Program $ (42) $ (17) $ 50 $ 201,606 $ (5,901) $ 195,705

Security Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 0 $ 189 $ (66) $ 123

Less: Earned Revenue 0 0 0 (17) 14 (3)

Intra-governmental Net Costs $ 0 $ 0 $ 0 $ 172 $ (52) $ 120

Gross Costs with the public $ 0 $ 0 $ 0 $ 202 $ 0 $ 202

Less: Earned Revenue 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 0 $ 202 $ 0 $ 202

Net Cost: Security Program $ 0 $ 0 $ 0 $ 374 $ (52) $ 322

Management Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 0 $ 201 $ (65) $ 136

Less: Earned Revenue 0 0 0 (381) 321 (60)

Intra-governmental Net Costs $ 0 $ 0 $ 0 $ (180) $ 256 $ 76

Gross Costs with the public $ 0 $ 0 $ 0 $ 433 $ 0 $ 433

Less: Earned Revenue 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 0 $ 433 $ 0 $ 433

Net Cost: Management Program $ 0 $ 0 $ 0 $ 253 $ 256 $ 509

Net Cost of Operations $ (42) $ (17) $ 101 $ 216,578 $ (6,987) $ 209,591
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

176 Note 24. Cnsoldate State

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations 

(in millions):

Fiscal Year Ended September 30, 2008 Bureau of 

Engraving

and 

Printing

Bureau 

of the

Public 

Debt

Departmental

Offices

Financial 

Crimes

Enforcement

Network

Financial

Management

Service

Internal

Revenue

Service

U.S. 

Program Costs: Mint

Financial Program:

Intra-governmental Gross Costs $ 0 $ 71 $ 1,392 $ 0 $ 202 $ 4,107 $ 0

Less: Earned Revenue 0 (15) (2,009) 0 (159) (72) 0

Intra-governmental Net Costs $ 0 $ 56 $ (617) $ 0 $ 43 $ 4,035 $ 0

Gross Costs with the public $ 0 $ 256 $ 373 $ 0 $ 1,120 $ 8,441 $ 0

Less: Earned Revenue 0 (10) (1) 0 0 (287) 0

Net Costs with the public $ 0 $ 246 $ 372 $ 0 $ 1,120 $ 8,154 $ 0

Net Cost: Financial Program $ 0 $ 302 $ (245) $ 0 $ 1,163 $ 12,189 $ 0

Economic Program:

Intra-governmental Gross Costs $ 81 $ 0 $ 14,262 $ 0 $ 0 $ 0 $ 78

Less: Earned Revenue (8) 0 (811) 0 0 0 (10)

Intra-governmental Net Costs $ 73 $ 0 $ 13,451 $ 0 $ 0 $ 0 $ 68

Gross Costs with the public $ 449 $ 0 $ 1,740 $ 0 $ 0 $ 0 $ 1,958

Less: Earned Revenue (509) 0 (1,529) 0 0 0 (2,063)

Net Costs with the public $ (60) $ 0 $ 211 $ 0 $ 0 $ 0 $ (105)

Net Cost: Economic Program $ 13 $ 0 $ 13,662 $ 0 $ 0 $ 0 $ (37)

Security Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 139 $ 58 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 (18) (2) 0 0 0

Intra-governmental Net Costs $ 0 $ 0 $ 121 $ 56 $ 0 $ 0 $ 0

Gross Costs with the public $ 0 $ 0 $ 171 $ 52 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 171 $ 52 $ 0 $ 0 $ 0

Net Cost: Security Program $ 0 $ 0 $ 292 $ 108 $ 0 $ 0 $ 0

Management Program:

Intra-governmental Gross Costs $ 0 $ 51 $ 143 $ 0 $ 0 $ 0 $ 0

Less: Earned Revenue 0 (237) (224) 0 0 0 0

Intra-governmental Net Costs $ 0 $ (186) $ (81) $ 0 $ 0 $ 0 $ 0

Gross Costs with the public $ 0 $ 207 $ 300 $ 0 $ 0 $ 0 $ 0

Less: Earned Revenue 0 0 0 0 0 0 0

Net Costs with the public $ 0 $ 207 $ 300 $ 0 $ 0 $ 0 $ 0

Net Cost: Management Program $ 0 $ 21 $ 219 $ 0 $ 0 $ 0 $ 0

Net Cost of Treasury Operations $ 13 $ 323 $ 13,928 $ 108 $ 1,163 $ 12,189 $ (37)
PART 2 • ANNUAL FINANCIAL REPORT

Note 24. Cnsoldate Statement

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations 

(in millions):

Fiscal Year Ended September 30, 2008 Office of the 

Comptroller 

of the 

Currency

Office of

Thrift 

Supervision

Alcohol, 

Tobacco Tax 

and Trade

Bureau

Combined

Total

Eliminations

and

 Adjustments

9/30/2008

Program Costs: Consolidated

Financial Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 13 $ 5,785 $ (1,442) $ 4,343

Less: Earned Revenue 0 0 0 (2,255) 272 (1,983)

Intra-governmental Net Costs $ 0 $ 0 $ 13 $ 3,530 $ (1,170) $ 2,360

Gross Costs with the public $ 0 $ 0 $ 36 $ 10,226 $ 0 $ 10,226

Less: Earned Revenue 0 0 (1) (299) 0 (299)

Net Costs with the public $ 0 $ 0 $ 35 $ 9,927 $ 0 $ 9,927

Net Cost: Financial Program $ 0 $ 0 $ 48 $ 13,457 $ (1,170) $ 12,287

Economic Program:

Intra-governmental Gross Costs $ 96 $ 34 $ 13 $ 14,564 $ (409) $ 14,155

Less: Earned Revenue (27) (14) 0 (870) 845 (25)

Intra-governmental Net Costs $ 69 $ 20 $ 13 $ 13,694 $ 436 $ 14,130

Gross Costs with the public $ 584 $ 217 $ 36 $ 4,984 $ 0 $ 4,984

Less: Earned Revenue (710) (254) (1) (5,066) 0 (5,066)

Net Costs with the public $ (126) $ (37) $ 35 $ (82) $ 0 $ (82)

Net Cost: Economic Program $ (57) $ (17) $ 48 $ 13,612 $ 436 $ 14,048

Security Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 0 $ 197 $ (74) $ 123

Less: Earned Revenue 0 0 0 (20) 16 (4)

Intra-governmental Net Costs $ 0 $ 0 $ 0 $ 177 $ (58) $ 119

Gross Costs with the public $ 0 $ 0 $ 0 $ 223 $ 0 $ 223

Less: Earned Revenue 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 0 $ 223 $ 0 $ 223

Net Cost: Security Program $ 0 $ 0 $ 0 $ 400 $ (58) $ 342

Management Program:

Intra-governmental Gross Costs $ 0 $ 0 $ 0 $ 194 $ (70) $ 124

Less: Earned Revenue 0 0 0 (461) 296 $ (165)

Intra-governmental Net Costs $ 0 $ 0 $ 0 $ (267) $ 226 $ (41)

Gross Costs with the public $ 0 $ 0 $ 0 $ 507 $ 0 $ 507

Less: Earned Revenue 0 0 0 0 0 0

Net Costs with the public $ 0 $ 0 $ 0 $ 507 $ 0 $ 507

Net Cost: Management Program $ 0 $ 0 $ 0 $ 240 $ 226 $ 466

Net Cost of Treasury Operations $ (57) $ (17) $ 96 $ 27,709 $ (566) $ 27,143
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

178 Note 25. Addiona In

25. ADDITIONAL INFORMATION RELATED TO THE COMBINED STATEMENTS 

OF BUDGETARY RESOURCES

Federal agencies are required to disclose additional information related to the Combined Statements of Budgetary 

Resources (per OMB Circular No. A-136). In accordance with SFFAS No. 7, the Department must report the 

value of goods and services ordered and obligated which have not been received. This amount includes any orders 

for which advance payment has been made but for which delivery or performance has not yet occurred. The 

information for the fiscal years ended September 30, 2009 and September 30, 2008 was as follows (in millions):

2009 2008

Undelivered orders: 

Paid $ 171 $ 1,888

Unpaid 185,641 55,625

Undelivered orders at the end of the year $ 185,812 $ 57,513

Contributed Capital $ 40 $ 24

Apportionment Categories of Obligations Incurred:

Direct vs. Reimbursable Obligations

2009 2008

Obligations Incurred

Direct - Category A $ 14,715 $ 7,050

Direct - Category B 977,506 20,623

Direct - Exempt from Apportionment 390,305 455,126

Total Direct 1,382,526 482,799

Reimbursable - Category A 1 2

Reimbursable - Category B 3,386 3,287

Reimbursable - Exempt from Apportionment 1,282 1,446

Total Reimbursable 4,669 4,735

Total Direct and Reimbursable $ 1,387,195 $ 487,534
PART 2 • ANNUAL FINANCIAL REPORT

Note 25. Addiona Inform

TERMS OF BORROWING AUTHORITY USED

The GSE MBS Purchase and TARP equity investment programs (excluding HAMP) have authority to borrow 

under the Federal Credit Reform Act of 1990 (FCRA), as amended. The FFB and IAP also have borrowing authority. 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. Repayment 

requirements are defined by OMB Circular A-11. 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 Treasury Department borrowings earn interest at the same rate as the financing account pays on 

its debt owed to BPD. In the event that principal and interest collections exceed the interest expense due, the 

excess will be repaid to the Treasury Department. If principal and interest do not exceed interest expense due, the 

Treasury Department will borrow the difference. The Treasury Department makes periodic principal repayments 

based on the analysis of cash balances and future disbursement needs. All interest on borrowing were due the last 

day of the fiscal year, on September 30, 2009. Interest rates on FCRA borrowings range from 1.00% to 6.48%. 

Available Borrowing, End of Year:

2009 2008

Beginning Balance $ 29,810 $ 5,716

Current Authority 548,734 34,308

Decreases (107,475) (4,767)

Borrowing Authority Converted to Cash (419,559) (5,447)

Ending Balance $ 51,510 $ 29,810

Reconciliation of the President’s Budget

The Budget of the United States (also known as the President’s Budget), with actual numbers for fiscal year 2009, 

was not published at the time that these financial statements were issued. The President’s Budget is expected to be 

published in 2010. It will be available from the United States Government Printing Office. The following chart 

displays the differences between the Combined Statement of Budgetary Resources (SBR) in the fiscal year 2008 

Performance and Accountability Report and the actual fiscal year 2008 balances included in the fiscal year 2010 

President’s Budget (PB). 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

180 Note 25. Addiona In

RECONCILIATION OF FISCAL YEAR 2008 COMBINED STATEMENT OF BUDGETARY RESOURCES

TO THE FISCAL YEAR 2010 PRESIDENT’S BUDGET (IN MILLIONS)

Budgetary 

Resources

Outlays

(net of 

offsetting 

collections)

Offsetting

Receipts

Net 

Outlays

Obligations 

Incurred

Statement of Budgetary Resources Amounts $ 772,164 $ 479,079 $ (16,211) $ 462,868 $ 487,534

Included in the Treasury Department Chapter of the 

President’s Budget (PB) but not in the Statement of 

Budgetary Resources (SBR):

IRS non-entity tax credit payments (1) 94,505 94,506 (21) 94,485 94,506

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico 373 373 0 373 373

Non-Treasury offsetting receipts included in Treasury chapter 

of PB 0 0 (35) (35) 0

Treasury offsetting receipts considered to be “General Fund” 

transactions for reporting purposes (2) 0 0 (214) (214) 0

Continued dumping subsidy – CBP 396 265 0 265 265

Other 2 (2) 0 (2) 0

Subtotal 95,276 95,142 (270) 94,872 95,144

Included in the SBR but not in the Treasury Department 

chapter of the PB:

Treasury resources shown in non-Treasury chapters of the PB, 

included in SBR (3) (29,532) (3,359) 0 (3,359) (3,018)

Offsetting collections net of collections shown in PB (8,246) 0 (640) (640) 0

Treasury offsetting receipts shown in other chapters of PB, part 

of which is in SBR 0 0 147 147 0

Unobligated balance carried forward, recoveries of prior year 

funds and expired accounts (1,332) 0 0 0 (19)

Exchange Stabilization Fund resources not shown in PB (4) (30,576) 0 0 0 (247)

Treasury Financing Accounts (CDFI and ATSB) (34,312) (5,074) 0 (5,074) (5,415)

IRS user fees and 50% Transfer Accounts and Capital Transfers 

to General Fund not included in PB 4,798 0 0 0 0

Other 5 (1) 0 (1) (3)

Subtotal (99,195) (8,434) (493) (8,927) (8,702)

Trust Fund – Comptroller of the Currency (OCC) (81) 81 0 81 0

President’s Budget Amounts* $ 768,164 $ 565,868 $ (16,974) $ 548,894 $ 573,976

1. These are primarily Earned Income Tax Credit and Child Tax Credit payments that are reported with refunds as custodial activities in Treasury’s financial 

statements and thus are not reported as budgetary resources.

2. These are receipt accounts that Treasury manages on behalf of other agencies and considered to be “General Fund” receipts rather than receipts of the 

Treasury Department reporting entity.

3. The largest of these resources relate to Treasury’s International Assistance Programs.

4. Exchange Stabilization Fund (ESF) is a self-sustaining component that finances its operations with the buying and selling of foreign currencies to regulate the 

fluctuations of the dollar. Because of the nature of the activities of the component, it does not receive appropriations, and therefore is excluded from the PB.

 * Per President’s Budget for fiscal year 2010 – Budgetary Resources and Outlays are from the Analytical Perspective. Offsetting Receipts and Obligations 

Incurred are from the Appendix.
PART 2 • ANNUAL FINANCIAL REPORT

Note 25. Addiona Inform

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 fund symbols are available in the next fiscal year for new obligations 

unless some restrictions had 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 fund symbols are not available for new obligations, but may be used to adjust obligations and 

make disbursements that were recorded before the budgetary authority expired or to meet a bona fide need that 

arose in the fiscal year for which the appropriation was made.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

182 Note 26.Colec

26. COLLECTION AND DISPOSITION OF CUSTODIAL REVENUE 

The Treasury Department collects the majority of federal revenue from income and excise taxes. Collection activity, by revenue type and tax year, was as follows for the years ended September 30, 2009 and September 30, 2008 

(in millions): 

 

 

 

 

Tax Year

2009

Individual Income and FICA Taxes

2009 2008 2007 Pre-2007 Collections

$ 1,296,427 $ 702,557 $ 22,250 $ 15,323 $ 2,036,557

Corporate Income Taxes 138,144 69,016 1,692 16,630 225,482

Estate and Gift Taxes 92 3,979 796 19,810 24,677

Excise Taxes 54,502 12,512 102 132 67,248

Railroad Retirement Taxes 3,559 1,148 3 1 4,711

Unemployment Taxes 4,772 1,859 36 98 6,765

Federal Reserve Banks Earnings 24,552 9,766 0 0 34,318

Beneficial Interest in AIG Trust 23,472 0 0 0 23,472

Fines, Penalties, Interest, and Other Revenue 1,892 37 0 0 1,929

Subtotal $ 1,547,412 $ 800,874 $ 24,879 $ 51,994 $ 2,425,159

Less Amounts Collected for Non-federal Entities (487)

Total $ 2,424,672

Tax Year

2008

Individual Income and FICA Taxes

2008 2007 2006 Pre-2006 Collections

$ 1,455,017 $ 799,244 $ 23,498 $ 16,567 $ 2,294,326

Corporate Income Taxes 222,000 113,949 2,010 16,104 354,063

Estate and Gift Taxes 23 19,248 1,266 9,287 29,824

Excise Taxes 48,106 17,909 119 159 66,293

Railroad Retirement Taxes 3,769 1,164 1 5 4,939

Unemployment Taxes 5,146 2,026 42 117 7,331

Federal Reserve Banks Earnings 25,879 7,719 0 0 33,598

Fines, Penalties, Interest, and Other Revenue 1,936 297 0 0 2,233

Subtotal $ 1,761,876 $ 961,556 $ 26,936 $ 42,239 $ 2,792,607

Less Amounts Collected for Non-federal Entities

Total

(407)

$ 2,792,200

Amounts reported for Corporate Income Taxes collected in fiscal year 2009 include corporate taxes of $9 billion 

for tax year 2010 (similarly, amounts reported for Corporate Income Taxes collected in fiscal year 2008 include 

corporate taxes of $10 billion for tax year 2009). Individual Income and FICA Taxes includes $83 billion in 

payroll taxes collected from other federal agencies ($79 billion in fiscal year 2008). 
PART 2 • ANNUAL FINANCIAL REPORT

Note 26.Colection

Amounts Provided to Fund the Federal Government

For the years ended September 30, 2009 and September 30, 2008, collections of custodial revenue transferred to other entities 

were as follows (in millions):

2009 2008

Department of the Interior $ 487 $ 407

General Fund 1,963,228 2,366,126

Total $ 1,963,715 $ 2,366,533

Federal Tax Refunds Paid

Refund activity, broken out by revenue type and by tax year, was as follows for the years ended September 30, 

2009 and September 30, 2008 (in millions):

Tax Year

2009 2008 2007 Pre-2007 2009 Refunds

Individual Income and FICA Taxes $ 1,075 $ 293,971 $ 30,361 $ 14,222 $ 339,629

Corporate Income Taxes 6,626 32,646 17,370 38,558 95,200

Estate and Gift Taxes 0 324 566 358 1,248

Excise Taxes 535 541 81 626 1,783

Railroad Retirement Taxes 0 2 0 1 3

Unemployment Taxes 1 66 13 29 109

Total $ 8,237 $ 327,550 $ 48,391 $ 53,794 $ 437,972

 Tax Year

2008 2007 2006 Pre-2006

2008

Refunds

Individual Income and FICA Taxes $ 935 $ 342,216 $ 19,217 $ 6,980 $ 369,348

Corporate Income Taxes 2,206 19,610 10,446 22,078 54,340

Estate and Gift Taxes 0 343 428 251 1,022

Excise Taxes 439 497 107 208 1,251

Railroad Retirement Taxes 0 1 1 (9) (7)

Unemployment Taxes 1 65 14 39 119

Fines, Penalties, Interest, and Other Revenue 1 0 0 0 1

Total $ 3,582 $ 362,732 $ 30,213 $ 29,547 $ 426,074

Federal Tax Refunds Payable

As of September 30, 2009 and September 30, 2008, refunds payable to taxpayers consisted of the following (in 

millions):

2009 2008

Alcohol, Tobacco Tax and Trade Bureau $ 9 $ 12

Internal Revenue Service 4,031 3,064

Total $ 4,040 $ 3,076 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

184 Note 27. 

27. EARMARKED FUNDS

Earmarked funds are financed by specifically identified revenues, often supplemented by other financing sources, 

which remain available over time. These specifically identified revenues and other financing sources are required 

by statute to be used for designated activities or purposes. SFFAS No. 27, Identifying and Reporting Earmarked Funds, issued 

by the FASAB defines the following three criteria for determining an earmarked fund: 1) A statute committing 

the Federal Government to use specifically identified revenues and other financing sources only for designated 

activities, benefits or purposes; 2) Explicit authority for the earmarked fund to retain revenues and other financing 

sources not used in the current period for future use to finance the designated activities, benefits, or purposes; and 

3) A requirement to account for and report on the receipt, use, and retention of the revenues and other financing 

sources that distinguishes the earmarked fund from the government’s general revenues.

The majority of Treasury Department’s earmarked fund activities are attributed to the ESF and the pension and 

retirement funds managed by the Office of DCP. In addition, several Treasury bureaus operate with “public 

enterprise revolving funds” and receive no appropriations from the Congress. These bureaus are BEP, U.S. Mint, 

OCC, and OTS. Other miscellaneous earmarked funds are managed by BPD, DO, FMS, IRS, and TFF.

The following is a list of earmarked funds and a brief description of the purpose, accounting, and uses of these 

funds. 

Exchange Stabilization Fund (ESF)

ESF 20X4274 ESF Money Market Guaranty Facility

ESF 20X4444 Exchange Stabilization Fund

D.C. Pensions

DCP 20X1713 Federal payment – D.C. Judicial Retirement

DCP 20X1714 Federal payment – D.C. Federal Pension Fund

DCP 20X5511 D.C. Federal Pension Fund

DCP 20X8212 D.C. Judicial Retirement and Survivor’s Annuity Fund

Public Enterprise Revolving Funds

BEP 20X4502 Bureau of Engraving and Printing Fund

MNT 20X4159 Public Enterprise Revolving Fund

OCC 20X8413 Assessment Funds

OTS 20X4108 Public Enterprise Revolving Fund

IRS 20X4413 Federal Tax Lien Revolving Fund

Other Earmarked Funds

BPD 20X5080 Gifts to Reduce Public Debt

DO 20X5407 Sallie Mae Assessments

DO 20X5816 Confiscated and Vested Iraqi Property and Assets

DO 20X8790 Gifts and Bequests Trust Fund

FMD 205445 Debt Collection

FMD 20X5081 Presidential Election Campaign

FMD 20X8902 Esther Cattell Schmitt Gift Fund
PART 2 • ANNUAL FINANCIAL REPORT

Note 27. Earm

FMS 203/45445 Debt Collection Special Fund

FMS 204/55445 Debt Collection Special Fund

FMS 205/65445 Debt Collection Special Fund

FMS 206/75445 Debt Collection Special Fund

FMS 207/85445 Debt Collection Special Fund

FMS 208/95445 Debt Collection Special Fund

FMS

IRS

209/05445

20X5510

Debt Collection Special Fund

Private Collection Agent Program

IRR 20x5433 Informant Reimbursement

TFF 20X5697 Treasury Forfeiture Fund

The ESF uses funds to purchase or sell foreign currencies, to hold U.S. foreign exchange and SDR assets, and 

to provide financing to foreign governments. ESF accounts and reports its holdings to FMS on the SF224, 

“Statement of Transactions,” as well as to the Congress and Treasury Department’s policy office. The Gold Reserve 

Act of 1934, Bretton Woods Agreement Act of 1945, P.L. 95-147 and P.L. 94-564 established and authorized the 

use of the Fund. SDR in the IMF, Investments in U.S. Securities (BPD), and Investments in Foreign Currency 

Denominated Assets are the sources of revenues or other financing sources. ESF’s earnings and realized gains on 

foreign currency denominated assets represent inflows of resources to the government, and the revenues earned 

are the result of intra-governmental inflows. 

D.C. Pension Funds provide annuity payments for retired D.C. teachers, police officers, judges, and firefighters. 

The sources of revenues are through annual appropriations, employees’ contributions, and interest earnings from 

investments. All proceeds are earmarked. Note 21 provides detailed information on various funds managed by 

the Office of DCP.

Treasury Department’s four non-appropriated bureaus, BEP, Mint, OCC, and OTS, operate “public enterprise 

funds” that account for the revenue and expenses related to the production and sale of numismatic products and 

circulating bureaus coinage (Mint), the currency printing activities (BEP), and support of oversight functions of 

banking (OCC) and thrift operations (OTS). 31 USC § 5142 established the revolving fund for BEP to account 

for revenue and expenses related to the currency printing activities. Public Law 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 coins, and the sale of circulating coins to the Federal Reserve 

Bank system. 12 USC § 481 established the Assessment Funds for OCC, and 103 Stat. 278 established the Public 

Enterprise Revolving Fund for OTS. Revenue and financing sources are from the bank examination and assessments for the oversight of the national banks, savings associations, and savings and loan holding companies. These 

earmarked funds do not directly contribute to the inflows of resources to the government; however, revenues in 

excess of costs are returned to the General Fund of the U.S. Government. There are minimal transactions with 

other government agencies. 

There are other earmarked funds at several Treasury bureaus, such as donations to the Presidential Election 

Campaign Fund, funds related to the debt collection program, gifts to reduce the public debt, and other enforcement related activities. Public laws, statutory laws, U.S. Code, and the Debt Collection Improvement Act estab-
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

186 Note 27. 

lished 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 debt collection. 

INTRA-GOVERNMENTAL INVESTMENTS IN TREASURY SECURITIES

The Federal Government does not set aside assets to pay future benefits or other expenditures associated with 

earmarked funds. Treasury Department bureaus and other federal agencies invest some of the earmarked funds 

that they collect from the public. The funds are invested in securities issued by Treasury Department’s Bureau of 

the Public Debt (BPD). The cash collected by BPD is deposited in the General Fund of the U.S. Government, 

which uses the cash for general government purposes. 

The investments provide Treasury Department bureaus and other federal agencies with authority to draw upon 

the General Fund of the U.S. Government to make future benefit payments or other expenditures. When the 

Treasury Department bureaus or other federal agencies require redemption of these securities to make expenditures, the government finances those expenditures out of accumulated cash balances, by raising taxes or other 

receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same 

way that the government finances all other expenditures. 

The securities are an asset to the Treasury Department bureaus and other federal agencies and a liability of the 

BPD. The General Fund of the U.S. Government is liable to BPD. Because the Treasury Department 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.

The balances related to the investments made by the Treasury Department bureaus are not displayed on the 

Treasury Department’s financial statements because the bureaus are subcomponents of the Treasury Department. 

However, the General Fund of the U.S. Government remains liable to BPD for the invested balances and BPD 

remains liable to the investing Treasury Department bureaus (see Note 4). 
PART 2 • ANNUAL FINANCIAL REPORT

Note 27. Earm

Summary Information for Earmarked Funds as of and for the Year ended 

September 30, 2009 (in millions):

Exchange 

Stabilization 

Fund

D.C. 

Pensions

Public 

Enterprise 

Revolving 

Funds

Other 

Earmarked 

Funds

Combined 

Earmarked 

Funds Eliminations*

9/30/2009 

Totals

Balance Sheet

ASSETS:

Fund Balance $ 0 $ 0 $ 573 $ 312 $ 885 $ 0 $ 885

Investments/Related Interest (Intragovernmental) 19,816 3,866 1,346 707 25,735 25,735 0

Cash, Foreign Currency/Other Monetary 

Assets 71,662 0 0 18 71,680 0 71,680

Investments and Related Interest 13,537 0 0 0 13,537 0 13,537

Other Assets 0 13 1,207 104 1,324 10 1,314

Total Assets $ 105,015 $ 3, 879 $ 3,126 $ 1,141 $ 113,161 $ 25,745 $ 87,416

LIABILITIES:

Intra-governmental Liabilities 0 0 37 194 231 28 203

Certificates Issued to Federal Reserve 

Banks 5,200 0 0 0 5,200 0 5,200

Allocation of Special Drawing Rights 55,953 0 0 0 55,953 0 55,953

Other Liabilities 16 9,104 623 181 9,924 0 9,924

Total Liabilities 61,169 9,104 660 375 71,308 28 71,280

NET POSITION:

Unexpended Appropriations 200 0 0 0 200 0 200

Cumulative Results of Operations 43,646 (5,225) 2,466 766 41,653 0 41,653

Total Liabilities and Net Position $ 105,015 $ 3,879 $ 3,126 $ 1,141 $ 113,161 $ 28 $ 113,133

Statement of Net Cost 

Gross Cost $ 1,117 $ 785 $ 3,899 $ 214 $ 6,015 $ 60 $5,955

Less Earned Revenue (4,951) (134) (3,981) 0 (9,066) (187) (8,879)

Total Net Cost of Operations $ (3,834) $ 651 $ (82) $ 214 $ (3,051) $ (127) $ (2,924)

Cumulative Results of Operations

Beginning Balance, as adjusted $ 39,618 $ (4,982) $ 2,350 $ 575 $ 37,561 $ 0 $ 37,561

Budgetary Financing Sources 194 408 0 345 947 1 946

Other Financing Sources 0 0 34 60 94 (27) 121

Total Financing Sources 194 408 34 405 1,041 (26) 1,067

Net Cost of Operations 3,834 (651) 82 (214) 3,051 127 2,924

Net Change 4,028 (243) 116 191 4,092 101 3,991

Total Cumulative Results 

of Operations $ 43,646 $ (5,225) $ 2,466 $ 766 $ 41,653 $ 101 $ 41,552

* The eliminations reported above include both inter and intra eliminations for the Earmarked Funds. The total eliminations amount will not agree with the 

eliminations reported in the Statement of Changes in Net Position, which include eliminations for Other Funds.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

188 Note 27. 

Summary Information for Earmarked Funds as of and for the Year ended 

September 30, 2008 (in millions):

Exchange 

Stabilization 

Fund

 D.C. 

Pensions

Public 

Enterprise 

Revolving 

Funds

Other 

Earmarked 

Funds

Combined 

Earmarked 

Funds Eliminations*

9/30/2008 

Totals

Balance Sheet

ASSETS:

Fund Balance $ 33 $ 0 $ 459 $ 228 $ 720 $ 0 $ 720

Investments/Related Interest Intragovernmental 16,847 3,859 1,251 592 22,549 22,549 0

Cash, Foreign Currency/Other Monetary 

Assets 22,221 0 0 16 22,237 0 22,237

Investments and Related Interest 10,543 0 0 0 10,543 0 10,543

Other Assets 298 16 1,292 133 1,739 9 1,730

Total Assets $ 49,942 $ 3,875 $ 3,002 $ 69 $ 57,788 $ 22,558 $ 35,230

LIABILITIES:

Intra-governmental Liabilities $ 0 $ 0 $ 37 $ 150 $ 187 $ 29 $ 158

Certificates Issued to Federal Reserve 2,200 0 0 0 2,200 0 2,200

Allocation of Special Drawing Rights 7,630 0 0 0 7,630 0 7,630

Other Liabilities 330 8,856 617 182 9,985 0 9,985

Total Liabilities $ 10,160 $ 8,856 $ 654 $ 332 $ 20,002 $ 29 $ 19,973

NET POSITION:

Unexpended Appropriations $ 200 $ 0 $ 0 $ 0 $ 200 $ 0 $ 200

Cumulative Results of Operations 39,582 (4,981) 2,348 637 37,586 0 37,586

Total Liabilities and Net Position $ 49,942 $ 3,875 $ 3,002 $ 969 $ 57,788 $ 29 $ 57,759

Statement of Net Cost 

Gross Cost $ 250 $ 339 $ 3,496 $ 337 $ 4,422 $ 62 $ 4,360

Less Earned Revenue (1,986) (152) (3,593) (6) (5,737) (650) (5,087)

Total Net Cost of Operations $ (1,736) $ 187 $ (97) $ 331 $ (1,315) $ (588) $ (727)

Cumulative Results of Operations

Beginning Balance $ 37,846 $ (5,141) $ 2,206 $ 474 $ 35,385 $ 0 $ 35,385

Budgetary Financing Sources 0 347 0 442 789 23 766

Other Financing Sources 0 0 45 52 97 (31) 128

Total Financing Sources 0 347 45 494 886 (8) 894

Net Cost of Operations 1,736 (187) 97 (331) 1,315 588 727

Net Change 1,736 160 142 163 2,201 580 1,621

Total Cumulative Results 

of Operations $ 39,582 $ (4,981) $ 2,348 $ 637 $ 37,586 $ 580 $ 37,006

* The eliminations reported above include both inter and intra eliminations for the Earmarked Funds. The total eliminations amount will not agree with the 

eliminations reported in the Statement of Changes in Net Position, which include eliminations for Other Funds.
PART 2 • ANNUAL FINANCIAL REPORT

Note 28.Recociiatio

28. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET

The Reconciliation of Net Cost of Operations to Budget explains the difference between the budgetary net 

obligations and the proprietary net cost of operations. For fiscal years 2009 and 2008, OMB did not prescribe 

a format for this reconciliation in OMB Circular No. A-136, Financial Reporting Requirements, as amended, so 

that preparers might develop a more robust presentation tailored to their agency. As of September 30, 2009 and 

September 30, 2008, the Reconciliation of Net Cost of Operations to Budget consisted of the following 

(in millions):

2009 2008

RESOURCES USED TO FINANCE ACTIVITIES:

Budgetary Resources Obligated:

Obligations Incurred $ 1,387,195 $ 487,534

Less: Spending Authority from Offsetting Collections and Recoveries (321,262) (9,401)

Obligations Net of Offsetting Collections and Recoveries 1,065,933 478,133

Less: Offsetting Receipts (44,614) (16,211)

Net Obligations $ 1,021,319 $ 461,922

Other Resources:

Donations and Forfeiture of Property 127 112

Financing Sources for Accrued and Discount on the Debt 6,027 (3,870)

Transfers In/Out Without Reimbursement (36) (21)

Imputed Financing from Cost Absorbed by Others 793 729

Transfers to the General Fund and Other (Note 23) (217,704) (20,788)

Net Other Resources Used to Finance Activities (210,793) (23,838)

Total Resources Used to Finance Activities (Note 1 AC) $ 810,526 $ 438,084

RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF OPERATIONS: 

Change in Budgetary Resources Obligated for Goods, Services, and Benefits Ordered but not yet Provided $ 49,063 $ 1,229

Credit Program Collections that Increase Liabilities for Loans Guarantees or Allowances for Subsidy (6) (5)

Adjustment to Accrued Interest and Discount on the Debt 8,687 (6,731)

Other (primarily resources that finance the acquisition of assets or liquidation of liabilities) 320,755 (10,745)

Total Resources Used to Finance Items Not Part of the Net Cost of Operations 378,499 (16,252)

Total Resources Used to Finance the Net Cost of Operations (Note 1 AC) $ 432,027 $ 454,336

Total Components of Net Cost of Operations that will Require 

or Generate Resources in Future Periods (Note 1 AC) 87,673 13,814

Total Components of Net Cost of Operations that will not Require or Generate Resources 3,232 1,201

Total Components of Net Cost of Operations that will not Require or Generate Resources in the 

Current Period (Note 1 AC) 90,905 15,015

Net Cost of Operations $ 522,932 $ 469,351
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

190 Note 29. Fnan

29. FINANCIAL STABILITY AND STIMULUS ACTIVITIES

GOVERNMENT SPONSORED ENTERPRISES (GSEs)

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation 

(Freddie Mac) are stockholder-owned GSEs. Congress established these GSEs to increase the supply of mortgage 

loans and to reduce the accompanying costs. A key responsibility is to package purchased mortgages into securities. These securities are subsequently sold to investors. Proceeds from sales are used to buy additional mortgages 

and keep money flowing through the mortgage markets.

Increasingly difficult conditions in the housing market challenged the soundness and profitability of GSEs, 

thereby undermining the entire housing market. This led Congress to pass the Housing and Economic Recovery 

Act of 2008 in July 2008 (HERA). This Act created the new Federal Housing Finance Agency (FHFA), with 

enhanced regulatory authority over the GSEs, and provided the Secretary of the Treasury with certain authorities 

intended to ensure the financial stability of the GSE, if necessary.

Due to deteriorating conditions in the housing mortgage markets and the resulting negative financial impact 

on the GSEs, they were placed under FHFA conservatorship on September 7, 2008. This action was taken to 

preserve GSE assets, ensure a sound and solvent financial condition, and mitigate systemic risks that contributed 

to current market instability. The FHFA director will terminate the conservatorship once safe and solvent conditions are established. 

Pursuant to the authorities provided to the Secretary under the HERA, the Treasury Department, also on 

September 7, 2008, took three additional steps to help ensure the liquidity of the GSEs. This included: 

Senior Preferred Stock Purchase Agreements (Note 9)

The Secretary of the Treasury entered into a Senior Preferred Stock Purchase Agreements (SPSPA) with 

Fannie Mae and Freddie Mac to provide substantial financial support to the enterprises; thereby minimizing potential systemic financial risks associated with the deteriorating financial condition of Fannie Mae 

and Freddie Mac. The agreement provides for the Treasury Department to increase its investment in the 

senior preferred stock of the GSEs if at the end of any quarter the FHFA, acting as the conservator, determines that the liabilities of either GSE, individually, exceed its respective assets. The gross amount available 

for this purpose is $200 billion per GSE and these preferred stock agreements have no expiration date. 

GSE Credit Facility (Note 12) 

The Government Sponsored Enterprise Credit Facility (GSECF) was established to ensure credit availability to the GSEs and the Federal Home Loan Banks. This lending facility will provide secured funding on an 

as needed basis under terms and conditions established by the Secretary to protect taxpayers. The GSEs and 

the Federal Home Loan Banks are eligible to borrow under this program. The GSECF provides liquidity, if 

needed, until December 31, 2009.

Funding will be provided directly by the Treasury Department from its account held at the Federal Reserve 

Bank of New York (FRBNY) in exchange for eligible collateral from the GSE which will be limited to guaranteed MBS issued by the GSE as well as advances made by the Federal Home Loan Banks. Loan requests 

will require approval from the Treasury Department and verification by the FRBNY that adequate collateral 
PART 2 • ANNUAL FINANCIAL REPORT

Note 29. Fnancial

has been pledged. Loans made through the GSECF are subject to the federal debt limit. Loans will be for 

short-term durations and are in general expected to be for less than one month but no shorter than one 

week. Loans will not be made with a maturity date beyond December 31, 2009. The rate on a loan request 

ordinarily will be based on the daily London Interbank Borrowing Rate (LIBOR) for a similar term loan 

plus 50 basis points. The rate is set at the discretion of the Secretary with the objective of protecting the 

taxpayer, and is subject to change. There is no stated limitation on loans provided through the GSECF. 

However, loans are limited to the amounts of available collateral. There were no loans made through the 

GSECF in fiscal year 2008 or 2009.

GSE Mortgage-Backed Securities (MBS) Purchase Program (Note 12)

Under this program, the Treasury Department, via Asset Managers, purchases GSE MBS in the open 

market. The Asset Managers are also authorized to enter into other trade/sell transactions such as Pair 

Offs, Turns, Assignments, and Dollar Rolls. By purchasing these credit-guaranteed securities, the Treasury 

Department seeks to broaden access to mortgage funding for current and prospective homeowners and 

to promote stability in the mortgage market. The size and timing of the MBS purchases is subject to the 

discretion of the Secretary. The scale of the program will be based on developments in the capital and 

housing markets. As these securities are backed by individual mortgages, they are accounted for under the 

Federal Credit Reform Act of 1990. 

The actions taken by the Department thus far are temporary, as defined by section 1117 of HERA, and are 

intended to provide financial stability until Fannie Mae and Freddie Mac can return to normal operations or until 

the Administration and Congress address how they should be structured going forward. As of September 30, 

2009, there are no plans to bring these organizations into the government; rather, the purpose of these financial 

arrangements 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 deliberate what, if any, structural changes should be 

made.

TEMPORARY GUARANTEE PROGRAM MONEY MARKET FUNDS 

In September 2008, the Treasury Department established a Temporary Guarantee Program (Program) for Money 

Market Funds. Under this Program the Treasury Department guaranteed to investors that they would receive the 

stable share price (SSP) for shares held in participating money market funds up to the number of shares held as 

of the close of business on September 19, 2008. To participate in the Program, eligible money market funds had 

to submit an application and pay a premium of 1 basis point if the fund’s net asset value (NAV) is greater than or 

equal to 99.75 percent of the SSP, or 1.5 basis points of the SSP if the fund’s NAV is less than 99.75 percent of 

the SSP but greater than or equal to 99.50 percent of the SSP. 

Under this program, any outlays would have been paid out initially from the ESF, and then under the provisions 

of Section 131 of the Emergency Economic Stabilization Act of 2008. Such outlays would then be reimbursed 

from funds available under the Troubled Asset Relief Program. The temporary guarantee program was extended 

and continued to provide coverage through September 19, 2009 to shareholders up to amounts that they held 

in participating money market funds as of the close of business on September 19, 2008. As of September 30, 

2009, the program had expired. Treasury did not receive any claims for payment. As of September 30, 2009, the 

Treasury Department had collected a total of approximately $1.2 billion in program participation payments. All 

participant payments are invested into U.S. Government securities. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

192 Note 29. Fnan

HOME OWNERSHIP PRESERVATION ENTITY (HOPE BOND)

The Home Ownership Preservation Entity (HOPE) Fund for Homeowners Act of 2008, of the Housing and Recovery 

Act of 2008, authorizes the Secretary of the Treasury to issue HOPE bonds without any limitations as to the purchaser of the issuance. Due to the cost of issuing special purpose bonds to the public, the Secretary of the Treasury 

has decided to issue the HOPE bonds to the Federal Financing Bank (FFB). The total outstanding HOPE bonds 

may not exceed $300,000 million. The FFB’s purchase of HOPE bonds issued by the Secretary is consistent with 

the core mission of the FFB. FFB purchased $462.5 million in bonds at par value in fiscal year 2009 and one 

bond at par value of $29.5 million in fiscal year 2008, with floating interest rate to be reset quarterly. The interest 

rate is 0.183 percent and 1.6 percent as of September 30, 2009 and September 30, 2008, respectively. The bonds 

have 30 year maturity dates starting on August 27, 2038 and ending on July 15, 2039. The HOPE bonds are 

reported as investments held-to-maturity and the related interest receivable is reported as accrued interest receivable in FFB's stand-alone financial statements. The HOPE bond transactions are subsequently eliminated at the 

Departmental level.

TROUBLED ASSET RELIEF PROGRAM (TARP)

The Emergency Economic Stabilization Act of 2008 (EESA) established the Troubled Asset Relief Program (TARP) 

on October 3, 2008 to be administered by the Treasury Department and established the Office of Financial 

Stability within the Department’s Office of Domestic Finance. The Act gave the Treasury Secretary broad and flexible authority to purchase and insure mortgages and other troubled assets, as well as to inject capital into banks 

and other commercial companies by taking equity positions in those entities, if needed, to stabilize the financial 

markets or an industry. The TARP is intended to promote market stability and protect the U.S. economy by 

authorizing Treasury Department to purchase and guarantee troubled mortgage-related assets and other financial 

assets. EESA also provides for the purchase of any other financial instruments that the Secretary determines, after 

consultation with the Federal Reserve Banks’ Board Chairman, is necessary in order to promote financial market 

stability.

The EESA established certain criteria under which the TARP would operate, including provisions that impact the 

budgeting, accounting, and reporting of troubled assets acquired under the Act. Section 101(a) of the EESA provided the authority for the Secretary to purchase troubled assets, and Section 101(a)(3) of the EESA established 

the Office of Financial Stability (OFS) to implement the TARP. Section 102 of the EESA required the Secretary 

to establish a program to guarantee troubled assets originated or issued prior to March 14, 2008, including 

mortgage-backed securities. Section 115 of the EESA limits the authority of the Secretary to purchase troubled 

assets to $700 billion10 outstanding at any one time, calculated at the aggregate purchase prices of all troubled 

assets held. There was approximately $291 billion outstanding (the amount on the original investment that is due 

to be repaid to Treasury) against the Section 115 authority as of September 30, 2009. Section 120 of the EESA 

established that the authorities under Sections 101(a), excluding Section 101(a)(3) and Section 102 of the EESA 

shall terminate on December 31, 2009. Section 120 of the EESA further establishes that the Secretary, upon 

submission of a written certification to Congress, may extend the authority provided under the Act to expire no 

later than 2 years from the date of the enactment of the Act (October 3, 2008).

10 The Helping Families Save Their Homes Act of 2009 (PubL.No. 111-22, Div. A, 123 Stat., 1632 (2009), amended the act to reduce the 

maximum allowable amount of outstanding troubled assets under the act by approximately $1.3 billion, from $700.0 billion to $698.7 

billion.
PART 2 • ANNUAL FINANCIAL REPORT

Note 29. Fnancial

TARP has engaged in purchases of equity including preferred stock and common stock Warrants from financial 

institutions and insurance companies. In addition, the TARP has established a guarantee program for financial 

institutions. TARP has made direct loans as well as equity investments in preferred stock to support the automotive industry and to unfreeze secondary credit markets. TARP funds are being used to help families stay in their 

homes. TARP also has funded an initiative to address the challenge of legacy assets in the financial marketplace. 

Details concerning the specific TARP programs is provided in Notes 8 and 12.

Subsidy Reestimates

The purpose of reestimates is to update original program subsidy estimates to reflect actual cash flow experience 

as well as changes in forecasts of future cash flows. Forecasts of future cash flows are updated based on actual 

program performance to date, additional publicly available relevant historical market data on securities performance, revised expectations for future economic conditions, and enhancements to cash flow projection methods. 

Financial statement reestimates for all programs were performed using actual financial transaction data through 

September 30, 2009. In accordance with credit reform guidance and to ensure the timely completion of the credit 

reform reestimate process, market and security specific data publicly available as of September 30, 2009, was used 

for the CPP, AGP, TIP, and direct loan AIFP, and data through August 31, 2009 was used for the equity portion 

of AIFP, AIG, and TALF in the reestimate calculations. Treasury assessed the key inputs of the reestimates using 

data publicly available as of September 30, 2009, and in its determination, there were no significant changes to 

the key inputs for the three programs for which August 31, 2009 data was used that would require a revision to 

the reestimates.

Downward reestimates for the fiscal year ended September 30, 2009, are as follows:

Program

Downward Reestimate Amounts

(in millions)

Subsidy Interest Total

AGP $ (1,097) $ (77) $ (1,174)

Direct Loan

AIFP $ (9,039) $ (1,571) $ (10,610)

CBLI/TALF (222) (21) (243)

Subtotal Direct $ (9,261) $ (1,592) $ (10,853)

Equity Investment

CPP $ (68,558) $ (3,861) $ (72,419)

TIP (20,366) (1,101) (21,467)

AIG (845) (280) (1,125)

AIIP (2,331) (379) (2,710)

Subtotal Equity $ (92,100) $ (5,621) $ (97,721)

Total $ (102,458) $ (7,290) $ (109,748)

Descriptions of the reestimates, by TARP Program, are as follows:

All of the approximately $1,174 million in downward reestimates for the AGP is due to improvements in market 

conditions from when the guarantee was committed in January 2009. The improved market conditions resulted 

in an increase in the projected AGP asset due to the net present value of the estimated cash inflows from the 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

194 Note 29. Fnan

preferred stock and warrants received by Treasury from Citigroup as a premium being greater than the estimated 

value of future claim payments associated with the $5,000 million guarantee.

All of the approximately $10,610 million in downward reestimates for the Automotive Industry Direct Loan 

Financing Programs (AIDLFP) direct loans is the result of the post bankruptcy improved financial position of one 

of the major companies participating in the program. The $243 million in downward reestimates for the TALF is 

entirely due to projected improved performance of the securities within the program versus the original estimate.

The approximately $70,718 million in repurchases during fiscal year 2009 accounts for approximately $9,700 

million of the $72,419 million in downward reestimates in the CPP. Projected repurchases of approximately 

$30,000 million in the next 12 months accounts for approximately $5,410 million, with the $57,309 million 

balance in downward reestimates in the CPP due to improved market conditions from when the original estimate 

was made in December 2008.

The $21,467 million in downward reestimates in the Targeted Investment Program (TIP) is mostly due to 

improved market conditions from when the original estimates were made in December 2008 and January 2009. 

Approximately $2,300 million is due to a $20,000 million repurchase forecast within 12 months following 

September 30, 2009.

All of the $1,125 million in downward reestimates for the AIG Investment Program and $2,710 million in 

downward reestimates for the AIIP equity programs are due to improvements in market conditions from when 

the equities were purchased resulting in a reduction in the projected costs of the programs.

AMERICAN INTERNATIONAL GROUP (AIG)

As described in Note 8, in fiscal year 2009, the Department ultimately invested $42 billion in Series E perpetual, 

non-cumulative 10% preferred shares of AIG through the Systemically Significant Failing Institutions Program. 

And, to further assist the stability and restructuring of AIG, the Treasury Department agreed to make an additional $29 billion available to AIG under the Treasury credit facility. In return, the Department received $29 

billion of AIG series F perpetual, non-cumulative 10% preferred stock (300,000 shares) and a warrant to purchase 3,000 shares of AIG common stock. The initial liquidation preference of the Series F preferred shares is zero 

and increases pro rata by the amount of each drawdown by AIG. As of September 30, 2009, AIG had drawn $1.1 

billion through the credit facility, leaving an outstanding commitment to AIG at September 30 of $27.9 billion.

Under the initial terms of the credit facility agreement with AIG and the Federal Reserve Bank of New York 

(FRBNY), a 77.9% equity interest in AIG (in the form of Series C Convertible Participating Serial Preferred 

Stock convertible into approximately 77.9% of the issued and outstanding shares of common stock) was issued 

to a trust established by the FRBNY. Subsequent to the initial agreement, a reverse stock split of AIG’s common 

stock increased this to 79.8%. The U.S. Government is the sole beneficiary of that trust, so that when the stock 

is ultimately liquidated the proceeds will be deposited into the General Fund of the U.S. Government. The U.S. 

Government will be the ultimate recipient of any dividends on the stock and any proceeds from the liquidation 

of the stock. The accounting and reporting for any activities related to the government’s beneficial interest in the 

stock held by the trust will be done by the Treasury Department. The trustees of the trust are independent of both 

the Department and the FRBNY, and are not involved in day-to-day management of AIG. 
PART 2 • ANNUAL FINANCIAL REPORT

Note 29. Fnancial

As the U.S. Government is the sole beneficiary of the trust, and as it is anticipated that the U.S. Government 

will ultimately realize an economic benefit from its beneficial interest in the trust, the Treasury Department has 

recorded a non-entity asset of $23,472 million as of September 30, 2009, and corresponding custodial revenue 

for the same amount. The value recorded is based on the market value of the trust’s AIG holdings at September 

30, 2009; as the underlying AIG common stock is actively traded on the New York Stock Exchange, this represents the best independent valuation available for the government’s beneficial interest. The U.S. Government’s 

proceeds will be received when AIG’s credit line with the FRBNY is terminated, AIG has redeemed the preferred 

stock owned by the Treasury Department through TARP, and the trustees sell the stock held by the trust. The 

Treasury Department will re-value its beneficial interest in the trust each year until the trust is liquidated. Like 

any asset, future events may increase or decrease the value of the U.S. Government’s interest in the trust. The 

amount ultimately realized by the U.S. Government upon liquidation of the trust is inherently subject to substantial uncertainty regarding future economic events that could affect the future value of AIG common stock.

The Department’s participation in enhancing AIG’s capital and liquidity in order to facilitate an orderly restructuring of the company are in addition to the FRBNY activities in this regard.

THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 

(RECOVERY ACT) 

President Obama signed the Recovery Act into law on February 17, 2009. The Recovery Act is an extraordinary 

response to a crisis unlike any since the Great Depression, and includes measures to modernize the nation's 

infrastructure, enhance energy independence, expand educational opportunities, preserve and improve affordable 

health care, provide tax relief, and protect those in greatest need.

The Department of the Treasury has various responsibilities related to Recovery Act programs, including the implementation of some sixty tax incentives for households and businesses; local and state government support; and 

investments in renewable energy, low income housing, and health care. Treasury has taken a risk-based approach 

and focused on balancing the requirements of speed, quality, and accountability to ensure Recovery Act funds are 

distributed timely and accurately. To achieve these objectives, Treasury established a Recovery Act implementation 

team housed within the purview of the Assistance Secretary for Management/Chief Financial Officer responsible 

for working with the program offices across the Department. The Recovery Act team facilitates all Recovery Act 

implementation department-wide and interfaces with the broader Recovery Act community. As part of this broad 

responsibility, the team establishes internal processes, addresses external data requirements, manages risk inherent 

in Recovery Act implementation, and coordinates Treasury Recovery Act audits.

Here are some of the Recovery Act programs implemented by Treasury during fiscal year 2009:

•	 The Recovery Act provided $250 one-time Economic Recovery Payments to eligible retirees, veterans, and 

other high-need recipients. The Financial Management Service received $7 million to cover administrative 

expenses incurred in sending these payments, either via electronic funds transfer or by check, to millions 

of recipients of Social Security, Supplemental Security Insurance, Railroad Retirement, and Veterans 

Administration benefits.

•	 The Community Development Financial Institutions (CDFI) Fund received $2 million to cover administrative expenses related to implementing Recovery Act provisions that apply to two existing programs. 

These existing programs and related Recovery Act funding are the CDFI Program, which received $90 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

196 Note 29. Fnan

million in additional funds to make grants, loans, equity investments, deposits, and secondary capital 

investments to certified CDFIs that deploy the funds in underserved, low-income communities, and to 

targeted populations; and the Native American CDFI Assistance Program, which received $8 million in 

additional funds under the Recovery Act to make grants, loans, equity investments, deposits, and secondary 

capital investments to certified CDFIs that deploy the funds in Native American communities or to Native 

American populations.

•	 The New Markets Tax Credit (NMTC) Program, which does not provide direct funding to CDFI because 

it is a tax credit, was provided an additional $1.5 billion of allocation authority for 2009; NMTC facilitates investment in low-income communities by permitting taxpayers to receive a non-refundable credit 

against federal income taxes for making Qualified Equity Investments in Treasury-certified Community 

Development Entities (businesses and real estate developments) in low-income communities. The Recovery 

Act authorizes the CDFI Fund to allocate $3 billion of tax credit authority to qualified Community 

Development Entities (CDEs) under the New Markets Tax Credit (NMTC) Program, as follows: $1.5 

billion to CDEs that applied for allocation authority under the 2008 NMTC allocation round, and $1.5 

billion to CDEs that applied for allocation authority under the 2009 NMTC allocation round. This $3 

billion in allocation authority is in addition to the $3.5 billion in non-Recovery Act funds that was already 

allocated for the NMTC in 2009.

•	 The Cash Assistance for Specified Energy Property in Lieu of Tax Credits Program promotes renewable 

energy. The Office of the Fiscal Assistant Secretary (OFAS) designed the program in conjunction with 

the Department of Energy. Energy reviews the applications for completeness and initial approval. OFAS 

then reviews the applications and either approves or denies the request. Payment is made by the Office of 

Financial Management which follows its standard procedures for making payments. The energy program 

payments are treated as an expense in the Treasury financial statements. This program provides an alternative means to attract financing for renewable energy projects by providing direct payment in lieu of tax 

credits. The program began accepting applications on July 31, 2009, and by September 30, 2009, had 

made awards for 37 projects totaling over $1 billion.

•	 The Cash Assistance to States for Low-Income Housing Projects in Lieu of Tax Credits Program allows construction or acquisition and rehabilitation of low-income housing projects to continue where developers were 

unable to proceed due to insufficient financing. The program addresses the near-term goal of creating 

and retaining jobs, as well as the long-term benefit of increasing the affordable housing supply. OFAS 

administers this program. Funds are awarded to State Housing Credit Agencies to make sub-awards to fund 

the construction and/or acquisition and rehabilitation of low-income housing projects, creating jobs and 

increasing the supply of low-income housing. In lieu of tax credits, forty housing agencies had received 

approval for over $2.5 billion as of September 30, 2009.

•	 In 2009, the Internal Revenue Service (IRS) implemented a number of Recovery Act tax provisions impacting both individuals and businesses, including the Making Work Pay credit; the First-Time Home Buyer 

credit; a new COBRA health insurance continuation premium subsidy; and several new bond programs.
PART 2 • ANNUAL FINANCIAL REPORT

Note 30.Schedul

30. SCHEDULE OF FIDUCIARY ACTIVITY

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment, and 

disposition by the Federal Government of cash or other assets, in which non-Federal individuals or entities have 

an ownership interest that the Federal Government must uphold.

Fiduciary cash and other assets are not assets of the Federal Government, and accordingly are not recognized on 

the Balance Sheet.

The following funds have been identified by the Treasury Department as meeting the criteria for fiduciary activity. 

Details of the funds, as well as fiduciary relationships, is provided below. 

Bureau Fund Code Authority Fund Title

BEP 20X6513.013 31 USC 5119 Mutilated Currency Claims Funds 

BPD 20X6008 31 USC 3513 Payment Prin. & Interest Govt. Agencies 

FMD 20X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks

FMD 20X6048 31 USC 3329, 3330 Proceed of Withheld Foreign Check

FMD 2015X6078 50 APP. USC 2012 War Claims FD, FCSC

FMD 20X6092 31 USC 1321 Debt Management Operations

FMD 20X6104 22 USC 1627 Albanian Claims Fund, Treasury

FMD 20X6133 31 USC 1322 Payment of Unclaimed Moneys

FMD 20X6309 22 USC 1627(a) Libyan Claims Settlement Fund

FMD 20X6311 98 Stat. 1876 Kennedy Center Revenue Bond

FMD 20X6312 22 USC 1627 Iranian Claims Settlement Fund

FMD 20X6314 22 USC 1644g German Democrat Settlement Fund

FMD 20X6315 22 USC 1645h Vietnam Claims Settlement Fund

FMD 20X6501.018 31 USC 3513 Small Escrow Amounts

FMD 20X6720 31 USC 3513 SM DIF Account for Dep. & Check Adj.

FMD 20X6830 104 Stat. 1061 Net Interest Payments to/from State

FMD 20X6999 31 USC 3513 Accounts Payable, Check Issue UNDDR

IRR 20X6737 90 Stat. 269-270 Collections for Northern Mariana Islands

IRR 20X6738 31 USC 3513 Coverover Withholding-US Virgin Islands

IRR 20X6740 31 USC 3515 Coverover Withholdings-Guam

IRR 20X6741 31 USC 3513 Coverover Withhold Samoa

OAS 20X6317.001 22 USC 2431 Belize Escrow, Debt Reduction

OAS 20X6501.018 31 USC 3513 Small Escrow Amounts

OTS 20X6501.76 31 USC 3513 Small Escrow Amounts

Unclaimed monies were authorized by 31 U.S.C. 5119, which authorized Financial Management Service, 

Department of the Treasury, to collect unclaimed monies on behalf of the public. Other fiduciary activities by the 

Department of the Treasury as listed above are included in All Other Fiduciary Funds
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

198 Note 30.Sch

Schedule of Fiduciary Activity (in millions): 

Unclaimed 

Monies-FMD

All Other

 Fiduciary Funds

2009 Total 

Fiduciary Funds

Fiduciary Net Assets, Beginning of the Year $ 366 $ 43 $ 409

Increases

Contributions to Fiduciary Net Assets 28 1,063 1,091

Investment earnings 0 1 1

Total Increases 28 1,064 1,092

Decreases

Disbursements to and on behalf of beneficiaries (4) (899) (903)

Total Decreases (4) (899) (903)

Net Increase (Decrease) in fiduciary assets 24 165 189

Fiduciary Net Assets, End of Year $ 390 $ 208 $ 598

Schedule of Fiduciary Net Assets (in millions): 

Unclaimed 

Monies-FMD

All Other

 Fiduciary Funds

2009 Total 

Fiduciary Funds

Fiduciary Assets

Cash and cash equivalents $ 390 $ 193 $ 583

Investments 0 15 15

Total Fiduciary Assets 390 208 598

Total Fiduciary Net Assets $ 390 $ 208 $ 598
PART 2 • ANNUAL FINANCIAL REPORT

NOte 31. ommit

31. COMMITMENTS AND CONTINGENCIES

LEGAL CONTINGENCIES

The Treasury Department is a party in various administrative proceedings, legal actions, and claims, including equal opportunity matters 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. Treasury Department has one contingent liability in fiscal year 2009 related to legal action taken in 

the case, American Council of the Blind and Others, where losses are determined to be probable and amount of loss 

can be estimated. The Treasury Department has disclosed contingent liabilities where the conditions for liability 

recognition have not been met and the likelihood of unfavorable outcome is more than remote. The Treasury 

Department does not accrue for possible losses related to cases where the potential loss cannot be estimated 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 the Treasury Department’s Judgment Fund, 

which is separate from the operating resources of the Treasury Department. For cases related to the Contract 

Disputes Act of 1978 and awards under federal anti-discrimination and whistleblower protection acts, the Treasury 

Department must reimburse the Judgment Fund from future appropriations. 

In the opinion of the Treasury Department’s management and legal counsel, based on information currently 

available, the expected outcome of legal actions, individually or in the aggregate, will not have a materially adverse 

effect on the Treasury Department’s financial statements, except for the legal actions described below. 

PENDING LEGAL ACTIONS 

•	 The American Council of the Blind and Others, et. al. v. Paulson: Plaintiffs have filed suit against the 

Department under Section 504 of the Rehabilitation Act seeking the redesign of U.S. currency. In 2007, a 

judge ruled that the current U.S. currency design violates this Act and this ruling was appealed. In 2008, 

the United States Court of Appeals for the District of Columbia Circuit affirmed the District Court’s 

ruling. No monetary damages were awarded by the Court. However, the Treasury Department is required 

to provide meaningful access to United States currency for blind and other visually impaired persons. This 

may require changes to U.S. currency (excluding the one-dollar note.) The Court ordered such changes to 

be completed in connection with each denomination of currency, not later than the date when a redesign 

is next approved by the Secretary of the Treasury. Because the cost of implementing these changes will be 

incorporated into future currency redesign costs, no redesign costs have been accrued in the accompanying 

financial statements as of September 30, 2009 and September 30, 2008. 

The Court of Appeals in the above mentioned case ordered the parties to confer and attempt to negotiate 

attorney fees and costs to be awarded the plaintiffs. In December 2008, the parties filed a joint stipulation 

agreeing to $800 thousand in attorney fees and costs that was paid from the Judgment Fund in February 

2009.

•	 Amidax Trading Group v. S.W.I.F.T. makes allegations that the Treasury Department’s Terrorist Finance 

Tracking Program has involved unlawful disclosure of information by the Society for Worldwide Interbank 

Financial Telecommunications (S.W.I.F.T.). Defendants include the Department of the Treasury as well as 

several Treasury officials. The case was dismissed on February 13, 2009, and the plaintiff has subsequently 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

200 NOte 31. o

appealed that ruling. The Treasury Department is unable to determine the likelihood of an unfavorable 

outcome or an estimate of potential loss at this time. 

•	 Cobell et al. v. Salazar et al. (formerly Cobell v. Kempthorne): Native Americans allege that the Department 

of Interior and the Department of the Treasury have breached trust obligations with respect to the management of the plaintiffs’ individual Indian monies. On August 7, 2008, the Federal District Court issued an 

opinion awarding $455 million to the plaintiffs. This decision was overturned on appeal in July 2009. The 

appellate court found that the government owes a cost-effective accounting, in scale with available funds. 

The District Court is considering further proceedings. The Treasury Department is unable to determine the 

likelihood of an unfavorable outcome or an estimate of potential loss at this time. (Please refer to Note 33, 

Subsequent Events, for additional information.) 

•	 Tribal Trust Fund Cases: Numerous cases have been filed in U.S. District Courts in which Native American 

Tribes seek a declaration that the U.S. has not provided the tribes with a full and complete accounting of 

their trust funds, and seek an order requiring the government to provide such an accounting. In addition, 

there are a number of other related cases seeking damages in the United States Court of Federal Claims 

which do not name the Department as a defendant. It is not possible at this time to determine the likelihood of an unfavorable outcome or an estimate of the amount or range of any potential loss. 

•	 Other Legal Actions: The Treasury Department is also involved in employment related legal actions (e.g., 

Discrimination, Equal Employment Opportunity Commission, Merit System Protection Board, etc.) for 

which an unfavorable outcome is reasonably possible, but for which an estimate of potential loss cannot 

be determined at this time. It is not expected that these cases will have a material effect on the Treasury 

Department’s financial position or results. 

•	 There are other legal actions pending for which the possibility of loss could not be determined, and where 

the ultimate resolution of the legal actions may materially affect the Treasury Department’s financial 

position or results. As of September 30, 2009, four legal claims amounting to approximately $113 million 

existed for which the possibility of loss could not be determined. 

OTHER COMMITMENTS AND CONTINGENCIES

Treaties and International Agreements

The Office of Management and Budget, Circular No. A-136, Financial Reporting Requirements and the Treasury 

Financial Manual, Volume 1, Part 2-4700 require the recognition and disclosure of financial information related 

to Treaties and International Agreements for fiscal year 2009 financial reporting. The focus of this requirement is to identify Departmental Treaties and International Agreements that commit and obligate the Federal 

Government and may result in a possible exposure to loss. Any recognition and disclosure of Treaty and 

International Agreement loss contingencies would be presented in accordance with SFFAS No. 5, Accounting for 

Liabilities of the Federal Government. Any recognition would depend on the likelihood of the future event occurring and the measurability of an amount or range of loss.

The Treasury Department does not have any treaties or international agreements to report for fiscal year 2009. 
PART 2 • ANNUAL FINANCIAL REPORT

NOte 31. ommit

Multilateral Development Banks (MDB)

The Treasury Department has subscribed to capital for certain MDB, portions of which 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 Treasury Department’s commitment for these subscriptions. As of September 30, 2009 and 

September 30, 2008, U.S. callable capital in MDB was as follows (in millions): 

2009 2008

African Development Bank $ 1,634 $ 1,634

Asian Development Bank 5,911 5,911

European Bank for Reconstruction and Development 1,805 1,805

Inter-American Development Bank 28,687 28,687

International Bank for Reconstruction and Development 22,641 22,641

Multilateral Investment Guarantee Agency 301 301

North American Development Bank 1,275 1,275

Total $ 62,254 $ 62,254

Terrorism Risk Insurance Program

The Terrorism Risk Insurance Act (TRIA or the Act) was signed into law on November 26, 2002. This law was 

enacted to address market disruptions resulting from terrorist attacks on September 11, 2001. The Act helps to 

ensure available and affordable commercial property and casualty insurance for terrorism risk, and simultaneously 

allows private markets to stabilize. The Terrorism Risk Insurance Program is activated upon the certification of an 

“act of terrorism” by the Secretary of the Treasury Department in concurrence with the Secretary of State and the 

Attorney General. If a certified act of terrorism occurs, insurers may be eligible to receive reimbursement from the 

U.S. Government for insured losses above a designated deductible amount. Insured losses above this amount will 

be shared between insurance companies and the U.S. Government. The Act also gives the Treasury Department 

authority to recoup federal payments made under the Program through policyholder surcharges under certain 

circumstances and contains provisions designed to manage litigation arising from or relating to a certified act of 

terrorism. 

The original TRIA program was to expire on December 31, 2005, but the Program was extended through 

December 31, 2007 by the Terrorism Risk Insurance Extension Act of 2005 (Extension Act). This law included the 

following significant changes: it reduced the federal role in terrorism risk insurance markets by increasing insurer 

deductibles and excluding certain types of previously covered insurance. The Extension Act also reduced the U.S. 

Government’s share of insured losses and added a “Program Trigger” provision which precludes federal payments 

unless insured losses from a certified act of terrorism exceed $100 million. 

On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Reauthorization Act) 

was enacted extending the Program through December 31, 2014. The Reauthorization Act, among other Program 

changes, revised the definition of “Act of Terrorism” to remove the certification requirement that the act be committed by an individual acting on behalf of a foreign person or foreign interest; revised the provisions of the Act 

with regard to the cap on annual liability for insured losses of $100 billion; and established deadlines by which 

recoupment of federal payments made under the Program would have to be accomplished. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

202 NOte 31. o

In 2008, the Treasury Department published interim guidance and an interim final rule conforming regulations 

to statutory changes in the Reauthorization Act pertaining to the mandatory insurance availability and insurer 

disclosure requirements of the Program as well as the addition of coverage for domestic acts of terrorism. On April 

21, 2009, Treasury Department published the interim final rule as final. 

In September 2008, the Treasury Department issued two notices of proposed rulemaking with requests for comment. One proposed rule incorporates and clarifies statutory requirements of the Reauthorization Act for capping 

the annual liability for insured losses at $100 billion. The proposed rule describes how the Treasury Department 

will determine the pro rata share of insured losses to be paid by each insurer that incurs losses under the Program 

when insured losses would otherwise exceed the cap and how the Federal share of compensation will be calculated. The Treasury Department expects to issue a final rule incorporating public comments early in fiscal year 2010. 

The other proposed rule sets forth the requirements for recoupment of the Federal share of compensation for 

insured losses. The rule describes how the Treasury Department will determine the amounts to be recouped and 

the requirements for insurers to collect, report, and remit surcharges to the Treasury Department. The Treasury 

Department expects to issue a final rule incorporating public comments early in fiscal year 2010. There were no 

claims under TRIA as of September 30, 2008 and September 30, 2009.

Exchange Stabilization Agreement (ESA)

In April 1994, Treasury signed the North American Framework Agreement (NAFA), which includes the ESA 

with Mexico. The Treasury Department has a standing swap line for $3 billion with Mexico under the NAFA and 

its implementing ESA. The amounts and terms (including the assured source of repayment) of any borrowing 

under NAFA and ESA will have to be negotiated and agreed to before any actual drawing can occur. The ESA 

does provide sample clauses that state that transactions shall be exchange rate neutral for the ESF and shall bear 

interest based on a then current rate tied to U.S. Treasury bills. There were no drawings outstanding on the ESF 

swap line as of September 30, 2009 and 2008. On December 10, 2008, the Treasury renewed its participation in 

the agreement until December 2010.

Contingent Liability to Government Sponsored Enterprises

The Treasury Department has recorded a contingent liability at September 30, 2009 (zero at September 30, 2008) 

of $76.9 billion to the Government Sponsored Enterprises, Fannie Mae and Freddie Mac, based on probable 

future liability under the Senior Preferred Stock Purchase Agreement between the Treasury Department and the 

GSEs. Refer to Note 9 for a full description of the agreements and related contingent liability.
PART 2 • ANNUAL FINANCIAL REPORT

Note 32. Impute

32. IMPUTED FINANCING COSTS

In accordance with SFFAS No. 30, Inter-Entity Cost Implementation Amending SFFAS 4, Managerial Cost 

Accounting Standards and Concepts, the material Imputed Inter-departmental financing sources currently recognized by the Department include the actual cost of future benefits for the federal pension plans that are paid by 

other federal entities, the Federal Employees Health Benefits Program (FEHB), and any un-reimbursed payments 

made from the Treasury Judgment Fund on behalf of the Department. 

SFFAS No. 5, Accounting for Liabilities for the Federal Government, requires that employing agencies recognize 

the cost of pensions and other retirement benefits during their employees’ active years of service. SFFAS No. 5 

requires OPM to provide cost factors necessary to calculate cost. OPM actuaries calculate the value of pension 

benefits expected to be paid in the future, and then determines the total funds to be contributed by and for 

covered employees, such that the amount calculated would be sufficient to fund the projected pension benefits. 

For employees covered by Civil Service Retirement System (CSRS), the cost factors are 25.8% of basic pay 

for regular, 43.5% law enforcement officers, 20% regular offset, and 38% law enforcement officers offset. For 

employees covered by Federal Employees Retirement System (FERS), the cost factors are 12.3% of basic pay for 

regular and 26.7% for law enforcement officers. The information for the fiscal years ended September 30, 2009 

and September 30, 2008 was as follows (in millions):

2009 2008

U.S. Treasury Judgment Fund $ 0.8 $ 6.5

Pension 264.0 254.1

Health Insurance 501.1 449.8
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

204 Note 33. 

33. SUBSEQUENT EVENTS

Housing Finance Agency Initiative

Under the Housing and Economic Recovery Act of 2008 (HERA), the Treasury Department, together with the 

Federal Housing Finance Agency, Fannie Mae, Freddie Mac, and the Department of Housing and Urban 

Development announced in October 2009 an initiative to provide support to state and local housing finance 

agencies (HFAs). HFAs have historically played a central role in providing a safe, sustainable path to homeownership for working families in all 50 states and many localities across the country. This initiative will continue 

to support low mortgage rates and expand resources for low and middle income borrowers to purchase or rent 

homes, making them more affordable over the long term. The HFA Initiative includes two separate programs: (1) 

the Temporary Credit and Liquidity Program (TCLP) and (2) the New Issue Bond Program (NIBP).

The Treasury Department has received preliminary apportionments in the amounts of $9 billion for the TCLP 

and $19 billion for the NIBP. On December 4, 2009, Treasury entered into a participation interest under the 

TCLP with the Pennsylvania Housing Finance Agency. As of this date, however, no bonds have been provided to 

Fannie Mae or Freddie Mac requiring the Treasury Department to disburse funds. On December 9, 2009, under 

the NIBP, the Treasury Department entered into an obligation of approximately $7 billion to purchase securities 

of Fannie Mae and Freddie Mac which are backed by HFA revenue bonds and/or escrow funds. 

Troubled Asset Relief Program

On December 9, 2009, the Secretary of the Treasury, pursuant to Section 120(b) of EESA, certified that he was 

extending the spending authority provided under the Act to October 3, 2010. The spending authority was originally set to expire on December 31, 2009. This extension was necessary to assist American families and stabilize 

financial markets because it will, among other things, enable the Treasury Department to continue to implement 

programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond 

to unforeseen threats to the economy stemming from financial instability.

On December 9, 2009, Bank of America repaid all amounts received under the CPP and TIP totaling $45 billion 

plus dividends accrued since November 15, 2009, thereby terminating its participation in TARP. The Treasury 

Department still holds the warrants issued under these programs, but has no other investment in Bank of America.

On November 1, 2009, a CPP participant, CIT Group, filed for Chapter 11 Bankruptcy. The Treasury 

Department had invested $2.3 billion in senior preferred shares of CIT Group and received a warrant for the 

purchase of common shares. Treasury does not expect a significant recovery of its preferred stock investment. As 

such, this investment has been reduced to zero. The ultimate amount received, if any, from this investment will 

depend on the outcome of the bankruptcy proceedings.

On November 6, 2009, a CPP participant, United Commerce Bank, was closed by its regulators. The Treasury 

Department had invested approximately $298.7 million in senior preferred stock and received a warrant for the 

purchase of the common stock. The value of these shares, including the warrant, reflected in these financial statements is approximately $22.5 million as of September 30, 2009. The ultimate amount received, if any, from this 

investment will depend on the outcome of the receivership.

In November 2009, a CPP participant, Pacific Coast National Bank, was closed by its regulators. The Treasury 

Department had invested approximately $4.1 million in senior preferred stock and received a warrant for pre-
PART 2 • ANNUAL FINANCIAL REPORT

Note 33. Subs

ferred stock in the amount of $0.2 million. The value of these shares, including the warrant, reflected in these 

financial statements is approximately $0.15 million as of September 30, 2009. The ultimate amount received, if 

any, from this investment will depend on the outcome of the receivership.

On December 11, 2009, the Treasury Department announced that it priced a secondary public offering of 

88,401,697 warrants to purchase common stock of JPMorgan Chase & Co. at $10.75 per warrant. The net 

proceeds to the Treasury Department are expected to be approximately $936 million. These proceeds are in addition to the dividend payments received on the related preferred stock. Closing is expected to occur on or about 

December 16, 2009.

Legal Contingency

Cobell, et al. v. Salazar

On December 8, 2009, a settlement was announced related to the claims raised in this lawsuit, as well as other 

claims for the mismanagement of assets and land. The settlement is contingent on the passage of new legislation 

to authorize the settlement terms and court approval, which would not occur until March 2010 at the earliest. 

If Congress enacts authorizing legislation, the Government will pay $12 million immediately to fund notice to 

the class. If the court approves the settlement after notice to the class, the government will pay an additional $1.4 

billion from the Judgment Fund to settle the claims for an historical accounting and for mismanagement of assets 

and land. The Government will also make available an additional sum of $2 billion from the Judgment Fund to 

purchase numerous small interests in land from Native Americans, as well as for other purposes. It has not been 

determined which federal agency will be assigned responsibility for the payment through the Judgment Fund. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

206 Required S

REQUIRED SUPPLEMENTAL INFORMATION (UNAUDITED)

INTRODUCTION

This section provides the Required Supplemental Information as prescribed by Office of Management and Budget 

(OMB) Circular No. A-136, Financial Reporting Requirements. 

Other Claims for Refunds 

The Treasury Department has estimated that $11.0 billion may be payable as other claims for tax refunds. This 

estimate represents amounts (principal and interest) that may be paid for claims pending judicial review by the 

federal courts or internally. The total estimated payout (including principal and interest) for claims pending 

judicial review by the federal courts is $4.7 billion and by appeals is $6.3 billion. 

Federal Taxes Receivable, Net 

In accordance with SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling 

Budgetary and Financial Accounting, some unpaid tax assessments do not meet the criteria for financial statement 

recognition as discussed in Note 1 to the financial statements. Although compliance assessments and write-offs 

are not considered receivables under federal accounting standards, they represent legally enforceable claims of 

the U.S. Government. There is, however, a significant difference in the collection potential between compliance 

assessments and receivables.

The components of the total unpaid assessments at September 30, 2009, were as follows (in billions):

Total Unpaid Assessments $ 308

Less: Compliance Assessments (75)

Write Offs (105)

Gross Federal Taxes Receivable $ 128

Less: Allowance for Doubtful Accounts (99)

Federal Taxes Receivables, Net $ 29

To eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties, 

totaling $3 billion, assessed against officers and directors of businesses who were involved in the non-remittance 

of federal taxes withheld from their employees. The related unpaid assessments of those businesses are reported as 

taxes receivable or write-offs, but the Treasury Department may also recover portions of those businesses’ unpaid 

assessments from any and all individual officers and directors against whom a trust fund recovery penalty is 

assessed.

Internal Revenue Service (IRS)

The unpaid assessments balance represents assessments resulting from taxpayers filing returns without sufficient 

payment, as well as from the IRS’s enforcement programs such as examination, under-reporter, substitute for 

return, and combined annual wage reporting. A significant portion of this balance is not considered a receivable. 

Also, a substantial portion of the amounts considered receivables is largely uncollectible. 
PART 2 • ANNUAL FINANCIAL REPORT

Required Suppl

Under federal accounting standards, unpaid assessments require taxpayer or court agreement to be considered 

federal taxes receivable. Assessments not agreed to by taxpayers or the courts are considered compliance assessments and are not considered 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 are considered federal taxes 

receivable.

Assessments with little or no future collection potential are called write-offs. Write-offs principally consist of 

amounts owed by deceased, bankrupt, or defunct taxpayers, including many failed financial institutions liquidated by the Federal Deposit Insurance Corporation (FDIC) and the former Resolution Trust Corporation (RTC). 

As noted above, write-offs have little or no future collection potential, but statutory provisions require that these 

assessments be maintained until the statute for collection expires.

Alcohol and Tobacco Tax and Trade Bureau (TTB)

As an agent of the Federal Government and as authorized by 26 U.S.C., the TTB collects excise taxes from 

alcohol, tobacco, firearms, and ammunition industries. In addition, special occupational taxes are collected from 

certain alcohol and tobacco businesses. During fiscal year 2009, TTB collected nearly $20.6 billion in taxes, 

interest, and other revenues. 

Substantially all of the taxes collected by TTB net of related refund disbursements are remitted to the General 

Fund of the U.S. Government. The Department of Treasury further distributes this revenue to Federal agencies in 

accordance with various laws and regulations. The firearms and ammunition excise taxes are an exception. Those 

revenues are remitted to the Fish and Wildlife Restoration Fund under provisions of the Pittman-Robertson Act of 

1937.

Deferred Maintenance

In fiscal year 2009, the Treasury Department had no material amounts of deferred maintenance costs to report on 

vehicles, buildings, and structures owned by the Treasury Department.

Deferred maintenance applies to owned PP&E. Deferred maintenance is maintenance that was not performed 

when it should have been, or was scheduled to be, and is put off or delayed for a future period. Maintenance 

is defined 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. Maintenance excludes activities aimed at expanding the capacity or significantly upgrading the assets 

to a different form than it was originally intended (i.e., activities related to capitalized improvements, modernization, and/or restoration).

Logistic personnel use condition assessment surveys and/or the total life-cycle cost methods to determine deferred 

maintenance and acceptable operating condition of an asset. Periodic condition assessments, physical inspections, and review of manufacturing and engineering specifications, work orders, and building and other structure 

logistics reports can be used under these methodologies.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

208 Required S

Fiscal Year 2009 Statement of Budgetary Resources 

Disaggregated by Sub-organization Accounts (in millions):

Budgetary Resources

Engraving and 

Printing

Bureau of the 

Public Debt

Departmental 

Offices

Fin. Crimes

Enforcement

Network

Financial

Management

Service

Internal

Revenue

Service

Unobligated balance brought forward $ 96 $ 175 $ 282,340 $ 18 $ 240 $ 682

Recoveries prior year unpaid obligations 0 81 7,841 2 14 95

Budget Authority:

Appropriations 0 463,484 450,242 92 26,417 11,851

Borrowing authority 0 0 548,735 0 0 0

Spending authority offsetting collections:

Earned: Collected 502 208 279,849 15 228 149

Change in receivable federal (18) (14) 1 0 5 (19)

Change in unfilled customer order:

Advance received 1 0 (16) 0 0 0

Without advance from federal sources 0 (152) 28,939 1 (1) 5

Subtotal 485 463,526 1,307,750 108 26,649 11,986

Non-expenditure transfers, net 0 (3) (149) 0 (21) 130

Temporarily not available 0 (5) 7 0 0 0

Permanently not available 0 (80,108) (184,490) 0 (6,991) (112)

Total Budgetary Resources $ 581 $ 383,666 $1,413,299 $ 128 $ 19,891 $ 12,781

Status of Budgetary Resources

Obligations incurred

Direct $ 0 $ 383,379 $ 967,769 $ 96 $ 19,390 $ 11,791

Reimbursable 535 195 355 7 228 114

Subtotal 535 383,574 968,124 103 19,618 11,905

Unobligated Balance

Apportioned 46 64 368,489 20 254 380

Exempt from apportionment 0 15 43,370 0 9 0

Subtotal 46 79 411,859 20 263 380

Unobligated balance not available 0 13 33,316 5 10 496

Total Status of Budgetary Resources $ 581 $ 383,666 $1,413,299 $ 128 $ 19,891 $ 12,781

Relationship Obligations to Outlays

Obligated balance, net (Note 1)

Unpaid obligations brought forward $ 103 $ 159 $ 54,795 $ 13 $ 329 $ 1,436

Uncollected customer payments Federal sources 

brought forward (47) (189) (16) (3) (33) (47)

Total unpaid obligated balance, net 56 (30) 54,779 10 296 1,389

Obligations incurred, net 535 383,574 968,123 103 19,618 11,905

Gross Outlays (523) (383,578) (830,165) (100) (19,594) (11,625)

Recoveries prior year unpaid obligations 0 (81) (7,841) (2) (14) (95)

Change uncollected customer payments 18 166 (28,940) (1) (4) 14

Obligated balance net, end of period

Unpaid obligations 115 75 184,910 15 339 1,621

Uncollected customer payments federal (29) (24) (28,954) (5) (37) (33)

Total unpaid obligated balance, net 86 51 155,956 10 302 1,588

Net Outlays

Gross outlays 523 383,578 830,165 100 19,594 11,625

Offsetting collections (503) (208) (277,552) (15) (228) (149)

Distributed offsetting receipts 0 (31,250) (12,154) 0 (451) (759)

Net Outlays $ 20 $ 352,120 $ 540,459 $ 85 $ 18,915 $ 10,717
PART 2 • ANNUAL FINANCIAL REPORT

Required Suppl

Fiscal Year 2009 Statement of Budgetary Resources 

Disaggregated by Sub-organization Accounts (in millions):

Budgetary Resources U.S. Mint

Comptroller of 

the Currency

Office of Thrift

Supervision

Alcohol 

Tobacco

Tax & Trade

Budgetary

Total

9/30/2009

Non-Budgetary

Financing

Unobligated balance brought forward $ 51 $ 734 $ 292 $ 2 $ 260,173 $ 24,457

Recoveries prior year unpaid obligations 55 0 4 4 8,097 (1)

Budget Authority:

Appropriations 0 0 0 99 952,185 0

Borrowing authority 0 0 0 0 493 548,242

Spending authority offsetting collections:

Earned: Collected 2,467 775 253 3 11,681 272,768

Change in receivable federal 0 0 0 1 (44) 0

Change in unfilled customer order:

Advance received (10) 0 (6) 0 (31) 0

Without advance from federal sources 0 0 0 0 (134) 28,926

Subtotal 2,457 775 247 103 964,150 849,936

Non-expenditure transfers, net 0 0 0 0 (43) 0

Temporarily not available 0 0 0 0 2 0

Permanently not available (35) 0 0 (1) (92,001) (179,736)

Total Budgetary Resources $ 2,528 $ 1,509 $ 543 $ 108 $ 1,140,378 $ 694,656

Status of Budgetary Resources

Obligations incurred

Direct $ 0 $ 0 $ 0 $ 101 $ 729,697 $ 652,829

Reimbursable 2,282 716 233 4 4,669 0

Subtotal 2,282 716 233 105 734,366 652.829

Unobligated Balance

Apportioned 246 0 0 2 349,889 19,612

Exempt from apportionment 0 793 310 0 44,497 0

Subtotal 246 793 310 2 394,386 19,612

Unobligated balance not available 0 0 0 1 11,626 22,215

Total Status of Budgetary Resources $ 2,528 $ 1,509 $ 543 $ 108 $ 1,140,378 $ 694,656

Relationship Obligations to Outlays

Obligated balance, net (Note 1)

Unpaid obligations brought forward $ 260 $ 166 $ 44 $ 19 $ 57,314 $ 10

Uncollected customer payments Federal sources 

brought forward (7) (4) 0 1 (346) (1)

Total unpaid obligated balance, net 253 162 44 18 56,968 9

Obligations incurred, net 2,282 716 233 105 734,366 652,829

Gross Outlays (2,296) (704) (232) (99) (675,286) (573,630)

Recoveries prior year unpaid obligations (55) 0 (4) (4) (8,097) 1

Change uncollected customer payments 0 0 0 (1) 178 (28,926)

Obligated balance net, end of period

Unpaid obligations 191 178 41 21 108,297 79,209

Uncollected customer payments federal (7) (4) 0 (2) (168) (28,926)

Total unpaid obligated balance, net 184 174 41 19 108,129 50,283

Net Outlays

Gross outlays 2,296 704 232 99 675,286 573,630

Offsetting collections (2,457) (775) (247) (3) (9,369) (272,768)

Distributed offsetting receipts 0 0 0 0 (40,114) (4,500)

Net Outlays $ (161) $ (71) $ (15) $ 96 $ 625,803 $ 296,362
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

210

Required)

This page left intentionally blank
Part 3

Other Accompanying Information

Appendix A — Other Accompanying Information (Unaudited)

Appendix B — Improper Payments Information Act and Recovery Auditing Act

Appendix C — Management and Performance Challenges and Responses

Appendix D — Material Weaknesses, Audit Follow-up, Financial Systems, and Recovery Act Risk Management

Appendix E — Glossary of Acronyms

213

Appendix A:

Other Accompanying Information (Unaudited)

This section provides Other Accompanying Information as prescribed by OMB Circular No. A-136, 

Financial Reporting Requirements.

PROMPT PAYMENT 

The Prompt Payment Act requires Federal agencies to 

make timely payments to vendors for supplies and 

services, to pay interest penalties when payments are 

made after the due date, and to take cash discounts 

only when they are economically justified. Treasury 

bureaus report Prompt Payment data on a monthly 

basis to the Department, and periodic quality control 

reviews are conducted by the bureaus to identify 

potential problems. 

Total Dollar Amount of Invoices Paid (in millions) Dollar Amount of Invoices Paid (in millions)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

FY05 FY06 FY07 FY08 FY09

$3,499

$4,227 $4,384 $4,704 $4,773

Total Number of Invoices Paid (in thousands) Number of Invoices Paid (in thousands)

0

100

200

300

400

FY05 FY06 FY07 FY08 FY09

148 160 166

191

338

Percentage of Number of Invoices Paid Late Percent

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

FY05 FY06 FY07 FY08 FY09

8.08%

1.39% 1.05% 0.84% 0.52%

Percentage of Dollar Amount of Interest Penalties Paid Percent 

0.000%

0.002%

0.004%

0.006%

0.008%

0.010%

FY05 FY06 FY07 FY08 FY09

0.009%

0.002%

0.001% 0.001% 0.001%

Percentage of Number of Interest Penalties Paid Percent 

0.00%

1.00%

2.00%

3.00%

4.00%

FY05 FY06 FY07 FY08 FY09

2.88%

0.38% 0.42% 0.28% 0.17%

TAX GAP

PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX A — OTHER ACCOMPANYING INFORMATION (UNAUDITED)
214

TAX GAP

Reducing the tax gap is at the heart of IRS’ enforcement programs. The tax gap is the difference between 

what taxpayers should pay and what they actually pay 

due to not filing tax returns, not paying their reported 

tax liability on time, or failing to report their correct 

tax liability. The tax gap, about $345 billion based 

on updated fiscal year 2001 estimates, represents 

the amount of noncompliance with the tax laws. 

Underreporting tax liability accounts for 82 percent 

of the gap, with the remainder almost evenly divided 

between non-filing (8 percent) and underpaying (10 

percent). The IRS remains committed to finding ways 

to increase compliance and reduce the tax gap, while 

minimizing the burden on the vast majority of taxpayers who pay their taxes accurately and on time. 

The tax gap is the aggregate amount of tax (i.e., excluding interest and penalties) that is imposed by the tax 

laws for any given tax year but is not paid voluntarily 

and timely. The tax gap arises from the three types of 

noncompliance: not filing required tax returns on time 

or at all (the non-filing gap), underreporting the correct amount of tax on timely filed returns (the underreporting gap), and not paying on time the full amount 

reported on timely filed returns (the underpayment 

gap). Of these three components, only the underpayment gap is observed; the non-filing gap and the 

underreporting gap must be estimated. Each instance 

of noncompliance by a taxpayer contributes to the tax 

gap, whether or not the IRS detects it, and whether or 

not the taxpayer is even aware of the noncompliance. 

Obviously, some of the tax gap arises from intentional 

(willful) noncompliance, and some of it arises from 

unintentional mistakes.

The collection gap is the cumulative amount of tax, 

penalties, and interest that has been assessed over many 

years, but has not been paid by a certain point in time, 

and which the IRS expects to remain uncollectible. 

In essence, it represents the difference between the 

total balance of unpaid assessments and the net taxes 

receivable reported on the IRS’ balance sheet. The tax 

gap and the collection gap are related and overlapping 

concepts, but they have significant differences. The 

collection gap is a cumulative balance sheet concept for 

a particular point in time, while the tax gap is like an 

income statement item for a single year. Moreover, the 

tax gap estimates include all noncompliance, while the 

collection gap includes only amounts that have been 

assessed (a small portion of all noncompliance).

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX A — OTHER ACCOMPANYING INFORMATION (UNAUDITED)
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX A — OTHER ACCOMPANYING INFORMATION (UNAUDITED) 215

TAX BURDEN

The Internal Revenue Code provides for progressive 

rates of tax, whereby higher incomes are generally subject to higher rates of tax. The graphs below present the 

latest available information on income tax and adjusted 

gross income (AGI) for individuals by AGI level and 

for corporations by size of assets. For individuals, the 

information illustrates, in percentage terms, the tax 

burden borne by varying AGI levels. For corporations, 

the information illustrates, in percentage terms, the tax 

burden borne by these entities by various sizes of their 

total assets. The graphs are only representative of more 

detailed data and analysis available from the Statistics 

of Income (SOI) office.

Average Individual Income Tax Liability and Average Adjusted 

Gross Income (AGI) Tax Year 2007

Under

$15,000

$15,000

under

$30,000

$30,000

under

$50,000

$50,000

under

$100,000

$100,000

under

$200,000

$200,000

under

$250,000

$250,000

or more

Dollars (in thousands)

Average AGI Average Income Tax

$0

$100

$200

$300

$400

$500

$600

$700

$800

4,947

80

22,162

735

39,082

2,363

70,889

6,119

133,240

17,040

222,027

37,838

771,924

176,162

Individual Income Tax Liability as a Percentage of AGI Tax Year 2007

Under

$15,000

$15,000

under

$30,000

$30,000

under

$50,000

$50,000

under

$100,000

$100,000

under

$200,000

$200,000

under

$250,000

$250,000

or more

Percent

0

10%

20%

30%

2% 3%

6%

9%

13%

17%

23%

INDIVIDUAL INCOME TAX LIABILITY

TAX YEAR 2007

Adjusted Gross Income 

(AGI)

Number of 

taxable returns 

(in thousands)

AGI 

(in millions)

Total 

income tax 

(in millions)

Average AGI 

per return 

(in whole dollars)

Average income tax 

per return 

(in whole dollars)

Income tax as 

a percentage 

of AGI

Under $15,000 37,597 $186,000 $3,022 $4,947 $80 1.6%

$15,000 under $30,000 30,229 669,932 22,211 22,162 735 3.3%

$30,000 under $50,000 25,978 1,015,283 61,396 39,082 2,363 6.0%

$50,000 under $100,000 31,260 2,216,021 191,293 70,890 6,119 8.6%

$100,000 under $200,000 13,463 1,793,835 229,415 133,242 17,040 12.8%

$200,000 under $250,000 1,501 333,309 56,802 222,058 37,843 17.0%

$250,000 or more 3,002 2,317,016 528,770 771,824 176,139 22.8%

Total 143,030 8,531,396 1,092,909
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

216 APPENDIX A — OTHER ACCOMPANYING INFORMATION (UNAUDITED)

Corporation Tax Liability as a Percentage of Taxable Income Tax Year 2006 Data

$2,500,000

or more

$500,000

under

$2,500,000

$250,000

under

$500,000

$100,000

under

$250,000

$50,000

under

$100,000

$25,000

under

$50,000

$10,000

under

$25,000

$5,000

under

$10,000

$1,000

under

$5,000

$500 

under

$1,000

$1

under

$500

Zero

Assets

Percent

0.0%

20.0%

40.0%

30.9%

18.8%

24.1%

32.8% 33.1% 32.9% 32.8% 32.0% 31.7% 29.9%

26.2%

29.4%

CORPORATION TAX LIABILITY

TAX YEAR 2006

Total Assets (in thousands) Income subject to tax 

(in millions)

Total income tax after credits 

(in millions)

Percentage of income tax after 

credits to taxable income

Zero Assets $17,500 $5,399 30.9%

$1 under $500 9,519 1,787 18.8%

$500 under $1,000 4,659 1,123 24.1%

$1,000 under $5,000 16,790 4,933 29.4%

$5,000 under $10,000 10,019 3,286 32.8%

$10,000 under $25,000 16,070 5,321 33.1%

$25,000 under $50,000 14,181 4,661 32.9%

$50,000 under $100,000 16,626 5,457 32.8%

$100,000 under $250,000 32,623 10,431 32.0%

$250,000 under $500,000 36,396 11,531 31.7%

$500,000 under $2,500,000 181,767 54,367 29.9%

$2,500,000 or more 935,281 244,788 26.2%

Total $1,291,431 $353,084 27.3%
217

Appendix B:

Improper Payments Information Act 

and Recovery Auditing Act

The Improper Payments Information Act of 2002 (IPIA) requires agencies to review their programs and activities 

annually to identify those susceptible to significant improper payments. According to the Office of Management 

and Budget (OMB) Circular A-123, Management’s Responsibility for Internal Control, Appendix C, Requirements 

for Effective Measurement and Remediation of Improper Payments (A-123, Appendix C), “significant” means 

that an estimated error rate and a dollar amount exceed the threshold of 2.5 percent and $10 million of total 

program funding. A-123, Appendix C also requires the agency to implement a corrective action plan that includes 

improper payment reduction targets.

The government-wide Chief Financial Officers Council developed an alternative for meeting IPIA requirements 

for federal programs that are so complex that developing an annual error rate is not feasible. Agencies may establish an annual estimate for a high-risk component of a complex program (e.g., a specific program population) 

with OMB approval. Agencies must also perform trend analyses to update the program’s baseline error rate in the 

interim years between detailed program studies. When development of a statistically valid error rate is possible, 

the reduction targets are revised and become the basis for future trend analyses. 

I. DESCRIPTION OF THE DEPARTMENT’S RISK ASSESSMENT(S) PERFORMED SUBSEQUENT TO 

COMPILING ITS FULL PROGRAM INVENTORY AND RISK-SUSCEPTIBLE PROGRAMS.

Each year, the Department develops a comprehensive inventory of the funding sources for all programs and 

activities and distributes it to the Treasury bureaus and offices. If program or activity funding is at least $10 

million, Risk Assessments are required at the payment type level (e.g., payroll, contracts, vendors, travel, etc.). 

For those payment types resulting in high risk assessments that comprise at least 2.5 percent and $10 million of a 

total funding source, (1) statistical sampling must be performed to determine the actual improper payment rate, 

and (2) a corrective action plan must be developed and submitted to the Department and OMB for approval.

Responses to the Risk Assessments produce a score that falls into pre-determined categories of risk. The following 

table describes the actions required to be taken at each risk level:

RISK LEVEL REQUIRED ACTION(S)

High Risk > 2.5% Error Rate & > $10 Million Corrective Action Plan

Medium Risk Review Payment Controls for Improvement

Low Risk No Further Action Required

The Risk Assessments performed across the Department in fiscal year 2009 resulted in all programs and activities 

as low and medium risk susceptibility for improper payments except for the Internal Revenue Service’s (IRS) 

PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT
218

Earned Income Tax Credit (EITC) program. The EITC’s high-risk status is well-documented, having been previously identified in the former Section 57 of OMB Circular A-11, Preparation, Submission, and Execution of the 

Budget, and has been deemed a complex program for the purposes of the IPIA.

II. DESCRIBE THE STATISTICAL SAMPLING PROCESS CONDUCTED TO ESTIMATE THE 

IMPROPER PAYMENT RATE FOR EACH PROGRAM IDENTIFIED.

EARNED INCOME TAX CREDIT

The EITC is a refundable federal tax credit that offsets income taxes owed by low income workers and, if the 

credit exceeds the amount of taxes owed, provides a lump-sum payment to those who qualify. 

The next section explains how the IRS currently develops its erroneous payment projections. The most recent 

projection is based on a tax year 2001 reporting compliance study that estimated the level of improper overclaims 

for fiscal year 2009 to range between $11.2 - $13.3 billion and 23 percent (lower bound) to 28 percent (upper 

bound) of approximately $48.1 billion in total program payments.

NATIONAL RESEARCH PROGRAM (NRP) ANALYSIS

The complexity of the EITC program, the nature of tax processing, and the expense of compliance studies 

preclude statistical sampling on an annual basis to develop error rates for comparison to reduction targets. The 

estimates are based primarily on information from the National Research Program (NRP) reporting compliance 

study of individual income tax returns for tax year 2001—the most recent year for which compliance information 

from a statistically valid, random sample of individual tax returns is available. The approach is nearly identical to 

that used for earlier years. The difference is that the estimates make use of more recent EITC payment data from 

the President’s fiscal year 2010 Budget.

Under the tax year 2001 NRP reporting compliance study, individual income tax returns filed during calendar 

year 2002 for tax year 2001 were randomly selected for examination.1

 This selection method allows the measures 

for the individual income tax return filing population to be estimated from the results of the NRP sample returns. 

Because one of the objectives of the NRP is to provide data for compliance measurement, NRP procedures and 

data collection differed from those followed in standard examination programs. NRP classification and examination procedures were more comprehensive in scope and depth than those for standard examination programs. 

These expanded procedures were designed to provide a more thorough determination of what taxpayers should 

have reported on their returns. 

The tax year 2001 NRP individual income tax return study covered filers of all types of individual income tax 

returns. About 6,400 of the approximately 44,400 returns in the regular NRP sample were EITC claimants.2

 The 

NRP study results for this EITC claimant subset of NRP returns were the primary source of data for the improper payments estimates. Other data and information sources used for the estimates included the IRS Enforcement 

Revenue Information System (ERIS), which tracks assessments and collections from IRS enforcement-related 

activities; Treasury Department estimates of the effect of the EITC provisions in the Economic Growth and Tax 

1 The NRP used a stratified, random sample design. Returns are grouped into predefined categories or “strata” and selected randomly within 

each stratum.

2 About 1,600 other returns (the “calibration sample”) were included in the tax year 2001 NRP Individual Income Tax Study. These returns 

went through a somewhat different examination process and they were not used for these calculations.

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT 219

Relief Reconciliation Act of 2001 (EGTRRA) on erroneous EITC claims, and Treasury Department fiscal year 

2010 EITC budget estimates.

Enacted in 2001, EGTRRA contains several provisions related to the EITC that became effective for tax year 

2002. These provisions are believed to influence taxpayer behavior in a number of ways, among them increased 

claims and improved compliance for EITC claimants.3

 Since the improper payment rate is derived from pre-EGTRRA taxpayer behavior (tax year 2001), it must be adjusted to reflect the estimated impact of the EITC-related 

EGTRRA provisions. Treasury Department economists conducted an analysis of the EITC-related EGTRRA 

provisions, concluding that the provisions reduced EITC erroneous claims by about 13 percent and increased 

claims by about 5 percent.4

 To account for these effects, the NRP-based estimate of the improper payment rate 

for tax year 2001 was adjusted by reducing the of the Amount of EITC Overclaimed by 13 percent and increasing 

the Amount of EITC Claimed on all Returns by 5 percent.

The general approach for developing the fiscal year 2009 set of EITC improper payments estimates involved the 

following steps: (1) estimating an improper payment rate for tax year 2001 using the NRP data, (2) adjusting 

the tax year 2001 rate to reflect the estimated impact of the EITC-related EGTRRA provisions, (3) estimating 

EITC claims for fiscal year 2009 through fiscal year 2012 by projecting tax year 2001 claims forward using the 

growth rates implicit in Treasury Department budget outlay estimates, and (4) multiplying the adjusted improper 

payment rate by the estimated claims to calculate estimated improper payments for each fiscal year. 

The error rate estimate from the EITC component of the tax year 2006 NRP study will be completed during fiscal year 2010. The updated error estimate will help inform business decisions about program administration and 

meets IPIA standards for measuring and reporting on improper payments.

III. DESCRIBE THE CORRECTIVE ACTION PLANS FOR REDUCING THE ESTIMATED RATE OF 

IMPROPER PAYMENTS FOR THE EITC PROGRAM.

The IRS uses a two-pronged approach to reduce erroneous EITC payments: 

1. Continually seek opportunities to increase program efficiency within existing resources – in other words, 

make the base program better; and

2. Test potential business process enhancements to reduce error and then request implementation funding if 

the tests prove successful.

BASE PROGRAM 

In 2009, the IRS prevented more than $3.0 billion from being paid in error. The prevention activity is primarily 

focused in three areas: 

• Examinations – the IRS identifies tax returns for examination and holds the EITC portion of the 

refund until an audit can be conducted. This is the only ongoing IRS audit program where exams are 

3 For example, EGTRRA implemented a uniform definition of a “qualifying child” and simplified the rule for determining which taxpayer 

was eligible to claim the qualifying child in potentially ambiguous cases (the AGI tiebreaker rule). The simpler rules were expected to 

enhance compliance by reducing the number of claims arising from misinterpretation of the tax law and to increase the number of claims 

by those who were deterred by its complexity.

4 The estimates were in 1999 dollars.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

220 APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT

conducted before a refund is released. The examination closures and enforcement revenue protected in the 

charts below do not include test initiatives.

• Math Error – this refers to an automated process in which the IRS identifies math or other statistical 

irregularities and automatically prepares an adjusted return for a taxpayer. Congressional approval is 

required for math error use.

• Document Matching – involves comparing income information provided by the taxpayer with matching 

information (e.g., W-2s, 1099s) from employers to identify discrepancies.

The chart below shows significant results from fiscal year 2004 through fiscal year 2010. In fiscal year 2009 alone, 

the IRS conducted over 500,000 examinations, issued 350,000 math error notices, and closed over 300,000 document matching reviews.

COMPLIANCE ACTIVITIES

(THOUSANDS)

FY04* FY05* FY06* FY07 FY08* FY09** FY10*** FY04-FY10 Total

Examinations 472,022 527,969 517,617 503,267 503,755 508,398 500,000 3,533,028

Math Error Notices** 624,590 515,890 460,316 393,263 432,797 350,000 350,000 3,126,856

Document Matching 300,000 324,419 364,020 394,217 377,327 314,469 325,000 2,399,452

Amended Returns 32,473 25,395 25,000 82,868

*Restated actual

**Preliminary estimates 

***Estimate based on fiscal year 2009 preliminary data

These activities had a significant effect. Treasury projects that continued enforcement efforts will protect a total of 

$19 billion in revenue through fiscal year 2010.

ENFORCEMENT REVENUE PROTECTED

($ BILLIONS)

FY04 FY05* FY06* FY07* FY08* FY09** FY10*** FY04-FY10 Total

Examinations 1.12 1.35 1.50 1.49 2.00 2.15 2.15 11.76

Math Error Notices** 0.62 0.52 0.46 0.41 0.44 0.38 0.38 3.21

Document Matching 0.25 0.53 0.60 0.73 0.74 0.63 0.65 4.13

Amended Returns 0.07 0.07 0.07 0.21

TOTAL 1.99 2.40 2.56 2.63 3.25 3.23 3.25 19.31

*Restated actual

**Preliminary estimates 

***Estimate based on fiscal year 2009 preliminary data
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT 221

TESTING NEW BUSINESS PROCESSES

The IRS continues to build new solutions for existing business processes and to use other activities to combat 

program error including: 

• Continuing the partnership with members from two key tax software associations to identify software 

enhancements and collaborative efforts that can help reduce EITC errors and assist preparers in meeting 

their EITC due diligence requirements

• Implementing an on-line training module for paid preparers on EITC preparer due diligence requirements and standards

• Further refining and completing activities associated with a suite of EITC paid preparer treatments, 

based on risk-based selections, including due diligence audits, visits by revenue and criminal investigation 

agents, streamlined injunctions, first-time paid preparer treatments to influence the accuracy of EITC 

returns filed, and analyzing short-term outcomes, including penalties and accuracy of returns.

IV. EITC IMPROPER PAYMENT REDUCTION OUTLOOK 

The reduction outlook for EITC improper payments is as follows:

IMPROPER PAYMENT (IP) REDUCTION OUTLOOK

($ IN BILLIONS)

Program

PY 

Outlays PY % PY $

CY 

Outlays

CY 

IP% CY IP$

CY+1 

Est 

Outlays

CY+1 

IP%

CY+1 

IP$

CY+2 

Est 

Outlays

CY+2 

IP%

CY+2 

IP$

CY+3 

Est 

Outlays

CY+3 

IP%

CY+3 

IP$

EITC Upper 

Bound 

Estimate

$47.6 28% $13.1 $48.1 28% $13.3 $60.7 28% $16.8 $58.5 28% $16.2 $49.4 28% $13.7

EITC Lower 

Bound 

Estimate

$47.6 23% $11.1 $48.1 23% $11.2 $60.7 23% $14.2 $58.5 23% $13.6 $49.4 23% $11.5

Outlays: The amounts shown are projections of total payments for the EITC, estimated by the Office of Tax Analysis within the Department of the Treasury. 

Following prior methodology, the amount shown is the total EITC claimed.

IP % and IP $: These estimates follow the prior approach which provided a range for improper payments.

Note: The Improper Payment percentage and Estimated Outlay columns reflect a constant error rate pending the development of an annual error rate 

measurement.

CY+1 and CY+2 estimates include ARRA EITC provisions which expand EITC for families with three children and increase the beginning of the phaseout range for 

couples filing a joint return.

CY: Current year; PY: Prior year
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

222 APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT

RECOVERY AUDITING ACT

V. TREASURY’S RECOVERY AUDITING PROGRAM

Section 831 of the Defense Authorization Act for fiscal year 2002 added a new subchapter to the U.S. Code (31 

U.S.C 3561-3567), also known as the Recovery Auditing Act, that requires agencies that enter into contracts with 

a total value in excess of $500 million in a fiscal year to carry out a cost-effective program for identifying errors 

made in paying contractors and for recovering amounts erroneously paid to the contractors. A required element 

of such a program is the use of recovery audits and recovery activities. In accordance with OMB Circular A-123, 

Management’s Responsibility for Internal Control, Appendix C, reporting on recovery auditing is required annually. 

In fiscal year 2009, Treasury issued contracts totaling $5.0 billion. The annual Improper Payments Information 

Act Risk Assessment process includes a review of pre-payment controls that minimize the likelihood and occurrence of improper payments. For Recovery Auditing Act compliance, Treasury requires each bureau and office to 

review their post-payment controls and report on recovery auditing activities, contracts issued, improper payments made, and recoveries achieved. Bureaus and offices may use recovery auditing firms to perform many of the 

steps in their recovery auditing program and identify candidates for recovery action. 

Treasury considers both pre-payment and post-payment reviews to identify payment errors a good management 

practice that should be included among basic payment controls. All of Treasury’s bureaus use some form of 

recovery auditing techniques to identify improper payments during post-payment reviews. At times, bureaus may 

use the services of recovery auditors to help them identify payment anomalies and target areas for improvement. 

However, Treasury has extensive contract payment controls that are applied at the time each payment is processed, 

making recovery activity minimal. The low level of improper payments in 2009 did not require any Treasury 

bureau to develop a management improvement program under Recovery Auditing Act guidance. 

RECOVERY AUDITING INFORMATION FISCAL YEAR 2004 - FISCAL YEAR 2009

Agency

Amount 

Subject to 

Review for CY 

Reporting

Actual Amount 

Reviewed and 

Reported CY

Amount 

Identified 

for 

Recovery 

CY

Amount 

Recovered 

CY*

Amount 

Identified 

for 

Recovery 

PY

Amount 

Recovered 

PY

Cumulative 

Amts. Identified 

for Recovery 

(CY+PYs)

Cumulative 

Amts. 

Recovered 

(CY+PYs)

Treasury $5,254,751,759 $4,661,539,275 $1,475,232 $1,357,672 $825,279 $839,818 $6,733,805 $5,500,579

Note: CY: Current year; PY: Prior year

* Includes amounts identified for recovery in prior years.

For fiscal year 2009, the total number of contracts subject to review was 34,855; the total number reviewed was 

32,311, for a total program cost of approximately $1.2 million dollars.
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT 223

VI. MANAGEMENT ACCOUNTABILITY

The Secretary of the Treasury has delegated responsibility for improper payments to the Assistant Secretary for 

Management/Chief Financial Officer (ASM/CFO). 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 bureau’s annual improper payment review process. Under Treasury Directive 40-04, Treasury 

Internal (Management) Control Program, executives and other managers are required to have management control 

responsibilities as part of their annual performance plans. With oversight mechanisms such as the Treasury CFO 

Council and the IRS’s Financial and Management Controls Executive Steering Committee, managerial responsibility and accountability in all management and internal control areas are visible and well documented. 

Improper payments also have been monitored for improvement as a significant deficiency under the Federal 

Managers’ Financial Integrity Act. Executives who are responsible and accountable for reducing the level of EITC 

overclaims have been identified, while other senior and mid-level officials have responsibility for monitoring 

progress in this area as bureau and program internal control officers.

VII. RESOURCES REQUESTED IN THE FISCAL YEAR 2010 BUDGET SUBMISSION TO CONGRESS

The IRS fiscal year 2010 President’s Budget submission included no new initiatives related directly to the EITC 

program.

VIII. LIMITING STATUTORY AND REGULATORY BARRIERS

A number of factors serve as barriers to reducing overclaims in the EITC program. These include:

• Complexity of the tax law

• Structure of the Earned Income Tax Credit

• Confusion among eligible claimants

• High turnover of eligible claimants

• Unscrupulous return preparers

• Fraud

No one of these factors can be considered the primary driver of program error. Furthermore, the interaction 

among the factors makes addressing the credit’s erroneous claims rate, while balancing the need to ensure the 

credit makes its way to taxpayers who are eligible, extremely difficult.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

224 APPENDIX B — IMPROPER PAYMENTS INFORMATION ACT AND RECOVERY AUDITING ACT

This page left intentionally blank
225

Appendix C:

Management and Performance Challenges and Responses

In accordance with the Reports Consolidation Act of 2000, the Inspectors General issue Semiannual Reports to Congress 

that identify specific management and performance challenges facing the Department. At the end of each fiscal year, the 

Treasury Office of Inspector General (OIG) and the Treasury Inspector General for Tax Administration (TIGTA) send an 

update of these management challenges to the Secretary and cite any new challenges for the upcoming fiscal year.

This Appendix contains the incoming management and performance challenges letters from OIG and TIGTA and the 

Secretary’s responses describing actions taken and planned to address the challenges.

PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
226

This page left intentionally blank

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 227
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

228 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 229
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

230 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 231
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

232 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 233

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C.

S E C R E TA R Y O F T H E T R E A S U R Y

December 11, 2009

MEMORANDUM FOR ERIC M. THORSON

INSPECTOR GENERAL

FROM: Timothy F. Geithner

SUBJECT: Management and Performance Challenges Facing the 

Department of the Treasury

I am responding to your memorandum of October 29, 2009, describing your perspective on the most serious 

management and performance challenges facing the Department of the Treasury. The Department appreciates 

your independent assessment of progress in addressing these challenges.

Fiscal year (FY) 2009 brought a new management challenge, Management of Recovery Act Programs. The 

Department has established effective control structures to monitor the implementation of our Recovery Act 

programs to ensure they achieve their intended purposes, as well as to provide unprecedented accountability and 

transparency.

I want to thank you for recognizing our efforts in resolving Corporate Management and Information Security issues 

and for removing them from your listing of the Department’s management challenges. We have taken, and will 

continue to take, appropriate actions to address those and remaining management challenges. 

The Department is committed to remain vigilant about the risks associated with all of our programs and to adjust 

our strategies based on changing circumstances to achieve financial stability, economic security, and protection of 

the taxpayer. We look forward to working with you to further address these challenges.

Challenge 1 – Treasury’s New Authorities Related to Distressed Financial Markets

The financial system and the economy are showing signs of stability. The cost of borrowing has declined to precrisis levels for many businesses, states and local governments, the government sponsored enterprises (GSEs), and 

the banks. Housing markets have shown signs of stabilization, and home prices have ticked up in recent months, 

after three straight years of declines. The economy grew in the third quarter, and most private economists predict 

it will grow for the remainder of this year and next. That improvement in the economic and financial outlook 

since the spring reflects a broad and aggressive policy response that included the financial stability policies 

implemented under the Troubled Asset Relief Program (TARP), efforts to bolster confidence in the housing 

and mortgage markets under the Housing and Economic Reform Act (HERA), other financial stability policies 

implemented by the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve 

System (Federal Reserve), accommodative monetary policy, and the Obama Administration’s fiscal stimulus 

package implemented under the American Recovery and Reinvestment Act of 2009.

Despite TARP’s positive record to date, and the improving financial and economic outlook, significant challenges 

remain for the financial sector and our economy. While the economy is growing again, jobs are still being lost 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

234 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 2

and credit losses in some parts of the financial system are still accelerating. The pace of bank failures, which tends 

to lag economic cycles, remains elevated. Foreclosure rates also remain high. Bank lending continues to contract, 

with credit standards tight and demand still down. Small businesses rely heavily on such lending, as they do not 

have the ability to raise capital through debt issuance in securities markets. Further, commercial real estate losses 

weigh heavily on many banks, especially those that are small, impairing their ability to extend new loans. While 

a number of TARP initiatives have begun to wind down, Treasury continues to focus on stabilizing the housing 

markets as well as improving access to credit for small businesses. Based on the need for continuing work in these 

areas and also the need to ensure an orderly close out of the TARP Program, we have extended TARP authority 

to October 3, 2010. Following is additional information on actions we have taken and continue to take in 

addressing this challenge. 

The Department of the Treasury’s Office of Debt Management (ODM) has purchased over $200 billion in 

Mortgage Backed Securities (MBS) guaranteed by Fannie Mae and Freddie Mac through two expert asset 

managers, Barclays Global Investors and State Street Global Advisors. The Housing and Economic Recovery Act 

of 2008 granted Treasury the authority to make these purchases. That authority expires December 31, 2009. 

For increased transparency, the Department publishes aggregate information on its holdings of Agency MBS on 

FinancialStability.gov (http://www.financialstability.gov/roadtostability/homeowner.html). Treasury holds 

monthly executive committee meetings chaired by the Acting Under Secretary for Domestic Finance to discuss 

program implementation, and is actively seeking advanced risk management tools beyond those provided by the 

asset managers for the maintenance stage of the program. These tools will be in place by January 1, 2010.

We have tested the Government Sponsored Enterprises Credit Facility (GSECF) in a development environment 

and the Office of the Fiscal Assistant Secretary has established robust procedures for its use. The GSECF has not 

been used to date, nor do we expect it to be before its December 31, 2009 expiration date.

In October 2008, the Emergency Economic Stabilization Act authorized a total of $700 billion for Treasury 

to purchase or to insure troubled assets. Treasury used this authority to implement the Troubled Asset Relief 

Program (TARP) to strengthen the U.S. financial system, restore credit markets for businesses and consumers, 

and address foreclosures in the housing market. In fiscal year 2009, the Department rolled out eight programs: 

Capital Purchase Program; Targeted Investment Program; American International Group Investment Program 

(formerly known as the Systemically Significant Failing Institution Program); Automotive Industry Financing 

Program (including the Auto Suppliers Support Program and the Auto Warranty Program); Asset Guarantee 

Program; Term Asset-Backed Securities Loan Facility, as part of the Consumer and Business Lending Initiative; 

Public-Private Investment Program; and the Home Affordable Modification Program. As of September 30, 2009, 

over $521 billion had been designated for particular TARP programs. Of that amount, over $444 billion had 

been obligated to specific institutions under signed agreements, with over $365 billion of those funds already 

disbursed.

Treasury Departmental Offices and bureaus played a critical role in establishing a well-functioning Office of 

Financial Stability (OFS) to implement these programs.  Over the past year, while aggressively implementing the 

programs listed above, OFS has grown into an organization of 212 full-time employees who support the TARP. 

Initially, several key Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) 

personnel were detailed to OFS positions to provide assistance in setting up accounting, finance, and reporting 

systems.  They also assisted in developing information technology, procurement, and risk management processes. 

The infrastructure put in place to support the TARP mitigates risk for the taxpayer. For each TARP operational 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 235

Page 3

program, sound controls and oversight have been properly designed, planned, and implemented for the longer 

term.

TARP was designed as an emergency response to a major financial crisis. Because financial conditions have 

begun to improve, Treasury has already started the process of exiting from some emergency programs. Although 

Treasury and other government institutions have accomplished a great deal in a relatively short time, more work 

lies ahead. As necessary, TARP will maintain capacity to address new developments until financial stability and 

economic health have been fully restored.

Challenge 2 - Regulation of National Banks and Thrifts

Both the Administration and Congress are in the midst of reviewing numerous proposals for financial regulatory 

reform. Treasury Departmental Offices, OCC, and OTS are working closely with other federal financial 

regulators to ensure a smooth transition to a new regulatory structure. The Department also expects to devote 

resources in 2010 toward implementing the recommendations of its working groups on the conduct of financial 

supervision and regulation and on the regulatory capital regime.

Regulation of National Banks

In fiscal year 2009, 13 OCC-supervised and regulated national banks failed, with estimated losses to the deposit 

insurance fund totaling approximately $3.7 billion.  All 13 are community banks and the majority of these 

failures were the result of high concentrations in acquisition, development, and construction lending to the 

residential construction industry. In addition to taking actions to address the recommendations contained in 

the four Material Loss Review reports issued by your office during fiscal year 2009, the OCC conducted its 

own reviews of the national bank failures.  Lessons learned included the need to reinforce adherence to OCC’s 

policy on the timely use of and follow through on “Matters Requiring Attention,” and the need to ensure that 

bank management and boards of directors provide effective oversight and adequate controls over risk. The OCC 

reports that the results of these critical reviews were used to communicate areas of concern to examiners and to 

adjust supervisory processes to better protect the safety and soundness of the national banking system.

During fiscal year 2009, the OCC introduced a program for its large national bank population that emphasized 

more intensive, ongoing monitoring of bank liquidity, standardization of liquidity measures across institutions, 

and evaluation of banks’ liquidity cushions and contingency plans in the regular course of their OCC supervision.

In June the federal banking agencies released for comment the proposed Interagency Guidance on Funding 

and Liquidity Risk Management, which would effectively extend the features of the OCC’s program to all 

domestic financial institutions.  In September the federal banking agencies also released for comment proposed 

Interagency Guidance on Correspondent Concentration Risks. More broadly, the OCC worked with other financial 

supervisors, both domestically and internationally, to identify areas where risk management practices at financial 

institutions and supervisory expectations or requirements need to be strengthened.  In this regard, the OCC is 

actively involved in efforts underway by the Basel Committee on Banking Supervision to strengthen and enhance 

international capital standards and liquidity risk management.  The Comptroller continued to serve as cochairman of the Financial Stability Board’s working group on provisioning.

In the area of consumer regulation and protection, the OCC issued guidance to national banks on the Credit 

Card Accountability Responsibility and Disclosure (CARD) Act of 2009; Final Rules and Guidelines to Promote 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

236 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 4

Accurate Reports about Consumers; and Final Rules and Guidelines Implementing Accuracy and Integrity 

Provisions of the Fair and Accurate Credit Transactions Act.  The OCC also issued Consumer Advisories.

The OCC’s Bank Supervision Operating Plan describes several key objectives for 2010. Effective credit risk and 

liquidity risk management, as well as the quality of capital and level of regulatory capital to absorb unexpected 

losses are areas of focus. Supervisory attention will also focus on corporate governance and compliance functions, 

the capability of bank management to manage risk, and the effective resolution of problem banks. The OCC 

will also encourage banks to continue to meet the needs of credit worthy borrowers and comply with consumer 

compliance laws and regulations.

Regulation of Thrifts

During fiscal year 2009, 14 OTS-regulated thrifts were placed in receivership with estimated losses to the deposit 

insurance fund of approximately $11 billion. Many of these failures were the result of poor risk management 

practices and excessive concentrations in high risk assets.

In addition to responding to Material Loss Review recommendations from your office, the OTS conducts 

internal reviews following the receivership of failed thrifts. The objective of the internal assessment is to review 

the chronology of events leading to the failure, identify the causes of the failure, evaluate OTS supervision 

and enforcement activities, and provide recommendations for addressing the findings of the review. The 

OTS completed seven such reviews in fiscal year 2009, and has made significant progress implementing the 

recommendations from these reviews.

During 2009, the OTS supplemented and improved staff guidance to address concentration risks, enforcement 

actions, capital contributions, downgraded securities, examination follow-up, and other key supervisory issues. 

The OTS also emphasized the importance of comprehensive loan modification programs to provide solutions 

for borrowers who cannot afford their current mortgage payments. In August, the OTS released Thrift Bulletin 

85, Regulatory and Accounting Issues Related to Modifications and Troubled Debt Restructurings of 1-4 Residential 

Mortgage Loans, to update thrift management on accounting and regulatory issues associated with loan 

modification programs.

Also in 2009, the OTS issued a final rule prohibiting a series of unfair credit card practices under the Agency’s 

authority to issue regulations under Section Five of the Federal Trade Commission Act banning unfair 

and deceptive acts and practices. The economic downturn will continue to have a significant affect on the 

performance of the thrift industry over the next several years.

To meet the challenges that will arise during fiscal year 2010, OTS has emphasized the following priorities in 

thrift supervision. During each regular examination OTS staff will review each thrift’s operations to ensure it is 

properly managing any concentration risk in its portfolio, has sufficient capital commensurate with its operations, 

has appropriate and effective risk management controls, and has sufficient liquidity levels and contingency 

liquidity plans. The OTS will continue to work on an inter-agency basis with the other federal banking regulators 

to ensure fair and balanced regulation that includes appropriate counter-cyclical and systemic risk measures.

Reform efforts

As part of a comprehensive package of financial regulatory reform, Treasury has proposed legislation to overhaul 

the structure of federal supervision and regulation, including consolidating the OCC and OTS into one 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 237

Page 5

agency. Treasury’s proposals would also make sure that all financial firms that own banks are subject to robust 

consolidated supervision by closing gaps and loopholes in the Bank Holding Company Act and requiring thrift 

holding companies to become bank holding companies. Other elements of the comprehensive reform include 

requiring all firms whose failure could threaten financial stability to submit to strong prudential supervision 

regardless of whether they own a bank; creating a Financial Services Oversight Council (FSOC) to monitor 

emerging threats; establishing a new Consumer Financial Protection Agency; and creating a resolution regime 

for large, highly interconnected financial firms to allow these firms to fail while protecting taxpayers and the 

economy.

Treasury also continues to work with the OCC, OTS, and other federal financial agencies to analyze lessons 

learned from the financial crisis and pursue appropriate reforms that do not require legislative action.  Following 

on the release of the Treasury’s regulatory reform legislative proposals, Treasury is leading working groups on 

regulatory capital and on the future of financial supervision and regulation. These working groups will make 

further proposals for strengthening the conduct of supervision and addressing shortcomings in rules and 

regulations.  The Treasury expects that implementing their recommendations will require the commitment of all 

of these agencies in the next two years.

Challenge 3 – Management of Recovery Act Programs

Under the American Recovery and Reinvestment Act of 2009 (ARRA, or Recovery Act), Treasury administers 

grants, cash assistance in lieu of tax credits, economic recovery payments, and some 60 tax relief provisions which 

will deliver over $300 billion in relief to American families and businesses. 

Treasury recognizes the immense challenges in managing its Recovery Act programs in a manner that ensures the 

programs achieve their intended purpose, provide for unprecedented accountability and transparency, and are free 

from fraud and abuse. 

In implementing ARRA, the Department must ensure that we balance and meet the objectives of speed, quality 

and accountability. To achieve these objectives, Treasury established a Recovery Act implementation team 

responsible for working with the program offices across the Department. The Recovery Act team facilitates all 

Recovery Act implementation Department-wide and interfaces with the broader Recovery Act community. As 

part of this broad responsibility, the team establishes internal processes, addresses external data requirements, 

manages risk inherent in Recovery Act implementation, and coordinates Treasury Recovery Act audits. The 

team works closely with the Office of Management and Budget (OMB) and the Recovery Implementation 

Office to document progress on Recovery Act implementation and assists in implementing OIG/TIGTA/GAO 

recommendations.

Internally, the Recovery Act team developed detailed spend plans for its major programs and documents reporting 

responsibility for executing those initiatives. Treasury monitors and reviews those spend plans with bureau 

and Senior-accountable officials. This review focuses on items such as percent on-time performance for project 

activities, obligations and outlays versus plan, acquisition competition and contract types, performance measure 

actual values versus targets, and accountability metrics. Corrective and preventive actions, established as a result 

of the reviews, are tracked for implementation. We also review risk assessments and the implementation of 

mitigation plans to minimize the probability of fraud and abuse. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

238 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 6

Treasury keeps the public informed through both agency and bureau websites and press releases, and monitors 

timely submissions to both the Recovery.gov and Treas.gov Recovery Act web pages. 

ARRA established a number of innovative new programs to ease the impact of the credit crunch on state and 

local government budgets. One such program, which has been implemented very successfully by the Department 

of the Treasury, is the Build America Bond program (BAB). BABs are taxable bonds issued by state and local 

governments with a 35 percent interest subsidy paid directly to the issuer by the federal government. This bond 

program has allowed states to raise capital needed for crucial infrastructure projects by attracting new investors to 

the municipal bond market and reducing the issuer’s debt cost. $47 billion in Build America Bonds were issued 

from the program’s inception in April 2009 through the end of October, representing 21 percent of all municipal 

issuances in that time frame. A total of 42 states have participated in the program with over 500 separate issues. 

In addition to giving issuers access to much needed capital, the program has succeeded in making municipal debt 

attractive to new investors such as pension funds and foreign investors. By bringing in new investors, BABs have 

relieved supply pressure and have helped reduce borrowing costs on traditional tax-exempt municipal debt.

You expressed concern that Treasury staffing for two of our Recovery Act programs (cash assistance to states for 

low-income housing projects in lieu of tax credits and cash assistance for specified energy property in lieu of 

tax credits) is not commensurate with the size of these programs. The Office of the Fiscal Assistant Secretary 

assembled a core staff of five full-time employees to manage these programs. Although this is a small staff in 

relation to the size of the programs, we are achieving success by ensuring that this staff has appropriate skill sets 

and by leveraging the skills and expertise of others, both within and outside the Department.  Staff members from 

several other offices within Treasury, including the IRS, are devoting time to these two programs.  Additionally, 

we entered into an Interagency Agreement with the Department of Energy to provide necessary technical 

expertise in implementing the energy cash assistance program. We successfully implemented both of these 

programs in five months and have made awards to date in excess of $4 billion.

We recognize that staffing needs may change over the life of the programs, particularly as we move into the 

post-award monitoring phase.  We therefore will continue to evaluate workforce needs and make adjustments as 

necessary. 

Challenge 4 - Management of Capital Investments

The Department takes investment management very seriously and remains committed to improving the 

management of Information Technology (IT). In support of this commitment, the Department-level 

Executive Investment Review Board (E-Board), chaired by the Deputy Secretary and the Assistant Secretary for 

Management and Chief Financial Officer (ASM/CFO), met twice in fiscal year 2009. In support of the E-Board’s 

efforts and to fulfill its IT Governance role, the Office of the Chief Information Officer (CIO) is actively engaged 

in the following activities:

Infrastructure Optimization – In July 2009, the Treasury E-Board endorsed a multi-faceted strategy for reducing 

the Department’s IT infrastructure costs. To support this strategy, the Treasury CIO Council is developing a 

proposal of specific initiatives which will achieve cost savings by maximizing all infrastructure optimization and 

consolidation opportunities.
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 239

Page 7

Monthly Evaluation of IT Investments – In July 2009, the Treasury CIO began monthly evaluations on the degree 

to which major IT investments met cost, schedule, and other performance goals. This information is made 

possible via a website hosted by OMB. The public transparency and increased frequency of assessments have 

resulted in increased executive attention to IT investment management, which in turn results in more consistent 

management of the Treasury IT budget.

Oversight of the Treasury Network (TNet) Transition – Recognizing the challenges associated with critical 

infrastructure investments, the Office of the CIO is actively overseeing the transition to Treasury’s new 

consolidated wide area network project, TNet, and making a concerted effort to stay on schedule.

Challenge 5 - Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act Enforcement

The Department does face unique challenges in carrying out its responsibilities under the Bank Secrecy Act 

(BSA) and the USA PATRIOT Act to prevent and to detect money laundering and terrorist financing, and we 

are focused on executing our mission as effectively as possible to protect the integrity of the financial system. The 

Financial Crimes Enforcement Network (FinCEN) has overall authority for BSA enforcement and compliance. 

In the last several years, FinCEN has focused on effective and efficient administration, outreach, and engagement 

of existing industries covered by the BSA. The subsequent paragraphs highlight the actions FinCEN, in 

coordination with other federal and state authorities, completed in fiscal year 2009 with regard to existing 

industries. However, new payment systems and industries vulnerable to money laundering continually evolve, 

such as stored value cards, non-bank mortgage lenders, and hedge funds. In fiscal year 2010 and beyond, 

FinCEN will expand BSA regulations to new industry sectors, consistent with the Administration’s priorities.

In fiscal year 2009, FinCEN published a proposal simplifying the organizational structure of BSA requirements. 

In addition, OCC, OTS, and FinCEN worked with other federal banking agencies to continue to enhance 

the Federal Financial Institutions Examination Council’s Bank Secrecy Act/Anti-Money Laundering Examination 

Manual, first issued in 2005, with revisions to be issued in fiscal year 2010. Following up on the success of 

this manual, FinCEN worked with the IRS and state regulators to develop a Money Services Business (MSB) 

examination manual, released in fiscal year 2009. FinCEN facilitated the development of training materials on 

this manual, and fostered training for state examiners in fiscal year 2009, with further training scheduled in fiscal 

year 2010. Additionally, FinCEN issued a final rule in fiscal year 2009 simplifying the appropriate exemption of 

customers from currency transaction reporting requirements. 

To enhance the efficiency and effectiveness of the BSA regulatory framework, FinCEN also initiated several 

rulemaking proposals in fiscal year 2009, including issuing notices of proposed rulemaking to accomplish the 

following: 

•	 help ensure suspicious activity reports (SARs) are subject to appropriate protection and simultaneously 

issued proposed guidance to expand the ability of financial institution to share SAR information within 

their organizational structures; 

•	 revise the regulatory definition of MSBs to make the determination of which businesses qualify as MSBs 

more straightforward; and 

•	 move to streamline mutual fund BSA requirements by allowing mutual funds to file currency transaction 

reports. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

240 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 8

FinCEN also sought comment on a wide range of questions pertaining to the possible application of anti-money 

laundering (AML) program and SAR rules to non-bank residential mortgage lenders and originators. In fiscal 

year 2010, FinCEN will continue working on these proposals, as well as regulations regarding stored value, as 

mandated by the CARD Act.

Outreach plays an important role in effectively administering the BSA. The Bank Secrecy Act Advisory Group 

(BSAAG) serves as the principal forum to discuss BSA issues among regulators, law enforcement, and the 

industry. FinCEN’s Data Management Council enables government users of the BSA database to have a more 

direct role in providing advice about their information needs and helping FinCEN prioritize adjustments to the 

database. In fiscal year 2009, FinCEN continued outreach to specific financial institutions, visiting several large 

MSBs. We plan to conduct further outreach to additional industry segments in fiscal year 2010.

Active engagement with other regulators is also critical to meet our challenges. FinCEN established 55 

memoranda of understanding (MOU) with federal and state regulators to enhance the sharing of information 

derived from compliance examinations, and by signing a MOU with the Commodity Futures Trading 

Commission (CFTC) in fiscal year 2009, FinCEN has now finalized MOUs with all federal functional regulators. 

FinCEN shared analytic reports in the form of BSA data profiles with these federal and state regulators, and 

surveyed its MOU partners to determine the impact of the information exchanged; 82 percent of respondents 

indicated the information shared with them was valuable. As these MOUs mature, the information exchanged 

will help FinCEN improve BSA examination consistency and compliance. In fiscal year 2010, FinCEN will 

pursue MOUs with additional state regulators.

To enhance regulated financial industry understanding of and compliance with BSA requirements, in fiscal year 

2009 FinCEN published a range of interpretive guidance, including guidance to financial institutions on filing 

SARs regarding loan modification and foreclosure rescue scams; guidance on the scope of permissible information 

sharing covered by Section 314(b) safe harbor of the USA PATRIOT Act, and an educational pamphlet on the 

currency transaction reporting requirements. In fiscal year 2010, FinCEN will conduct strategic analytical studies 

and publish reports promoting both greater awareness of emerging money laundering trends, vulnerabilities, and 

avoidance of compliance expenditures that are not commensurate with actual risks. These initiatives will include 

additional analysis on mortgage loan and loan modification fraud. 

A primary strategy for meeting the goal of a safer, more transparent financial system includes effective 

examination for any potential money laundering, terrorist financing, and BSA issues in OTS and OCCsupervised institutions. OTS and OCC continue to examine compliance with BSA, USA PATRIOT Act, and 

other anti-money laundering provisions through a process which consists of on-site examinations conducted 

every 12-18 months, supplemented by off-site monitoring and follow-up to address identified supervisory 

issues. Additionally, in fiscal year 2009 FinCEN and the IRS continued implementing a strategy for developing 

and implementing a more effective BSA examination regime for non-bank financial institutions that the IRS 

examines. Implementation of this strategy and other efforts, including enhancements to the non-compliance 

referral process, will continue through fiscal year 2010.

Challenge 5 also refers to Office of Foreign Assets Control (OFAC) programs and discusses OFAC MOUs with 

state and federal regulators.  It is true that financial institutions’ OFAC compliance programs are critical to the 

implementation of sanctions, and OFAC will continue to work with regulators and the regulated community 

to ensure attention to OFAC compliance is not lessened in the current environment.  Substantively, the MOUs 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 241

Page 9

with Federal and State regulators are working as intended.  OFAC keeps a financial institution’s regulator fully 

informed about any apparent violation of OFAC regulations by that institution.  This information is used to help 

the regulators develop the scope of the OFAC examination to which the institution should be subject.  OFAC 

also requests and receives information from the regulators about the sufficiency of a financial institution’s OFAC 

compliance program.  This information is used as a factor in determining what level of enforcement action to 

take against a financial institution for an apparent violation of OFAC regulations.  In addition to these formal 

requests, the regulators may contact OFAC if they have particular concerns about an institution.

cc: The Deputy Secretary

 Assistant Secretary for Management and Chief Financial Officer
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

242 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

This page left intentionally blank
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 243
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

244 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 245
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

246 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 247
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

248 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 249
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

250 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 251
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

252 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 253
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

254 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 255
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

256 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

This page left intentionally blank
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 257

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C.

S E C R E TA R Y O F T H E T R E A S U R Y

December 11, 2009

MEMORANDUM FOR J. RUSSELL GEORGE

TREASURY INSPECTOR GENERAL FOR

TAX ADMINISTRATION

FROM: Timothy F. Geithner

SUBJECT: Response to Management and Performance Challenges Facing the 

Internal Revenue Service

I am responding to your October 15, 2009, memorandum describing the most serious management and 

performance challenges facing the Internal Revenue Service (IRS). The Department appreciates your independent 

assessment of progress in addressing these challenges. This memorandum provides information on the actions 

completed in Fiscal Year (FY) 2009 and the actions planned for fiscal year 2010 to address these challenges.

Challenge 1 - Modernization

In fiscal year 2009, IRS continued to execute on its long-term plan to modernize the technological underpinnings 

of the nation’s tax system. The Customer Account Data Engine (CADE), Modernized e-File (MeF), and Account 

Management Services (AMS) modernization projects delivered the changes necessary for a successful tax filing 

season, supported implementation of the American Reinvestment and Recovery Act (ARRA) provisions, and 

provided audit trails to enhance the security posture of IRS systems. 

Also in fiscal year 2009, the IRS enhanced its strategy to accelerate completion of a consolidated taxpayer account 

database, in part based on feedback from TIGTA. Contingent upon funding, the IRS plans to implement the 

new taxpayer account database for the 2012 filing season. The new database will support daily processing and 

result in faster refunds for all individual refund filers. Daily updating of individual taxpayer accounts by 2012 

also will improve taxpayer service and accuracy, reduce interest paid on late refunds, improve data security, and 

create new tools to combat fraud and improve enforcement activities. Completion of the taxpayer account 

database is the prerequisite for other major initiatives, including significant expansion of online services and 

transactions and next generation of enforcement technologies.

Challenge 2 - Security

In fiscal year 2009, the IRS expanded its efforts to detect and prevent security threats. By securing infrastructure, 

data, and applications, the IRS protected access to taxpayer information. For example, every laptop at the IRS is 

equipped with sophisticated disk encryption software to protect against unauthorized use of sensitive data.

The IRS also maintained an agency-wide information security program and made major enhancements to its 

Disaster Recovery Program to ensure the continuity and resiliency of IRS critical business processing systems. An 

Emergency Management and Preparedness Executive Steering Committee was established to direct an IRS-wide 

emergency management program, and the Physical Security and Emergency Preparedness office focuses on 

management of the IRS continuity planning program.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

258 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 2

The IRS takes the issue of Identity Theft very seriously. In fiscal year 2009, to preserve and enhance public 

confidence, the IRS established specialized units and dedicated toll-free telephone lines to provide guidance 

and assistance to taxpayers affected by identify theft. In the first year, the IRS responded to more than 120,000 

calls and opened nearly 34,000 cases of suspected identity theft for further investigation. The IRS also placed 

markers on more than 231,300 taxpayer accounts to alert employees the account belongs to a substantiated 

identity theft victim. In fiscal year 2009, the IRS sent nearly 79,600 letters to individuals to inform them their 

personal information was used by another individual to file a return or may have been compromised through 

phishing scams. The IRS also eliminated the use of Social Security Numbers (SSNs) on more than 8 million 

forms, notices, and letters issued.  This is the first large-scale effort to eliminate and reduce the use of SSNs on 

taxpayer correspondence. Over the next two to five years IRS will eliminate the use of SSNs on more than 90 

million notices and forms sent to individual and business taxpayers.

To address the challenges of malicious code or software into the network, the Computer Security Incident 

Response Center (CSIRC) provides the IRS with a team of capable “first responders” organized, trained, and 

equipped to identify, contain, and eradicate cyber threats targeting IRS computing assets. In fiscal year 2009, the 

IRS repelled more than 35 million unauthorized access attempts, with about one-third of this malicious activity 

originating from outside the United States.

In fiscal year 2010, the IRS will continue to develop and update its business and continuity plans to protect 

employees and to recover the critical business processes, data, and information technology systems. A test and 

exercise program is in development that integrates all four business continuity plans used to prepare for, respond 

to, and recover from a disaster or emergency incident.

Challenge 3 - Tax Compliance Initiatives

During fiscal year 2009, the IRS focused on targeting its enforcement efforts on high-risk categories of noncompliance to support the overall goal of reducing the tax gap. In addition to the specific programs outlined 

below, the IRS continued work on a reporting compliance study for individual taxpayers that will provide 

updated and more accurate audit selection tools as the first of an ongoing series of individual studies using a 

rolling multi-year methodology. Studies in subsequent tax years will allow the IRS to make more frequent 

updates to its voluntary compliance estimates.

The IRS has a seven-part, multi-year strategy to address the Tax Gap as presented in the July 2009 Tax 

Gap Report.  The strategy outlines a series of initiatives designed to reduce opportunities for tax evasion by 

implementing more stringent reporting requirements, making a commitment to providing more useful, up-todate estimates of the tax gap, and continuing to make improvements in information technology to help make 

early detection and intervention efforts more effective. Additional strategies include supporting a sustained focus 

in the areas of greatest risk including international enforcement, improved compliance programs for business and 

high-income individuals, and providing innovative on-line services and streamlined written communication to 

enhance taxpayer services. Reform and simplification of the tax law includes the continuing effort to simplify tax 

forms and publications and taxpayer burden reduction actions. The multi-pronged strategy also includes ensuring 

ethical standards of conduct for tax preparers to improve taxpayer compliance. 

IRS actions to address compliance by businesses and individuals in fiscal year 2009 included expanded 

enforcement presence in the international field and continued pursuit of high net-worth noncompliant taxpayers.
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 259

Page 3

The IRS also developed a tax preparer strategy to identify recommendations to ensure consistent standards for tax 

preparer qualifications, ethics and service. The recommendations will be developed from information obtained 

from a large and diverse constituent community that included those licensed by state and federal authorities, 

unlicensed tax preparers, software vendors, consumer groups and taxpayers. Over 450 taxpayers and tax 

professionals along with 600 employees responded to the IRS request for comments to help better leverage the tax 

return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high 

ethical standards of conduct for tax preparers.

In fiscal year 2010 the IRS will significantly expand international enforcement, implement significant new 

information reporting authorities into compliance programs, and move toward higher standards in the tax 

practitioner community.

Challenge 4 – Implementing Tax Law Changes

The IRS is faced with implementing tax law changes each filing season. In response to recent revisions to the tax 

laws, the IRS helped taxpayers file correct tax returns by providing education and outreach through automation, 

face-to-face contact, and the media. In fiscal year 2009, taxpayers continued to use the IRS website, IRS.gov, 

in record numbers to get current information. Passage of the First-Time Homebuyer Credit and ARRA, as well 

as questions on the Recovery Rebate Credit resulted in the IRS providing real-time, updated information to 

taxpayers as they filed their returns.

The IRS also delivered outreach and education to the tax professional community, industry partners, and small 

business and self-employed taxpayers through a wide range of strategies, outreach products and communication 

vehicles such as Webinars, tax practitioner institutes, and National Tax Forums. In addition, the IRS website was 

expanded to include an online version of the Small Business Resource Guide and Small Business Tax Center; an 

interactive Spanish application for “How much was my Stimulus Payment?”; and a Spanish Tax Practitioner Tool 

Kit.

American Recovery and Reinvestment Act

The IRS expedited completion of tax products to address ARRA provisions. Before enactment, the IRS initiated 

work on the tax-related provisions to ensure timely implementation, including releasing forms, schedules and 

guidance three days after enactment; developing new publications to explain the tax provisions to individual and 

business filers; and informing taxpayers of the tax credits they may be entitled to using multiple communication 

channels including press releases, television commercials, and updated information on the irs.gov website. For the 

first time, the IRS launched a YouTube video site and an ITunes podcast site to provide information on ARRA, 

tax tips, and how-to videos. This comprehensive approach to administering the provisions of ARRA allowed the 

IRS to meet taxpayer and stakeholder expectations for these important tax law changes.

Other Tax Law Changes

Other recent legislation contained tax law changes, including the Housing and Economic Recovery Act of 2008; 

the Emergency Economic Stabilization Act of 2008; the Economic Stimulus Act of 2008; and the Worker, 

Retiree, and Employer Recovery Act of 2008. The IRS delivered a successful 2009 filing season despite the 

substantial number of legislative actions (500 actions affecting 203 tax products) required from these Acts. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

260 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 4

Although resources were strained, 95 percent of the critical individual filing season products and over 96 percent 

of the tax-exempt and business tax products were delivered timely.

The IRS provided taxpayers with online access to tax law information, including tax law changes, in an easily 

understandable format on IRS.gov. In fiscal year 2009, taxpayers used the site to find out about the Rebate 

Recovery Credit. More than 54 million taxpayers used the “Where’s My Refund?” calculator to check on the 

status of their tax refund, an increase of 38 percent, and over 430,000 taxpayers used the Spanish version. Over 

650,000 taxpayers who did not receive a stimulus payment in 2008 used the new Recovery Rebate Credit 

calculator to help them determine if they were eligible for the credit, and if so, how much they could claim.

In fiscal year 2010, the IRS will continue to monitor proposed changes to the tax laws, including Alternative 

Minimum Tax relief and the proposed health-care legislation, and prepare accordingly to ensure taxpayers have 

the necessary forms and information for the filing season.

Challenge 5 - Providing Quality Taxpayer Service Operations

In fiscal year 2009, the IRS continued the implementation of Taxpayer Assistance Blueprint (TAB) service 

improvements. A new group was created to identify and coordinate enterprise-wide service improvements from 

the taxpayer’s perspective. The initiatives included the implementation of an online tool which provides taxpayers 

with tax- law information in an easily navigable format, the creation of 332 “talking Tax Forms” for visually 

impaired taxpayers, and the launch of Spanish versions of the Free File Program.

The IRS provided extensive media coverage and expanded electronic outreach activities to make taxpayers aware 

of new credits, deductions, and exclusions for which they qualified. A second “Super Saturday” event was held 

in fiscal year 2009, and the IRS provided over 11,000 taxpayers with tax assistance and return preparation. The 

event was the largest one-day outreach service event in IRS history.

The IRS also provided assistance to millions of taxpayers by expanding partnerships with nonprofit and 

community organizations, opening more than 12,100 free tax preparation sites nationwide. Volunteers at these 

sites prepared over 3.0 million returns for low-income and elderly taxpayers. The IRS also served 6.2 million 

taxpayers at the Taxpayer Assistance Centers (TACs).

In fiscal year 2010, the IRS will continue to provide quality taxpayer service by implementing additional 

improvements outlined in the TAB, including greater access to available services on non-workdays through events 

like “Super Saturday.” The IRS also will improve the taxpayer’s filing experience by implementing new quality 

standards at the TACs and volunteer return preparation sites through reviews of selected prepared returns to 

determine accuracy.

Challenge 6 - Human Capital

In fiscal year 2009, the IRS engaged in an extensive enforcement hiring initiative, resulting in an enforcement 

staffing increase of more than 3,000 employees. To ensure coordination at all levels, the IRS established a 

governance structure to provide oversight of the hiring initiative and created a centralized office to coordinate all 

recruiting efforts. For the first time, candidates who applied for multiple jobs in different locations were ranked 

and interviewed only once, and competing organizations collaborated on selections to ensure the best-skilled 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 261

Page 5

individual was hired for each position. The IRS also increased its veteran hiring by 85 percent from 901 in fiscal 

year 2006 to 1,669 in fiscal year 2009 with targeted recruitment efforts.

The report of the IRS Workforce of Tomorrow (WOT) Task Force was released in August 2009. The report 

included initiatives to improve the hiring process to ensure continued success in filling critical enforcement 

positions. Highlights included creation of a detailed workforce planning model that can be embedded into the 

existing planning processes, a centralized recruiting organization and corporate recruiting strategy that ensures 

consistent brand messaging and engagement of local leaders, an enhanced hiring process implemented in phases 

that can cut hiring time by 50 percent,  reduction of managerial burden initiatives, enhanced training and 

support for managers, and a leadership development process to identify and develop leaders across the IRS.

In fiscal year 2010, the IRS will implement additional WOT recommendations, implement streamlined hiring, 

and pilot an accelerated leadership program for high potential candidates.

Challenge 7 - Erroneous and Improper Credits and Payments 

The IRS has a balanced and comprehensive plan, including compliance activities and systemic changes, to reduce 

improper payments.

Refundable Credits

In fiscal year 2009, the IRS protected over $3.2 billion in revenue through EITC enforcement efforts, including 

examination of over 500,000 returns and 25,000 amended returns claiming EITC, 314,000 document matching 

reviews, and 300,000 math error process corrections. The IRS also identified more than 123,000 fraudulent 

returns claiming over $361 million in refunds and stopped over $90 million in fraudulent claims using the 

Electronic Fraud Detection System (EFDS).

The IRS also completed activities associated with the EITC Return Preparer Study, including analyzing shortterm outcomes from due diligence visits, developing new education and compliance notices, making phone calls 

to first-time EITC preparers to make sure they understand the program guidelines, and adjusting the timing of 

EITC paid preparer due diligence visits to clarify procedures. These improvements resulted in a 5 percent increase 

in due diligence visits over 2008 and proposed penalties of $462,500. Additionally, the IRS continued to identify 

and investigate high-impact EITC fraud and tax scheme promoters and identified research-based approaches to 

improve EITC participation and minimize taxpayer errors.

The manner and means by which individuals deploy fraudulent refund schemes are constantly evolving and 

are becoming more complex and sophisticated. The Questionable Refund Program (QRP), a nationwide 

multifunctional program designed to identify fraudulent returns and to stop payment of fraudulent refunds, 

continued to show positive results. In fiscal year 2009, the IRS identified over 414,000 potentially fraudulent 

returns claiming over $2.7 billion in total refunds and initiated 418 investigations with an 86.6 percent 

conviction rate, a 78.8 percent incarceration rate, and an 87.2 percent publicity rate on adjudicated cases.

In fiscal year 2010, the IRS will continue to identify and investigate EITC tax scheme promoters and preparers 

through improved data matching, while utilizing automated under-reporter data to identify outreach and 

education opportunities for identified patterns of noncompliance. In addition, the IRS will improve the 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

262 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

Page 6

accuracy of EITC returns by refining the due diligence audit process, conducting visits by revenue and criminal 

investigation agents, streamlined injunctions, and notice and phone contact treatments.

Contract and Other Payments

To properly account for contract spending, the IRS developed templates for documenting contract type decisions 

and rationale when Performance-Based Acquisition methods are not used. In addition, a module entitled, “Types 

of Work Statements, Appropriate Contract Types and Risk,” will be included in the annual Advance Acquisition 

Planning conference to emphasize the importance of the acquisition team selecting the appropriate contract 

type. The IRS will continue to utilize the Contract Review Board established in fiscal year 2008 to review all 

information technology acquisitions meeting established dollar thresholds.

Challenge 8 - Globalization

International compliance is a key challenge as reflected by its recent enforcement initiatives, as well as its 

prominence in the IRS Strategic Plan.

The IRS has placed unprecedented focus on detecting and bringing to justice those who hide assets overseas 

to avoid paying tax. As part of an overall IRS strategy to improve offshore compliance, new initiatives were 

implemented to identify US taxpayers that engaged in offshore tax evasion schemes.

The IRS established an Offshore Voluntary Disclosures/Penalty Framework for taxpayers to voluntarily disclose 

their offshore activities. The framework provides taxpayers the opportunity to calculate the total cost of resolving 

all offshore tax issues; become compliant with U.S. tax laws; make voluntary disclosures that will be used to 

further the IRS understanding of how foreign accounts and foreign entities are promoted to U.S. taxpayers 

as ways to avoid or evade tax; and provide data to be used in developing additional IRS strategies to inhibit 

promoters and facilitators from soliciting new clients. Thousands of taxpayers with offshore accounts voluntarily 

came forward to disclose information as a result of this initiative.

In fiscal year 2010, the IRS will continue its focus on international tax enforcement. In addition, the IRS will use 

audit results and intelligence from ongoing offshore initiatives to refine case identification and selection methods 

and to identify promoters, facilitators and participants in abusive offshore arrangements. The IRS will also 

improve the way compliance risks are identified and addressed in large, complex global businesses and high wealth 

individuals.

Challenge 9 - Taxpayer Protection and Rights

Taxpayer protection is a top priority for the IRS. In fiscal year 2009, the IRS continued to monitor compliance 

with the taxpayer rights provisions of the IRS Restructuring and Reform Act of 1998 (RRA 98), including 

quarterly managerial certifications and annual independent reviews of the RRA 98 Section 1204 provisions. 

The certification process serves to ensure management does not use enforcement statistics to evaluate employees 

and drive behavior in conflict with taxpayer rights. As TIGTA indicated in its report, the IRS has shown 

improvement over prior years that taxpayers were informed of their rights.

In fiscal year 2009, the IRS also completed an oversight review/approval process for preparer penalties to ensure 

uniform and consistent application of penalties; continued efforts to remove or redact Social Security Numbers 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES 263

Page 7

from outgoing correspondence; and completed an analysis of excluding all Social Security Administration (SSA) 

recipients below certain income levels from the Federal Payment Levy Program.

Actions planned for fiscal year 2010 and beyond include the implementation of a low-income filter that 

will exclude taxpayers that are more likely to experience a hardship if included in the Federal Payment Levy 

Program. The IRS also will identify parameters for contractors regarding the protection of taxpayer Personally 

Identifiable Information (PII) for inclusion in all publishing contracts. Additionally, adoption of a broad set of 

recommendations around regulation of tax preparers will be at the forefront of IRS efforts.

Challenge 10 – Leveraging Data to Improve Program Effectiveness and Reduce Costs

In fiscal year 2009, the IRS continued to make significant progress in financial management, particularly in the 

development and provision of cost information across multiple business units. As a result, in its audit of the fiscal 

year 2009 IRS financial statements, GAO determined that the remaining issues regarding Financial Reporting 

no longer constituted a material weakness and that the remaining issues regarding Tax Revenue and Refunds no 

longer constituted a significant deficiency. 

In fiscal year 2010, the IRS will continue its use of the managerial cost accounting system to conduct cost-benefit 

analyses that provide timely, accurate, and useful data for decision making by the major business units. 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

264 APPENDIX C — MANAGEMENT AND PERFORMANCE CHALLENGES AND RESPONSES

This page left intentionally blank
265

Appendix D:

Material Weaknesses, Audit Follow-Up, 

Financial Systems, and Recovery Act Risk Management

This section consists of detailed descriptions of Treasury’s material weakness inventory, including a summary of actions taken and planned to resolve the weaknesses; tracking and follow-up activities related to 

Treasury’s GAO, OIG, TIGTA, and the Special Inspector General for the Troubled Asset Relief Program 

audit inventory; an analysis of potential monetary benefits arising from audits performed by Treasury’s 

Inspectors General; an update on Treasury’s financial systems framework; and an overview of Treasury’s 

risk management activities for the implementation of the American Recovery and Reinvestment Act of 2009

(Recovery Act or ARRA).

TREASURY’S MATERIAL WEAKNESSES

Management may declare audit findings or internal situations as a material weakness whenever a condition exists 

that may jeopardize the Treasury mission or continued operations. Reporting on material weaknesses is required 

in these instances by the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and the Federal Financial 

Management Improvement Act of 1996 (FFMIA).

FEDERAL MANAGERS’ FINANCIAL INTEGRITY ACT OF 1982 (FMFIA)

The FMFIA requires agencies to establish and maintain internal control. The Secretary must annually evaluate 

and report on the controls (FMFIA Section 2) and financial systems (FMFIA Section 4 and FFMIA) that protect 

the integrity of federal programs. The requirements of the FMFIA serve as an umbrella under which other reviews, evaluations, and audits should be coordinated and considered to support management’s assertion about the 

effectiveness of internal control over operations, financial reporting, and compliance with laws and regulations.

As of September 30, 2009, Treasury has five material weaknesses under Section 2 of the FMFIA, summarized as 

follows:

SUMMARY OF FMFIA AND FFMIA MATERIAL WEAKNESSES SECTION 2 SECTION 4 TOTAL

Balance at the Beginning of FY 2009 4 0 4

Closures/Downgrades during FY 2009 0 0 0

Reassessed during FY 2009 0 0 0

New MW declared during FY 2009 1 0 1

Balance at the End of FY 2009 5 0 5

PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT
266

Below are detailed descriptions of Treasury’s five material weaknesses:

MATERIAL WEAKNESS DESCRIPTION

Internal Revenue Service - Improve Modernization Management Controls and Processes

The IRS needs to improve its Business Systems Modernization program. Key elements:

•	 Assess the recommendations from the Special Studies and Reviews of the Business Modernization program and projects

•	 Implement and institutionalize procedures for validating contractor-developed costs and schedules

•	 Establish effective contract management practices

•	 Complete a human capital strategy

•	 Improve configuration management practices

Actions Completed What Remains to be Done

✓ Deployed Release 4.2 of the Customer Account Data Engine (CADE) 

in January 2009. CADE added capabilities to process prior-year and 

decedent returns, remittances, estimated tax payments, requests 

for extensions, and surname changes

✓ Deployed Modernized e-File (MeF) release 5.5 that included the 

redesigned Form 990 (Return of Organization Exempt from Income 

Tax) in time for the filing season

✓ Completed the 2009 releases of Account Management Services 

(AMS) providing additional real-time changes to CADE 

❍ Allow assessment time to observe long-term effect of actions 

completed and demonstrate sustained improved performance

❍ Targeted Downgrade/Closure: FY 2011

MATERIAL WEAKNESS DESCRIPTION

Internal Revenue Service - Computer Security

The IRS has various computer security controls that need improvement. Key elements:

•	 Adequately restrict electronic access to and within computer network operational components

•	 Adequately ensure that access to key computer application and systems is limited to authorized persons for authorized purposes

•	 Adequately configure system software to ensure the security and integrity of system programs, files, and data

•	 Appropriately delineate security roles and responsibilities within functional business operating and program units, as required by the Federal 

Information Security Management Act

•	 Appropriately segregate system administration and security administration responsibilities

•	 Sufficiently plan or test the activities required to restore certain critical business systems where unexpected events occur

•	 Effectively monitor key networks and systems to identify unauthorized activities and inappropriate system configurations

•	 Provide sufficient technical, security-related training to key personnel

•	 Certify and accredit 90 percent of all systems

Actions Completed What Remains to be Done

✓ Security roles and responsibilities

✓ Security/System Administration segregation of duties

✓ Security training

✓ Certification and Accreditation

❍ Network access controls

❍ Systems/Application controls

❍ Systems software configuration access controls

❍ Contingency planning

❍ Audit trails

❍ Targeted Downgrade/Closure: FY 2012

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

267

MATERIAL WEAKNESS DESCRIPTION

Internal Revenue Service - Financial Accounting of Revenue – Custodial

The IRS needs to have detail data to support custodial financial reporting of revenue. Key elements:

•	 Inability to provide detailed support for large types of revenue for employment and excise taxes

•	Lack of effective custodial supporting systems/subsidiary detail

•	 Subsidiary ledger does not track and report one Trust Fund Recovery Penalty (TFRP) balance

•	 Untimely posting of TFRP assessments and untimely review of TFRP accounts

•	Lack of a single, integrated general ledger to account for tax collection activities and the costs of conducting those activities

•	 IRS’s general ledger for its custodial activities does not use the standard federal accounting classification structure

Actions Completed What Remains to be Done

✓ Masterfile Custodial Detail Database (CDDB) Trace ID in production 

and the production of mismatch reports for the reconciliation 

process put in place

✓ Completion of CDDB release to load frozen credits

✓ Proper crediting of payments to all associated parties on TFRP 

accounts created since October 2001

❍ Completion of CDDB Releases to provide a single, integrated 

subsidiary ledger using standard federal accounting 

classification structure

❍ Targeted Downgrade/Closure: FY 2010

MATERIAL WEAKNESS DESCRIPTION

Financial Management Service - Consolidated Government-wide Financial Statements

The Federal Government does not have adequate systems, controls, and procedures to properly prepare the Consolidated Government-wide 

Financial Statements. Key elements:

•	 The government lacks a process to obtain information to effectively reconcile the reported excess of net costs over revenue with the budget 

deficit, and when applicable, a reported excess of revenue over net costs with a budget surplus

•	 Weaknesses in financial reporting procedures in internal control over the process for preparing the Consolidated Financial Statements

Actions Completed What Remains to be Done

✓ Partially reconciled FY 2008 operating revenues with budget 

receipts

✓ Developed a model to provide analysis of unreconciled transactions 

that affect the change in net position.

✓ Accounted for intra-governmental differences through formal 

consolidating and elimination accounting entries using all 

reciprocal fund categories including the General Fund

✓ Federal agencies submit complete closing packages to GAO

✓ Established traceability from agency footnotes to the Consolidated 

Financial Statements for completeness

❍ Complete reconciliation of operating revenues to budget 

receipts

❍ Complete reciprocal category for the Treasury General Fund

❍ Implement changes identified by the Office of the Fiscal 

Assistant Secretary as a result of its review of the Reporting 

Entity definitions per the Financial Accounting Standards 

❍ Include all disclosures as appropriate

❍ Include all loss contingencies as appropriate

❍ Targeted Downgrade/Closure: FY 2012
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

268

MATERIAL WEAKNESS DESCRIPTION

Treasury Departmental Offices - Financial Management Practices

The Office of Accounting and Internal Control (AIC) has not fully developed sufficient internal control over the underlying financial data included in the 

consolidated balance sheet to ensure it is complete and accurate. This is due in part because the financial infrastructure for the financial reporting 

responsibilities of the Treasury Department is inadequately staffed for such a large and complex Executive Agency. Key elements:

•	 AIC has not developed clear, step-by-step procedures for performance of the financial statements analyses or clearly explained and presented the 

methodogy used for preparation of these analyses.

•	 AIC has not clearly documented procedure manuals or process flow documentation.

•	 Key senior financial management and budget staff positions were vacant during critical time periods

•	Lack of continuity with historical knowledge and experience caused significant delays in audit deliverables as well as in addressing accounting 

issues.

Actions Completed What Remains to be Done

✓ Initiated development of standard operating procedures and crosstraining of staff on financial statement process

✓ Filled AIC credit reform accountant and two senior accounting 

positions

✓ Obtained authorization for two additional staff accountant positions 

in AIC

✓ Filled three staff positions in the Office of Financial Management

✓ Filled two Budget Execution positions

✓ Brought contractors aboard to assist with GSE transactions

❍ Study existing analytical and review processes, then develop/revise 

policy and procedures

❍ Fill two new AIC accountant positions

❍ Review current funding, staffing, skill competencies, contract 

support, and training, and determine proper levels needed to fully 

perform daily operations

❍ Based on results of review, hire additional staff, establish additional 

contract service support, and/or establish agreements with Treasury 

bureaus for detailees

❍ Provide additional training and guidance to staff

❍ Targeted Downgrade/Closure: FY 2010
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

269

AUDIT FOLLOW-UP ACTIVITIES

During fiscal year 2009, Treasury placed renewed emphasis on both the general administration of internal control 

issues throughout the Department and the timely resolution of findings and recommendations identified by the 

Office of the Inspector General (OIG), the Treasury Inspector General for Tax Administration (TIGTA), the 

Special Inspector General for the Troubled Asset Relief Program (SIG TARP), the Government Accountability 

Office, and external auditors. During the year, Treasury continued to implement enhancements to the tracking system called the “Joint Audit Management Enterprise System” (JAMES). JAMES is a Department-wide, 

interactive, web-based system accessible to the OIG, TIGTA, SIG TARP, bureau management, Departmental 

management, and others. The system tracks information on audit reports from issuance through completion of all 

corrective actions required to address findings and recommendations contained in an audit report. JAMES is the 

official system of record for Treasury’s internal control program. 

POTENTIAL MONETARY BENEFITS

The Inspector General Act Amendments of 1988, Public Law 101-504, require the Inspectors General and the 

Secretaries of Executive Agencies and Departments to submit semiannual reports to the Congress on actions 

taken on audit reports issued that identify potential monetary benefits. The Department consolidates and analyzes all relevant information for inclusion in this report. The information contained in this section represents a 

consolidation of information provided separately by the OIG, TIGTA, and Department management. 

In the course of their audits, the Inspectors General periodically identify questioned costs, make recommendations that funds be put to better use, and identify measures that demonstrate the value of audit recommendations 

to tax administration and business operations. “Questioned costs” include:

• a cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, or other 

requirement governing the expenditure of funds

• a finding, at the time of the audit, that such costs are not supported by adequate documentation (i.e., an 

unsupported cost)

• a finding that expenditure of funds for the intended purpose is unnecessary or unreasonable

The Department regularly reviews progress made by the bureaus in realizing potential monetary benefits identified 

in audit reports, and coordinates with the auditors as necessary to ensure the consistency and integrity of information on monetary benefit recommendations being tracked.

The statistical data in the following summary table and charts represent audit report activity for the period from 

October 1, 2008 through September 30, 2009. The data reflect information on reports that identified potential 

monetary benefits issued by the OIG and TIGTA.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

270

AUDIT REPORT ACTIVITY WITH POTENTIAL MONETARY BENEFITS FOR WHICH MANAGEMENT HAS IDENTIFIED 

CORRECTIVE ACTIONS (OIG AND TIGTA)

OCTOBER 1, 2008 THROUGH SEPTEMBER 30, 2009

(DOLLARS IN MILLIONS) 

Disallowed Costs Better Used Funds Revenue Enhancements Totals

Reports Dollars Reports Dollars Reports Dollars Report Total Total Dollars

Beginning Balance 11 $ 35.1 41 $ 17.21 10 $ 753.2 25 $ 805.5

New Reports 9 2.9 5 9,058.9 11 2,766.2 25 11,828

Total 20 38.0 9 9,076.1 21 3,519.4 50 12,633.5

Reports Closed 10 1.1 3 8,917.0 10 983.1 23 9,901.2

a. Realized or Actual 6 .7 1 .1 3 12.2 10 13.0

b. Unrealized - Written off 5 .4 2 8,916.92 7 970.93 14 9,888.2

Ending Balance 10 $ 36.9 6 $ 159.1 11 $ 2,536.3 27 $ 2,732.3

1

 The beginning balances for better used funds were adjusted to reflect TIGTA’s removal of one report for $3.7 million.

2

 This category includes two reports, with $8,916.9 million written off, for which IRS management did not concur with TIGTA’s projected benefits.

3

 This category includes four reports, with $939.3 million written off, for which IRS management was undecided or did not concur with TIGTA’s projected 

benefits.

The following table provides a snapshot of OIG and TIGTA audit reports with significant recommendations 

reported in previous semiannual reports for which corrective actions had not been completed as of September 30, 

2008, and September 30, 2009, respectively. OIG and TIGTA define as “significant” any recommendation open 

for more then one year. There were no “Undecided Audit Recommendations” during the same periods. 

SIGNIFICANT UNIMPLEMENTED RECOMMENDATIONS

9/30/2008 9/30/2009

OIG TIGTA OIG TIGTA

No. of Reports No. of Reports No. of Reports No. of Reports

Unimplemented 6 40 8 26

The following table presents a summary of OIG and TIGTA audit reports that were open for more than a year 

with potential monetary benefits at the end of fiscal years 2007, 2008, and 2009. 

NUMBER OF REPORTS WITH POTENTIAL MONETARY BENEFITS OPEN FOR MORE THAN ONE YEAR

AFR Report Year 9/30/2007 9/30/2008 9/30/2009

OIG No. of Reports 1 1 0

$ Projected Benefits $29.4 million $29.4 million $0 million

TIGTA No. of Reports 10 12 10

$ Projected Benefits $ 66.5 million $661.5 million $673.8 million

The following tables present a summary of TIGTA audit reports, broken out by year of report issuance, on which 

management decisions were made on or before September 30, 2008, but the final actions had not been taken as 

of September 30, 2009. (Note: There are no OIG audit reports for this category.)
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

271

DETAILS OF THE AUDIT REPORTS WITH POTENTIAL MONETARY BENEFITS ON WHICH MANAGEMENT DECISIONS WERE 

MADE ON OR BEFORE SEPTEMBER 30, 2008, BUT FINAL ACTIONS HAVE NOT BEEN TAKEN AS OF SEPTEMBER 30, 2009

(DOLLARS IN THOUSANDS)

Bureau

Report 

Number

Report Issue 

Date Brief Description

Disallowed 

Costs

Funds 

Put to 

Better 

Use

Revenue 

Enhancement Total Due Date

IRS 2004-20-142 8/26/2004 The IRS should ensure the 

Storage Strategy Study 

addresses the data storage 

capacity deficiency and 

recommends a cost-effective 

virtual tape system solution to 

reduce maintenance and tape 

shipping costs.

200.0 200.0 Due 

12/31/2010 

FY 2004 1 200.0 200.0 

IRS 2006-1c-142 9/25/2006 The IRS Contracting Officer 

(CO) should use the results of 

the Defense Contract Auditing 

Agency (DCAA) report to fulfill 

his/her duties in awarding and 

administering contracts.

32,373.8 32,373.8 Delayed to 

9/30/2010

FY 2006 1 32,373.8 32,373.8

IRS 2007-1c-040 3/8/2007 The IRS CO will work with 

DCAA and the contractor to 

resolve the questioned costs 

applicable to IRS contracts.

103.6 103.6 Due 

2/15/2010

IRS 2007-1c-041 3/8/2007 The IRS CO will work with 

DCAA and the contractor to 

resolve the questioned costs 

applicable to IRS contracts.

2,247.0 2,247.0 Due 

3/15/2010

IRS 2007-30-062 3/30/2007 Ensure the revised Form 4137 

is used effectively to identify 

and assess the employer’s 

share of Social Security and 

Medicare taxes on unreported 

tip income.

541,124.0 541,124.0 Delayed to 

1/15/2010

IRS 2007-1c-149 9/24/2007 The IRS CO will work with 

DCAA and the contractor to 

resolve the questioned costs 

applicable to IRS contracts.

62.2 62.2 Due 

9/15/2010

IRS 2007-1c-154 9/24/2007 The IRS CO will work with 

DCAA and the contractor to 

resolve the questioned costs 

applicable to IRS contracts.

1.2 1.2 Due 

9/15/2010

FY 2007 5 2,414.0 541,124.0 543,538.0

IRS 2008-30-155 8/22/2008 The IRS should revise 

computer programming to 

automatically reissue an 

undelivered refund check when 

an address change is reflected 

on a taxpayer’s account.

36.2 36.2 Due 

1/15/2010

Continued on next page
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

272

DETAILS OF THE AUDIT REPORTS WITH POTENTIAL MONETARY BENEFITS ON WHICH MANAGEMENT DECISIONS WERE 

MADE ON OR BEFORE SEPTEMBER 30, 2008, BUT FINAL ACTIONS HAVE NOT BEEN TAKEN AS OF SEPTEMBER 30, 2009

(DOLLARS IN THOUSANDS)

Bureau

Report 

Number

Report Issue 

Date Brief Description

Disallowed 

Costs

Funds 

Put to 

Better 

Use

Revenue 

Enhancement Total Due Date

IRS 2008-40-087 3/28/2008 The IRS should develop and 

implement strategies to bring 

noncompliant taxpayers back 

into compliance.

52,100.0 52,100.0 Due 

1/15/2010

The IRS should consider using 

the indicator shown on Form 

5498 to identify taxpayers 

who are subject to required 

minimum distributions.

94.4 94.4 Due 

1/15/2010

IRS 2008-40-167 8/29/2008 The IRS should develop a 

process to identify those 

employers that do not 

adequately withhold taxes 

from their employees after 

receiving a lock-in letter.

45,500.0 45,500.0 Due 

12/15/2009

FY 2008 3 36.2 97,694.4 97,730.6

TOTAL 10 34,787.8 236.2 638,818.4 673,842.4
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

273

FINANCIAL MANAGEMENT SYSTEMS FRAMEWORK

Overview

The Department of the Treasury’s financial management systems structure consists of financial and mixed systems 

maintained by the Treasury bureaus and the Department-wide Financial Analysis and Reporting System (FARS). 

The bureau systems process and record the detailed financial transactions and submit summary-level data to FARS 

on a scheduled basis. FARS maintains the key financial data necessary for consolidated financial reporting. In 

addition, the FARS modules maintain data on performance management and the status of audit-based corrective actions. Under this systems structure, the bureaus are able to maintain financial management systems that 

meet their specific business requirements. On a scheduled basis, the required financial and performance data are 

submitted to FARS to meet Departmental analysis and reporting requirements. The Department uses FARS to 

produce its periodic financial and performance reports as well as the annual Agency Financial Report (AFR) and 

the Annual Performance Report (APR). This structured financial systems environment enables Treasury to receive 

an unqualified audit opinion and supports its required financial management reporting and analysis requirements.

The FARS structure consists of the following components: 

• Bureau core and financial management systems - process and record detailed financial transactions

• Treasury Information Executive Repository (TIER) - consolidates bureau financial data 

• CFO Vision - produces monthly financial statements and performs financial analysis

• Joint Audit Management Enterprise System (JAMES) - tracks information on audit findings, recommendations, and planned corrective actions

• Performance Reporting System (PRS) - tracks the status of key performance measures

Bureaus submit summary-level financial data to TIER on a monthly basis, within three business days of the 

month-end. These data are then used by CFO Vision to generate financial statements and reports on both a 

Department-wide and bureau-level basis. This structure enables the Department to produce its audited annual 

financial statements and monthly management reports. During fiscal year 2009, Treasury continued to upgrade 

its FARS applications to take advantage of improvements in system technology. This included completing the rollout of CFO Vision to Treasury bureaus. CFO Vision provides the bureaus with direct system access for enhanced 

reporting capabilities and financial analysis.

The Department continues to eliminate redundant and outdated financial management systems with the goal of 

consolidating financial management activities to improve productivity. As of September 30, 2009, the number of 

financial management systems decreased to 55, down from 60 at the end of fiscal year 2008. This reduction is due 

in part to bureaus migrating to the Bureau of the Public Debt Administrative Resource Center (BPD ARC) for 

these services. 

As part of the Department’s enhancement effort, 14 Treasury bureaus and reporting entities are cross-serviced for 

core financial systems by BPD ARC. Cross-servicing enables these bureaus to have access to core financial systems 

without having to maintain the necessary technical and systems architectures. In an effort to continue to streamline its financial systems environment, Treasury will work with the remaining bureaus to develop plans to migrate 

to Treasury’s Shared Service Provider for core financial systems in accordance with the Financial Management 
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

274

Line of Business requirements. In addition, as part of the Department’s implementation of the e-Travel initiative, 

bureaus have eliminated their legacy travel systems.

In fiscal year 2009, to improve management’s decision making process concerning the FARS applications projects, 

Treasury enhanced its risk management controls. Treasury identifies and monitors the risks and the potential 

threats to the FARS applications, surveys FARS customers to measure application satisfaction, and identifies areas 

needing improvement. The Department continues to modernize the capabilities of the FARS applications by 

implementing solutions to provide timely and useful financial and program data. FARS applications have been 

expanded to support new organizations and new functionality as the Department has assumed new responsibilities resulting from the recent economic conditions. For example, Treasury expanded the JAMES to support 

the initiatives of the Office of the Special Inspector General for Trouble Asset Relief Program (SIGTARP), the 

Internal Revenue Service/Taxpayer Advocate Service, and the Office of Financial Stability (OFS). To support 

OFS’s financial reporting needs, the FARS application CFO Vision was modified to produce stand-alone financial statements for OFS. This expanded use of CFO Vision, combined with OFS’s use of a cross-serviced core 

financial system provided by BPD ARC, reduces the need for OFS to develop or purchase its own core financial 

system. 

Continued Improvement

Treasury’s target financial management systems structure continues to build upon the current FARS foundation. 

Over the years, FARS has been enhanced to support new financial and performance requirements. FARS continues 

to provide management with the appropriate tools needed to align with the Department’s goals and objectives.

Treasury completed the rollout of CFO Vision to the bureaus, modified FARS to support the requirements of 

the new Troubled Asset Relief Program (TARP), enhanced TIER to support the month-end financial close and 

preparation of the monthly financial statements and reports, and established a disaster recovery site for the FARS 

applications to provide business continuity in case of an emergency or disaster.

The Internal Revenue Service (IRS) continued work on the Integrated Financial System (IFS). IFS is the IRS’s 

administrative financial management system. It accounts for $11.5 billion in IRS funding and provides timely 

financial statements for budgeting, analysis, and government-wide reporting. Fiscal year 2009 IFS accomplishments include:

• Interfaced with GovTrip, the Department’s automated travel system

• Significantly reduced user access to the mainframe by migrating legacy system reports to the business warehouse, retired legacy processes, and trained users on reporting capabilities

• Implemented automated tax withholding for employee tuition assistance, created employee invoices, and 

automatically posted all payments received through pay.gov (Treasury’s secure electronic payments system to 

federal agencies)

• Updated contingency plans, and completed penetration and disaster recovery testing 

• Exceeded the average system uptime target of 97 percent.

The IRS successfully deployed the Customer Account Data Engine (CADE), Release 4.2 in January 2009. CADE 

is used to electronically process tax returns. With the implementation of Release 4.2, capabilities were added 

to process prior year and decedent returns, remittances, estimated tax payments, requests for extensions, and 
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

275

surname changes. In fiscal year 2009, CADE processed over 40 million returns, issued more than 34.9 million 

refunds using a modernized account database, and processed over 7 million payments totaling $58.6 billion. The 

IRS developed a comprehensive Audit Trail Plan and requirements for CADE, which are necessary to account for 

assets and processes across the IRS.

As previously indicated, BPD ARC cross-services 14 Treasury bureaus and reporting entities for core financial 

systems. In addition to the cross-servicing for core financial systems, Treasury bureaus are also cross-serviced for 

other financial management services, such as electronic travel and human resource processing. This cross-servicing 

has resulted in a reduction in the number of financial management systems maintained by the Department. In 

fiscal year 2009, BPD ARC’s accomplishments include:

• Selected by OMB as one of four government Shared Service Centers to perform information technology system Certification and Accreditation work under the Information Systems Security Line of Business (ISSLOB) 

initiative

• Provided system and processing support to 14 of Treasury’s bureaus for human resource management and 

travel management

• Utilized information technology services to implement best practices for managing IT operations and 

improving quality and support in a cost effective manner

• Conducted a customer satisfaction survey - two-thirds of the customer agencies responded and the results 

showed an overall customer satisfaction score of 89 percent

• Enhanced GovTrip, Treasury’s electronic travel system, to improve audit and expense descriptions and added 

new functionality to support user needs and improve security 

• Participated in the Department of the Treasury’s annual continuity exercise to assess BPD ARC’s ability to 

perform essential functions during various emergency scenarios, and identified areas for improvement

FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT (FFMIA) 

COMPLIANCE

As of September 30, 2009, the Department of the Treasury’s financial management systems were not in substantial compliance with FFMIA due to deficiencies with the IRS’s financial management systems. The IRS has 

a remediation plan in place to correct the deficiencies. For each FFMIA recommendation, the remediation plan 

identifies specific remedies, target dates, responsible officials, and resource estimates required for completion. This 

plan is reviewed and updated quarterly.

The IRS made significant progress in fiscal year 2009 toward the financial management systems being in FFMIA 

compliance by implementing the final release of the Custodial Detail Database (CDDB). CDDB contains detailed 

records of IRS revenue, refunds, and unpaid assessments. It addresses an IRS material weakness by providing detail 

data to support custodial financial reporting and was used by GAO during the fiscal year 2009 financial statements 

audit. 

The IRS developed and tested a replacement revenue accounting system that is planned for implementation in 

fiscal year 2010. This system was designed to incorporate the United States Standard General Ledger (USSGL); 

and add traceability between the revenue, refunds, and unpaid assessments summary record and the IRS processing system’s detail records.
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX D — MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, 

FINANCIAL SYSTEMS, AND RECOVERY ACT RISK MANAGEMENT

276

RECOVERY ACT RISK MANAGEMENT ACTIVITIES

Upon the enactment of the Recovery Act in February 2009, just weeks after the new Administration took office, 

Treasury quickly designed and implemented a robust risk management program to support the Department’s 

implementation of the Act. Following OMB’s Recovery Act implementation guidance, Treasury required the 

programs’ senior accountable officials in the bureaus to certify that they had taken the following actions for each 

Recovery Act program:

• Identified and documented program-specific risks

• Identified and documented applicable current process internal controls

• Determined the risk level (high, medium, or low) by using Treasury’s Recovery Act risk and impact assessment questionnaire

• Determined additional controls needed, if any

• Developed (or updated existing) and implemented a risk mitigation plan for each program with a risk level of 

medium or high

• Performed ongoing monitoring and testing

Treasury created a Recovery Act Risk Management Council that meets monthly to discuss the progress and status 

of each bureau’s Recovery Act risk management activities.
277

Appendix E

Glossary of Acronyms

GLOSSARY OF ACRONYMS

ABS Asset-Backed Securities

AFR Agency Financial Report

AGP Asset Guarantee Program

AIFP Automotive Industry Financing Program

AIG American International Group

AIIP Automotive Industry Investment Program

APR Annual Performance Report 

ARC Administrative Resource Center

ASC Accounting Standards Codification

ASM/CFO Assistant Secretary for Management & Chief Financial Officer 

BEP Bureau of Engraving and Printing 

BPD Bureau of the Public Debt

BSA Bank Secrecy Act 

BSM Business Systems Modernization

CADE Customer Account Data Engine 

CAP Competitiveness Assessment Process

CAP Capital Assessment Program

CBLI Consumer and Business Lending Initiative

CDDB Custodial Detail Database

CDE Community Development Entities

CDFI Community Development Financial Institutions

CDS Credit Default Swaps 

CFPA Consumer Financial Protection Agency

CFO Chief Financial Officer

CFS Consolidated Financial Statements

CFTC Commodities Futures Trading Commission 

CMBS Commercial Mortgage Backed Securities

CO Contracting Officer

COP Congressional Oversight Panel

CPP Capital Purchase Program

CSRS Civil Service Retirement System

CTF Clean Technology Fund

(continued)

PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX E — GLOSSARY OF ACRONYMS
278

GLOSSARY OF ACRONYMS

DASHR/CHCO Office of the Deputy Assistant Secretary for Human Resources/Chief Human Capital Officer 

DCAA Defense Contract Auditing Agency

DCP Office of D.C. Pensions

DIP Debtor-in-Possession

DO Departmental Offices

DHS Department of Homeland Security

EESA Emergency Economic Stability Act of 2008

EFTPS Electronic Federal Tax Payment System 

EGTRRA Economic Growth and Tax Relief Reconciliation Act

EITC Earned Income Tax Credit

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

FDIC Federal Deposit Insurance Corporation 

FECA Federal Employees’ Compensation Act 

FERS Federal Employees’ Retirement System

FEGLI Federal Employees Group Life Insurance

FEHBP Federal Employees Health Benefits Program

FFB Federal Financing Bank

FFMIA Federal Financial Management Improvement Act 

FHFA Federal Housing Finance Agency 

FHLB Federal Home Loan Bank

FinCEN Financial Crimes Enforcement Network

FMFIA Federal Managers’ Financial Integrity Act

FMIS Financial Management Information System

FMS Financial Management Service 

FRB Federal Reserve Bank

FRBNY Federal Reserve Bank of New York

Freddie Mac Federal Home Loan Mortgage Corporation 

FTO Fine Troy Ounce

FY Fiscal Year

G-7 Group of Seven 

(continued)

DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

APPENDIX E — GLOSSARY OF ACRONYMS
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX E — GLOSSARY OF ACRONYMS 279

GLOSSARY OF ACRONYMS

G-20 Group of Twenty

GAAP Generally Accepted Accounting Principles 

GAB General Arrangement to Borrow

GAO Government Accountability Office 

GFRA General Fund Receipt Account

GM General Motors

GMAC General Motors Acceptance Corporation

GSA General Services Administration

GSE Government Sponsored Enterprises

GSECF Government Sponsored Enterprise Credit Facility

HAMP Home Affordable Modification Program

HCTC Health Coverage Tax Credit

HERA Housing and Economic Recovery Act 

HUD Department of Housing and Urban Development 

IAP International Assistance Programs

IFS Integrated Financial System

IMF International Monetary Fund

IPIA Improper Payments Information Act

IRACS Interim Revenue Accounting Control System

IRS Internal Revenue Service 

IT Information Technology

JAMES Joint Audit Management Enterprise System

LIBOR-OIS London Inter-Bank Offered Rate-Overnight Index Swap

MBS Mortgage-Backed Securities 

MDB Multilateral Development Banks

MeF Modernized Electronic File

MINT U.S. Mint

MRADR Market Risk Adjusted Discount Rate

MV&S Modernization, Vision, and Strategy

NAB New Arrangement to Borrow

NACA Native American CDFI Assistance

NMTC New Markets Tax Credit

NRC National Revenue Center

NRP National Research Program

OCC Office of the Comptroller of the Currency 

OFS Office of Financial Stability

(continued)
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

280 APPENDIX E — GLOSSARY OF ACRONYMS

GLOSSARY OF ACRONYMS

OIG Office of Inspector General

OMB Office of Management and Budget

ONI Office of National Insurance

OPEB Other Post Employment Benefits

OPM Office of Personnel Management

ORB Other Retirement Benefits

OTC Over-the-Counter

OTS Office of Thrift Supervision

PB President’s Budget

PCA Planned Corrective Actions

PP&E Property, Plant, and Equipment

PPIF Public-Private Investment Fund

PPIP Public-Private Investment Program

PSPA Preferred Stock Purchase Agreements

QEO Qualified Equity Offering

QFI Qualified Financial Institution

RRACS Redesign Revenue Accounting Control System

SAR Suspicious Activity Report 

SBA Small Business Administration

SBR Statement of Budgetary Resources

SCAP Supervisory Capital Assessment Program 

SDR Special Drawing Rights

SEC Securities and Exchange Commission 

SED Strategic Economic Dialogue

SFFAS Statement of Federal Financial Accounting Standards

SFP Supplementary Financing Program 

SIGTARP Special Inspector General for TARP

SOMA System Open Market Account

SPSPA Senior Preferred Stock Purchase Agreements

SPV Special Purpose Vehicle

SSP Shared Service Provider

SSP Stable Share Price 

TAIFF Troubled Assets Insurance Financing Fund

TALF Term Asset-Backed Securities Loan Facilities

TARP Troubled Asset Relief Program

TFF Treasury Forfeiture Fund

(continued)
PART 3 • OTHER ACCOMPANYING INFORMATION

APPENDIX E — GLOSSARY OF ACRONYMS 281

GLOSSARY OF ACRONYMS

TIER Treasury Information Executive Repository

TIGTA Treasury Inspector General for Tax Administration

TIP Targeted Investment Program

TIPS Treasury Inflation-Protected Securities 

TRES Treasury Retail E-Services

TRIA Terrorism Risk Insurance Act

TTB Alcohol and Tobacco Tax and Trade Bureau 

USSGL United States Standard General Ledger

VITA Volunteer Income Tax Assistance
DEPARTMENT OF THE TREASURY • AGENCY FINANCIAL REPORT • FISCAL YEAR 2009

282 APPENDIX E — GLOSSARY OF ACRONYMS

This page left intentionally blank
283

Website Information

Treasury On-line www.treas.gov

Alcohol and Tobacco Tax 

and Trade Bureau www.ttb.gov

Community Development 

Financial Institutions Fund www.treas.gov/cdfi

Comptroller of the Currency www.occ.treas.gov

Bureau of Engraving & Printing www.bep.treas.gov

Financial Crimes 

Enforcement Network www.treas.gov/fincen

Financial Management Service www.fms.treas.gov

Internal Revenue Service www.irs.gov

U.S. Mint www.usmint.gov

Bureau of the Public Debt www.publicdebt.treas.gov

Office of Thrift Supervision www.ots.treas.gov

The Financial Stability Plan www.financialstability.gov

Help for America’s Homeowners www.makinghomeaffordable.gov

Recovery Act Spending www.recovery.gov
www.treas.gov