U.S. Department of the Treasury | Fiscal Year 2011

x 
U.S. Department of the Treasury | Fiscal Year 2011

iii
U.S. Department of the Treasury | Fiscal Year 2011

iv
U.S. Department of the Treasury | Fiscal Year 2011

This page left intentionally blank

ii

For the online version of this report, please visit:

http://www.treasury.gov 

and search for “2011 AFR” 
 U.S. Department of the Treasury | Fiscal Year 2011

TABLE OF CONTENTS

Message from the Secretary of the Treasury .................................................................................................................. iv

Part 1: Management’s Discussion and Analysis

Introduction ..................................................................................................................................................................................... 3 

Organization..................................................................................................................................................................................... 4 

Treasury’s Fiscal Years 2007-2012 Strategic Framework ...............................................................................................................7 

Treasury’s Fiscal Year 2010-2011 Priority Performance Goals ...................................................................................................... 8 

Fiscal Year 2011 Performance By Strategic Goal ...........................................................................................................................10

Department’s Key Performance Measures for 2011 ..................................................................................................................... 24

Highlights of Management and Performance Challenges ............................................................................................................ 26

Financial Overview......................................................................................................................................................................... 27

Summary of Auditors’ Report on the Treasury Department’s Financial Statements ................................................................. 29

Limitations on the Principal Financial Statements ...................................................................................................................... 29

Management Assurances ...............................................................................................................................................................30

Improper Payments ....................................................................................................................................................................... 33

Audit Follow-up Program .............................................................................................................................................................. 33

Part 2: Annual Financial Report

Message from the Assistant Secretary for Management and Chief Financial Officer ................................................................. 37 

Inspector General’s Transmittal Letter ......................................................................................................................................... 38

Independent Auditors’ Report on the Department’s Financial Statements ................................................................................40

Management’s Response to Independent Auditors’ Report..........................................................................................................51

Financial Statements...................................................................................................................................................................... 52

Notes to the Financial Statements.................................................................................................................................................60

Required Supplemental Information (Unaudited) .....................................................................................................................145

Part 3: Other Accompanying Information

Appendix A: Other Accompanying Information (Unaudited)....................................................................................................152

Appendix B: Improper Payments ................................................................................................................................................156

Appendix C: Management and Performance Challenges and Responses..................................................................................162

Appendix D: Material Weaknesses, Audit Follow-Up, and Financial Systems ........................................................................ 207 

Appendix E: Glossary of Acronyms .............................................................................................................................................214

iii
U.S. Department of the Treasury | Fiscal Year 2011

MESSAGE FROM THE SECRETARY OF THE TREASURY

During the last three years, President Obama has taken a series of tough but necessary steps 

to help break the back of an historic financial crisis and restart economic growth. Because of 

those actions, we are in a much better position as a nation, but we still face many challenges 

ahead.

Although the economy is expanding, it is not growing fast enough. The private sector is 

creating jobs, but too many Americans are still out of work. The scars of the financial crisis 

were deep and it will take a consistent, determined effort to heal the damage that it caused to 

families and businesses across our nation. That is why President Obama is relentlessly 

focused on doing everything he can to strengthen growth and job creation – both right now 

and for the long term.

In September, the President put forward the American Jobs Act to Congress. This proposal includes a powerful package of tax 

cuts and new investments that will help put more Americans back to work right away. 

He is working with federal agencies – through a series of executive actions – to make it easier for Americans to refinance their 

mortgages and lower the cost of their student loans, which will help put more money in the pockets of average families. 

Importantly, he is also partnering those immediate steps to strengthen job creation with long-term reforms that provide more 

certainty that we can sustain growth in the future.

The President is working to reduce our long-term deficits in a balanced way that protects health care and retirement security, 

and creates room to invest in the areas we need to keep our economy competitive. 

The President, the Treasury Department, and key regulatory agencies are putting in place financial reforms that will help ensure

businesses can access the capital they need to expand and create new jobs, and consumers are protected from fraud and abuse.

We are also continuing to work with our G-20 partners to promote sustainable and balanced global growth, achieve needed 

financial reforms across the globe, and address fiscal pressures in Europe.

The Treasury Department has and will continue to work diligently in support of those efforts to strengthen job growth and 

achieve the reforms necessary to secure our nation's economic future. 

The Treasury Department again received an unqualified opinion on its consolidated financial statements, and we also received 

another unqualified opinion on the financial statements of our Office of Financial Stability/Troubled Asset Relief Program. 

Rather than providing a single Performance and Accountability Report for fiscal year 2011, we are producing separate financial 

and performance reports. The Annual Performance Report will be included in the Congressional Budget Justification in 

February 2012. 

We have validated the accuracy, completeness, and reliability of the financial and performance data in this report. Maintaining 

our commitment to continuous program and operational improvement, the Department also made progress in reducing 

management control weaknesses and in efforts to achieve federal financial systems and control objectives. 

Timothy F. Geithner

November 15, 2011

iv
5 
U.S. Department of the Treasury | FY 2011

6 
U.S. Department of the Treasury | Fiscal Year 2011

3 

INTRODUCTION

In fiscal year 2011, Treasury continued to implement the 

Dodd-Frank Wall Street Reform and Consumer Protection 

Act of 2010 (Dodd-Frank Act), wind down emergency 

financial stabilization programs that began in 2008 and 2009 

in the wake of the financial crisis, and promote a better 

environment for investment and job creation.

Pursuant to the Dodd-Frank Act, Treasury established the 

Consumer Financial Protection Bureau (CFPB), the Financial 

Stability Oversight Council (FSOC), the Federal Insurance 

Office (FIO), and the Office of Financial Research (OFR); 

accomplished the closure of the Office of Thrift Supervision 

(OTS) and the integration of many of its functions into the 

Office of the Comptroller of the Currency (OCC); and worked 

with other government agencies to develop new market 

regulations and guidance. Over the past year, Treasury has 

worked tirelessly with the new regulatory bodies and other 

agencies to strengthen safeguards for consumers and 

investors and to provide better tools for limiting risk in major 

financial institutions and financial markets. 

Treasury achieved several major milestones during the third 

year of the Troubled Asset Relief Program (TARP). The 

program’s banking investments have resulted in a positive 

return for taxpayers, and more than three-quarters of the 

overall funds disbursed for TARP have been recovered. In 

2011, Treasury began selling its mortgage-backed security 

portfolio acquired under the Housing and Economic 

Recovery Act. Although the housing market continues to 

face challenges, TARP’s initiatives to assist struggling 

homeowners have provided more than 800,000 families with 

permanent mortgage modifications. Furthermore, Hardest 

Hit Fund initiatives have equipped states with the ability to 

tailor solutions to their unique housing challenges.

In September 2010, President Obama signed the Small 

Business Jobs Act into law to provide critical resources to 

help small businesses continue to drive economic recovery 

and create jobs. Treasury played an important role in 

implementing the law by initiating two programs that 

increase capital to small businesses: the Small Business 

Lending Fund (SBLF) and the State Small Business Credit 

Initiative (SSBCI). In fiscal year 2011, Treasury approved $4 

billion in funds for community banks and community 

development loan funds to increase lending to small 

businesses through the SBLF. In that same time, SSBCI 

disbursed $474 million in funds that are expected to leverage 

approximately $4.7 billion in new small business lending.

In fiscal year 2011, the Internal Revenue Service (IRS) 

received a record of more than 100 million electronic 

individual tax returns in a single season as a result of its 

electronic filing programs. The IRS also continued to 

increase the amount of tax information and services provided 

to taxpayers through IRS.gov, and received a “Best of the 

Web” award for performance and quality. 

Treasury’s financial intelligence and enforcement activities 

had a significant impact in combating money laundering and 

terrorist financing in 2011. In response to recent unrest in 

the Middle East and North Africa, the Department tracked 

the assets of regimes that violently suppressed protestors and 

imposed sanctions on the Syrian and Libyan governments for 

human rights violations. Treasury also collaborated with 

U.S. and Mexican counterparts to step up efforts to expose 

and disrupt Mexican cartels and their money laundering 

networks. In addition to these efforts, Treasury worked with 

its law enforcement and intelligence community partners to 

administer new sanction programs addressing Iran, North 

Korea, Syria, Afghanistan, Somalia, and transnational 

organized crime groups.

Finally, Treasury continued to take steps to reduce costs to 

taxpayers and operate the Department efficiently. In fiscal 

year 2011, the Bureau of the Public Debt ended the sale of 

paper payroll savings bonds and announced that the issuance 

of paper savings bonds sold over-the-counter at financial 

institutions would end by December 31, 2011. These actions, 

combined with other continuing efforts to increase electronic 

transactions, are projected to create savings of more than 

$500 million and 12 million pounds of paper over the next 

five years. In December 2010, Treasury published a 

regulation requiring all businesses with a deposit liability of 

$2,500 per quarter to pay taxes electronically through the 

Electronic Federal Tax Payment System. This initiative will 

eliminate the processing of approximately 20 million paper 

coupons annually, and will result in fewer processing errors 

that could result in erroneous fines or penalties for taxpayers.
U.S. Department of the Treasury | Fiscal Year 2011

4 

ORGANIZATION

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 the Departmental Offices, eight operating 

bureaus, and three inspectors general. 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. OFR and FIO, created under the 

Dodd-Frank Act, reside within Domestic Finance, as does the 

Office of Financial Stability, which is responsible for 

overseeing TARP programs.

International Affairs protects and supports U.S. economic 

prosperity by strengthening the external environment for 

U.S. growth, preventing and mitigating global financial 

instability, and managing key global challenges.

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 intransigent regimes, 

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 has direct oversight over 

the U.S. Mint and the Bureau of Engraving and Printing, and 

is a key liaison with the Federal Reserve. In addition, the 

Treasurer serves as a senior advisor to the Secretary in the 

areas of community development and public engagement. 

Community Development Financial Institutions 

(CDFI) Fund increases economic opportunity and promotes 

community development investments for underserved 

populations and in distressed communities in the United 

States. 

Other Offices

Internally, the Departmental Offices are responsible for 

overall management of the Department. The Office of 

Management and the Chief Financial Officer is responsible 

for managing the Department’s financial resources and 

oversees Treasury-wide programs, including human capital 

information and technology, and minority and women 

inclusion.

Other support programs include General Counsel, Legislative 

Affairs, and Public Affairs. Also, three inspectors general—

the Office of the Inspector General (OIG), the Treasury

Inspector General for Tax Administration (TIGTA), and the 

Special Inspector General for the Troubled Asset Relief 

Program (SIGTARP) — provide independent audits, 

investigations, and oversight of the Department of the 

Treasury and its programs. While SIGTARP is 

organizationally placed in Treasury, it is not under the 

general supervision of the Secretary.

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 federal excise taxes on alcohol, tobacco, 

firearms, and ammunition and assures compliance with 

tobacco permitting and alcohol permitting, labeling, and 

marketing requirements to protect consumers.
U.S. Department of the Treasury | Fiscal Year 2011

The Bureau of Engraving and Printing (BEP) designs 

and manufactures high quality currency 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 administrative 

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 most of the nation’s gold 

and all of its silver.

The Office of the Comptroller of the Currency (OCC) 

charters, regulates, and supervises national banks and federal 

savings associations to ensure compliance with consumer 

laws and regulations and a safe, sound, and competitive 

banking system that supports citizens, communities, and the 

economy. 

The Office of Thrift Supervision (OTS) chartered, 

examined, supervised, and regulated federal and statechartered savings associations and their holding companies 

in order to maintain each thrift’s safety and soundness and 

5 

compliance with consumer laws. OTS was closed on July 21, 

2011, and its responsibilities were distributed to a number of 

other regulatory bodies, including OCC, FDIC, and the 

Federal Reserve.
U.S. Department of the Treasury | Fiscal Year 2011

THE DEPARTMENT OF THE TREASURY ORGANIZATIONAL CHART

6 
U.S. Department of the Treasury | Fiscal Year 2011

7 

TREASURY’S FISCAL YEARS 2007-2012 STRATEGIC FRAMEWORK

The Treasury’s Strategic Framework is a summary of the Department’s goals and objectives. This framework provides the basis 

for performance planning and continuous improvement. 

Strategic Goals Strategic Objectives Outcomes

Financial

Goal 1: Effectively Managed U.S. 

Government Finances

Cash Resources are available to 

operate the government

• Revenue collected when due through a fair 

and uniform application of the law

• 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

Goal 2: 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

Trust and Confidence in U.S. 

currency worldwide

• Strong U.S. economic competitiveness

• Competitive capital markets

• Free trade and investment

• Prevented and mitigated financial and 

economic crises

• Decreased gap in global standard of living

• Commerce enabled through safe, secure U.S. 

notes and coins

Security

Goal 3: 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 

• Removed or reduced threats to national 

security from terrorism, proliferation of 

weapons of mass destruction, drug 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 system

Management

Goal 4: Management and 

Organizational Excellence

Enabled and Effective Treasury 

Department

• A citizen-centered, results-oriented and 

strategically aligned organization

• Exceptional accountability and transparency
U.S. Department of the Treasury | Fiscal Year 2011

8 

TREASURY’S FISCAL YEAR 2010-2011

PRIORITY PERFORMANCE GOALS

In 2010, the Department established three Agency Priority 

goals to support improvements in near-term outcomes 

related to the strategic plan. Treasury made significant 

progress on these goals in 2011.

GOAL #1: REPAIR AND REFORM THE 

FINANCIAL SYSTEM

KEY STRATEGIES: 

• Implement strong, comprehensive regulatory reform

• Restore stability and accountability to the financial 

system

• Manage and exit emergency financial crisis intervention 

programs

• Support recovery in the housing market and reduce 

avoidable foreclosures

• Devise long-term, solutions for our nation's system of 

housing finance

In fiscal year 2011, the Department coordinated with the 

appropriate regulators to implement additional protections 

passed in the Dodd-Frank Act, including writing new rules 

that create heightened standards for non-bank financial firms 

if their material financial distress could threaten financial 

stability; improve alignment of interests between mortgage 

originators, securitizers, and investors; and restrict banks’ 

speculative activity.

The financial recovery bank programs under the investment 

portion of the TARP have provided a substantial positive 

return to the taxpayer. Moving forward, Treasury is working 

to exit the remaining investments and continue recovering 

tax payer dollars. Figure 1 depicts the income received from 

the TARP investments since June 2009.

In February 2011, Treasury delivered a report to Congress 

that provides a path forward for reforming America’s housing 

finance market. The Administration’s plan would wind down 

Fannie Mae and Freddie Mac and shrink the government's 

current footprint in housing finance on a responsible 

timeline. The plan also recommended reforms to continue 

fixing the fundamental flaws in the mortgage market through

stronger consumer protection, increased transparency for 

investors, improved underwriting standards, and other 

critical measures.

Figure 1 

GOAL #2: INCREASE VOLUNTARY TAX 

COMPLIANCE

KEY STRATEGIES: 

• Simplify the tax code by providing and improving 

taxpayer services to enable taxpayers to understand and 

meet their tax obligations

• Provide and improve enforcement to ensure that all 

businesses and individuals pay the tax they owe

A voluntary compliance tax system requires effective services 

so that taxpayers understand and meet their tax obligations. 

It also requires effective enforcement to ensure that all 

businesses and individuals pay the tax that they owe. During 

fiscal year 2011, the IRS continued to develop and improve on 

products and services such as updating forms to help 

taxpayers comply with filing requirements, converting forms 

for visually impaired taxpayers, translating more tax 

products into multilingual forms, reducing taxpayer 

telephone wait time, expanding information on IRS.gov and 

social media sites, and working with banks so that taxpayers 

without bank accounts could receive refunds on prepaid debit 

cards in the 2011 filing season. 

In the 2011 filing season, the IRS processed more than 100 

million individual tax returns electronically and completed 

76.5 million phone calls through its live assistors and 

automated prompts and partnered with state taxing 

authorities, volunteer groups, and other organizations to 
U.S. Department of the Treasury | Fiscal Year 2011

9 

enhance taxpayer outreach and education. The IRS and its 

partners continued to provide free tax assistance to the 

elderly, disabled, and limited English proficient individuals 

and families at Volunteer Income Tax Assistance and Tax 

Counseling for the Elderly sites. These two programs, along 

with the IRS walk-in sites at the Taxpayer Assistance Centers

(TACs), helped more than five million taxpayers complete 

their tax returns. 

IRS enforcement activities, such as examination and 

collection, continued to remain a high priority. The IRS also 

expanded its enforcement presence in the international field, 

continued to pursue high net-worth noncompliant taxpayers, 

and initiated action to better leverage the tax return preparer 

community. During fiscal year 2011, as part of an overall 

strategy to improve offshore compliance, the IRS opened a 

second Offshore Voluntary Disclosure Program to encourage 

taxpayers with hidden offshore assets and income to 

voluntarily disclose. The program resulted in approximately 

30,000 voluntary disclosures and resulted in approximately 

$2.2 billion in additional tax, interest, and penalties.

Figure 2 

GOAL #3: SIGNIFICANTLY INCREASE THE 

NUMBER OF PAPERLESS TRANSACTIONS 

WITH THE PUBLIC

KEY STRATEGIES: 

• Improve effectiveness and efficiency through greater 

use of electronic processing of documents including 

payments, collections, saving bonds transactions, and 

e-file tax returns

• Contribute to the Department’s environmental 

sustainability 

Recognizing that paper processes are often slow, inaccurate, 

expensive, and wasteful, Treasury continues to reduce paper 

transactions with the public. The Secretary approved several 

initiatives to move toward electronic transactions: electronic 

payroll savings bonds, electronic payments to federal 

beneficiaries, and electronic tax collections. Treasury’s 

initiative to increase the number of paperless transactions it 

conducts with the public is expected to save more than $500 

million and 12 million pounds of paper over its first five years 

alone. These efforts also contribute to the Department's 

environmental sustainability.

In fiscal year 2011, Treasury implemented many of the 

planned changes to reduce paper-based transactions. 

Treasury ended the issuance of all paper payroll savings 

bonds in January 2011, and announced that the issuance of 

paper savings bonds sold over-the-counter at financial 

institutions would end by December 31, 2011. In 2011, the 

IRS expanded its electronic filing program to allow 

businesses to pay taxes electronically. The Department also 

made progress moving to electronic payments, by requiring 

all new recipients of benefit payments to receive their 

payments electronically starting May 1, 2011. Treasury will 

continue to make progress toward electronic transactions and 

find opportunities to reduce costs, improve efficiency, and 

operate sustainably. 

Figure 3 
U.S. Department of the Treasury | Fiscal Year 2011

FISCAL YEAR 2011 PERFORMANCE BY STRATEGIC GOAL

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. 

Sound financial management practices allow the government 

to meet its financial obligations while minimizing borrowing 

costs. In pursuit of its strategic goal, Treasury led the 

Administration’s efforts to create a tax system that is simpler, 

fairer, and more robust. Additionally, the Department 

continued initiatives to improve efficiency and lower the cost 

of operating the Federal Government. 

DEVELOPED COMPREHENSIVE TAX PROPOSALS TO 

SIMPLIFY THE TAX CODE

The Department accomplished its fiscal year 2011 tax reform 

and simplification objectives through the legislative, 

regulatory, and policy efforts of the Office of Tax Policy. In 

2011, Treasury released guidance on over a dozen tax 

provisions of the Affordable Care Act (ACA), including tax 

credits, revenue provisions, and (in collaboration with the 

Departments of Health and Human Services (HHS) and 

Labor) insurance market reforms incorporated into the Tax 

Code. One of the more significant projects was a proposed 

regulation on the refundable premium tax credit created by 

Code Sec. 36B, which is a centerpiece of the ACA’s goal of 

expanding health insurance coverage. The ACA will continue 

to be a heavy focus in fiscal years 2012 and 2013, including 

the release of additional guidance to implement the ACA’s 

core coverage provisions.

SIMPLIFIED TAX ADMINISTRATION 

To enforce the law and ensure everyone meets his or her

obligation to pay taxes, the IRS strives to improve its 

products and services to make voluntary compliance easier. 

In fiscal year 2011, the IRS expanded the number of 

automated products and services to increase tax compliance, 

simplify tax administration, and reduce taxpayer burden to 

include: 

10 

• An Interactive Tax Law Assistant (ITA) application on 

IRS.gov. ITA is an interactive online probe and response 

tool that, through a series of interview questions, 

provides users with answers to frequently asked 

questions 

• Expanded transcript capability providing taxpayers with 

three easy and convenient options for getting copies of 

their tax return information, by phone, by mail, or online 

through a new web application on IRS.gov. Over 1.96 

million taxpayers ordered transcripts in fiscal year 2011. 

In addition to this, the IRS Expanded e-signature pilots 

that allow taxpayers to use electronic signature pads and 

tablets instead of ink signatures for e-file, reporting 

agent authorizations, and requests for tax return 

transcripts

• Expanded Paper Check Conversion to all 401 TACs, 

allowing paper checks to be converted to electronic 

transactions. The conversion improves the payment 

process expediting resolution to taxpayer account issues. 

In fiscal year 2011, 3.6 million remittances were 

processed for more than $7.8 billion

• Collaborated with US Bank (the Health Coverage Tax 

Credit (HCTC) check payment processing vendor) to 

launch the HCTC e-Payment Processing System to 

provide taxpayers the ability to make their payments 

electronically

The IRS electronic filing program is one of the most 

successful modernization programs in government, offering 

an efficient and secure way for taxpayers to file more accurate 

returns and get their refunds more quickly. In fiscal year 

2011, the IRS received more than 100 million electronic 

individual tax returns in a single filing season and passed the 

one billion mark for individual tax returns processed since 

the program began in 1986. The IRS also met its 

performance targets for both individual and business returns 

processed electronically. 

The IRS continued efforts to improve the clarity, accuracy, 

and effectiveness of correspondence sent to taxpayers who 

have account issues. In fiscal year 2011, the IRS had 104 
U.S. Department of the Treasury | Fiscal Year 2011

redesigned/new notices in production along with 

corresponding webpage information to reinforce the notice, 

answer common questions, and provide tips to help 

taxpayers meet their tax obligations. The revised 

correspondence includes collection notices in plain language 

to help taxpayers more clearly understand the collection 

process and available payment options. For high-volume 

notices, the IRS included links for translation of the notice 

into five languages (Spanish, Chinese, Korean, Vietnamese, 

and Russian). The redesigned notices represent 72 percent in 

volume of more than 220 million notices sent each year. In 

recognition of this redesign work, the IRS received the 2011 

grand prize ClearMark award from the Center for Plain 

Language, which honors the documents and websites that 

best succeed in clear communication.

The IRS increased the use of communications with taxpayers 

who may not get their information from traditional sources, 

such as newspapers and broadcast and cable news. By 

employing social media such as YouTube, Twitter, and 

iTunes, the IRS reaches these taxpayers with important 

service and compliance messages. In January 2011, the IRS 

unveiled IRS2Go, its first smartphone application that lets 

taxpayers check the status of their tax refunds, subscribe to 

tax season updates, and follow IRS news through a Twitter 

feed. There were more than 360,000 downloads of IRS2Go 

since January 2011. Communicating using these new 

technologies reflects the IRS commitment to modernizing the 

agency and engaging taxpayers where and when they want 

and increasing their rate of self-assistance. Ultimately, 

providing more self-assistance methods to customers will 

also reduce demand on more expensive customer services, 

such as staffing IRS phones and correspondence. 

In concert with the greater use of self-assistance methods of 

information, the IRS answered almost 2.5 million fewer 

assistor calls in fiscal year 2011 compared to fiscal year 2010. 

However, in the past couple of years, the IRS has faced 

unprecedented demand for toll-free services as a result of the 

economic downturn, new legislation, and other events. 

PRACTICED EFFECTIVE CASH MANAGEMENT AND 

FORECASTING

The Department of the Treasury manages the Government’s 

central operating account and cash position to support gross 

annual transactions totaling $23 trillion. The Department’s 

Office of Fiscal Projections (OFP) provides forecasts of 

federal receipts, outlays, and debt transactions to ensure that 

funds are available on a daily basis to cover federal payments. 

By increasing the accuracy of fiscal projections, the 

Department is able to minimize borrowing costs, which has a 

direct and material impact on the government’s net operating 

cost. 

To analyze the effectiveness of the cash management 

techniques employed, the Department measures the variance 

between actual and projected receipts. Notwithstanding 

economic uncertainties and legislative changes, the forecasts 

for fiscal year 2011 were better than those for fiscal year

2010. The estimated variance for fiscal year 2011 was 4.5 

percent, lower than the 5.0 percent target for fiscal year 2011 

and the 5.8 percent actual variance in fiscal year 2010. Fiscal 

year 2011 was a challenging year to forecast due to legislative 

changes and lingering uncertainty concerning the pace of the 

economic recovery. 

The economic downturn and subsequent recovery in fiscal 

years 2010 and 2011, along with the government's policy 

response to these events, had a significant impact on federal 

revenues and on the ability to forecast federal tax receipts. 

Key economic factors such as Gross Domestic Product (GDP) 

and employment did not improve as much as expected. 

However, final individual tax payments in April came in well 

above forecast, as liability for tax year 2010 was much greater 

than expected. Estimates of corporate profitability and the 

impact of corporate tax legislation made corporate tax 

receipts difficult to forecast. 

IMPROVED GOVERNMENT-WIDE FINANCIAL 

MANAGEMENT

Following the June 2010 Presidential Memorandum 

“Enhancing Payment Accuracy Through a "Do Not Pay List", 

BPD, the Office of Fiscal Policy, and the Office of 

Management and Budget are collaborating to implement this 

initiative. Now branded the GOVerify Business Center, this 

project will include the GOVerify Portal, Business Center, and 

Customer Call Center. In fiscal year 2011, BPD established 

agreements with select Federal Reserve Banks to help 

implement the program, conducted customer outreach, 

11 
U.S. Department of the Treasury | Fiscal Year 2011

12 

obtained five data sources, and proposed legislative changes 

in support of the GOVerify Portal.

The Office of Financial Innovation and Transformation 

(OFIT) was created to develop and share government-wide 

financial solutions to lower overall financial transaction 

processing costs, facilitate the resolution of audit issues, and 

increase transparency of financial information. In OFIT’s 

first year of operation, the team identified key initiatives that 

could be implemented over the next five years to collectively 

deliver $1-2 billion in annual savings upon full adoption by 

the Federal Government. OFIT developed an approach that 

will move these initiatives forward by pursuing a three 

pronged financial management strategy that deploys 

common technology solutions, expands the use of shared 

transactional service, and launches key enablers. 

OFIT developed, in cooperation with other federal entities 

and FMS, business cases and project plans to launch two of 

the twelve key initiatives, including a portal for the electroni

submission of vendor invoices and an automated way to 

settle intra-governmental transaction disputes. Additionally

OFIT developed data standards to support electronic 

invoicing. The adoption of electronic invoicing capabilities 

across the Federal government will reduce the cost by as 

much as 50 percent or $450 million annually. 

c 

, 

MOVING FORWARD

The IRS will continue to take actions to increase the rate of 

electronic filing of tax returns by individuals and businesses. 

While providing alternatives to telephone customer service 

will continue to be a high priority, the IRS will continue to 

properly staff all toll-free sites in order to achieve future level 

of service targets and ensure effective taxpayer 

communication.

Treasury anticipates that forecasting government receipts 

and outlays in fiscal year 2012 will continue to be challenging 

given potential changes legislative changes by Congress and 

the difficulty in forecasting the strength of the economy. As 

part of its effort to continually improve its forecasts, the 

Department will work to update and modify existing models 

and monitor new initiatives. 

U.S. AND WORLD ECONOMIES PERFORM 

AT FULL ECONOMIC POTENTIAL

The Treasury Department develops, coordinates, and 

enforces the economic and financial policies that enable 

sustained development at home and abroad. In fiscal year 

2011, Treasury programs to help strengthen and reform the 

financial system made substantial progress. TARP’s bank 

programs have provided a substantial positive return to the 

taxpayer. Treasury also continued to work in cooperation 

with the Federal Housing Finance Agency (FHFA) to support 

the housing market and protect the taxpayers’ investment in 

the Government Sponsored Enterprises (GSEs).

The Department also focused on spurring economic growth 

for local communities and American small businesses 

through initiatives designed to provide funding for projects 

that would encourage job creation and further investment. 

Achieving domestic goals is not possible without 

coordination with our international partners. On the global 

stage, Treasury collaborated with key partners to ensure 

American economic competitiveness and prosperity through 

stabilization of financial systems abroad and support of open 

trade and investment policies. 

PROFITABLY MANAGED THE TROUBLED ASSET 

RELIEF PROGRAM

In the fall of 2008, the nation was in the midst of the worst 

financial crisis since the Great Depression. The U.S. financial 

system and economy were on the verge of catastrophic 

collapse. The Emergency Economic Stabilization Act of 

2008 was enacted into law to create TARP, under which the 

Department of the Treasury took a variety of actions to 

stabilize the financial system and prevent a possible second 

Great Depression. The authority to make new commitments 

to invest funds under TARP expired on October 3, 2010. 

Treasury is moving quickly to recover the Federal 

Government’s investments in a manner consistent with the

duty to promote financial stability and protect taxpayers’ 

interests. 

Several major developments occurred in fiscal year 2011. On 

March 30, Treasury announced that TARP’s bank programs 

officially turned a profit. Moving forward, Treasury is 

working to exit the remaining investments and continue 
U.S. Department of the Treasury | Fiscal Year 2011

13 

recovering taxpayer dollars. Ultimately, Treasury expects

that TARP’s bank programs will produce a lifetime profit of 

more than $20 billion. In May 2011, Chrysler repaid the 

remainder of its TARP loans, a full six years ahead of 

schedule. Treasury has now exited from its investment with 

Chrysler at a smaller loss than initially expected. 

Additionally, the American International Group (AIG) 

completed a major restructuring plan, marking a major 

milestone in the company’s remarkable turnaround and 

putting taxpayers in a better position to recover their 

investment in AIG. 

As of September 30, 2011, TARP has a total estimated cost of 

$70.2 billion, a fraction of the original $700 billion amount 

originally authorized by Congress. Most of the program’s 

expected costs result from assistance provided to struggling 

homeowners and the automobile industry. 

WORKED TO STABILIZE THE HOUSING MARKET

In the face of the worst housing crisis in a generation, 

Treasury played an important role in the government’s 

programs to prevent avoidable foreclosures and support the 

continued repair of the housing market in fiscal year 2011. 

Under Treasury’s Home Affordable Modification Program 

(HAMP), one of several critical homeownership assistance 

programs under the Making Home Affordable initiative, over 

800,000 families received permanent mortgage 

modifications. By setting affordability standard procedures 

and providing a framework for homeowner assistance that 

the private sector can follow, HAMP has also driven industry 

improvements that resulted in two million additional 

modifications outside the program. Treasury continues to 

refine and strengthen the Department’s housing programs 

and is taking additional steps to help ensure Americans are 

better served by their mortgage companies. These steps 

include publishing a compliance scorecard for each of the 10 

largest HAMP servicers and requiring all Making Home 

Affordable-participating servicers to assign a single point of 

contact to each homeowner requesting a HAMP modification. 

Another key housing priority for the Department in fiscal 

year 2011 was comprehensive housing finance reform. In 

February, the Administration laid out a plan to wind down 

Fannie Mae and Freddie Mac and reform the nation’s 

housing finance system. In February 2011, the Treasury 

Department and the Department of Housing and Urban 

Development released a report, “Reforming America’s 

Housing Finance Market,” that offered a new framework for 

housing finance. The report reflected Treasury’s view that 

private capital should provide the dominant share of 

mortgage credit, and Fannie Mae and Freddie Mac should be 

wound down commensurate with the health of the housing 

market and the economy. The report concluded that 

government should have three core responsibilities in the 

housing finance market: consumer protection and robust 

supervision, targeted assistance for low and medium income 

homeowners and renters, and maintaining the ability to 

provide market stability in the event of a crisis. 

Treasury is also working with FHFA on new options for 

selling single-family real estate owned properties held by 

Fannie Mae and Freddie Mac, and the Federal Housing 

Administration, as well as changes to the Home Affordable 

Refinance Program (HARP) that would help allow more 

Americans to refinance their mortgages at today’s historically 

low rates.

MANAGED SENIOR PREFERRED STOCK PURCHASE 

AGREEMENTS

The Housing and Economic Recovery Act of 2008 (HERA) 

authorized the Department to purchase obligations and other 

securities issued by Fannie Mae, Freddie Mac or one of the 12 

Federal Home Loan Banks. At the time the Federal Housing 

Finance Agency (FHFA) placed Fannie Mae and Freddie Mac 

into conservatorship in September 2008, Treasury 

established Senior Preferred Stock Purchase Agreements 

(SPSPAs) to ensure that each firm maintained a positive net 

worth. The maximum amount available to each GSE under 

this agreement is currently based on a formulaic cap that 

allows continued draws for three years ending December 

2012 at amounts that will automatically adjust upwards 

quarterly by the cumulative amount of any losses realized by 

either GSE and downward by the cumulative amount of any 

gains, but not below $200 billion, and will become fixed at 

the end of the three years. At the conclusion of the three-year 

period, the remaining commitment will then be fully 

available to be drawn per the terms of the agreements. As of 

September 30, 2011 and 2010, the Department’s gross 
U.S. Department of the Treasury | Fiscal Year 2011

14 

investment in Fannie Mae and Freddie Mac were $169.0 

billion and $148.2 billion, respectively. 

The U.S. Government’s investment in and support of the 

GSEs through the SPSPAs was structured in such a way that 

ensures virtually all profits in the company revert to the 

Government in the form of dividends on the preferred shares

in Fannie Mae and Freddie Mac. To get a true picture of the 

Government’s exposure in the companies, it is critical to 

factor in those dividends and net them against the draws that 

the GSEs make from Treasury. For instance, for fiscal year 

2011, while the GSEs had $20.8 billion in gross draws, this 

was before accounting for $15.6 billion in dividends paid 

back to Treasury, resulting in a net draw of $5.2 billion. As of 

September 30, 2011 and 2010, the Department’s net cost for 

financial support provided to the GSEs under the SPSPAs 

after accounting for those dividends were $136.9 billion and 

$131.7 billion, respectively.

Freddie Mac is projected to have positive net operating 

income starting in the fiscal year 2012 and Fannie Mae is 

project to have positive net operating income starting in fiscal 

year 2013. However, over time their net income will be 

inadequate to cover the senior preferred dividend payments 

due to Treasury based on the balance of preferred stock

outstanding and the accretion of the balance due to 

incremental draws over time to fund further dividends. The 

projections take into account that the GSEs will be gradually 

winding down their retained mortgage portfolios to the $250 

billion cap specified in the SPSPAs and assume modest price 

increases on the single family guarantee business 

implemented gradually over time after 2013. As noted above, 

liabilities for gross draws under the SPSPAs do not represent 

the true net cost to taxpayers – since they do not include 

dividends paid to taxpayers on the preferred shares. 

IMPLEMENTED REGULATORY REFORM

Treasury helped to coordinate the rulemaking process to 

implement the comprehensive reforms to the financial 

system passed by Congress last year in the Dodd-Frank Act, 

including stronger protections for consumers and tougher 

limits on risk-taking by banks. These reforms will help make 

the financial system more secure and better protect the 

American taxpayer. 

Under the Dodd-Frank Act, the Secretary of the Treasury has 

responsibility for standing up the CFPB and performing 

certain functions until a CFPB Director is in place. The CFPB 

was established on July 21, 2010, to make the market for 

consumer financial products and services work for American 

consumers, responsible providers, and the economy as a 

whole. The CFPB has rulemaking, supervisory, enforcement, 

and other authorities relating to consumer financial products 

and services. Many of these authorities transferred from 

seven other federal agencies to the CFPB on July 21, 2011. 

Dodd-Frank also established the OFR within the Treasury 

Department to provide data and analysis to the FSOC and its 

member agencies. OFR is working to improve the quality 

and transparency of financial information, conduct and 

sponsor research related to financial stability, and promote 

best practices in risk management. In fiscal year 2011, the 

OFR focused on the initial implementation of its institutional 

infrastructure and on the initial delivery of data and 

research-related services to FSOC.

In its first year of operation, the FSOC met nine times. 

Throughout these meetings, the Council worked to establish 

its institutional framework, adopted rules of operation, 

released proposed regulations establishing procedures under 

the Freedom of Information Act, and adopted a transparency 

policy. Throughout the year, the Council drafted several 

studies and reports required by the Dodd-Frank Act. On 

January 18, 2011, the Council released studies on 

implementation of the Volcker Rule, concentration limits, the 

economic impact of Dodd-Frank, and risk retention 

requirements for asset-backed securities. On July 18, 2011, 

the Council released a report which outlined how various 

secured creditors are treated in existing resolution regimes 

and examined whether limiting the amount a secured 

creditor receives after a default would be an effective means 

of improving market discipline and protecting U.S. taxpayers. 

The Dodd-Frank bill established the FIO within the 

Department of the Treasury. The FIO is tasked with 

monitoring the insurance industry for gaps in regulations, 

providing guidance and recommendations to FSOC regarding 

insurers which may pose a systemic risk to the insurance or 

financial systems, monitoring the extent to which 

underserved communities have access to affordable 
U.S. Department of the Treasury | Fiscal Year 2011

15 

insurance, consulting with state regulators on issues of 

national importance, and managing the Terrorism Risk 

Insurance Program (TRIP). The FIO also provided expert 

analysis on a number of studies relating to the 

implementation of Dodd-Frank, including the Volcker Rule 

and orderly liquidation authority rule writing. The FIO staff 

also participated in the FSOC insurance working group.

In fiscal year 2011, Treasury created the FIO Advisory 

Committee which will be tasked to provide expertise and 

guidance to the head of the FIO. Almost half of the 

committee’s membership has been filled by state insurance 

regulators because of the importance of developing an 

understanding of how states regulate their insurance 

industries. The remaining spots on the committee are filled 

by industry experts in a wide range of specialties (casualty, 

life insurance, etc.), academics, and consumer advocates. 

Title III of the Dodd-Frank Act was designed to streamline 

banking regulation and to decrease overlap between various 

regulators. In furtherance of this goal, the Act abolished the 

Office of Thrift Supervision (OTS) and dispersed its powers 

among a number of other regulatory bodies, most notably the 

OCC, FDIC, and Federal Reserve. On July 21, 2011, the OCC 

assumed responsibility for the supervision of 642 federal 

savings associations, as well as rulemaking authority for all 

savings associations. The OCC and OTS management teams 

worked closely together to ensure a smooth transition of 

these functions.

Treasury continued to coordinate with various regulatory 

agencies to improve accountability and transparency to 

protect borrowers, taxpayers, the housing finance market, 

and the broader economy. Treasury’s priorities include 

instituting stronger mortgage underwriting standards, 

requiring risk retention throughout the securitization chain, 

and mandating higher capital standards for banks and 

financial institutions involved in housing finance.

SUCCESSFULLY MANAGED THE RECOVERY ACT

The Department of the Treasury played a pivotal role in 

implementing the Recovery Act in fiscal years 2009 and 

2010. In fiscal year 2011, the Treasury managed the 

transition of most Recovery Act programs to the compliance, 

oversight, and monitoring phase. The Department estimated 

that it managed programs that have or will contribute 

approximately $150 billion in direct relief to the American 

people.

Treasury continued to manage several Recovery Act 

programs in fiscal year 2011, including several bond 

programs and grants in lieu of tax credit programs. Some of 

the programs expired on December 31, 2010, while others 

operate under authority that has continued.

Build America Bonds were taxable municipal bonds that 

provided special tax credits and federal subsidies for either 

the bond issuer or the bondholder. Through the life of the 

program until its expiration on December 31, 2010, Build 

America Bonds were an important source of financing to help 

state and local governments undertake much-needed 

infrastructure projects. State and local governments issued 

more than $181 billion of Build America Bonds and saved 

billions of dollars in financing costs as a result of the 

program. Market reception for Build America Bonds was 

very positive; during the program, Build America Bonds 

constituted about 21 percent of the municipal bonds market. 

There was a total of 2,275 separate issues of Build America 

Bonds by local or state governments in all 50 states, the 

District of Columbia, and two territories.

The Recovery Act also provided the option for state housing 

credit agencies to receive cash payments instead of tax 

credits. This program also expired on December 31, 2010. 

Through the end of fiscal year 2011, 55 state housing agencies

applied for funds, and $5.6 billion in awards were made to 

those agencies. State agencies used these funds to finance 

1,496 affordable housing projects that will add 86,230 units 

of affordable housing and create approximately 116,405 jobs.

The Recovery Act provided a total of $22.4 billion in new 

issuing authority for Qualified School Construction Bonds 

(QSCBs), which provide federal tax credits to investors in 

school construction projects that are designed to cover 100 

percent of the interest payments for the project. From 2009 

through the end of fiscal year 2011, there were 943 issuances 

of QSCBs, raising approximately $13.5 billion in financing.

The Recovery Act provided a maximum of $3.2 billion for 

Qualified Energy Conservation Bonds, which provide a 

subsidy for energy conservation-oriented repair and 
U.S. Department of the Treasury | Fiscal Year 2011

16 

rehabilitation to public power providers, government bodies, 

and cooperative electric companies through a federal tax 

credit to investors which covers 70 percent of the interest on 

the bonds. The Treasury Department allocated this bond 

authority among the states pursuant to a population-based 

statutory formula for further local allocation and use for 

projects within the states.

In fiscal year 2011, $2.4 billion was allocated for Clean 

Renewable Energy Bonds in the Recovery Act. Clean 

Renewable Energy Bonds provide a federal tax credit to 

investors of clean, renewable energy capital projects that 

cover 70 percent of the interest on the bonds. The Treasury 

Department allocated nearly $3 billion of this bond authority 

to applicants for 818 projects.

Treasury provided awards to support investment in 

renewable energy projects under the Recovery Act Section 

1603 program (extended for one year by Section 707 of the 

Tax Relief, Unemployment Insurance Reauthorization, and 

Job Creation Act of 2010). Through the end of fiscal year 

2011, the Department awarded $9.1 billion under the 

program to support nearly 20,500 projects. These projects 

are located in every state and the District of Columbia and 

have added over 13.6 gigawatts of renewable energy 

generation capacity in the United States. 

ENABLED DOMESTIC ECONOMIC GROWTH 

Supporting Distressed Communities

In fiscal year 2011, the CDFI Fund’s core program awarded 

$167.3 million in funding to 167 CDFIs to provide loans, 

investments, financial services, and technical assistance to 

underserved populations and low-income communities 

(LICs). The CDFI Program awardees provided funds for 

projects that created or maintained 25,199 jobs and leveraged 

$1.5 billion in private investment. In addition, the Native 

American CDFI Assistance Program awarded $11.85 million 

in financial and technical assistance to 35 Native CDFIs and 

other Native entities seeking to become or create Native 

CDFIs. The Bank Enterprise Award Program, which provides 

monetary awards to CDFIs and banks for increasing their 

investments in LICs, received 82 eligible applications 

requesting a total of approximately $78 million.

The New Markets Tax Credit Program, which provides tax 

credit allocation authority to Community Development 

Entities for targeted investments in LICs, competitively 

awarded $3.5 billion based on 2010 tax credit allocation 

authority. Allocatees estimate the funds will create 67,744 

jobs, including 37,669 construction-related jobs. The Capital 

Magnet Fund (CMF) provided $80 million in competitively 

awarded grants to 23 CDFIs and qualified nonprofit housing 

organizations serving 38 states. CMF awards can be used to 

finance affordable housing activities as well as related 

economic development activities and community service 

facilities. 

Strengthening America’s Small Businesses 

Since the enactment of the Small Business Jobs Act on 

September 27, 2010, the SBLF has initiated and executed a 

billion-dollar national program. Overall, Treasury approved 

funding for 332 institutions totaling more than $4.0 billion. 

All closings were completed by September 27, 2011.

The State Small Business Credit Initiative (SSBCI) was 

established in September 2010 to provide $1.5 billion in 

federal funds to support state programs that provide 

financing to small businesses and small manufacturers. In 

fiscal year 2011, SSBCI received applications from eligible 

applicants from all 50 states, territories, and the District of 

Columbia. To date, 46 states and the District of Columbia 

have been approved for nearly $1.3 billion in SSBCI funds 

that is expected to leverage almost $13 billion in new small 

business lending.

ENCOURAGED INTERNATIONAL ECONOMIC GROWTH 

AND STABILITY

Promoting Free Trade and Investment

The Department works with other agencies to implement 

U.S. trade laws and policy, enforce international trade rules 

and agreements to reduce and eliminate foreign trade 

barriers, and to create jobs and protect U.S. companies and 

workers consistent with our international agreements. In 

fiscal year 2011, Treasury was involved in over 80 specific 

trade actions, including initiation of trade disputes, review of 

country eligibility for preference programs, intellectual 

property enforcement, and review of specific trade petitions 

and recommendations. Treasury is particularly engaged with 

other agencies in the implementation of trading rules as they 
U.S. Department of the Treasury | Fiscal Year 2011

17 

affect financial services, including ensuring that (1) 

regulations implementing the Dodd-Frank Act are consistent 

with U.S. international commitments and (2) other 

governments comply with trading rules where Treasury 

equities are involved.

Treasury initiated and continued efforts to resist trade and 

investment protectionism, in particular through continued 

monitoring of trade and investment measures through the 

G-20 Standstill Declaration, where the heads of the 19 largest 

economies and the European Union (EU) agreed to avoid 

trade protectionism. Treasury also plays a central role in 

pursuing a level playing field through engagement with China 

on priority trade and investment issues, particularly through 

its leadership in the Strategic and Economic Dialogue. The 

Department has persistently urged China to move away from 

policies that distort international competition and 

disadvantage U.S. workers, firms, and investors as part of a 

broader effort to integrate China as an equal partner in the 

world economy.

Treasury also supported the Administration in completing 

the negotiations of amendments to the Korea-U.S. Free Trade 

Agreement, and in readying the free trade agreements with 

Columbia and Panama for Congressional approval. 

Strengthening Global Economic Cooperation

At the G-20 Leaders’ summit in Seoul in November 2010, it 

was recognized that insufficient progress was being made to 

rebalance global demand. Essentially, countries like the U.S., 

with large, persistent current account deficits needed to boost 

national saving and reorient their economies at the margin 

away from domestic consumption to greater exports, while 

countries with large current account surpluses, like China, 

Germany, and Japan, needed to do the opposite by boosting 

domestic demand to offset the loss of demand in deficit 

countries. Leaders agreed in Seoul to a process to assess the 

root causes of large and persistent imbalances and the 

impediments to rebalancing global demand. 

In February 2011, the Finance Ministers of the G-20 agreed 

on the indicators by which the imbalances of all G-20 

countries would be assessed (i.e., trade and current account 

imbalances, public and private sector debt ratios, and public 

and private sector saving ratios). By April, Finance Ministers 

agreed on the statistical approaches, or indicative guidelines 

by which the indicators of each G-20 member country would 

be assessed. In the event, it was determined that seven 

countries warranted further in-depth assessments of the 

causes of their persistent imbalances and the appropriate 

policy responses. The assessments were completed in the fall 

of 2011 and the conclusions were a direct input to the 

development of an Action Plan for Leaders at the Cannes 

Summit, addressing both near-term vulnerabilities to the 

global economy and the rebalancing of global demand. Key 

commitments in the Action Plan were faster exchange rate 

liberalization and capital account convertibility by China, 

increased domestic demand relative to GDP by China, 

Germany, and Japan; and a more comprehensive plan from 

the EU on ways to address and contain sovereign debt and 

financial market stresses in Europe. 

To further address global economic challenges, Secretary 

Geithner led the Economic Track of the annual Strategic and 

Economic Dialogue with China in May 2011. The meetings 

focused on addressing China’s need to increase domestic 

consumption, strengthening cooperation on financial 

regulations and supervision, and reducing trade and 

investment barriers faced by U.S. firms and workers—all of 

which promote increased U.S. exports and jobs. 

Leading International Efforts on Development and 

Food Security

In fiscal year 2011, the Department played a key role in 

negotiating landmark international financing agreements to 

replenish capital and increase funding for the Multilateral 

Development Banks (MDBs). These agreements included 

new commitments to better orient the MDBs’ internal 

resources toward the poorest countries. As part of the 

general capital increase for the Inter-American Development 

Bank (IDB), Treasury secured a commitment to dedicate over 

$2 billion of IDB income to grants for Haiti over the next 

decade. Treasury also secured landmark commitments on 

transparency and accountability across the MDBs. The 

World Bank’s new disclosure policy represents a dramatic 

shift in how the institution approaches transparency and sets 

a standard for regional development banks and other 

multilateral institutions to follow.
U.S. Department of the Treasury | Fiscal Year 2011

The Department continued to work closely with the MDBs to 

ensure that they are engaged in regions and countries that 

are vital to U.S. interests. In the past year, the Department 

has been intensively engaged with MDBs to ensure a rapid 

and robust response to the historic changes associated with 

the Arab Spring. The mobilization of World Bank and 

African Development Bank resources and programming for 

Egypt, Tunisia, and elsewhere in the region demonstrated the 

tremendous and timely leverage and expertise that these 

institutions are able to provide. 

Treasury also plays an important role in addressing global 

food insecurity through its leadership in the Global 

Agriculture and Food Security Program (GAFSP)–a multidonor trust fund called for by G-20 leaders with the goal of 

helping accelerate progress towards halving the proportion of 

people living in extreme poverty and suffering from hunger 

by 2015. Treasury is currently the Chair of GAFSP’s Steering 

Committee. 

To date, seven donors have pledged $971 million to GAFSP. 

Of the $971 million pledged, $581 million has been received, 

and GAFSP has awarded $481 million to 12 low-income 

countries in Africa, Asia, and Latin America. The $481 

million is expected to raise the incomes of 1.5 million direct 

beneficiaries (and six million indirect beneficiaries) and 

provide aggregate economic returns on the order of 20 

percent. A results measurement framework has been 

approved to ensure timely reporting and monitoring during 

project implementation and following project completion. 

Delivering Financial Technical Assistance to U.S. 

Foreign Policy Priority Countries 

In fiscal year 2011, Treasury’s Office of Technical Assistance 

worked across five continents and delivered 115 separate 

technical assistance projects to 51 countries to help finance 

ministries and central banks of developing countries, such as 

Guatemala, Kenya, Paraguay, and Zambia, and recovering 

countries, such as Afghanistan, Haiti, and Iraq, strengthen 

their capacity to manage public finances. Treasury project 

assistance stimulates economic growth, builds institutional 

capacity of governments to establish and maintain stable and 

effective financial institutions, develops better policies and 

public services to serve citizens, provides a stronger basis for 

U.S. trade and commerce, enhances capacity to address 

18 

national and international financial crime, and fosters U.S. 

partnerships overseas to promote security and mutual 

economic interests.

IMPROVING CURRENCY AND COIN MANUFACTURING 

In fiscal year 2011, the Bureau of Engraving and Printing 

(BEP) continued progress in developing tactile features that 

will enable the blind and visually impaired to denominate 

currency. Testing and refinement of various tactile features 

were conducted during the year to determine which processes 

and features work best at the production volumes needed for 

U.S. currency. BEP continued testing and development of 

counterfeit deterrent features for possible use in the Nation’s 

currency. BEP also worked closely with its currency paper 

supplier and the Federal Reserve Board to resolve a creasing 

problem in the redesigned $100 note. BEP expects to resume 

production of the new notes in early fiscal year 2012. BEP 

also embarked on a multiyear effort to improve its currency 

quality assurance system and reduce spoilage.

In fiscal year 2011, the United States Mint took initial steps 

toward transforming coin production. For example, the Mint 

hired an independent contractor to conduct research for a 

Congressionally-mandated review of metallic materials, the 

largest portion of circulating production cost, for the nation’s 

circulating coins. In addition, the U.S. Mint undertook 

implementation of incremental manufacturing 

improvements to make operations more efficient as well as 

more environmentally sustainable. These sustainability 

efforts included the Denver Mint purchasing 100 percent of 

its electricity from renewable sources, the San Francisco Mint 

installing a “cool roof,” and the Washington, D.C. 

headquarters building obtaining Energy Star certification in 

fiscal year 2011. 

MOVING FORWARD

Moving forward, Treasury continues to help implement 

comprehensive reforms to the financial system passed by 

Congress last year in the Dodd-Frank Act, including stronger 

protections for consumers and tougher limits on risk-taking 

by banks. Treasury is also coordinating with the appropriate 

regulators to implement additional protections passed in 

Dodd-Frank, including writing new rules that will subject 

non-bank financial firms to heightened standards if their 

material financial distress could threaten financial stability. 
U.S. Department of the Treasury | Fiscal Year 2011

19 

Treasury’s other key priorities in this area include winding 

down government programs that were established to address 

the financial crisis, while ensuring policies and programs still 

necessary for financial and economic recovery are 

maintained and well executed; developing longer-term 

reforms for our nation's system of housing finance; and 

implementing new programs that will help small businesses 

access credit in order to grow and create jobs.

The Department will continue to pursue policies that will 

foster American prosperity at home and abroad. To achieve 

conditions that will enable domestic economic stability and 

growth, the Department plans to continue expanding access 

to capital for distressed markets and communities through 

the CDFI Fund, SBLF, and SSBCI. On the international 

stage, the Department will continue to advocate free trade 

and investment policies to stimulate new engines of growth 

for the global economy, particularly for U.S. exports, while 

ensuring enforcement of existing trade laws and policy to 

promote U.S. competitiveness and balanced, sustained 

economic development.

PREVENTED TERRORISM AND PROMOTED 

THE NATION’S SECURITY THROUGH 

STRENGTHENED INTERNATIONAL 

FINANCIAL SYSTEMS

Treasury continued to play a unique role in preserving 

national security by leveraging financial intelligence, law 

enforcement, sanctions, regulatory, and diplomatic tools. 

Treasury’s Office of Terrorism and Financial Intelligence 

(TFI) worked to keep U.S. and international financial systems 

accessible to legitimate users while also disrupting the 

financial networks of terrorists, drug traffickers, and 

weapons of mass destruction (WMD) proliferators. TFI 

includes the Office of Terrorist Financing and Financial 

Crimes (TFFC), the Office of Foreign Assets Control (OFAC), 

the Office of Intelligence Analysis (OIA), the Treasury 

Executive Office for Asset Forfeiture (TEOAF), and the 

Financial Crimes Enforcement Network (FinCEN). 

DISRUPTED MONEY LAUNDERING EFFORTS AND 

DRUG TRAFFICKING IN MEXICO

In collaboration with U.S. and Mexican counterparts, TFI 

disrupted and exposed Mexican drug cartels and their money 

laundering networks using designations authorized by the 

Foreign Narcotics Kingpin Designation Act (Kingpin Act). 

TFI provided investigative training to Mexican law 

enforcement counterparts and expanded critical information 

sharing and collaborative investigative work between 

Mexican and U.S. law enforcement agencies. TFI’s efforts 

enhanced the effectiveness of financial and asset forfeiture 

investigations in Mexico. Mexican law enforcement exposed, 

isolated, disrupted, and incapacitated drug traffickers’ 

financial infrastructure and commercial operations.

In September 2010, the Mexican government limited the 

deposit and exchange of U.S. cash in Mexican banks to 

mitigate risks of laundering proceeds from narcotics 

trafficking and organized crime. FinCEN worked to identify 

whether Mexican cartels and associated criminal 

organizations employed other methods for laundering money 

in the financial system. As part of this effort, FinCEN 

expanded analysis of Bank Secrecy Act (BSA) and money 

transfer data and increased outreach to law enforcement and 

financial industry partners. In March 2011, FinCEN issued 

an advisory to law enforcement that outlined the potential 

methods to circumvent the cash restrictions and documented 

significant changes in U.S. dollar cash activity near the 

Southwest Border and in Mexico. 

EMPLOYED SANCTIONS AND INTELLIGENCE ANALYSIS 

TO COMBAT ILLICIT FINANCE AND NATIONAL 

SECURITY THREATS

Throughout fiscal year 2011, TFI worked across a broad range 

of areas focusing on specific anti-money 

laundering/countering the financing of terrorism (AML/CFT) 

issues and illicit finance networks. TFI currently administers 

and enforces 33 major economic and trade sanctions 

programs based on U.S. foreign policy and national security 

goals. OFAC, under Executive Order 13382, continued to 

target individuals and entities facilitating Iranian 

proliferation activity. OFAC developed and increased the 

number and variety of sanction designations and property 

identifications in Iran related sanction programs. Treasury 

officials actively engaged foreign partners to encourage them 

to implement similar restrictions on Iran. Additionally, a 

fiscal year 2010 Executive Order enabled Treasury to target 
U.S. Department of the Treasury | Fiscal Year 2011

20 

sanctions on individuals and entities engaging with North 

Korea or North Korean entities in arms trafficking, 

procurement of luxury goods, and illicit finance activities.

Within the intelligence community, TFI worked to 

consolidate government-wide efforts to conduct 

counterterrorist financing intelligence research, which 

resulted in all-source, fused, coordinated intelligence 

products. In fiscal year 2011, OIA surged analytical resources 

to track regime assets in the Middle East, focusing on those 

regimes which violently suppressed protestors, such as Libya 

and Syria. 

COLLECTED MAJOR ASSET FORFEITURES

The Treasury Forfeiture Fund, administered by TEOAF, 

collected $868 million in forfeiture revenue during fiscal year

2011. The Fund’s major forfeitures in fiscal year 2011 can be 

attributed to cases pursued by the IRS’s Criminal 

Investigation (CI) division. Deutsche Bank forfeited $404 

million and paid an additional $149 million penalty for 

running fraudulent tax shelters that allowed clients to avoid 

paying billions of dollars in U.S. taxes. Barclays Bank PLC 

agreed to forfeit $149 million to the Department of Justice 

(DOJ) Assets Forfeiture Fund and $149 million to the New 

York County District Attorney’s Office for violations of the 

International Emergency Economic Powers Act (IEEPA) and 

the Trading with the Enemy Act (TWEA). The DOJ equitably 

shared $74.5 million with the Fund for the IRS’s contribution 

to the case.

SUPPORTED HEALTH CARE FRAUD CASES WITH 

BANK SECRECY ACT (BSA) DATA AND ANALYSIS

FinCEN worked closely with the DOJ and the HHS Health 

Care Fraud Prevention and Enforcement Action Team 

(HEAT) to identify complex large-scale fraud schemes. 

Through analysis of BSA data, FinCEN provided investigators 

and prosecutors with an overall health care fraud assessment 

of targeted geographic areas. FinCEN also identified 

sophisticated and complex criminal organizations and 

individuals participating in health care fraud. FinCEN 

identified and analyzed over 175,000 BSA records to support 

67 cases from HHS-Office of the Inspector General field 

offices and to support several state level Medicaid Fraud 

Control Units. FinCEN contributed to over a dozen DOJ 

cases, which resulted in a takedown of $295 million of false 

Medicare billings.

SHARED INFORMATION ON HOUSING FRAUD 

ACTIVITIES

FinCEN continued its regulatory efforts to combat mortgage 

fraud, foreclosure rescue scams, and loan modification fraud. 

FinCEN issued a Notice of Proposed Rulemaking in 

November 2010 to require non-bank residential mortgage 

lenders and originators to implement anti-money laundering 

programs and report on suspicious activity. FinCEN also 

issued an advisory for financial institutions with examples of 

common commercial real estate fraud schemes. FinCEN 

published reports on commercial real estate financing fraud, 

mortgage loan fraud, and loan modification fraud based on 

analysis of suspicious activity reports (SARs). In addition, 

FinCEN studied suspicious activities which involve title and 

escrow companies to assess potential vulnerabilities in this 

industry. FinCEN also made publicly available online 

datasets on mortgage fraud hotspots on hundreds of 

previously unavailable geographies and historical filings, 

based on SAR data. 

MOVING FORWARD

TFI will continue to combat illicit financial activity through a 

variety of means. TFFC will review mutual evaluations and 

offer training and other technical assistance to counterparts 

abroad to create effective AML/CFT frameworks. OIA will 

focus its analytical resources on transnational organized 

crime and its illicit finance networks. TEOAF will continue to 

target cases and investigations that result in high impact 

forfeitures. FinCEN will continue to coordinate and support 

federal, state, and local efforts to combat fraud. 

MANAGEMENT AND ORGANIZATIONAL 

EXCELLENCE

The Department of the Treasury is committed achieving 

management and organizational excellence. The Department 

demonstrates prudent management of taxpayer resources 

through its paperless initiatives, information technology (IT) 

cloud and consolidation initiatives, procurement savings and 

high risk contracts reductions, environmental achievements, 

and other savings initiatives. In addition, Treasury strives to 
U.S. Department of the Treasury | Fiscal Year 2011

21 

achieve organizational excellence by improving Human 

Capital management and performance.

REDUCED PAPER PROCESSES

Treasury’s major paperless initiatives include: paying 

benefits and collecting government receipts electronically 

and discontinuing paper savings bonds. These initiatives 

improve organizational efficiency, enhance customer service, 

and minimize the Federal Government's environmental 

impact.

Pay Benefits Electronically

As of May 1, 2011, newly enrolled federal beneficiaries and 

retirees were mandated to receive payments electronically. 

By March 1, 2013, existing beneficiaries and retirees who 

were receiving payment by check prior to May 1, 2011, will 

also be required to receive payments electronically. The 

increased use of electronic funds transfer to deliver federal 

payments will continue to improve service to payment 

recipients and reduce government program costs by 

minimizing the costs associated with postage and the reissuance of lost or stolen checks. Consistent with this effort, 

the Financial Management Service (FMS) exceeded its target 

with 84 percent of payments being processed electronically in 

fiscal year 2011. 

Collect Government Receipts Electronically

FMS encourages businesses and individuals to pay their taxes 

through the Electronic Federal Tax Payment System 

(EFTPS). To date, FMS has collected more than $3.06 

trillion, with 96 percent of those funds received 

electronically. Effective January 1, 2011, businesses with 

quarterly tax payments greater than $2,500 that previously 

used paper Federal Tax Deposit (FTD) coupons must make 

deposits through EFTPS. This initiative eliminated the 

processing of approximately 20 million paper coupons 

annually. In fiscal year 2011, EFTPS processed nearly 130

million payments, an increase of over 19 percent in 

transaction volume, and a 2.9 percent increase in the tax 

revenue collected in comparison to totals from 2010. The 

new change also benefits taxpayers; IRS research showed 

that businesses using EFTPS are 31 times less likely to make 

an error that results in a fine or penalty than those who paid 

via coupon. 

Another important program that promotes the use of 

electronic transactions to collect revenues needed to operate 

the Federal Government is Pay.gov, an innovative system 

that allows individuals and businesses to make non-tax 

payments to federal agencies over the internet. Pay.gov has 

been implemented with 160 federal agencies representing 

770 cash flows, and collected over $87 billion and processed 

over 76 million transactions in fiscal year 2011.

Eliminate New Issues of Paper Savings Bonds 

In fiscal year 2011, the Bureau of the Public Debt (BPD) 

ended the sale of paper payroll savings bonds and announced 

it will stop issuing paper savings bonds sold over-the-counter 

at financial institutions by December 31, 2011. The webbased TreasuryDirect portal will become the primary retail 

system for investors to buy savings bonds and marketable 

securities and conduct business electronically. The initiative 

will produce savings on agent fees, postage, printing, and a 

reduction in the number of customer service transactions. 

CONSOLIDATED IT SERVICES

Cloud Computing

In fiscal year 2011, Treasury worked to save on IT costs by 

switching from a traditional hosting environment to a cloud 

environment in which computing resources are accessed 

through shared resources. For example, the Department 

recently moved the Treasury.gov website and four other 

Treasury websites (SIGTARP.gov, MyMoney.gov, TIGTA.gov, 

and IRSOversightBoard.treasury.gov) to a cloud hosting 

environment, saving over 13 percent in monthly costs versus 

the legacy hosting solution. Finally, by moving to a cloud 

environment, BEP estimates it will save over 50 percent in 

operating and maintenance costs while also automating 

processes for manufacturing, financial management, 

acquisition, and supply chains. 

Data Center Consolidation Initiative

Treasury is working to increase the utilization and efficiency 

of combined IT assets while reducing technology costs 

through its Data Center Consolidation Initiative. For 

example, under the Fiscal IT initiative, FMS and BPD are 

partnering to close three data centers by December 31, 2011, 

and are in the process of consolidating IT common services 

by September 30, 2012. The Fiscal IT consolidation will 
22 

reduce spending on energy consumption, equipment, 

hardware, software, personnel, and contractor support.

Treasury issued a mandate requiring all bureaus and offices 

to adopt the use of the Internet Payment Platform (IPP), a 

centralized web portal for vendors to submit invoices and 

request payments, by September 30, 2012. Treasury was 

only the second agency in the Federal Government to do this. 

In fiscal year 2013, the Department will also require 

commercial vendors to submit their invoices using IPP. 

Adoption of IPP is projected to reduce the cost of entering 

invoices and responding to invoice inquiries by as much as 50 

percent, which is estimated to save the Treasury $7 million 

annually. IPP will eliminate the need to manually input, file, 

and store paper invoices; shift the responsibility for invoice 

entry to the vendor; and reduce the time required to answer 

payment status questions. Moreover, vendors who use IPP 

will collect quicker payments for their services, receive 

greater assurances that their invoices are received and 

processed accurately, and have immediate online access to 

their invoice status for all agencies using IPP. The IPP 

initiative is estimated to produce approximately $450 million 

in government-wide savings annually.

Treasury has taken a multi-faceted approach to achieve 

procurement savings. In March 2011, Treasury consolidated 

its headquarters procurement organization with IRS 

procurement. The consolidation will provide greater 

economies of scale and deeper capabilities, including 

enhanced access to strategic sourcing, which is a 

collaborative and structured process of critically analyzing 

spending and using this information to make business 

decisions about acquiring commodities and services more 

effectively and efficiently. In addition to participating in 

government-wide efforts to leverage basic commodity buying, 

Treasury significantly advanced its Department-wide 

strategic sourcing program through commodity management 

initiatives led by senior managers. The Department exceeded 

its fiscal year 2011 goals for acquisition-related savings 

mandated by the Office of Management and Budget (OMB), 

and realized a 21 percent aggregate reduction in high risk 

contract obligations. Overall, in fiscal year 2011, Treasury 

achieved $325.9 million in acquisition savings based on 

OMB’s definitions.

Treasury set a Department-wide priority to improve energy 

efficiency and reduce greenhouse gas emissions. In addition 

to the reduced energy and paper consumption from the 

paperless initiatives, Treasury saves energy by improving 

data center energy efficiency, completing energy efficiency 

upgrades, and increasing space utilization. Other examples 

include improved emission control over the currency printing 

process at BEP; implementing water reuse strategies at the 

Mint; and converting the water heating system from steam to 

electric at the Main Treasury complex.

REALIZED PROCUREMENT SAVINGS AND REDUCED 

HIGH RISK CONTRACTS 

U.S. Department of the Treasury | Fiscal Year 2011

ENVIRONMENTAL ACHIEVEMENTS

IMPLEMENTED INTERNET PAYMENT PLATFORM 

MANAGED THE TREASURY FLEET

In fiscal year 2010, Treasury converted expiring commercial 

leased vehicle requirements for several of its bureaus to 

General Service Administration (GSA) leases, which include 

the cost of vehicle maintenance and fuel. This conversion 

saves $1 million in rental cost per year. Similarly, in fiscal 

year 2011, Treasury saved approximately $1.6 million in 

additional annual rental costs by converting expiring 

commercial leased vehicle requirements for 111 pick-up 

trucks from the IRS Fuel Compliance Program to GSA leases.

REDUCED REAL ESTATE PROPERTY COSTS

In response to the June 10, 2010, Presidential Memorandum 

on “Disposing of Unneeded Federal Real Estate,” Treasury 

identified a $20 million contribution towards the President’s 

$3 billion cost saving goal For example, Treasury is 

consolidating warehouse requirements for leases expiring in 

fiscal year 2012 through fiscal year 2014 within the National 

Capital Region. Requirements for the Departmental Offices 

(DO), FMS, and IRS-CI will be moved to BEP’s warehouse 

space to achieve about $445,000 in annual rental cost 

savings.

STRENGTHENED ORGANIZATIONAL EXCELLENCE

Treasury seeks to create an organization with exemplary 

leadership; innovative and collaborative processes; 

sustainable operations; and a culture of excellence, integrity, 

and teamwork. Accordingly, Treasury continually strives to 
U.S. Department of the Treasury | Fiscal Year 2011

23 

improve Human Capital performance by focusing on hiring 

the best talent; respecting and engaging the workforce; 

expecting the best from employees; and striving to be the best 

place to work in the Federal Government.

In addition, during fiscal year 2011, the Department of the 

Treasury deployed resources to successfully stand up several 

new organizations, as provided by the Dodd-Frank Wall 

Street Reform and Consumer Protection Act. Treasury 

Human Resources (HR) staff quickly benchmarked other 

financial regulatory organizations, and worked in concert 

with program staff and the Office of Personnel Management 

to develop and establish interim hiring, classification, 

compensation, and benefits policies and systems for the new 

organizations. In addition, the HR staff began the 

recruitment and hiring to staff these new organizations, in 

order to meet the mandates of the new legislation.

MOVING FORWARD

In fiscal year 2012, Treasury will continue to work to achieve 

management and organizational excellence. Treasury will 

continue to reduce the amount of paper transactions with the 

public by encouraging federal beneficiaries to receive 

payments electronically, promote the purchase of bonds 

electronically via TreasuryDirect, and expand the use of IPP 

across the Department and throughout the Federal 

Government. In addition, FMS will continue to expand the 

use of electronic collection mechanisms that use the most 

advanced and secure collection technologies that are flexible 

enough to accommodate the varying needs and technical 

sophistication of all taxpayers and federal program agencies. 

Furthermore, Treasury will continue to pursue aggressive 

targets to save on procurement and real estate and improve 

energy efficiency and reduce greenhouse gas emissions. 

Finally, Treasury will work to improve organizational 

excellence by improving performance in Human Capital 

programs.
U.S. Department of the Treasury | Fiscal Year 2011

24 

DEPARTMENT’S KEY PERFORMANCE MEASURES FOR 2011

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

2011. Discussion of the factors contributing to each measure’s performance results, and plans to improve the measures’ results 

in future years, follows the table. 

Performance 

Measure Bureau

2007

Target

2007

Actual

2008

Target

2008

Actual

2009

Target

2009

Actual

2010

Target

2010

Actual

2011

Target

2011

Actual Official Title

Percentage Collected 

Electronically of Total 

Dollar Amount of 

Federal Government 

Receipts (%)

FMS 80.0 79.0 79.0 80.0 80.0 84.0 80.0 85.0 82.0 96.0

Percentage of Treasury 

Payments and 

Associated Information 

Made Electronically (%)

FMS 78.0 78.0 79.0 79.0 80.0 81.0 81.0 82.0 83.0 84.0

Customer Service 

Representative Level of 

Service (%) 

IRS 82.0 82.1 82.0 52.8 70.0 70.0 71.0 74.0 71.0 70.1

Taxpayer Self-Assistance 

Rate

IRS 48.6 49.5 51.5 66.8 64.7 69.3 61.3 64.4 68.7 70.1

Percent of Business 

Returns Processed 

Electronically (%)

IRS 19.5 19.1 20.8 19.4 21.6 22.8 24.3 25.5 27.0 31.8

Percent of Individual 

Returns Processed 

Electronically (%)

IRS 57.0 57.1 61.8 57.6 64.0 65.9 70.2 69.3 74.0 76.9

Affordable Housing 

Units Created by CDFI 

Fund Programs

CDFI

Fund - - - - - - - - Baseline 19,083

Clean Audit Opinion on 

TARP Financial 

Statements

DO - - - - Baseline Met Met Met Met Met

OTA Scope and 

of Engagement 

(Traction)

Intensity 

DO - - Baseline 3.6 3.6 3.7 3.6 3.5 3.6 3.7

Impact of TFI Programs 

and Activities

DO - - - - Baseline 7.81 7.4 7.4 7.6 8.4*

Note: Performance measures were not audited.

*Estimated value.
U.S. Department of the Treasury | Fiscal Year 2011

25 

On December 7, 2010, Treasury published a regulation that 

required businesses with an annual tax liability of at least 

$10,000 to pay their taxes electronically. The new 

requirement, combined with FMS’s efforts to transition

taxpayers to electronic payments, resulted in FMS processing 

nearly 130 million payments electronically during fiscal year 

2011. Accordingly, Treasury significantly exceeded its 

performance target on the measure: “Percentage collected 

electronically of total dollar amount of Federal government 

receipts.” With continued emphasis on the All Electronic 

Treasury initiative, the percentage of funds collected via 

EFTPS will continue to grow.

In support of the All Electronic Treasury initiative, FMS also 

continued to expand and market the use of electronic funds 

transfer to deliver federal payments, improve service to 

payment recipients, and reduce government program costs. 

In fiscal year 2011, FMS made 84 percent of payments 

electronically, slightly exceeding its performance goal. FMS 

attributes the performance outcome to considerable success 

in implementing its nationwide “GO Direct” campaign to 

encourage current check recipients to switch to direct 

deposit.

In fiscal year 2011, the IRS achieved 70.1 percent on its 

metric, “Customer Service Representative Level of Service.” 

The IRS attributes the slight performance shortfall to 

unexpectedly high telephone customer service demand. 

Moving forward, the IRS will staff telephone service as 

effectively as possible to meet anticipated telephone demand. 

The IRS met its performance target and achieved a 70.1 

percent “Taxpayer Self Assistance Rate,” as a result of the 

increased popularity of IRS web-based applications. The 

self-assistance rate is expected to increase in future years as 

more taxpayers choose automated customer service methods 

over more traditional methods such as telephone and paper 

correspondence.

The IRS achieved an electronic-filing rate of 31.8 percent for 

business returns, exceeding its performance target by almost 

four percentage points. The IRS also exceeded the target on 

its electronic filing metric, “Percentage of Individual Returns 

Processed Electronically.” Performance in this area 

continues to be driven by increased demand for the overall 

benefits of e-file, such as its accuracy; quick 

acknowledgement of receipt; the ability to file amended, 

superseded, and prior year returns; and year-round filing 

capabilities. 

In fiscal year 2011, the CDFI Fund collected baseline 

performance data on its revised measure, “Number of 

Affordable Housing Units Developed or Produced by CDFI 

Fund Programs.” The CDFI Fund programs developed or 

produced 19,083 housing units across all programs, 

reflecting the impact of Recovery Act investments in 2011. 

The Government Accountability Office (GAO) rendered an 

unqualified, clean audit opinion on OFS’s financial 

statements for the third year in a row. OFS will continue to 

strive for accuracy and transparency in its financial 

statements so that TARP programs continue to receive clean 

audit opinions in the future.

The Office of Technical Assistance (OTA) developed its 

Traction goal based on project evaluations to measure the 

degree to which financial technical assistance programs bring 

about changes in behavior of counterpart countries. In fiscal 

year 2011, OTA slightly exceeded its target. The nature of the 

OTA program is such that country projects that reach 

performance goals and objectives are concluded and new 

projects are begun where the challenges are significant. The 

effect of this dynamic keeps the target goal always 

challenging but reachable if performance remains high across 

all teams and projects.

TFI created a composite measure that consists of four overall 

focus areas related to its mission and strategic goals. TFI

estimated that it exceeded its performance target on its 

composite measure, “Impact of TFI Programs and Activities.” 

Note that the fiscal year 2011 outcome is an estimate as of the 

publication of this report because a customer service survey 

that contributes to the composite score has not been fully 

completed. 

.
U.S. Department of the Treasury | Fiscal Year 2011

26 

HIGHLIGHTS OF MANAGEMENT AND PERFORMANCE CHALLENGES

Annually, in accordance with the Reports Consolidation Act 

of 2000, OIG and TIGTA identify the most significant 

management and performance challenges facing the

Department. 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 2011, and will

continue to focus on resolving them during fiscal year 2012 

and beyond. Refer to Appendix C, of Part 3, Other 

Accompanying Information, for a detailed discussion of these 

challenges, listed below. 

Note: SIGTARP does not provide the Secretary with an 

annual report on management and performance challenges.

TREASURY-WIDE MANAGEMENT CHALLENGES – AS IDENTIFIED BY OIG

• Transformation of Financial Regulation

• Management of Treasury’s Authorities Intended to Support and Improve the Economy

• Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act Enforcement

• Management of Capital Investments

IRS MANAGEMENT CHALLENGES – AS IDENTIFIED BY TIGTA

• Security for Taxpayer Data and Employees

• Tax Compliance Initiatives

• Modernization

• Implementing Major Tax Law Changes

• Fraudulent Claims and Improper Payments

• Providing Quality Taxpayer Service Operations

• Human Capital

• Globalization

• Taxpayer Protection and Rights

• Achieving Program Efficiencies and Cost Savings 
U.S. Department of the Treasury | Fiscal Year 2011

27 

FINANCIAL OVERVIEW

Figure 4

Figure 6 

Figure 8 

Figure 5

Figure 7

Figure 9 

Figure 10
U.S. Department of the Treasury | Fiscal Year 2011

28 

Total Assets. Total assets increased from $15.6 trillion at 

September 30, 2010, to $16.6 trillion at September 30, 2011

(Figure 4). The nearly $1 trillion increase in 2011 is due to 

the rise in the federal debt, which causes a corresponding rise 

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

account ($14.9 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. 

Included in “Intra-governmental” assets (Figure 11) are loans 

and interest receivable ($728.7 billion in 2011), the majority 

of which are loans issued by the BPD to other federal

agencies for their own use or to private sector borrowers,

whose loans are guaranteed by the federal agencies. 

Figure 11

Total Liabilities. Liabilities principally include federal 

debt held by the public, including interest, of $10.1 trillion 

which were mainly issued as Treasury Notes. Liabilities also 

include intra-governmental liabilities totaling $6.0 trillion, of 

which $4.7 trillion represents principal and interest payable 

to various federal agencies, such as the Social Security 

Administration Trust Fund (Figure 12). The $1.0 trillion

increase in total liabilities in fiscal year 2011 over 2010 

(Figure 5) is the result of increased federal debt held by the 

public, including interest, needed to finance budget deficits. 

Figure 12

Net Cost of Treasury Operations. The Consolidated 

Statements of Net Cost present the Department’s gross and 

net costs by strategic programs which fall into four main 

categories: financial, economic, security, and 

management. The net cost associated with financial and 

economic programs together accounted for almost 75 percent 

of the Department’s total consolidated net cost of $4.2 billion

for fiscal year 2011 (Figure 6). The net cost of financial 

programs of $13.0 billion for 2011 was partially offset by 

economic programs which generated net revenue of $9.9 

billion (Figure 13). The $13.0 billion of financial program net 

costs remained relatively unchanged from the prior year, and 

primarily reflect Treasury’s role as the primary fiscal agent 

for managing the nation’s finances by collecting revenue and 

making federal payments. 

Economic programs generated net revenue of $9.9 billion in 

fiscal year 2011 compared to a net cost of $297.2 billion in 

2010, a change of $307.1 billion, primarily driven by the GSE 

SPSPA program. In fiscal year 2010, the Department 

increased its future funded contingent liability related to the 

GSE program by $320.6 billion. This liability represents the 

projected total cost payable to the GSEs over the life of the 

program. The significant increase in this liability in 2010 was

due primarily to the increased availability of GSE projection 

data, coupled with the effect of a 2009 amendment to the 

liquidity cap for each GSE. The projection data enabled the 

Department, for the first time, to estimate and accrue its total 

future contingent liability to the program. In fiscal year 2011, 

the Department reduced its contingent liability by $22.9

billion, recorded as a reduction in expense, due to updated 

projections that reflect lower expected future losses at the 

GSEs. 

Figure 13
U.S. Department of the Treasury | Fiscal Year 2011

29 

Net Federal Costs and Net Federal Debt Interest 

Costs. The majority of these costs is the interest expense on 

the federal debt. The increase of $36.1 billion in net interest 

paid on the federal debt is due to the increase in the debt

(Figure 7).

Total Budgetary Resources. The majority of the net 

$104.1 billion decrease for fiscal year 2011 (Figure 8) was 

related to the TARP and GSEs. TARP had a significant 

decrease of $33 billion resulting from the Dodd-Frank Act 

that capped TARP at $475 billion. Additionally, the 

budgetary resources required in fiscal year 2011 for the GSE 

MBS and HFA program decreased by $54 billion and $27 

billion, respectively, due to the expiration of the program 

authority under HERA in fiscal year 2010. With the 

expiration of that authority, new purchases ended and the 

need for borrowing authority reduced significantly.

Net Outlays. The majority of the $27.2 billion decrease in 

net outlays was due to fewer TARP equity and loan 

disbursements coupled with continued collections from 

repayments for the TARP investments and loans. In 

addition, there were fewer GSE SPSPA draw disbursements 

in fiscal year 2011 than in fiscal year 2010 (Figure 9). 

Custodial Revenue. Net revenue received on behalf of the 

U.S. Government increased by $128.9 billion for fiscal year 

2011 (Figure 10). This increase can be attributed mainly to 

an overall improvement in individual tax collections. 

Total net revenue collected by Treasury on behalf of the U.S. 

Government includes various taxes, primarily income taxes, 

user fees, fines and penalties, and other revenue. 

Approximately 99 percent of the revenues are from income 

and social security taxes.

SUMMARY OF AUDITORS’ REPORT ON THE TREASURY DEPARTMENT’S 

FINANCIAL STATEMENTS 

The Department received an unqualified audit opinion on its fiscal year 2011 financial statements. As summarized in the table

below, the auditor reported one open material weakness as of September 30, 2011. During the fiscal year 2011 financial audit,

the auditor reported a significant deficiency related to financial reporting practices at the Departmental level. The auditor also 

reported significant deficiencies related to financial reporting at OFS and information system controls at FMS. In addition, the 

auditor reported an instance of noncompliance with laws and regulations related to Section 6325 of the Internal Revenue Code

(release of federal tax liens), and that the Department’s financial management systems did not substantially comply with the 

requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA). 

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion Unqualified

Restatement No

Material Weakness Beginning

Balance New Resolved Consolidated EndingBalance

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

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 USC 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 statements should be read with the 

realization that they are for a component of the U.S. Government, a sovereign entity.
U.S. Department of the Treasury | Fiscal Year 2011

30

THE SECRETARY’S ASSURANCE STATEMENT

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, Treasury considered results of extensive testing and assessment across 

the Department and independent audits.

Treasury provides assurance that the objectives of the FMFIA with respect to operations have been achieved, except for the 

material weaknesses noted below. Also, in accordance with Office of Management and Budget Circular No. A-123, 

Management’s Responsibility for Internal Control, Appendix A, Internal Control over Financial Reporting, Treasury 

provides qualified assurance that internal control over financial reporting was operating effectively based on the results of the 

assessment as of June 30, 2011. Treasury’s financial management systems are not in substantial compliance with the Federal 

Financial Management Improvement Act due to the Internal Revenue Service’s (IRS’s) material weaknesses related to unpaid 

tax assessments and information security.

During fiscal year 2011, Treasury closed the material weakness on the IRS’s Modernization Management Controls and 

Processes. As of September 30, 2011, Treasury had three material weaknesses as follows (with origination/planned resolution 

timeframes indicated):

Operations:

• IRS – Computer Security (Fiscal Year 2001/2012)

• Financial Management Service – Systems, Controls, and Procedures to Prepare the Government-wide Financial 

Statements (Fiscal Year 2001/2014)

Financial Reporting:

• IRS – Unpaid Tax Assessments (Fiscal Year 1995/2015)

Treasury management remains dedicated to the resolution of these weaknesses. Overall, Treasury continues to make progress 

in reducing internal control weaknesses and in meeting federal financial management systems requirements.

Timothy F. Geithner

Secretary of the Treasury

November 15, 2011

MANAGEMENT ASSURANCES
U.S. Department of the Treasury | Fiscal Year 2011

31 

SUMMARY OF MANAGEMENT ASSURANCES

Summary of Material Weaknesses

Material Weaknesses

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

IRS – Unpaid Tax Assessments 1 0 0 0 0 1

IRS – Improve Modernization Management Controls 

and Processes 1 0 1 0 0 0

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

Total Material Weaknesses 4 0 1 0 0 3 

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)

Statement of Assurance Qualified

Material Weakness

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

IRS – Unpaid Tax Assessments 1 0 0 0 0 1 

Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of Assurance Qualified

Material Weaknesses

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

IRS – Improve Modernization Management Controls 

and Processes 1 0 1 0 0 0 

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 

Total Material Weaknesses 3 0 1 0 0 2 

Conformance with Financial Management System Requirements (FMFIA § 4)

Statement of Assurance Systems conform to financial management system requirements

Material Weaknesses

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

Total Non-conformances 0 0 0 0 0 0 

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 the Transaction Level Yes
U.S. Department of the Treasury | Fiscal Year 2011

32 

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

FMFIA requires agencies to evaluate and report on the 

effectiveness of controls over operations and financial 

reporting (FMFIA Section 2), and conformance with financial 

management systems requirements (FMFIA Section 4 and 

FFMIA) that protect the integrity of federal programs. 

Deficiencies that seriously affect an agency’s ability to meet

these objectives are deemed “material weaknesses.” 

In fiscal year 2011, Treasury closed one of its material

weaknesses and continued to make progress on closing its 

remaining three, as listed in the Secretary’s Assurance 

Statement. Treasury includes resolution of material 

weaknesses as a performance requirement for every 

executive, manager, and supervisor. Additional information 

on Treasury’s material weaknesses and progress can be found 

in Appendix D of Part 3, Other Accompanying Information. 

OMB CIRCULAR NO. A-123, MANAGEMENT’S 

RESPONSIBILITY FOR INTERNAL CONTROL, APPENDIX 

A, INTERNAL CONTROL OVER FINANCIAL REPORTING

The Department continues to strengthen and improve the

execution of the Treasury mission through the application of

sound internal controls over financial reporting. In 

compliance with OMB Circular No. A-123, Appendix A, 

Treasury uses an extensive annual testing and assessment

methodology that identifies and documents internal controls

over financial reporting at the transaction level integrated 

with Government Accountability Office’s Standards for 

Internal Control. Treasury’s bureaus and offices completed 

their testing and assessment of internal controls for material 

transactions as of June 30, 2011. Treasury provides qualified 

assurance that internal control over financial reporting was

effective as of June 30, 2011, due primarily to the IRS’s

unpaid tax assessments material weakness. 

FFMIA AND FINANCIAL 

MANAGEMENT SYSTEMS 

FRAMEWORK

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 (USSGL) 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.

During fiscal year 2011, Treasury bureaus and offices used a 

risk-based approach to assess their financial management 

systems’ compliance with FFMIA, as required by OMB. The 

bureaus and offices conducted self-assessments to determine 

their risk levels. With the exception of the IRS, all Treasury 

bureaus’ and offices’ financial management systems are in 

compliance with FFMIA. As required, the IRS has a 

remediation plan in place to correct the identified 

deficiencies. IRS management updates this plan quarterly 

and Treasury management reviews it. In addition, TIGTA 

audits the plan annually. 

The IRS made significant progress in fiscal year 2011 toward 

attaining FFMIA compliance by implementing programming 

changes in the IRS sub-ledger for unpaid tax assessments 

(i.e., Custodial Detail Data Base) that enabled reporting one 

balance for unpaid payroll taxes or Trust Fund Recovery 

Penalty assessments, where previously, they were not 

separately distinguished. 

FINANCIAL MANAGEMENT SYSTEMS FRAMEWORK

Treasury’s overall financial management systems framework 

consists of a Treasury-wide financial data warehouse,

supported by a financial reporting tool, and separate bureau
U.S. Department of the Treasury | Fiscal Year 2011

33 

core financial systems. 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 planned audit corrective actions.

Fourteen Treasury bureaus and offices use centralized 

financial operations services and systems support provided 

by the BPD’s Administrative Resource Center (ARC). This 

cross-servicing enables the bureaus to have access to core 

financial systems without having to maintain the necessary 

technical and systems architectures. Using these services 

reduces the need for Treasury to maintain duplicative 

financial management systems; enhances the quality, 

timeliness, and accuracy of financial management processes; 

and achieves a more efficient and cost-effective business 

model. Additional information on Treasury’s financial 

systems framework can be found in Appendix D of Part 3, 

Other Accompanying Information.

IMPROPER PAYMENTS

On July 22, 2010, President Obama signed into law the 

Improper Payments Elimination and Recovery Act of 2010

(IPERA, Pub. L. 111-204). IPERA amends the Improper

Payments Information Act of 2002 (IPIA) and requires 

agencies to review their programs and activities annually to 

identify those susceptible to significant improper payments. 

IPERA significantly increases agency payment recapture 

efforts by expanding the types of payments to be reviewed by 

agencies and lowering the threshold of annual payments that 

are subject to payment recapture audit programs from $10 

million to $1 million, if cost effective. IPERA requires 

agencies to report information on their improper payments 

and recapture audit programs to the President and Congress 

annually.

In fiscal year 2011, Treasury completed a full program 

inventory and performed risk assessments to identify 

programs that have a significant risk of improper payments, 

per the methodology in OMB Circular No. A-123, Appendix 

C, Requirements for Effective Measurement and 

Remediation of Improper Payments. The risk assessments 

performed on Treasury’s programs and activities in fiscal 

year 2011 resulted in low and medium risk susceptibility for 

improper payments, except for the IRS’s Earned Income Tax 

Credit (EITC) program.

Treasury also performed the payment recapture activities 

required in A-123, Appendix C during fiscal year 2011. 

Details on Treasury’s improper payments and payment 

recapture program activities and results can be found in 

Appendix B of Part 3, Other Accompanying Information. 

EITC PROGRAM

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. Treasury estimates

that for fiscal year 2011, a maximum of 25.8 percent ($16.7 

billion) and a minimum of 21.2 percent ($13.7 billion) of the 

total EITC program payments of $64.7 billion were

overclaims.

The IRS has a robust base enforcement program for the EITC 

which consists of examinations (audits), math error notices, 

and document matching. Details on the IRS’s EITC program 

can be found in Appendix B of Part 3, Other Accompanying 

Information.

AUDIT FOLLOW-UP PROGRAM

During fiscal year 2011, Treasury continued its efforts to

improve both the general administration of internal control 

issues throughout the Department and the timeliness of the 

resolution of all findings and recommendations identified by 

the Treasury OIG, TIGTA, SIGTARP, GAO, and external 

auditors.

Treasury has made considerable progress by focusing on 

achieving a high rate of timely implementation of planned

corrective actions (PCAs). In fiscal year 2011, Treasury’s 

offices and bureaus completed 92 percent of PCAs on time or 

early, exceeding the goal of 90 percent. 

Additional information on Treasury’s audit follow-up 

activities can be found in Appendix D of Part 3, Other 

Accompanying Information. 
s 

THE U.S. DEPARTMENT OF THE TREASURY

Annual Financial Report

4th Quarter AFR

April Tishkevich

[Pick the date]
U.S. Department of the Treasury | Fiscal Year 2011

35
U.S. Department of the Treasury | Fiscal Year 2011

36

PART II - TABLE OF CONTENTS

Message from the Assistant Secretary for Management and Chief Financial Officer ....................................................................... 37

Inspector General’s Transmittal Letter ............................................................................................................................................... 38

Independent Auditor’s Report on the Department’s Financial Statements ......................................................................................40

Management’s Response to Independent Auditor’s Report................................................................................................................51

Financial Statements 

Consolidated Balance Sheets ............................................................................................................................................................... 52

Consolidated Statements of Net Cost .................................................................................................................................................. 54

Consolidated Statement of Changes in Net Position .......................................................................................................................... 55

Combined Statements of Budgetary Resources ...................................................................................................................................57

Statements of Custodial Activity ......................................................................................................................................................... 59

Notes to the Financial Statements 

1. Summary of Significant Accounting Policies ..................................................................................................................................60

2. Fund Balance ................................................................................................................................................................................... 73

3. Loans and Interest Receivable – Intra-Governmental ...................................................................................................................75

4. Due from the General Fund and Due to the General Fund ........................................................................................................... 76

5. Cash, Foreign Currency, and Other Monetary Assets .....................................................................................................................77

6. Gold and Silver Reserves, and Gold Certificates Issued to the Federal Reserve Banks ...............................................................80

7. Troubled Asset Relief Program – Credit Program Receivables, Net .............................................................................................80

8. Investments in Government Sponsored Enterprises .................................................................................................................... 98

9. Investments in International Financial Institutions ................................................................................................................... 103

10. Other Investments and Related Interest .................................................................................................................................... 103

11. Credit Program Receivables, Net ................................................................................................................................................. 104

12. Reserve Position in the International Monetary Fund ................................................................................................................111

13. Taxes, Interest and Other Receivables, Net ................................................................................................................................. 112

14. Property, Plant, and Equipment, Net .......................................................................................................................................... 113

15. Non-Entity vs. Entity Assets......................................................................................................................................................... 113

16. Federal Debt and Interest Payable ............................................................................................................................................... 115

17. Other Debt and Interest Payable .................................................................................................................................................. 117

18. D.C. Pensions and Judicial Retirement Actuarial Liability ........................................................................................................ 118

19. Liabilities...................................................................................................................................................................................... 120

20. Net Position .................................................................................................................................................................................. 121

21. Consolidated Statements of Net Cost and Net Costs of Treasury Sub-Organizations ............................................................... 122

22. Additional Information Related to the Combined Statements of Budgetary Resources ......................................................... 128

23. Collection and Disposition of Custodial Revenue ....................................................................................................................... 132

24. Earmarked Funds ......................................................................................................................................................................... 134

25. Reconciliation of Net Cost of Operations to Budget ...................................................................................................................138

26. Non-TARP Investments in American International Group, Inc. ............................................................................................... 139

27. Schedule of Fiduciary Activity .................................................................................................................................................... 140

28. Commitments and Contingencies ............................................................................................................................................... 141

Required Supplemental Information (Unaudited) ............................................................................................................................ 145
U.S. Department of the Treasury | Fiscal Year 2011

37

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT 

AND CHIEF FINANCIAL OFFICER

In fiscal year 2011, the Department of the Treasury continued to build on the 

framework established during the preceding years to spur economic growth and job 

creation, strengthen the Nation’s financial system through the ongoing implementation 

of reforms, advance our national security and global economic interests, and improve 

management of the government’s finances. Treasury played an important role in 

implementing the sweeping financial reforms of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act by providing support for the start-up of the Consumer 

Financial Protection Bureau; delivered $474 million to states and $4 billion to 

community banks and community development loan funds for loan programs to 

support small business growth under the Small Business Jobs Act; and implemented 

additional health care reform provisions of the Patient Protection and Affordable Care Act. 

As the Troubled Asset Relief Program (TARP) winds down, Treasury continues to make progress in exiting our 

outstanding investments. The bank programs under the investment portion of the TARP provided a substantial positive 

return to the taxpayer. In addition, Treasury’s administration of TARP programs helped over 800,000 families facing 

foreclosure to receive permanent modifications lowering their mortgage payments. Treasury also began reducing its 

mortgage-backed security portfolio acquired under the Housing and Economic Recovery Act. 

In fiscal year 2011, Treasury demonstrated strong fiscal prudence and a commitment to management reforms by: 

 Achieving $325.9 million in acquisition savings, exceeding the goal of $318 million 

 Realizing a 21 percent overall reduction in high-risk contract obligations, substantially exceeding the reduction 

goal of 10 percent 

 Implementing paperless initiatives such as eliminating the sale of issuance of paper U.S. Savings Bonds and 

paying more benefits electronically 

 Beginning implementation of the GOVerify Business Center, which will provide additional information to 

federal agencies as they strive to reduce improper payments 

 Moving the Treasury.gov website to a cloud hosting environment to save costs 

 Laying the framework to close and consolidate data centers to reduce spending on energy consumption, 

equipment, hardware, software, personnel, and contractor support 

The Department received an unqualified audit opinion on both the Treasury-wide and Office of Financial Stability/TARP

fiscal year 2011 financial statements. Treasury closed the material weakness on the IRS’s Modernization Management 

Controls and Processes during fiscal year 2011, and made progress toward resolving the three material weaknesses 

remaining open as of September 30, 2011 [IRS – Computer Security (due to close by 2012), Unpaid Tax Assessments (due 

to close by 2015), and FMS – Preparation of the Government-wide Financial Statements (due to close by 2014)]. The 

complexity of Treasury’s financial systems contributes greatly to these material weaknesses; however, we have made 

great progress toward resolving the issues. 

Dan Tangherlini 

November 15, 2011
U.S. Department of the Treasury | Fiscal Year 2011

38

INSPECTOR GENERAL’S TRANSMITTAL LETTER

November 15, 2011 

INFORMATION MEMORANDUM FOR SECRETARY GEITHNER 

FROM: Eric M. Thorson 

Inspector General

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

Years 2011 and 2010

INTRODUCTION 

I am pleased to transmit KPMG LLP’s report on the Department of the Treasury’s (the Department) 

financial statements as of and for the fiscal years (FY) ending September 30, 2011 and 2010. 

The Chief Financial Officer’s Act of 1990, as amended, requires the Department of the Treasury 

Office of Inspector General or an independent auditor, as determined by the Inspector General, to 

audit the Department’s financial statements. Under a contract monitored by my office, KPMG LLP, 

an independent certified public accounting firm, performed an audit of the Department’s FY 2011 

and 2010 financial statements. The contract required that the audit be performed in accordance with 

generally accepted government auditing standards issued by the Comptroller General of the United 

States; Office of Management and Budget Bulletin No. 07-04, Audit Requirements for Federal 

Financial Statements, as amended; and the GAO/PCIE Financial Audit Manual. 

RESULTS OF INDEPENDENT AUDIT 

In its audit of the Department, KPMG LLP 

 reported that the financial statements were fairly presented, in all material respects, in 

conformity with U.S. generally accepted accounting principles; 

 reported that two material weaknesses related to unpaid tax assessments and information 

security and a significant deficiency related to tax refund disbursements identified by the 

auditor of the Internal Revenue Service collectively represent a material weakness for the 

Department as a whole; 

 reported that weaknesses related to 1) financial reporting practices at the Departmental level, 

2) financial accounting and reporting at the Office of Financial Stability, and 3) information 

systems controls at the Financial Management Service represent significant deficiencies for 

the Department as a whole; 
U.S. Department of the Treasury | Fiscal Year 2011

39

Page 2 

 reported an instance of noncompliance with laws and regulations related to the Internal 

Revenue Code Section 6325 whereby the IRS did not always release federal tax liens against 

taxpayers’ property within the 30-day legal requirement; 

 reported that the Department’s financial management systems did not substantially comply 

with the requirements of the Federal Financial Management Improvement Act of 1996 

related to Federal financial management system requirements and applicable Federal 

accounting standards; and

 reported an instance of a potential Anti-deficiency Act violation related to voluntary services 

provided to the Departmental Offices. 

EVALUATION OF AUDITORS’ PERFORMANCE

To ensure the quality of the audit work performed, we reviewed KPMG LLP’s approach and 

planning of the audit, evaluated the qualifications and independence of the auditors, monitored the 

progress of the audit at key points, reviewed and accepted KPMG LLP’s audit report, and 

performed other procedures that we deemed necessary. Additionally, we provide oversight of the 

audits of financial statements and certain accounts and activities conducted at 13 component entities 

of the Department. Our review, as differentiated from an audit performed in accordance with 

generally accepted government auditing standards, was not intended to enable us to express, and we 

do not express, an opinion on the financial statements or conclusions about the effectiveness of 

internal control or on whether the Department’s financial management systems substantially 

complied with the Federal Financial Management Improvement Act of 1996 or conclusions on 

compliance with laws and regulations. KPMG LLP is responsible for the attached auditors’ report 

dated November 15, 2011, and the conclusions expressed in that report. However, our review 

disclosed no instances where KPMG LLP did not comply, in all material respects, with generally 

accepted government auditing standards. 

I appreciate the courtesies and cooperation extended to KPMG LLP and my staff during the audit. 

Should you or your staff have questions, you may contact me at (202) 622-1090 or 

Marla A. Freedman, Assistant Inspector General for Audit, at (202) 927-5400. 

Attachment 

cc: Daniel Tangherlini 

 Assistant Secretary for Management 

 and Chief Financial Officer 
U.S. Department of the Treasury | Fiscal Year 2011

40

INDEPENDENT AUDITORS’ REPORT ON THE DEPARTMENT’S 

FINANCIAL STATEMENTS

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 

(Department) as of September 30, 2011 and 2010, and the related consolidated statements of net cost, 

changes in net position, the 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 2011 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 Department. 

The financial statements of IRS and OFS were audited by another auditor whose reports have been provided 

to us. Our opinion, insofar as it relates to the amounts included for IRS and OFS, is based solely on the 

reports of the other auditor. 

In connection with our fiscal year 2011 audit, we, and the other auditor, also considered the Department’s 

internal control over financial reporting and tested the 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 IRS and 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 Department’s consolidated financial statements as of, and for the years 

ended, September 30, 2011 and 2010, are presented fairly, in all material respects, in conformity with U.S. 

generally accepted accounting principles. 

As discussed in Notes 7, 8, 11 and 26, the Department is a participant in significant legislation and 

transactions whose purpose is to assist in stabilizing the financial markets. 

Notes 1A, 1V, 7, 8, and 11, respectively, discuss the following matters: 

 The consolidated financial statements do not include the assets, liabilities, or results of operations of 

commercial entities in which the Department has a significant equity interest as it has determined that 

none of these entities meet the criteria for inclusion as a federal entity and are therefore not included in 

the consolidated financial statements. 
U.S. Department of the Treasury | Fiscal Year 2011

41

U.S. Department of the Treasury 

November 15, 2011 

Page 2 of 11 

 The valuation of certain investments, loans, commitments, 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. In addition, there are significant 

uncertainties related to the amounts that the Department will realize from its investments. As such, there 

will be differences between the net estimated value of these investments, loans, commitments, and asset 

guarantees at September 30, 2011, and the amounts that will ultimately be realized from these assets or 

be required to pay to settle these commitments and guarantees. Such differences may be material and will 

also affect the ultimate cost of these programs. 

Our, and the other auditor’s, consideration of internal control over financial reporting resulted in identifying 

certain deficiencies that we consider to collectively be a material weakness and other deficiencies that we 

consider to be significant deficiencies, as defined in the Internal Control Over Financial Reporting section of 

this report, as follows: 

Material Weakness 

 Financial Systems and Reporting at the Internal Revenue Service (Repeat Condition) 

Significant Deficiencies 

 Financial Reporting Practices at the Departmental Level (Repeat Condition) 

 Financial Accounting and Reporting at the Office of Financial Stability (Repeat Condition) 

 Information Systems Controls at the Financial Management Service (Repeat Condition) 

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 

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 and applicable Federal accounting standards. Our, and the other auditor’s, 

audits disclosed no instances in which the Department’s financial management systems did not substantially 

comply with the U.S. Standard General Ledger at the transaction level. 

The Department informed us of an instance of a potential violation of the Anti-Deficiency Act related to 

voluntary services provided to the Departmental Offices. The Department is reviewing this matter. 

The following sections discuss our opinion on the Department’s consolidated financial statements; our, and 

the other auditor’s, consideration of the Department’s internal control over financial reporting; our, and the 

other auditor’s, tests of the Department’s compliance with certain provisions of applicable laws, regulations, 

contracts, and grant agreements; and management’s and our responsibilities.
U.S. Department of the Treasury | Fiscal Year 2011

42

U.S. Department of the Treasury 

November 15, 2011 

Page 3 of 11 

Opinion on the Financial Statements 

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

September 30, 2011 and 2010, 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 IRS, a component 

entity of the Department, which consist of total assets of $43.3 billion and $43.2 billion, net cost of 

operations of $13.0 billion and $13.4 billion before applicable eliminating entries, budgetary resources of 

$13.5 billion and $13.4 billion, and custodial revenues of $2.4 trillion and $2.3 trillion, each as of and for the 

years ended September 30, 2011 and September 30, 2010, respectively. The IRS financial statements were 

audited by another auditor whose report dated November 4, 2011 has been furnished to us, and our opinion, 

insofar as it relates to the amounts included for IRS, is based solely on the report of the other auditor. 

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

entity of the Department, which consist of total assets of $164.2 billion and $244.2 billion, net cost of 

operations and net (income) of $9.5 billion and ($23.1) billion before applicable eliminating entries, and 

budgetary resources of $103.0 billion and $195.3 billion, each as of and for the years ended September 30, 

2011 and September 30, 2010, respectively. The OFS financial statements were audited by another auditor 

whose report dated November 4, 2011 has been furnished to us, and our opinion, insofar as it relates to the 

amounts included for OFS, is based solely on the report of the other 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 U.S. Department of the 

Treasury as of September 30, 2011 and 2010, 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 Notes 7, 8, 11, and 26, the Department is a participant in significant transactions whose 

purpose is to assist in stabilizing the financial markets. 

Notes 1A, 1V, 7, 8, and 11, respectively, discuss the following matters: 

 The consolidated financial statements do not include the assets, liabilities, or results of operations of 

commercial entities in which the Department has a significant equity interest as it has determined that 

none of these entities meet the criteria for inclusion as a federal entity and are therefore not included in 

the consolidated financial statements. 

 The valuation of certain investments, loans, commitments, 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. In addition, there are significant 

uncertainties related to the amounts that the Department will realize from its investments. As such, there 

will be differences between the net estimated value of these investments, loans, commitments, and asset 

guarantees at September 30, 2011, and the amounts that will ultimately be realized from these assets or 

be required to pay to settle these commitments and guarantees. Such differences may be material and will 

also affect the ultimate cost of these programs. 
U.S. Department of the Treasury | Fiscal Year 2011

43

 U.S. Department of the Treasury 

 November 15, 2011 

 Page 4 of 11 

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, and the 

Inspector General’s Transmittal Letter in Part 2, and Part 3: Other Accompanying Information 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. 

Internal Control Over Financial Reporting 

Our consideration of the internal control over financial reporting was for the limited purpose described in the 

Responsibilities section of this report and was not designed to identify all deficiencies in internal control over 

financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be 

no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. 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 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 entity’s financial 

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

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

yet important enough to merit attention by those charged with governance. In our fiscal year 2011 audit, we, 

and the other auditor, identified the significant deficiencies in internal control over financial reporting, 

discussed below. 

The significant deficiency related to Financial Systems and Reporting at the IRS is considered to be a 

material weakness. Because of the IRS material weakness in internal control over financial reporting 

discussed below, the other auditor’s opinion on IRS’s internal control over financial reporting stated that IRS 

did not maintain effective internal control over financial reporting as of September 30, 2011, and thus did not 

provide reasonable assurance that losses and misstatements that were material in relation to the IRS’s 

financial statements would be prevented or detected and corrected on a timely basis. The other auditor’s 

opinion on OFS’s internal control stated that OFS maintained, in all material respects, effective internal
U.S. Department of the Treasury | Fiscal Year 2011

44

U.S. Department of the Treasury 

November 15, 2011 

Page 5 of 11 

control over financial reporting as of September 30, 2011. However, because of its inherent limitations, 

internal control over financial reporting may not prevent or detect misstatements. Also, projections of any 

evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate 

because of changes in conditions, or that the degree of compliance with the policies or procedures may 

deteriorate. 

MATERIAL WEAKNESS 

Financial Systems and Reporting at the IRS (Repeat Condition) 

IRS continued to make progress in addressing its deficiencies in internal control over financial reporting. 

However, material weaknesses related to unpaid tax assessments and information security, and a significant 

deficiency related to tax refund disbursements at the IRS, continued to exist in fiscal year 2011 and are 

collectively considered a material weakness at the Department level. 

This material weakness represents a significant IRS management challenge and has (1) impaired 

management’s ability to prepare its financial statements without extensive compensating procedures, (2) 

limited the availability of reliable information to assist management in making well-informed decisions 

concerning its unpaid tax assessments on an ongoing basis, (3) resulted in errors in taxpayer accounts that 

increased taxpayer burden, and (4) reduced assurance that data processed by IRS’s information systems are 

reliable and that sensitive taxpayer information is appropriately protected. This deficiency is summarized as 

follows: 

 Serious internal control deficiencies continue to affect IRS’s management of unpaid tax assessments. 

Specifically, 1) IRS’s reported balances for taxes receivable and other unpaid tax assessments were 

not traceable from its general ledger system for tax administration-related transactions to individual 

transactions in underlying source records, 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 on its unpaid tax assessments, and 3) IRS experienced errors and 

delays in recording taxpayer information, payments, and other tax assessment-related activities. 

(Material Weakness) 

 Internal control over information security continued to be ineffective, particularly as it relates to 

access controls over the automated systems and software applications relied upon to process its 

financial transactions, produce its internal and external financial reports, and safeguard related 

sensitive information. As a result, the IRS could not rely on the internal controls over its automated 

financial management system to provide reasonable assurance that 1) its financial statements, taken 

as a whole, were fairly presented, 2) the financial information IRS relied on to make decisions on a 

daily basis was accurate, complete, and timely, and 3) proprietary financial and taxpayer information 

was appropriately safeguarded. (Material Weakness) 

 Weaknesses in IRS’s internal controls over tax refund disbursements resulting from the processing of 

manually prepared tax refunds and First-time Homebuyer Credit claims. (Significant Deficiency) 
U.S. Department of the Treasury | Fiscal Year 2011

45

U.S. Department of the Treasury 

November 15, 2011 

Page 6 of 11 

The other auditor noted that the deficiencies in internal control noted above may adversely affect any 

decision 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 deficiencies identified above have been provided separately to IRS 

management by the auditor of the IRS’s financial statements 

Recommendation

The other auditor separately provided IRS management with recommendations to address the above material 

weakness. We recommend that the Assistant Secretary for Management and Chief Financial Officer 

(ASM/CFO) ensure that IRS takes corrective action to improve controls over its financial systems and 

reporting. 

SIGNIFICANT DEFICIENCIES 

Financial Reporting Practices at the Departmental Level (Repeat Condition) 

While the Department continued to improve its financial reporting processes during fiscal year 2011, we 

identified incorrect amounts and disclosures in unique program transactions which the Department records 

annually in the financial statements and notes. The Department did not detect these items in its review 

process. Specifically, the Department misclassified the amounts related to the Government-Sponsored 

Enterprise Senior Preferred Stock Purchase Program in its draft Statement of Budgetary Resources. In 

addition, because the Department does not have documented accounting and reporting policies and 

procedures related to investments in, and letters of commitment to, the Multilateral Development Banks 

(MDBs), it did not disclose certain commitments to MDBs in its draft notes to the financial statements. The 

Department subsequently revised its financial statements to correct for this misclassification and inadequate 

disclosure. 

Recommendations

We recommend that the ASM/CFO ensure that the Department’s Office of Accounting and Internal Control:

1. Perform, in conjunction with the Office of Financial Management and the Office of Performance 

Budgeting, a comprehensive analysis of amounts reported in the financial statements and notes as 

part of its year-end reporting procedures, and 

2. Develop, document, and implement, in conjunction with the Office of International Assistance, 

policies and procedures surrounding the accounting treatment and disclosure of financial transactions 

related to the MDBs. 

Financial Accounting and Reporting at the Office of Financial Stability (Repeat Condition) 

During fiscal year 2011, OFS addressed several of the internal control issues related to its significant 

deficiency concerning accounting and financial reporting processes. However, the remaining control issues 

along with other control deficiencies that the other auditor identified collectively represent a continuing 

significant deficiency in OFS’s internal control over its accounting and financial reporting processes. The
U.S. Department of the Treasury | Fiscal Year 2011

46

U.S. Department of the Treasury 

November 15, 2011 

Page 7 of 11 

OFS deficiencies identified by the other auditor also collectively constitute a significant deficiency for the 

Department and are summarized below: 

 Significant, but not material, incorrect amounts and inconsistent disclosures in OFS’s draft financial 

statements that OFS did not detect. 

 Instances where OFS’s accounting and financial reporting procedures were not complete or 

effectively implemented. 

For significant errors and issues that were identified, OFS revised the financial statements, notes and 

MD&A, as appropriate. Properly designed and implemented controls over the accounting and financial 

reporting processes are key to providing reasonable assurance regarding the reliability of the balances and 

disclosures reported in the financial statements and related notes in conformity with generally accepted 

accounting principles. Misstatements may occur in other financial information reported by OFS and not be 

prevented or detected by OFS because of this significant deficiency. 

Additional details related to the significant deficiency identified above have been provided separately to OFS 

management by the auditor of the OFS’s financial statements. 

Recommendation

The other auditor separately provided OFS management with recommendations to address the above 

significant deficiency. We recommend that the ASM/CFO ensure that OFS takes corrective action to 

improve controls over its financial accounting and reporting processes. 

Information Systems Controls at the Financial Management Service (Repeat Condition) 

The Financial Management Service (FMS) made progress in its efforts to address prior year weaknesses in 

the Information System (IT) controls and security programs it manages. Despite these improvements, 

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. These weaknesses 

could compromise FMS’s ability to ensure security over sensitive financial data and reliability of key 

systems and collectively serve to weaken the IT general control environment at FMS. 

Recommendation

We separately provided FMS management with recommendations to address the above significant 

deficiency. We recommend that the ASM/CFO ensure that FMS takes corrective action to improve its 

information systems controls. 

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 or other matters that is required to be reported herein under Government Auditing 

Standards or OMB Bulletin No. 07-04. 
U.S. Department of the Treasury | Fiscal Year 2011

47

U.S. Department of the Treasury 

November 15, 2011 

Page 8 of 11 

 Noncompliance with Internal Revenue Code Section 6325 

The IRC grants IRS the authority to obtain a statutory lien against the property of any taxpayer who 

neglects or refuses to pay all assessed federal taxes. Under IRC Section 6325, IRS is required to release 

federal tax liens 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 

taken over the years to improve its lien release processing, the other auditor continued to find that the 

IRS did not always release all tax liens within 30 days after taxpayers paid or were otherwise relieved of 

a tax liability. (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 other instances 

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

Standards and 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) federal financial management systems 

requirements (FFMSR), and (2) applicable Federal accounting standards. Our, and the other auditor’s, audit 

disclosed no instances in which the Department’s financial management systems did not substantially 

comply with the U.S. Standard General Ledger at the transaction level. 

The instance of noncompliance with FFMSR is summarized below: 

 Persistent deficiencies in IRS’s internal control over unpaid tax assessment systems and information 

security remain uncorrected. As a result of these deficiencies, IRS was 1) unable to rely upon its 

systems or compensating and mitigating controls to provide reasonable assurance that is financial 

statements are fairly presented, 2) unable to ensure the reliability of other financial management 

information produced by its systems, and 3) at increased risk of compromising confidential IRS and 

taxpayer information. (Repeat Condition) 

The instance of noncompliance with Federal accounting standards is summarized below: 

 IRS’s automated systems for tax-related transactions did not support the net federal taxes receivable 

amount on IRS’s balance sheet and other required supplementary information related to uncollected 

taxes – compliance assessments and write offs – as required by Statement of Federal Financial 

Accounting Standards No. 7, Accounting for Revenue and Other Financing Sources and Concepts 

for Reconciling Budgetary and Financial Accounting. (Repeat Condition) 

The Secretary of the Treasury also stated in his Letter of Assurance, included in Part 1: MD&A, of the 

accompanying AFR, that the Department’s financial management systems are not in substantial compliance 

with FFMIA. IRS established a remediation plan to address the conditions that led to its systems’ substantial 

noncompliance with the FFMIA requirements. This plan outlines the actions to be taken to resolve these 

issues and defines related resources and responsible organizational units. Many of the actions detailed in the 

plan are long-term in nature and are tied to IRS’s systems modernization efforts. In summary, the remaining 

remedial steps to be implemented include the development of a single system that provides for daily 

processing of taxpayer accounts in order to improve its internal control over unpaid tax assessments, and the 
U.S. Department of the Treasury | Fiscal Year 2011

48

U.S. Department of the Treasury 

November 15, 2011 

Page 9 of 11 

development of application, network and system monitoring capabilities in order to improve computer 

security controls. The Department’s remedial actions and related timeframes are presented in Part 3, 

Appendix D: Material Weaknesses, Audit Follow-up, and Financial Systems, of the AFR. 

Recommendations

We recommend that the ASM/CFO 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 auditor 

of the IRS’s financial statements. 

Other Matter

The Department informed us of an instance of a potential violation of the Anti-Deficiency Act related to 

voluntary services provided to the Departmental Offices. The Department is reviewing this matter. 

Department’s Response to Internal Control and Compliance Findings

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

findings presented in this section of our report. Further, the Department responded that it will take corrective 

action, as necessary, to ensure the respective component management within the Department address the 

matters presented. We did not audit the Department’s response and, accordingly, we express no opinion on 

it.

We noted certain additional matters that we will report to management of the Department 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 Department. 

Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2011 and 2010 

consolidated financial statements of the Department based on our audits and the reports of the other auditor. 

We, and the other auditor, conducted our audits in accordance with auditing standards generally accepted in 

the United States of America; the standards applicable to financial audits contained in Government Auditing 

Standards, issued by the Comptroller General of the United States; and OMB Bulletin No. 07-04, as 

amended. 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 Department’s internal control over financial reporting. Accordingly, we express no such 

opinion. 
U.S. Department of the Treasury | Fiscal Year 2011

49

U.S. Department of the Treasury 

November 15, 2011 

Page 10 of 11 

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 IRS and 

OFS, provide a reasonable basis for our opinion. 

In planning and performing our fiscal year 2011 audit, we considered the Department’s internal control over 

financial reporting, exclusive of the internal control over financial reporting related to IRS and OFS, by 

obtaining an understanding of the design effectiveness of the 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, but not for the purpose of expressing an opinion on the effectiveness of the 

Department’s internal control over financial reporting. Accordingly, we do not express an opinion on the 

effectiveness of the Department’s internal control over financial reporting. 

Internal control over financial reporting related to IRS and OFS was considered by the other auditor whose 

reports thereon dated November 4, 2011, have been provided to us. We, and the other auditor, did not test all 

controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity 

Act of 1982. The objective of the other auditor’s audits was to express an opinion on the effectiveness of the 

IRS’s and OFS’s internal control over financial reporting. Because of the IRS material weakness in internal 

control over financial reporting, the other auditor’s opinion on the IRS’s internal control over financial 

reporting stated that IRS did not maintain effective internal control over financial reporting as of September 

30, 2011. The other auditor’s opinion on OFS’s internal control over financial reporting stated that OFS 

maintained, in all material respects, effective internal control over financial reporting as of September 30, 

2011. However, because of its inherent limitations, internal control over financial reporting may not prevent 

or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to 

the risk that controls may become inadequate because of changes in conditions, or that the degree of 

compliance with the policies or procedures may deteriorate. 

As part of obtaining reasonable assurance about whether the Department’s fiscal year 2011 consolidated 

financial statements are free of material misstatement, we, and the other auditor, performed tests of the 

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 

Department. However, providing an opinion on compliance with laws, regulations, contracts, and grant 
U.S. Department of the Treasury | Fiscal Year 2011

50

U.S. Department of the Treasury 

November 15, 2011 

Page 11 of 11 

agreements was not an objective of our audit and, accordingly, we, and the other auditor, do not express such 

an opinion. 

______________________________ 

This report is intended solely for the information and use of the Department’s management, the Department’s 

Office of Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is 

not intended to be and should not be used by anyone other than these specified parties. 

November 15, 2011 
U.S. Department of the Treasury | Fiscal Year 2011

51

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’

REPORT

 November 15, 2011 

KPMG LLP 

2001 M Street, N.W. 

Washington, DC 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 2011 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 twelfth consecutive year. We are also proud of the third 

unqualified opinion from the Government Accountability Office (GAO) on the Office of Financial 

Stability’s (OFS) financial statements.

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

conducting this year’s audit contributed greatly to Treasury’s successful fiscal year 2011 results. 

We appreciate your efforts during the audit process to provide timely, constructive advice on how to 

improve our financial reporting. We also appreciate the expertise and commitment demonstrated by 

the other organizations involved in the audit process – the Office of the Inspector General, GAO, 

and the firms that audited several of our bureaus. 

KPMG recognized Treasury’s strong efforts in fiscal year 2011 to address the significant deficiency 

in financial reporting practices at the Departmental level. While we have made substantial progress 

in some areas, we know we have work to do in other areas to eliminate this significant deficiency. 

As reported by GAO, the Internal Revenue Service and OFS continued to address their deficiencies 

in internal control in fiscal year 2011. 

We acknowledge the Departmental level material weakness, 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. 

 Dan Tangherlini 

 Assistant Secretary for Management 

 and Chief Financial Officer 
U.S. Department of the Treasury | Fiscal Year 2011

52

Consolidated Balance Sheets

As of September 30, 2011 and 2010

(In Millions)

2011 2010

ASSETS

Intra-governmental Assets

Fund Balance (Note 2) $ 381,784 $ 437,026

Loans and Interest Receivable (Note 3) 728,650 552,853

Advances to the Unemployment Trust Fund (Note 4) 42,773 34,111

Due From the General Fund (Note 4) 14,902,717 13,655,637

Other Intra-governmental Assets 1,148 1,179

Total Intra-governmental Assets 16,057,072 14,680,806

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 117,121 372,434

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

Troubled Asset Relief Program (TARP) - Credit Program Receivables, Net (Note 7) 80,104 144,692

Investments in Government Sponsored Enterprises (Note 4 and 8) 133,043 109,216

Investments in International Financial Institutions (Note 9) 5,707 5,580

Non-TARP Investments in American International Group, Inc. (Note 26) 10,862 20,805

Other Investments and Related Interest (Note 10) 15,798 15,487

Credit Program Receivables, Net (Note 11) 92,820 186,396

Loans and Interest Receivables (Note 12) 6,248 124

Reserve Position in the International Monetary Fund (Note 12) 20,682 12,938

Taxes, Interest and Other Receivables, Net (Note 13) 36,690 36,976

Property, Plant, and Equipment, Net (Note 14) 2,266 2,031

Other Assets 751 710

Total Assets $ 16,590,226 $ 15,599,257

Heritage Assets (Note 14)

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

53

Consolidated Balance Sheets 

As of September 30, 2011 and 2010 

(In Millions)

2011 2010

LIABILITIES

Intra-governmental Liabilities

Federal Debt and Interest Payable (Notes 4 and 16) $ 4,720,165 $ 4,587,802

Other Debt and Interest Payable (Note 17) 8,539 10,358

Due to the General Fund (Note 4) 1,226,475 1,414,252

Other Intra-governmental Liabilities (Note 19) 453 366

Total Intra-governmental Liabilities 5,955,632 6,012,778

Federal Debt and Interest Payable (Notes 4 and 16) 10,148,963 9,035,929

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

Allocation of Special Drawing Rights (Note 5) 55,150 54,958

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

Refunds Payable (Notes 4 and 23) 3,983 4,146

D.C. Pensions and Judicial Retirement Actuarial Liability (Note 18) 9,671 9,743

Liabilities to Government Sponsored Enterprises (Note 8) 316,230 359,900

Other Liabilities (Note 19) 4,222 4,470

Total Liabilities (Note 19) 16,510,088 15,498,161

Commitments and Contingencies (Note 28)

NET POSITION

Unexpended Appropriations:

 Earmarked Funds (Note 24) 200 200

 Other Funds 342,778 400,357

Subtotal 342,978 400,557

Cumulative Results of Operations:

 Earmarked Funds (Note 24) 43,611 41,426

 Other Funds (306,451) (340,887)

Subtotal (262,840) (299,461)

Total Net Position (Note 20) 80,138 101,096

Total Liabilities and Net Position $ 16,590,226 $ 15,599,257

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

54

Consolidated Statements of Net Cost

For the Fiscal Years Ended September 30, 2011 and 2010 

(In Millions)

Cost of Treasury Operations: (Note 21) 2011 2010

Financial Program

Gross Cost $ 15,671 $ 15,854

Less Earned Revenue (2,633) (2,611)

Net Program Cost 13,038 13,243

Economic Program

Gross Cost (Note 8) 4,704 314,138

Less Earned Revenue (14,641) (16,904)

Net Program Cost (Revenue) (9,937) 297,234

Security Program

Gross Cost 360 344

Less Earned Revenue (5) (4)

Net Program Cost 355 340

Management Program

Gross Cost 573 582

Less Earned Revenue (57) (56)

Net Program Cost 516 526

Total Program Gross Costs 21,308 330,918

Total Program Gross Earned Revenues (17,336) (19,575)

Total Program Cost before Changes in Actuarial Assumptions 3,972 311,343

(Gains)/Losses on Pension, ORB, or OPEB Assumption Changes 195 820

Total Net Cost of Treasury Operations (Note 21) 4,167 312,163

Non-Entity Costs

Federal Debt Interest 452,616 412,855

Restitution of Foregone Federal Debt Interest (Note 16) 875 -

Less Interest Revenue from Loans (26,815) (22,258)

Net Federal Debt Interest Costs 426,676 390,597

Other Federal Interest 3 6

Other Federal Costs (Note 21) 13,743 12,753

Net GSEs Non-Entity Revenue (Note 8) (39,415) (56,678)

Administrative Services Income (1,019) -

Total Net Non-Entity Costs 399,988 346,678

Total Net Cost of Treasury Operations and Non-Entity Costs $ 404,155 $ 658,841

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

55

Consolidated Statement of Changes in Net Position

For the Fiscal Year Ended September 30, 2011 

(In Millions)

Combined

Earmarked

Funds

Combined

All Other

Funds

EliminationConsolidated

Total

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balance $ 41,426 $ (340,887) $ - $ (299,461)

Budgetary Financing Sources

Appropriations Used 536 547,593 - 548,129

Non-Exchange Revenue 230 154 (5) 379

Donations and Forfeitures of Cash/Equivalent 586 - - 586

Transfers In/Out Without Reimbursement (51) 51 - -

Other (Note 11) - 4,550 - 4,550

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 163 - - 163

Accrued Interest and Discount on Debt - 14,042 - 14,042

Transfers In/Out Without Reimbursement (97) 37 - (60)

Imputed Financing Sources 75 1,265 (415) 925

Transfers to the General Fund and Other (Note 20) 249 (128,187) - (127,938)

Total Financing Sources 1,691 439,505 (420) 440,776

Net Cost of Operations 494 (405,069) 420 (404,155)

Net Change 2,185 34,436 - 36,621

Cumulative Results of Operations 43,611 (306,451) - (262,840)

UNEXPENDED APPROPRIATIONS

Beginning Balance 200 400,357 - 400,557

Budgetary Financing Sources

Appropriations Received (Note 20) 536 498,187 - 498,723

Appropriations Transferred In/Out - 129 - 129

Other Adjustments - (8,302) - (8,302)

Appropriations Used (536) (547,593) - (548,129)

Total Budgetary Financing Sources - (57,579) - (57,579)

Total Unexpended Appropriations 200 342,778 - 342,978

Net Position $ 43,811 $ 36,327 $ - $ 80,138

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

56

Consolidated Statement of Changes in Net Position

For the Fiscal Year Ended September 30, 2010

(In Millions)

Combined

Earmarked

Funds

Combined

All Other

Funds

Elimination Consolidated

Total

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balance $ 41,653 $ (68,741) $ - $ (27,088)

Budgetary Financing Sources

Appropriations Used 527 501,912 - 502,439

Non-Exchange Revenue 56 229 (4) 281

Donations and Forfeitures of Cash/Equivalent 324 - - 324

Transfers In/Out Without Reimbursement (27) 13 - (14)

Other - 12 - 12

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 319 - - 319

Accrued Interest and Discount on Debt - 11,086 - 11,086

Transfers In/Out Without Reimbursement (79) 37 - (42)

Imputed Financing Sources 74 1,486 (552) 1,008

Transfers to the General Fund and Other (Note 20) (65) (128,880) - (128,945)

Total Financing Sources 1,129 385,895 (556) 386,468

Net Cost of Operations (1,356) (658,041) 556 (658,841)

Net Change (227) (272,146) - (272,373)

Cumulative Results of Operations 41,426 (340,887) - (299,461)

UNEXPENDED APPROPRIATIONS

Beginning Balances 200 454,944 - 455,144

Budgetary Financing Sources

Appropriations Received (Note 20) 527 456,443 - 456,970

Appropriations Transferred In/Out - 92 - 92

Other Adjustments - (9,210) - (9,210)

Appropriations Used (527) (501,912) - (502,439)

Total Budgetary Financing Sources - (54,587) - (54,587)

Total Unexpended Appropriations 200 400,357 - 400,557

Net Position $ 41,626 $ 59,470 $ - $ 101,096

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

57

Combined Statements of Budgetary Resources

For the Fiscal Year Ended September 30, 2011 

(In Millions)

Budgetary Resources Budgetary

NonBudgetary 

Financing

2011

Total

Unobligated balance, brought forward, Oct. 1 $ 348,424 $ 23,819 $ 372,243

Recoveries of prior year unpaid obligations 11,058 5,671 16,729

Budget authority:

Appropriations (Note 20) 552,971 4,613 557,584

Borrowing authority (Note 22) 1 201,862 201,863

Spending authority from offsetting collections:

Earned:

Collected 11,059 219,002 230,061

Change in receivables from Federal sources 27 - 27

Change in unfilled customer orders:

Advance received (11) - (11)

Without advance from Federal sources (18) (22,847) (22,865)

Subtotal 564,029 402,630 966,659

Non-expenditure transfers, net 125 - 125

Temporarily not available pursuant to Public Law (426) - (426)

Permanently not available (44,417) (221,912) (266,329)

Total Budgetary Resources $ 878,793 $ 210,208 $ 1,089,001

Status of Budgetary Resources

Obligations incurred (Note 22)

Direct $ 531,283 $ 181,638 $ 712,921

Reimbursable 7,126 - 7,126

Subtotal 538,409 181,638 720,047

Unobligated Balance:

Apportioned 246,296 510 246,806

Exempt from apportionment 23,980 - 23,980

Subtotal 270,276 510 270,786

Unobligated balance not available 70,108 28,060 98,168

Total Status of Budgetary Resources $ 878,793 $ 210,208 $ 1,089,001

Changes in Obligated Balance

Obligated balance, net:

 Unpaid obligations, brought forward, Oct. 1 $ 182,707 $ 49,491 $ 232,198

 Uncollected customer payments from Federal sources,

 brought forward, Oct. 1 (192) (23,817) (24,009)

Total unpaid obligated balance, net 182,515 25,674 208,189

Obligations incurred, net 538,409 181,638 720,047

Gross outlays (561,707) (101,655) (663,362)

Recoveries of prior year unpaid obligations, actual (11,058) (5,671) (16,729)

Change in uncollected customer payments from Federal sources (9) 22,847 22,838

Obligated balance, net, end of period:

 Unpaid obligations 148,351 123,802 272,153

 Uncollected customer payments from Federal sources (201) (969) (1,170)

Total unpaid obligated balance-net, end of period (Notes 1 & 22) $ 148,150 $ 122,833 $ 270,983

Net Outlays

 Gross outlays $ 561,707 $ 101,655 $ 663,362

 Offsetting collections (11,048) (219,002) (230,050)

 Distributed offsetting receipts (119,958) - (119,958)

Net Outlays $ 430,701 $ (117,347) $ 313,354

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

58

Combined Statements of Budgetary Resources 

For the Fiscal Year Ended September 30, 2010 

(In Millions)

Budgetary Resources Budgetary

NonBudgetary 

Financing

2010

Total

Unobligated balance, brought forward, Oct. 1 $ 401,626 $ 41,827 $ 443,453

Adjustment for change in accounting policy (Note 22) 14,135 - 14,135

 Unobligated balance, brought forward, Oct. 1, as adjusted 415,761 41,827 457,588

Recoveries of prior year unpaid obligations 2,979 39,370 42,349

Budget authority:

Appropriations (Note 20) 569,010 - 569,010

Borrowing authority (Note 22) 1 151,472 151,473

Spending authority from offsetting collections:

Earned:

Collected 9,401 204,946 214,347

Change in receivables from Federal sources 22 - 22

 Change in unfilled customer orders:

Advance received (56) - (56)

Without advance from Federal sources 2 (5,111) (5,109)

Subtotal 578,380 351,307 929,687

 Non-expenditure transfers, net 361 - 361

 Temporarily not available pursuant to Public Law (142) - (142)

 Permanently not available (47,341) (189,421) (236,762)

Total Budgetary Resources $ 949,998 $ 243,083 $ 1,193,081

Status of Budgetary Resources

Obligations incurred (Note 22)

 Direct $ 581,303 $ 219,264 $ 800,567

 Adjustment for change in accounting policy (Note 22) 14,135 - 14,135

Direct, Adjusted 595,438 219,264 814,702

 Reimbursable 6,136 - 6,136

Subtotal 601,574 219,264 820,838

Unobligated Balance:

 Apportioned 267,581 20,961 288,542

 Exempt from apportionment 13,269 - 13,269

Subtotal 280,850 20,961 301,811

Unobligated balance not available 67,574 2,858 70,432

Total Status of Budgetary Resources $ 949,998 $ 243,083 $ 1,193,081

Changes in Obligated Balance

Obligated balance, net:

 Unpaid obligations, brought forward, Oct. 1 $ 108,210 $ 79,209 $ 187,419

 Uncollected customer payments from Federal sources,

 brought forward, Oct. 1 (168) (28,928) (29,096)

Total unpaid obligated balance, net 108,042 50,281 158,323

Obligations incurred, net 601,574 219,264 820,838

Gross outlays (524,098) (209,612) (733,710)

Recoveries of prior year unpaid obligations, actual (2,979) (39,370) (42,349)

Change in uncollected customer payments from Federal sources (24) 5,111 5,087

Obligated balance, net, end of period:

 Unpaid obligations 182,707 49,491 232,198

 Uncollected customer payments from Federal sources (192) (23,817) (24,009)

Total unpaid obligated balance-net, end of period (Notes 1 & 22) $ 182,515 $ 25,674 $ 208,189

Net Outlays

 Gross outlays $ 524,098 $ 209,612 $ 733,710

 Offsetting collections (9,345) (204,946) (214,291)

 Distributed offsetting receipts (169,303) (9,606) (178,909)

Net Outlays $ 345,450 $ (4,940) $ 340,510

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

59

Statements of Custodial Activity

For the Fiscal Years Ended September 30, 2011 and 2010 

(In Millions)

2011 2010

Sources of Custodial Revenue (Note 23)

Individual Income and FICA Taxes $ 2,102,030 $ 1,988,760

Corporate Income Taxes 242,848 277,937 

Estate and Gift Taxes 9,079 19,751

Excise Taxes 72,794 70,946

Railroad Retirement Taxes 4,692 4,648

Unemployment Taxes 6,893 6,543

Deposit of Earnings, Federal Reserve System 82,546 75,845

Fines, Penalties, Interest, and Other Revenue 591 1,880

Total Revenue Received 2,521,473 2,446,310

Less Refunds (416,221) (469,937)

Net Revenue Received 2,105,252 1,976,373

Non-Cash Accrual Adjustment (150) 6,539

Non-TARP Investments in American International Group, Inc. (Note 26):

Cash Proceeds from Sale of Stock 1,973 -

Non-Cash Market Adjustments (9,944) (2,666)

Total Custodial Revenue 2,097,131 1,980,246

Disposition of Custodial Revenue (Note 23)

Amounts Provided to Fund Non-Federal Entities 462 387

Amounts Provided to Fund the Federal Government 2,104,790 1,975,986

Non-Cash Accrual Adjustment (150) 6,539

Non-TARP Investments in American International Group, Inc. (Note 26):

Cash Proceeds from Sales of Stock 1,973 -

Non-Cash Market Adjustment (9,944) (2,666)

Total Disposition of Custodial Revenue 2,097,131 1,980,246

Net Custodial Revenue $ - $ -

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2011

60

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. REPORTING ENTITY

The accompanying financial statements include the operations of the United States (U.S.) Department of the 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 Department was created by an Act (1 Stat.65) on September 2, 1789. Many subsequent acts affected the development 

of the Department, delegating new duties to its charge and establishing the numerous bureaus and divisions that now 

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

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

Government. 

Further, the Secretary is responsible for recommending and implementing 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 manufacture of coins, 

currency, and other products for customer agencies and the public. 

The Department’s reporting entities include the Departmental Offices (DO) and eight operating bureaus. For financial 

reporting purposes, DO is composed of: International Assistance Programs (IAP), Office of Inspector General (OIG), 

Special Office of Inspector General for the Troubled Asset Relief Program (SIGTARP), Treasury Forfeiture Fund (TFF), 

Exchange Stabilization Fund (ESF), Community Development Financial Institutions (CDFI) Fund, Office of D.C. 

Pensions (DCP), Treasury Inspector General for Tax Administration (TIGTA), Federal Financing Bank (FFB), Office of 

Financial Stability (OFS), Government Sponsored Enterprise (GSE) Program, Small Business Lending Fund (SBLF), 

Office of Financial Research (OFR), and the DO policy offices. 

The eight operating bureaus are: Bureau of Engraving and Printing (BEP); Bureau of the Public Debt (BPD); Financial 

Crimes Enforcement Network (FinCEN); Financial Management Service (FMS); Internal Revenue Service (IRS); United 

States Mint (Mint); Office of the Comptroller of the Currency (OCC); and the Alcohol and Tobacco Tax and Trade Bureau 

(TTB). On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (the “Dodd-Frank Act”), which includes the Enhancing Financial Institution Safety and Soundness Act of 2010. In 

accordance with the Dodd-Frank Act, on July 21, 2011 (the “transfer” date”), substantially all of the operations of the 

Office of Thrift Supervision (OTS) were transferred to the OCC; and certain other duties were transferred to the Federal 

Reserve Board and Federal Deposit Insurance Corporation (FDIC). During fiscal year 2011, OTS operated as a separate 

entity through July 20, 2011, and thus its operating results through July 20, 2011, are presented separately in the 

disaggregate disclosures contained in Note 21 and the Required Supplemental Information (unaudited). On July 21, 

2011, all of OTS’s net assets, except for a reserve of $2 million for OTS wind-down activities, were transferred to OCC. 

The Department’s financial statements reflect the reporting of its own entity activities comprising both the Department’s 

operating bureaus and DO that are consolidated with the Department, 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. The Department’s reporting entity does not include the 
U.S. Department of the Treasury | Fiscal Year 2011

61

General Fund of the U.S. Government (General Fund), which maintains receipt, disbursement, and appropriation 

accounts for all federal agencies. 

Transactions and balances among the 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 Generally Accepted Accounting Principles (GAAP) for federal entities, the 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 Concepts (SFFAC) No. 2, Entity and Display (SFFAC No. 2) which directs that such 

“bailout” investments should not be consolidated into the Financial Reports of the U.S. Government, either in part or as a 

whole. 

In addition, the Department has made loans and investments in certain Special Purpose Vehicles (SPV) under the 

Consumer and Business Lending Initiative, Automotive Industry Financing Program, and the Public-Private Investment 

Program. In fiscal year 2011, a portion of the Department’s investment in American International Group, Inc. was 

exchanged for preferred interests in SPVs. SFFAC No. 2, paragraphs 43 and 44, reference indicative criteria such as 

ownership and control over an SPV to carry out government powers and missions as criteria in the determination about 

whether the SPV should be classified as a federal entity. The Department has concluded that the lack of control over the 

SPVs is the primary basis for determining that none of the SPVs meet the criteria to be classified as a federal entity. As a 

result, the assets, liabilities, and results of operations of the SPVs are not included in the Department’s financial 

statements. The Department has recorded the loans and investments in private entities and investments in SPVs in 

accordance with Credit Reform Accounting, as discussed below. Additional disclosures regarding these SPV investments 

are included in Note 7. 

B. BASIS OF ACCOUNTING AND PRESENTATION

The financial statements have been prepared from the accounting records of the 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 revised. 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 standardssetting body of the U.S. Government. 

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 2011 and fiscal year 

2010 information. 

While these financial statements have been prepared from the accounting records of the 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 accounting records. 

Intra-governmental assets and liabilities are those due from or to other federal entities. Intra-governmental earned 

revenues are collections or accruals of revenue from other federal entities, and intra-governmental costs are payments or 

accruals of expenditures to other federal entities. 
U.S. Department of the Treasury | Fiscal Year 2011

62

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. Liabilities represent the 

probable and measurable future outflow or other sacrifice of resources as a result of past transactions or events. Since the 

Department is a component of the U.S. Government, a sovereign entity, the Department’s liabilities cannot be liquidated 

without legislation that provides resources or an appropriation. Liabilities represent the probable and measurable future 

outflow or other sacrifice of resources as a result of past transactions or events. Liabilities covered by budgetary 

resources are those liabilities for which Congress has appropriated funds or funding is otherwise available to pay amounts 

due. Liabilities not covered by budgetary 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 U.S. Government, acting in its sovereign capacity, can abrogate liabilities of the Department arising from noncontractual activities. 

Certain fiscal year 2010 balances on the Consolidated Balance Sheets and notes to the financial statements have been 

reclassified to conform to the presentation in the current fiscal year. In fiscal year 2011, certain Balance Sheet line items 

were aggregated with other line items. Corresponding balances for the prior fiscal year were reclassified to conform to

the current year presentation. 

There are numerous acronyms used throughout the notes herein as well as other sections of this Agency Financial Report 

(AFR). Refer to the “Glossary of Acronyms” located in Appendix E of this report for a complete listing of these acronyms 

and their related definitions. 

C. FUND BALANCE

The Fund Balance is the aggregate amount of the Department’s accounts with the U.S. Government’s central accounts 

from which the Department is authorized to make expenditures and pay liabilities. It is an asset because it represents the 

Department’s claim to the U.S. Government’s resources. Fund balance with Treasury is not equivalent to unexpended 

appropriations because it also includes non-appropriated revolving and enterprise funds, suspense accounts, and 

custodial funds such as deposit funds, special funds, and trust funds. 

D. INVESTMENTS

Investments in GSEs 

The Department holds preferred stock of two stockholder-owned GSEs, the Federal National Mortgage Association 

(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The senior preferred stock liquidity 

preference (preferred stock) and associated common stock warrant (warrant(s)) in the 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, but permits the use of other measurement basis, such as fair value, in certain 

situations. Changes in the valuation of these investments are recorded as non-entity exchange transactions on the 

Consolidated Statements of Net Cost. Dividends are also recorded as non-entity exchange transactions and are accrued 

when declared; therefore, no accrual is made for future dividends. 

The GSE Senior Preferred Stock Purchase Agreements (SPSPAs) provide that the Department will increase its investment 

in the GSEs’ senior preferred stock if, at the end of any quarter, the Federal Housing Finance Agency (FHFA), acting as 

the conservator, determines that the liabilities of either GSE, individually, exceed its respective assets. As the funds used 

to pay these excess liabilities are appropriated directly to the Department such payments are treated as entity expenses 

and reflected as such on the Consolidated Statements of Net Cost and Cumulative Results of Operations. These payments 
U.S. Department of the Treasury | Fiscal Year 2011

63

also result in an increase to the non-entity investment in the GSEs’ preferred stock, with a corresponding increase in Due 

to the General Fund, as the Department holds the investment on behalf of the General Fund. 

Investments in International Financial Institutions 

The Department, on behalf of the United States, invests in Multilateral Development Banks (MDBs) to support poverty 

reduction, private sector development, transitions to market economies and sustainable economic growth and 

development, thereby advancing the United States’ economic, political, and commercial interests abroad. As a 

participating member country, the Department, on behalf of the United States, provides a portion of the capital base of

the MDBs, through subscriptions to capital, which allows the MDBs to issue loans at market-based rates to middle 

income developing countries. These paid-in capital investments are considered non-marketable equity investments 

valued at cost on the Department’s Consolidated Balance Sheets. 

In addition, the Department, on behalf of the United States, contributes funding to MDBs to finance grants and extend 

credit to poor countries at below market-based interest rates. These U.S. contributions are reported as an expense on the 

Department’s Consolidated Statements of Net Cost. 

Other Investments and Related Interest 

ESF holds most of the Department’s foreign currency investments. “Other Foreign Currency Denominated Assets” and 

“Investment Securities” are considered “available-for-sale” securities and recorded at fair value. These holdings are 

normally invested in interest-bearing securities issued or held through foreign governments or monetary authorities. 

Non-TARP Investment in American International Group, Inc. 

The Department holds American International Group, Inc. (AIG) common stock on behalf of the General Fund which are 

considered “available-for-sale” securities and recorded at fair value. Changes in the valuation of these investments held 

are non-entity, non-exchange transactions reported on the Statements of Custodial Activity. The revenue or loss 

associated with sales of these investments are non-entity, exchange transactions reported on the Statements of Custodial 

Activity. 

E. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

Federal taxes receivable, net, and the corresponding liability due to the Department, 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 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 U.S. Government. Examples include assessments resulting from an IRS audit or examination in which the 

taxpayer does not agree with the results. Write-offs consist of unpaid assessments for which the IRS does not expect 

further collections due to factors such as taxpayers’ bankruptcy, insolvency, or death. Compliance assessment and writeoffs are not reported on the balance sheet. Statutory provisions require the accounts to be maintained until the statute 

for collection expires. 
U.S. Department of the Treasury | Fiscal Year 2011

64

F. LOANS AND INTEREST RECEIVABLE, INTRA-GOVERNMENTAL - ENTITY AND NON-ENTITY

Intra-Governmental entity Loans and Interest Receivable from other federal agencies represent loans and interest 

receivable held by the 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 

Department to federal agencies on behalf of the U.S. Government. The 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 U.S. 

Government. Because of the Department’s intermediary role in issuing these loans, the 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. 

G. ADVANCES TO THE UNEMPLOYMENT TRUST FUND

Advances have been issued to the Department of Labor’s (DOL) Unemployment Trust Fund from the General Fund for

states to pay unemployment benefits. BPD accounts for the advances on behalf of the General Fund. As outlined in the 

United States Code (USC) 42 USC §1323, these repayable advances bear an interest rate that is computed as the average 

interest rate as of the end of the calendar month preceding the issuance date of the advance for all interest bearing 

obligations of the United States that form 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, in consultation with the Secretary of Labor, has determined that the 

balance in the Unemployment Trust Fund is adequate to allow repayment. 

H. INTEREST RECEIVABLE ON DEPOSITS OF EARNINGS, FEDERAL RESERVE SYSTEM

Federal Reserve Banks (FRBs) 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, an 

FRB 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 Interest Receivable on FRB 

Deposits of Earnings, Federal Reserve System, is included within “Taxes, Interest and Other Receivables, Net” line item 

of the Consolidated Balance Sheets (refer to Note 13), and represents the earnings due to the U.S. Treasury as of 

September 30, but not collected by the U.S. Treasury until after the end of the month. 

I. PROPERTY, PLANT, AND EQUIPMENT, NET

General 

Property, plant, and equipment (PP&E) is composed of capital assets used in providing goods or services. It also includes 

assets acquired through capital leases, which are initially recorded at the amount recognized as a liability for the capital 

lease at its inception. PP&E is stated at full cost, including costs related to acquisition, delivery, and installation, less 

accumulated depreciation. Major alterations and renovations, including leasehold and land improvements, are 

capitalized, while maintenance and repair costs are charged to 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. 
U.S. Department of the Treasury | Fiscal Year 2011

65

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 Department leases land and buildings from the General Services Administration (GSA) to conduct most of its 

operations. GSA charges a standard level user fee which approximates commercial rental rates for similar properties. 

Therefore, GSA-owned properties are not included in the Department’s PP&E. 

The 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 for all property 

categories except for internal use software thresholds which range from $125,000 to $250,000. The 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 

based on Departmental guidance. In addition, the Department’s 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 and capital leases. Leasehold improvements are depreciated over the term of the lease or the useful life of 

the improvement, whichever is shorter. Capital leases are depreciated over the estimated life of the asset or term of the 

lease, depending on the conditions met for capitalization. Service life ranges (2 to 50 years) are high due to the 

Department’s diversity of PP&E. Land, construction in progress, and internal use software in development are not 

depreciated. 

Heritage Assets 

The Department owns the Treasury Complex (Main Treasury and Treasury Annex) – a multi-use heritage asset. The 

buildings housing the Mint facilities in Denver, San Francisco, Fort Knox, and West Point, are also considered multi-use 

heritage assets. 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 buildings are capitalized 

as general PP&E and depreciated over their service life. 

J. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Substantially all of the Department’s operating cash is non-entity government-wide cash held in depositary institutions 

and FRB 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 Federal 

Reserve Bank of New York (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 FRBs, 

foreign and domestic financial institutions, and in Treasury Tax and Loan (TT&L) accounts. Outstanding checks are 

netted against operating cash until they are cleared by the Federal Reserve System. 

The TGA is maintained at the FRBNY and functions as the government’s checking account for deposits and 

disbursements of public funds. The 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 depositories 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. 

The Supplementary Financing Program (SFP) Account is maintained at FRBNY. The SFP provides emergency cash for 

Federal Reserve initiatives aimed at addressing the ongoing crisis in financial markets. This program consists of a series 

of Treasury bills, apart from the Department’s current borrowing program. 
U.S. Department of the Treasury | Fiscal Year 2011

66

The Department’s foreign currency investments having original maturities of three months or less are classified as cash 

equivalents. Other foreign currency holdings having terms greater than three months but less than or equal to one year 

are classified as “available-for-sale” investments. Special Drawing Rights (SDRs) holdings comprise most of the other 

monetary assets (refer below to “Special Drawing Rights” accounting policy).

K. FEDERAL DEBT AND INTEREST PAYABLE

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 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. 

L. LOAN COMMITMENTS

The Department, through FFB, makes loan commitments with federal agencies, or private sector borrowers whose loans 

are guaranteed by federal agencies, to extend credit for their own use (refer to the accounting policy above entitled 

“Loans and Interest Receivable, Intra-Governmental – Entity and Non-Entity.”) The Department establishes loan 

commitments when the Department and other parties fully execute promissory notes in which the Department becomes 

obligated to issue such loans immediately or at some future date. The Department reduces loan commitments when the 

Department issues the loans or when the commitments expire. Most obligations of the Department give a borrower the 

contractual right to a loan or loans immediately or at some point in the future within an agreed upon timeframe. 

M. PENSION COSTS, OTHER RETIREMENT BENEFITS, AND OTHER POST-EMPLOYMENT BENEFITS

The 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 Department. 

Most employees of the Department hired prior to January 1, 1984, participate in the Civil Service Retirement System 

(CSRS), to which the Department contributes 7 percent of pay. On January 1, 1987, the Federal Employees’ Retirement 

System (FERS) went into effect pursuant to Public Law (P.L.) 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 

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 Department also contributes the 

employer’s matching share for Social Security. For the FERS basic benefit, the Department contributes 11.2 percent for 

regular FERS employees. 

Similar to federal retirement plans, OPM, rather than the 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 Department reports the full cost of providing other retirement benefits (ORB). 

The Department also recognizes an expense and a liability for other post-employment benefits (OPEB), which includes all 

types of benefits, provided to former or inactive (but not retired) employees, their beneficiaries, and covered dependents. 

Additionally, one of the Department’s bureaus, OCC, separately sponsors a defined life insurance benefit plan for current 

and retired employees. In connection with the July 21, 2011, merger of OTS into OCC’s operations (refer to Note 1A), 

OCC became the administrator for OTS’s private defined benefit retirement plan (the Pentegra Defined Benefit Plan 

(PDBP)), and assumed the liability associated with this plan. The PDBP covers certain former OTS employees, and 

provides certain health and life insurance benefits for all retired OTS employees who meet eligibility requirements. 
U.S. Department of the Treasury | Fiscal Year 2011

67

N. SPECIAL DRAWING RIGHTS 

The SDR is an international reserve asset created by the International Monetary Fund (IMF) to supplement its member 

countries’ official reserves. Under its Articles of Agreement, the IMF may allocate SDRs to member countries in 

proportion to their IMF quotas. Pursuant to the Special Drawing Rights Act of 1968, as amended, the ESF holds all 

SDRs allocated to or otherwise acquired by the United States. 

Allocations and Holdings 

When the IMF allocates SDRs to its members, SDR holdings are recorded as assets of the members and SDR allocations 

are recorded as liabilities. SDR holdings increase primarily as a result of IMF SDR allocations. Other transactions 

reported in this account are recorded as incurred. They include acquisitions and sales of SDRs, interest received on SDR 

holdings, interest charges on SDRs allocations, and valuation adjustments. The U.S. Government receives remuneration 

in SDRs from the IMF and is based on claims on the IMF, represented by the U.S. Reserve Position. The SDR amount is

credited to the ESF, which transfers to the Treasury General Account an equivalent amount of dollars plus nominal 

interest. The allocations and holdings are revalued monthly based on the SDR valuation rate as calculated by the IMF. 

The 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 SDRs. 

Certificates Issued to the Federal Reserve 

The Special Drawing Rights Act of 1968 authorizes the Secretary to issue certificates, not to exceed the value of SDR 

holdings, to the FRB in return for dollar amounts equal to the face value of certificates issued. The certificates may be 

issued to finance the acquisition of SDRs from other countries or to provide U.S. dollar resources financing other ESF 

operations. Certificates issued are to be redeemed by the Department at such times and in such amounts as the Secretary 

may determine, and do not bear interest. Certificates issued to FRB are reported at their face value. It is not practical to 

estimate the fair value of certificates issued to FRB, since these certificates contain no specific terms of repayment. 

O. FEDERAL EMPLOYEE BENEFITS PAYABLE – FECA ACTUARIAL LIABILITY

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered federal 

civilian employees injured on the job, and employees who have incurred a work-related injury or occupational disease. 

The FECA program is administered by DOL which pays valid claims and subsequently seeks reimbursements from the 

Department for these paid claims. Generally, the Department reimburses DOL within two to three years once funds are 

appropriated. These future workers’ compensation estimates are generated by applying actuarial procedures developed 

to estimate the liability for FECA benefits. The actuarial liability estimates for FECA benefits include the expected 

liability for death, disability, medical, and miscellaneous costs for approved compensation cases. 

P. ANNUAL, SICK, AND OTHER LEAVE

Annual and compensatory leave earned by the Department’s employees, but not yet used, is reported as an accrued 

liability. The accrued balance is adjusted annually to reflect current pay rates. Any portion of the accrued leave for which 

funding is not available is recorded as an unfunded liability. Sick and other leave are expensed as taken. 

Q. REVENUE AND FINANCING SOURCES

The Department’s activities are financed either through exchange revenue it receives from others or through nonexchange revenue and financing sources (such as appropriations provided by the Congress and penalties, fines, and 

certain user fees collected). User fees primarily include collections from the public for the IRS costs to process 

installment agreements and accompanying photocopy and reproduction charges. Exchange revenues are recognized 

when earned; i.e., goods have been delivered or services have been rendered. Revenue from reimbursable agreements is 
U.S. Department of the Treasury | Fiscal Year 2011

68

recognized when the services are provided. Non-exchange revenues are recognized when received by the respective 

collecting bureau. Appropriations used are recognized as financing sources when related expenses are incurred or assets 

are purchased. The Department also incurs certain costs that are paid in total or in part by other federal entities, such as 

pension costs, the FEHBP, and any un-reimbursed payments made from the Treasury Judgment Fund on behalf of the 

Department. 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 are also recognized for the period in which they occurred on the Consolidated Statements of Changes in 

Net Position. 

The Department recognizes revenue it receives from disposition of forfeited property as non-exchange revenue on the 

Consolidated Statements of Changes in Net Position. The costs related to the Forfeiture Fund program are reported on 

the Consolidated Statements of Net Cost. The Treasury Forfeiture Fund is the special fund account for depositing nontax forfeiture proceeds received pursuant to laws enforced or administered by law enforcement bureaus that participate 

in the Treasury Forfeiture Fund. Forfeited property balances are reported in “Other Assets” on the Consolidated Balance 

Sheets. 

R. CUSTODIAL REVENUES AND COLLECTIONS

Non-entity revenue reported on the Department’s Statements of Custodial Activity includes cash collected by the 

Department, primarily from taxes. It does not include revenue collected by other federal agencies, such as user fees and 

other receipts, which are remitted for general operating purposes of the U.S. Government or are earmarked for certain 

trust funds. The Statements of Custodial Activity are presented on the “modified accrual basis.” Revenues are recognized 

as cash is collected, as well as for non-cash market valuation changes related to the U.S. Government’s holdings in 

American International Group, Inc. The “accrual adjustment” is the net increase or decrease during the reporting period 

in net revenue related–assets and liabilities, mainly taxes receivable. The Consolidated Balance Sheets include estimated 

amounts for taxes receivable and payable to the General Fund at September 30, 2011 and 2010. 

S. REFUNDS PAYABLE

Refunds payable arise in the normal course of tax administration when it is determined that taxpayers have paid more 

than the actual taxes that they owe. Amounts that the Department has concluded to be valid refunds owed to taxpayers 

are recorded as a liability entitled “Refunds Payable” on the Consolidated Balance Sheets, with a corresponding 

receivable from the General Fund. This receivable is included on the Consolidated Balance Sheets within the line entitled 

“Due from the General Fund.”

T. 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 indefinite 

period of time. Although funded through appropriations, refund activity, in most instances, is reported as a custodial 

activity of the Department, since refunds are, in substance, a custodial revenue-related activity resulting from taxpayer 

overpayments of their tax liabilities. 

The 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 
U.S. Department of the Treasury | Fiscal Year 2011

69

appropriations are related to the Department’s liability and are reported on the Department’s Balance Sheet. Permanent 

indefinite authority for debt activity is available for an indefinite period of time. 

The Department receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs 

of credit programs as determined by the re-estimation process required by the FCRA. The Department’s renewable 

energy and low income housing projects are also covered by permanent indefinite appropriations. 

Additionally, the 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 FRB for fiscal services 

provided and to the financial institutions for services provided as financial agents of the U.S. Government. They also 

include appropriations provided to make other disbursements on behalf of the U.S. Government, including payments 

made to various parties as the result of certain claims and judgments rendered against the United States. 

U. INCOME TAXES

As an agency of the U.S. Government, the Department is exempt from all income taxes imposed by any governing body, 

whether it is a federal, state, commonwealth, local, or foreign government. 

V. USE OF ESTIMATES

The Department has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, 

expenses, and the disclosure of contingent liabilities to prepare its financial statements. Actual results could differ from 

these estimates. It is possible that the results of operations, cash flows or the financial position of the Department could 

be materially affected in future periods by adverse changes in the outlook for the key assumptions underlying 

management’s estimates. Significant transactions subject to estimates include loan and credit program receivables; 

investments in GSEs and other non-federal securities and related impairment; tax receivables; loan guarantees; 

depreciation; liability for liquidity commitment to GSEs; imputed costs; actuarial liabilities; cost and earned revenue 

allocations; contingent legal liabilities; and credit reform subsidy costs. 

The Department accounts for all of its TARP and non-TARP credit program receivables in accordance with credit reform 

accounting (refer to the accounting policy below entitled “Credit Program Receivables,” and Notes 7 and 11). These 

receivables are derived using credit reform modeling which is subject to the use of estimates. The Department 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. The purpose of reestimates is to update original program subsidy cost 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 information about the portfolio, additional publicly available relevant historical 

market data on securities performance, revised expectations for future economic conditions, and enhancements to cash 

flow projection methods. 

The forecasted cash flows used to determine these credit program amounts are sensitive to slight changes in model 

assumptions, such as general economic conditions, specific stock price volatility of the entities in which the Department 

has an equity interest, estimates of expected default, and prepayment rates. Forecasts of financial results have inherent 

uncertainty. The TARP Credit Program Receivables, Net, line items is reflective of relatively 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 this Agency Financial 

Report. 
U.S. Department of the Treasury | Fiscal Year 2011

70

The liabilities to the GSEs related to the SPSPA is a contingent liquidity commitment, predicated on the future 

occurrence of excess liabilities over the assets of either GSE at the end of any reporting quarter, and are potential 

liabilities of the Department. The Department performs annual valuations, as of September 30th, on the preferred stock 

and warrants in an attempt to provide a “sufficiently reliable” estimate of the outstanding commitments in order for the 

Department to record the remaining liability in accordance with SFFAS No. 5, Accounting for Liabilities of the U.S. 

Government. 

The valuations incorporated various forecasts, projections and cash flow analyses to develop an estimate of potential 

liability. Any changes in valuation, including impairment, are recorded and disclosed in accordance with SFFAS No. 7, 

Accounting for Revenue and Other Financing Sources. Since the valuation is an annual process, the change in valuation 

of the preferred stock and warrants are deemed usual and recurring. The GSEs contingent liability is assessed annually 

and recorded at the gross estimated amount, without considering the increase in preferred stock liquidity preference, 

future dividend payments, or future commitment fees, due to the uncertainties involved. Note 8 includes a detailed 

discussion of the results of the valuation and the liability recorded as of September 30, 2011. 

Estimation of such complex and long duration contingencies is subject to uncertainty, and it is possible that new 

developments will adversely impact ultimate amounts required to be funded by the Department under agreements 

between the Department and each GSE (Note 8). Specifically, the occurrence of future shareholder deficits, which 

ultimately determines the Department’s liabilities to the GSEs, is most sensitive to future changes in the housing price 

index. 

W. CREDIT RISK

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to 

perform in accordance with underlying contractual obligations. The 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 10). Given the history of the 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 Department’s 

expectation of credit losses is nominal. 

The Department also takes on credit risk related to the following: committed but undisbursed direct loans; its liquidity 

commitment to the GSEs; its MBS portfolio; its GSE obligations obtained under the HFA Initiative (the NIBP and TCLP); 

investments, loans, and other credit programs of the TARP; its programs including the CDFI fund, SBLF, and certain 

portions of the Department’s participation in the IMF; 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 costs and losses. The extent of the risk assumed 

by the 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 7, 8, and 11). 

In addition, for EESA programs, the statute requires that the budgetary costs of the troubled assets and guarantees of 

troubled assets be calculated by adjusting the discount rate for market risks. Within the TARP programs, the Department 

has invested in many assets that would traditionally be held by private investors and their valuation would inherently 

include market risk. Accordingly, for all TARP direct loans, equity investments, and other credit programs, the 

Department calculates a Market Risk Adjusted Discount Rate (MRADR). Therefore, the Department’s 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 being valued. The inclusion of the 

MRADR is the mechanism for deriving a fair value of the assets. As directed by Congress, a MRADR is also used in the 

credit reform model for certain portions of the Department’s participation in the IMF. 
U.S. Department of the Treasury | Fiscal Year 2011

71

X. EARMARKED FUNDS

The Department 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 

(SFFAS No. 27), defines the following three criteria for determining an earmarked fund: (1) a statute committing the U.S. 

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 U.S. Government’s general revenues. 

Y. ALLOCATION TRANSFERS

The 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. 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 Department allocates funds, as the parent, to the Department of Energy. OMB allows certain exceptions to allocation 

reporting for certain funds. Accordingly, the Department has reported certain funds for which the Department is the 

child in the allocation transfer, but in compliance with OMB guidance (Circular No. A-136, II.4.2, question 5, for three 

exceptions), will report all activities relative to these allocation transfers in the Department’s financial statements. Also, 

the Department receives allocation transfers, as the child, from the Agency for International Development, General 

Services Administration, and Department of Transportation. 

Z. CREDIT PROGRAM RECEIVABLES

The Department accounts for all of its TARP credit program receivables, including investments in common and preferred 

stock and warrants of public companies, loans, and loan guarantees or guaranty-like insurance activities, under the 

provisions of credit reform accounting (Note 7). In addition to its TARP programs, the Department accounts for all other 

of its credit program receivables under the provisions of credit reform accounting, including the loans or equity securities 

associated with the Department’s: GSE mortgage-backed securities (MBS) purchase program, state and local Housing 

Finance Agency (HFA) Initiative program, SBLF program, CDFI program, and certain portions of the Department’s 

participation in the IMF (Note 11). 

To account for the Department’s TARP and other credit program receivables, the Department applies the accounting 

provisions of 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. SFFAS No. 2, as amended, requires 

measurement of the asset or liability at the net present value of the estimated future cash flows. The cash flow estimates 

for each credit program transaction reflect the actual structure of the instruments. For each of these instruments, the 

Department estimates cash inflows and outflows related to the program over the estimated term of the instrument. 
U.S. Department of the Treasury | Fiscal Year 2011

72

Further, each cash-flow estimate reflects the specific terms and conditions of the program, technical assumptions 

regarding the underlying assets, risk of default or other losses, and other factors as appropriate. The measurement of 

assets within these programs is primarily derived from inputs which generally represent market data and, when such data 

is not available, management’s best estimate of how a market participant would assess the risk inherent in the asset. 

SFFAS No. 2, as amended, was promulgated as a result of the FCRA. The primary purpose of the FCRA 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. 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. To accomplish this, the Department first 

predicts or estimates the future performance of direct and guaranteed loans when preparing its annual budget. 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 reestimated data reflect adjustments for market risks, 

asset performance, and other key variables and economic factors. The reestimated 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 Department’s 

Consolidated Statements of Net Cost. 

Cash flows associated with the Department’s credit programs generally include disbursements, repayments, repurchases, 

fees, recoveries, interest, dividends, proceeds from sales of instruments, borrowings from Treasury, negative subsidy, and 

the subsidy cost received from the program accounts. Security-level data and assumptions used as the basis for cash flow 

model forecasts and program performance are drawn from widely available market sources, as well as information 

published by investees. Key inputs to the cash flow forecasts include: 

 Security characteristics such as unpaid principal balance, coupon rate, weighted-average loan age, issued bond 

balance, credit rating, maturity date, principal and interest payment schedules, priority of payments, and 

performance of underlying collateral 

 Department actions as well as changes in legislation 

 Forecast prepayment rates and default rates 

 Forecast dividend payments 

 Expected escrow conversion and return rates 

 Default and recovery reports published by Moody’s and Standard and Poor’s 

 Other third-party market sources 

The recorded subsidy cost associated with each of the Department’s credit programs is based on the calculated net 

present value of expected future cash flows. The Department’s actions, as well as changes in legislation, may impact 

estimated future cash flows and related subsidy costs. The cost or cost savings of a modification is recognized in subsidy 

costs when the terms of a program are modified. Subsidy costs are also impacted by reestimates which may occur as a 

result of updates to the original program subsidy cost estimates to reflect actual cash flows experience, as well as changes 

in forecasts of estimated future cash flows associated with the credit program. 

AA. FIDUCIARY ACTIVITIES

In accordance with SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary type activities and related transactions 

will no longer be reported by the Department in its proprietary financial statements. Fiduciary activities are the 

collection or receipt, and the management, protection, accounting, investment, and disposition by the U.S. Government 

of cash or other assets in which non-Federal individuals or entities have an ownership interest that the U.S. Government 

must uphold. Fiduciary cash and other assets are not assets of the U.S. Government. While these activities are not 
U.S. Department of the Treasury | Fiscal Year 2011

73

reported in the Department’s consolidated financial statements, they are required to be reported on schedules in the 

notes to the financial statements (Note 27). 

AB. RELATED PARTIES

The primary “related parties” with whom the Department conducts business are other federal agencies, mainly through 

the normal lending activities of the BPD and the FFB. These activities are disclosed in these financial statements. The 

Department utilizes the services of the FRB to execute a variety of transactions on behalf of the BPD and the ESF. The 

FRB is serving as the Department’s fiscal agent in executing these transactions and receives fees for its services. The 

Department also consults with the FRB on matters affecting the economy, such as the structuring of bailout financing for 

the GSEs, AIG, and other companies affected by the current economic situation. Transactions and balances arising from 

these transactions are accounted for and disclosed in the consolidated financial statements (Notes 7, 8, 11, and 26). 

Finally, the Secretary serves on the FHFA Oversight Board, and consults with the Director of FHFA on matters involving 

Fannie Mae and Freddie Mac. This provides the Department a voice in the FHFA’s actions as the conservator for Fannie 

Mae and Freddie Mac. The Department has no transactions with FHFA. 

AC. IMMATERIAL CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Department’s previously issued fiscal year 2010 consolidated financial statements have been revised to correct 

immaterial errors reflected in the note to the consolidated financial statements entitled “Collection and Disposition of 

Custodial Revenue” (Note 23 and Note 26 in the Department’s fiscal year 2011 and 2010 annual report, respectively). 

Specifically, the amounts of custodial revenue collected by tax year associated with “Corporate Income Taxes” were 

incorrectly reported in the prior year notes. Additionally, the amounts of federal tax refunds paid by tax year associated 

with “Individual Income and FICA Taxes” were incorrectly reported in the prior year note. However, the total amount of 

custodial revenue collected and the total of Federal tax refunds paid for fiscal year 2010 were properly reported in the 

prior year note. Accordingly, these errors had no impact on the Department’s consolidated financial results or financial 

position, nor did they impact the Statements of Custodial Activity. Management of the Department believes these errors 

were immaterial to the fiscal year 2010 amounts disclosed in the notes and to the Department’s consolidated financial 

statements taken as a whole. 

2. FUND BALANCE 

As of September 30, 2011 and 2010, fund balance consisted of the following (in millions):

2011 2010

Appropriated Funds $ 344,913 $ 402,036

Revolving Funds 35,464 34,096

Clearing Funds 392 21

Deposit Funds 170 132

Trust Funds 16 84

Special Funds 721 656

Other Funds (Receipt Fund and Suspense Funds) 108 1

Total Fund Balance $ 381,784 $ 437,026

Appropriated funds consist of amounts appropriated annually by Congress to fund the operations of the Department. 

Clearing funds represent reconciling differences with the Department’s balances as reported in the U.S. Government’s 

central accounts. These fund accounts temporarily hold unidentifiable general, special, or trust fund collections that 

belong to the Federal Government until they are classified to the proper receipt or expenditure account by the federal 

entity. 
U.S. Department of the Treasury | Fiscal Year 2011

74

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. 

Deposit funds represent amounts received as an advance that are not accompanied by an order and seized cash. 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. Special funds include funds designated for specific purposes including the 

disbursement of non-entity monies received in connection with the Presidential Election Campaign. 

STATUS OF FUND BALANCE

As of September 30, 2011 and 2010, the status of the fund balance consisted of the following (in millions):

2011 2010

Unobligated Balance - Available $ 270,786 $ 301,811

Unobligated Balance - Not Available 98,168 70,432

Unpaid Obligations 270,983 208,189

Subtotal 639,937 580,432

Adjustment for Non-Budgetary Funds 674 161

Adjustment for ESF (105,026) (103,788)

Adjustment for Borrowing Authority (123,844) (23,477)

Adjustment for IMF (27,065) (13,081)

Adjustment for Intra-Treasury Investments (7,024) (7,026)

Authority Unavailable for Obligation 3,721 3,727

Adjustment for Imprest Funds (4) (4)

Adjustment for Temporary Reduction 423 90

Adjustment for Indian Trust Funds (8) (8)

Total Status of Fund Balance $ 381,784 $ 437,026

Portions of the Unobligated Balance Not Available as shown on the Combined Statement of Budgetary Resources include 

amounts appropriated in prior fiscal years that are not available to fund new obligations. However, such amounts may be 

used for upward and downward adjustments for existing obligations in future years. The Unpaid Obligations 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 as reported in the accompanying Consolidated Balance 

Sheets: 

 Adjustments for Non-Budgetary Funds are receipt, clearing, and deposit funds that represent amounts on deposit 

with Treasury that have no budgetary status. 

 Adjustments for ESF – ESF investments and related balances that meet the criteria for reporting as part of budgetary 

resources are reported on the Statement of Budgetary Resources; however, they are not a component of the Fund 

Balance as they represent invested funds and thus have to be excluded from Total Status of Fund Balance reported in 

this note. 

 Adjustments for Borrowing Authority – Borrowing authority is in budgetary status but not in the Fund Balance. 

 Adjustments for IMF – Monies moved from Fund Balance to Other Monetary Assets related to IMF accounts that 

have no budgetary resources and are with the FRBNY. 
U.S. Department of the Treasury | Fiscal Year 2011

75

 Adjustments for Intra-Treasury Investments – Budgetary resources have investments included; however, the money 

has been moved from the Fund Balance asset account to Investments. 

 Adjustment for Unavailable for Obligations reduced the budgetary resources; however, it did not impact the Fund 

Balance. 

 Adjustments for Imprest Funds – Imprest funds represent monies moved from the Fund Balance to Cash and Other 

Monetary Assets with no change in the budgetary status. 

As of September 30, 2011 and 2010, the Department did not have any budgetary authority in the Fund Balance 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 Department for the public or for another federal entity, such as the General Fund. 

Such funds have an offsetting liability equal to fund balance. See Note 12 regarding restrictions related to the line of 

credit held on the U.S. quota in the IMF. 

Unused funds in expired appropriations returned to the General Fund were $127 million and $166 million for the fiscal 

years ending September 30, 2011 and 2010, respectively. 

3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL 

ENTITY INTRA-GOVERNMENTAL

The Department, through FFB, issues 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. All principal and interest on loans to federal agencies and private sector borrowers are, or have a 

commitment to be, backed by the full faith and credit of the U.S. Government. The Department has not recognized any 

credit-related losses on its loans, nor has the Department recorded an allowance for uncollectible intra-governmental 

loans. 

As of September 30, 2011 and 2010, entity intra-governmental loans (issued by the FFB) and interest receivable consisted 

of the following (in millions):

Loans

Receivable

Interest

Receivable

2011

Total

Loans

Receivable

Interest

Receivable

2010

Total

Department of Agriculture $ 34,178 $ 48 $ 34,226 $ 31,264 $ 53 $ 31,317

National Credit Union Administration - - - 10,101 15 10,116

United States Postal Service 13,000 47 13,047 12,000 41 12,041

Department of Energy 6,929 15 6,944 2,931 4 2,935

General Services Administration 1,898 33 1,931 1,973 35 2,008

Other Agencies 1,083 8 1,091 1,039 8 1,047

Total Entity Intra-governmental $ 57,088 $ 151 $ 57,239 $ 59,308 $ 156 $ 59,464

NON-ENTITY INTRA-GOVERNMENTAL 

The Department, through BPD, accounts for and reports on the principal borrowings from and repayments to the General 

Fund for approximately 91 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. 
U.S. Department of the Treasury | Fiscal Year 2011

76

As of September 30, 2011 and 2010, non-entity intra-governmental loans (issued by BPD) and interest receivable due to 

the General Fund consisted of the following (in millions):

Loans

Receivable

Interest

Receivable

2011

Total

Loans

Receivable

Interest 

Receivable

2010

Total

Department of Education $ 546,321 $ - $ 546,321 $ 373,717 $ - $ 373,717

Department of Agriculture 55,356 - 55,356 56,598 - 56,598

Department of Homeland Security 17,754 - 17,754 18,504 - 18,504

Small Business Administration 11,190 - 11,190 11,752 - 11,752

Export-Import Bank of the U.S. 8,279 - 8,279 7,254 - 7,254

Department of Labor 6,163 - 6,163 6,290 - 6,290

Department of Housing and Urban Development 6,090 - 6,090 4,775 - 4,775

Department of Transportation 4,342 1 4,343 3,076 - 3,076

National Credit Union Administration 3,500 2 3,502 - - -

Railroad Retirement Board 3,484 52 3,536 3,481 54 3,535

Department of Energy 3,104 20 3,124 2,601 21 2,622

Overseas Private Investment Corporation 1,828 - 1,828 1,403 - 1,403

Department of Veterans Affairs 1,675 - 1,675 1,650 - 1,650

Other Agencies 2,250 - 2,250 2,030 183 2,213

Total Non-Entity Intra-

 governmental $ 671,336 $ 75 $ 671,411 $ 493,131 $ 258 $ 493,389

Total Intra-governmental Loans and

Interest Receivable (Entity and NonEntity) $ 728,424 $ 226 $ 728,650 $ 552,439 $ 414 $ 552,853

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

FUND

The 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 the Department on behalf of the 

U.S. Government. Liabilities managed by the Department are comprised primarily of the federal debt. Due to the 

General Fund represents assets held for the General Fund. 

As of September 30, 2011 and 2010, 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 2011 2010

Federal Debt and Interest Payable (Note 16) $ 10,148,963 $ 9,035,929 

Federal Debt and Interest Payable - Intra-governmental (Note 16) 4,719,668 4,587,802 

Refunds Payable (Note 23) 3,983 4,146 

Adjustment for Eliminated Liabilities 30,103 27,760 

Total Due from the General Fund $ 14,902,717 $ 13,655,637 
U.S. Department of the Treasury | Fiscal Year 2011

77

Assets to be Distributed to the General Fund 2011 2010

Fund Balance $ 358 $ 249 

Advances to the Unemployment Trust Fund 42,773 34,111 

Cash Due to the General Fund (Held by the Department) (Note 5) 49,949 303,797 

Foreign Currency 73 3 

Custodial Gold without certificates and Silver held by the U.S. Mint 25 25 

Loans and Interest Receivable - Intra-governmental (Note 3) 671,411 493,389 

Loans and Interest Receivable 99 124

Investments in Government Sponsored Enterprises (Note 8) 133,043 109,216 

Credit Reform Downward Subsidy Reestimate 13,022 25,579 

Accounts Receivable - Intra-governmental 388 350 

Taxes and Other Non-Entity Receivables Due to General Fund 36,615 36,927 

Non-TARP Investments in American International Group, Inc. (Note 26) 10,862 20,805 

Miscellaneous Assets 2 5

Adjustment for Eliminated Assets 267,855 389,672 

Total Due to the General Fund $ 1,226,475 $ 1,414,252 

The assets to be distributed to the General Fund do not represent all of the non-entity assets managed by the Department. 

See Note 15 for all non-entity assets held by the Department.

The Fund Balance reported above represents the non-entity funds held by the Department on behalf of the General Fund. 

It is used to administer programs such as the Presidential Election Campaign and payments for Legal Services 

Corporation and thus not available for general use by the Department. 

Advances have been issued to the DOL’s Unemployment Trust Fund from the General Fund to states for unemployment 

benefits. 

The non-entity Credit Reform Downward Subsidy Reestimate represents amounts for the downward subsidy reestimates 

for the Department’s credit programs including TARP Equity Investments and Direct Loans (See Note 1V and 1Z).

The Adjustment for Eliminated Liabilities principally represents investments in U.S. Government securities held by the 

Department’s reporting entities that were eliminated against Federal Debt and Interest Payable Intra-governmental. The 

Adjustment for Eliminated Assets principally represents loans and interest payable owed by the Treasury reporting 

entities, which were eliminated against Loans and Interest Receivable Intra-governmental held by the BPD. 

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Cash, foreign currency, and other monetary assets held as of September 30, 2011 and 2010 were as follows (in millions):

2011 2010

Entity:

Cash $ 74 $ 16

Foreign Currency and Foreign Currency Denominated Assets 10,767 10,591

Other Monetary Assets:

 Special Drawing Right Holdings 55,911 57,439

 Other 153 144

Total Entity 66,905 68,190

Non-Entity:

Operating Cash of the U.S. Government 49,812 303,576

Foreign Currency 73 3

Miscellaneous Cash Held by All Treasury Reporting Entities 331 665

Total Non-Entity 50,216 304,244

Total Cash, Foreign Currency, and Other Monetary Assets $ 117,121 $ 372,434
U.S. Department of the Treasury | Fiscal Year 2011

78

Non-Entity Operating Cash and Other Cash of the U.S. Government held by the Department disclosed above consisted of 

the following (in millions):

2011 2010

Operating Cash - FRB Account $ 56,284 $ 307,850

Operating Cash - Other 1,805 2,032

Subtotal 58,089 309,882

Outstanding Checks (8,277) (6,306)

Total Operating Cash of the U.S. Government 49,812 303,576

Other Cash 230 297

Subtotal 50,042 303,873

Amounts Due to the Public (93) (76)

Total Cash Due to the General Fund (Note 4) $ 49,949 $ 303,797

ENTITY 

Cash, Foreign Currency, and Other Monetary Assets 

Entity cash, foreign currency, and other monetary assets primarily include Foreign Currency Denominated Assets 

(FCDA), SDRs, Securities Purchased Under Agreement to Resell, and forfeited cash. SDRs and FCDAs are valued as of 

September 30, 2011 and 2010 using current exchange rates plus accrued interest. The “Other” amount reported within 

the entity category above includes U.S. dollars restricted for use by the 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. FCDAs with original maturities of three months or less, in addition to securities 

purchased under agreement to resell, were valued at $10.8 billion and $10.6 billion as of September 30, 2011 and 2010, 

respectively. 

Special Drawing Rights 

The SDR is an international reserve asset created by the IMF to supplement existing reserve assets. The IMF has 

allocated new SDRs on several occasions to members participating in the IMF’s SDR Department. The SDR derives its 

value as a reserve asset essentially from the commitments of participants to hold and accept SDRs and to honor various 

obligations connected with their proper functioning as a reserve asset. Pursuant to the Special Drawing Rights Act of 

1968, as amended, the Department issued certificates to the Federal Reserve, valued at $5.2 billion as of September 30, 

2011 and 2010, to finance its acquisition of SDRs from other countries or to provide U.S. dollar resources for financing 

other ESF operations. 

On a daily basis, the IMF calculates the value of the SDR using the market value in terms of the U.S. dollar from weighted 

amounts of each of four freely usable currencies, as defined by the IMF. These currencies are the U.S. dollar, the 

European euro, the Japanese yen, and the British pound sterling. The 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 

12) 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 SDRs) are revalued monthly based on the SDR 

valuation rate calculated by the IMF, resulting in the recognition of unrealized gains or losses on revaluation. 

Pursuant to the IMF Articles of Agreement, SDRs allocated to or otherwise acquired by the United States are permanent 

resources unless: 

 cancelled by the Board of Governors pursuant to an 85.0 percent majority decision of the total voting power of 

IMF members; 
U.S. Department of the Treasury | Fiscal Year 2011

79

 the SDR Department of the IMF is liquidated; 

 the IMF is liquidated; or 

 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 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 SDRs were made in 1970, 1971, 1972, 1979, 1980, 1981, and 2009. 

As of September 30, 2011 and 2010, the total amount of SDR holdings of the United States was the equivalent of $55.9 

billion and $57.4 billion, respectively. As of September 30, 2011 and 2010, the total amount of cumulative SDR 

allocations to the United States was the equivalent of $55.1 billion and $54.9 billion, respectively. The United States has 

received no SDR allocations since 2009. 

During fiscal years 2011 and 2010, the United States received remuneration on its reserve position in the IMF at the 

prevailing rates in the amount of $63.1 million and $23.4 million equivalent of SDRs, respectively. 

Securities Purchased Under Agreement to Resell 

The FRBNY, on behalf of ESF, enters into transactions to purchase foreign-currency-denominated government-debt 

securities under agreements to resell for which the accepted collateral is the debt instruments, denominated in Euros, 

and issued or guaranteed in full by European governments. These agreements are subject to daily margining 

requirements. 

NON-ENTITY 

Cash, Foreign Currency, and Other Monetary Assets 

Non-entity cash, foreign currency, and other monetary assets include the Operating Cash of the U.S. Government, 

managed by the Department. Also included is foreign currency maintained by various U.S. disbursing offices. It also 

includes seized monetary instruments, undistributed cash, and offers in compromises which are maintained as the result 

of the 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 FRBs, 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 by the FDIC (for balances up to $250,000 as of September 30, 

2011 and 2010), collateralized by securities pledged by the depository institutions and held by FRB, or through securities 

held under reverse repurchase agreements. 

Supplementary Financing Program 

The SFP is a temporary program announced on September 17, 2008, by the Department and the Federal Reserve, to 

provide emergency cash for Federal Reserve initiatives aimed at addressing the ongoing crisis in financial markets. As of 

September 30, 2011, there were no outstanding cash management bills earmarked for SFP, as compared to eight 

outstanding cash management bills totaling $200.0 billion as of September 30, 2010. 
U.S. Department of the Treasury | Fiscal Year 2011

80

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES 

ISSUED TO THE FEDERAL RESERVE BANKS

The Department, through the Mint, is responsible for safeguarding most of the U.S. Government’s gold and silver 

reserves in accordance with 31 USC §5117. Most of the gold and all of the silver reserves are in the custody of the Mint, 

and a smaller portion of the gold is in the custody of the FRBs. 

The gold reserves being held by the Department are partially offset by a liability for gold certificates issued by the 

Secretary to the FRBNY at the statutory rate, as provided in 31 USC §5117. Since 1934, Gold Certificates have been issued 

in non-definitive or book-entry form to the FRBNY. The Department’s liability incurred by issuing the Gold Certificates, 

as reported on the Consolidated Balance Sheets, is limited to the gold being held by the Department at the statutory 

value. Upon issuance of Gold Certificates to the FRBNY, the proceeds from the certificates are deposited into the 

operating cash of the U.S. Government. All of the Department’s certificates issued are payable to the FRBNY. The Mint 

also holds 100,000 fine troy ounces (FTO) ($4 million) of gold reserves without certificates. 

The gold and silver bullion reserve (deep storage and working stock) are reported at the values stated in 31 USC § 5116 –

5117 (statutory rates) which are $42.2222 per FTO of gold and no less than $1.292929292 per FTO of silver. Accordingly, 

the silver is valued at $1.292929292 per FTO. As of September 30, 2011 and 2010, the value of gold and silver reserves 

consisted of the following (in millions):

FTOs

Statutory 

Rate

2011

Statutory 

Value

Market

Rate Per

FTO

2011

Market 

Value

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,620.00 $ 401,835

Gold Held by Federal Reserve Banks 13,452,784 $ 42.2222 568 $ 1,620.00 21,794

Total Gold 261,498,900 11,041 423,629

Silver 16,000,000 $ 1.2929 21 $ 30.45 487

Total Gold and Silver Reserves $ 11,062 $ 424,116

FTOs

Statutory 

Rate

2010

Statutory 

Value

Market

Rate Per

FTO

2010

Market 

Value

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,307.00 $ 324,196

Gold Held by Federal Reserve Banks 13,452,784 $ 42.2222 568 $ 1,307.00 17,583

Total Gold 261,498,900 11,041 341,779

Silver 16,000,000 $ 1.2929 21 $ 22.07 353

Total Gold and Silver Reserves $ 11,062 $ 342,132

7. TROUBLED ASSET RELIEF PROGRAM – CREDIT PROGRAM 

RECEIVABLES, NET

The Department administers a number of programs designed to stabilize the financial system and restore the flow of 

credit to consumers and businesses. Through TARP, the Department made direct loans, equity investments, and entered 

into other credit programs, which consist of an asset guarantee program and a loss-sharing program. On October 3, 2010, 

TARP’s authority to make new commitments to purchase or guarantee troubled assets expired. The table below is a list of 

TARP programs and types. 
U.S. Department of the Treasury | Fiscal Year 2011

81

Program Program Type

Direct Loans and Equity Investments

 Capital Purchase Program Equity Investment/Subordinated Debentures

 American International Group, Inc. Investment Program Equity Investment

 Targeted Investment Program Equity Investment

 Automotive Industry Financing Program Equity Investment and Direct Loan

 Consumer and Business Lending Initiative:

 Term Asset-Backed Securities Loan Facility Subordinated Debentures

 SBA 7 (a) Security Purchase Program Direct Loan

 Community Development Capital Initiative Equity Investment/Subordinated Debentures

 Public-Private Investment Program Equity Investment and Direct Loan

Other Credit Programs

 Asset Guarantee Program Asset Guarantee

 FHA - Refinance Program Loss-Sharing Program with FHA

VALUATION METHODOLOGY

The Department applies the provisions of SFFAS No. 2 as amended, to account for direct loans, equity investments, and 

other credit programs. This standard requires measurement of the asset or liability at the net present value of the 

estimated future cash flows. The cash-flow estimates for each transaction reflect the actual structure of the instruments. 

For each of these instruments, analytical cash-flow models generate estimated cash flows to and from the Department 

over the estimated term of the instrument. 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 adjustment for market risk requires the Department to determine the return that would be required by market 

participants to enter into similar transactions or to purchase the assets held by the Department. Accordingly, the 

measurement of the assets attempts to represent the proceeds expected to be received if the assets were sold to a market 

participant in an orderly transaction. The methodology employed for determining market risk for equity investments 

generally involves a calibration to market prices of similar securities that results in measuring equity investments at fair 

value. The adjustment for market risk for loans is intended to capture the risk of unexpected losses, but 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. 

The Department uses market observable inputs, when available, in developing cash flows and incorporating the 

adjustment required for market risk. For purposes of this disclosure, the Department has classified the various 

investments as follows, based on the observability of inputs that are significant to the measurement of the asset: 

Quoted Prices for Identical Assets: The measurement of assets in this classification is based on direct market 

quotes for the specific asset, e.g. quoted prices of common stock. 

Significant Observable Inputs: The measurement of assets in this classification is primarily derived from market 

observable data, other than a direct market quote, for the asset. This data could be market quotes for similar assets for 

the same entity. 

Significant Unobservable Inputs: The measurement of assets in this classification is primarily derived from inputs 

which generally represent management’s best estimate of how a market participant would assess the risk inherent in the 

asset. These unobservable inputs are used because there is little to no direct market activity. 
U.S. Department of the Treasury | Fiscal Year 2011

82

The table below displays the assets held as of September 30, 2011 and 2010, by the observability of inputs significant to 

the measurement of each value (in millions):

Program

Quoted 

Prices for 

Identical 

Assets

Significant 

Observable 

Inputs

Significant 

Unobservable 

Inputs

2011

Total

Capital Purchase Program $ 202 $ - $ 12,240 $ 12,442

American International Group, Inc. Investment Program 21,076 9,294 - 30,370

Automotive Industry Financing Program 10,091 - 7,747 17,838

Consumer and Business Lending Initiative, which includes 

TALF, SBA 7 (a) securities and CDCI - 126 951 1,077

Public-Private Investment Program - - 18,377 18,377

Asset Guarantee Program - 739 - 739

Total TARP Programs $ 31,369 $ 10,159 $ 39,315 $ 80,843

Note: Of the combined TARP Program totaling $80.8 billion at September 30, 2011, $739 million represented other intragovernmental assets and $80.1 billion represented assets with the public as reported on the Consolidated Balance Sheets.

Program

Quoted 

Prices for 

Identical 

Assets

Significant 

Observable 

Inputs

Significant 

Unobservable 

Inputs

2010

Total

Capital Purchase Program $ 14,899 $ - $ 33,334 $ 48,233

American International Group, Inc. Investment Program - - 26,138 26,138

Targeted Investment Program - - 1 1

Automotive Industry Financing Program - - 52,709 52,709

Consumer and Business Lending Initiative, which 

includes TALF, SBA 7 (a) securities and CDCI - - 966 966

Public-Private Investment Program - - 14,405 14,405

Asset Guarantee Program 2,240 815 - 3,055

Total TARP Programs $ 17,139 $ 815 $ 127,553 $ 145,507

Note: Of the combined TARP Program totaling $145.5 billion at September 30, 2010, $815 million represented other intragovernmentalassets and $144.7 billion represented assets with the public as reported on the Consolidated Balance Sheets.

The following provides a description of the methodology used to develop the cash flows and incorporate the market risk 

into the measurement of the Department’s assets. 

Financial Institution Equity Investments 

Financial Institution Equity Investments consist of investments made under the Capital Purchase Program, Targeted 

Investment Program and the Community Development Capital Initiative. The estimated values of preferred equity 

investments are the net present values of the expected dividend payments and repurchases. The model assumes that the 

key decisions affecting whether or not institutions pay their preferred dividends are made by each institution based on 

the strength of their balance sheet. The model assumes a probabilistic evolution of each institution’s asset-to-liability 

ratio (the asset-to-liability ratio is based on the estimated fair value of the institution’s assets against its liabilities). Each 

institution’s assets are subject to uncertain returns and institutions are assumed to manage their asset to liability ratio in 

such a way that it reverts over time to a target level. Historical volatility is used to scale the likely evolution of each 

institution’s asset-to-liability ratio. 

In the model, when equity decreases, i.e. the asset-to-liability ratio falls, institutions are increasingly likely to default, 

either because they enter bankruptcy or are closed by regulators. The probability of default is estimated based on the 

performance of a large sample of U.S. banks over the period of 1990-2010. At the other end of the spectrum, institutions 

call their preferred shares when the present value of expected future dividends exceeds the call price; this occurs when 

equity is high and interest rates are low. 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
U.S. Department of the Treasury | Fiscal Year 2011

83

comparable securities trading in the market. The market risk adjustment is obtained through a calibration process to the 

market value of certain trading securities of financial institutions within the TARP programs. The Department 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 are valued at the quoted market price as of fiscal 

year end. 

American International Group, Inc. Investment Program 

As of September 30, 2011, the Department held 960 million shares of AIG common stock. Investments in AIG common 

stock were valued at the quoted market price as of September 30, 2011. The Department also held interests in certain 

AIG SPVs. To estimate the value of the assets underlying the preferred interests in the SPVs, the Department sums the 

value of the common equity shares held by the SPVs, any cash held in escrow from previous asset sales, and the weighted 

average value of the remaining assets under different scenarios. Because the resulting value greatly exceeds the 

liquidation preference of the investments in SPVs, the SPVs were valued at the liquidation preference. 

In fiscal year 2010, the method used to measure AIG preferred shares was broadly analogous to the approach used to 

measure financial institution preferred shares. However, the size of the Departments’ holding of preferred shares relative 

to AIG’s total balance sheet made the valuation extremely sensitive to assumptions about the recovery ratio for preferred 

shares should AIG default. Also, no market prices for comparable preferred shares existed. Therefore, the Department 

based the AIG investment valuation on the observed market values of publicly traded junior subordinated debt, adjusted

for the Department’s position in the capital structure. Additionally, an external asset manager provided estimated fair 

value amounts, premised on public information, which were considered by the Department in its measurements. 

Auto Industry Financing Program Investments and Loans 

As of September 30, 2011, the Department held 500 million shares of common stock in General Motors Company (New 

GM) that were valued by multiplying the publicly traded share price by the number of shares held. 

As of September 30, 2010, the Department held a 60.8 percent stake in the common stock of New GM. As New GM 

common stock was not publicly traded as of September 30, 2010, and because the unsecured bond holders in General 

Motors Corporation (Old GM) received 10.0 percent of the common equity ownership and warrants in New GM, the 

expected recovery rate implied by the trading prices of the Old GM bonds provided the implied value of the New GM 

equity. The Department used this implied equity value to account for its common stock ownership in New GM as of 

September 30, 2010. As of September 30, 2010, investments in GM preferred shares were valued in a manner broadly 

analogous to the methodology used for financial institution equity investments. 

As of September 30, 2010, the Department held a 9.9 percent stake in the common stock of Chrysler. As Chrysler 

common stock was not publicly traded as of September 30, 2010, the Department created a pro forma balance sheet for 

post-bankruptcy Chrysler and used the estimated book value to account for its common stock ownership in Chrysler. 

As of September 30, 2010, the Department valued direct loans to GM and Chrysler using an analytical model that 

estimates the net present value of the expected principal, interest, and other scheduled payments taking into account 

potential defaults. In the event of an institution’s default, these models include estimates of recoveries, incorporating the 

effects of any collateral provided by the contract. The probability of default and losses given default are estimated by 

using historical data when available, or publicly available proxy data, including credit rating agencies historical 

performance data. The models also incorporate an adjustment for market risk to reflect the additional return on capital 

that would be required by a market participant. 
U.S. Department of the Treasury | Fiscal Year 2011

84

As of September 30, 2011 and 2010, for investments in Ally Financial’s (Ally, formerly known as GMAC, Inc.) common 

equity and mandatorily convertible preferred stock, which is valued on an “if-converted” basis, the Department used 

certain valuation multiples such as price-to-earnings, price-to-tangible book value, and asset manager valuations to 

estimate the value of the shares. The multiples were based on those of comparable publicly-traded entities. As of 

September 30, 2010, the Department estimated the value of Ally’s trust preferred equity instruments based on 

comparable publicly traded securities adjusted for factors specific to Ally, such as credit rating. The adjustment for 

market risk is incorporated in the data points the Department uses to determine the measurement for Ally as all points 

rely on market data. 

Investments in Special Purpose Vehicles 

In addition to the preferred interests in AIG SPVs discussed previously, the Department made certain investments in 

other financial instruments issued by SPVs. Generally, the Department estimates the cash flows of these SPVs and then 

applies those cash flows to the waterfall governing the priority of payments out of the SPV. 

For the loan associated with the Term Asset-Backed Securities Loan Facility (TALF), the Department model derives the 

cash flows to the SPV, and ultimately the Department, by simulating the performance of underlying collateral. Loss 

probabilities on the underlying collateral are calculated based on analysis of historical loan loss and charge-off experience 

by credit sector and subsector. Historical mean loss rates and volatilities are significantly stressed to reflect recent and 

projected performance. Simulated losses are run through cash flow models to project impairment to the TALF-eligible 

securities. Impaired securities are projected to be purchased by the SPV, which would require additional the Department 

funding. Simulation outcomes consisting of a range of loss scenarios are probability-weighted to generate the expected 

net present value of future cash flows. 

For the Public-Private Investment Program (PPIP) investments and loans made in the Public Private Investment Funds 

(PPIF), the Department model derives estimated cash flows to the SPV by simulating the performance of the collateral 

supporting the residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) held 

by the PPIF (i.e. performance of the residential and commercial mortgages). Inputs used to simulate the cash flows, 

which consider market risks, include unemployment forecasts, home price appreciation/depreciation forecasts, the 

current term structure of interest rates, historical pool performance, and estimates of the net income and value of 

commercial real estate supporting the CMBS. 

The simulated cash flows are then run through the waterfall of the RMBS/CMBS to determine the estimated cash flows to 

the SPV. Once determined, these cash flows are run through the waterfall of the PPIF to determine the expected cash 

flows to the Department through both the equity investments and loans. 

SBA 7(a) Securities 

The valuation of SBA 7(a) securities is based on the discounted estimated cash-flows of the securities. 

Asset Guarantee Program 

During fiscal year 2010, an agreement was entered into to terminate the guarantee of the Department to pay for any 

defaults on certain loans and securities held by Citibank. After the termination, the Department still held some of the 

trust preferred securities (initially received as the guarantee fee) and warrants issued by Citigroup and the potential to 

receive $800 million (liquidation preference) of additional Citigroup trust preferred securities from the FDIC (see later 

discussion of the Asset Guarantee Program (AGP)). As of September 30, 2011 and 2010, the instruments within the AGP 

were valued in a manner broadly analogous to the methodology used for financial institution equity investments. 
U.S. Department of the Treasury | Fiscal Year 2011

85

DIRECT LOAN AND EQUITY INVESTMENT PROGRAMS

Capital Purchase Program 

In October 2008, the Department began implementation of the TARP with the Capital Purchase Program (CPP), 

designed to help 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, the Department purchased 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. QFIs 

that are Sub-chapter S corporations issued subordinated debentures 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 five 

years, and 13.8 percent for the remaining years. QFIs, subject to regulatory approval, may repay the Department’s 

investment at any time. For fiscal years 2011 and 2010, repayments and sales of CPP investments totaled $30.2 billion 

and $81.5 billion, respectively. 

In addition to the senior preferred stock, the Department received warrants, as required by section 113(d) of the 

Emergency Economic Stabilization Act (EESA), from public QFIs to purchase a number of shares of common stock. The 

warrants have an aggregate exercise price equal to 15.0 percent of the total senior preferred stock investment. Prior to 

December 31, 2009, in the event a public QFI completed one or more qualified equity offerings with aggregate gross 

proceeds of not less than 100.0 percent of the senior perpetual preferred stock investment, the number of shares subject 

to the warrants was reduced by 50.0 percent. As of December 31, 2009, a total of 38 QFIs reduced the number of shares 

available under the warrants as a result of this provision. The warrants have a ten-year term. Subsequent to December 

31, 2009, the Department may exercise any warrants held in whole or in part at any time. 

The Department 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 preference equal to 5.0 percent of the total senior preferred stock (additional 

subordinate debenture) investment. These warrants were immediately exercised and resulted in the Department holding 

additional senior preferred stock (subordinated debentures) (collectively referred to as “warrant preferred stock”) of nonpublic QFIs. The Department did not receive warrants from financial institutions considered Community Development 

Financial Institutions (CDFIs). A total of seven and 35 institutions considered CDFIs were in the CPP portfolio as of 

September 30, 2011 and 2010, respectively. 

The Secretary may liquidate the warrants associated with repurchased senior preferred stock at the market price. 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. 

The task of managing the investments in CPP banks may require that the Department enter into certain agreements to 

exchange and/or convert existing investments in order to achieve the best possible return for taxpayers. 

In fiscal year 2009, the Department entered into an exchange agreement with Citigroup under which the Department 

exchanged $25.0 billion of its investment in senior preferred stock for 7.7 billion common shares of Citigroup stock, at 

$3.25 per share. In April 2010, the Department began a process of selling the Citigroup common stock. As of September 

30, 2010, the Department had sold approximately 4.0 billion for total proceeds of $16.1 billion, resulting in proceeds 

from sales in excess of cost of $3.0 billion; the Department continued to hold approximately 3.7 billion shares of 
U.S. Department of the Treasury | Fiscal Year 2011

86

Citigroup common stock with an estimated fair value of $14.3 billion, based on the September 30, 2010, closing price of 

$3.91 per share. 

During fiscal year 2011, the Department sold all of its remaining Citigroup common stock by December 2010, generating 

cash proceeds of $15.8 billion, which were in excess of cost of $3.9 billion. Total gross proceeds from Citigroup stock 

sales between April and December 2010, were $31.9 billion. Also, in January 2011, the Department sold its Citigroup 

warrants held under CPP, for a total of $55 million. 

The Department has entered into other transactions with various financial institutions including exchanging existing 

preferred shares for a like amount of non-tax deductible Trust Preferred Securities, exchanging preferred shares for 

shares of mandatorily convertible preferred securities and selling preferred shares to financial institutions that were 

acquiring the QFIs that had issued the preferred shares. Generally, the transactions are entered into with financial 

institutions in poor financial condition with a high likelihood of failure. As such, in accordance with SFFAS No. 2, these 

transactions are considered workouts and not modifications. The changes in cost associated with these transactions are 

captured in the year-end reestimates. 

During fiscal year 2011, certain financial institutions participating in CPP became eligible to exchange their TARP-held 

stock investments to preferred stock in the SBLF, a separate Department program not a part of the TARP. Because this 

refinance was not considered in the formulation estimate for the CPP program, a modification was recorded in May 2011, 

resulting in a subsidy cost reduction of $1.0 billion. 

During fiscal year 2010, certain financial institutions participating in CPP which were in good standing became eligible to 

refinance their Department-held stock investments to preferred stock under the Community Development Capital 

Initiative (CDCI) of the Consumer and Business Lending Initiative Program (CBLI). This was not considered in the 

formulation estimate for the CPP program. As a result, the Department recorded a modification subsidy cost reduction of 

$32 million in the CPP program for this option during fiscal year 2010. 

In fiscal year 2011, the Department made no write offs of CPP investments. In fiscal year 2010, as a result of the 

culmination of Chapter 11 bankruptcy proceedings, the Department wrote off its $2.3 billion investment in CIT Group 

Inc., and will not recover any amounts associated with it. In addition, during fiscal year 2011, eight institutions in which 

the Department had invested $190 million were closed by their regulators. During fiscal year 2010, four financial 

institutions in which the Department invested $396 million, either filed for bankruptcy or were closed by their regulators. 

The Department does not anticipate recovery of these investments and therefore the value of these shares is reflected at 

zero as of September 30, 2011 and 2010. The ultimate amount received, if any, from the investments in institutions that 

filed for bankruptcy and institutions closed by regulators will depend primarily on the outcome of the bankruptcy 

proceedings and of each institution’s receivership. 

American International Group, Inc. Investment Program 

The Department has provided assistance to systemically significant financial institutions on a case by case basis in order 

to help provide stability to those institutions that are critical to a functioning financial system and are at substantial risk 

of failure as well as to help prevent broader disruption to financial markets. In November 2008, the Department invested 

$40.0 billion in AIG’s cumulative Series D perpetual cumulative preferred stock with a dividend rate of 10.0 percent, 

compounded quarterly. The Department also received a warrant for the purchase of approximately 54 million shares 

(adjusted to 3 million shares after a 20:1 reverse stock split) of AIG common stock. On April 17, 2009, AIG and the 

Department restructured their November 2008 agreement. Under the restructuring, the Department exchanged $40.0 

billion of cumulative Series D preferred stock for $41.6 billion of non-cumulative 10.0 percent Series E preferred stock. 
U.S. Department of the Treasury | Fiscal Year 2011

87

Additionally, the Department agreed to make available an additional $29.8 billion capital facility to allow AIG to draw 

additional funds if needed to assist in its restructuring. 

The Department’s investment related to the capital facility consisted of Series F non-cumulative perpetual preferred stock 

with no initial liquidation preference, and a warrant for the purchase of 3,000 shares (adjusted to 150 shares after a 20:1 

reverse stock split of AIG common stock). This liquidation preference increased with any draw down by AIG on the 

facility. The dividend rate applicable to these shares was 10.0 percent, payable quarterly, if declared, on the outstanding 

liquidation preference. As of September 30, 2011 and 2010, AIG had drawn $20.3 billion and $7.5 billion from the 

capital facility, respectively, for an aggregate total of $27.8 billion drawn. According to the terms of the preferred stock, if 

AIG missed four dividend payments, the Department could 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. On April 1, 2010, the Department appointed 

two directors to the Company’s board as a result of non-payments of dividends. The additional two directors increased 

the total number of AIG directors to twelve. The two additional Department-appointed directors remained on the board 

as of September 30, 2011. 

On September 30, 2010, the Department, FRBNY and AIG announced plans for a restructuring of the U.S. Government’s 

investments in AIG. The restructuring, which occurred on January 14, 2011, converted the Department’s $27.8 billion 

investment in Series F preferred stock into $20.3 billion of interest in AIG SPVs, and 168 million shares of AIG common 

stock. The remaining $2.0 billion of undrawn Series F capital facility shares were exchanged for 20,000 shares of Series 

G Cumulative Mandatory Convertible Preferred Stock equity capital facility under which AIG had the right to draw up to 

$2.0 billion. On May 27, 2011, pursuant to the terms of the agreements governing the Series G Preferred Stock, the 

available amount of the Series G Preferred Stock was reduced to zero as a result of AIG’s primary offering of its common 

stock, and the Series G Preferred Stock was cancelled. The $40 billion investment in Series E preferred converted into 

925 million shares of AIG common stock. Additionally, the credit facility between FRBNY and AIG was terminated, and 

the Department separately (not TARP) received 563 million shares of AIG common stock from it as part of the 

restructuring transaction on behalf of the General Fund (see Note 26 for further discussion of AIG Investments held by 

the Department on behalf of the General Fund). 

At the completion of the January 14, 2011 restructuring, the Department, including TARP, held a combined total of 1.7 

billion shares of AIG common stock, or 92.1 percent. In May 2011, the Department, including TARP, sold 200 million 

shares of its AIG common stock for $5.8 billion, of which the General Fund and TARP received $2.0 billion and $3.8 

billion, respectively. In fiscal year 2011, the Department received $11.5 billion in distributions from the AIG SPVs, 

reduced its outstanding balance relating to the AIG SPVs by $11.2 billion, and received dividends of $246 million. The 

Department also capitalized dividend income of $204 million. Additionally, the Department received fees of $165 million 

from AIG. The department received no payments from AIG in fiscal year 2010. 

At September 30, 2011, the Department owned 1.5 billion shares of AIG common stock with a market value totaling 

approximately $31.9 billion, or 76.9 percent of AIG’s outstanding common stock on a fully diluted basis, of which TARP 

owned 50.8 percent. The Department also owned preferred units in an AIG SPV with an outstanding balance of $9.3 

billion. 

Targeted Investment Program 

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. The Department considered institutions as 

candidates for the TIP on a case-by-case basis, based on a number of factors including the threats posed by 
U.S. Department of the Treasury | Fiscal Year 2011

88

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. 

Under TIP, the Department invested $20 billion in Citigroup in December 2008 and $20 billion in Bank of America in 

January 2009. In December 2009, both institutions repaid the amounts invested along with dividends through the date 

of repayment. In fiscal year 2010, the Department received a total of $1.1 billion in dividends on the Bank of America and 

Citigroup investments and proceeds of $1.2 billion from the sale of Bank of America warrants. In fiscal year 2011, the 

Department sold its warrants from Citigroup under TIP for $190 million, and closed the program. 

Automotive Industry Financing Program

The Automotive Industry Financing Program (AIFP) was designed to help prevent a significant disruption of the 

American automotive industry, which could have had a negative effect on the economy of the United States. 

General Motors Company and General Motors Corporation 

In fiscal year 2009, the Department provided $49.5 billion to Old GM through various loan agreements including the 

initial loan for general and working capital purposes and the final loan for debtor in possession (DIP) financing while Old 

GM was in bankruptcy. The Department assigned its rights in these various loans (with the exception of $986 million 

which remained in Old GM for wind-down purposes and $7.1 billion that would be assumed) and previously received 

common stock warrants in a newly created entity, New GM. New GM used the assigned loans and warrants to credit bid 

for substantially all of the assets of Old GM in a sale pursuant to Section 363 of the Bankruptcy Code. During fiscal year 

2009, upon closing of the Section 363 sale, the credit bid loans and warrants were extinguished and the Department 

received $2.1 billion in 9.0 percent cumulative perpetual preferred stock and 60.8 percent of the common equity interest 

in New GM. In addition, New GM assumed $7.1 billion of the DIP loan, simultaneously paying $361 million (return of 

warranty program funds), resulting in a balance of $6.7 billion. The assets received by the Department as a result of the 

assignment and Section 363 sale are considered recoveries of the original loans for subsidy cost estimation purposes. 

During fiscal year 2010, the Department received the remaining $6.7 billion as full repayment of the DIP loan assumed. 

As of September 30, 2010, the Department also received $189 million in dividends and $343 million in interest on New 

GM preferred stock and the loan prior to repayment, respectively. At September 30, 2010, the Department held 60.8 

percent of the common stock of New GM and $2.1 billion in preferred stock. 

During fiscal year 2011, pursuant to a letter agreement, New GM repurchased its preferred stock for 102.0 percent of its 

liquidation amount, or $2.1 billion. As part of an initial public offering by New GM at fiscal year 2011, the Department 

sold approximately 412 million shares of its common stock for $13.5 billion, at an average price of $32.75 per share (net 

of fees). The sale resulted in net proceeds less than cost of $4.4 billion. At September 30, 2011, the Department held 500 

million shares of the common stock of New GM, which represents approximately 32.0 percent of the common stock of the 

New GM outstanding. The common stock price of New GM has declined $7.0 billion since its IPO. Market value of the 

shares as of September 30, 2011, was $10.1 billion. 

On March 31, 2011, the Plan of Liquidation for Old GM became effective and the Department’s $986 million loan was 

converted to an administrative claim. The Department retains the right to recover additional proceeds but recoveries are 

dependent on actual liquidation proceeds and pending litigation. The Department recovered $111 million in fiscal year 

2011 on the administrative claim. The Department does not expect to recover any significant additional proceeds from 

this claim. 
U.S. Department of the Treasury | Fiscal Year 2011

89

GMAC LLC Rights Offering 

In December 2008, the Department agreed, in principal, to lend up to $1.0 billion to Old GM for participation in a rights 

offering by GMAC LLC (now known as Ally Financial, Inc.) in support of GMAC LLC’s reorganization as a bank holding 

company. The loan was secured by the GMAC LLC common interest acquired in the rights offering. The loan was funded 

for $884 million. In May 2009, the Department exercised its exchange option under the loan and received 190,921 

membership interests, representing approximately 35.36 percent of the voting interest at that time, in GMAC LLC in full 

satisfaction of the loan. As of September 30, 2011 and 2010, the Department continued to hold the ownership interests 

obtained in this transaction (see further discussion of GMAC holdings under Ally Financial Inc. in this note). 

Chrysler Group LLC and Chrysler Holding LLC 

In fiscal year 2009, the Department invested $5.9 billion in Chrysler Holding LLC (Old Chrysler) consisting of $4.0 

billion for general and working capital purposes (the general purpose loan) and $1.9 billion in DIP financing while Old 

Chrysler was in bankruptcy. Upon entering bankruptcy, a portion of Old Chrysler was sold to a newly created entity, 

Chrysler Group LLC (New Chrysler). Under the terms of the bankruptcy agreement, $500 million of the general purpose 

loan was assumed by New Chrysler. In fiscal year 2010, the Department received $1.9 billion on the general purpose loan 

and wrote off remaining $1.6 billion. Recovery of the $1.9 billion DIP loan was subject to the liquidation of collateral 

remaining with Old Chrysler. In fiscal year 2010, as part of a liquidation plan, the Departments’ DIP loan to Old Chrysler 

was extinguished, and the Department retained a right to receive proceeds from a liquidation trust. The Department 

received $8 million and $40 million from liquidation trust during fiscal year 2011 and 2010, respectively. 

Under the terms of the bankruptcy agreement, the Department committed to make a $7.1 billion loan to New Chrysler, 

consisting of up to $6.6 billion of new funding and $500 million of assumed debt from the general purpose loan with Old 

Chrysler. The loan was secured by a first priority lien on the assets of New Chrysler. Funding of the loan was available in 

two installments or tranches (B and C), each with varying availability and terms. Tranche B provided an additional $2.0 

billion loan funded at closing. Tranche C included the $500 million assumed from the general purpose loan and 

provided $2.6 billion which was funded at closing. Interest on both Tranches was payable in-kind through December 

2009 and added to the principal balance of the respective Tranche. Interest was paid quarterly beginning March 31, 

2010. Additional in-kind interest was accrued at $17 million a quarter and added to the Tranche C loan balance subject 

to interest at the appropriate rate. In fiscal year 2010, the Department recognized $344 million of paid in-kind interest 

capitalized to these loans and received $382 million of interest. 

The Department also obtained other consideration including a 9.9 percent equity interest in New Chrysler and additional 

notes with principal balances of $284 million and $100 million. Fiat SpA (the Italian automaker), the Canadian 

government and the United Auto Workers (UAW) retiree healthcare trust were the other shareholders in New Chrysler. 

In May 2011, New Chrysler repaid both Tranche B and C principal balances of $5.1 billion, the additional notes totaling 

$384 million and all interest due. New Chrysler’s ability to draw the remaining $2.1 billion loan commitment was 

terminated. In July 2011, Fiat SpA paid the Department $560 million for its remaining interest in New Chrysler and the 

Departments’ rights under an agreement the UAW retiree healthcare trust pertaining to the trust’s shares in new 

Chrysler. 

As a result of the fiscal year 2011 transactions, the Department has no remaining interest in New Chrysler as of 

September 30, 2011. Total net proceeds received relating to these fiscal year 2011 transactions were $896 million less 

than the Departments’ cost. The Department continues to hold a right to receive proceeds from a bankruptcy liquidation 

trust but no significant cash flows are expected. 
U.S. Department of the Treasury | Fiscal Year 2011

90

Ally Financial Inc. (formerly known as GMAC Inc.) 

The Department invested a total of $16.3 billion in GMAC Inc. between December 2008 and December 2009 to help 

support its ability to originate new loans to GM and Chrysler dealers and consumers, and to help address GMAC’s capital 

needs. In May 2010, GMAC changed its corporate name to Ally Financial, Inc. (Ally). As a result of original investments, 

exchanges, conversions and warrant exercises, at September 30, 2010, the Department held 450,121 shares of Ally 

common stock (representing 56.3 percent of the company’s outstanding common stock including ownership interest from 

the GMAC LLC Rights Offering previously discussed), 3 million shares of 8.0 percent cumulative Trust Preferred 

Securities (TRuPS) with a $1,000 per share liquidation preference and 229 million shares of Ally Series F-2 Mandatorily 

Convertible Preferred Securities. The Series F-2, with a $50 per share liquidation preference and a stated dividend rate 

of 9.0 percent, is convertible into Ally common stock at Ally’s option subject to the approval of the FRB and consent by 

the Department or pursuant to an order by the FRB compelling such conversion. The Series F-2 security is also 

convertible at the option of the Department upon certain specified corporate events. Absent an optional conversion, any 

Series F-2 remaining will automatically convert to common stock after seven years from the issuance date. The 

applicable conversion rate is the greater of the (i) initial conversion rate (0.00432) or (ii) adjusted conversion rate (i.e. 

the liquidation amount per share of the Series F-2 divided by the weighted average price at which the shares of common 

equity securities were sold or the price implied by the conversion of securities into common equity securities, subject to 

anti-dilution provisions). 

In December 2010, 110 million shares of the Series F-2 preferred stock were converted into 531,850 shares of Ally 

common stock, resulting in the Department holdings of Series F-2 preferred decreasing to 119 million shares, and the 

Department holdings in common stock of Ally increasing to 981,971 shares, representing 73.8 percent of Ally’s

outstanding common stock. 

During fiscal year 2011, the agreement between Ally and the Department regarding its TRuPS was amended to facilitate 

the Department’s sale of its TRuPS on the open market. Because this amendment to agreement terms was not considered 

in the formulation subsidy cost estimate for the AIFP program, the Department recorded a modification resulting in a 

subsidy cost reduction of $174 million. 

In March 2011, the Department sold its TRuPS for its cost of $2.7 billion, resulting in proceeds in excess of cost of $127 

million. On March 31, 2011, the Department announced that it had agreed to be named as a selling shareholder of 

common stock in Ally’s registration statement filed with the Securities and Exchange Commission (SEC) for a proposed 

initial public offering. Since March 31, 2011, Ally has filed four amendments in response to SEC comments; there has 

been no public offering. 

At September 30, 2011, the Department held 981,971 shares of common stock (73.84 percent of Ally’s outstanding 

common stock) and 119 million shares of the Series F-2 preferred securities. The Series F-2 are convertible into at least 

513,000 shares of common stock, which if combined with the common stock currently owned, would represent 81.0

percent ownership of Ally common stock by the Department. In fiscal year 2011 and 2010, the Department received $839 

million and $1.2 billion in dividends from Ally. 

Consumer and Business Lending Initiative 

The Consumer and Business Lending Initiative (CBLI) was intended to help unlock the flow of credit to consumers and 

small businesses. Three programs were established to help accomplish this: the Term Asset-Backed Securities Loan 

Facility (TALF); the Small Business Administration (SBA) 7(a) Securities Purchase Program and the Community 

Development Capital Initiative (CDCI). Each program is discussed in more detail below. 
U.S. Department of the Treasury | Fiscal Year 2011

91

Term Asset-Backed Securities Loan Facility 

The TALF was created to help jump start the market for securitized consumer and small business loans. The program 

was established by the Federal Reserve Board to provide low-cost funding to investors in certain classes of Asset Backed 

Securities (ABS). The Department 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 

purchasers of certain AAA rated ABS secured by consumer and commercial loans and commercial mortgage backed 

securities (CMBS). 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 fixed or variable interest. The program ceased issuing new 

loans on June 30, 2010. As of September 30, 2011 and 2010 approximately $11.3 billion and $29.7 billion of loans due to 

the FRBNY remained outstanding. 

As part of the program, the FRBNY has created the TALF, LLC, a SPV that agreed to purchase from the FRBNY any 

collateral it has seized due to borrower default. The TALF, LLC would fund purchases from the accumulation of monthly 

fees paid by the FRBNY as compensation for the agreement. Only if the TALF, LLC had insufficient funds to purchase the 

collateral, did the Department commit to invest up to $20.0 billion in non-recourse subordinated notes issued by the 

TALF, LLC. In July 2010, the Department’s commitment was reduced to $4.3 billion. The Department disbursed $100 

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. The subordinated notes bear interest at 1-Month LIBOR plus 3.0 percent, and mature 

ten years from the closing date, subject to extension. Any amounts needed in excess of the Department commitment and 

the fees would be provided through a loan from the FRBNY. Upon wind-down of the TALF, LLC (collateral defaults, 

reaches final maturity or is sold), the available cash will be disbursed according to a payment priority. 

The TALF, LLC is owned, controlled and consolidated by the FRBNY. The credit agreement between the Department and 

the TALF, LLC provides the Department with certain rights consistent with a creditor but does 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 

Department financial statements. As of September 30, 2011 and 2010, no TALF loans were in default and consequently 

no collateral was purchased by the TALF, LLC. 

SBA 7(a) Security Purchase Program 

In March 2010, the Department began purchasing securities backed by SBA 7(a) loans (7(a) Securities as part of the 

Unlocking Credit for Small Business Initiative. The program was created to provide additional liquidity to the market so 

that banks are able to make more small business loans. As of September 30, 2010, the Department had entered into 

trades to purchase $356 million of these securities (excluding purchased accrued interest), of which $241 million had 

been disbursed. Investments totaled $367 million (excluding purchased accrued interest) by December 2010, when the 

Department’s disbursements under the program were completed. In May 2011, the Department began selling its 

securities to bond market investors. During fiscal year 2011, the Department received $11 million in interest and $236 

million in principal payments on the securities including returns from sales to other investors. During fiscal year 2010, 

the Department received $1 million in interest and $3 million in principal payments on these securities. As of September 

30, 2011, the Department held $128 million of SBA 7(a) securities. 

Community Development Capital Initiative 

In February 2010, the CDCI was created to provide additional low cost capital in Community Development Financial 

Institutions (CDFIs) to encourage more lending to small businesses. Under the terms of the program, the Department 
U.S. Department of the Treasury | Fiscal Year 2011

92

purchased senior preferred stock (or subordinated debt) from eligible CDFIs with an initial dividend rate of 2.0 percent 

that will increase to 9.0 percent after eight years. 

CDFIs participating in the CPP, subject to certain criteria, were eligible to exchange, through September 30, 2010, their 

CPP preferred shares (subordinated debt) then held by the Department for CDCI preferred shares (subordinated debt). 

These exchanges were treated as disbursements from CDCI and repayments to CPP. As of September 30, 2010, the 

Department had invested a cumulative $570 million ($363 million as a result of exchanges from CPP) in 84 institutions 

under the CDCI. No additional disbursements were made in fiscal year 2011. No repayments were received in fiscal years 

2011 or 2010. During fiscal year 2011, the Department received $11 million in dividends and interest from its CDCI 

investments. 

Public-Private Investment Program 

PPIP is part of the Department’s efforts to help restart the financial securities market and provide liquidity for legacy 

assets. Under this program, the Department (as a limited partner) made equity investments in and loans to nine 

investment vehicles (referred to as Public Private Investment Funds or “PPIFs”) established by private investment 

managers between September and December 2009. The equity investment was used to match private capital and 

equaled approximately 50.0 percent of the total equity invested. Each loan equaled 100.0 percent of total partnership 

equity. The loans bear interest at 1-Month LIBOR, plus 1.0 percent, payable monthly. The maturity date of each loan is 

the earlier of ten years or the termination of the PPIF. The loan can be prepaid without penalty. Each PPIF terminates in 

eight years from its commencement. The governing documents of the funds allow for two one-year extensions, subject to 

approval of the Department. The loan agreements also require cash flows from purchased securities received by the 

PPIFs to be distributed in accordance with a priority of payments schedule (waterfall) designed to help protect the 

interests of secured parties. 

The loans are subject to certain financial covenants. As a condition of investment, the Department also received a 

warrant from the PPIFs entitling the Department to 2.5 percent of investment proceeds (excluding those from temporary 

investments) otherwise allocable to the non-Department partners after the PPIFs return of 100.0 percent of the nonDepartment partner’s capital contributions. Distributions relating to the warrants would occur generally upon the final 

distribution of each partnership. Additionally, the PPIFs pay a management fee to the fund manager from the 

Department’s share of investment proceeds. 

The PPIFs invest primarily in commercial MBS and non-agency residential MBS (CMBS and RMBS, respectively) issued 

prior to January 1, 2009. The PPIFs may invest in the aforementioned securities for a period of three years using 

proceeds from capital contribution, loans and amounts generated by previously purchased investments (subject to the 

requirements of the waterfall). 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 90.0 percent of the assets underlying 

any eligible asset must be situated in the United States. 

During fiscal year 2011, the Department disbursed $1.1 billion as equity investment and $2.3 billion as loans to PPIFs, as 

compared to $4.9 billion of equity investments and $9.2 billion as loans in fiscal year 2010. During fiscal years 2011 and 

2010, the Department received $123 million and $56 million in interest on loans, respectively. In addition, the 

Department received $868 million and $72 million in loan principal repayments in fiscal years 2011 and 2010, 

respectively. Also, during fiscal year 2011, the Department received $735 million in equity distributions, comprised of 

$306 million of dividend income, $91 million of proceeds in excess of cost, and a $338 million reduction of the gross 

investment outstanding. At September 30, 2011, the Department had equity investment in PPIFs outstanding of $5.5 
U.S. Department of the Treasury | Fiscal Year 2011

93

billion and loans outstanding of $10.4 billion for a total of $15.9 billion. At September 30, 2010, the Department had 

equity investment in PPIFs outstanding of $4.8 billion and loans outstanding of $8.9 billion for a total of $13.7 billion. 

On January 4, 2010, the Department entered into a Winding-up and Liquidation Agreement with one of the PPIFs. Prior 

to the signing of the agreement, the Department had invested $356 million ($156 million equity investment and $200 

million loan) in the fund. Upon final liquidation, the Department received $377 million representing return of the 

original investment, interest on the loan and return on the equity investment and warrant. As of September 30, 2011, the 

Department had legal commitments to disburse up to $4.3 billion for additional investments and loans to the eight 

remaining PPIFs. 

OTHER CREDIT PROGRAMS

Asset Guarantee Program 

The AGP provided guarantees for assets held by systemically significant financial institutions that faced a risk of losing 

market confidence due in large part to a portfolio of distressed or illiquid assets. Section 102 of the EESA required the 

Secretary to establish 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 (TAIFF). In accordance with 

Section 102(c) and (d) of the EESA, premiums from financial institutions are collected and all fees are recorded by the 

Department 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 January 2009, the Department finalized the terms of a guarantee agreement with Citigroup. Under the agreement, the 

Department, the Federal Deposit Insurance Corporation (FDIC), and the FRBNY (collectively the USG Parties) provided 

protection against the possibility of large losses on an asset pool of approximately $301.0 billion of loans and securities 

backed by residential and commercial real estate and other such assets, which remained on Citigroup’s balance sheet. 

The Department’s guarantee was limited to $5.0 billion. 

As a premium for the guarantee, Citigroup issued $7.0 billion of cumulative perpetual preferred stock (subsequently 

converted to Trust Preferred Securities with similar terms) with an 8.0 percent stated dividend rate and a warrant for the 

purchase of common stock; $4.0 billion and the warrant were issued to the Department, and $3.0 billion was issued to 

the FDIC. The Department received $15 million and $265 million during the fiscal years ended September 30, 2011 and 

2010, respectively, in dividends on the preferred stock received as compensation for this arrangement. These dividends 

have been deposited into the TAIFF. The Department had also invested in Citigroup through CPP and the TIP. 

In December 2009, the USG Parties and Citigroup agreed to terminate the guarantee agreement. Under the terms of the 

termination agreement, the Department cancelled $1.8 billion of the preferred stock previously issued to the Department. 

In addition, the FDIC agreed to transfer to the Department $800 million of its trust preferred stock holding plus 

dividends. The amount the Department will receive would be reduced by any losses FDIC incurs on its Citigroup 

guaranteed debt. The additional preferred shares from the FDIC are included in the subsidy calculation for AGP, based 

on the net present value of expected future cash inflows. Termination of the agreement was not considered in the 

formulation estimates of the guarantee and therefore a modification that resulted in a subsidy cost reduction of $1.4 

billion was recorded in fiscal year 2010. On September 29, 2010, the Department exchanged its existing Trust Preferred 

Securities for securities containing market terms to facilitate a sale. On September 30, 2010, the Department agreed to 

sell its Trust Preferred Securities for $2.2 billion. The Trust Preferred Securities are valued at the sales price as reflected 

in the 2010 consolidated financial statements. The sale settled on October 5, 2010, and additional warrants were sold in 

January 2011 for $67 million, leaving only the $800 million of trust preferred stock related receivable from the FDIC 
U.S. Department of the Treasury | Fiscal Year 2011

94

valued at $739 million on the Department’s Balance Sheet at September 30, 2011. This receivable was valued at $815 

million as of September 30, 2010. 

FHA-Refinance Program 

At the end of fiscal year 2010, the Department entered into a loss-sharing agreement with the FHA to support a program 

in which FHA guarantees refinancing of borrowers whose homes are worth less than the remaining amounts owed under 

their mortgage loans. No loans were re-financed in fiscal year 2010. In fiscal year 2011, the Department established a 

$50 million account, held by a commercial bank as its agent, from which any required reimbursements for losses will be 

paid. At September 30, 2011, 334 loans that had guaranteed, with a total value of $73 million, had been refinanced under 

the program. The Department’s maximum exposure related to FHA’s guarantee totaled $6 million. After considering 

FHA’s estimated default rates, this resulted in the Department incurring a $1 million liability. The liability has been 

calculated, using credit reform accounting, as the present value of the future cash outflows for the Departments’ share of 

losses incurred on any defaults of the disbursed loans. However, losses to the Department cannot exceed 1.26 percent of 

the total loans guaranteed by FHA at September 30, 2011. 

Subsidy Cost

During fiscal year 2011, modifications occurred in the AIFP (see Ally Financial Inc.) and CPP. During fiscal year 2010, 

modifications occurred within AIFP, CPP, and the AGP. See detailed discussion related to each program and related 

modifications above. Modification cost reductions for the fiscal years ended September 30, 2011 and 2010, totaled $1.2 

billion and $48 million, respectively. 

Changes in subsidy cost due to reestimates from year to year are mainly due to changes in market conditions and actual 

portfolio data. Net downward reestimates for the fiscal years ended September 30, 2011 and 2010, totaled $11.6 billion 

and $30.2 billion, respectively. 

During fiscal year 2011 there were significant AIG disbursements which impacted the subsidy cost. The AIG Investment 

Program had a net increase in subsidy cost from disbursements and reestimates of $1.6 billion from an $18.5 billion 

downward reestimate primarily due to subsidy cost estimates recorded for $20.3 billion for new disbursements during 

the fiscal year. Under budget rules, the subsidy cost estimate for these new disbursements was determined based upon 

subsidy rates formulated in April 2009, the period in which the Department originally agreed to make the funding 

available to AIG. At that time, the Department calculated a subsidy rate of 98.98 percent, which resulted in an estimated 

subsidy cost of $20.1 billion associated with the $ 20.3 billion disbursed in fical year 2011. The Department calculated an 

$18.5 billion downward reestimate relating to these fiscal year disbursements that reflects improvements in AIG’s 

financial condition since the original subsidy rate was formulated and the restructuring of the AIG investment to 

common stock offset by AIG’s financial condition at September 30, 2011.

SUMMARY TABLES

The following tables provide the net composition, subsidy cost, modifications and reestimates, a reconciliation of subsidy 

cost allowances, budget subsidy rates, and subsidy by component for each TARP direct loan, equity investment or other 

credit programs for the fiscal years ended September 30, 2011 and 2010. There were no budget subsidy rates for fiscal 

year 2011, except for the FHA- Refinance Program, and all disbursements were from loans or investments obligated in 

prior years. 
U.S. Department of the Treasury | Fiscal Year 2011

95

Troubled Asset Relief Program Direct Loans and Equity Investments 

As of September 30, 2011 (in millions) CPP AIG TIP AIFP CBLI PPIP

2011

TOTAL

Direct Loans and Equity Investment Programs:

Direct Loans and Equity Investment Outstanding, Gross $ 17,299 $ 51,087 $ - $ 37,278 $ 798 $ 15,943 $ 122,405

Subsidy Cost Allowance (4,857) (20,717) - (19,440) 279 2,434 (42,301)

Direct Loans and Equity Investments

Outstanding, Net $ 12,442 $ 30,370 $ - $ 17,838 $ 1,077 $ 18,377 $ 80,104

New Loans or Investments Disbursed $ - $ 20,292 $ - $ - $ 126 $ 3,421 $ 23,839

Obligations for Loans and Investments Not Yet

Disbursed $ - $ - $ - $ - $ 4,200 $ 4,279 $ 8,479

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ 1,546 $ 21,405 $ (1) $ 14,529 $ (58) $ (676) $ 36,745

 Subsidy Cost for Disbursements and Modifications (1,010) 20,085 - (174) 1 (15) 18,887

 Interest and Dividend Revenue 1,283 450 - 1,280 20 428 3,461

 Fee Income - 165 - - - - 165

 Net Proceeds from Sales and Repurchases of Assets 

in Excess of (Less than) Cost 4,540 (1,918) 190 (5,165) - 91 (2,262)

 Net Interest Income (Expense) on Borrowings from

BPD and Financing Account Balance (686) (938) 3 (945) (32) (418) (3,016)

Balance, End of Period, Before Reestimates 5,673 39,249 192 9,525 (69) (590) 53,980

Subsidy Reestimates (816) (18,532) (192) 9,915 (210) (1,844) (11,679)

Balance, End of Period $ 4,857 $ 20,717 $ - $ 19,440 $ (279) $ (2,434) $ 42,301

Reconciliation of Subsidy Cost:

 Subsidy Cost for Disbursements $ - $ 20,085 $ - $ - $ 1 $ (15) $ 20,071

 Subsidy Cost for Modifications (1,010) - - (174) - - (1,184)

 Subsidy Reestimates (816) (18,532) (192) 9,915 (210) (1,844) (11,679)

Total Direct Loans and Equity Investment

Programs Subsidy Cost (Income) $ (1,826) $ 1,553 $ (192) $ 9,741 $ (209) $ (1,859) $ 7,208

Note: There are no budget execution rates for fiscal year 2011; since the TARP authority expired October 3, 2010, with no additional commitments made after 

September 30, 2010.

Troubled Asset Relief Program Direct Loans and Equity Investments 

As of September 30, 2010 (in millions) CPP AIG TIP AIFP CBLI PPIP

2010

TOTAL

Direct Loans and Equity Investment Programs:

Direct Loans and Equity Investment Outstanding, 

Gross $ 49,779 $ 47,543 $ - $ 67,238 $ 908 $ 13,729 $ 179,197

Subsidy Cost Allowance (1,546) (21,405) 1 (14,529) 58 676 (36,745)

Direct Loans and Equity Investments

Outstanding, Net $ 48,233 $ 26,138 $ 1 $ 52,709 $ 966 $ 14,405 $ 142,452

New Loans or Investments Disbursed $ 277 $ 4,338 $ - $ 3,790 $ 811 $ 14,157 $ 23,373

Obligations for Loans and Investments Not Yet 

Disbursed $ - $ 22,292 $ - $ 2,066 $ 4,339 $ 8,250 $ 36,947

Reconciliation of Subsidy Cost Allowance:

Balance, Beginning of Period $ (7,770) $ 30,054 $ (341) $ 31,478 $ (344) $ - $ 53,077

 Subsidy Cost for Disbursements and Modifications (16) 4,293 - 2,644 275 337 7,533

 Interest and Dividend Revenue 3,131 - 1,143 2,475 - 228 6,977

 Net Proceeds from Sales and Repurchases of Assets in

Excess of cost 6,676 - 1,237 99 - 1 8,013

 Net Interest Income (Expense) on Borrowings from 

BPD (2,018) (981) (161) (1,309) (20) (201) (4,690)

 Write-offs (2,334) - - (1,600) - - (3,934)

Balance, End of Period, Before Reestimates - (2,331) - 33,366 - 1,878 - 33,787 - (89) - 365 66,976

Subsidy Reestimates 3,877 (11,961) (1,879) (19,258) 31 (1,041) (30,231)

Balance, End of Period $ 1,546 $ 21,405 $ (1) $ 14,529 $ (58) $ (676) $ 36,745

Reconciliation of Subsidy Cost:

 Subsidy Cost for Disbursements $ 16 $ 4,293 $ - $ 1,146 $ 275 $ 337 $ 6,067

 Subsidy Cost for Modifications (32) - - 1,498 - - 1,466

 Subsidy Reestimates 3,877 (11,961) (1,879) (19,258) 31 (1,041) (30,231)

Total Direct Loans and Equity Investment

Programs Subsidy Cost (Income) $ 3,861 $ (7,668) $ (1,879) $ (16,614) $ 306 $ (704) $ (22,698)
U.S. Department of the Treasury | Fiscal Year 2011

96

Troubled Asset Relief Program Loans, Equity Investments, and Asset Guarantee Program 

Budget Subsidy Rates

As of September 30, 2010 AGP CPP AIG TIP AIFP CBLI PPIP

Budget Subsidy Rates, Excluding

Modifications and Reestimates

(a):

 Interest Differential (25.62%) 37.70% 30.39% 11.72%

 Defaults 16.36% 13.78% 3.93% -%

 Fees and Other Collections (3.00%) (0.38%) - (0.41%)

Other 18.03% (20.85%) (0.41%) (10.34%)

Total Budget Subsidy Rate N/A 5.77% N/A N/A 30.25% 33.91% 0.97%

Subsidy Cost (Income) by

Component (in millions):

 Interest Differential $ (71) $ 1,415 1,429 $ 246 $ 1,880

 Defaults 45 2,907 522 32 -

 Fees and Other Collections (8) - (15) - (55)

 Other 50 (29) (790) (3) (1,488)

Total Subsidy Cost, Excluding

Modifications and Reestimates N/A $ 16 $ 4,293 N/A 1,146 $ 275 $ 337

(a)

 The rates reflected in the table above are fiscal year 2010 budget execution rates by program. The subsidy rates disclosed pertain only to the 

cohorts for fiscal year 2010. These rates cannot be applied to the direct loans disbursed during fiscal year 2010 to yield the subsidy cost (income). 

The subsidy cost (income) for new loans reported during fiscal year 2010 could result from disbursements of loans from both 2010 cohorts and 

prior year cohorts. The subsidy cost (income) reported in fiscal year 2010 also includes modifications and reestimates. Therefore, the Total 

Subsidy Cost, Excluding Modifications and Reestimates will not equal the New Loans or Investments Disbursed multiplied by the Budget Subsidy 

Rate.

Troubled Asset Relief Program Asset Guarantee Program

As of September 30, 2011 and 2010

(In Millions)

2011 2010

Asset Guarantee Program:

 Intra-governmental Portion (a) $ 739 $ 815

 Portion held by the Department, net - 2,240

Total Asset Guarantee Program $ 739 $ 3,055

Reconciliation of Asset Guarantee Program:

Balance, Beginning of Period $ (3,055) $ (1,765)

 Subsidy Income for Disbursements and Modifications - (1,418)

 Dividend Revenue 15 265

 Net Proceeds from Sale of Assets in Excess of cost 2,301 -

 Net Interest Income on Borrowings (30) (50)

Balance, End of Period, Before Reestimate (769) (2,968)

 Subsidy Reestimate 30 (87)

Balance, End of Period $ (739) $ (3,055)

Reconciliation of Subsidy Cost (Income):

 Subsidy Income for Modifications $ - $ (1,418)

 Subsidy Reestimates 30 (87)

Total Asset Guarantee Program Subsidy Cost (Income) $ 30 $ (1,505)

(a) At September 30, 2010, the net present value of the future cash flows for the Asset Guarantee Program consisted of (i) $800 million of Citigroup 

trust preferred securities, plus dividends thereon, that the FDIC agreed to transfer to OFS contingent on Citigroup repaying previously issued FDIC 

guaranteed debt and (ii) additional Citigroup trust preferred securities valued at $2,240, for a total of $3,055. At September 30, 2011, only the 

contingent payment from the FDIC remained outstanding. The other securities were sold during fiscal year 2011.
U.S. Department of the Treasury | Fiscal Year 2011

97

Housing Programs Under TARP 

The following housing programs under TARP provide stability for both housing markets and homeowners. These 

programs assist homeowners who are experiencing financial hardships to remain in their homes until their financial 

position improves or relocated to a more sustainable living situation. These programs fall within three initiatives: 

1. Making Home Affordable Program (MHA);

2. HFA Hardest-Hit Fund, and 

3. Federal Housing Administration (FHA)-Refinance Program. 

The MHA includes various programs, one of which is the Home Affordable Modification Program (HAMP) first lien 

modification program that provides for one-time, monthly and annual incentives to servicers, borrowers, and investors 

who participate in the program, whereby the investor and Department share the costs of modifying qualified first liens. 

Another program, the FHA-HAMP, provides the same incentives as HAMP for FHA guaranteed loans. The Second Lien 

Program (2MP) provides additional incentives to servicers to extinguish second liens on first lien loans modified under 

HAMP. The Department/FHA Second Lien Program (FHA 2LP) provides for incentives to servicers for extinguishment 

of second liens for borrowers who refinance their first lien mortgages under the FHA-Refinance Program. The Rural 

Development (RD-HAMP) Program provides HAMP incentives for USDA guaranteed mortgages. The Home Price 

Decline Protection Program (HPDP) provides incentives to investors to partially offset losses from home price declines. 

In fiscal year 2010, additional programs were introduced under HAMP to complement the first lien modification 

program and HPDP. The Principal Reduction Alternative Waterfall Program (PRA) offers mortgage relief to eligible 

homeowners whose homes are worth significantly less than the remaining amounts outstanding under their first-lien 

mortgage. The Unemployment Program (UP) offers assistance to unemployed homeowners through temporary 

forbearance of a portion of their mortgage payments. The UP will not have a financial impact on the Department because 

no incentives are paid by the Department. Finally, the Home Affordable Foreclosure Alternatives Program (HAFA) is 

designed to assist eligible borrowers unable to retain their homes through a HAMP modification by simplifying and 

streamlining the short sale and deeds in lieu of foreclosure processes and providing incentives to borrowers, servicers and 

investors to pursue short sales and deeds in lieu. 

All MHA disbursements 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. Servicers have 

until December 31, 2012 to enter into mortgage modifications with borrowers. Included in administrative costs are fees 

paid to Fannie Mae and Freddie Mac. Fannie Mae provides direct programmatic support as a third party agent on behalf 

of the Department. Freddie Mac provides compliance oversight of services as a third party agent on behalf of the 

Department, and the servicers work directly with the borrowers to modify and service the borrowers’ loans. 

Implemented in fiscal year 2010, the HFA Hardest-Hit Fund provides targeted aid to families in the states hit hardest by 

the housing market downturn and unemployment. Approved states meeting the criteria for this program develop and 

roll out their own programs with timing and types of programs offered targeted to address the specific needs and 

economic conditions of their state. States have until December 31, 2017 to enter into agreements with borrowers. 

The FHA-Refinance Program is a joint initiative with the HUD which is intended to encourage refinancing of existing 

underwater (i.e. the borrower owes more than the home is worth) mortgage loans not currently insured by FHA into 

FHA-insured mortgages. HUD will pay a portion of the amount refinanced to the investor and the Department will pay 

incentives to encourage the extinguishment of second liens associated with the refinanced mortgages The Department 

established a letter of credit that obligated the Department portion of any claims associated with the FHA-guaranteed 

mortgages. The OMB determined that for budgetary purposes, the FHA-Refinance Program cost is calculated under the 
U.S. Department of the Treasury | Fiscal Year 2011

98

FCRA; therefore the liability is calculated at the net present value of estimated future cash flows. Homeowners can 

refinance into FHA-guaranteed mortgages through December 31, 2012 and the Department will honor its share of claims 

against the letter of credit through 2020. The Department was required to deposit $50 million with a commercial bank 

as its agent to administer payment of claims under the program. As of September 30, 2011, 334 loans had been 

refinanced and no claim payments have been made to date under this program. As of September 30, 2010, no loans had 

been refinanced under this program as the joint initiative was entered into late in the fiscal year. The FHA-Refinance 

Program is accounted for under the FCRA as discussed above. 

As of September 30, 2011, and 2010, the Department had committed up to $45.6 billion, respectively, for these programs. 

For fiscal year 2011 and 2010, payments made from the Housing Programs Under TARP totaled $1.9 billion and $543 

million, respectively. 

8. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES

Fannie Mae and Freddie Mac are stockholder-owned GSEs. Congress established these GSEs to support the supply of 

mortgage loans. A key function is to package purchased mortgages into securities, which are subsequently sold to 

investors. 

In the lead up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and 

profitability of the GSEs, thereby undermining the entire housing market. This led Congress to pass the Housing and 

Economic Recovery Act (HERA) (P.L. 110-289). This Act created the new FHFA, with enhanced regulatory authority over 

the GSEs, and provided the Secretary with certain authorities intended to ensure the financial stability of the GSEs, if 

necessary. On September 7, 2008, FHFA placed the GSEs under conservatorship and the Department entered into a 

Senior Preferred Stock Purchase Agreement (SPSPA) with each GSE. These actions were taken to preserve the GSEs’ 

assets, ensure a sound and solvent financial condition, and mitigate systemic risks that contributed to current market 

instability. 

The actions taken by the Department thus far are temporary, as defined by section 1117 of HERA, and are intended to 

provide financial stability. The purpose of the Department’s actions is to maintain the solvency of the GSEs so they can 

continue to fulfill their vital roles in the home mortgage market while the Administration and Congress determine what 

structural changes should be made. The FHFA director may terminate the conservatorship if safe and solvent conditions 

can be established. Draws under the SPSPAs are designed to ensure that the GSEs maintain positive net worth as a result 

of any net losses from operations, and also meet taxpayer dividend requirements under the SPSPAs. While this 

arrangement is somewhat circular in the event that dividends exceed net income and draws are made to fund dividends, 

the SPSPAs were structured to ensure any draws result in an increased nominal investment as further discussed below. 

Under the SPSPAs, the Department initially received from each GSE: (i) 1,000,000 shares of non-voting variable 

liquidation preference senior preferred stock with a liquidation preference value of $1,000 per share, and (ii) a nontransferrable 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 10.0 percent per year, payable 

quarterly. This rate will increase to 12.0 percent if, in any quarter, the dividends are not paid in cash, until all accrued 

dividends have been paid. Dividends of $15.6 billion and $12.1 billion were received during fiscal years ended September 

30, 2011 and 2010, respectively. In addition, beginning March 31, 2011, the GSEs were scheduled to begin paying the 

Department a “Periodic Commitment Fee” (PCF) on a quarterly basis, payable in cash or via an increase to the liquidation 

preference. The PCF was to be initially established by the Department on December 31, 2010, based on mutual 

agreement between the Department and each GSE, in consultation with the Chairman of the Federal Reserve Board, and 

then subsequently re-established every five years thereafter. This fee may be waived by the Department for up to one 
U.S. Department of the Treasury | Fiscal Year 2011

99

year at a time, if warranted by adverse mortgage market conditions. The Department waived the PCF payments for the 

calendar year 2011 given that the imposition of the PCF at that time would not fulfill its intended purpose of generating 

increased compensation to the American taxpayer. 

The SPSPAs, which have no expiration date, provide for the Department to disburse funds to the GSEs if, at the end of 

any quarter, the FHFA determines that the liabilities of either GSE exceed its assets. The maximum amount available to 

each GSE under this agreement was originally $100.0 billion and, in May 2009, the maximum amount was raised to 

$200.0 billion. In December 2009, the Department amended the SPSPAs to replace the $200.0 billion per GSE funding 

commitment cap with a formulaic cap that will allow continued draws for three years at amounts that will automatically 

adjust upwards quarterly by the cumulative amount of any losses realized by either GSE and downward by the cumulative 

amount of any gains, but not below $200.0 billion, and will become fixed at the end of the three years. At the conclusion 

of the three-year period ending December 2012, the remaining commitment will then be fully available to be drawn per 

the terms of the agreements (referred to hereafter as the “Adjusted Caps”). Draws against the funding commitment of the 

SPSPAs do not result in the issuance of additional shares of senior preferred stock; instead, the liquidation preference of 

the initial 1,000,000 shares is increased by the amount of the draw. 

Actual payments to the GSEs for fiscal years ended September 30, 2011 and 2010 were $20.8 billion and $52.6 billion, 

respectively. Additionally, $316.2 billion and $359.9 billion were accrued as a contingent liability as of September 30, 

2011 and 2010, respectively. This accrued contingent liability is based on the projected draws under the SPSPAs. It is 

undiscounted and does not take into account any of the offsetting dividends which may be received as a result of those 

draws. 

ACCOUNTING TREATMENT

Entity Transactions ― The estimated contingent liability to the GSEs accrued pursuant to the SPSPAs is funded 

through the Department’s direct appropriations. Therefore, they are reflected at their gross amount as “entity” costs on 

the Department’s Consolidated Statements of Net Cost and in the line item, “Cumulative Results of Operations” on the 

Department’s Consolidated Balance Sheets, without considering the increase in senior preferred stock liquidation 

preference/fair value adjustments, future dividend receipts from the GSEs, or any future PCFs. 

Non-Entity Transactions ― As actual payments are made to the GSEs, they result in increases to the U.S. 

Government’s liquidation preference in the GSEs’ preferred stock, and thus represent General Fund exchange revenue 

reported on the Department’s Consolidated Statements of Net Cost as “Net GSEs Non-Entity Revenue.” The associated 

valuation losses and dividends are General Fund-related costs and revenues that are likewise reported as “Net GSEs NonEntity Revenue.”

From a government-wide perspective, the Department’s entity expense for the accrued contingent liability under the 

SPSPAs may, over time, be somewhat mitigated by the General Fund’s exchange revenues recognized when actual draw 

payments are made to the GSEs. 
U.S. Department of the Treasury | Fiscal Year 2011

100 

INVESTMENTS IN GSES

As of September 30, 2011 and 2010, the Department’s investments in the GSEs consisted of the following (in millions): 

GSEs Investments

Gross

Investments

As of 9/30/11

Cumulative

Valuation

Loss

9/30/11

Fair Value

Fannie Mae Senior Preferred Stock $ 104,627 $ (26,718) $ 77,909

Freddie Mac Senior Preferred Stock 66,004 (12,380) 53,624

Fannie Mae Warrants Common Stock 3,104 (2,137) 967

Freddie Mac Warrants Common Stock 2,264 (1,721) 543

Total GSEs Investments $ 175,999 $ (42,956) $ 133,043

GSEs Investments

Gross

Investments

As of 9/30/10

Cumulative

Valuation

Loss

9/30/10

Fair Value

Fannie Mae Senior Preferred Stock $ 85,941 $ (29,450) $ 56,491

Freddie Mac Senior Preferred Stock 63,924 (12,759) 51,165

Fannie Mae Warrants Common Stock 3,104 (2,097) 1,007

Freddie Mac Warrants Common Stock 2,264 (1,711) 553

Total GSEs Investments $ 155,233 $ (46,017) $ 109,216

SENIOR PREFERRED STOCK AND WARRANTS FOR COMMON STOCK

In performing the calculations for the valuations of the senior preferred stock and warrants for common stock, the 

Department relied on the GSEs’ public filings and press releases concerning its financial statements, projection forecasts, 

monthly summaries, quarterly credit supplements, independent research regarding high-yield bond and preferred stock 

trading, independent research regarding the GSEs’ common stock trading, interviews with the GSE’s management, and 

other information pertinent to the valuations. Because of the nature of the instruments, which are not publicly traded 

and for which there is no comparable trading information available, the valuation relies on significant unobservable 

inputs that reflect assumptions about the expectations that market participants would use in pricing. 

A complicating issue for the valuation of the senior preferred stock is the interaction between liquidity payments and the 

ongoing liquidation preference of the stock, and the amount of dividends associated with that liquidation preference. The 

projections assume that a hypothetical buyer would acquire the dividend stream related to the existing balance of the 

liquidation preference on the transaction date, as well as no PCF payments by the GSEs. This stream of dividend 

payments was then discounted to address certain issues unique to the senior preferred stock. 

The valuation of the warrants are impacted by the nominal exercise price and the large number of potential exercise 

shares, the market trading of the common stock that underlies the warrants, the principal market, and the market 

participants. Other discounting factors are the holding period risk related directly to the amount of time that it will take 

to sell the exercised shares without depressing the market and the other activity under the SPSPA. 

CONTINGENT LIABILITY

As part of the valuation exercise, the Department prepared a series of long-range projections through 2039 to determine 

what the implied amount of the total contingent liability to the GSEs under the SPSPAs would be as of that year. Since 

future payments under the SPSPAs are deemed to be probable, the Department had estimated the contingent liability to 

be $316.2 billion as of September 30, 2011. This estimate reflects the projected equity deficits of the GSEs stemming 

from credit losses and contractual dividend requirements. The valuation analysis as of September 30, 2011 included 

several case scenarios which resulted in total SPSPA estimates ranging from $309.6 billion (based on an “optimistic” 
U.S. Department of the Treasury | Fiscal Year 2011

101 

case scenario) to $376.1 billion (based on an “extreme” case scenario). The $316.2 billion contingent liability reported as 

of September 30, 2011 reflects the Department’s most likely liability estimate. This compares to the $359.9 billion 

contingent liability reported as of September 30, 2010 which was based on a range of $359.9 billion to $461.8 billion. 

The recorded contingent liability is the total estimated payments for the life of the agreements under the Adjusted Caps, 

minus actual payments made through the end of the fiscal year. Such accruals are adjusted as new information develops 

or circumstances change. 

In performing the calculations for the valuation and contingent liability estimates, the Department relied on the GSEs’ 

public filings and press releases concerning its audited and unaudited financial statements, monthly summaries, 

quarterly credit supplements, September 2011 forecast for the years 2011 through 2014 (as provided by FHFA), and 

interviews with the GSEs’ management and FHFA. The GSE managers were not able to provide the Department with a 

forecast of needed draws under the SPSPAs after December 31, 2015; however, they did provide the Department with 

general guidance as to the key assumptions that were used for subsequent periods. The forecasts after 2015 generally 

assume similar operating assumptions on the guarantee business and assume a gradual wind-down of the retained 

portfolios (and corresponding net interest income) through 2026, as directed under the provisions of the SPSPAs for the 

GSEs to reduce their investment portfolios by 10.0 percent per annum. The Department also relied upon economic and 

demographic data from the 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance 

and Federal Disability Insurance Trust Funds and the FHFA’s House Price Index. 

Based on the annual valuation of the Department’s estimated future contingent liability, the Department increased its 

liability by accruing an expense of $320.6 billion at the end of fiscal year 2010. The Department reduced its estimated 

liability by $22.9 billion at the end of the fiscal year 2011 via a reduction in expense. Both the increase in expense in fiscal 

year 2010 and reduction in expense in fiscal year 2011 were recorded as entity costs within the Economic Program section 

of the Department’s Consolidated Statements of Net Cost. 

As of September 30, 2011 and 2010, the summarized aggregated financial condition of the GSEs was as follows (in 

millions): 

2011 2010

Combined Assets

Investment Securities $ 422,741 $ 474,437

Mortgage Loans 4,715,057 4,782,405

Other 248,415 261,510

Total Combined Assets 5,386,213 5,518,352

Combined Liabilities

Long Term Debt 4,974,759 5,033,151

Other 425,236 487,706

Total Combined Liabilities 5,399,995 5,520,857

Combined net deficit $ (13,782) $ (2,505)

For the nine months ended September 30, 

Combined net interest income $ 28,832 $ 24,312

Combined provisions for loan losses (28,672) (35,082)

Net interest income (loss) after provision for loan losses $ 160 $ (10,770)

Regulatory Capital - minimum capital deficit as of September 30, $ (231,531) $ (198,999)

Excludes financial guarantees not consolidated on GSE balance sheets. 

The above information was taken directly from the quarterly reports filed with the SEC, which are publicly available on 

the SEC’s website (www.SEC.gov) and also the GSE investor relations websites. 
U.S. Department of the Treasury | Fiscal Year 2011

102 

Both GSEs reported very low early delinquencies on additions to their credit books in 2009 through 2011. This favorable 

early delinquency experience is an improvement compared with the loans originated in 2005 through 2008. However, 

both GSEs expect to make additional draws under the SPSPA in future periods despite improving levels of net income as 

the required dividend payment amounts under the SPSPAs are estimated to exceed the net income of the GSEs. Thus, 

incremental draws under the SPSPAs are projected to be needed to meet dividend payment requirements. The GSEs 

expect their net worth will also be impacted negatively by dividend payments on the SPSPAs, coupled with continued 

expected credit losses associated with the exposures that originated in the period 2005 through 2008. 

Under the existing SPSPAs, as amended, the Department’s projections show that each GSE will fully utilize the amount of 

funding available under the Adjusted Cap. This is in addition to any draws during calendar years 2010 through 2012, as 

this period is not subject to the Adjusted Cap. The Department’s projections of future liquidity payments may differ from 

actual experience. Future actual liquidity payment levels will depend on numerous factors that are difficult to predict, 

including, but not limited to, changes in government policy with respect to the GSEs, the business cycle, inflation, home 

prices, unemployment rates, interest rates, changes in housing preferences, home financing alternatives, availability of 

debt financing, market rates of guarantee fees, outcomes of loan refinancings and modifications, new housing programs, 

and other applicable factors. 

GSES NON-ENTITY REVENUE

For the fiscal years ended, September 30, 2011 and 2010, GSEs Non-Entity Revenue consisted of the following (in 

millions): 

Summary of GSEs Non-Entity Revenue 2011 2010

General Fund Revenue from Increase in Liquidity Preference of GSEs

 Preferred Stock $ (20,766) $ (52,600)

Current Valuation (Gain)/Loss on GSEs Warrants/Preferred Stock (3,061) 8,064

GSEs Preferred Stock Dividends (15,588) (12,142)

Total GSEs Non-Entity Revenue $ (39,415) $ (56,678)

CHANGING REGULATORY ENVIRONMENT

On July 9, 2010, FHFA published in the Federal Register a proposed rule to clarify certain terms of the conservatorship 

and receivership operations for the GSEs. The key issues addressed in the proposed rule are the status and priority of 

claims and the relationships among various classes of creditors and equity-holders under conservatorships or 

receiverships. 

On July 21, 2010, the President signed the Dodd-Frank Act into law which significantly changed the regulation of the 

financial services industry, including the creation of new standards related to regulatory oversight of financial institutions 

deemed systemically important; an orderly liquidation mechanism for these institutions; and oversight of derivatives, 

capital requirements, asset-backed securitization, mortgage underwriting, and consumer financial protection. Also, it 

contains a provision requiring the Secretary to conduct a study and develop recommendations regarding the options for 

ending the conservatorship. On February 11, 2011, the President delivered to Congress a report from the Secretary that 

provided recommendations regarding the options for ending the conservatorship and plans to wind down the GSEs. To 

date, Congress has not approved a plan to address what will be done with the GSEs. 
U.S. Department of the Treasury | Fiscal Year 2011

103 

9. INVESTMENTS IN INTERNATIONAL FINANCIAL INSTITUTIONS

Investments in the Multilateral Development Banks (MDB) consist of investments in 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. 

As of September 30, 2011 and 2010, investments in international financial institutions consisted of the following (in 

millions):

2011 2010

African Development Bank $ 174 $ 175

Asian Development Bank 565 458

European Bank for Reconstruction and Development 636 636

Inter-American Development Bank (1) 1,508 1,487

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 225 225

Total $ 5,707 $ 5,580

Refer to Note 28 for a description of the additional commitments related to these institutions.

(1) Includes International Investment Corporation. 

10. OTHER INVESTMENTS AND RELATED INTEREST

Investments in U.S. Government securities held by the Department’s entities have been eliminated against the federal 

debt liability for financial reporting purposes (See Note 4). Foreign investment holdings are normally invested in interest 

bearing securities issued or held through foreign governments or monetary authorities (See Note 5). 

As of September 30, 2011 and 2010, 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

9/30/11

Net

Investment

Unrealized

Gain/(Loss)

9/30/11

Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,498 $ 85 $ 98 $ 4,681 $ 149 $ 4,830

 Japanese Government Bonds 8,037 28 7 8,072 20 8,092

 Other FCDAs 2,851 - - 2,851 4 2,855

Other Investments 30 (2) - 28 (7) 21

Total Non-Federal $ 15,416 $ 111 $ 105 $ 15,632 $ 166 $ 15,798

Type of Investment

Cost/

Acquisition 

Value

Unamortized

(Premium)/

Discount

Interest

Receivable

9/30/10

Net

Investment

Unrealized

Gain/(Loss)

9/30/10

Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,478 $ 76 $ 102 $ 4,656 $ 178 $ 4,834

 Japanese Government Bonds 7,729 10 9 7,748 35 7,783

 Other FCDAs 2,680 168 - 2,848 - 2,848

Other Investments 32 (2) - 30 (8) 22

Total Non-Federal $ 14,919 $ 252 $ 111 $ 15,282 $ 205 $ 15,487
U.S. Department of the Treasury | Fiscal Year 2011

104 

11. CREDIT PROGRAM RECEIVABLES, NET

The Department administers a number of programs designed to stabilize the financial system and restore the flow of 

credit to consumers, businesses, and homeowners. For fiscal years ended September 30, 2011 and 2010, credit program 

receivables, net consisted of the following (in millions): 

2011 2010

Government Sponsored Enterprise Programs:

 GSEs Mortgage-Backed Securities Purchase Program $ 72,417 $ 172,234

 State and Local Housing Finance Agency Program 14,328 14,121

Small Business Lending Fund Program 4,108 -

International Monetary Fund Direct Loans Program (FCRA portion) 1,931 -

Community Development Financial Institutions Direct Loans Program 36 41

Total $ 92,820 $ 186,396

The Department applies the provisions of SFFAS No. 2 and FCRA to account for its credit programs. These standards 

require measurement of assets or liabilities at the net present value of their estimated future cash flows. For each asset, 

the Department estimates cash inflows and outflows that project asset performance and reflect the actual structure of the 

asset over its estimated term. Asset performance is affected by such factors as prepayments and defaults. Cash flow 

forecasts are discounted at interest rates of Treasury securities with comparable maturities using the OMB’s Credit 

Subsidy Calculator. Each of the programs are discussed in detail below. 

GSES MORTGAGE-BACKED SECURITIES PURCHASE PROGRAM

HERA authorized the Department to purchase GSE MBS consisting of mortgage pass-through securities issued by Fannie 

Mae and Freddie Mac. The Department, using private sector asset managers, purchased MBS on the open market. By 

purchasing these credit-guaranteed securities, the Department sought to broaden access to mortgage funding for current 

and prospective homeowners and to promote stability in the mortgage market. The authority granted by Congress to 

purchase MBS expired on December 31, 2009, at which point the purchase of new securities ended. 

Prior to March 2011, the Department intended to hold MBS securities to maturity. On March 21, 2011, the Department 

announced that it would begin an orderly sale of its MBS portfolio. The Department plans to sell up to $10.0 billion in 

GSE MBS securities per month, subject to market conditions. This decision is more consistent with the Department’s

divestment strategy for financial assets acquired during 2008 and 2009 as part of its other economic stabilization 

programs. 

As of September 30, 2011, the estimated net present value of the future cash flows of the MBS portfolio was $72.4 billion. 

This is comprised of gross cost in the amount of $70.6 billion and a subsidy allowance of $1.8 billion. The MBS subsidy is 

negative in that the Department expects to generate earnings on its portfolio. The subsidy allowance is the difference 

between the Department's cost of purchasing the MBS securities and the expected future value of the repayments to the 

Department. As of September 30, 2010, the net present value of future cash flows of the MBS portfolio was $172.2 

billion. This is comprised of gross cost in the amount of $164.3 billion and a subsidy allowance of $7.9 billion. The 

reduction in the gross cost from September 30, 2010 to September 30, 2011 is due to sales of MBS during fiscal year 2011, 

as well as the reduction in principal arising from monthly payments. The change in the subsidy allowance from 

September 30, 2010 to September 30, 2011 stems from: (i) a subsidy modification, which occurred as a result of the 

Department’s decision to sell its MBS holdings, (ii) a financial statement reestimate, which occurred at year end, and (iii)

subsidy allowance amortization. As described below, the different assumptions underlying the calculation of the subsidy 

modification and the subsidy reestimate drove the difference in the program’s cost as reflected in the table below. 
U.S. Department of the Treasury | Fiscal Year 2011

105 

With the decision to sell the MBS portfolio, the Department performed a subsidy modification which resulted in an 

increased cost in the program. The modification is comprised of two components: the cost related to the changes in the 

anticipated future cash flows, or the modification cost, and the modification adjustment transfer (MAT). The MAT is an 

adjustment that is recognized to account for differences between the single effective discount rate (determined at the time 

the purchases were made) and the fiscal year 2011 President’s Budget discount rates. The modification cost was $5.1 

billion and the MAT resulted in an additional cost of $4.6 billion. The modification cost and the MAT were determined 

using forward pricing of MBS securities based on fiscal year 2011 economic assumptions within the President’s Budget. 

These assumptions differed from market rates at a time which would have produced a lower modification cost and MAT. 

Together, the modification and MAT resulted in a cost to the program of $9.7 billion and this is reflected on the line 

“Subsidy Cost for Modifications” in the table below. 

The Department performed a financial statement reestimate of the program’s cost as of September 30, 2011. 

Assumptions about MBS and program performance are drawn from widely available market sources, as well as 

information published by the GSEs. For the fiscal year 2011 financial statement reestimate, the Department also 

incorporated assumptions related to future sales, using current market data. Key inputs to the cash flow forecast include, 

among other factors, forecast sales volume and forward pricing by month estimated using third-party current market 

prices and interest rate yields. (Refer to the credit program accounting policy described in Note 1 for additional inputs 

used in this cash flow model). The financial statement reestimate, which considers the effect of the modification, 

resulted in a total downward adjustment, or a decrease in cost to the program, of $7.9 billion in fiscal year 2011. This 

downward reestimate is primarily driven by the modification, which was developed using non-market based data, as 

discussed above. This was offset, to a lesser degree, by an increase in prepayment speeds. Unlike the modification 

process, projected sales for the financial statement reestimate as of September 30, 2011 utilize forward prices based on 

yields on current market interest rates as opposed to the fiscal year 2011 President’s Budget rates. The increase in 

prepayment speeds is primarily due to a decrease in market mortgage rates and a related increase in refinancing activity. 

The subsidy allowance amortization is comprised of the net difference between interest received on uninvested funds, 

interest expense on borrowings and interest received from security holdings. The amortization for fiscal years 2011 and 

2010 resulted in increases to the subsidy cost of $2.9 billion and $3.8 billion, respectively. 

STATE AND LOCAL HOUSING FINANCE AGENCY

Under HERA, the Department, together with the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, 

and the Department of Housing and Urban Development (HUD), created an initiative in October 2009 to provide 

support to HFAs. This initiative was designed 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. In December 2009, 

several transactions were finalized as part of the HFA initiative’s two separate programs: (i) the Temporary Credit and 

Liquidity Program (TCLP) and (ii) the New Issue Bond Program (NIBP). 

Under the terms of the TCLP, the Department entered into participation interests with Fannie Mae and Freddie Mac, 

supporting credit and liquidity facilities that the GSEs are providing to ten states as part of the program. Fannie Mae and 

Freddie Mac provided replacement credit and liquidity facilities to HFAs that helped reduce the costs of maintaining 

existing financing and relieve financial strains experienced by HFAs. The Department agreed to support the GSE 

replacement credit and liquidity facilities by purchasing HFA bonds tendered to the GSEs. As of September 30, 2011 and 

2010, the liquidity facilities covered $ 6.6 billion and $7.6 billion, respectively, of single-family and multi-family variablerate demand obligations. As of September 30, 2011 and 2010, none of these bonds had been tendered to the GSEs and, 

accordingly, the Department had not disbursed any funds. As such, the Department did not perform a September 30, 

2011 subsidy reestimate for TCLP. 
U.S. Department of the Treasury | Fiscal Year 2011

106 

Under the terms of the NIBP, the Department purchased securities of Fannie Mae and Freddie Mac collateralized by new 

state and local HFA bonds. The Department also escrowed funds for the purchase of HFA bonds not yet issued. This 

investment by the Department provides financing to the HFAs and permits them to issue additional new housing bonds 

despite challenges in the housing and financial markets. The Department’s NIBP GSE obligations are backed by a 

combination of mortgage revenue bonds and escrowed funds from over 92 HFAs in 49 states plus the District of 

Columbia. 

As of September 30, 2011, the estimated net present value of the future cash flows of the NIBP portfolio was $14.3 billion. 

The net present value of future cash flows is comprised of gross cost in the amount of $15.1 billion and a subsidy 

allowance of $815 million. The NIBP subsidy is positive in that the Department expects a cost associated with the 

program. The subsidy allowance is the difference between the Department's cost of purchasing the GSE collateralized 

securities and the expected value of the repayments to the Department. As of September 30, 2010, the net present value 

of future cash flows of the NIBP portfolio was $14.1 billion. This is comprised of gross cost in the amount of $15.3 billion 

and a subsidy allowance of $1.2 billion. The change in the subsidy allowance from the September 30, 2010 to September 

30, 2011 is due to the financial statement reestimate and subsidy allowance amortization, as described below. 

The Department performed a financial statement reestimate of the program’s cost as of September 30, 2011. 

Assumptions about security and program performance are drawn from widely available market sources as well as 

management’s assumption of future program usage. The financial statement reestimate resulted in a total upward 

reestimate of $9 million for fiscal year 2011. This upward reestimate is the net result of projected lower coupon rates on 

the expected release of escrowed NIBP funds between September 30, 2011, and the termination of the escrowed NIBP 

funds on December 31, 2011. Most of this increase in cost is offset by an increase in prepayment speeds. The projected 

lower coupon rates on the expected release of escrowed NIBP funds are due to lower market interest rates used as index 

to calculate the coupon rates. The increase in prepayment speeds is primarily due to a decrease in market mortgage rates 

and a related increase in refinancing activity. 

The subsidy allowance amortization is comprised of the net difference between interest received on uninvested funds, 

interest expense on borrowings, fees, and interest received from the HFAs. The amortization for fiscal year 2011 and 

2010 was $410 million and $537 million, respectively. 

SMALL BUSINESS LENDING FUND

On September 27, 2010, the Small Business Jobs Act of 2010 (P.L. 111-240) was enacted and, in part, created the SBLF 

program. Pursuant to the Act, the Department provided capital to qualified community banks with assets of less than 

$10.0 billion in order to encourage lending to small businesses. Through the SBLF, “Main Street” banks and small 

businesses work together to help create jobs and promote economic growth in local communities across the nation. As an 

incentive to participating banks to increase lending to small businesses, the dividend rate a bank pays to the Department 

for SBLF funding will be reduced as the bank’s small business lending increases. The dividend rate is variable and is 

based on the amount of small business lending but it is, at most, 5.0 percent initially. If a bank’s small business lending 

increases by 10.0 percent or more, then the rate will fall to as low as 1.0 percent. Banks that increase their lending by 

amounts less than 10.0 percent can benefit from rates set on a stepped scale between 2.0 and 4.0 percent. If lending does 

not increase by the end of the first two years, the rate will increase to 7.0 percent. After 4 1⁄2 years, the rate will increase 

to 9.0 percent if the bank has not already repaid the SBLF funding. All funds under this program were disbursed by 

September 27, 2011, and were still outstanding at September 30, 2011. The Department treats these purchases of capital 

as direct loans in accordance with the requirements of FCRA. 
U.S. Department of the Treasury | Fiscal Year 2011

107 

As of September 30, 2011, the estimated net present value of the future cash flows of the SBLF portfolio was $4.1 billion. 

The net present value of future cash flows is comprised of a gross cost in the amount of $4.0 billion and a subsidy 

allowance of $80 million. Specifically, the original subsidy cost of $292 million decreased by $372 million as a result of 

the financial statement reestimate. The SBLF subsidy is negative in that the Department expects to generate earnings on 

its portfolio. The subsidy allowance is the difference between the Department's cost of purchasing the SBLF securities 

and the expected value of the repayments to the Department. It is comprised of subsidy cost for disbursements, the 

financial statement reestimate, and subsidy allowance amortization. 

The Department provided a total of $4.0 billion in capital to SBLF participants during fiscal year 2011. Based on the 

initial budget subsidy rate of 7.24%, the total subsidy cost for these disbursements was $292 million. 

The Department performed a year-end reestimate of the program’s cost as of September 30, 2011. Assumptions about 

program performance are drawn from widely available market sources. This reestimate resulted in a total downward 

reestimate (reduction in cost) of $372 million, which is the net result of performance to date, updated performance 

assumptions, and actual program funding cost. The September 30, 2011 performance assumptions anticipate an 

improved level of performance relative to the assumptions in the original cost estimate. The performance assumptions in 

the original cost estimate assumed a portfolio with a larger percentage of higher risk banks relative to the actual portfolio 

as of September 30, 2011. 

INTERNATIONAL MONETARY FUND

In 2009, Congress passed the Supplemental Appropriations Act of 2009 (P.L. 111-32), which authorized an increase in 

the U.S. quota (refer to Note 12 within these financial statements for more information) in the IMF, as well as an increase 

in U.S. participation in the New Arrangements to Borrow (NAB), one of the IMF’s supplemental borrowing 

arrangements. For the first time, Congress subjected both program increases to FCRA. Under FCRA, both program 

increases are treated as direct loans to the IMF. However, the application of FCRA does not apply to appropriations for 

the quota and NAB prior to 2009. For U.S. budget and accounting purposes, there are effectively two portions of the IMF 

quota and NAB. The IMF quota program comprises a FCRA portion of $7.8 billion and a non-FCRA portion of $58.0

billion. The IMF NAB program comprises a FCRA portion of $97.5 billion and a non-FCRA portion of $10.4 billion. 

These are approximate dollar amounts as U.S. commitments to the IMF are denominated in SDRs and, thus, the dollar 

amounts fluctuate with the SDR/dollar exchange rate. These new designations only affect the manner in which the 

Department accounts for the use and repayment of these funds as the new and old portions will be fungible to the IMF. 

On March 25, 2011, the United States paid the reserve asset portion of the U.S. quota increase that Congress approved in 

2009. As of September 30, 2011, the reserve asset payment of $2 billion in connection with the U.S. quota increase was 

the only amount transferred to the IMF that is subject to FCRA. The estimated net present value of the future cash flows 

on the reserve asset portion of the quota increase was $1.9 billion. As of September 30, 2011, the U.S. NAB funds that are 

subject to FCRA have not been drawn. 

The difference between IMF draws on the quota and the expected value of the repayments to the Department is the 

subsidy allowance. The subsidy allowance as of September 30, 2011 is $64 million. The subsidy allowance is comprised 

of subsidy cost for disbursements, the financial statement reestimate, and the subsidy allowance amortization. Based on 

the budget subsidy rate of 2.34 percent, the total subsidy cost of the reserve asset portion of the quota increase was $47 

million. 

The Department performed a reestimate of the program’s cost as of September 30, 2011. Assumptions about program 

performance are drawn from historical data. This reestimate resulted in a total upward reestimate of $15 million, which 
U.S. Department of the Treasury | Fiscal Year 2011

108 

includes actual disbursements to date, and excludes estimated future disbursements. The upward reestimate is the result 

of the exclusion of estimate future program disbursements. 

The subsidy allowance amortization is comprised of the net difference between interest received on uninvested funds, 

interest expense on borrowings, and remuneration received from the IMF. The amortization for fiscal year 2011 was $2 

million. 

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

The CDFI Fund was created as a bipartisan initiative in the Riegle Community Development and Regulatory 

Improvement Act of 1994 (P.L. 103-325). The CDFI Fund was placed in the Department and began operations in July 

1995. The fund operates various programs aimed at expanding the availability of credit, investment capital, and financial 

and other services in distressed urban, rural, and Native American communities. The CDFI Fund is intended to help 

create a national network of financial institutions dedicated to community development that leverages private resources 

(financial and human) to address community development needs. The CDFI Fund provides financial and technical 

assistance awards to certified CDFIs, which in turn provide services to create community development impact in 

underserved markets. Certain of the financial assistance awards take the form of direct loans accounted for under FCRA. 

As of September 30, 2011, the CDFI Fund had $53 million in loans outstanding. 
U.S. Department of the Treasury | Fiscal Year 2011

109 

SUMMARY TABLES

The following tables provide the net composition of the Department’s portfolio, subsidy cost, modifications and 

reestimates, a reconciliation of subsidy cost allowances, budget subsidy rates, and the components of the subsidy for each 

credit program for the fiscal years ended September 30, 2011 and 2010. 

2011

(in millions) GSE MBS HFA SBLF IMF CDFI TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 70,586 $ 15,143 $ 4,028 $ 1,995 $ 53 $ 91,805

 Subsidy Cost Allowance 1,831 (815) 80 (64) (17) 1,015

Net Credit Program Receivables $ 72,417 $ 14,328 $ 4,108 $ 1,931 $ 36 $ 92,820

New Credit Program Loans

Disbursed $ - $ - $ 4,028 $ 1,995 $ - $ 6,023

Obligations for Loans Not Yet 

Disbursed (1) $ - $ - $ - $ 6,026 $ - $ 6,026

(1) Excludes $97.5 billion of obligated but undisbursed NAB loans which are accounted for pursuant to FCRA. The obligation is based on the SDR 

exchange rate as of September 30, 2011 and has a 0.34 percent subsidy rate. 

Budget Subsidy Rate, Excluding

Modifications and Reestimates:

Interest Differential - - (26.54%) 1.69% -

Defaults - - 19.88% 0.02% -

Other - - 13.90% 0.63% -

Total Budget Subsidy Rate - - 7.24% 2.34% -

Subsidy Cost by Component:

 Interest Differential $ - $ - $ (1,069) $ 34 $ - $ (1,035)

 Defaults - - 801 - - 801

 Other - - 560 13 - 573

Total Subsidy Cost, Excluding

Modifications and Reestimates $ - $ - $ 292 $ 47 $ - $ 339

Reconciliation of Subsidy Cost 

Allowance:

Balance, Beginning $ (7,894) $ 1,186 $ - $ - $ 15 $ (6,693)

Subsidy Cost for Disbursements - - 292 47 - 339

Subsidy Cost for Modifications 9,738 - - - - 9,738

Fees Received - 30 - - - 30

Subsidy Allowance Amortized 2,885 (410) - 2 - 2,477

Other 1,364 - - - - 1,364

Balance, Ending, Before Reestimates 6,093 806 292 49 15 7,255

Subsidy Reestimates (7,924) 9 (372) 15 2 (8,270)

Balance, Ending $ (1,831) $ 815 $ (80) $ 64 $ 17 $ (1,015)

Reestimates

Interest Rate Reestimate $ - $ - $ (58) $ - $ - $ (58)

Technical/Default Reestimate (7,924) 9 (314) 15 2 (8,212)

Total Reestimates – Increase 

(Decrease) in Subsidy Cost $ (7,924) $ 9 $ (372) $ 15 $ 2 $ (8,270)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ - $ 292 $ 47 $ - $ 339

 Subsidy Cost for Modifications 9,738 - - - - 9,738

 Subsidy Reestimates (7,924) 9 (372) 15 2 (8,270)

Total Credit Program Receivables

Subsidy Costs $ 1,814 $ 9 $ (80) $ 62 $ 2 $ 1,807

Administrative Expense $ 21 $ - $ - $ - $ - $ 21
U.S. Department of the Treasury | Fiscal Year 2011

110

2010

(in millions) GSE MBS HFA SBLF IMF CDFI TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 164,340 $ 15,307 $ - $ - $ 56 $ 179,703

 Subsidy Cost Allowance 7,894 (1,186) - - (15) 6,693

Credit Program Receivables, Net $ 172,234 $ 14,121 $ - $ - $ 41 $ 186,396

New Credit Program Loans

Disbursed $ 29,878 $ 15,308 $ - $ - $ - $ 45,186

Obligations for Loans Not Yet 

Disbursed $ - $ - $ - $ - $ - $ -

Budget Subsidy Rate, Excluding 

Modifications and Reestimates:

 Interest Differential (3.73%) (0.52%) - - -

 Defaults - - - - -

 Other - - - - -

Total Budget Subsidy Rate (3.73%) (0.52%) - - -

Subsidy Cost by Component:

 Interest Differential $ (1,115) $ (79) $ - $ - $ - $ (1,194)

Defaults - - - - - -

Other - - - - - -

Total Subsidy Cost, Excluding

Modifications and Reestimates $ (1,115) $ (79) $ - $ - $ - $ (1,194)

Reconciliation of Subsidy Cost 

Allowance:

Balance, Beginning $ (11,093) $ - $ - $ - $ 20 $ (11,073)

 Subsidy Cost for Disbursements (1,115) (79) - - - (1,194)

 Subsidy Cost for Modifications - (20) - - - (20)

Fees Received - - - - - -

 Subsidy Allowance Amortized 3,831 (537) - - (1) 3,293

Other - - - - - -

Balance, Ending, Before Reestimates (8,377) (636) - - 19 (8,994)

Subsidy Reestimates 483 1,822 - - (4) 2,301

Balance, Ending $ (7,894) $ 1,186 $ - $ - $ 15 $ (6,693)

Reestimates:

 Interest Rate Reestimate $ (157) $ 847 $ - $ - $ - $ 690

 Technical/Default Reestimate 640 975 - - (4) 1,611

Total Reestimates - Increase

(Decrease) in Subsidy Cost $ 483 $ 1,822 $ - $ - $ (4) $ 2,301

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ (1,115) $ (79) $ - $ - $ - $ (1,194)

 Subsidy Cost for Modifications - (20) - - - (20)

 Subsidy Reestimates 483 1,822 - - (4) 2,301

Total Credit Program Receivables

Subsidy Costs $ (632) $ 1,723 $ - $ - $ (4) $ 1,087

Administrative Expense $ 6 $ - $ - $ - $ - $ 6
U.S. Department of the Treasury | Fiscal Year 2011

111

12. 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 Special Drawing Rights, which are international reserve assets 

created by the IMF, and partly by making domestic currency available as needed through a non-interest-bearing letter of 

credit. This letter of credit, issued by the Department and maintained by the FRBNY, represents the bulk of the IMF’s 

holdings of dollars. In keeping with IMF rules, approximately 0.25 percent of the U.S. quota is held in cash in an IMF 

account at FRBNY. 

The Supplemental Appropriations Act of 2009 (P.L. 111-32) provided for an approximately $8.0 billion increase in the 

United States quota in the IMF which came into effect in March 2011. P.L. 111-32 also provided for an increase in the 

United States’ participation in the NAB up to the dollar equivalent of SDR 75 billion, which was activated in April 2011. 

In May 2010, in connection with this Act, the United States agreed to increase its participation in the NAB from SDR 6.6 

billion to SDR 69.1 billion, which was equivalent to $107.9 billion on September 30, 2011. Unlike all prior U.S. funding 

for the IMF, this Act subjects both the increases in the U.S. quota and the NAB to the requirements of FCRA. The 

existing portions of the U.S. quota and NAB, referred to as “the non-FCRA funds,” will be accounted for in the same 

manner as they previously have been. The new portions of the quota and NAB, referred to as “the FCRA funds,” will be 

accounted for in accordance with credit reform accounting guidelines. 

While resources for transactions between the IMF and the United States are appropriated, with the exception of the 

FCRA funds, 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 available at any time to meet balance of 

payment 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, 2011 and 2010, the U.S. quota in the IMF was 42.1 billion SDRs and 37.1 billion SDRs, respectively. 

The value of the U.S. quota consisted of the following (in millions):

NonFCRA FCRA(3)Total

2011

NonFCRA FCRATotal

2010

Letter of Credit(1) $ 37,178 $ 5,772 $ 42,950 $ 45,245 $ - $ 45,245

U.S. Dollars Held in Cash by the IMF 153 20 173 144 - 144

Reserve Position(2) 20,682 1,974 22,656 12,938 - 12,938

Total U.S. Quota in the IMF $ 58,013 $ 7,766 $ 65,779 $ 58,327 $ - $ 58,327

(1) This amount is included as part of the Fund Balance as reported on the Consolidated Balance Sheets and ”Appropriated Funds” 

disclosed in Note 2.

(2) The amounts shown in the non-FCRA columns are included in the Reserve Position in the IMF on the Consolidated Balance Sheets.

(3) Represents the FCRA portion of the U.S. quota in 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 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. At April 

30, 2011, the annual settlement with the IMF resulting from the depreciation of the dollar against the SDR since April 30, 
U.S. Department of the Treasury | Fiscal Year 2011

112

2010, called for a downward adjustment of the U.S. quota by $1.7 billion and a corresponding increase to Unexpended 

Appropriations on the Statement of Changes in Net Position. At April 30, 2010, the appreciation of the dollar against the 

SDR since April 30, 2009, called for an upward adjustment of the U.S. quota by $349 million and a corresponding 

decrease to Unexpended Appropriations. The dollar amounts shown above for the U.S. quota include accrued valuations 

adjustments. On September 30, 2011, the Department recorded a net deferred valuation loss in the amount of $78

million for deferred maintenance of value adjustments needed at year end, compared to a net deferred valuation loss of 

$168 million recorded at September 30, 2010. 

The United States earns “remuneration” (interest) on its reserve position in the IMF except for a portion of the U.S. quota 

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. For fiscal years 2011 and 2010, the 

Department received $59 million and $23 million as remuneration, respectively. 

In addition to quota subscriptions, the IMF maintains borrowing arrangements to supplement its resources in order to 

forestall or cope with an impairment of the international monetary system when IMF liquidity is low. The United States 

currently participates in two such arrangements – the General Arrangements to Borrow (GAB) and the NAB. There was 

$6.1 billion in U.S. loans outstanding under these arrangements in fiscal year 2011 and none in fiscal year 2010 (reported 

on the Consolidated Balance Sheets within the “Loans and Interest Receivable” line). Total U.S. participation in the GAB 

and NAB was SDR 69.1 billion ($107.9 billion) and SDR 6.6 billion ($10.4 billion), as of September 30, 2011 and 2010, 

respectively. Budgetary treatment of U.S. participation in the GAB and NAB, to the extent not subject to FCRA, does not 

result in net budgetary outlays. 

13. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

As of September 30, 2011 and 2010, Taxes, Interest and Other Receivables, Net consisted of the following (in millions):

2011 2010

Non-Entity

Federal Taxes Receivable, Gross $ 147,025 $ 138,097

Less: Allowance on Taxes Receivable (112,017) (103,091)

Interest Receivable on FRB Deposits of Earnings 1,599 1,910

Other Receivables 23 39

Less: Allowance on Other Receivables (10) (24)

Total Non-Entity (Note 15) 36,620 36,931

Entity

Miscellaneous Entity Receivables and Related Interest 70 45

Total Taxes, Interest and Other Receivables, Net $ 36,690 $ 36,976

Federal taxes receivable constitutes the largest portion of these receivables, with IRS-related taxes receivable 

representing the majority of the balance. IRS federal taxes receivable consists of tax assessments, penalties, and interest 

which were not paid or abated, and which were agreed to by either the taxpayer and IRS, or the courts. Federal taxes 

receivable is reduced by an allowance for doubtful accounts which is established to represent an estimate for uncollectible 

amounts. 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. 

In addition to amounts attributed to taxes, these receivables also include accrued interest income due on funds deposited 

in FRBs. The Department does not establish an allowance for the receivable on deposits of FRB earnings.
U.S. Department of the Treasury | Fiscal Year 2011

113

14. PROPERTY, PLANT, AND EQUIPMENT, NET

As of September 30, 2011 and 2010, property, plant and equipment consisted of the following (in millions):

Depreciation 

Method

Service 

Life Cost

Accumulated 

Depreciation

2011 

Book 

Net

Value

Buildings, structures, and facilities S/L 3-50 years $ 703 $ (360) $ 343

Furniture, fixtures, and equipment S/L 2-20 years 3,097 (2,259) 838

Construction in progress N/A N/A 153 - 153

Land and land improvements N/A N/A 15 - 15

Internal use software in use S/L 2-15 years 1,529 (1,151) 378

Internal use software in 

development N/A N/A 320 - 320

Assets under capital lease S/L 2-25 years 7 (1) 6

Leasehold improvements S/L 2-25 years 510 (297) 213

Total $ 6,334 $ (4,068) $ 2,266

Depreciation 

Method

Service

Life Cost

Accumulated 

Depreciation

2010 

Book 

Net

Value

Buildings, structures, and facilities S/L 3-50 years $ 701 $ (336) $ 365

Furniture, fixtures, and equipment S/L 2-20 years 3,100 (2,295) 805

Construction in progress N/A N/A 15 - 15

Land and land improvements N/A N/A 13 - 13

Internal use software in use S/L 2-10 years 1,510 (1,003) 507

Internal use software in 

development N/A N/A 102 - 102

Assets under capital lease S/L 2-25 years 4 (2) 2

Leasehold improvements S/L 2-25 years 541 (319) 222

Total $ 5,986 $ (3,955) $ 2,031

HERITAGE ASSETS

The Treasury Complex (Main Treasury Building and Annex) was declared a national historical landmark in 1972. The 

Treasury Complex is treated as a multi-use heritage asset and is expected to be preserved indefinitely. The buildings that 

house the Mint in Denver, San Francisco, Fort Knox, and West Point are also considered multi-use heritage assets for 

fiscal years 2011 and 2010 and included on the National Register of Historic Places. Multi-use heritage assets are 

recognized and presented with general property, plant and equipment on the Consolidated Balance Sheets. 

15. NON-ENTITY VS. ENTITY ASSETS

Non-entity assets are those that are held by the Department but are not available for use by the Department. For 

example, the non-entity Fund Balance represents unused balances of appropriations received by various Treasury entities 

to conduct custodial operations such as the payment of interest on the federal debt and refunds of taxes and fees (Note 2). 

Non-entity intra-governmental loans and interest receivable represents loans managed by the Department on behalf of 

the General Fund. These loans are provided to federal agencies, and the Department is responsible for collecting these 

loans and transferring the proceeds to the General Fund (Note 3). Non-entity advances to the DOL’s Unemployment 

Trust Fund are issued from the General Fund to states for unemployment benefits. Repayment of these advances will be 

transferred to the General Fund (Note 4). 

The service life ranges vary significantly due to the diverse nature of PP&E held by the Department. 
U.S. Department of the Treasury | Fiscal Year 2011

114

Non-entity cash, foreign currency, and other monetary assets include the operating cash of the U.S. Government, 

managed by the Department. It also includes foreign currency maintained by various U.S. and military disbursing 

offices, as well as seized monetary instruments (Note 5). Non-entity investments in GSEs include the GSEs’ senior 

preferred stock and warrants held by the Department on behalf of the General Fund. As the stock and warrants are 

liquidated, all proceeds are returned to the General Fund (Note 8). Non-entity investments in AIG include AIG common 

stock held by the Department on behalf of the General Fund as of September 30, 2011, compared to a beneficial interest 

held in a trust comprised of AIG preferred stock as of September 30, 2010. Proceeds from the sale of the AIG common 

stock are being returned to the General Fund (Note 26). 

As of September 30, 2011 and 2010, the Department’s total assets, segregated between non-entity and entity, are shown 

below (in millions):

2011

Non-Entity Entity Total

Intra-governmental Assets:

Fund balance (a) $ 1,465 $ 380,319 $ 381,784

Loans and Interest Receivable (Note 3) 671,411 57,239 728,650

Advances to the Unemployment Trust Fund (Note 4) 42,773 - 42,773

Due from the General Fund (Note 4) 14,902,717 - 14,902,717

Other Intra-governmental Assets 388 760 1,148

Total Intra-governmental Assets 15,618,754 438,318 16,057,072

Cash, Foreign Currency, and Other Monetary Assets (Note 5)(b) 50,216 66,905 117,121

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

Investments in GSEs (Note 8) 133,043 - 133,043

Taxes, Interest and Other Receivables, Net (Note 13) 36,620 70 36,690

Non-TARP Investments in American International Group, Inc. (Note 26) 10,862 - 10,862

Other Assets (d) 102 224,274 224,376

Total Assets $ 15,860,659 $ 729,567 $ 16,590,226

(a) $358 million of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(b) $50 billion of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(c) $25 million of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(d) Other Assets (Entity) include TARP and non-TARP credit program receivables, net totaling $80.1 billion and $92.8 billion, respectively, a 

reserve position in the IMF of $20.7 billion, and other various assets on the Consolidated Balance Sheets not separately presented in this 

table.

2010

Non-Entity Entity Total

Intra-governmental Assets:

Fund Balance (e) $ 542 $ 436,484 $ 437,026

Loans and Interest Receivable (Note 3) 493,389 59,464 552,853

Advances to the Unemployment Trust Fund (Note 4) 34,111 - 34,111

Due from the General Fund (Note 4) 13,655,637 - 13,655,637

Other Intra-governmental Assets 350 829 1,179

Total Intra-governmental Assets 14,184,029 496,777 14,680,806

Cash, Foreign Currency, and Other Monetary Assets (Note 5)(f) 304,244 68,190 372,434

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

Investments in GSEs (Note 8) 109,216 - 109,216

Taxes, Interest and Other Receivables, Net (Note 13) 36,931 45 36,976

Non-TARP Investments in American International Group, Inc. (Note 26) 20,805 - 20,805

Other Assets (h) 129 367,829 367,958

Total Assets $ 14,666,416 $ 932,841 $ 15,599,257

(e) $249 million of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(f) $303.8 billion of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(g) $25 million of the Non-entity balance represents assets held on behalf of the General Fund (Note 4).

(h) Other Assets (Entity) include TARP and non-TARP credit program receivables, net totaling $144.7 billion and $186.4 billion, respectively, a 

reserve position in the IMF of $12.9 billion, and other various assets on the Consolidated Balance Sheets not separately presented in this 

table.
U.S. Department of the Treasury | Fiscal Year 2011

115

16. FEDERAL DEBT AND INTEREST PAYABLE

The 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 does not include debt 

issued by other governmental agencies, such as the Tennessee Valley Authority or the HUD. 

The federal debt as of September 30, 2011 and 2010 was as follows (in millions):

Intra-governmental 2011 2010

Beginning Balance $ 4,501,028 $ 4,319,892

New Borrowings/Repayments 124,010 181,136

Subtotal at Par Value 4,625,038 4,501,028

Premium/(Discount) 47,386 38,228

Debt Principal Not Covered by Budgetary Resources (Note 19) 4,672,424 4,539,256

Interest Payable Covered by Budgetary Resources 47,741 48,546

Total $ 4,720,165 $ 4,587,802

Held by the Public 2011 2010

Beginning Balance $ 9,022,808 $ 7,551,862

New Borrowings/Repayments 1,104,223 1,470,946

Subtotal at Par Value 10,127,031 9,022,808

Premium/(Discount) (29,538) (33,870)

Debt Principal Not Covered by Budgetary Resources (Note 19) 10,097,493 8,988,938

Interest Payable Covered by Budgetary Resources 51,470 46,991

Total $ 10,148,963 $ 9,035,929

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 agencies, 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 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 of debt securities are non-marketable securities issued at par value, but others are issued 

at market prices and interest rates that reflect market terms. The average intra-governmental interest rate for debt held 

by the federal entities, excluding TIPS, for fiscal years 2011 and 2010 was 4.1 percent and 4.3 percent, respectively. The 

average intra-governmental interest rate on TIPS for fiscal years 2011 and 2010 was 1.8 percent and 1.9 percent, 

respectively. The average interest rate represents the original issue weighted effective yield on securities outstanding at 

the end of the fiscal year. 
U.S. Department of the Treasury | Fiscal Year 2011

116

The federal debt also includes intra-governmental marketable debt securities that certain agencies are permitted to buy 

and sell on the open market. The debt held by federal agencies at par value (not including premium/discount or interest 

payable) as of September 30, 2011 and 2010 was as follows (in millions):

2011 2010

Social Security Administration $ 2,654,497 $ 2,586,333

Office of Personnel Management 897,951 866,090

Department of Defense Agencies 497,391 433,203

Department of Health and Human Services 321,615 355,554

All Other Federal Agencies - Consolidated 253,584 259,848

Total Federal Debt Held by Other Federal Agencies $ 4,625,038 $ 4,501,028

FEDERAL DEBT HELD BY THE PUBLIC

Federal Debt held by the Public at par value (not including premium/discount or interest payable) as of September 30, 

2011 and 2010 consisted of the following (in millions):

Average 

Interest 

(at par value) Term Rates 2011

Marketable:

Treasury Bills 1 Year or Less 0.1% $ 1,475,557

Treasury Notes Over 1 Year - 10 Years 2.3% 6,406,983

Treasury Bonds Over 10 Years 5.8% 1,016,407

Treasury Inflation-Protected Security (TIPS) 5 Years or More 1.9% 705,352

Total Marketable 9,604,299

Non-Marketable On Demand to Over 10 Years 2.8% 522,732

Total Federal Debt Held by the Public $ 10,127,031

Average 

Interest 

(at par value) Term Rates 2010

Marketable:

Treasury Bills 1 Year or Less 0.2% $ 1,783,674

Treasury Notes Over 1 Year - 10 Years 2.6% 5,252,585

Treasury Bonds Over 10 Years 6.1% 846,054

Treasury Inflation-Protected Security (TIPS) 5 Years or More 2.2% 593,615

Total Marketable 8,475,928

Non-Marketable On Demand to Over 10 Years 2.8% 546,880

Total Federal Debt Held by the Public $ 9,022,808

The 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 at year 

end. Treasury bills are issued with a term of one year or less. 

The 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 stated interest rate adjusted by any 

discount or premium on securities outstanding at year-end. Treasury notes are issued with a term of two to ten years, 

and Treasury bonds are issued with a term of more than ten years. The Department also issues TIPS that have interest 

and redemption payments tied to the Consumer Price Index for all Urban Consumers, a widely used measurement of 

inflation. TIPS are issued with a term of five years or more. At maturity, TIPS are redeemed at the inflation-adjusted 

principal amount, or the original par value, whichever is greater. TIPS pay a semi-annual fixed rate of interest applied to 

the inflation-adjusted principal. The average interest rate on TIPS represents the stated interest rate on principal plus 
U.S. Department of the Treasury | Fiscal Year 2011

117

inflation, adjusted by any discount or premium on securities outstanding as of the end of the fiscal year. The TIPS 

Federal Debt Held by the Public inflation-adjusted principal balance included inflation of $76.1 billion and $57.5 billion 

as of September 30, 2011 and 2010, respectively. 

Debt held by the public primarily represents the amount the U.S. Government has borrowed to finance cumulative cash 

deficits. During fiscal year 2011, the Department issued bills, notes, bonds, and TIPS to meet the borrowing needs of the 

U.S. Government. Treasury bills outstanding decreased by $308.1 billion; whereas, Treasury notes, bonds, and TIPS 

outstanding increased by $1.2 trillion, $170 billion, and $112 billion, respectively, in fiscal year 2011. 

Federal Debt Held by the Public includes federal debt held outside of the U.S. Government by individuals, corporations, 

FRBs, state and local governments, foreign governments, and central banks. As of September 30, 2011 and 2010, the 

FRBs had total holdings of $1.7 trillion and $813.6 billion, respectively, which included a net of $759 million and $1.9 

billion in Treasury securities held by the FRBs as collateral for securities lending activities, respectively. These securities 

are held in the FRB System Open Market Account (SOMA) for the purpose of conducting monetary policy. 

From May 16, 2011 to August 2, 2011, the Department was forced to depart from its normal debt management procedures 

and invoke legal authorities to avoid exceeding the statutory debt limit. During this period, actions taken by Treasury 

included: (i) suspending investment of receipts and reinvestments of maturities (including interest earnings) of the 

Government Securities Investment Fund (G-Fund) of the Federal Employees’ Retirement System, the ESF, the Civil 

Service Retirement and Disability Fund (Civil Service Fund), and the Postal Service Retiree Health Benefit Fund (Postal 

Benefits Fund); (ii) redeeming a Civil Service fund security early to make benefit payments; and (iii) suspending the sales 

of state and local government series securities. 

On August 2, 2011, the Budget Control Act of 2011 was signed into law, becoming Public Law No. 112-25. Pursuant to 

Public Law 112-25, the statutory debt limit was raised by $400 billion to $14.7 trillion on August 2, 2011, and by $500 

billion to $15.2 trillion on September 22, 2011. The Budget Control Act of 2011 also enacted caps on discretionary 

spending for fiscal years 2012 through 2021, and created the Joint Select Committee on Deficit Reduction which is tasked 

with proposing legislation for additional deficit reduction over the same period. 

Subsequent to the August 2, 2011 increase to the statutory debt limit, the Department took steps to restore foregone 

principal and interest to the four funds . Principal for the four funds of nearly $240 billion was restored on August 2, 

2011, and interest for the G-Fund of $378 million was restored on August 3, 2011. An additional $497 million of interest 

for the Civil Service Fund and the Postal Benefits Fund, which had been previously accrued as interest payable, will be 

restored on the next semi-annual interest payment due date of December 31, 2011. During fiscal year 2011, a total of $875 

million of foregone interest was paid and/or accrued on the Department’s Consolidated Statements of Net Cost. 

17. OTHER DEBT AND INTEREST PAYABLE

The Department, through FFB, has outstanding borrowings and related accrued interest with the Civil Service 

Retirement and Disability Fund which is administered by the OPM. At September 30, 2011 and 2010, FFB had 

borrowings and related accrued interest of $8.5 billion and $10.4 billion, respectively. The outstanding borrowings at 

September 30, 2011 had a stated interest rate of 4.63 percent, an effective interest rate of 4.63 percent, and maturity 

dates ranging from June 30, 2012 to June 30, 2019. The outstanding borrowings at September 30, 2010 had a stated 

interest rate ranging from 4.63 percent to 5.25 percent, an effective interest rate of 4.13 percent, and maturity dates 

ranging from June 30, 2011 to June 30, 2019. 
U.S. Department of the Treasury | Fiscal Year 2011

118

18. D.C. PENSIONS AND JUDICIAL RETIREMENT ACTUARIAL 

LIABILITY

Pursuant to Title XI of the Balanced Budget Act of 1997, as amended (the Act), on October 1, 1997, the Department 

became responsible for certain District of Columbia (D.C.) retirement plans. The Act was intended to relieve the D.C. 

government of the burden of unfunded pension liabilities transferred to the District by the U.S. Government in 1979. To 

fulfill its responsibility, the Department 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 Department is required to make annual amortized payments from the 

General Fund to the D.C. Federal Pension Fund and the Judicial Retirement Fund. The D.C. Federal Pension Fund 

benefit payments and administrative expenses are related to benefits earned based upon service on or before June 30, 

1997. 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 Department. The 

pension benefit costs incurred by the plans are included on the Consolidated Statements of Net Cost. 

A reconciliation of the pension actuarial liability as of September 30, 2011 and 2010 is as follows (in millions):

2011 2010

Beginning Liability Balance $ 9,743 $ 9,049

Pension Expense:

Normal cost 5 4

Interest on Pension Liability During the Year 266 399

Actuarial (Gains) Losses During the Year:

From Experience (123) (62)

From Discount Rate Assumption Change 472 1,879

From Other Assumption Changes (154) (999)

Total Pension Expense 466 1,221

Less Amounts Paid (538) (527)

Ending Liability Balance $ 9,671 $ 9,743
U.S. Department of the Treasury | Fiscal Year 2011

119

ADDITIONAL INFORMATION

D.C. Federal

Pension Fund

Judicial 

Retirement Fund

2011

Total

Pension and Other Actuarial Liability $ 9,481 $ 190 $ 9,671

Unobligated Budgetary Resources (3,591) (131) (3,722)

Unfunded Liability $ 5,890 $ 59 $ 5,949

Amount Received from the General Fund $ 492 $ 9 $ 501

Annual Rate of Investment Return Assumption 2.28% - 4.97% 2.28% - 4.97%

Future Annual Rate of Inflation and Cost-ofLiving Adjustment 2.39% 2.43%

Future Annual Rate of Salary Increases:

Police Officers & Firefighters 4.26% N/A

Teachers 4.26% N/A

Judicial N/A 1.84%

D.C. Federal

Pension Fund

Judicial

Retirement Fund

2010 

Total

Pensions and Other Actuarial Liability $ 9,558 $ 185 $ 9,743

Unobligated Budgetary Resources (3,600) (127) (3,727)

Unfunded Liability $ 5,958 $ 58 $ 6,016

Amount Received from the General Fund $ 519 $ 8 $ 527

Annual Rate of Investment Return Assumption 2.79% - 5.13% 2.79% - 5.13%

Future Annual Rate of Inflation and Cost-ofLiving Adjustment 2.56% 2.78%

Future Annual Rate of Salary Increases:

Police Officers & Firefighters 4.20% N/A

Teachers 4.20% N/A

Judicial N/A 2.11%
U.S. Department of the Treasury | Fiscal Year 2011

120 

19. LIABILITIES

LIABILITIES NOT COVERED BY BUDGETARY AND OTHER RESOURCES

As of September 30, 2011 and 2010, liabilities not covered by budgetary and other resources consisted of the following (in 

millions):

2011 2010

Intra-governmental Liabilities Not Covered by Budgetary

and Other Resources

Federal Debt Principal, Premium/Discount (Note 16) $ 4,672,424 $ 4,539,256

Other Intra-governmental Liabilities 124 123

Total Intra-governmental Liabilities Not Covered by Budgetary

and Other Resources 4,672,548 4,539,379

Federal Debt Principal, Premium/Discount (Note 16) 10,097,493 8,988,938

Gold and Silver Reserves Held by the Mint 10,494 10,494

Pensions and Other Actuarial Liability (Note 18) 5,949 6,016

Liabilities to GSEs (Note 8) 316,230 359,900

Other Liabilities 2,017 1,990

Total Liabilities Not Covered by Budgetary and Other Resources 15,104,731 13,906,717

Total Liabilities Covered by Budgetary and Other Resources 1,405,357 1,591,444

Total Liabilities $ 16,510,088 $ 15,498,161

OTHER LIABILITIES

Total “Other Liabilities” displayed on the Consolidated Balance Sheets consists of both liabilities that are covered and not 

covered by budgetary resources. Other liabilities at September 30, 2011 and 2010 consisted of the following (in millions):

Current

NonCurrent2011

Total Current

NonCurrent2010

Total

Intra-governmental

Unfunded Federal Workers Compensation 

Program Liability (FECA) $ 45 $ 58 $ 103 $ 46 $ 57 $ 103

Accounts Payable 124 - 124 59 - 59

Accrued Interest Payable 1 - 1 - - -

Other Accrued Liabilities 225 - 225 203 1 204

Total Intra-governmental $ 395 $ 58 $ 453 $ 308 $ 58 $ 366

With the Public

Actuarial Federal Workers Compensation 

Program Liability (FECA) $ - $ 553 $ 553 $ - $ 553 $ 553

Liability for Deposit Funds (Held by the

U.S. Government for Others)

and Suspense Accounts 861 - 861 724 - 724

Accrued Funded Payroll and Benefits 557 - 557 533 - 533

Capital Lease Liabilities - 1 1 - - -

Accounts Payable and Other Accrued 

Liabilities 2,186 64 2,250 2,607 53 2,660

Total with the Public $ 3,604 $ 618 $ 4,222 $ 3,864 $ 606 $ 4,470
U.S. Department of the Treasury | Fiscal Year 2011

121 

20. 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 FECA, (c) credit reform cost reestimates, 

and (d) expenses for contingent liabilities. 

The amount reported as “appropriations received” is appropriated by Congress from the General Fund 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 Combined Statements of Budgetary Resources 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 Combined Statements of Budgetary Resources, 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 SFFAS No. 7, Accounting for Revenue and 

Other Financing Sources. 

TRANSFERS TO THE GENERAL FUND AND OTHER

The amount reported as “Transfers to the General Fund and Other” on the Consolidated Statement of Changes in Net 

Position under “Other Financing Sources” includes the following as of September 30, 2011 and 2010 (in millions):

2011 2010

Categories of Transfers to the General Fund and Other

Downward Reestimates of Credit Reform Subsidies $ 49,744 $ 35,906

Increase in Liquidity Preference of GSEs Preferred Stock, GSEs Preferred

Stock Dividends and Valuation Changes (Note 8) 39,415 56,678

Interest Revenue/Distribution of Income 37,761 35,993

Other 1,018 368

TOTAL $ 127,938 $ 128,945

The credit reform downward reestimate subsidies that are transferred to the General Fund result from a change in 

forecasts of future cash flows (See Notes 7 and 11). Also included in “Transfers to the General Fund and Other” are the 

GSE Senior Preferred Stock investments and related dividends as well as the annual valuation adjustment to those 

investments (See Note 8). In addition, these transfers also include distribution of interest revenue to the General Fund. 

The interest revenue is accrued on inter-agency loans held by the Department on behalf of the U.S. Government. A 

corresponding balance is reported on the Consolidated Statements of Net Cost under “Federal Costs: Less Interest 

Revenue from Loans.” The amount reported on the Consolidated Statements of Net Cost is reduced by eliminations with 

Treasury bureaus. 

The “Other” line mainly represents collections from other federal agencies as reimbursement of costs incurred by the 

Department for its administration of trust funds established within the Social Security Act. The Department is directed 

by statute to execute these administrative services. Seigniorage and numismatic profits also are included in the “Other”

line. Seigniorage is the face value of newly minted circulating coins less the cost of production. Numismatic profit is any 
U.S. Department of the Treasury | Fiscal Year 2011

122 

profit on the sale of proof coins, uncirculated coins, commemorative coins, and related products and accessories. The 

United States Mint is required to distribute seigniorage and numismatic profits in excess of operating expenses to the 

General Fund. In any given year, the amount recognized as seigniorage may differ from the amount distributed to the 

General Fund by an insignificant amount due to timing differences. 

21. CONSOLIDATED STATEMENTS OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS 

The Department’s Consolidated Statements of Net Cost display information on a consolidated basis. The complexity of 

the 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 (DO and each operating bureau). 

REPORTING ENTITY

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 Department-wide programs 

is the result of using the following cost assignment methods: (1) direct costs, (2) cause and effect, and (3) cost allocation. 

INTRA-DEPARTMENTAL COSTS/REVENUES

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 and as revenues by receiving suborganizations. Accordingly, such costs/revenues are eliminated in the consolidation process. 

INTRA-GOVERNMENTAL COSTS

Intra-governmental cost relates to the source of goods and services purchased by the Department and not to the 

classification of the related intra-governmental revenue. 

In certain cases, other Federal agencies incur costs that are directly identifiable to the Department’s operations. In 

accordance with SFFAS No. 30, Inter-Entity Cost Implementation Amending; SFFAS No. 4, Managerial Cost 

Accounting Standards and Concepts, the Department recognizes identified costs paid for the Department by other 

agencies as an expense of the Department. 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. The funding for these costs is reflected as imputed 

financing sources on the Statement of Changes in Net Position. Costs paid by other agencies on behalf of the Department 

were $925 million and $1.0 billion for the years ended September 30, 2011 and 2010, respectively. 

CONSOLIDATED STATEMENT OF NET COSTS PRESENTATION

OMB Circular No. A-136, Financial Reporting Requirements, as revised, requires that the presentation of the 

Consolidated Statements of Net Cost align directly with the goals and outcomes identified in the Strategic Plan. 

Accordingly, the 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 
U.S. Department of the Treasury | Fiscal Year 2011

123 

falls within a single strategic goal in the Consolidated Statements of Net Cost. TTB and DO allocate costs to multiple 

programs using a net cost percentage calculation. 

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 certain earned revenue 

amounts can reasonably be attributed to programs. The attribution of such earned revenues requires the exercise of 

managerial judgment. 

The Department’s Consolidated Statements of Net Cost also present 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 Department’s strategic plan missions. Such costs are eliminated in the 

consolidation process to the extent that they involve transactions with Treasury sub-organizations. 

Other federal costs shown on the Statements of Net Cost for the years ended September 30, 2011 and 2010 consisted of 

the following (in millions):

2011 2010

Credit Reform Interest on Uninvested Fund (Intra-governmental) $ 8,015 $ 8,192

Resolution Funding Corporation 2,239 2,276

Judgment Claims and Contract Disputes 2,290 1,119

Corporation for Public Broadcasting 435 506

Legal Services Corporation 408 418

All Other Payments 356 242

Total $ 13,743 $ 12,753
U.S. Department of the Treasury | Fiscal Year 2011

124 

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) 

For Fiscal Year Ended September 30, 2011

Program Costs

Bureau of 

Engraving 

& Printing

Bureau 

of the 

Public 

Debt

Departmental 

Office(a)

Fin. Crimes 

Enforcement 

Network

Financial 

Management 

Service

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 111 $ 1,957 $ - $ 197 $ 4,405 $ -

Less: Earned Revenue - (22) (2,225) - (170) (70) -

Intra-governmental Net Costs - 89 (268) - 27 4,335 -

Gross Costs with the Public - 218 577 - 1,222 9,059 -

Less: Earned Revenue - (4) (1) - - (408) -

Net Costs with the Public - 214 576 - 1,222 8,651 -

Net Cost: Financial Program - 303 308 - 1,249 12,986 -

ECONOMIC PROGRAM

Intra-governmental Gross Costs 89 - 9,618 - - - 76 

Less: Earned Revenue (3) - (2,496) - - - (10)

Intra-governmental Net Costs 86 - 7,122 - - - 66 

Gross Costs with the Public 459 - (1,467) - - - 4,408 

Less: Earned Revenue (539) - (8,479) - - (4,601)

Net Costs with the Public (80) - (9,946) - - - (193)

Net Cost: Economic Program 6 - (2,824) - - - (127)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 160 67 - - -

Less: Earned Revenue - - (23) (3) - - -

Intra-governmental Net Costs - - 137 64 - - -

Gross Costs with the Public - - 155 55 - - -

Less: Earned Revenue - - - - - - -

Net Costs with the Public - - 155 55 - - -

Net Cost: Security Program - - 292 119 - - -

MANAGEMENT PROGRAM

Intra-governmental Gross Costs - 66 188 - - - -

Less: Earned Revenue - (192) (168) - - - -

Intra-governmental Net Costs - (126) 20 - - - -

Gross Costs with the Public - 121 283 - - - -

Less: Earned Revenue - - - - - - -

Net Costs with the Public - 121 283 - - - -

Net Cost: Management Program - (5) 303 - - - -

Total Program Cost Before Assumption

Changes 6 298 (1,921) 119 1,249 12,986 (127)

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes - - 195 - - - -

Net Cost of Operations $ 6 $ 298 $ (1,726) $ 119 $ 1,249 $ 12,986 $ (127)

(a) Of the total $2.8 billion of net income (negative cost) reported on the Net Economic Program Cost line by Departmental Office, GSE and ESF contributed $21.1 

and $1 billion of net income, respectively; partially offset by OFS, DO policy offices, and OAS net cost of $9.5 billion, $7.1 billion, and $2.5 billion, respectively. 

Other immaterial net costs were spread throughout other DO programs or offices.
U.S. Department of the Treasury | Fiscal Year 2011

125 

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2011

Program Costs

Office of the 

Comptroller 

of the 

Currency

Office of (b)

Thrift 

Supervision

Alcohol, 

Tobacco 

Tax and 

Trade 

Bureau

Combined 

Total Eliminations

2011

Consolidated

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ - $ 15 $ 6,685 $ 2,130 $ 4,555

Less: Earned Revenue - - - (2,487) (270) (2,217)

Intra-governmental Net Costs - - 15 4,198 1,860 2,338

Gross Costs with the Public - - 40 11,116 - 11,116

Less: Earned Revenue - - (3) (416) - (416)

Net Costs with the Public - - 37 10,700 - 10,700

Net Cost: Financial Program - - 52 14,898 1,860 13,038

ECONOMIC PROGRAM

Intra-governmental Gross Costs 122 31 15 9,951 9,561 390

Less: Earned Revenue (26) (15) - (2,550) (2,514) (36)

Intra-governmental Net Costs 96 16 15 7,401 7,047 354

Gross Costs with the Public 715 161 38 4,314 - 4,314

Less: Earned Revenue (817) (169) - (14,605) - (14,605)

Net Costs with the Public (102) (8) 38 (10,291) - (10,291)

Net Cost: Economic Program (6) 8 53 (2,890) 7,047 (9,937)

SECURITY PROGRAM

Intra-governmental Gross Costs - - - 227 77 150

Less: Earned Revenue - - - (26) (21) (5)

Intra-governmental Net Costs - - - 201 56 145

Gross Costs with the Public - - - 210 - 210

Less: Earned Revenue - - - - - -

Net Costs with the Public - - - 210 - 210

Net Cost: Security Program - - - 411 56 355

MANAGEMENT PROGRAM

Intra-governmental Gross Costs - - - 254 85 169

Less: Earned Revenue - - - (360) (303) (57)

Intra-governmental Net Costs - - - (106) (218) 112

Gross Costs with the Public - - - 404 - 404

Less: Earned Revenue - - - - - -

Net Costs with the Public - - - 404 - 404

Net Cost: Management Program - - - 298 (218) 516

Total Program Cost Before Assumption 

Changes (6) 8 105 12,717 8,745 3,972

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes - - - 195 - 195

Net Cost of Operations $ (6) $ 8 $ 105 $ 12,912 $ 8,745 $ 4,167

(a) (b) On July 21, 2011, OTS merged into OCC. Accordingly, OTS’s operating results through July 20, 2011 are reported separately herein, and its operating 

results subsequent to July 20, 2011 were combined with OCC’s operating results..
U.S. Department of the Treasury | Fiscal Year 2011

126 

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2010

Program Costs

Bureau of 

Engraving 

& Printing

Bureau of 

the Public 

Debt

Departmental 

Office(c)

Fin. Crimes 

Enforcement 

Network

Financial 

Management 

Service

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 120 $ 1,712 $ - $ 189 $ 4,577 $ -

Less: Earned Revenue - (21) (2,234) - (168) (68) -

Intra-governmental Net Costs - 99 (522) - 21 4,509 -

Gross Costs with the Public - 221 459 - 1,185 9,323 -

Less: Earned Revenue - (6) (1) - - (386) -

Net Costs with the Public - 215 458 - 1,185 8,937 -

Net Cost: Financial Program - 314 (64) - 1,206 13,446 -

ECONOMIC PROGRAM

Intra-governmental Gross Costs 90 - 12,727 - - - 75

Less: Earned Revenue (4) - (2,260) - - - (11)

Intra-governmental Net Costs 86 - 10,467 - - - 64

Gross Costs with the Public 515 - 308,859 - - - 3,451

Less: Earned Revenue (627) - (11,698) - - (3,566)

Net Costs with the Public (112) - 297,161 - - - (115)

Net Cost: Economic Program (26) - 307,628 - - - (51)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 141 71 - - -

Less: Earned Revenue - - (19) (3) - - -

Intra-governmental Net Costs - - 122 68 - - -

Gross Costs with the Public - - 156 57 - - -

Less: Earned Revenue - - - - - - -

Net Costs with the Public - - 156 57 - - -

Net Cost: Security Program - - 278 125 - - -

MANAGEMENT PROGRAM:

Intra-governmental Gross Costs - 65 160 - - - -

Less: Earned Revenue - (180) (206) - - - -

Intra-governmental Net Costs - (115) (46) - - - -

Gross Costs with the Public - 102 337 - - - -

Less: Earned Revenue - - - - - - -

Net Costs with the Public - 102 337 - - - -

Net Cost: Management Program - (13) 291 - - - -

Total Program Cost Before Assumption

Changes (26) 301 308,133 125 1,206 13,446 (51)

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes - - 818 - - - -

Net Cost of Operations $ (26) $ 301 $ 308,951 $ 125 $ 1,206 $ 13,446 $ (51)

(c) Of the total $307.6 billion of Net Economic Program Costs incurred by Departmental Offices, GSE contributed $321.7 billion, partially offset by OFS 

which contributed net income of $23.1 billion.
U.S. Department of the Treasury | Fiscal Year 2011

127 

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2010

Program Costs

Office of the 

Comptroller of 

the Currency

Office of 

Thrift 

Supervision

Alcohol, 

Tobacco Tax 

and Trade 

Bureau

Combined 

Total Eliminations

2010

Consolidated

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ - $ 15 $ 6,613 $ 1,985 $ 4,628

Less: Earned Revenue - - - (2,491) (276) (2,215)

Intra-governmental Net Costs - - 15 4,122 1,709 2,413

Gross Costs with the Public - - 38 11,226 - 11,226

Less: Earned Revenue - - (3) (396) - (396)

Net Costs with the Public - - 35 10,830 - 10,830

Net Cost: Financial Program - - 50 14,952 1,709 13,243

ECONOMIC PROGRAM

Intra-governmental Gross Costs 111 39 15 13,057 12,661 396

Less: Earned Revenue (21) (10) - (2,306) (2,279) (27)

Intra-governmental Net Costs 90 29 15 10,751 10,382 369

Gross Costs with the Public 676 202 39 313,742 - 313,742

Less: Earned Revenue (766) (220) - (16,877) - (16,877)

Net Costs with the Public (90) (18) 39 296,865 - 296,865

Net Cost: Economic Program - 11 54 307,616 10,382 297,234

SECURITY PROGRAM

Intra-governmental Gross Costs - - - 212 81 131

Less: Earned Revenue - - - (22) (18) (4)

Intra-governmental Net Costs - - - 190 63 127

Gross Costs with the Public - - - 213 - 213

Less: Earned Revenue - - - - - -

Net Costs with the Public - - - 213 - 213

Net Cost: Security Program - - - 403 63 340

MANAGEMENT PROGRAM:

Intra-governmental Gross Costs - - - 225 82 143

Less: Earned Revenue - - - (386) (330) (56)

Intra-governmental Net Costs - - - (161) (248) 87

Gross Costs with the Public - - - 439 - 439

Less: Earned Revenue - - - - - -

Net Costs with the Public - - - 439 - 439

Net Cost: Management Program - - - 278 (248) 526

Total Program Cost Before Assumption 

Changes - 11 104 323,249 11,906 311,343

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes 2 - - 820 - 820

Net Cost of Operations $ 2 $ 11 $ 104 $ 324,069 $ 11,906 $ 312,163
U.S. Department of the Treasury | Fiscal Year 2011

128 

22. 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, Accounting for Revenue and Other 

Financing Sources, 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, 2011 and 2010 was as 

follows (in millions):

UNDELIVERED ORDERS

2011 2010

Undelivered Orders

Paid $ 114 $ 126

Unpaid 208,868 169,305

Undelivered orders at the end of the year $ 208,982 $ 169,431

CONTRIBUTED CAPITAL

Contributed capital represents the current year authority and prior year balances of amounts actually transferred through 

non-expenditure transfers to miscellaneous receipt accounts of the General Fund of the Treasury to repay a portion of a 

capital investment. 

2011 2010

Contributed Capital $ 58 $ 20

APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED

Apportionment categories are determined in accordance with the guidance provided in OMB Circular No. A-11, 

Preparation, Submission and Execution of the Budget. Apportionment Category A represents resources apportioned for 

calendar quarters. Apportionment Category B represents resources apportioned for other time periods for activities, 

projects or objectives, or for any combination thereof (in millions).

DIRECT VS. REIMBURSABLE OBLIGATIONS INCURRED

2011 2010

Direct - Category A $ 3,203 $ 2,849

Direct - Category B 247,733 330,068

Direct - Exempt from Apportionment 461,985 481,785

Total Direct 712,921 814,702

Reimbursable - Category A - 11

Reimbursable - Category B 5,872 4,883

Reimbursable - Exempt from Apportionment 1,254 1,242

Total Reimbursable 7,126 6,136

Total Direct and Reimbursable $ 720,047 $ 820,838

TERMS OF BORROWING AUTHORITY USED

Several Departmental programs have authority to borrow under the FCRA, as amended. The FCRA provides indefinite 

borrowing authority to financing accounts to fund the unsubsidized portion of direct loans and to satisfy obligations in 

the event the financing account’s resources are insufficient. Repayment requirements are defined by OMB Circular No. 

A-11. Interest expense due is calculated based on the beginning balance of borrowings outstanding and the 
U.S. Department of the Treasury | Fiscal Year 2011

129 

borrowings/repayments activity that occurred during the fiscal year. Undisbursed Departmental borrowings earn 

interest at the same rate as the financing account pays on its debt owed to BPD. In the event that principal and interest 

collections exceed the interest expense due, the excess will be repaid to the Department. If principal and interest do not 

exceed interest expense due, the Department will borrow the difference. The Department makes periodic principal 

repayments based on the analysis of cash balances and future disbursement needs. All interest on borrowings were due 

on September 30, 2011. Interest rates on FCRA borrowings range from 1.00 percent to 8.96 percent. 

AVAILABLE BORROWING

(in millions) 2011 2010

Beginning Balance $ 23,477 $ 51,510

Current Authority 201,863 151,473

Decreases (44,803) (19,274)

Borrowing Authority Withdrawn (2,307) (37,982)

Borrowing Authority Converted to Cash (54,386) (122,250)

Ending Balance $ 123,844 $ 23,477

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 2011, was not 

published at the time that these financial statements were issued. The President’s Budget is expected to be published in 

February 2012, and can be located at the OMB website http://www.whitehouse.gov/omb and will be available from the 

U.S. Government Printing Office. The following chart displays the differences between the Combined Statement of 

Budgetary Resources (SBR) in the fiscal year 2010 Agency Financial Report and the actual fiscal year 2010 balances 

included in the fiscal year 2012 President’s Budget.
U.S. Department of the Treasury | Fiscal Year 2011

130 

Reconciliation of Fiscal Year 2010 Combined Statement of Budgetary Resources

to the Fiscal Year 2012 President's Budget

(in millions)

Budgetary 

Resources

Outlays (net 

of offsetting 

collections)

Offsetting 

Receipts

Net 

Outlays

Obligations 

Incurred

Statement of Budgetary Resources (SBR) Amounts $ 1,193,081 $ 519,419 $ (178,909) $ 340,510 $ 820,838

Included in the Treasury Department Chapter of the PB 

but not in the SBR

IRS non-entity tax credit payments (1) 112,465 112,457 - 112,457 112,457

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico 378 378 - 378 378

Non-Treasury offsetting receipts - - (47) (47) -

Treasury offsetting receipts considered to be General Fund 

transactions for reporting purposes (2) - - (6) (6) -

Continued dumping subsidy - U.S. Customs and Border Patrol 109 259 - 259 259

Other - 2 67 69 -

Subtotal 112,952 113,096 14 113,110 113,094

Included in the SBR but not in the Treasury Department 

chapter of the PB

Treasury resources shown in non-Treasury chapters of the PB (3) (40,638) (4,806) - (4,806) (5,729)

Offsetting collections net of collections shown in PB (11,084) - (289) (289) -

Treasury offsetting receipts shown in other chapters of PB, part of 

which is in SBR - - 574 574 -

Unobligated balance carried forward, recoveries of prior year funds

and expired accounts (335,498) - - - 2

ESF resources not shown in PB (4) (104,770) 2 - 2 (61,168)

Treasury Financing Accounts (CDFI, OFS and GSEs) (243,083) (4,667) - (4,667) (219,264)

Enacted reduction, 50% Transfer Accounts, and Capital Transfers 

to General Fund not included in PB (25) - - - -

Other - (1) (1) (2) (2)

Subtotal (735,098) (9,472) 284 (9,188) (286,161)

Trust Fund - OCC (5) (155) 55 (94) (39) -

President's Budget Amounts(6) $ 570,780 $ 623,098 $ (178,705) $ 444,393 $ 647,771

(1) These are primarily Earned Income Tax Credit and Child Tax Credit payments that are reported with refunds as custodial activities in the 

Department’s financial statements and thus are not reported as budgetary resources.

(2) These are receipt accounts that the Department manages on behalf of other agencies and considers to be General Fund receipts rather 

than receipts of the Department reporting entity. 

(3) The largest of these resources relate to the Department’s International Assistance Programs.

(4) The 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. 

(5)

 The OCC negative outlay also appears in the offsetting receipts section of the Analytical Perspectives, and hence shown as a reconciling 

item. 

(6)

 Per the President’s Budget for fiscal year 2012 – Budgetary Resources and Outlays are from the Analytical Perspective. Offsetting 

Receipts and Obligations Incurred are from the Appendix. 

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. 
U.S. Department of the Treasury | Fiscal Year 2011

131 

CHANGE IN ACCOUNTING POLICY EFFECT ON UNOBLIGATED AND UNPAID OBLIGATIONS

Effective in fiscal year 2010, the Department changed its budgetary accounting policy for the accounting and reporting of 

ESF investment balance changes. The change in accounting policy allowed the Department to present the revaluations of 

ESF investments, as well as other ESF assets not readily convertible to cash, as a budgetary resource that is permanently 

not available without affecting outlays. 

In order to facilitate this change in accounting, an adjustment for $14.1 billion was made to the line item, Unobligated 

balances, brought forward, October 1, 2009, of the Combined Statement of Budgetary Resources for the fiscal year ended 

September 30, 2010. This adjustment primarily included additions of accumulated FCDA investment balances now 

permitted by OMB to be reported on the Combined Statement of Budgetary Resources through the use of a new USSGL. 

These budgetary adjustments had no impact on ESF proprietary account balances in fiscal year 2010 or previous years. 

In order to maintain appropriate budgetary relationships on the Combined Statement of Budgetary Resources between 

Budgetary Resources, Status of Budgetary Resources, and Relationship of Obligations to Outlays, an adjustment 

corresponding to the FCDA investment balance of $14.1 billion was made to the fiscal year 2010 line item, Obligations 

Incurred, Unpaid Obligations Brought Forward, and Obligations Incurred. 
U.S. Department of the Treasury | Fiscal Year 2011

132 

23. COLLECTION AND DISPOSITION OF CUSTODIAL REVENUE 

The 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, 2011 and 2010 (in millions):

Tax Year

2011 2010 2009

Pre20092011 

Collections

Individual Income and FICA Taxes $ 1,357,129 $ 703,856 $ 18,980 $ 22,065 $ 2,102,030

Corporate Income Taxes 165,768 62,650 1,855 12,575 242,848

Estate and Gift Taxes 23 6,367 691 1,998 9,079

Excise Taxes 53,429 19,023 87 255 72,794

Railroad Retirement Taxes 3,523 1,164 1 4 4,692

Unemployment Taxes 4,806 1,961 39 87 6,893

Fines, Penalties, Interest, & Other Revenue - Tax 

Related 284 9 - - 293

Tax Related Revenue Received 1,584,962 795,030 21,653 36,984 2,438,629

Federal Reserve Earnings 63,792 18,754 - - 82,546

Fines, Penalties, Interest & Other Revenue - NonTax Related 273 25 - - 298

Non-Tax Related Revenue Received 64,065 18,779 - - 82,844

Total Revenue Received $ 1,649,027 $ 813,809 $ 21,653 $ 36,984 $ 2,521,473

Less Amounts Collected for Non-Federal Entities 462

Total $ 2,521,011

Tax Year

2010 2009 2008

Pre20082010

Collections

Individual Income and FICA Taxes $ 1,315,876 $ 635,920 $ 20,182 $ 16,782 $ 1,988,760

Corporate Income Taxes* 188,527 75,459 1,612 12,339 277,937

Estate and Gift Taxes 4 7,841 881 11,025 19,751

Excise Taxes 52,112 18,583 98 153 70,946

Railroad Retirement Taxes 3,547 1,099 1 1 4,648

Unemployment Taxes 4,697 1,726 37 83 6,543

Fines, Penalties, Interest, & Other Revenue - Tax 

Related 244 1 - - 245

Tax Related Revenue Received 1,565,007 740,629 22,811 40,383 2,368,830

Federal Reserve Earnings 56,582 19,263 - - 75,845

Fines, Penalties, Interest, & Other Revenue - NonTax Related 1,613 22 - - 1,635

Non-Tax Related Revenue Received 58,195 19,285 - - 77,480

Total Revenue Received $ 1,623,202 $ 759,914 $ 22,811 $ 40,383 $ 2,446,310

Less Amounts Collected for Non-Federal Entities 387

Total $ 2,445,923

* Tax amounts collected as reported by tax year for this line item have been restated to correct for amounts that were incorrectly reported in 

the Department’s prior year annual financial report. The corrections made were deemed immaterial by the Department’s management. 

Corporate Income taxes by Tax Year for 2010 have been corrected to agree with the Financial Report of IRS and the amounts reported in the 

Financial Report of the U.S. Government (See Note 1 AC).

Amounts reported for Corporate Income Taxes collected in fiscal year 2011 and 2010 include corporate taxes of $9 billion 

and $13.2 billion for tax years 2012 and 2011, respectively. 
U.S. Department of the Treasury | Fiscal Year 2011

133 

AMOUNTS PROVIDED TO FUND THE U.S. GOVERNMENT

For the years ended September 30, 2011 and 2010, collections of custodial revenue transferred to other entities were as 

follows (in millions):

2011 2010

Department of the Interior $ 344 $ 361

General Fund (1) 2,106,419 1,975,625

Total $ 2,106,763 $ 1,975,986

(1) The General Fund amount for fiscal year 2011 includes cash proceeds from sale of AIG common stock of $1.973 billion as reported on the 

Statement of Custodial Activity.

FEDERAL TAX REFUNDS PAID

Refund activity, by revenue type and tax year, was as follows for the years ended September 30, 2011 and 2010 (in 

millions):

Tax Year

2011 2010 2009

Pre20092011 

Refunds

Individual Income and FICA Taxes $ 1,140 $ 302,832 $ 26,455 $ 13,957 $ 344,384

Corporate Income Taxes 6,342 16,623 6,451 38,361 67,777

Estate and Gift Taxes - 11 401 1,366 1,778

Excise Taxes 799 1,047 159 184 2,189

Railroad Retirement Taxes - 2 - 1 3

Unemployment Taxes 3 54 15 18 90

Total $ 8,284 $ 320,569 $ 33,481 $ 53,887 $ 416,221

Tax Year

2010 2009 2008

Pre20082010 

Refunds

Individual Income and FICA Taxes* $ 1,343 $ 316,596 $ 36,144 $ 17,223 $ 371,306

Corporate Income Taxes 2,630 15,913 16,414 61,229 96,186

Estate and Gift Taxes - 209 439 277 925

Excise Taxes 429 611 171 215 1,426

Railroad Retirement Taxes - 1 - - 1

Unemployment Taxes 1 56 13 23 93

Total $ 4,403 $ 333,386 $ 53,181 $ 78,967 $ 469,937

*Tax refund amounts as reported by tax year for this line item have been restated to correct for amounts that were incorrectly reported in the 

Department's prior year annual financial report. The corrections made were deemed immaterial by the Department's management (Note 1AC).

FEDERAL TAX REFUNDS PAYABLE

As of September 30, 2011 and September 30, 2010, refunds payable to taxpayers consisted of the following (in millions):

2011 2010

Internal Revenue Service $ 3,981 $ 4,133

Alcohol, Tobacco Tax and Trade Bureau 2 13

Total $ 3,983 $ 4,146
U.S. Department of the Treasury | Fiscal Year 2011

134 

24. EARMARKED FUNDS

The majority of the Department’s earmarked fund activities are attributed to the ESF and the pension and retirement 

funds managed by the Office of D.C. Pensions. In addition, several Department bureaus operate with either a public 

enterprise (or revolving fund) and receive no appropriations from the Congress. These bureaus are BEP, Mint, IRS, OCC, 

and OTS. Other miscellaneous earmarked funds are managed by BPD, DO, FMS, FMD (a division of FMS), IRS, OFR, 

and TFF. 

The following is a list of earmarked funds and a brief description of the purpose, accounting, and uses of these funds. 

Bureau Fund Code Fund Title/Description

Exchange Stabilization Fund (ESF)

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 Fund

OCC 20X8413 Assessment Funds

OCC 20X4264 Assessment Funds

OTS 20X4108 Public Enterprise Revolving Fund

IRS 20X4413 Federal Tax Lien Revolving Fund

Other Earmarked Funds

BPD 20X5080 Gifts to Reduce Pubic Debt

DO 20X5816 Confiscated and Vested Iraqi Property and Assets

DO 20X8790 Gifts and Bequests Trust Fund

FMD 20X5081 Presidential Election Campaign

FMD 20X8902 Esther Cattell Schmitt Gift Fund

FMD 9515585 Travel Promotion Fund, Corp for Travel Promotion

FMD 95X5585 Travel Promotion Fund, Corp for Travel Promotion

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 209/05445 Debt Collection Special Fund

FMS 200/15445 Debt Collection Special Fund

FMS 201/25445 Debt Collection Special Fund

IRS 20X5510 Private Collection Agency Program

IRS 20X5433 Informant Reimbursement

OFR 20X5590 Financial Research Fund

TFF 20X5697 Treasury Forfeiture Fund

Pursuant to the legal authority found in section 10 of the Gold Reserve Act of 1934, as amended, the ESF may purchase or 

sell foreign currencies, holds U.S. foreign exchange and SDR assets, and may provide financing to foreign governments 

and foreign entities. The ESF accounts for and reports its holdings to FMS on the Standard Form 224, “Statement of 

Transactions,” and provides other reports to Congress. Interest on SDRs in the IMF, Investments in U.S. Securities 

(BPD), and Investments in Foreign Currency Assets are its primary sources of revenue. The ESF’s earnings and realized 
U.S. Department of the Treasury | Fiscal Year 2011

135 

gains on foreign currency assets represent inflows of resources to the government, and the interest revenues earned from 

U.S. Securities are the result of intra-Departmental flows. 

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 18 provides detailed information on various funds managed by DCP. 

The Department’s three non-appropriated bureaus as of September 30, 2011 ― BEP, Mint, and OCC ― operate “public 

enterprise/revolving funds” to account for their respective revenues and expenses. 31 USC § 5142 established the 

revolving fund for BEP to account for revenue and expenses related to the currency printing activities. P.L. 104-52 (31 

USC § 5136) established the Public Enterprise Fund for the Mint to account for all revenue and expenses related to the 

production and sale of numismatic products and circulating coinage. Revenues and other financing sources at the Mint 

are mainly from the sale of numismatic and bullion products, and the sale of circulating coins to the FRB system. 12 USC 

§ 481 established the Assessment Funds for OCC and 12 USC § 1467 governs the collection and use of assessments and 

other funds by OTS (merged with OCC on July 21, 2011). Revenue and financing sources are from the bank examinations 

and assessments for the oversight of the national banks, savings associations, and savings and loan holding companies. 

These non-appropriated funds do not directly contribute to the inflows of resources to the 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, the U.S. Code, and the Debt Collection Improvement Act established and authorized the use of 

these funds. Sources of revenues and other financing sources include contributions, cash and property forfeited in 

enforcement activities, public donations, and debt collection. 

INTRA-GOVERNMENTAL INVESTMENTS IN TREASURY SECURITIES

The U.S. Government does not set aside assets to pay future benefits or other expenditures associated with earmarked 

funds. The Department’s bureaus and other federal agencies invest some of the earmarked funds that they collect from 

the public, if they have the statutory authority to do so. The funds are invested in securities issued by BPD. The cash 

collected by BPD is deposited in the General Fund, which uses the cash for general government purposes. 

The investments provide Department bureaus and other federal agencies with authority to draw upon the General Fund 

to make future benefit payments or other expenditures. When the Department bureaus or other federal agencies require 

redemption of these securities to make expenditures, the government finances those redemptions 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 Department bureaus and other federal agencies and a liability of the BPD. The General 

Fund is liable to BPD. Because the 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 Department bureaus are not displayed on the Department’s 

financial statements because the bureaus are subcomponents of the Department. However, the General Fund remains 

liable to BPD for the invested balances and BPD remains liable to the investing Department bureaus (See Note 4). 
U.S. Department of the Treasury | Fiscal Year 2011

136 

Summary Information for Earmarked Funds

as of and for the Fiscal Year Ended September 30, 2011

(in millions)

Exchange 

Stabilization 

Fund

D.C. 

Pensions

Public 

Enterprise/

Revolving 

Funds

Other 

Earmarked 

Funds

Combined 

Earmarked 

Funds

Eliminations2011

Total

ASSETS

Fund Balance $ - $ 7 $ 1,123 $ 493 $ 1,623 $ - $ 1,623

Investments and Related Interest -

Intragovernmental 22,721 4,048 1,188 1,587 29,544 29,544 -

Cash, Foreign Currency and Other 

Monetary Assets 66,678 - - 20 66,698 - 66,698

Investments and Related Interest 15,777 - - - 15,777 - 15,777

Other Assets - 2 1,422 110 1,534 6 1,528

Total Assets $ 105,176 $ 4,057 $ 3,733 $ 2,210 $ 115,176 $ 29,550 $ 85,626

LIABILITIES

Intra-governmental Liabilities $ - $ - $ 48 $ 369 $ 417 $ 58 $ 359

Certificates Issued to Federal

Reserve Banks 5,200 - - - 5,200 - 5,200

Allocation of Special Drawing Rights 55,150 - - - 55,150 - 55,150

DC Pension Liability - 9,671 - - 9,671 - 9,671

Other Liabilities 35 55 661 176 927 - 927

Total Liabilities 60,385 9,726 709 545 71,365 58 71,307

Net Position

Unexpended Appropriations –

Earmarked Funds 200 - - - 200 - 200

Cumulative Results of Operations–

Earmarked Funds 44,591 (5,669) 3,024 1,665 43,611 - 43,611

Total Liabilities and Net

Position $ 105,176 $ 4,057 $ 3,733 $ 2,210 $ 115,176 $ 58 $ 115,118

Statement of Net Cost

Gross Cost $ 438 $ 287 $ 6,062 $ 306 $ 7,093 $ 81 $ 7,012

Less: Earned Revenue (1,484) (117) (6,181) - (7,782) (165) (7,617)

Gains/Losses on Pension, ORB, or 

OPEB Assumption Changes - 195 - - 195 - 195

Total Net Cost of Operations $ (1,046) $ 365 $ (119) $ 306 $ (494) $ (84) $ (410)

Statement of Changes in Net 

Position

Cumulative Results of 

Operations:

Beginning Balance, as adjusted $ 43,545 $ (5,805) $ 2,528 $ 1,158 $ 41,426 $ - $ 41,426

Budgetary Financing Sources - 501 (51) 851 1,301 (50) 1,351

Other Financing Sources - - 428 (38) 390 (36) 426

Total Financing Sources - 501 377 813 1,691 (86) 1,777

Net Cost of Operations 1,046 (365) 119 (306) 494 84 410

Change in Net Position 1,046 136 496 507 2,185 (2) 2,187

Ending Balance $ 44,591 $ (5,669) $ 3,024 $ 1,665 $ 43,611 $ (2) $ 43,613

* 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.
U.S. Department of the Treasury | Fiscal Year 2011

137 

Summary Information for Earmarked Funds

as of and for the Fiscal Year ended September 30, 2010

(in millions)

Exchange 

Stabilization 

Fund

D.C. 

Pensions

Public 

Enterprise/

Revolving 

Funds

Other 

Earmarked 

Funds

Combined 

Earmarked 

Funds

Eliminations 2010 Total

ASSETS

Fund Balance $ - $ 7 $ 490 $ 362 $ 859 $ - $ 859

Investments and Related InterestIntragovernmental 20,436 3,980 1,398 1,385 27,199 27,199 -

Cash, Foreign Currency and Other 

Monetary Assets 70,878 - - 12 70,890 - 70,890

Investments and Related Interest 12,616 - - - 12,616 - 12,616

Other Assets - 5 1,306 114 1,425 7 1,418

Total Assets $ 103,930 $ 3,992 $ 3,194 $ 1,873 $ 112,989 $ 27,206 $ 85,783

LIABILITIES

Intra-governmental Liabilities $ - $ - $ 38 $ 260 $ 298 $ 55 $ 243

Certificates Issued to Federal

 Reserve Banks 5,200 - - - 5,200 - 5,200

Allocation of Special Drawing

Rights 54,958 - - - 54,958 - 54,958

DC Pension Liabilities - 9,743 - - 9,743 - 9,743

Other Liabilities 27 54 628 455 1,164 - 1,164

Total Liabilities 60,185 9,797 666 715 71,363 55 71,308

Net Position

Unexpended AppropriationsEarmarked Funds 200 - - - 200 - 200

Cumulative Results of Operations -

Earmarked Funds 43,545 (5,805) 2,528 1,158 41,426 - 41,426

Total Liabilities and Net Position $ 103,930 $ 3,992 $ 3,194 $ 1,873 $ 112,989 $ 55 $ 112,934

Statement of Net Cost

Gross Cost $ 1,476 $ 417 $ 5,159 $ 229 $ 7,281 $ 80 $ 7,201

Less: Earned Revenue (1,392) (128) (5,225) - (6,745) (177) (6,568)

Gains/Losses on Pension, ORB, or 

OPEB Assumption Changes - 818 2 - 820 - 820

Total Net Cost of Operations $ 84 $ 1,107 $ (64) $ 229 $ 1,356 $ (97) $ 1,453

Cumulative Results of

Operations

Beginning Balance, as adjusted $ 43,647 $ (5,225) $ 2,465 $ 766 $ 41,653 $ - $ 41,653

Budgetary Financing Sources (18) 527 (13) 384 880 (12) 892

Other Financing Sources - - 12 237 249 (38) 287

Total Financing Sources (18) 527 (1) 621 1,129 (50) 1,179

Net Cost of Operations (84) (1,107) 64 (229) (1,356) 97 (1,453)

Net Changes (102) (580) 63 392 (227) 47 (274)

Total Cumulative Results of 

Operations $ 43,545 $ (5,805) $ 2,528 $ 1,158 $ 41,426 $ 47 $ 41,379

* 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.
U.S. Department of the Treasury | Fiscal Year 2011

138 

25. 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. As of September 30, 2011 and 2010, the Reconciliation of Net Cost of Operations 

to Budget consisted of the following (in millions):

2011 2010

RESOURCES USED TO FINANCE ACTIVITIES

Budgetary Resources Obligated:

Obligations Incurred $ 720,047 $ 820,838

Less: Spending Authority from Offsetting Collections and Recoveries (223,941) (251,553)

Obligations Net of Offsetting Collections and Recoveries 496,106 569,285

Less: Offsetting Receipts (119,958) (178,909)

Net Obligations 376,148 390,376

Other Resources:

Donations and Forfeiture of Property 163 319

Financing Sources for Accrued Interest and Discount on the Debt 14,042 11,086

Transfers In/Out Without Reimbursement (60) (42)

Imputed Financing from Cost Absorbed by Others 925 1,008

Transfers to the General Fund and Other (Note 20) (127,938) (128,945)

Net Other Resources Used to Finance Activities (112,868) (116,574)

Total Resources Used to Finance Activities 263,280 273,802

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 67,967 20,955

Credit Program Collections that Increase Liabilities for Loan Guarantees or Allowances for 

Subsidy (23,549) (40,146)

Adjustment to Accrued Interest and Discount on the Debt 15,277 12,011

Other (primarily Offset to Offsetting Receipts) (164,856) (98,559)

Total Resources Used to Finance Items Not Part of the Net Cost of Operations (105,161) (105,739)

Total Resources Used to Finance the Net Cost of Operations 368,441 379,541

Total Components of Net Cost of Operations That Will Require or Generate Resources in 

Future Periods 23,213 307,422

Total Components of Net Cost of Operations That Will Not Require or Generate Resources 12,501 (28,122)

Total Components of Net Cost of Operations That Will Not Require or Generate 

Resources in the Current Period 35,714 279,300

Net Cost of Operations $ 404,155 $ 658,841
U.S. Department of the Treasury | Fiscal Year 2011

26. NON-TARP INVESTMENTS IN AMERICAN INTERNATIONAL 

GROUP, INC. 

Under the initial terms of a capital facility agreement between the FRBNY and AIG, a 77.9 percent equity interest in AIG 

(in the form of Series C Convertible Participating Serial Preferred Stock convertible into approximately 77.9 percent of 

the issued and outstanding shares of AIG common stock) was issued to a trust (Trust) established by the FRBNY. 

Subsequent to the initial agreement, a reverse stock split of AIG’s common stock increased this equity interest to 79.8 

percent. The General Fund of the U.S. Government was the sole beneficiary of the Trust. In connection with the 

establishment of the Trust, the Department, as custodian of the General Fund, recorded a non-entity asset of $23.5 

billion as of September 30, 2009, along with a corresponding entry to custodial revenue for the same amount, to reflect 

the value of the General Fund’s beneficiary interest holding in the Trust. As of September 30, 2010, the value of the Trust 

had declined by $2.7 billion, reducing the carrying value of this non-entity asset to $20.8 billion. Both the initial 

recording of the non-entity Trust asset of $23.5 billion in fiscal year 2009, along with the subsequent $2.7 billion decline 

in value in fiscal year 2010, were reported on the Consolidated Statements of Custodial Activity. 

On September 30, 2010, the Department, the FRBNY, and AIG entered into an AIG Recapitalization Agreement for the 

purpose of restructuring the U.S. Government’s holdings in AIG. This restructuring was executed on January 14, 2011, 

converted the Trust’s AIG preferred stock was converted into 562.9 million shares of AIG common stock, and the Trust 

was dissolved (refer to Note 7 for a discussion of the TARP-related transactions that occurred in connection with the 

January 14, 2011 restructuring). The Department intends to sell both its General Fund and TARP holdings in AIG 

common stock together, on a pro rata basis, in the open market over time. The General Fund will be the ultimate 

recipient of any future dividends earned and proceeds realized from the liquidation of the AIG common stock. 

Accordingly, such dividends and proceeds will be deposited into the accounts of the General Fund. The conversion of the 

Trust’s preferred stock into AIG common stock reduced the non-entity portion of the outstanding common stock 

ownership in AIG from 79.8 percent to approximately 31 percent. In connection with the January 14, 2011 restructuring, 

the Department recorded a non-entity asset of $25.5 billion to reflect the value of the General Fund’s 31 percent 

ownership in AIG’s common stock. This transaction also included removing the previous asset which represented the 

General Fund’s sole beneficiary interest in the Trust, which was dissolved as part of the recapitalization.

On May 27, 2011, the Department sold in the open market 200 million shares of AIG common shares held by the General 

Fund and TARP (68 million and 132 million shares, respectively). The sale of the AIG common stock resulted in total 

gross cash proceeds of $5.8 billion, of which the General Fund and the TARP received $2.0 billion and $3.8 billion, 

respectively, for the fiscal year ended September 30, 2011. 

After taking into consideration the May 2011 sale of AIG common stock, the carrying value of the non-entity investment 

in AIG was $10.9 billion as of September 30, 2011, which represented the fair value as of that date of the remaining AIG 

common stock held by the General Fund. As of September 30, 2010, the carrying value of the non-entity investment in 

AIG was $20.8 billion, which represented the fair value, as of that date, of the General Fund’s sole beneficiary interest in 

the Trust. The fair value of the non-entity assets recorded as of September 30, 2011 and 2010 were based on the market 

value of AIG’s common stock which is actively traded on the NYSE. This basis of valuation was used for the Trust since 

the underlying AIG common stock, to which the preferred shares were converted, represented the best independent 

valuation available for the General Fund’s beneficial interest. During fiscal years 2011 and 2010, the Department’s AIG 

investments held on behalf of the General Fund experienced a net fair value decline of $9.9 billion and $2.7 billion, 

respectively. Accordingly, the carrying value of the AIG common stock investment was decreased by this amount, and a 

corresponding amount was reported as custodial expense on the Statement of Custodial Activity. 

139 
U.S. Department of the Treasury | Fiscal Year 2011

The Department will re-value its non-entity AIG common stock holdings at least annually until all of these common 

shares are liquidated. Like any asset, future events may increase or decrease the value of the General Fund’s interest in 

the AIG common stock. 

27. SCHEDULE OF FIDUCIARY ACTIVITY

The following funds have been identified by the Department as meeting the criteria for fiduciary activity. Details of the 

funds are provided below. 

Bureau Fund Code Authority Fund Title/Description

BEP 20X6513.013 31 USC 5119 Mutilated Currency Claims Funds

BPD 20X6008 31 USC 3513 Payment Principal & Interest Govt. Agencies

FMD 20X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks

FMD 20X6048 31 USC 3329, 3330 Proceeds of Withheld Foreign Checks

FMD 2015X6078 50 APP. USC 2012 War Claims Fund, Foreign Claims Settlement Commission

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 20X6310 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

IRS 20X6737 90 Stat. 269-270 Internal Revenue Collections for Northern Mariana Island

IRS 20X6738 31 USC 3513 Coverover Withholdings-U.S. Virgin Islands

IRS 20X6740 31 USC 3515 Coverover Withholdings-Guam

IRS 20X6741 31 USC 3513 Coverover Withholdings-American Samoa

OAS 20X6317.001 22 USC 2431 Belize Escrow, Debt Reduction

OAS 20X6501.018 31 USC 3513 Small Escrow Amounts

Unclaimed monies were authorized by 31 USC 5119, which authorized FMS to collect unclaimed monies on behalf of the 

public. Other fiduciary activities by the Department as listed above are included in All Other Fiduciary Funds. 

140 
U.S. Department of the Treasury | Fiscal Year 2011

141 

Schedule of Fiduciary Activity 

(in millions) 2011 2010

Unclaimed 

Monies -

FMD

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Unclaimed 

Monies -

FMD

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Fiduciary Net Assets, Beginning of the Year $ 420 $ 156 $ 576 $ 390 $ 208 $ 598

Increases:

Contributions to Fiduciary Net Assets 31 479 510 103 1,004 1,107

Investment Earnings - 1 1 - 1 1

Total Increases 31 480 511 103 1,005 1,108

Decreases:

Disbursements to and on behalf of beneficiaries - (223) (223) (73) (1,057) (1,130)

Total Decreases - (223) (223) (73) (1,057) (1,130)

Net Increase (Decrease) in Fiduciary Assets 31 257 288 30 (52) (22)

Fiduciary Net Assets, End of Year $ 451 $ 413 $ 864 $ 420 $ 156 $ 576

Schedule of Fiduciary Net Assets 

(in millions) 2011 2010

Unclaimed 

Monies -

FMD

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Unclaimed 

Monies -

FMD

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Fiduciary Assets

Cash and Cash Equivalents $ 451 $ 336 $ 787 $ 420 $ 57 $ 477

Investments - 77 77 - 99 99

Total Fiduciary Assets $ 451 $ 413 $ 864 $ 420 $ 156 $ 576

28. COMMITMENTS AND CONTINGENCIES

LEGAL CONTINGENCIES

The 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. The 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 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 Department’s Judgment Fund, which is separate 

from the operating resources of the Department. For cases related to the Contract Disputes Act of 1978 and awards 

under federal anti-discrimination and whistle-blower protection acts, the Department must reimburse the Judgment 

Fund from future appropriations. 

The Department had two contingent liabilities in fiscal year 2011 related to legal action taken in the cases of American 

Council of the Blind v. Geithner and Cobell v. Salazar where losses are determined to be probable. An amount of loss 

cannot be estimated for the American Council of the Blind case. In Cobell v. Salazar, the parties agreed to a total 

settlement of $3.4 billion. Specific details of these two litigation cases are provided below. 
U.S. Department of the Treasury | Fiscal Year 2011

142 

In the opinion of the Department’s management and legal counsel, based on information currently available, the 

expected outcome of other legal actions, individually or in the aggregate, will not have a materially adverse effect on the 

Department’s consolidated financial statements, except for the pending legal actions described below which may have a 

materially adverse impact on the consolidated financial statements depending on the outcomes of the cases.

PENDING LEGAL ACTIONS

 American Council of the Blind, et. al. v. Geithner: Plaintiffs have filed suit against the Department under Section 504 

of the Rehabilitation Act seeking the redesign of U.S. currency. In 2007, a U.S. District Court judge ruled that the 

current U.S. currency design violates this Act; this ruling was subsequently appealed. In 2008, the U.S. Court of 

Appeals for the District of Columbia Circuit affirmed the District Court’s ruling. No monetary damages were awarded 

by the court, but the Department was ordered to provide meaningful access to U.S. 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, and cannot be estimated at this time, no redesign costs have been 

accrued in the accompanying financial statements as of September 30, 2011 and 2010. 

On May 20, 2010, the BEP published in the Federal Register its proposed recommendations on the appropriate 

method(s) to comply with the court’s order to make currency accessible to the blind to be implemented with the next 

currency design. The comment period for the Federal Register notice closed on August 18, 2010. On May 31, 2011, 

Secretary Geithner approved the proposed recommendations, and BEP is working to implement the approved 

methodologies. 

 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 in July 2009. The Appellate Court found that the U.S. 

Government owes a cost-effective accounting, in scale with available funds.

In December 2009, the parties agreed to settle the plaintiff’s claims, as well as claims for mismanagement of assets and 

land that were not asserted in the case, for $1.5 billion. The U.S. Government also agreed to pay an additional amount 

of up to $1.9 billion to purchase certain land interests owned by Native Americans. Final approval of the settlement 

will not occur until the court issues a formal written order, and any appeals from individuals challenging the settlement 

have run their course. The Department of the Interior, jointly named in the case, accrued the entire $3.4 billion as a 

contingent liability in fiscal year 2011 upon President Obama’s signing of legislation authorizing the settlement in 

December 2010. Accordingly, the Department of the Treasury will not accrue any portion of this liability. 

Tribal Trust Fund Cases: Numerous cases have been filed in the U.S. District Courts in which Native American Tribes 

seek a declaration that the United States has not provided the tribes with a full and complete accounting of their trust 

funds, and seek an order requiring the U.S. Government to provide such an accounting. In addition, there are a 

number of other related cases seeking damages in the U.S. Court of Federal Claims, which do not name the Department 

as a defendant. The U.S. Government is currently in discussion with counsel representing approximately 80 tribes 

with tribal trust cases pending against the United States (the Settlement Proposal to the Obama Administration or 

“SPOA” group) about the feasibility of an omnibus settlement of the tribal trust cases. The Department is unable to 

determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time. 
U.S. Department of the Treasury | Fiscal Year 2011

143 

In April 2011, the U.S. Supreme Court decided the United States v. Tohono O’Odham Nation tribal trust fund case. 

This case involved the interpretation of a federal statute which limits the jurisdiction of the U.S. Court of Federal 

Claims when a plaintiff has cases pending simultaneously in the U.S. Court of Federal Claims and any other court. The 

U.S. Supreme Court held that the U.S. Court of Federal Claims action brought by the Tohono O’Odham Nation must be 

dismissed pursuant to 28 USC § 1500. 

 Amidax Trading Group v. S.W.I.F.T.: Plaintiffs allege that the 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 by the District Court on February 13, 2009, and the plaintiff has subsequently appealed that ruling to the 

Court of Appeals for the Second Circuit. The parties have completed the appellate briefing, and the oral argument 

occurred on July 14, 2010. The parties are awaiting the Second Circuit’s decision. The Department is unable to 

determine the likelihood of an unfavorable outcome or an estimate of potential loss at this time. 

 James X. Bormes v. United States of America: The complaint alleges that the government willfully violated certain 

provisions of the Fair and Accurate Credit Transaction Act (FACTA) P.L. 108-159 in that the transaction confirmation 

received by the complainant from Pay.gov improperly included the expiration date of the credit card used for that 

transaction. The complaint does not state the amount of damages sought on behalf of the class beyond asserting that 

each class member would be entitled to $100 to $1,000 in statutory damages. In a letter sent to the Department of 

Justice, the plaintiff proposed a fund of $30 million for just the Illinois class members. 

On July 24, 2009, the U.S. District Court for the Northern District of Illinois granted the U.S. Government’s motion to 

dismiss this case for lack of an unequivocal waiver of sovereign immunity. On November 16, 2010, the U.S. Court of 

Appeals for the Federal Circuit reversed the District Court’s decision and directed that the case be remanded back to 

the District Court for further proceedings. The U.S. Government’s petition for a rehearing of that decision was denied 

by the Federal Circuit on March 15, 2011. On August 12, 2011, the U.S. Government filed a petition for a writ of 

certiorari concerning this decision with the U.S. Supreme Court; a decision by the Supreme Court is pending. 

Other Legal Actions: The Department is also involved in employment related legal actions (e.g., matters alleging 

discrimination and other claims before the 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 Department’s financial 

position or results. 

OTHER COMMITMENTS AND CONTINGENCIES

Treaties and International Agreements. 

The Department does not have any treaties or international agreements to report for fiscal year 2011 which would have a 

material impact on the Department’s consolidated financial statements. 

Loan Commitments 

The Department, through FFB, makes loan commitments with federal agencies, or private sector borrowers whose loans 

are guaranteed by federal agencies, to extend them credit for their own use (refer to Notes 1L and 3). As of September 30, 

2011 and 2010, the Department had loan commitments totaling $95.5 billion and $113.9 billion, respectively. 
U.S. Department of the Treasury | Fiscal Year 2011

144 

Multilateral Development Banks 

The Department on behalf of the United States has subscribed to capital for certain multilateral development banks 

(MDBs), 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 U.S. commitment for these subscriptions. As of 

September 30, 2011 and 2010, U.S. callable capital in MDB was as follows (in millions):

2011 2010

African Development Bank $ 1,545 $ 1,634

Asian Development Bank 8,469 5,911

European Bank for Reconstruction and Development 1,803 1,805

Inter-American Development Bank 28,687 28,687

International Bank for Reconstruction and Development 29,966 24,251

Multilateral Investment Guarantee Agency 293 301

North American Development Bank 1,275 1,275

Total $ 72,038 $ 63,864

Amounts included in the above table do not include amounts for which the Department may be liable to pay if future 

congressional action is taken to fund executed agreements between the Department and certain multilateral development 

banks. 

In accordance with the disclosure requirements of SFFAS No. 5 “Accounting for Liabilities of the Federal Government”, 

an increase of $5.7 billion in callable capital of the International Bank for Reconstruction and Development (IBRD) was 

made to reflect the Department’s authorization to use a public debt transaction in the United States’ original subscription 

to capital stock of the IBRD. In prior years, this amount had not been presented as a commitment. 

Additionally, the Department recorded callable capital in fiscal year 2007 for the African Development Bank (AfDB), 

European Bank for Reconstruction and Development (EBRD) and the Multilateral Investment Guarantee Agency (MIGA) 

as a result of a full year Continuing Appropriation Resolution (PL 110-5) which was based on fiscal year 2006 

appropriation language authorizing callable capital. However, all outstanding commitments to the EBRD and the AfDB 

have been satisfied and to the extent that any outstanding authority exists, it is no longer necessary. In addition, 

Congress explicitly provided no appropriated funds for MIGA in fiscal year 2007 and no further callable commitments 

were made to MIGA in accordance with the intent of Congress. As a result, the callable capital for these financial 

institutions has been reduced to reflect the actual limitations imposed by Congress. 

Terrorism Risk Insurance Program 

The Terrorism Risk Insurance Act (TRIA) was signed into law on November 26, 2002. This law was enacted to address 

market disruptions resulting from terrorist attacks on September 11, 2001. TRIA 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 (TRIA Program) is activated upon the certification of an “act of terrorism” by the 

Secretary 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. TRIA also gives the Department authority to recoup federal payments made under the TRIA Program 

through policyholder surcharges under certain circumstances, and contains provisions designed to manage litigation 

arising from or relating to a certified act of terrorism. There were no claims under TRIA as of September 30, 2011 or 

2010. 
U.S. Department of the Treasury | Fiscal Year 2011

145 

On August 3, 2010, the Department issued a notice of proposed rulemaking with requests for comment. The intent of 

this rule is to provide a process by which the Department would close out its claims operation for insured losses from a 

TRIA Program year. The Department expects to issue a final rule incorporating public comments in fiscal year 2012. 

Exchange Stabilization Agreement 

In April 1994, the Department signed the North American Framework Agreement (NAFA), which includes the Exchange 

Stabilization Agreement (ESA) with Mexico. The Department has a standing swap line for $3.0 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, 2011 and 2010. On December 13, 2010, the Department renewed the agreement until December 15, 2011. 

New Arrangements to Borrow 

P.L. 111-32 provided the authorization and appropriations for an increase in the United States’ participation in the New 

Arrangements to Borrow (NAB). Because the U.S. financial participation in the IMF is denominated in SDRs, the P.L. 

111-32 authorized and appropriated up to the dollar equivalent of SDR 75 billion to implement this commitment. The 

United States agreed on May 10, 2010 that its participation in the NAB would increase from its existing SDR 6.6 billion (a 

portion of this SDR 6.6 billion is in connection to a similar borrowing arrangement, the GAB) to SDR 69.1 billion, 

pursuant to IMF Executive Board Decision No. 14577-(10/35) adopted April 12, 2010. Total U.S. participation in the NAB 

of SDR 69.1 billion was equivalent to $107.9 billion on September 30, 2011. Only the new portion of U.S. participation in 

the NAB is subject to the FCRA and is accounted for as a direct loan. This accounting treatment will not affect the 

treatment of the reserve position in the IMF, only the budget presentation. Refer to Notes 11 and 12 for a more detailed 

discussion of this accounting treatment. 

Contingent Liability to GSEs 

The Department has recorded a contingent liability at September 30, 2011 and 2010 of $316.2 billion and $359.9 billion, 

respectively, to the GSEs – Fannie Mae and Freddie Mac – based on probable future liability under the SPSPA between 

the Department and the GSEs. Refer to Note 8 for a full description of the agreements and related contingent liability.

REQUIRED SUPPLEMENTAL INFORMATION (UNAUDITED) 

INTRODUCTION

This section provides the Required Supplemental Information as prescribed by Office of Management and Budget (OMB) 

Circular A-136, Financial Reporting Requirements, as amended. 

OTHER CLAIMS FOR REFUNDS

The Department has estimated that $15.6 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, by Appeals. The total estimated payout (including principal and interest) for claims pending judicial review by 

the federal courts is $8.1 billion and by appeals is $7.5 billion. 

The Department made an administrative determination to accept the position that certain medical residents who 

received stipends be exempted from FICA taxes for periods before April 1, 2005. At September 30, 2011, the IRS 

estimated unpaid refund claims of approximately $3.7 billion. In accordance with federal accounting standards, the 
U.S. Department of the Treasury | Fiscal Year 2011

146 

amounts of these claims have not been recorded as a liability in the consolidated financial statements because certain 

administrative processes have not been completed as of September 30, 2011. 

IRS 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. Under Internal Revenue Code Section 6201, the 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 Department also has authority to abate the paid or unpaid portion of an assessed tax, 

interest, and penalty. Abatements occur for a number of reasons and are a normal part of the tax administration process. 

Abatements may result in claims for refunds or a reduction of the unpaid assessed amount. 

Under federal accounting standards, 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 FDIC 

and the former Resolution Trust Corporation (RTC). Write-offs have little or no future collection potential, but statutory 

provisions require that these assessments be maintained until the statute for collection expires. 

Although compliance assessments and write-offs are not considered receivables under federal accounting standards, they 

represent legally enforceable claims of the U.S. Government. 

The components of the total unpaid assessments at September 30, 2011 and 2010, were as follows (in millions):

2011 2010

Total Unpaid Assessments $ 356,314 $ 330,000

Less: Compliance Assessments (102,693) (93,000)

Write Offs (106,519) (99,000)

Gross Federal Taxes Receivable 147,102 138,000

Less: Allowance for Doubtful Accounts (112,363) (103,091)

Federal Taxes Receivables, Net $ 34,739 $ 34,909

To eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties, totaling 

$2.0 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 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. 

ALCOHOL AND TOBACCO TAX AND TRADE BUREAU

As an agent of the U.S. Government and as authorized by 26 USC, the TTB collects excise taxes from alcohol, tobacco, 

firearms, and ammunition industries. In addition, special occupational taxes are collected from certain tobacco 

businesses. During fiscal years 2011 and 2010, TTB collected approximately $23.5 billion and $23.8 billion in taxes, 

interest, and other revenues, respectively. Federal excise taxes are also collected on certain articles produced in Puerto 

Rico and the Virgin Islands, and imported into the United States. In accordance with 26 USC 7652, such taxes collected 
U.S. Department of the Treasury | Fiscal Year 2011

147 

on rum imported into the United States are “covered over” or paid into the treasuries of Puerto Rico and the Virgin 

Islands. 

Substantially all of the taxes collected by TTB net of related refund disbursements are remitted to the General Fund. The 

Department 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 years 2011 and 2010, the Department had no material amounts of deferred maintenance costs to report on 

vehicles, buildings, and structures owned by the 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. 
U.S. Department of the Treasury | Fiscal Year 2011

148 

STATEMENT OF BUDGETARY RESOURCES DISAGGREGATED BY TREASURY REPORTING ENTITY

The following table provides the Statement of Budgetary Resources disaggregated by Treasury reporting entity for fiscal 

year 2011.

Fiscal Year 2011 Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

(in millions):

Bureau of 

Engraving 

& Printing

Bureau of 

the Public 

Debt

Departmental 

Offices3

Fin. Crimes 

Enforcement 

Network

Financial 

Management 

Service

Internal 

Revenue 

Service

Budgetary Resources

Unobligated balance, brought forward, Oct. 1 $ 59 $ 95 $ 369,701 $ 28 $ 287 $ 806

Recoveries of prior year unpaid obligations - 6 16,533 1 14 122

Budget authority

Appropriations (Note 20) - 490,185 31,301 110 22,413 13,474

Borrowing authority: - - 201,863 - - -

Spending authority from offsetting collections:

Earned:

Collected 531 199 222,823 15 247 198

Change in receivables from Federal sources 11 5 6 2 4 (5)

Change in unfilled customer orders:

Advance received - - 26 - - -

Without advance from Federal sources - - (22,852) (4) (9) -

Subtotal 542 490,389 433,167 123 22,655 13,667

Non-expenditure transfer, net - (6) 153 - (22) -

Temporarily not available pursuant to Public Law - - (426) - - -

Permanently not available - (35,862) (226,167) - (4,073) (175)

Total Budgetary Resources $ 601 $ 454,622 $ 592,961 $ 152 $ 18,861 $ 14,420

Status of Budgetary Resources

Obligations incurred (Note 22):

Direct $ - $ 454,318 $ 226,686 $ 105 $ 18,313 $ 13,396

Reimbursable 575 209 253 13 236 139

Subtotal 575 454,527 226,939 118 18,549 13,535

Unobligated balance

Apportionment 22 88 245,705 32 257 287

Exempt from apportionment - - 22,810 - 7 -

Subtotal 22 88 268,515 32 264 287

Unobligated balance not available 4 7 97,507 2 48 598

Total Status of Budgetary Resources $ 601 $ 454,622 $ 592,961 $ 152 $ 18,861 $ 14,420

Change in Obligated Balance

Obligated balance, net

Unpaid obligations brought forward, Oct. 1 $ 117 $ 76 $ 229,275 $ 30 $ 413 $ 1,807

Uncollected customer payments from Federal 

sources brought forward (29) (14) (23,857) (10) (29) (57)

Total unpaid obligated balance, net 88 62 205,418 20 384 1,750

Obligations incurred, net 575 454,527 226,939 118 18,549 13,535

Gross outlays (552) (454,509) (171,011) (120) (18,115) (13,445)

Recoveries of prior year unpaid obligations, actual - (6) (16,533) (1) (14) (122)

Change in uncollected customer payments from 

Federal source (11) (5) 22,846 2 5 5

Obligated balance, net, end of period:

Unpaid obligations 140 87 268,670 27 833 1,776

Uncollected customer payments from Federal 

sources (40) (18) (1,011) (8) (24) (53)

Total, unpaid obligated balance, net, end 

of Period $ 100 $ 69 $ 267,659 $ 19 $ 809 $ 1,723

Net Outlays

Gross outlays $ 552 $ 454,509 $ 171,011 $ 120 $ 18,115 $ 13,445

Offsetting collections (531) (199) (222,849) (15) (247) (198)

Distributed offsetting receipts - (38,509) (80,625) - (434) (390)

Net outlays $ 21 $ 415,801 $ (132,463) $ 105 $ 17,434 $ 12,857

3 Of the $593.0 billion of Total Budgetary Resources for Departmental Offices, OFS, GSE and OAS had $103.0 billion, $273.5 billion and $154.7 billion, 

respectively. The remainder is spread throughout other offices.
U.S. Department of the Treasury | Fiscal Year 2011

149 

Fiscal Year 2011 Statement of Budgetary Resources Disaggregated 

by Sub-organization Accounts

(in millions): U.S. Mint

Office of the 

Comptroller 

of the 

Currency

Office of(a)

Thrift 

Supervision

Alcohol, 

Tobacco 

Tax and 

Trade 

Bureau Budgetary

NonBudgetary

Budgetary Resources

Unobligated balance, brought forward, Oct. 1 $ 111 $ 847 $ 304 $ 5 $ 348,424 $ 23,819

Recoveries of prior year unpaid obligations 44 - 8 1 11,058 5,671

Budget authority

Appropriations (Note 20) - - - 101 552,971 4,613

Borrowing authority: - - - - 1 201,862

Spending authority from offsetting collections:

Earned:

Collected 4,970 892 182 4 11,059 219,002

Change in receivables from Federal sources - 4 - - 27 -

Change in unfilled customer orders:

Advance received 15 - (52) - (11) -

Without advance from Federal sources (1) - - 1 (18) (22,847)

Subtotal 4,984 896 130 106 564,029 402,630

Non-expenditure transfer, net - 245 (245) - 125 -

Temporarily not available pursuant to Public Law - - - - (426) -

Permanently not available (51) - - (1) (44,417) (221,912)

Total Budgetary Resources $ 5,088 $ 1,988 $ 197 $ 111 $ 878,793 $ 210,208

Status of Budgetary Resources

Obligations incurred (Note 22):

Direct $ - $ - $ - $ 103 $ 531,283 $ 181,638

Reimbursable 4,675 825 197 4 7,126 -

Subtotal 4,675 825 197 107 538,409 181,638

Unobligated balance

Apportionment 413 - - 2 246,296 510

Exempt from apportionment - 1,163 - - 23,980 -

Subtotal 413 1,163 - 2 270,276 510

Unobligated balance not available - - - 2 70,108 28,060

Total Status of Budgetary Resources $ 5,088 $ 1,988 $ 197 $ 111 $ 878,793 $ 210,208

Change in Obligated Balance

Obligated balance, net

Unpaid obligations brought forward, Oct. 1 $ 229 $ 185 $ 44 $ 22 $ 182,707 $ 49,491

Uncollected customer payments from Federal

sources brought forward (8) (4) - (1) (192) (23,817)

Total unpaid obligated balance, net 221 181 44 21 182,515 25,674

Obligations incurred, net 4,675 825 197 107 538,409 181,638

Gross outlays (4,513) (798) (194) (105) (561,707) (101,655)

Recoveries of prior year unpaid obligations, actual (44) - (8) (1) (11,058) (5,671)

Change in uncollected customer payments from 

Federal source 1 (4) - (1) (9) 22,847

Obligated balance, net, end of period:

Unpaid obligations 346 251 - 23 148,351 123,802

Uncollected customer payments from Federal

sources (6) (8) - (2) (201) (969)

Total, unpaid obligated balance, net, end of 

Period $ 340 $ 243 $ - $ 21 $ 148,150 $ 122,833

Net Outlays

Gross outlays $ 4,513 $ 798 $ 194 $ 105 $ 561,707 $ 101,655

Offsetting collections (4,985) (892) (130) (4) (11,048) (219,002)

Distributed offsetting receipts - - - - (119,958) -

Net outlays $ (472) $ (94) $ 64 $ 101 $ 430,701 $ (117,347)

(a) On July 21, 2011, OTS merged into OCC. Accordingly, OTS’s budgetary resources through July 20, 2011 are reported separately herein, and its operating 

results subsequent to July 20, 2011 were combined with OCC’s operating results.
U.S. Department of the Treasury | Fiscal Year 2011

139 
U.S. Department of the Treasury | Fiscal Year 2011

140 

 
U.S. Department of the Treasury | Fiscal Year 2011

APPENDIX A: OTHER 

ACCOMPANYING INFORMATION 

(UNAUDITED) 

This section provides Other Accompanying Information as prescribed by Office of Management and Budget (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 monthly to the Department, and the bureaus 

conduct periodic quality control reviews to identify 

potential problems.

 

152 
U.S. Department of the Treasury | Fiscal Year 2011

153 

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 tax 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 IRS will update the tax gap estimate in December 2011. 

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 nonfiling 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). 

TAX BURDEN

The Internal Revenue Code (IRC) provides for progressive 

rates of tax, whereby higher incomes are generally subject 

to higher rates of tax. The following graphs and charts 

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) 

Division. 
U.S. Department of the Treasury | Fiscal Year 2011

154 

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2,024 

22,002 

39,056 

70,938 

133,223 

283,364 

1,452,604 

36 

466 

1,810 

5,254 

15,700 

55,187 

353,852 

Dollars

Average Adjusted Gross Income (AGI) and

Average Individual Income Tax Liability

Tax Year 2009

Average AGI

Average Income Tax

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1.8% 

2.1% 

4.6% 

7.4% 

11.8% 

19.5% 

24.4% 

Percent

Individual Income Tax Liability as a Percentage of AGI

Tax Year 2009 

 

INDIVIDUAL INCOME TAX LIABILITY

Tax Year 2009

Average 

Average AGI income tax 

Number of per return per return Income tax as a 

Adjusted gross income taxable returns AGI (in Total income (in whole (in whole percentage of 

(AGI) (in thousands) millions) tax (in millions) dollars) dollars) AGI

Under $15,000 37,624 $ 76,133 $ 1,354 $ 2,024 $ 36 1.8%

$15,000 under $30,000 30,097 662,180 14,013 22,002 466 2.1%

$30,000 under $50,000 25,168 982,969 45,556 39,056 1,810 4.6%

$50,000 under $100,000 30,159 2,139,407 158,455 70,938 5,254 7.4%

$100,000 under $200,000 13,522 1,801,447 212,291 133,223 15,700 11.8%

$200,000 under $500,000 3,195 905,347 176,322 283,364 55,187 19.5%

$500,000 or more 729 1,058,948 257,958 1,452,604 353,852 24.4%

Total 140,494 $ 7,626,431 $ 865,949 - - - 
U.S. Department of the Treasury | Fiscal Year 2011

155 

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

28.9%

19.0%

23.5%

29.6%

32.7%

32.7%

32.5%

32.1%

32.3%

29.9%

29.6%

21.2%

Percent

Corporation Tax Liability as a Percentage of Taxable Income

Tax Year 2008 Data

CORPORATION TAX LIABILIT Y 

Tax Year 2008 

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 $ 13,373 $ 3,870 28.9%

$1 under $500 7,414 1,406 19.0%

$500 under $1,000 3,778 889 23.5%

$1,000 under $5,000 12,785 3,783 29.6%

$5,000 under $10,000 7,846 2,569 32.7%

$10,000 under $25,000 11,898 3,893 32.7%

$25,000 under $50,000 10,343 3,366 32.5%

$50,000 under $100,000 12,766 4,100 32.1%

$100,000 under $250,000 23,043 7,445 32.3%

$250,000 under $500,000 30,685 9,180 29.9%

$500,000 under $2,500,000 107,715 31,935 29.6%

$2,500,000 or more 736,507 156,087 21.2%

Total $ 978,153 $ 228,523 23.4%
U.S. Department of the Treasury | Fiscal Year 2011

156 

APPENDIX B: IMPROPER PAYMENTS 

On July 22, 2010, President Obama signed into law the Improper Payments Elimination and Recovery Act (IPERA, Pub. L. 111-

204). IPERA amends the Improper Payments Information Act (IPIA), generally repeals the Recovery Auditing Act, and 

significantly increases agency payment recapture efforts by expanding the types of payments to be reviewed and lowering the 

dollar threshold of annual payments that requires agencies to conduct payment recapture audit programs. Agencies continue to 

be required to review their programs and activities annually to identify those susceptible to significant improper payments. 

OMB Circular No. A-123, Management’s Responsibility for Internal Control, Appendix C, Requirements for Effective 

Measurement and Remediation of Improper Payments (A-123, Appendix C), amended April 14, 2011, defines ―significant 

improper payments‖ as gross annual improper payments in a program exceeding both the threshold of 2.5 percent and $10 

million of total program funding or $100 million regardless of the improper payment percentage. A-123, Appendix C also 

requires the agency to implement a corrective action plan that includes improper payment root cause identification, reduction 

targets, and accountability.

Section 2(B) of IPERA allows the development of an alternative for meeting the requirements for obtaining a statistically valid 

estimate of the annual amount of improper payments 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. RISK ASSESSMENTS

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. The bureaus and offices must perform risk assessments at the payment type 

level (e.g., payroll, contracts, vendors, travel, etc.). During fiscal year 2011, Treasury lowered the assessment threshold for 

program or activity funding from $10 million to $1 million. The Department’s risk assessment follows the Committee of 

Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework. The framework 

includes: 

1. Internal Control Environment 

2. Risk Assessment 

3. Internal Control Activities 

4. Information and Communications 

5. Monitoring 

Within the COSO Integrated Framework the factors addressed to determine risk levels include: 

Operating Environment – Existence of factors which necessitate or allow for loosening of financial controls; any known 

instances of fraud 

Payment Processing Controls – Management’s implementation of internal controls over payment processes including 

existence of current documentation, the assessment of design and operating effectiveness of internal controls over payments, the 

identification of deficiencies related to payment processes, and whether or not effective compensating controls are present 

Quality of Internal Monitoring Controls – Periodic internal program reviews to determine if payments are made properly; 

strength of documentation requirements and standards to support testing of design and operating effectiveness for key payment 

controls 
U.S. Department of the Treasury | Fiscal Year 2011

157 

Human Capital – Experience, training, and size of payment staff; ability of staff to handle peak payment requirements; level of 

management oversight, and monitoring against fraudulent activity 

Prior to the enactment of the IPERA changes to IPIA, Treasury maintained and performed a robust improper payment risk 

assessment process in which the new IPERA payment types were included. During fiscal year 2011, Treasury enhanced its risk 

assessment tool by expanding the scope of risk assessment factors which were included in the revised A-123, Appendix C. 

For those payment types resulting in high-risk assessments that comprise at least 2.5 percent and $10 million or $100 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 

at each risk level: 

Risk Level Required Action(s)

High Risk > 2.5% Error Rate & > $10 Million or $100,000,000 Corrective Action Plan

Medium Risk Review Payment Controls for Improvement

Low Risk No Further Action Required

The results of the risk assessments performed across the Department in fiscal year 2011 resulted in all programs and activities 

being of low and medium risk susceptibility for improper payments, except for the IRS’s Earned Income Tax Credit (EITC) 

program. The EITC’s high-risk status is well-documented, having been identified previously in the former Section 57 of OMB 

Circular No. A-11, Preparation, Submission, and Execution of the Budget, and has been deemed a complex program for the 

purposes of the IPIA. OMB’s guidance requires additional reporting on programs deemed high-risk; that information, for the 

EITC program only, follows.

II. STATISTICAL SAMPLING 

EITC Program

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 refund to those who qualify. 

This section describes how the IRS currently develops its erroneous payment projections for the EITC. The most recent 

projection is based on a tax year 2007 reporting compliance study that estimated the level of improper overclaims for fiscal year 

2011 to range between $13.7 to $16.7 billion and 21.2 percent (lower bound) to 25.8 percent (upper bound) of approximately 

$64.7 billion in total program payments. 

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 IRS’s National Research Program (NRP) reporting compliance study of individual income tax returns for 

tax year 2007—the most recent year for which compliance information from a statistically valid, random sample of individual tax 

returns is available. 

Under the tax year 2007 NRP reporting compliance study, which reviewed individual income tax returns filed during calendar 

year 2008 for tax year 2007, 2,200 of the returns in the regular NRP sample were EITC claimants randomly selected for 

examination. 

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 differ from those followed in standard examination programs. NRP classification and 
U.S. Department of the Treasury | Fiscal Year 2011

158 

examination procedures are 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 2007 NRP individual income tax return study covered filers of all types of individual income tax returns. 

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, which tracks assessments and collections from IRS enforcement-related activities, and Treasury Department fiscal year 

2011 EITC budget estimates. 

III. CORRECTIVE ACTIONS 

This section describes the ongoing and planned corrective actions to reduce the improper payment rate for Treasury’s only highrisk susceptible program, the EITC. 

Root Causes 

The root causes of EITC improper payments are from the following sources: 

Authentication – An estimated 75 percent or $11.4 billion in improper payments result from authentication errors. These 

errors include errors associated with the inability to authenticate qualifying child eligibility requirements, mainly relationship 

and residency requirements, filing status, when married couples file as single or head of household, and eligibility in 

nontraditional and complex living situations. Authentication is completed on a portion of this error category during pre-refund 

examinations. 

Verification – An estimated 25 percent or $3.8 billion in improper payments result from verification errors. These errors 

relate to improper income reporting which allows claimants to fall within the EITC income limitations and qualify for the EITC. 

The errors include both underreporting and overreporting of income by both wage earners and taxpayers who report being selfemployed. Income reported through information returns such as Forms W-2, Forms 1099, etc., which can be used for 

verification of some income, becomes available only after tax returns are processed. Under law IRS must process income tax 

returns within 45 days of receipt or pay interest to taxpayers. 

Base Program

In 2011, the IRS prevented more than $3.7 billion from being paid in error. The prevention activity primarily focused on three 

areas: 

• Examinations – 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 conducted before a refund is released. The 

examination closures and enforcement revenue protected in the charts below do not include test initiatives 

• Math Error – Refers to an automated process in which the IRS identifies math or other statistical irregularities and 

automatically prepares an adjusted return for a taxpayer. Legislation 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 2006 through an estimate of fiscal year 2012. In fiscal year 2011 alone, 

the IRS conducted an estimated 484,000 examinations, issued approximately 300,000 math error notices, and closed nearly 1.2

million document matching reviews. 
U.S. Department of the Treasury | Fiscal Year 2011

159 

Compliance Activities 

FY06 FY07 FY08 FY09 FY10* FY11** FY12*** FY06-FY12 Total

Examination Closures 517,617 503,267 503,755 508,180 473,999 483,785 484,000 3,474,603

Math Error Notices 460,316 393,263 432,797 355,416 341,824 300,000 250,000 2,533,616

Document Matching **** 364,020 734,603 727,916 688,087 904,920 1,178,129 1,178,000 5,775,675

Amended Returns1 32,473 25,395 19,347 14,319 14,000 105,534

* Restated actual.

** Preliminary estimates.

*** Estimate based on fiscal year 2011 preliminary data.

**** Document Matching includes enterprise data. Enterprise data not available for fiscal year 2006.

1 Amended returns are a subset of Examination Closures.

These activities had a significant effect. Treasury projects that continued enforcement efforts will protect a total of nearly $25 

billion in revenue through fiscal year 2012. 

Enforcement Revenue Protected (Dollars in Billions)

FY06 FY07 FY08 FY09 FY10* FY11** FY12*** FY06-FY12 Total

Examination Closures $ 1.50 $ 1.49 $ 2.00 $ 2.15 $ 1.97 $ 2.04 $ 2.04 $ 13.19

Math Error Notices $ 0.46 $ 0.41 $ 0.44 $ 0.40 $ 0.41 $ 0.36 $ 0.31 $ 2.79

Document Matching **** $ 0.60 $ 1.29 $ 1.23 $ 1.17 $ 1.43 $ 1.32 $ 1.32 $ 8.36

Amended Returns $ 0.07 $ 0.07 $ 0.06 $ .04 $ .04 $ 0.28

TOTAL $ 2.56 $ 3.19 $ 3.74 $ 3.79 $ 3.87 $ 3.76 $ 3.71 $ 24.62

* Restated actual.

** Preliminary estimates.

*** Estimate based on fiscal year 2011 preliminary data.

**** Document Matching includes enterprise data. Enterprise data not available for fiscal year 2006.

Maximizing Current Business Processes 

• In fiscal year 2011, IRS completed activities associated with a suite of EITC paid preparer treatments, based on riskbased selections, to influence the accuracy of EITC returns filed. IRS increased the number of due diligence audits by 

over 100 percent, visits by revenue and criminal investigation agents by 50 percent, and educational and compliance 

notices to first-time and experienced preparers by 25 percent over the prior year. The percentage of paid preparers 

penalized as a result of due diligence audits remained high at 90 percent. Proposed due diligence penalties increased by 

almost 250 percent to over $10.4 million. IRS also proposed other penalties of over $250,000. Additionally, IRS 

obtained four injunctions against EITC preparers with a revenue impact of over $60 million. 

• IRS completed strategic studies to update the estimates of the two key EITC performance measures, participation rate 

and error rate, which comply with the Government Performance and Results Act of 1993. IRS also delivered estimates 

of EITC participation for tax year 2008, using a Census-IRS match. In addition, IRS used research data from the fiscal 

year 2011 enterprise research strategy to develop a fiscal year 2012 strategy in partnership with internal organizations to 

better focus EITC compliance and outreach activities. 

• IRS continued its partnership with members from two key tax software associations to collaborate on efforts to help 

reduce EITC errors and assist preparers in meeting their EITC due diligence requirements. In fiscal year 2011, the 

partnership delivered an EITC Schedule C and Records Reconstruction Training to help preparers meet their due 

diligence requirements with self-employed clients. 
U.S. Department of the Treasury | Fiscal Year 2011

160 

IV. IMPROPER PAYMENT REPORTING 

The following table provides the improper payment reduction outlook for Treasury’s only high-risk susceptible program, the 

EITC:

Improper Payment (IP) Reduction Outlook

(Dollars in Billions)

Program

2010Outlays2010

%

2010 $2011Outlays2011 IP%2011 IP$2012 Est.Outlays2012 IP%2012 IP$2013 Est.Outlays2013 IP%2013 IP$2014 Est.Outlays2014 IP%2014 IP$

EITC 

Upper 

Bound

Estimate

$64.2 28.7% $18.4 $64.7 25.8% $16.7 $57.0 25.8% $14.7 $57.0 25.8% $14.7 $51.2 25.8% $13.2

EITC 

Lower 

Bound

Estimate

$64.2 23.9% $15.3 $64.7 21.2% $13.7 $57.0 21.2% $12.1 $57.0 21.2% $12.1 $51.2 21.2% $10.9

The term ―Outlays‖ equals ―Estimated Claims‖.

Estimated Claims: Estimated total claims for the EITC are based on projections of EITC tax expenditures plus outlays as estimated by the Office of Tax Analysis 

within the Department of the Treasury, adjusted to account for the difference between taxpayer claims and accounts received by taxpayers due to return 

processing and enforcement.

IP % and IP $: These estimates follow the prior approach which provided a range for the error rate (%) and improper payments amounts ($).

2010 and 2011 estimates include Recovery Act EITC provisions which expanded the EITC for families with three children and increased the beginning of the 

phase-out range for couples filing a joint return.

Underpayments are not included in the estimate of improper payments. Underpayments do not appear with sufficient frequency 

in the statistically valid test data to have a measurable effect on the estimate. 

V. RECAPTURE OF IMPROPER PAYMENTS REPORTING

In accordance with IPERA and OMB Circular No. A-123, Appendix C, Treasury performs and reports annually on its payment 

recapture program. In fiscal year 2011, Treasury incorporated the IPERA amendments into the existing Treasury payment 

recapture (recovery audit) program. Prior to the enactment of the IPERA changes to IPIA, Treasury maintained and performed 

a robust improper payment risk assessment process which already included the new IPERA payment types. 

During fiscal year 2011, Treasury issued contracts and other reviewed payments totaling approximately $37 billion. The dollar 

amount of reviewed payments increased during fiscal year 2011 due to the amended A-123, Appendix C for payment recapture 

audits. The amended act expanded the payment types reviewed from contracts to include grants, benefits, loans, and 

miscellaneous payments. 

Treasury’s annual risk assessment process includes a review of pre-payment controls that minimize the likelihood and 

occurrence of improper payments. Treasury requires each bureau and office to conduct post-award audits and report on 

payment recapture activities, contracts issued, improper payments made, and recoveries achieved. Bureaus and offices may use 

payment recapture audit contingency firms to perform many of the steps in their payment recapture auditing program and 

identify candidates for payment recapture action. However, no Treasury bureaus used contractors to perform recapture 

activities. Treasury employees performed this work. 

Treasury considers both pre- and post-reviews to identify payment errors a sound management practice that should be included 

among basic payment controls. All of Treasury’s bureaus have a process to identify improper payments during post-reviews. At 

times, bureaus may use the results of IG and GAO reviews to help them identify payment anomalies and target areas for 

improvement. However, Treasury applies extensive payment controls at the time each payment is processed, making recapture 

activity minimal. 
U.S. Department of the Treasury | Fiscal Year 2011

161 

Payment Recapture Audit Reporting

Type of

Payment

Amount Subject

to Review for

2011 Reporting

Actual Amount

Reviewed and

Reported (2011)

Amount

Identified for

Recovery (2011)

Amount

Recovered

(2011)

% of Amount

Recovered out of

Amount Identified

(2011)

Amount

Outstanding

(2011)

% of Amount

Outstanding

out of

Amount

Identified

(2011)

Contracts $ 7,739,282,783 $ 7,255,403,811 $ 302,429 $ 276,813 92.0% $ 26,936 8.0%

Grants $ 4,290,756,639 $ 4,290,756,639 $ 428,274 $ 428,274 100.0% - 0.0%

Benefits $ 610,224,028 $ 1,566,192 $ 1,438 $ 1,438 100.0% - 0.0%

Loans $ 2,494,584,214 $ 2,494,584,214 - - - - -

Other $ 23,295,631,387 $ 23,295,631,387 $ 46,380 $ 46,256 100.0% $ 124 0.0%

Type of

Payment

Amount

Determined

Not to be

Collectable

(2011)

% of Amount

Determined

Not to be

Collectable

out of Amount

Identified

(2011)

Amounts 

Identified for 

Recovery (2004-

2010)

Amounts 

Recovered 

(2004-2010)

Cumulative 

Amounts

Identified for 

Recovery

(2004-2011)

Cumulative 

Amounts 

Recovered 

(2004-2011)

Cumulative 

Amounts 

Outstanding 

(2004-2011)

Cumulative 

Amounts 

Determined

Not to be

Collectable

(2004-2011)

Contracts $ 11,709 4.0% $ 7,200,597 $6,018,579* $ 7,503,026 $6,295,392* $ 26,936 $ 75,130

Grants - - - - - - - -

Benefits - - - - - - - -

Loans - - - - - - - -

Other - - - - - - - -

* Does not include an amount of approximately $750,000 reported for fiscal year 2005, which was subsequently recovered after the 

reporting period.

The payment recapture audit targets listed below are preliminary estimates developed by Treasury bureaus and offices based on 

historical performance and current payment recapture audit programs.

Type ofPayment

2011

Amount 

Identified

2011

Amount 

Recovered

2011

Recovery Rate (Amount 

Recovered / Amount 

Identified)

2012

Recovery 

Rate Target

2013

Recovery 

Rate Target

2014

Recovery 

Rate Target

Contracts $ 302,429 $ 276,813 92.0% 95.0% 95.0% 95.0%

Grants $ 428,274 $ 428,274 100.0% 100.0% 100.0% 100.0%

Benefits $ 1,438 $ 1,438 100.0% 100.0% 100.0% 100.0%

Loans $ - $ - 100.0% 100.0% 100.0% 100.0%

Other $ 46,380 $ 46,256 100.0% 100.0% 100.0% 100.0%

Due to the delayed release of IPERA implementation guidance, Treasury’s bureaus were not able to fully implement or develop 

the mechanisms to acquire the additional information specified in the amended Payment Recapture Audit guidance to complete 

the following tables: (1) Aging of Outstanding Overpayments, (2) Disposition of Recaptured Funds, and (3) Overpayments 

Recaptured Outside of Payment Recapture Audits (refer to additional comments under section IX below). 

VI. ACCOUNTABILITY

The Secretary of the Treasury has delegated responsibility for addressing improper payments to the Assistant Secretary for 

Management and 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 elimination and recovery review process, as required under A-123, Appendix C. 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 (FMC ESC), 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. Treasury has identified executives who are responsible and accountable for reducing the level of EITC overclaims, 

while other senior and mid-level officials have responsibility for monitoring progress in this area as bureau and program internal 

control officers. 
U.S. Department of the Treasury | Fiscal Year 2011

162 

VII. INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE

Overall, Treasury has the internal controls, human capital, and information systems and other infrastructure it needs to reduce 

improper payments to the targeted levels. 

VIII. LIMITING STATUTORY AND REGULATORY BARRIERS

Treasury’s overall management assessment of IPERA did not uncover any limiting statutory or regulatory barriers with the 

exception of the high-risk EITC program. 

A number of factors continue to serve as barriers to reducing overclaims in the EITC program. These include: 

 Complexity of the tax law 

 Structure of the EITC 

 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. 

IX. ADDITIONAL COMMENTS

Treasury made a concerted effort to fully implement the Payment Recapture Audit portion of IPERA during fiscal year 2011. 

Due to the timing of the OMB guidance, critical competing priorities, and resource constraints, the program was not fully 

implemented. However, the Department is in the process of developing an updated plan to ensure implementation no later than 

the end of fiscal year 2013, which is the year that the improper payment rate criterion for identifying a significant improper 

payment is lowered from 2.5 percent to 1.5 percent and the targeted payment recapture recovery rate should reach 85 percent 

overall. 

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 

OIG and TIGTA send an update of these management challenges to the Secretary and cite any new challenges for the upcoming 

fiscal year. SIGTARP does not provide the Secretary with a semiannual report or annual update on management and 

performance challenges. 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.
163 

October 24, 2011 

INFORMATION MEMORANDUM FOR SECRETARY GEITHNER 

FROM: Eric M. Thorson 

 Inspector General 

SUBJECT: Management and Performance Challenges Facing 

the Department of the Treasury (OIG-CA-12-001) 

In accordance with the Reports Consolidation Act of 2000, we are providing you with our 

perspective on the most serious management and performance challenges facing the Department 

of the Treasury. 

In assessing the Department’s most serious challenges, we are mindful of the budget 

environment being faced by Treasury and the entire federal government as the Administration 

and the Congress looks for ways to address the country’s budget deficit. Cuts to programs and 

operations are likely although the extent of any cuts and the specific nature of the cuts are 

unknown as of this writing. With that as a backdrop, the Treasury Department has in recent years 

been given a number of new responsibilities that are critical to this country’s sustained economic 

strength. More often than not, the Department has been faced with needing to start up and 

administer these new responsibilities with very thin staffing and resources. I know that the 

Department’s senior leadership is fully cognizant of these pressures and the need for strong 

management. That said, if the Department is faced with reduced funding, my office will monitor 

and examine how Treasury’s programs and operations are impacted and we look forward to 

working with the Department leadership in this regard. We also cannot emphasize enough to the 

Department’s stakeholders the critical importance that Treasury is resourced sufficiently to 

maintain an appropriate control infrastructure. 

We continue to report the four challenges from last year. 

 Transformation of Financial Regulation 

 Management of Treasury’s Authorities Intended to Support and Improve the Economy

 Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act Enforcement 

 Management of Capital Investments 

We are not reporting any new challenges this year. However, in addition to the above challenges, 

we are reporting an elevated concern about one matter, information security, and the need for 

constant and effective surveillance over Treasury’s security posture. 
164 

Page 2 

Challenge 1: Transformation of Financial Regulation 

In response to the need for financial reform, Congress passed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank) in July 2010. Dodd-Frank established new 

responsibilities for Treasury and created new offices tasked to fulfill those responsibilities. 

Dodd-Frank established the Financial Stability Oversight Council (FSOC), which you chair as 

the Treasury Secretary. FSOC’s mission is to identify risks to financial stability that could arise 

from the activities of large, interconnected financial companies; respond to any emerging threats 

to the financial system; and promote market discipline. As required, FSOC issued its first annual 

report in July 2011. The report contained recommendations to (1) heighten risk management and 

supervisory attention in specific areas, (2) further reforms to address structural vulnerabilities in 

key markets, (3) take steps to address reform of the housing finance market, and (4) ensure 

interagency coordination on financial regulatory reform. This is an important early step, but 

FSOC still has work ahead to meet all of its responsibilities. For example, Dodd-Frank calls for 

the consolidated supervision and heightened prudential standards for large, interconnected 

nonbank financial companies. FSOC also has the authority to designate nonbank financial 

companies for consolidated supervision and to recommend heightened standards for these firms 

and large bank holding companies. In this regard, the Board of Governors of the Federal Reserve 

System would be responsible for supervising these firms and adopting specific prudential rules. 

As of this writing, FSOC is still in the process of establishing the framework for identifying 

systemically significant nonbank financial institutions. To that end, on October 11, 2011, FSOC 

issued a notice of proposed rulemaking that among other things, set forth a three-stage process in 

non-emergency situations to determine whether to subject a nonbank financial company to Board 

of Governors supervision and prudential standards. Each stage of the process would involve an 

analysis based on an increasing amount of information. FSOC did finalize the rules for 

implementing its authority under Dodd-Frank for designating financial market utilities1

 as 

systemically important in July of this year. Financial market utilities so designated are subject to 

(1) risk management standards governing the operations related to the payment, clearing, and 

settlement activities, and (2) additional examinations and reporting requirements, as well as 

potential enforcement actions. 

The Council of Inspectors General on Financial Oversight (CIGFO), which I chair, was also 

established by Dodd-Frank. It facilitates the sharing of information among member inspectors 

general with a focus on reporting our concerns that may apply to the broader financial sector and 

ways to improve financial oversight. Accordingly, CIGFO will be an important source of 

independent, unbiased analysis to FSOC. As required, CIGFO met on a quarterly basis and 

issued its first annual report in July 2011. That report discussed current and pending joint 

projects of CIGFO members and CIGFO’s conclusion that FSOC had either met or is on target to 

 

1 The term “financial market utility” means any person that manages or operates a multilateral system for the 

purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial 

institutions or between financial institutions and the person. However, the term does not include entities such as 

national securities exchanges, national securities associations, and many others.
165 

Page 3 

meet all requirements to date. CIGFO has approved guidelines for the establishment and 

procedures of working groups. In the future, CIGFO anticipates establishing a working group to 

oversee the process of designating systemically important nonbank financial institutions for 

heightened prudential supervision by the Board of Governors. 

Additionally, Dodd-Frank established two new offices within Treasury: the Office of Financial 

Research (OFR) and the Federal Insurance Office (FIO). The OFR is to be a data collection, 

research and analysis arm of FSOC. The OFR will operate under a Presidentially-appointed, 

Senate-confirmed Director. As of this writing, a nominee to serve as the OFR Director has not 

been announced. Among other things, the OFR Director is to report to Congress annually on the 

office’s activities and its assessments of systemic risk, with the first report due July 21, 2012. 

The FIO is charged with monitoring the insurance industry, including identifying gaps or issues 

in the regulation of insurance that could contribute to a systemic crisis in the insurance industry 

or financial system. The FIO Director, whom you appointed in March of this year, is to advise 

FSOC on insurance matters. We are currently reviewing the Department’s progress in standing 

up OFR and our future work plans include a review of FIO. 

Intended to streamline the supervision of depository institutions and holding companies, DoddFrank transferred the powers and duties of the Office of Thrift Supervision (OTS) to the Office 

of the Comptroller of the Currency (OCC), the Board of Governors, and the Federal Deposit 

Insurance Corporation (FDIC) effective July 21, 2011. As required by Dodd-Frank, we and the 

Offices of Inspector General of FDIC and the Board of Governors completed two reviews on the 

transfer during 2011. The first review reported on the planning for the transfer and the second 

review reported on the status of the transfer 6 months later. The reviews found that the planning 

was generally adequate and that transfer activities occurred as planned. However, we also 

reported on items that were still “works-in-progress.” We will continue to monitor those items as 

part of our future reviews. 

The other regulatory challenges that we discussed last year still remain. Specifically, since 

September 2007, 113 Treasury-regulated financial institutions have failed, with estimated losses 

to the Deposit Insurance Fund of approximately $36.3 billion. This is an increase of 23 financial 

institutions and $1.8 billion in losses since my last challenges letter. With more than 800 banks 

on FDIC’s troubled bank list, we anticipate bank failures to continue into the foreseeable future. 

Although many factors contributed to the turmoil in the financial markets, our work found that 

OCC and OTS did not identify early or force timely correction of unsafe and unsound practices 

by numerous failed institutions under their respective supervision. The irresponsible lending 

practices of many institutions are now well-recognized. At the same time, they also engaged in 

other high-risk activities, including high asset concentrations in commercial real estate and 

overreliance on unpredictable wholesale funding to fund growth. Last year, the unprecedented 

speed at which servicers were foreclosing on defaulted mortgages revealed flaws in the 

processing of those foreclosures. In response, the federal banking regulators completed a 

horizontal review of foreclosure practices at major mortgage servicers. The review found 

deficiencies in the servicers’ foreclosure processes including weak management oversight, 

foreclosure document deficiencies, poor oversight of third parties involved in the foreclosure 
166 

Page 4 

process, and inadequate risk control systems. As a result, the federal banking regulators issued 

formal enforcement actions against 14 mortgage servicers and 2 third party providers subject to 

the review. While it is too soon to tell whether these servicing deficiencies have been addressed, 

the foreclosure crisis has certainly impacted an already stressed housing market, with no 

significant turnaround yet in sight. 

Our office is mandated to review the failures of Treasury-regulated financial institutions that 

result in material losses to the Deposit Insurance Fund. Since 2007, we have completed 42 such 

reviews and are engaged in 13 others. These reviews identify the causes of the failures and assess 

the supervision exercised. OCC has been responsive to our recommendations for improving 

supervision. Dodd-Frank now mandates that our office also review failures that result in nonmaterial losses to the Deposit Insurance Fund. To that end, we have completed 44 such reviews. 

However, neither the material nor non-material reviews address the broader supervisory 

effectiveness of the federal banking regulators as a whole or the effectiveness of the supervisory 

structure. It is therefore essential that OCC continue to take a critical look at its supervisory 

processes to identify areas for improvement in those processes to better protect the financial 

health of the banking industry and consumers going forward. 

In my last memorandum, I discussed the challenges Treasury faced in standing up the Bureau of 

Consumer Financial Protection (CFPB). I am pleased to note that since then, Treasury was 

successful in this effort. CFPB opened for business on July 21, 2011, as planned. Established by 

Dodd-Frank, the purpose of CFPB is to implement and, where applicable, enforce federal 

consumer financial law consistently to ensure that all consumers have access to markets for 

consumer financial products and services and that those markets are fair, transparent, and 

competitive. CFPB is an independent bureau of the Board of Governors but Treasury has a 

unique role in its operations. Specifically, until a Director is appointed, you are charged with 

exercising some, but not all, of the Director’s authorities. On July 18, 2011, the President 

nominated Richard Cordray to be the first Director of CFPB. That nomination is currently 

pending before the Senate. It should be noted that, while no specific legislation has been 

proposed, there is much discussion in the Congress on whether the form of governance over 

CFPB should be changed. The Board of Governors Inspector General is designated by DoddFrank to provide oversight of CFPB. However, with Treasury’s current statutory role under 

Dodd-Frank, our office will continue to coordinate with the Board of Governors OIG on CFPB 

oversight matters. 

Clearly, as we have said in the past, the intention of Dodd-Frank is most notably to prevent, or at 

least minimize, the impact of a future financial sector crisis on our economy. In order to 

accomplish this, Dodd-Frank has placed a great deal of responsibility within Treasury and you, 

as the Treasury Secretary. The management challenge from our perspective is to maintain an 

effective FSOC process supported by the newly created offices within Treasury and the 

streamlined banking regulatory structure that timely identifies and strongly responds to emerging 

risks. This is especially important in times of economic growth and financial institution 

profitability when such government action is generally unpopular. 
167 

Page 5 

Challenge 2: Management of Treasury’s Authorities Intended to Support and Improve the 

Economy 

Congress provided Treasury with broad authorities to address the financial crisis under the 

Housing and Economic Recovery Act (HERA) and the Emergency Economic Stabilization Act 

(EESA) enacted in 2008, the American Recovery and Reinvestment Act of 2009 (Recovery Act), 

and the Small Business Jobs Act of 2010. Certain authorities in HERA and EESA have now 

expired but challenges remain in managing Treasury’s outstanding investments. To a large 

extent, Treasury’s program administration under these Acts has matured. However, investment 

decisions involving the Small Business Jobs Act programs have only recently been completed. 

Our discussion of this challenge will begin with the most recent act to improve and support the 

economy and then discuss the others for which Treasury is responsible. 

Management of the Small Business Lending Fund and State Small Business Credit Initiative 

Enacted in September 2010, the Small Business Jobs Act of 2010 created a $30 billion Small 

Business Lending Fund (SBLF) within Treasury and provided $1.5 billion to be allocated by 

Treasury to eligible state programs through the State Small Business Credit Initiative (SSBCI). 

The Act represents a key initiative of the Administration to increase lending to small businesses, 

and thereby, support job creation. Both programs were slow to disburse funds to intended 

recipients, with Treasury approving the majority of SBLF and SSBCI applications during the last 

quarter of fiscal year 2011. This occurred because the majority of applicants waited to apply 

within weeks of the application deadlines and significant delays were encountered in 

implementing the SBLF program. As a result, Treasury was rushed in making a significant 

number of SBLF investment decisions to meet funding deadlines, and disbursed the initial 

installment of SSBCI funds without establishing clear oversight obligations of participating 

states. Now that Treasury has completed the approval process for these two programs, the 

challenge for Treasury will be to exercise sufficient oversight to ensure that funds are used 

appropriately by participants, SBLF dividends owed Treasury are paid, and that the programs 

achieve intended results. 

SBLF As of September 27, 2011, Treasury had disbursed more than $4 billion to 332 

financial institutions across the country. Of the institutions funded, 42 percent were 

institutions that used their SBLF investment to refinance securities issued under the Troubled 

Asset Relief Program (TARP) Capital Purchase Program. Institutions receiving investments 

under the SBLF program are expected to pay dividends to Treasury at rates that will decrease 

as the amount of qualified small business lending the institution does increases. During the 

first 41⁄2 years of Treasury’s investment, participating institutions initially pay dividends to 

Treasury of up to 5 percent but that rate may be reduced to as low as 1 percent based on their 

demonstrated increase in small business lending, which is self-reported by the participating 

institutions. The dividends are non-cumulative, meaning that institutions are under no 

obligation to make dividend payments as scheduled or to pay off previously missed payments 

before exiting the program. That said, there are provisions for increased restrictions as 

dividends are missed, including a prohibition against paying dividends on common stock and 

a provision for Treasury to appoint up to two members to the bank’s board of directors. The 
168 

Page 6 

effectiveness of these measures, however, may be impacted if the institution’s regulator has 

restricted it from making dividend payments. 

Treasury will face many challenges in ensuring that the SBLF program meets its intended 

objective of increasing lending to small businesses and in measuring program performance. 

Under the terms of the authorizing legislation, SBLF funds are intended to stimulate lending 

to small businesses, but participating institutions are under no obligation to increase their 

small business lending activity. Once SBLF funds are disbursed and become commingled 

with other funds of the participating institutions, it will be difficult to track how the funds are 

spent. Participants are also not required to report how they use Treasury’s investments. 

Additionally, Treasury is reliant on unverified information reported by participating 

institutions on their small business lending activity to measure performance and to make 

dividend rate adjustments. 

SSBCI As of September 27, 2011, 53 states, territories, and eligible municipalities 

(participating states) had applied for $1.5 billion in SSBCI funding. Of the 53 participating 

states, 31 had received their first funding allocations of approximately $0.3 billion. Under 

SSBCI, participating states may obtain funding for programs that partner with private lenders 

to extend credit to small businesses. Such programs may include those that finance loan loss 

reserves; and provide loan insurance, loan guaranties, venture capital funds, and collateral 

support. If a state does not have an existing small business lending program, it can establish 

one in order to access SSBCI funding. States must provide Treasury with plans for using 

their funding allocations for review and approval, and report quarterly and annually on 

results. Another key feature is that participating states receive their allocations in one-third 

increments. Treasury may withhold a successive increment to a state pending the results of 

an audit by our office. 

Primary oversight of the use of SSBCI funds is the responsibility of each participating state. 

The states are required to provide Treasury with quarterly assurances that their programs 

approved for SSBCI funding are in compliance with program requirements. However, 

Treasury will face challenges in holding states accountable for the proper use of funds as it 

has not clearly defined the oversight obligations of states or specified minimum standards for 

determining whether participating states have fulfilled their oversight responsibilities. 

Treasury has also not required participating states to collect and review compliance 

assurances made by lenders and borrowers or defined what constitutes a material adverse 

change in a state’s financial or operational condition that must be reported to Treasury. As a 

result, Treasury will have difficulty finding states to be in default of program requirements 

and holding states accountable should our office find that a state has intentionally or 

recklessly misused funds. 

Management of Recovery Act Programs 

Treasury is responsible for overseeing an estimated $150 billion of Recovery Act funding and 

tax relief. Treasury’s oversight responsibilities include programs that provide payments for 

specified energy property in lieu of tax credits, payments to states for low-income housing 
169 

Page 7 

projects in lieu of tax credits, grants and tax credits through the Community Development 

Financial Institutions Fund, economic recovery payments to social security beneficiaries and 

others, and payments to U.S. territories for distribution to their citizens. 

Several of these programs involve very large dollar amounts. It is estimated that Treasury’s 

Recovery Act payments in lieu of tax credit programs, for specified energy property and to states 

for low-income housing projects, will cost more than $20 billion over their lives. To date, 

Treasury has already awarded approximately $13 billion under these programs. Payments made 

to recipients under the specified energy property program alone comprise more than $9 billion of 

the funds awarded to date and the number of applicants is expected to grow with the program’s 

application deadline now extended through fiscal year 2012. We previously reported that 

Treasury dedicated only a small number of staff to award and monitor these funds. It did, 

however, implement a process for the specified energy property program whereby the 

Department of Energy’s National Renewable Energy Laboratory performs a technical review of 

payment applications and advises Treasury on award decisions. For larger dollar payments, 

Treasury also requires the applicant to obtain a review of project costs by an independent public 

accounting firm. We conducted a number of audits of recipients of payments under the specified 

energy property program to ensure funds were properly awarded to eligible applicants for 

eligible properties and have found some questionable claims involving several million dollars in 

total. We plan to continue our audits of recipients in fiscal year 2012 and will report any major 

instances of program abuse as necessary. 

Management of the Housing and Economic Recovery Act and the Emergency Economic 

Stabilization Act 

Through several HERA and EESA programs, Treasury injected much needed capital into 

financial institutions and businesses. 

Under HERA, Treasury continues to address the distressed financial condition of Fannie Mae 

and Freddie Mac which are under the conservatorship of the Federal Housing Finance Agency. 

In order to cover the continuing losses of the two entities and their ability to maintain a positive 

net worth, Treasury agreed to purchase senior preferred stock as necessary, and as of June 30, 

2011, invested $164 billion in the two entities. Treasury also purchased $225 billion of 

mortgage-backed securities (MBS) issued by the two entities under a temporary purchase 

program that expired in December 2009. In March 2011, Treasury began to wind down its MBS 

portfolio and has steadily reduced the portfolio by about $10 billion a month. As of September 

2011, Treasury received proceeds of $64 billion through sales of its MBS and $118 billion in 

principal repayments. So far, over the life of its investment, Treasury has earned $20 billion in 

interest. The remaining principal outstanding is approximately $60 billion. Through the Housing 

Finance Agency Initiative supporting state and local finance agencies, Treasury purchased 

securities in Fannie Mae and Freddie Mac backed by state and local Housing Finance Agency 

bonds (New Issue Bond Program) and a participation interest in the obligations of Fannie Mae 

and Freddie Mac (Temporary Credit and Liquidity Program). Prior to expiring in December 

2009, Treasury purchased $15.3 billion of securities under the New Issue Bond Program and 

provided $8.3 billion under the Temporary Credit and Liquidity Program. Even with this 
170 

Page 8 

assistance, the future of both entities is still in question and prolonged assistance may be 

required. On a positive note, Freddie Mac did report positive net worth in the second quarter of 

2011, the first positive quarter since 2009. Accordingly, there was no increase to Treasury’s 

senior preferred stock investment in Freddie Mac. 

As required by Dodd-Frank, Treasury and the Department of Housing and Urban Development 

conducted a study on ending the conservatorship of Fannie Mae and Freddie Mac and 

minimizing the cost to taxpayers. The report on this study was presented to Congress in February 

2011. Regarding the long-term structure of housing finance, the report provided three options for 

consideration without recommending a specific option. The three options are (1) a privatized 

system of housing finance with the government insurance role limited to the Federal Housing 

Administration (FHA), the U.S. Department of Agriculture (USDA), and the Department of 

Veterans Affairs (VA) with assistance for narrowly targeted groups of borrowers; (2) a 

privatized system of housing finance with assistance from FHA, USDA, and VA for narrowly 

targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis; and 

(3) a privatized system of housing finance with FHA, USDA, and VA assistance for low- and 

moderate-income borrowers and catastrophic reinsurance behind significant private capital. The 

legislative process for housing finance reform is in an early stage and it is difficult to predict 

what lies ahead for winding down the Fannie Mae and Freddie Mac conservatorships and 

reforming housing finance in the long run. 

TARP, established under EESA, gave Treasury the authorities necessary to bolster credit 

availability and address other serious problems in the domestic and world financial markets. 

Treasury’s Office of Financial Stability administers TARP, and through several of its programs, 

made purchases of direct loans and equity investments in many financial institutions and other 

businesses, as well as guaranteed other troubled mortgage-related and financial assets. Authority 

to make new investments under the TARP program expired on October 3, 2010. Treasury, 

however, is continuing to make payments for programs which have existing contracts and 

commitments. Treasury’s challenge in this area has changed from standing-up and running 

TARP programs to winding them down and recovering its investment. That means Treasury’s 

focus is on managing and exiting from its current TARP investments. To date, Treasury has 

reported positive returns from the sale of its investments in the banking industry and has begun 

reducing its investment in American International Group (AIG). EESA also established a special 

inspector general for TARP and imposed oversight and periodic reporting requirements on both 

the special inspector general and Government Accountability Office. 

As conditions improve, Treasury will need to continue to work with its partners to disassemble 

the structure established to support recovery efforts and ensure that federal funds no longer 

needed for those efforts are returned in an orderly manner to the Treasury general fund. 

2012 Pending Initiatives 

In addition to SBLF and SSBCI, the Small Business Jobs Act of 2010 provided Treasury with 

authority to guarantee the full amounts of bonds and notes issued for community and economic 

development activities not to exceed 30 years. Under this authority, Treasury may issue up to 
171 

Page 9 

10 guarantees of no less than $100 million each, but may not exceed $1 billion in total aggregate 

guarantees in any fiscal year. As the program administrator, the Community Development 

Financial Institutions Fund is tasked with setting regulations and implementing the program by 

September 27, 2012. Our office plans to assess the progress of the program’s implementation in 

2012. 

 

Included in the President’s legislative proposal, “The American Jobs Act of 2011,” is a provision 

establishing the American Infrastructure Financing Authority (AIFA), as a wholly owned 

Government Corporation, that would provide direct loans and loan guarantees to facilitate 

infrastructure projects that are both economically viable and of regional or national significance. 

The proposed aggregate amount of direct loans and loan guarantees made by AIFA in any single 

fiscal year may not exceed (1) $10 billion during the first 2 years of operations; (2) $20 billion 

during years 3 through 9 of operations; or (3) $50 billion during any year thereafter. Although 

not a Treasury program, the legislation calls for Treasury to assist in implementing AIFA and in 

carrying out its purpose. Under the proposal, our office would provide oversight of AIFA for the 

first 5 years and thereafter the oversight would be provided by a Presidentially-appointed, 

Senate-confirmed special inspector general. Given the potential implications to our office, we 

will monitor the Congress’s consideration of the proposal and respond appropriately.

Challenge 3: Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement 

As we have reported in the past, ensuring criminals and terrorists do not use our financial 

networks to sustain their operations and/or launch attacks against the U.S. continues to be a 

challenge. Following the terrorist attacks of 2001, Treasury established the Office of Terrorism 

and Financial Intelligence (TFI). TFI is dedicated to disrupting the ability of terrorist 

organizations to fund their operations. TFI brings together intelligence gathering and analysis, 

economic sanctions, international cooperation, and private-sector cooperation to identify donors, 

financiers, and facilitators supporting terrorist organizations, and disrupt their ability to fund 

them. Enhancing the transparency of the financial system is one of the cornerstones of this effort. 

Treasury carries out its responsibilities to enhance financial transparency through the Bank 

Secrecy Act (BSA) and USA Patriot Act. The Financial Crimes Enforcement Network (FinCEN) 

is the Treasury bureau responsible for administering BSA. 

Over the past decade, TFI has made good progress in closing the vulnerabilities that allowed 

money launderers and terrorists to use the financial system to support their activities. 

Nonetheless, significant challenges remain. One challenge is ensuring the continued cooperation 

and coordination of all the organizations involved in its anti-money laundering and combating 

terrorist financing efforts. A large number of federal and state entities participate with FinCEN to 

ensure compliance with BSA, including the four federal banking agencies, the Internal Revenue 

Service (IRS), the Securities and Exchange Commission, the Department of Justice, and all the 

state regulators. Many of these entities also participate in efforts to ensure compliance with U.S. 

foreign sanction programs administered by Treasury’s Office of Foreign Assets Control (OFAC). 
172 

Page 10 

To be effective, Treasury must establish and maintain working relationships with these numerous 

entities. Neither FinCEN nor OFAC have the resources or capability to maintain compliance 

with their programs without significant help from these other organizations. To this end, 

Treasury has entered into memoranda of understanding with many federal and state regulators in 

an attempt to build a consistent and effective process. As of last year, FinCEN had signed 

memoranda of understanding with 7 federal and 51 state regulators to ensure that information is 

exchanged between FinCEN and the entities charged with examining for BSA compliance. 

While important to promote the cooperation and coordination needed, it should be noted that 

these instruments are nonbinding and carry no penalties for violations, and their overall 

effectiveness has not been independently assessed. 

Last year, financial institutions filed approximately 15 million BSA reports, including over 1.3 

million suspicious activity reports. While the number of suspicious activity reports has been 

increasing since 2001, the numbers alone do not necessarily indicate everything is going well. 

Audits we have done have found problems with the quality of the data reported. Other audits 

have also identified gaps in the regulatory examination programs of the bank regulators and 

examining agencies. FinCEN needs to continue its efforts to work with regulators and examining 

agencies to ensure that financial institutions establish effective BSA compliance programs and 

file accurate and complete BSA reports, as required. Furthermore, FinCEN still needs to 

complete work to issue anti-money laundering regulations as it determines appropriate for some 

non-bank financial institutions, such as vehicle dealers; pawnbrokers; travel agents; finance 

companies; real estate closing and settlement services; and financial services intermediaries, such 

as investment advisors. 

BSA data is currently maintained by IRS and access to the database is generally handled through 

an IRS system known as WebCBRS. FinCEN’s BSA Information Technology (IT) 

Modernization program, begun in 2008, is being built to ensure efficient management, 

safeguarding, and use of BSA information. BSA IT Modernization will reengineer BSA data 

architecture, update the infrastructure, implement more innovative web services and enhanced 

electronic filing, and provide increased analytical tools. FinCEN believes modernization will 

provide increased data integrity, and maximize value for its state and federal partners. This 

program, which we believe is needed, has yet to reach a point of broad-based integration testing 

and is highly dependent on continued funding, a challenge for many programs today. The BSA 

IT Modernization project is also discussed in challenge 4. 

FinCEN is mandating the use of its BSA E-Filing network starting in June 2012. BSA E-Filing 

allows financial institutions to file reports with FinCEN electronically. We anticipate that this 

will improve data quality in that data will be more quickly entered into the database and that 

some of the errors or omissions that previously occurred through paper filings should be reduced 

if not eliminated. However, until this can be verified, FinCEN and IRS will need to continue to 

monitor data quality. Last year we noted that FinCEN has a particularly difficult challenge in 

dealing with MSBs. FinCEN has taken steps to improve MSB examination coverage and 

compliance. In the past year, FinCEN has finalized new rules and increased enforcement 

designed to ensure MSBs comply with BSA requirements, including registration and report filing 

requirements. However, ensuring MSBs register with FinCEN has been a continuing challenge. 
173 

Page 11 

Furthermore, IRS serves as the examining agency for MSBs but has limited resources to inspect 

MSBs or even identify unregistered MSBs. FinCEN and IRS need to work together to ensure that 

MSBs operating in this country are identified, properly registered, and in compliance with all 

applicable laws and regulations. 

FinCEN has also been concerned with MSBs that use informal value transfer systems and with 

MSBs that issue, redeem, or sell prepaid access, through physical (cards or other devices) or nonphysical (e.g., code, electronic serial number, mobile identification number, and/or personal 

identification number) means. MSBs using informal value transfers have been identified in a 

number of attempts to launder proceeds of criminal activity or finance terrorism. Similarly, 

prepaid access can make it easier for some to engage in money laundering or terrorist financing. 

In September 2010, FinCEN notified financial institutions to be vigilant and file suspicious 

activity reports on MSBs that may be inappropriately using informal value transfers when they 

use financial institutions to store currency, clear checks, remit and receive funds, and obtain 

other financial services. This past summer, FinCEN issued a final rule applying customer 

identification, recordkeeping, and reporting obligations to providers and sellers of prepaid 

access. Ensuring compliance with these rules will be a major challenge. 

To detect possible illicit wire transfer use of the financial system, FinCEN also proposed a 

regulatory requirement for certain depository institutions and MSBs to report cross-border 

electronic transmittals of funds. FinCEN determined that establishing a centralized database will 

greatly assist law enforcement in detecting and ferreting out transnational organized crime, 

multinational drug cartels, terrorist financing, and international tax evasion. Ensuring financial 

institutions, particularly MSBs, comply with the cross-border electronic transaction reporting 

requirements, as well as managing this new database, will be another significant challenge for 

FinCEN. It should be noted that this system cannot be fully implemented until FinCEN 

completes its work on its BSA IT Modernization project, scheduled for 2014. 

Other matters of concern are beginning to appear or are on the horizon. One concern we reported 

before is that the focus on safety and soundness resulting from the recent financial crisis may 

have reduced the attention financial institutions have given to BSA and OFAC compliance. 

Another concern is the increasing use of mobile devices for banking, internet banking, internet 

gaming, and peer-to-peer transactions. FinCEN, OFAC, and other regulatory agencies will need 

to ensure that providers of these services ensure transactions are transparent and conform to BSA 

requirements. Monitoring the transactions of tomorrow may prove to be increasingly difficult for 

Treasury. 

Given the criticality of this management challenge to the Department’s mission, we continue to 

consider anti-money laundering and combating terrorist financing as inherently high-risk. 

Mandatory work, particularly material loss reviews of failed banks, prevented us from starting 

any new audits in this area in fiscal years 2009 and 2010. In fiscal year 2011, we initiated audits 

of the MSB compliance program, the BSA IT Modernization project, and OFAC licensing (a 

program that allows exceptions to sanction programs upon OFAC’s legal review and approval), 

which we plan to complete in fiscal year 2012. 
174 

Page 12 

Challenge 4: Management of Capital Investments 

Managing large capital investments, particularly information technology investments, is a 

difficult challenge for any organization, whether public or private. As a new development, after 

several years of attempting to centrally manage large infrastructure investments at the 

Department level, Treasury has announced that it will de-consolidate all infrastructure 

investments to the bureaus. This move is intended to improve efficiency and transparency, cost 

savings and avoidance, and overall governance. 

In prior years, we reported on a number of capital investment projects that either failed or had 

serious problems. This year, we continue to identify challenges with ongoing IT investments. 

Replacement telecommunications platform Treasury plans to spend $3.7 billion on its 

Information Technology Infrastructure Telecommunications Systems and Services 

investment. Treasury was originally to have begun implementation of TNet, a major 

component, in November 2007 but the project was delayed until August 2009. In September 

2011, we reported serious problems with the initial contracting and project management of 

TNet that contributed to the delay and the unnecessary expenditure of $33 million to 

maintain the prior telecommunications system in the interim. While TNet has become 

operational across Treasury, it is not yet fully compliant with Federal security requirements, 

and issues with change requests, incident response, and contractor billings need to be 

addressed. 

Common identity management system The Treasury Enterprise Identity, Credential and 

Access Management (TEICAM) is a $147 million effort to implement Homeland Security 

Presidential Directive 12 requirements for a common identity standard. As of August 2011, 

Treasury reported that the system was $40 million over planned costs. 

Data center consolidation OMB initiated the Federal Data Center Consolidation Initiative to 

reduce the number of federal data centers. In this regard, Treasury had over 60 data centers 

around the country. During fiscal year 2011, Treasury closed 3 data centers. This was 

accomplished in part by the Financial Management Service and the Bureau of the Public 

Debt consolidating their infrastructure and data center operations. Treasury plans to close 

another 12 data centers by 2015. Its ability to successfully consolidate data centers and 

achieve budget savings is contingent on adapting shared infrastructure services. 

FinCEN BSA IT Modernization As discussed in Challenge 3, Treasury, through FinCEN, is 

undertaking a major project known as BSA IT Modernization. Already underway, the project 

is expected to cost about $120 million and is expected to be completed in 2014. The project 

has yet to undergo broad-based integration testing, is complicated, and will require continued 

coordination between FinCEN and IRS. A prior attempt, from 2004 to 2006, to develop a 

new BSA system ended in failure with over $17 million wasted because of shortcomings in 

project planning, management, and oversight. However, early indications from our audit 

work are that project management is much improved for this project. 
175 

Page 13 

Treasury should exercise continuous vigilance in managing the investments described above and 

others due to previously reported problems with large capital investments, and billions of 

procurement dollars at risk. Moreover, it remains to be seen whether Treasury’s decision to deconsolidate all infrastructure investments will improve efficiency and transparency, cost savings 

and avoidance, and overall governance as intended. We plan to assess the results of this change 

in managing Treasury’s infrastructure investments going forward.

Matter of Concern 

Although we are not reporting this as a management and performance challenge, we want to 

highlight an area of increasing concern -- information security. 

We reported information security as a serious management and performance challenge at 

Treasury for a number of years but removed the challenge in 2009. We did so because Treasury 

had made significant strides in improving and institutionalizing its information security controls, 

as was evident from our annual Federal Information Security Management audits and 

evaluations. We believe that remains the case today. However, notwithstanding Treasury’s 

strong security stance, cyber attacks against federal government systems by foreign governments 

and the hacker community are unrelenting and increasing. Treasury’s information systems are 

critical to the Nation, and thus potential targets of those wishing to do grave harm. Accordingly, 

this is a very troubling situation that requires the highest level of continual attention to ensure, as 

we said when we removed the challenge, that information security policies remain current and 

practices do not deteriorate. 

We would be pleased to discuss our views on these management and performance challenges in 

more detail. 

cc: Daniel Tangherlini 

 Assistant Secretary for Management, Chief Financial Officer, and 

Chief Performance Officer 
 INSPECTOR GENERAL 

 FOR TAX 

 ADMINISTRATION 

DEPARTMENT OF THE TREASURY 

 WASHINGTON, D.C. 20005

 

 

 

176 

 

October 14, 2011 

MEMORANDUM FOR SECRETARY GEITHNER 

FROM: J. Russell George

Inspector General 

 

SUBJECT: Management and Performance Challenges Facing the Internal 

Revenue Service for Fiscal Year 2012 

The Reports Consolidation Act of 20002 requires that the Treasury Inspector General for Tax 

Administration (TIGTA) summarize, for inclusion in the Department of the Treasury 

Accountability Report for Fiscal Year 2011, its perspective on the most serious management 

and performance challenges confronting the Internal Revenue Service (IRS). The issues 

described in this document are derived from a variety of activities conducted and reviewed by 

TIGTA. 

Each year, TIGTA evaluates IRS programs, operations, and management functions to identify 

the areas of highest vulnerability to the Nation’s tax system. For Fiscal Year 2012, the top 10 

management and performance challenges in order of priority are: 

1. Security for Taxpayer Data and Employees; 

2. Tax Compliance Initiatives; 

2. Modernization; 

4. Implementing Major Tax Law Changes; 

5. Fraudulent Claims and Improper Payments; 

6. Providing Quality Taxpayer Service Operations; 

7. Human Capital; 

8. Globalization; 

9. Taxpayer Protection and Rights; and 

10. Achieving Program Efficiencies and Cost Savings. 

TIGTA’s assessment of the major IRS management challenges for Fiscal Year 2012 has 

changed from the prior fiscal year. Due to the mission-critical nature of both modernization and 

tax compliance initiatives, TIGTA considers tax compliance and modernization as serious 

enough management challenges to jointly rank at number two, following security. However, the 

current status of the United States economy and the watchful eye of the American public on the 

management of our Nation’s Government are driving the need more than ever for the IRS to 

efficiently and effectively collect taxes

 

2

 31 U.S.C. § 3516(d) (2006).
IRS MANAGEMENT CHALLENGES MEMORANDUM

177 

Page Two 

owed to the Federal Government. In addition, the IRS recently downgraded its longstanding 

material weakness3 status of the Modernization Program. As such, tax compliance is listed 

before the ongoing major challenge of modernization. Also note that the prior Erroneous and 

Improper Payments and Credits challenge has expanded to become Fraudulent Claims and 

Improper Payments and has moved from the seventh to the fifth most significant challenge 

facing the IRS. 

Although not listed, complexity of the tax law remains a serious underlying issue that has wideranging implications for both the IRS and taxpayers. This complexity, including frequent 

revisions to the Internal Revenue Code, makes it increasingly difficult for the IRS to explain and 

enforce the tax laws and more costly and time-consuming for taxpayers who want to comply. 

When the Internal Revenue Code is used as a vehicle for implementation of policy changes, the 

IRS will continue to face the challenge of responding quickly by shifting resources and altering 

established plans. 

The following information for each of these management and performance challenges is being 

provided to promote economy, efficiency, and effectiveness in the IRS’s administration of the 

Nation’s tax laws.

SECURITY FOR TAXPAYER DATA AND EMPLOYEES 

As our Nation’s tax collector and administrator of the Internal Revenue Code, the IRS received 

more than 230 million tax returns, of which 141 million were from individual taxpayers, and 

collected more than $2.3 trillion in revenue in 2010. Information from these tax returns is 

converted into electronic format, processed, and maintained in over 190 computer system 

applications for use by IRS employees. As computer use continues to be inextricably integrated 

into the IRS’s core business processes, effective information systems security becomes 

essential to ensure that data are protected against inadvertent or deliberate misuse, improper 

disclosure, or destruction, and that computer operations supporting tax administration are 

secured against disruption or compromise. 

The IRS faces the daunting task of securing its computer systems against the growing threat of 

cyberattack. According to the Department of Homeland Security’s U.S. Computer Emergency 

Readiness Team, cyberattacks against Federal websites and networks increased almost 40 

percent in 2010. More recently, in July 2011, the Pentagon acknowledged a serious data 

breach when a Department of Defense contractor suffered one of its largest cyberattacks ever 

and more than 24,000 files containing sensitive data were stolen by a foreign government. 

Computer security has been problematical for the IRS since 1997, when the IRS initially 

reported computer security as a material weakness during its annual evaluation of internal 

accounting and administrative controls under the Federal Managers Financial 

 

3

 In the event that an agency determines the existence of shortcomings in operations or systems which 

severely impair or threaten its ability to accomplish its mission or to prepare timely and accurate financial 

statements, the Department of the Treasury directs its bureaus to declare a material weakness on that 

particular area. 
IRS MANAGEMENT CHALLENGES MEMORANDUM

178 

Page Three 

Integrity Act of 1982.

4

 The IRS further divided this material weakness into nine areas: (1) 

network access controls; (2) key computer applications and system access controls; (3) 

software configuration; (4) functional business, operating, and program unit security roles and 

responsibilities; (5) segregation of duties between system and security administrators; (6) 

contingency planning and disaster recovery; (7) monitoring of key networks and systems; (8) 

security training; and (9) certification and accreditation. 

As of April 2011, the IRS had officially closed three of the nine areas: segregation of duties 

between system and security administrators (closed in September 2005), security training (June 

2008), and certification and accreditation (December 2008). In addition, the IRS completed all 

corrective actions on two other areas: network access controls (completed in July 2010) and 

functional business, operating, and program unit security roles and responsibilities 

(March 2009). The other four material weakness areas remain open and are actively being 

resolved. While the IRS has made progress in the area of computer security, it needs to 

continue to place a high priority on its improvement. 

In addition, identity theft continues to be a significant problem for taxpayers and the IRS. 

Identity thieves are filing fraudulent tax returns and obtaining refunds. The IRS usually does not 

become aware of a problem until after the legitimate taxpayer files a tax return. At that time, the 

IRS often determines that two tax returns have been filed using the same name and Social 

Security Number. The legitimate taxpayer’s refund is then delayed while the IRS attempts to 

determine who the legitimate taxpayer is. Meanwhile, the identity thief has obtained a 

fraudulent tax refund, which the IRS is unlikely to recover. As such, effectively authenticating 

legitimate taxpayers is a pressing challenge for the IRS as it develops and implements updates 

to its mission-critical systems and processes. 

Beyond safeguarding a vast amount of sensitive financial and personal data, the IRS must also 

protect approximately 100,000 employees and contractors working in over 700 facilities 

throughout the country. The February 2010 attack on an IRS facility in Austin, Texas, was a 

stark reminder of the dangers that IRS employees face each day in trying to perform their jobs. 

Animosity towards the tax collection process is nothing new, but the Austin incident highlights a 

surge in hostility towards the Federal Government. Also, the ongoing public debate regarding 

the new health care law and continued concerns over the country’s economy could fuel threats 

against the Federal Government, including IRS employees and facilities. These are challenging 

operating conditions for the IRS that underscore the need for continued vigilance in the area of 

physical and personnel security. 

 

4

 31 U.S.C. §§ 1105, 1106, 1108, 1113, 3512 (2006). The Federal Managers’ Financial Integrity Act

(FMFIA) requires that agency management establish and maintain effective internal controls to achieve 

the objectives of: 1) effective and efficient operations, 2) reliable financial reporting, and 3) compliance 

with applicable laws and regulations. The FMFIA also requires the head of each Executive agency to 

report annually to the President and Congress on the effectiveness of the internal controls and any 

identified material weaknesses in those controls. Reporting material weaknesses under the FMFIA is not 

limited to weaknesses over financial reporting.
IRS MANAGEMENT CHALLENGES MEMORANDUM

179 

Page Four 

TAX COMPLIANCE INITIATIVES 

Another serious challenge confronting the IRS is tax compliance. Despite an estimated 

voluntary compliance rate of 84 percent and IRS enforcement efforts, a significant amount of 

income remains unreported and unpaid. Tax compliance initiatives include the administration of 

tax regulations, collection of the correct amount of tax from businesses and individuals, and the 

oversight of tax-exempt and government entities. 

The IRS’s challenge related to tax-exempt and government entities is providing assistance to 

those entities that provide a valued societal benefit while ensuring that these entities remain in 

compliance with the tax laws associated with their tax-exempt status. The various types of taxexempt entities include exempt organizations, sponsors of retirement plans, Indian tribal 

governments, issuers of tax-exempt and other tax-advantaged bonds, and Federal, State, and 

local governments. 

Increasing voluntary taxpayer compliance and reducing the Tax Gap5 are the focus of many IRS 

initiatives. The IRS continues to face significant challenges in obtaining complete and timely 

compliance data and in developing methods necessary to interpret the data. Even with 

improved data collection, however, the IRS needs broader strategies and more research to 

determine what actions are most effective in addressing taxpayer noncompliance. The IRS’s 

strategy for reducing the Tax Gap is largely dependent on funding for additional compliance 

resources and legislative changes. In its Fiscal Year 2012 budget submission, the IRS 

requested a 2.9 percent increase in enforcement funds over its Fiscal Year 2011 request. 

Businesses and Individuals 

The IRS estimated the gross Tax Gap for Tax Year 2001 (the most current figures available) 

to be approximately $345 billion. Underreporting of taxes, which comprises four major 

components (individual income tax, employment tax, corporate income tax, and estate and 

excise taxes), is estimated at $285 billion and accounts for the largest portion (over 

80 percent) of the Tax Gap. In fact, the underreporting of individual income tax and 

employment tax combined constitutes over 70 percent of the gross Tax Gap. 

The absence of laws to prevent Federal agencies, including the IRS, from awarding 

contracts to businesses that have delinquent tax liabilities is contributing to the Tax Gap. 

During Fiscal Year 2010, President Obama directed the Department of the Treasury and the 

Office of Management and Budget to evaluate agencies’ contract award processes and 

make recommendations to ensure that Federal contractors with serious tax delinquencies 

do not receive new work from Federal agencies. In a Fiscal Year 2011 report,6

 we 

determined that the IRS has opportunities to improve the use of the Federal Payment Levy 

Program7 to collect delinquent tax liabilities 

 

5

 The IRS defines the Tax Gap as the difference between the estimated amount taxpayers owe and the amount they 

voluntarily and timely paid for a tax year. 

6 TIGTA, Ref. No. 2011-30-013, Existing Practices Allowed IRS Contractors to Receive Payments While Owing 

Delinquent Taxes (2011).

7 The Federal Payment Levy Program is an automated process that issues tax levies to collect delinquent 

Federal taxes through the Financial Management Service from Social Security payments, Federal agency 

salaries, retirement, and contract awards. 
IRS MANAGEMENT CHALLENGES MEMORANDUM

180 

Page Five 

from IRS contractors. Our audit identified that the IRS blocked 11 contractors with 

delinquent liabilities totaling approximately $4.3 million from inclusion in the Program. 

These contractors received more than $356 million in payments from the IRS and 

approximately $3.7 billion in payments from other Federal agencies. For eight of these 

contractors, the amount of delinquent taxes that could have been collected if the tax 

accounts had not been blocked from inclusion totaled $3.8 million. 

Tax-Exempt Entities

The IRS continues to face challenges in administering programs focused on ensuring that 

tax-exempt organizations comply with applicable laws and regulations to qualify for their 

exempt status. Legislative changes and judicial decisions contribute to a constantly 

changing environment affecting today’s nonprofit and tax-exempt organizations. For 

example, the Patient Protection and Affordable Care Act (Affordable Care Act)8

added 

several new requirements for tax-exempt hospitals to maintain their exempt status. 

Since more than $15 trillion in U.S. assets are currently controlled by tax-exempt 

organizations or held in exempt retirement programs and financial instruments, the IRS 

recognized in its most recent strategic plan that careful oversight of the nonprofit and 

exempt sector is more important than ever before. In its Fiscal Year 2012 budget 

submission, the IRS stated that it must continue focused oversight of the tax-exempt sector. 

In a report issued in Fiscal Year 2011,9 we reviewed the IRS process that allows public 

employers who determine they are not in compliance with various employment and income 

tax laws to step forward and be accountable by entering into an agreement with the IRS to 

become compliant. While this assists the IRS in improving compliance in the government 

sector without using scarce resources to uncover noncompliance, the IRS did not always 

properly control, process, and monitor all requests for agreements received from its 

customers. As a result, TIGTA found inconsistencies, inaccuracies, potential taxpayer rights 

violations, and weak internal controls that increased the risk of error, fraud, or abuse. In 

addition, TIGTA identified changes that could lead to an increase in the number of 

agreements being requested, heightening the need to begin building a more defined 

agreement program. 

Tax Return Preparers 

Greater numbers of taxpayers are turning to tax return preparers for assistance. In 

Calendar Year 2010, the IRS processed approximately 81.5 million individual Federal 

income tax returns prepared by paid preparers. However, these preparers were not 

required to meet or comply with any national standards before selling tax preparation 

services to the public. 

 

8 Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified as amended in scattered sections of 18 U.S.C., 

20 U.S.C., 21 U.S.C., 25 U.S.C., 26 U.S.C., 28 U.S.C., 29 U.S.C., 30 U.S.C., 31 U.S.C., 35 U.S.C., and 

42 U.S.C.). 

9

 TIGTA, Ref. No. 2011-10-042, Improvements Are Needed in the Voluntary Closing Agreement Process 

for Public Employers (2011).
IRS MANAGEMENT CHALLENGES MEMORANDUM

181 

Page Six 

A series of reports (including reviews conducted by TIGTA, the U.S. Government 

Accountability Office, and other agencies) strongly suggested a need to regulate those who 

prepare Federal tax returns and led the IRS to launch its Return Preparer Review in June 

2009. The following December, after its own six-month study of the problem, the IRS 

announced a suite of proposed reforms to improve oversight of the return preparer 

community. 

The IRS began implementing the new preparer requirements in Fiscal Year 2011, but we 

reported in September 2010 that it will take years for the IRS to implement the Return 

Preparer Program and to realize its impact.10

 When the decision was made to register 

preparers in September 2010, the IRS had only begun to implement the Return Preparer 

Program and had not established all of its requirements. The IRS also had not established 

the organizational structure of the Program, determined how it will test to ensure all 

preparers met the requirements, determined how it will enforce Program requirements, or 

developed the system(s) and processes necessary to administer and oversee the Program. 

It will not be until Calendar Year 2014 that all preparers will be subjected to all suitability and 

competency tests. In the meantime, the IRS will develop and implement an enforcement 

strategy. Currently, the IRS does not have a sufficient management information system to 

gather data on preparers. Further, the IRS will need to ensure that taxpayers understand 

the new requirements and the importance of using only registered preparers to prepare their 

tax returns. 

MODERNIZATION 

The Business Systems Modernization Program (Modernization Program) is a complex effort to 

modernize IRS technology and related business processes. It involves integrating thousands of 

hardware and software components while replacing outdated technology and maintaining the 

current tax system. The IRS originally estimated that the Modernization Program would last up 

to 15 years and incur contractor costs of approximately $8 billion. The Program is going on its 

14th year and has received approximately $3.46 billion for contractor services, plus an additional 

$554 million for internal IRS costs. 

Factors that characterize the IRS’s complex information technology environment include widely 

varying inputs from taxpayers (from simple concise records to complex voluminous documents), 

seasonal processing with extreme variations in processing loads, transaction rates on the order 

of billions per year, and data storage measured in trillions of bytes. The Modernization Program 

is working toward providing improved benefits to taxpayers that include: 

 Issuing refunds, on average, five days faster than existing legacy systems; 

 Offering electronic filing capability for individuals, large corporations, small businesses, 

tax-exempt organizations, and partnerships, with dramatically reduced processing error 

rates; 

 

10 TIGTA, Ref. No. 2010-40-127, It Will Take Years to Implement the Return Preparer Program and to 

Realize Its Impact (2010).
IRS MANAGEMENT CHALLENGES MEMORANDUM

182 

Page Seven 

 Delivering web-based services for tax practitioners, taxpayers, and IRS employees; and 

 Providing IRS customer service representatives with faster and improved access to 

taxpayer account data with real-time data entry, validation, and updates of taxpayer 

addresses. 

The IRS’s modernization efforts continue to focus on core tax administration systems designed 

to provide more sophisticated tools to taxpayers and to IRS employees. The Modernization 

Program provides new information technology capabilities and the related benefits. Since 

January 2011, the IRS has implemented new versions of the current Customer Account Data 

Engine,11 the Modernized e-File system,12 and the Account Management Services system.13

 

Additionally, the IRS has continued making progress in preparing for the deployment of the 

Customer Account Data Engine 2 system.14

The Modernization Program has continued to help improve IRS operations and has 

demonstrated successes in improving business practices by implementing new information 

technology solutions. Management of project costs and schedules has shown dramatic 

improvement since the previous year, but some systems development disciplines continue to 

need attention. 

Since 1995, the IRS had identified and reported the Modernization Program as a material 

weakness. In June 2011, the IRS Commissioner certified, in a memorandum to the Department 

of the Treasury’s Assistant Secretary for Management and Chief Financial Officer, that the 

previously identified internal and management control issues had been fully addressed and the 

Modernization Program no longer warranted being identified as a material weakness. While we 

support the IRS’s decision, we believe the Program remains a risk for the IRS, and we suggest 

that it continue to stress improvements in its overall processes and performance. 

IMPLEMENTING MAJOR TAX LAW CHANGES 

Each filing season tests the IRS’s ability to implement tax law changes made by the Congress. 

Most individual taxpayers file their income tax returns during the annual January through April 

period and, if needed, it is usually during this same time period that they contact the IRS with 

questions about specific tax laws or filing procedures. Correctly implementing late tax law 

changes remains a significant challenge because 

 

11 The Customer Account Data Engine is the foundation for managing taxpayer accounts in the IRS 

Modernization plan. When completed, its databases and related applications will replace existing IRS 

Master File processing systems and will include applications for daily posting, settlement, maintenance, 

refund processing, and issue detection for taxpayer tax account and return data.

12 The Modernized e-File system is a replacement of the current IRS tax return filing technology with a 

modernized, Internet-based electronic filing platform.

13 The Account Management Services system provides IRS employees with the ability to view, access, 

update, and manage taxpayer data. 

14 The Customer Account Data Engine 2 system creates a modernized processing and data-centric 

infrastructure that will enable the IRS to improve the accuracy and speed of individual taxpayer account 

processing, enhance the customer experience through improved access to account information, and 

increase the effectiveness and efficiency of agency operations. 
IRS MANAGEMENT CHALLENGES MEMORANDUM

183 

Page Eight 

the IRS must often act quickly to assess the changes and determine the necessary actions to 

ensure all legislated requirements are satisfied. In addition, the IRS must often create new or 

revise existing tax forms, instructions, and publications; revise internal operating procedures; 

and reprogram major computer systems used for processing tax returns. Pertinent examples of 

major tax law changes that contribute to this management and performance challenge are 

provided below. 

Health Care 

The recently enacted health care reform statute known as the Affordable Care Act contains 

an extensive array of tax law changes that will present a continuing source of challenges for 

the IRS in the coming years. While the Department of Health and Human Services will have 

the lead role in the policy provisions of the Affordable Care Act, the IRS will administer the 

law’s numerous tax provisions. The IRS estimates that at least 42 provisions will either add 

to or amend the tax code and at least eight will require the IRS to build new processes that 

do not exist within the current tax administration system. Examples of new IRS 

responsibilities resulting from this law include: 

 Providing tax credits to businesses and individuals to assist in covering the cost of 

health coverage; 

 Administering the mandate for individuals to purchase health coverage or be subject 

to a penalty on their individual Federal tax returns; and 

 Administering multiple tax provisions designed to raise revenues to offset the cost of 

health care reform. 

For Fiscal Years 2011 and 2012, TIGTA identified a critical need to initiate 16 audits related 

to the Affordable Care Act to oversee the implementation of such significant provisions as: 

 Small Business Health Care Tax Credit; 

 Qualified Therapeutic Discovery Project Credit; 

 Annual Fees Assessed on Branded Prescription Pharmaceutical Manufacturers and 

Importers; 

 Expansion of the Adoption Credit; 

 Indoor Tanning Excise Tax; 

 Tax-Exempt Hospital Provisions; and 

 Reporting Requirements Included in the Affordable Care Act. 

TIGTA’s audit results to date illustrate the significant need for continued oversight of the 

IRS’s administration of many of these tax-related provisions. For example, taxpayers 

erroneously received millions in Adoption Credits; the IRS did not require sufficient 

information to determine if taxpayers claiming Small Business Health Care Tax Credits filed 

required employment taxes when these taxpayers entered into a contractual relationship 

with professional employment organizations to manage 
IRS MANAGEMENT CHALLENGES MEMORANDUM

184 

Page Nine 

human resources; and the IRS did not take adequate steps to ensure taxpayers potentially 

liable for the indoor tanning excise tax were aware of the new law, particularly after the 

number of taxpayers filing tax returns reporting the excise tax for tanning services was much 

lower than expected. 

A provision in this law increased the Adoption Credit from $12,150 to $13,170 and made the 

tax credit refundable.15

 Although the IRS requires taxpayers to attach documentation to 

their tax returns supporting Adoption Credit claims, it does not have math error authority to 

deny the credits if documentation is not provided. As a result, tax returns without required 

documentation must be sent to the Examination function, increasing costs for the IRS and 

burden for the taxpayer. As of April 30, 2011, of the 72,330 Adoption Credit claims 

received, 41,591 (58 percent) either had no required documentation or the documentation 

was invalid or insufficient. Furthermore, as of April 30, 2011, 736 taxpayers had erroneously 

received more than $4 million in Adoption Credits. 

American Recovery and Reinvestment Act 

The American Recovery and Reinvestment Act of 2009 (Recovery Act)16 was enacted on 

February 17, 2009. The Recovery Act presented significant challenges to all Federal 

agencies to implement provisions quickly while attempting to minimize risk and meet 

increased standards for transparency and accountability. With its 56 tax provisions (20 

related to individual taxpayers and 36 related to business taxpayers), the Recovery Act 

poses significant challenges to the IRS. TIGTA has issued numerous reports related to the 

IRS’s efforts to implement Recovery Act tax provisions. Some examples include: 

 A review of the Plug-in Electric and Alternative Motor Vehicle Credit identified 12,920 

individuals who erroneously claimed $33 million in plug-in electric and alternative 

motor vehicle credits on electronically filed (e-filed) tax returns. Furthermore, 1,719 

of the 12,920 individuals erroneously reduced the amount of the Alternative Minimum 

Tax owed by almost $5.3 million.17

 A review of the Residential Energy Credit identified that the IRS cannot verify 

whether individuals claiming Residential Energy Credits were entitled to them at the 

time their tax returns are processed. The IRS does not require individuals to provide 

any third-party documentation to verify eligibility.18

 A review of the IRS’s compliance with requirements over procurements funded by 

the Recovery Act determined that the IRS did not always comply 

 

15 A refundable tax credit is a tax credit that is treated as a payment and can be refunded to the taxpayer. 

Refundable credits can create a Federal tax refund that is larger than the amount a person actually paid 

in taxes during the year.

16 Pub. L. No. 111-5, 123 Stat. 115. 

17 TIGTA, Ref. No. 2011-41-011, Individuals Received Millions of Dollars in Erroneous Plug-in Electric and Alternative 

Motor Vehicle Credits (2011). 

18 TIGTA, Ref. No. 2011-41-038, Processes Were Not Established to Verify Eligibility for Residential Energy Credits 

(2011).
IRS MANAGEMENT CHALLENGES MEMORANDUM

185 

Page Ten 

with the Recovery Act and its implementing guidance in planning and awarding those 

procurements.19

 A review of the IRS’s use of compliance check questionnaires regarding Build 

America Bonds found that the questionnaires issued by the Tax Exempt Bonds office 

were appropriate for identifying indications of a high risk of potential noncompliance 

for Build America Bonds. However, the office did not have formal written procedures 

for developing and conducting compliance checks that would aid in the development 

of compliance check programs and provide added assurance the IRS does not 

exceed its authority when executing such programs.20

TIGTA continues to support the Recovery Accountability and Transparency Board 

(Recovery Board) in fulfilling its responsibilities for providing transparency for Recovery Actrelated funds and for preventing and detecting fraud, waste, and mismanagement. We also 

continue to evaluate the IRS’s compliance with Recovery Act and Office of Management 

and Budget guidance. Additionally, we have evaluated multiple Recovery Board leads that 

contain allegations of misuse of Recovery Act funds. 

Other Tax Law Changes 

Along with the usual required updates21 for the 2011 Filing Season, the late passage of the 

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

(enacted December 17, 2010)22 resulted in a need for the IRS to reprogram its computer 

systems to accommodate provisions extended by this law. As a result, taxpayers who 

claimed one or more of the three affected deductions or who itemized deductions were 

unable to file their tax returns until February 14, 2011. The IRS reported it had Electronic 

Return Originators hold approximately 6.5 million e-filed tax returns for transmission until 

February 14, 2011, and as of February 11, 2011, the IRS itself had received and held for 

processing approximately 100,000 paper tax returns. 

In addition, more than 1.5 million taxpayers who purchased a home between April 9 and 

December 31, 2008, and claimed the First-Time Homebuyer Credit (Homebuyer Credit) 

were required to begin repaying the credit on their Tax Year 2010 tax return. The credit is 

intended to be repaid over 15 years, in equal annual installments. However, the IRS 

experienced difficulties in implementing the repayment process. As of April 30, 2011, we 

identified 26,649 taxpayers for whom the Homebuyer Credit was inaccurately processed, 

which resulted in the IRS not assessing more than $5.8 million in repayment amounts owed 

but not paid and erroneously assessing $675,063 as a repayment amount in excess of what 

was owed by the taxpayer. 

 

19 TIGTA, Ref. No. 2011-11-132, Procurements Were Not Processed in Compliance With the American Recovery and 

Reinvestment Act of 2009 (2011).

20 TIGTA, Ref. No. 2011-11-053, The Direct Pay Build America Bond Compliance Check Program Has 

Yet to Result in Wide-Scale Examinations (2011).

21 Each year, tax products must be updated to reflect current tax rates, exemption amounts, and cost of 

living adjustments as shown in Revenue Procedures.

22 Pub. L. No. 111-312, 124 Stat. 3296. 
IRS MANAGEMENT CHALLENGES MEMORANDUM

186 

Page Eleven 

These difficulties resulted in inaccurate processing of repayments and significant delays in 

providing refunds to taxpayers with repayment requirements. 

FRAUDULENT CLAIMS AND IMPROPER PAYMENTS 

The Improper Payments Information Act of 200223 defines an improper payment as any 

payment that should not have been made or that was made in an incorrect amount (both 

overpayments and underpayments) under statutory, contractual, administrative, or 

other legally applicable requirements. Improper payments include any payment to an ineligible 

recipient or for an ineligible service, any duplicate payment, any payment for services not 

received, and any payment that does not account for credit for applicable discounts. The 

Administration has emphasized the importance of reducing improper payments, and on 

November 20, 2009, the President signed Executive Order 13520,24 which included a strategy 

to reduce improper payments by increasing transparency, holding agencies accountable, and 

creating strong incentives for compliance. In addition, the Improper Payments Elimination and 

Recovery Act of 201025 placed additional requirements on Federal agencies to reduce improper 

payments. Erroneous and improper payments issued by the IRS generally involve improperly 

paid refunds, tax return filing fraud, or improper payments to vendors or contractors. 

Refundable Credits 

The IRS administers numerous refundable tax credits. These refundable credits allow 

individual taxpayers to reduce their tax liability to below zero and thus receive a tax refund 

even if no income tax was withheld or paid. Two significant refundable credits are the 

Earned Income Tax Credit (EITC) and the Additional Child Tax Credit. The Recovery Act 

also authorized several temporary refundable credits, examples of which include the 

Homebuyer Credit and the American Opportunity Tax Credit. 

Our reviews have shown the need for appropriate controls to be established before 

refundable credits are issued. This includes requiring documentation to substantiate claims, 

implementing filters timely to identify erroneous claims, and entering key information into 

IRS computers so that it can be used to verify eligibility.26 

The EITC remains the largest refundable credit, based on the total claims paid, and it 

continues to be vulnerable to a high rate of noncompliance, including incorrect or erroneous 

claims caused by taxpayer error or resulting from fraud. We recently assessed the IRS’s 

efforts to implement Executive Order 13520, which requires the IRS to intensify its efforts 

and set targets to reduce EITC improper payments. It also requires the IRS to provide 

TIGTA with its plans and supporting analysis for meeting those targets. The IRS’s report to 

TIGTA did not include any quantifiable targets to reduce EITC improper payments. Without 

targets to reduce EITC improper 

 

23 Pub. L. No. 107-300, 116 Stat. 2350. 

24 Executive Order No. 13,520, 74 Fed. Reg. 62201 (Nov. 25, 2009), Reducing Improper Payments and 

Eliminating Waste in Federal Programs. 

25 Pub. L. No. 111-204, 124 Stat. 2224. 

26 TIGTA, Ref. No.2011-41-035, Administration of the First-Time Homebuyer Credit Indicates a Need for 

Improved Controls Over Refundable Credits (2011).
IRS MANAGEMENT CHALLENGES MEMORANDUM

187 

Page Twelve 

payments as required by the Executive Order, there is a lack of accountability for eliminating 

payment error, waste, fraud, and abuse.27

 As such, the risk remains high that the IRS will 

continue to pay billions of dollars in EITC improper payments annually. The IRS continues 

to report that 23 to 28 percent of EITC payments are issued improperly each year. In Fiscal 

Year 2009, this equated to $11 to $13 billion in EITC improper payments. 

The Additional Child Tax Credit is the second largest refundable credit available 

to individuals. Refunds for the credit processed in Fiscal Year 2010 totaled $28.3 billion, 

and we have reported that the IRS paid $4.2 billion for this credit in Processing Year 2010 to 

individuals who were not authorized to work in the United States. Furthermore, the 

Examination function does not effectively and efficiently work Additional Child Tax Credit 

cases of those individuals filing with an Individual Taxpayer Identification Number. We have 

recommended that the IRS work with the Department of the Treasury to seek clarification in 

the law as to whether this and other refundable credits may be paid to individuals who are 

not authorized to work in the United States. 

The Recovery Act amended the Hope Scholarship Credit to provide for a refundable tax 

credit called the American Opportunity Tax Credit to help taxpayers offset the costs of 

higher education. TIGTA identified 2.1 million taxpayers who appear to have received 

$3.2 billion in erroneous education credits. This includes 1.7 million taxpayers who received 

$2.6 billion in education credits for students for whom there was no supporting 

documentation in IRS files establishing that they attended an educational institution. This is 

further indication that the IRS needs to have processes in place to verify eligibility for 

refundable credits at the time a tax return is processed. 

Contract and Other Payments 

Federal contract spending has nearly doubled since 2002. In Fiscal Year 2010, the Federal 

Government spent approximately $538 billion to acquire goods and services. Similarly, 

contract spending by the IRS represents a significant outlay of funds. As of May 2011, the 

IRS administered more than 1,000 procurements, including 807 contracts of varying types 

and 201 Blanket Purchase Agreements and Interagency Contracts and Agreements. These 

1,008 active contracts have a reported systems life value of approximately $39.2 billion. 

Numerous past TIGTA investigations and audits have identified millions of dollars in 

questioned costs and several instances of contractor fraud. 

During Fiscal Years 2010 and 2011, court-ordered civil settlements directed $156 million 

and $113 million, respectively, to be paid back to the U.S. Treasury as a result of TIGTA 

criminal investigative efforts. During these investigations, two recurring trends emerged. 

Contracting Officer’s Technical Representatives were frequently overwhelmed by their 

workloads, and current business practices have not enhanced the IRS’s ability to identify 

anomalies warranting additional review. 

 

27 TIGTA, Ref. No. 2011-40-023, Reduction Targets and Strategies Have Not Been Established to 

Reduce the Billions of Dollars in Improper Earned Income Tax Credit Payments Each Year (2011).
IRS MANAGEMENT CHALLENGES MEMORANDUM

188 

Page Thirteen 

Further, in a recent review of the IRS Purchase Card Program, TIGTA determined that, 

while some purchase card controls were working as intended, overall management controls 

were inadequate to ensure the appropriate use of IRS purchase cards. TIGTA found 

violations of applicable laws and regulations that included purchases made without 

necessary approvals and verification of funding, purchases that were potentially split into 

two or more transactions to circumvent micro-purchase limits, and purchases made from 

improper sources.28

PROVIDING QUALITY TAXPAYER SERVICE OPERATIONS 

The Department of the Treasury and the IRS recognize that the delivery of effective taxpayer 

service has a significant impact on voluntary tax compliance. Answering taxpayers’ questions to 

assist them in correctly preparing their returns reduces the need to send notices and 

correspondence when taxpayers make errors. Taxpayer service also reduces unintentional 

noncompliance and shrinks the need for future collection activity. The IRS continues to focus 

on the importance of improving service by emphasizing it as a main goal in its strategic plan, 

including seeking innovative ways 

to simplify or eliminate processes that unnecessarily burden taxpayers or Federal Government 

resources. 

In a review of the taxpayer experience during the 2011 Filing Season,29 the overall experiences 

of TIGTA auditors who posed as taxpayers to obtain answers to tax law questions from the tollfree telephone assistance lines, IRS.gov, and Taxpayer Assistance Centers were generally 

positive. However, taxpayers were experiencing long wait times at Taxpayer Assistance 

Centers and on telephones. At Taxpayer Assistance Centers, our auditors waited an average of 

one hour to receive assistance and, in some cases, were turned away and told to return another 

day to obtain services. In addition, Taxpayer Assistance Centers do not always allow qualified 

taxpayers to schedule appointments and do not consistently apply new taxpayer screening 

guidelines and procedures. 

Our recent review of the Taxpayer Advocate Service’s process for selecting systems advocacy 

projects30 determined it can improve the process used for identifying these projects. 

Specifically, we found that Taxpayer Advocate Service management primarily relies on IRS 

employees and external stakeholders to submit issues for consideration as potential projects. 

However, we found that Taxpayer Advocate Service could improve the research it performed 

during the screening process to better identify systemic problems affecting multiple taxpayers. 

Such improvements will assist management in identifying and resolving broad-based taxpayer 

problems, thereby preventing or reducing similar problems in the future. 

 

28 TIGTA, Ref. No. 2011-10-075, Controls Over the Purchase Card Program Were Not Effective in 

Ensuring Appropriate Use (2011).

29 TIGTA, Ref. No. 2011-40-070, The Internal Revenue Service Provides Helpful and Accurate Tax Law 

Assistance, but Taxpayers Experience Lengthy Wait Times to Speak With Assistors (2011).

30 TIGTA, Ref. No. 2011-10-062, The Identification and Evaluation of Systemic Advocacy Projects 

Designed to Resolve Broad-Based Taxpayer Problems Can Be Improved (2011). 
IRS MANAGEMENT CHALLENGES MEMORANDUM

189 

Page Fourteen 

HUMAN CAPITAL 

Human capital is the Federal Government’s most critical asset. At a time when the Federal 

Government is preparing for increased retirements and taking on such new challenges as the 

implementation of health care reform, the recruitment of new employees and retention of 

existing employees is critical to ensuring the maintenance of a quality workforce capable of 

meeting the needs of the American public. Like many Federal agencies, the IRS is faced with 

the major challenge of replacing existing talent because of a large number of retirements 

expected over the next several years. This challenge is especially evident in the IRS’s 

leadership ranks, where about one-third of all executives and almost 20 percent of managers 

are already retirement eligible. Within five years, nearly 70 percent of all IRS executives and 

almost 50 percent of managers are projected to be eligible for retirement. 

The IRS’s challenge of having the right people in the right place at the right time is made more 

difficult by many complex internal and external factors. The work performed by IRS employees 

continually requires greater expertise as tax laws become more complex, manual systems used 

to support tax administration become computer-based, and attempts by taxpayers and tax 

practitioners to evade compliance with the tax laws become more sophisticated. The IRS must 

also compete with other Federal, State, and local governmental agencies and the private sector 

for the same human resources, an effort that becomes more complicated as younger 

generations of employees move between jobs more frequently than employees in the past. 

Furthermore, budget constraints, legislative changes, and economic shifts can create 

unforeseen challenges for the IRS in addressing its long-term human capital issues. 

The IRS is improving in its human capital management practices and has developed a 

comprehensive agency-wide recruitment strategy. However, there is still much work left to be 

done. For example, we recently determined that the IRS, like other Government agencies, was 

struggling to accomplish the basic tasks in acquisition workforce planning, including identifying 

its acquisition workforce, determining the number of acquisition workforce personnel it needs to 

accomplish its mission, and determining the skills its employees have compared to the skills it 

requires. If the IRS does not take action to improve its acquisition workforce planning, it: (1) 

may not be able to easily determine whether its acquisition workforce has enough people with 

the right skills to perform acquisition duties, (2) may be understaffed to handle the anticipated 

acquisition workload, and (3) may not have all the prerequisite skills to oversee procurements.31

The IRS also faces challenges to maintain the number of Revenue Officers needed, due to 

attrition and an increasing inventory. The IRS’s Revenue Officer hiring initiative added 1,515 

new Revenue Officers throughout the country between June 2009 and February 2010. The 

methodology to assign these new employees was effective in placing them in the Collection 

areas with the greatest need. However, even though 1,515 Revenue Officers were hired over a 

nine-month period, the net increase was only 580 Revenue Officers. The IRS has also 

projected that planned hiring for Fiscal 

 

31 TIGTA, Ref. No. 2011-10-072, Additional Actions and Data Are Needed to Further Analyze the Size and 

Skills of the Acquisition Workforce (2011). 
IRS MANAGEMENT CHALLENGES MEMORANDUM

190 

Page Fifteen 

Years 2011 and 2012 will barely cover attrition losses. Meanwhile, the percentage of delinquent 

accounts closed has steadily decreased because of increasing inventory. 

GLOBALIZATION 

The scope, complexity, and magnitude of the international financial system present significant 

enforcement challenges for the IRS. International business holdings and investment in the 

United States have grown from nearly $188 billion in 1976 to over $14.5 trillion in 2007, while 

U.S. business and investment grew from nearly $368 billion to nearly $15 trillion over the same 

period. As technology continues to advance and cross-border transactions rise, the IRS is 

increasingly challenged by economic globalization. Technological advances have provided 

opportunities for offshore investments that were once only possible for large corporations and 

wealthy individuals. 

The number of taxpayers that conduct international business transactions, including individuals, 

businesses, and tax-exempt organizations, continues to grow. The IRS is still challenged by a 

lack of information reporting on many cross-border transactions. In addition, the varying legal 

requirements imposed by different jurisdictions result in complex business structures that make 

it difficult to determine the full scope and effect of cross-border transactions. 

Over the past few years, the Federal Government has taken actions to better coordinate 

international tax compliance issues. The IRS has developed a strategic plan specifically for 

international tax issues with two major goals: (1) enforce the law to ensure all taxpayers meet 

their obligation to pay taxes, and (2) improve service to make voluntary compliance less 

burdensome. The IRS continues to realign and expand its international efforts under its Large 

Business and International Division. The IRS expects that these efforts will improve 

international tax compliance by allowing it to focus on high-risk issues and cases with greater 

consistency and efficiency. 

The IRS continues to work with the U.S. Department of Justice on tax evasion cases involving 

foreign countries with bank secrecy laws that prevent the United States from obtaining 

information on taxpayer transactions. In addition, the 2009 and 2011 Offshore Voluntary 

Disclosure Initiatives have encouraged taxpayers with hidden offshore assets and income to 

come back into the tax system using the IRS’s Voluntary Disclosure Program. The Initiatives 

offer a uniform penalty structure for taxpayers who voluntarily disclose their hidden offshore 

assets and income to the IRS and, in return, ensure that the taxpayers receive consistent tax 

and penalty treatment. They also provide the opportunity to calculate, with a reasonable degree 

of certainty, the total cost of resolving all outstanding offshore tax issues related to the 

undisclosed foreign bank and financial accounts and assets. Taxpayers with undisclosed 

foreign accounts and assets who do not submit a voluntary disclosure run the risk of detection 

by the IRS. If caught, these taxpayers face the imposition of substantial penalties, including the 

fraud and foreign information return penalties, as well as an increased risk of criminal 

prosecution. 

In addition, one of the biggest challenges currently facing the IRS is the implementation of the 

Foreign Account Tax Compliance Act (FATCA).32 As capital markets become 

 

32 Pub. L. No. 111-147, 124 Stat. 71 (2010) (codified in scattered sections of 26 U.S.C.).
IRS MANAGEMENT CHALLENGES MEMORANDUM

191 

Page Sixteen 

increasingly globalized, U.S. investors may be able to benefit from a corresponding increase in 

international investment opportunities. The FATCA was enacted to combat tax evasion by U.S. 

persons holding investments in offshore accounts. Under this Act, a U.S. taxpayer with financial 

assets outside the United States will be required to report those assets to the IRS. In addition, 

foreign financial institutions will be required to report to the IRS certain information about 

financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a 

substantial ownership interest. 

Foreign financial institutions that do not enter into an agreement to report this information to the 

IRS will be subject to withholding on certain types of payments, including U.S. source interest 

and dividends, gross proceeds from the disposition of U.S. securities, and pass-through 

payments. To avoid being withheld upon, foreign financial institutions will have to enter into an 

agreement with the IRS to: 

 Identify U.S. accounts; 

 Report certain information to the IRS regarding U.S. accounts; and 

 Withhold a 30-percent tax on certain payments to nonparticipating foreign financial 

institutions and account holders who are unwilling to provide the required information. 

According to the IRS Commissioner, “FATCA is an important development in U.S. efforts to 

combat offshore noncompliance. At the same time, the IRS recognizes that implementing 

FATCA is a major undertaking for financial institutions.”33

 Based on the initial feedback from 

foreign financial institutions as well as foreign governments, the IRS will continue to face 

significant opposition from abroad in implementation of this Act. 

TAXPAYER PROTECTION AND RIGHTS

The IRS must ensure that tax compliance activities are balanced against the rights of taxpayers 

to receive fair and equitable treatment. The IRS continues to dedicate significant resources and 

attention to implementing the taxpayer rights provisions of the IRS Restructuring and Reform 

Act of 1998 (RRA 98).34 Annual audit reports are mandated for the following taxpayer rights 

provisions: 

 Notice of Levy; 

 Restrictions on the Use of Enforcement Statistics to Evaluate Employees; 

 Fair Debt Collection Practices Act35 Violations; 

 Notice of Lien; 

 Seizures; 

 Illegal Protestor Designations; 

 

33 IRS News Release IR-2011-76, Treasury and IRS Issue Guidance Outlining Phased Implementation of 

FATCA Beginning in 2013 (July 14, 2011).

34 Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C. 

app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.). 

35 15 U.S.C. §§ 1601 note, 1692-1692o (2006). 
IRS MANAGEMENT CHALLENGES MEMORANDUM

192 

Page Seventeen 

 Assessment Statute of Limitations; 

 Collection Due Process Appeals; 

 Denial of Requests for Information; 

 Restrictions on Directly Contacting Taxpayers Instead of Authorized Representatives; 

and

 Separated or Divorced Joint Filer Requests. 

In general, the IRS has improved its compliance with these statutory taxpayer rights provisions. 

The IRS has shown improvement over prior years when documenting that taxpayers were 

informed of their rights. However, the IRS did not fully comply with requirements concerning the 

use of records of tax enforcement results to evaluate employees36 and did not always follow 

procedures for mailing notices to taxpayers or their representatives in Federal tax lien cases.37 

IRS management information systems do not track all cases that require mandatory annual 

audit coverage.38 Thus, neither TIGTA nor the IRS could evaluate the IRS’s compliance with 

certain RRA 98 provisions. 

In addition, identity theft remains the single largest type of complaint submitted to the Federal 

Trade Commission’s Consumer Sentinel Network. The Federal Trade Commission estimates 

that as many as 9 million Americans have their identities stolen each year. Identity theft affects 

the IRS and tax administration in two ways – fraudulent tax returns and misreporting of income. 

Both can potentially harm taxpayers who are the victims of the identity theft. The IRS is seeing 

a significant growth in identity theft cases. At a recent hearing39 of the House Oversight and 

Government Reform Subcommittee on Government Organization, Efficiency, and Financial 

Management, identity theft victims testified that other individuals had filed fraudulent tax returns 

using their identities. The victims stated that the IRS withheld their tax refunds, sometimes 

more than once, and further stated that they had been treated unprofessionally by numerous 

IRS employees while they tried to resolve their problems. 

ACHIEVING PROGRAM EFFICIENCIES AND COST SAVINGS 

Given the current economic environment and the increased focus by the Administration, 

Congress, and the American people on Federal Government accountability and efficient use of 

resources, the American people must be able to trust that their Government is taking action to 

stop wasteful practices and ensure that every tax dollar is spent wisely. On June 13, 2011, 

President Obama signed an Executive Order40 to cut waste, 

 

36 TIGTA, Ref. No. 2010-30-076, Fiscal Year 2010 Statutory Audit of Compliance With Legal Guidelines Restricting 

the Use of Records of Tax Enforcement Results (2010). 

37 TIGTA, Ref. No. 2010-30-072, Actions Are Needed to Protect Taxpayers’ Rights During the Lien Due Process 

(2010). 

38 TIGTA, Ref. No. 2010-30-026, Fiscal Year 2010 Statutory Review of Disclosure of Collection Activity With Respect 

to Joint Returns (2010) and TIGTA, Ref. No. 2010-30-060, Fiscal Year 2010 Statutory Review of Restrictions on 

Directly Contacting Taxpayers (2010).

39 IRS E-File and Identity Theft, Hearing Before the House Oversight and Government Reform Subcommittee on 

Government Organization, Efficiency, and Financial Management, 112th Cong. (2011).

40 Executive Order No. 13,576, 76 Fed. Reg. 35297 (June 16, 2011), Delivering an Efficient, Effective, and 

Accountable Government.
IRS MANAGEMENT CHALLENGES MEMORANDUM

193 

Page Eighteen 

streamline Government operations, and reinforce the performance and management reform 

gains achieved by his Administration. In addition, the Government Accountability Office is now 

statutorily required to identify and report to the Congress those Federal programs, agencies, 

offices, and initiatives, either within departments or Government-wide, that have duplicative 

goals or activities. 

While the IRS has made progress in using its data to improve program effectiveness and reduce 

costs, this area continues to be a major challenge. In a recent audit,41 we reviewed the IRS’s 

$88 million contract with a private vendor to provide support-service functions, including storage 

and management, throughout IRS facilities. We determined that the IRS should take additional 

steps to ensure support services are managed in a more cost-effective manner. Specifically, 

the IRS should evaluate whether it is cost effective to continue to move into storage rather than 

dispose of furniture and equipment that has not been clearly determined to be of future 

usefulness. As a result, the IRS may be paying more for its support services than is necessary. 

The IRS is reducing publishing and mail costs, but recent reductions have resulted from budget 

cuts and were not part of a long-term strategy. In response to the cost savings proposed in the 

Fiscal Year 2011 budget request, the IRS formed task forces to identify ways to achieve cost 

savings.42

 A task force proposed 25 actions to reduce publishing and mail costs and lay the 

foundation for long-term implementation of cost reductions for Fiscal Year 2011 and beyond. 

However, the task force proposal did not include documentation to show the methodology used 

to make the proposals, the method used to calculate or validate its estimates, or the manner in 

which the IRS will measure the results or the cost savings of the proposals. As the IRS moves 

forward with the proposed cost savings or pursues other methods of saving publishing and mail 

costs, it needs to implement sufficient controls and procedures to ensure the methodology for 

the decisions are documented and that the data used are accurate and complete. 

In a prior audit,43 we reviewed the IRS’s methodology to reasonably and accurately calculate the 

cost of Unemployment Trust Fund administrative expenses. This fund was established to 

provide a portion of extended unemployment benefits during periods of high unemployment. 

The IRS is reimbursed the costs of collecting and processing the taxes that are deposited to the 

fund. However, we determined that there were insufficient controls to ensure that expenses 

associated with the administration of the Unemployment Trust Fund are accurately calculated. 

Specifically, we found that the IRS overestimated the related expenses by $63 million during 

Fiscal Years 2005 through 2009. As a result, these funds were not available during this period 

to fund the Federal Government’s share of unemployment benefit payments to eligible 

taxpayers. 

 

41 TIGTA, Ref. No. 2011-10-086, Controls Over Costs and Building Security Related to Outsourced Office 

Support Services Need to Be Improved (2011). 

42 TIGTA, Ref. No. 2011-40-025, Publishing and Mail Costs Need to Be More Effectively Managed to 

Reduce Future Cost (2011).

43 TIGTA, Ref. No. 2010-10-039, Internal Accounting Errors Reduced the Federal Funding Available for 

Unemployment Benefits by $63 Million During Fiscal Years 2005 Through 2009 (2010). 
IRS MANAGEMENT CHALLENGES MEMORANDUM

194 

Page Nineteen 

CONCLUSION 

This correspondence is provided as our annual summary of the most serious major 

management and performance challenges confronting the IRS in Fiscal Year 2012. TIGTA’s 

Fiscal Year 2012 Annual Audit Plan contains our proposed reviews, which are organized by 

these challenges. If you have questions or wish to discuss our views on the challenges in 

greater detail, please contact me at (202) 622-6500. 

cc: Deputy Secretary 

Assistant Secretary for Management and Chief Financial Officer 

Commissioner of Internal Revenue 
U.S. Department of the Treasury | Fiscal Year 2011

195 

MANAGEMENT’S RESPONSE TO THE 

MANAGEMENT AND PERFORMANCE CHALLENGES IDENTIFIED BY THE 

TREASURY INSPECTOR GENERAL 

AND 

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

In their memoranda dated October 24 and 14, 2011, the Treasury Inspector General (IG) and Treasury Inspector 

General for Tax Administration (TIGTA), respectively, identified the major challenges facing management. The 

Department of the Treasury concurs with the IG and TIGTA on these challenges. These challenges do not 

necessarily indicate deficiencies in performance; rather, some represent inherent risks that must be monitored 

continuously. Moving forward, Treasury will continue to address these issues proactively. The following tables 

summarize the major management and performance challenges facing the Department of Treasury, and provide 

information on the actions taken by Treasury in fiscal year 2011 and planned for fiscal year 2012 and beyond.

Timothy F. Geithner

Secretary of the Treasury

November 15, 2011

RESPONSE TO OIG 

OIG CHALLENGE NO. 1 SUMMARY OF MAJOR ISSUES

Transformation of Financial Regulation  Implement and enforce the provisions of the Dodd-Frank Act 

and other federal consumer financial laws consistently

 Identify risks to financial stability that could arise from the 

activities of large, interconnected financial companies; respond 

to emerging threats to the financial system; and promote market 

discipline 

 Assess and report on systemic risks

 Monitor the insurance industry

 Streamline and improve supervision of depository institutions 

and holding companies

Financial Stability Oversight Council (FSOC)

Fiscal Year 2011 Accomplishments

 Held nine meetings of the FSOC to discuss and analyze emerging market developments and financial regulatory 

issues

 Initiated monitoring for potential risks to U.S. financial stability, with a focus on significant financial market 

developments and structural issues within the financial system

 Issued an advance notice of proposed rulemaking and notice of proposed rulemaking on determination of 

nonbank financial companies for consolidated supervision by the Federal Reserve and enhanced prudential 

standards

 Issued a final rule on the designation of financial market utilities that will be subject to enhanced prudential 

standards and supervisory requirements

 Published the following studies and reports on:

o Comprehensive view of financial market developments and potential threats to the financial system

o Implementation of the Volcker Rule, which generally prohibits banking entities from engaging in proprietary 

trading and limits their investments in or sponsorship of hedge funds and private equity funds

o Financial sector concentration limits established by the Dodd-Frank Act

o Secured creditor haircuts, which evaluated the importance of maximizing U.S. taxpayer protections and 

promotion of market discipline for the treatment of fully secured creditors in the utilization of the orderly 

liquidation authority
U.S. Department of the Treasury | Fiscal Year 2011

196 

o Risk-retention requirements for asset-backed securities that will promote safe and efficient lending

o Economic impact of possible financial services regulatory limitations intended to reduce systemic risk

 Continued to build out the FSOC’s institutional framework, adopting rules of operation, releasing proposed 

regulations implementing FOIA obligations, adopting a transparency policy, and passing a budget for FSOC 

operations

Actions Planned or Underway

 Coordinate with FSOC member agencies to consult with the Federal Reserve on developing rules for establishing 

enhanced prudential standards

 Publish a final rule on the determination of nonbank financial companies for supervision by the Federal Reserve 

and begin identification of specific nonbank financial companies

 Coordinate issuance of final regulations implementing the Volcker Rule with member agencies and on credit risk 

retention for asset-backed securities with member agencies

Office of Financial Research (OFR)

Fiscal Year 2011 Accomplishments

 Gathered input from regulators, private stakeholders, and eminent researchers on the OFR’s functions and 

strategic priorities 

 Began delivery of data and research-related services to the FSOC and its committees, which included contracting 

with leading outside researchers and initiation of support for the FSOC Data Committee

 Worked with policymakers, regulators, and the private sector to allow for a mutually agreeable and effective global 

Legal Entity Identifier (LEI) solution which will fill a critical gap in financial sector data

 Initiated development of a comprehensive catalogue of existing financial and economic datasets among FSOC 

members

 Developed initial organizational structure, hiring procedures, and pay structures; recruited OFR leadership; and 

began to plan and design a target information technology architecture linked to achieving OFR’s strategic 

priorities

Actions Planned or Underway

 Implement a comprehensive strategic framework to support the evolving needs for the OFR (including governance 

and procedures, program management and business systems, strategic budgeting, and performance 

measurement)

 Expand core analytic outputs for the FSOC and broader stakeholders, hold the first OFR-sponsored conference, 

and promote the continued build-up of a virtual community of researchers and academics on financial stability

 Implement the LEI solution to fill a critical gap in financial sector data and follow-up with the build of a robust 

data management solution for the FSOC and its members that avoids duplication and unnecessary burden

 Accelerate hiring across the full range of functions and further elaborate the human resource framework to serve 

the needs of the growing organization

Federal Insurance Office (FIO)

Fiscal Year 2011 Accomplishments

 Completed an inventory of insurance-related skill sets and expertise within all federal agencies with the objective 

of avoiding duplication of personnel

 Continued to gather input on FIO’s functions, authorities, and strategic priorities 

Actions Planned or Underway

 Further develop data collection and analyses processes with OFR

 Generate the studies and reports required by the Dodd-Frank Act

Office of the Comptroller of the Currency (OCC)

Fiscal Year 2011 Accomplishments

 Completed the transfer and integration of Office of Thrift Supervision (OTS) employees and brought federal 

savings associations under OCC supervision, creating a single regulator for national banks and federal thrifts

 Conducted 17 outreach sessions nationwide to over 1,000 thrift executives and issued several communications to 

thrift directors and executives
U.S. Department of the Treasury | Fiscal Year 2011

197 

 Republished OCC rules to incorporate those OTS regulations that the OCC has authority to administer and enforce 

going forward

 Assisted in the development of the CFPB’s procurement and personnel management processes and executed a 

memorandum of understanding to ensure the new agency has the supervisory and other confidential information 

it needs about the banks and thrifts it will supervise

 Continued to operate the Customer Assistance Group which handles consumer complaints about large banks now 

under CFPB supervision while the CFPB builds its own capacity to handle consumer complaints

 Participated in the interagency effort to establish the FSOC and in FSOC principal-level and deputy-level 

discussions

Actions Planned or Underway

 Continue to conduct on-site supervisory assessments of national banks and federal savings associations, focusing 

on the quality of credit risk management practices (including effective credit risk rating systems and problem loan 

identification), adequacy of loan-loss reserves, and effective loan work-out strategies

 Continue to perform individual bank examinations on a variety of other activities aimed at identifying and 

responding to systemic trends and emerging risks that could adversely affect asset quality or the availability of 

credit at national banks and the banking system, and fair access to financial services

 Work closely within Treasury and with other federal financial regulatory agencies to implement the Dodd-Frank 

Act reforms and to monitor and respond to any residual threats to a robust economic recovery of the U.S. financial 

system

OIG CHALLENGE NO. 2 SUMMARY OF MAJOR ISSUES

Management of Treasury’s Authorities Intended 

to Support and Improve the Economy

 Protect the taxpayer from unnecessary risk associated 

with the implementation and administration of 

programs intended to support and improve the 

economy, including the provisions of the:

- Small Business Jobs Act of 2010

- American Recovery and Reinvestment Act of 2009

- Housing and Economic Recovery Act of 2008

- Emergency Economic Stabilization Act of 2008

Small Business Lending Fund (SBLF)

Fiscal Year 2011 Accomplishments

 Reviewed and evaluated 932 applications from community banks and loan funds in accordance with the terms and 

timetable of the Small Business Jobs Act of 2010

 Invested in approximately 300 community banks and loan funds for approximately $4.0 billion in funds intended 

to increase qualified small business lending across the country

Actions Planned or Underway

 Implement an asset management and compliance monitoring program to ensure the institutions participating in 

SBLF comply with the terms of the program and Treasury’s investment is well-managed

State Small Business Credit Initiative (SSBCI)

Fiscal Year 2011 Accomplishments

 Approved 35 states and D.C. for $1.3 billion in SSBCI allocations; 30 states received their first of three 

disbursements of funds; conducted outreach to municipalities in the three eligible states that did not apply for 

SSBCI funding

 Conducted outreach to states through webinars and conference calls to increase awareness of the program, and 

provided intensive individualized technical assistance to states

Actions Planned or Underway

 Take final actions on the remaining state applications no later than the first quarter of fiscal year 2012

 Develop national compliance standards for states in response to OIG recommendations

 Create an on-line reporting system for states to submit quarterly and annual reports
U.S. Department of the Treasury | Fiscal Year 2011

198 

Management of Recovery Act Programs

Fiscal Year 2011 Accomplishments

 Transitioned most programs from active/implementation phase to oversight and compliance monitoring phase, 

maintaining Treasury’s 100 percent compliance rate with recipient reporting under Section 1512 and 

administration of more than 50 tax code changes through tax year 2010

 Performed site visits to review 37 of the 69 Recovery Act CDFI Program and Native American CDFI Assistance 

Program awardees (54 percent coverage), focusing on Recovery Act reporting and compliance issues

 Managed the low income housing and specified energy property programs, including the extension of the specified 

energy property program by one year under Section 707 of the Job Creation Act, by supplementing a small core

staff in Departmental Offices with support from Treasury bureaus

 Continued an interagency agreement for the energy program with the Department of Energy to assist with the

technical aspects of that program

 Implemented an annual reporting process for the low income housing program to ensure projects funded under 

the program remain qualified

Actions Planned or Underway

 Complete site visits and desk reviews of state housing agencies to ensure compliance with the low income housing 

program's terms and conditions

 Continue the compliance monitoring programs related to the low-income housing and specified energy property 

programs

 Continue to coordinate with the IRS to implement a compliance initiative project regarding the energy program

 Continue assessment of staffing needs

Management of the Housing and Economic Recovery Act (HERA) and the Emergency Economic 

Stabilization Act (EESA)

Fiscal Year 2011 Accomplishments

 Focused principally on exiting remaining TARP-related investments, maximizing the return for taxpayers, and 

continuing to help homeowners avoid preventable foreclosures

 Made substantial progress in recovering investments made in the Automotive Industry Financing Program and 

American International Group

Actions Planned or Underway

 Continue to focus on exiting remaining TARP-related investments, maximizing the return for taxpayers, and 

continuing to help homeowners avoid preventable foreclosures

OIG CHALLENGE NO. 3 SUMMARY OF MAJOR ISSUES

Anti-Money Laundering and Terrorist 

Financing/Bank Secrecy Act (BSA) Enforcement

 Prevent and detect money laundering and terrorist 

financing

 Promote U.S. and international financial systems that 

are safe and transparent 

 Create safeguards over the use of BSA information

FinCEN

Fiscal Year 2011 Accomplishments

 Subjected providers and sellers of prepaid access products to more comprehensive BSA requirements

 Clarified money services business (MSB) definitions, including ensuring that foreign-located MSBs doing business 

in the United States are subject to BSA requirements

 Strengthened the confidentiality of suspicious activity reports (SARs) and provided accompanying guidance to 

financial institutions on sharing SAR information within their organizational structure

 Issued Notice of Proposed Rulemakings to apply anti-money laundering (AML) program and suspicious activity 

reporting rules to non-bank residential mortgage lenders and originators

 Conducted strategic analytical studies and published reports promoting greater awareness of emerging money 

laundering trends and vulnerabilities which included publishing analytic products:
U.S. Department of the Treasury | Fiscal Year 2011

199 

o Assessments of suspicious activity reporting related to identify theft by depository institutions and securities 

and futures firms

o SARs-related reports on commercial real estate financing fraud, mortgage loan fraud, and loan modification 

fraud

 Studied suspicious activities involving title and escrow companies, prepaid access devices, remote deposit capture, 

and debt settlement and debt relief fraud

 Issued reports to state regulatory authorities on activities involving MSBs in addition to overall BSA filing trends 

within their jurisdictions

 Provided high level information on suspicious hedge fund activities and principals to the Securities and Exchange 

Commission

 Submitted monthly referrals to the Special Inspector General for the Troubled Asset Relief Program involving 

potential fraud against federal programs supporting the housing market

 Continued to work with the IRS on better risk targeting of non-bank financial institutions that the IRS examines 

under delegated authority from FinCEN, to better enable FinCEN to develop cases and pursue enforcement 

actions where warranted

Actions Planned or Underway

 Promote greater leveraging of resources between the IRS and state regulatory agencies, particularly with regard to 

non-bank financial institution examinations, and implementation of compliance strategies for industries that have 

been recently subject to BSA requirements 

 Continue working toward finalizing rulemaking proposals, as well as proposed and/or final regulations related to 

BSA requirements for government-sponsored enterprises; reporting requirements on the international transport 

of prepaid access products; and AML program and suspicious activity reporting rules for investment advisers

 Pursue MOUs with additional state regulators, with specific focus on state insurance regulators

 Continue to exercise enforcement authorities for violations of BSA requirements

OCC

Fiscal Year 2011 Accomplishments

 Examined national banks to combat money laundering and terrorist financing, and to protect the integrity of the 

U.S. financial system through banks’ compliance with the BSA, AML, and USA PATRIOT Act laws and regulations, 

taking enforcement actions when appropriate

Actions Planned or Underway

 Continue examination, enforcement activities, and cooperative efforts with FinCEN and other federal banking 

agencies

OIG CHALLENGE NO. 4 SUMMARY OF MAJOR ISSUES

Management of Capital Investments Implement controls for effective use of taxpayer funds 

over large capital investments

Evaluation of IT Investments

Fiscal Year 2011 Accomplishments

 Created a new investment reporting process and launched development of an IT Capital Dashboard to improve 

transparency and provide management with timely and accurate information

Actions Planned or Underway

 Deploy first iteration of Treasury IT Capital Dashboard 

 Incorporate measures on operational performance and non-major project cost and schedule into IT Capital 

Dashboard

Infrastructure Optimization/Data Center Consolidation and Shared Services

Fiscal Year 2011 Accomplishments

 Submitted strategy to OMB for reducing the number of Treasury data centers

 Continued to focus on data center consolidation and shared services as key strategies to better manage costs of IT 

investments
U.S. Department of the Treasury | Fiscal Year 2011

200 

 Established a five year Telecommunications Improvement Plan concluding in September 2015, which includes 

milestones related to program management and governance, technology convergence, and implementation of 

Departmental telecommunications standards and common architecture

Actions Planned or Underway

 Implement plans to close an additional 12 data centers by 2015, and expand approach to integrate consolidation as 

an outcome of cloud service adoption or shared service adoption

 Establish a data management organization that integrates data sets from across Treasury to better inform 

management policy across the Department

 Establish Department-wide platforms for personal identity verification (PIV)-enabled authentication

 Benchmark and establish baseline performance metrics for ongoing monitoring of improvement initiatives with 

the Treasury-wide area network telecommunications vendor

RESPONSE TO TIGTA 

TIGTA CHALLENGE NO. 1 SUMMARY OF MAJOR ISSUES

Security for Taxpayer Data and Employees Promote measures for appropriate physical security and 

protection of financial, personal, and other information

Fiscal Year 2011 Accomplishments

 Established the Identity Theft Assessment and Action Group to identify new protections and to improve and 

expand existing protections for taxpayers who have had their identities compromised outside the tax system; 

launched an Identity Protection Personal Identification Number (IPPIN) pilot to ensure that taxpayers subject to 

identity theft in the past do not encounter delays in processing their tax returns

 Improved processing of taxpayer accounts impacted by identity theft by deploying additional account ―markers‖ to 

(1) distinguish legitimate returns from fraudulent returns, (2) track taxpayers with identity theft-related tax 

problems and issues encountered by identity theft victims, and (3) prevent victims from facing the same problems 

every year; and protected $1.3 billion from leaving the U.S. Treasury as a result of the improved identity theft 

detection 

 Implemented a 10-point security plan designed to strengthen physical security and incident reporting capabilities, 

stemming from the Austin tragedy in 2010

 Disabled over 10,000 fraudulent IRS-related scams using the IRS name or likeness to entice victims, including 

9,272 phishing/malware websites (with a median takedown time of 67 minutes), 352 fax numbers, and 534 e-mail 

drop boxes

Actions Planned or Underway

 Use results from the fiscal year 2011 IPPIN pilot to improve and expand the program to additional taxpayers

 Deploy the enterprise Authorization (e-Auth) project to provide a framework to register individual identities and 

validate credentials for electronic access to IRS systems and applications

TIGTA CHALLENGE NO. 2 (tied) SUMMARY OF MAJOR ISSUES

Tax Compliance Initiatives Improve compliance and fairness in the application of 

the tax laws

Businesses and Individuals

Fiscal Year 2011 Accomplishments

 Completed testing an enhanced Automated Underreporter (AUR) case identification and selection analytics tool to 

be used in selection of tax year 2010 returns

 Continued testing soft notices as alternatives to conducting examinations, issuing 27,000 AUR soft notices

 Continued testing the effects of education, compliance notices, and telephone contacts on the accuracy of returns 

prepared for Earned Income Tax Credit (EITC) first-time and low-risk paid preparers

 Established a task group to expand IRS revenue protection and scheme detection capabilities, improving fraud 

detection at filing, before the refund is released
U.S. Department of the Treasury | Fiscal Year 2011

201 

 Rolled out a series of ―fresh start‖ programs specifically designed to assist business and individual taxpayers 

struggling with outstanding tax liabilities

 Launched multiple compliance analytics pilot projects to explore new methods of using data and analytics to 

improve compliance programs

Actions Planned or Underway 

 Continue to modify examination case selection and modeling

 Continue to test soft notices as alternatives to conducting examinations in AUR

 Continue to promote the Compliance Assurance Process (CAP) as a model for how IRS and corporate taxpayers 

should interact

Tax-Exempt Entities

Fiscal Year 2011 Accomplishments

 Developed guidance on how to process, review, and monitor Voluntary Closing Agreements; followed-up on 

taxpayers whose rights were potentially violated; researched claims and took action to ensure future claims were 

worked properly; and improved inventory and case management controls

 Completed statutorily-required revocation of approximately 386,000 organizations whose tax exempt status was 

revoked based on rules established by the Pension Protection Act of 2006

 Developed a fraud report to identify fraud schemes and monitor operational effectiveness of fraud detection and 

mitigation methodologies

Actions Planned or Underway 

 Improve compliance by identifying the needs of small exempt organizations and by performing post reviews of 

Form 990-N, e-Postcard, filers ineligible to file the e-Postcard

 Identify non-compliant exempt organizations based on data from the redesigned Form 990, Return of 

Organization Exempt From Income Tax

Tax Return Preparers

Fiscal Year 2011 Accomplishments

 Implemented Phase 1 of the Return Preparer Initiative (RPI), which required paid return preparers to register with 

the IRS and use a Preparer Tax Identification Number (PTIN) to sign returns; over 735,000 paid preparers 

registered in the first year

 Identified high risk tax return preparers using new risk based scoring, resulting in the issuance of more than 

10,000 potential noncompliance letters and visits to more than 5,000 preparers to address multiple areas of 

concern including EITC filings, e-file, and questionable certified acceptance agents

Actions Planned or Underway 

 Implement Phase 2 of the RPI requiring paid return preparers, except attorneys, certified public accountants, and 

enrolled agents, to pass a competency test and complete continuing professional education of 15 hours per year

TIGTA CHALLENGE NO. 2 (tied) SUMMARY OF MAJOR ISSUES

Modernization Improve taxpayer service and efficiency of operations

Fiscal Year 2011 Accomplishments

 Deployed current Customer Account Data Engine (CADE) Release 6.2 to deliver the 2011 filing season tax law 

changes affecting individual taxpayers, and to provide technical improvements to the infrastructure and 

availability of the current system

 Deployed Modernized e-File (MeF) Release 6.2 in January 2011 to deliver Business and Individual Master File 

returns; MeF accepted almost 18.5 million returns in 2011, a 262% increase compared to the same period in 

calendar year 2010 

 Implemented a Remittance Strategy for Paper Check Conversion system, allowing paper checks to be converted 

into electronic transactions and processing nearly 3.6 million checks, totaling almost $7.8 billion

 Implemented an auto`mated transcript process allowing taxpayers to request mailing of account and return 

transcripts through IRS.gov, eliminating the need to contact IRS

 Completed logical and physical designs of CADE2 Transition State 1
U.S. Department of the Treasury | Fiscal Year 2011

202 

Actions Planned or Underway 

 Deploy Transition State 1 of CADE2 for filing season 2012, which will support daily versus weekly processing and a 

relational account database

 Commence ―Send A Transcript‖ proof of concept which allows taxpayers to make an online request to send an 

official transcript to banks and other financial institutions, without the need to call or complete a paper Form 

4506-T, Request for Transcript of Tax Return

TIGTA CHALLENGE NO. 4 SUMMARY OF MAJOR ISSUES

Implementing Major Tax Law Changes Effectively implement new tax provisions, including taxrelated health care provisions of the Patient Protection 

and Affordable Care Act (ACA), and the American 

Recovery and Reinvestment Act (Recovery Act)

ACA

Fiscal Year 2011 Accomplishments

 Implemented early provisions of the ACA, including the revision of approximately 60 tax products, creation of 

three new tax forms, and release of applicable guidance related to the:

o Small employer tax credit 

o Excise tax on indoor tanning services

o Adoption credit

o Branded pharmaceutical fee

o Qualified therapeutic discovery credit

o New charitable hospital requirements

Actions Planned or Underway 

 Partner with the Department of Health and Human Services on outreach, guidance, business processes, and IT 

deployment relating to the insurance market reforms and insurance exchange system

 Identify impacted stakeholders and commence outreach activities on all aspects of ACA implementation, including 

individuals, employers, states, insurers, tax professionals, and other third parties

Recovery Act

Fiscal Year 2011 Accomplishments

 Continued administration of numerous tax incentives included in the Recovery Act, including enhanced 

compliance procedures

 Published new Internal Revenue Manual provisions to clarify the processes for handling rebate refund cases for 

tax exempt bonds

 Implemented new voluntary compliance procedures for Build America Bonds and other direct-pay bonds to 

resolve tax law issues

Actions Planned or Underway 

 Revise Form 5695, Residential Energy Credits, to request additional information to support eligibility 

requirements

Other Tax Law Changes

Fiscal Year 2011 Accomplishments

 Delivered a successful 2011 filing season, processing 144.7 million individual returns and issuing 109.3 million 

refunds totaling $419.5 billion

 Implemented procedures to process the first year of the required 15 year repayment for 2008 homebuyers who 

claimed the First-Time Home Buyer Credit (FTHBC), including use of the math error authority when the 

repayment was not identified on the return

 Promoted accurate self-reporting in anticipation of the filing season by sending approximately 1.5 million 

reminder notices to taxpayers who claimed the First-Time Home Buyer Credit for a home purchased in 2008

Actions Planned or Underway 

 Administer any new tax law provisions that may be enacted in 2011 for filing season 2012
U.S. Department of the Treasury | Fiscal Year 2011

203 

TIGTA CHALLENGE NO. 5 SUMMARY OF MAJOR ISSUES

Fraudulent Claims and Improper Payments Effective use of taxpayer funds

Refundable Credits

Fiscal Year 2011 Accomplishments

 Required taxpayers to provide supporting documentation to verify eligibility for many refundable tax credits 

including the FTHBC

 Improved methods to identify erroneous FTHBC claims through better filters and the use of third party 

information for use in the 2012 filing season 

 Protected over $3.7 billion in revenue through EITC enforcement efforts, including the examination of almost 

484,000 original and amended returns claiming the EITC, over 1.2 million document matching reviews, and 

300,000 math error process corrections

 Increased EITC paid preparer due diligence visits, resulting in a 100 percent increase in the number of preparers 

penalized over fiscal year 2010 and proposed due diligence and other penalties of more than $10.6 million

 Improved the accuracy of EITC returns by refining EITC paid preparer treatment activities, including doubling the 

number of due diligence audits, increasing visits by revenue and criminal investigation agents by 50 percent, and 

increasing educational and compliance notices to first-time and experienced preparers by 25 percent, to influence 

the accuracy of EITC returns filed

 Initiated a test on Additional Child Tax Credit (ACTC) returns with dependent issues not selected for examination 

to assist in developing the ACTC compliance strategy moving forward

 Required documentation to accompany returns claiming the Adoption Credit to reduce fraud, and developed new 

cross-functional procedures to minimize delays in return processing

Actions Planned or Underway

 Implement the requirement that EITC paid preparers attach Form 8867, Paid Preparer’s Earned Income Credit 

Checklist, to their clients’ returns to encourage preparer compliance with EITC due diligence requirements

 Continue to focus on EITC paid preparer treatments, including due diligence audits, visits, streamlined 

injunctions, and educational and compliance notices to first-time and experienced preparers to influence the 

accuracy of EITC returns filed

 Review results of the ACTC test and adjust compliance strategy, if necessary; expand outreach and education to 

taxpayers and preparers around ACTC requirements to reduce improper claims

 Implement robust compliance and outreach strategies related to the American Opportunity Tax Credit directed 

toward students, taxpayers, preparers, and educational institutions to address eligibility requirements; send soft 

educational notices as part of this strategy

Contracts and Other Payments

Fiscal Year 2011 Accomplishments

 Changed reviews of split-purchase transactions and expanded oversight reviews to include the use of contract 

vendors and preferred sources

 Revised policy and procedures to ensure distribution of Defense Contractor Audit Agency reports to all 

appropriate procurement staff, when appropriate, for use in determining whether to implement additional

controls to monitor costs on contracts and task orders

 Revised reporting process to ensure that all agreed-to questionable charges are repaid by contractors and 

documented prior to closure of corrective actions

Actions Planned or Underway 

 Provide guidance on oversight and enforcement responsibilities, develop examples and scenarios that constitute a 

split-purchase, evaluate whether current span of control provides appropriate oversight, and make changes, as 

appropriate

 Develop and provide clear guidance to Credit Card Services on performance of their oversight and enforcement 

responsibilities for compliance with Purchase Card Program procedures
U.S. Department of the Treasury | Fiscal Year 2011

204 

TIGTA CHALLENGE NO. 6 SUMMARY OF MAJOR ISSUES

Providing Quality Taxpayer Service Operations Improve taxpayer service

Fiscal Year 2011 Accomplishments

 Implemented a new toll-free number for taxpayer transcript requests and a new web application that allows 

taxpayers to order transcripts on IRS.gov

 Released the IRS2GO smartphone application, which lets taxpayers interact with the IRS using their mobile 

devices; IRS2Go averaged four out of five stars in hundreds of reviews and over 360,000 downloads

 Increased the number of Limited English Proficiency products, translating key notices into different languages and 

delivering an enhanced multilingual web site that offers an array of tax information

 Broadened awareness of accessible tax products that serve and support visually and hearing impaired taxpayers, 

through partnership with the Library of Congress and National Library Service for the Blind and Physically 

Handicapped

 Engaged partners and provided greater access to available services through Saturday service events and other 

special service days, e.g., EITC Awareness Days

 Participated in outreach events to educate partners and the public about the tax treatment of the 2010 Gulf Oil 

Spill payments; in the Gulf region, over 169,000 individuals and businesses received emergency advance 

payments for lost income or profits in 2010

 Implemented new quality initiatives at Taxpayer Assistance Centers (TACs) and volunteer return preparation sites 

using sampling reviews of selected returns to determine the accuracy of returns prepared

 Gathered feedback from professional organizations that represent external stakeholders (i.e., accountants, 

reporting agents, et al) to simplify forms and the tax filing process

Actions Planned or Underway 

 Implement the changes necessary to support roll-out of CADE2

 Release an updated version of IRS2Go with improved functionality

 Continue to engage IRS partners to disseminate information and simplify forms and the tax filing process

 Continue to engage partners in support of special service days and outreach efforts with advocacy groups that 

serve and support the visually and hearing impaired

 Update IRS.gov and TAC telephone recordings to include more information for taxpayers seeking assistance at a 

TAC, including advising taxpayers they may be asked to provide valid photo ID and a Taxpayer Identification 

Number (TIN), such as a Social Security number (SSN), to receive services

TIGTA CHALLENGE NO. 7 SUMMARY OF MAJOR ISSUES

Human Capital Enable the IRS to achieve its mission

Fiscal Year 2011 Accomplishments

 Implemented the Hiring Reform Initiative which included transitioning from a ―reinvestigation‖ background 

investigation program to a ―one-stop shop‖ with streamlined and efficient services, reducing the time required for 

background investigations by 30 days

 Improved technology and communication tools to enhance recruitment and deliver a more diverse applicant pool

 Continued an emphasis on veteran hiring, with veterans comprising 7 percent of total hires in fiscal year 2011

 Implemented the Warrior Intern Program, previously piloted in fiscal year 2010, and the Non-Paid Work 

Experience program, conducted in partnership with the Departments of Defense and Veteran Affairs, to provide 

qualified veterans with quantifiable work experience at the IRS through non-paid internship opportunities

 Established a Telework Program Office and expanded telework opportunities to over 36,000 employees to further 

enhance recruitment, development, and retention of employees

Actions Planned or Underway 

 Educate internal and external IRS stakeholders on recruitment by providing the Careers Pathway website tool to 

assist applicants and career development outreach to enhance internal recruitment efforts
U.S. Department of the Treasury | Fiscal Year 2011

205 

 Build a diverse talent management pipeline by deploying cost effective recruitment strategies

 Develop and document an IRS-wide approach to ensure effective monitoring of the adequacy of the acquisition 

workforce

TIGTA CHALLENGE NO. 8 SUMMARY OF MAJOR ISSUES

Globalization Increase the outreach efforts to foreign governments on 

cross-border transactions

Fiscal Year 2011 Accomplishments

 Completed realignment of IRS international operations by integrating international expertise into the new Large 

Business and International organization

 Conducted examinations of taxpayers who applied under the Offshore Voluntary Disclosure Program

 Continued to combat international illicit money networks and professional money launderers via the Global Illicit 

Financial Team by further developing policies, targeting criteria, and case development procedures

 Coordinated joint audits and strengthened relations with foreign tax administrations, including seeking additional 

opportunities to improve and expand the Joint Audit Initiative with foreign administrations and taxpayers

Actions Planned or Underway 

 Continue examinations of taxpayers who applied under both Offshore Voluntary Disclosure Initiatives

 Continue to enhance relationships with treaty partners and international organizations to improve international 

compliance

 Continue to identify and address emerging tax-exempt compliance issues, including ensuring that charities adhere 

to requirements for foreign bank accounts and expanding coordination of employment tax compliance with 

foreign countries

 Continue to combat international illicit money networks and professional money launderers via the Global Illicit 

Financial Team by further developing policies, targeting criteria, and case development procedures

TIGTA CHALLENGE NO. 9 SUMMARY OF MAJOR ISSUES

Taxpayer Protection and Rights Apply the tax laws fairly

Fiscal Year 2011 Accomplishments

 Issued guidance to remind managers of Section 1204 and Reg. 801, which prohibit the use of Records of Tax 

Enforcement to evaluate and to impose or suggest production goals or quotas; updated appropriate training 

materials regarding the explanation of the retention standard

 Reviewed undelivered mail procedures to ensure consistency across the organization and to support the timely 

resolution of undeliverable notices

 Produced 104 redesigned/new notices, including the Taxpayer Delinquent Account collection notices, containing 

new language to help taxpayers more clearly understand the collection process and options available to them

Actions Planned or Underway 

 Improve IRS assistance services to taxpayers who are victims of identity theft outside the tax system, but who 

encounter IRS issues because of that theft

 Continue to redesign notices and produce new notices containing language that clearly explains the collection 

process and options available to taxpayers

 Continue to reinforce culture of taxpayer protection and rights through leadership messages at all levels of the 

organization
U.S. Department of the Treasury | Fiscal Year 2011

206 

TIGTA CHALLENGE NO. 10 SUMMARY OF MAJOR ISSUES

Achieving Program Efficiencies and Cost Savings Use resources to focus on producing the best value for 

stakeholders

Fiscal Year 2011 Accomplishments

 Implemented a number of cost savings initiatives as part of the Postage and Printing cost reduction strategy, 

including the elimination of tax packages for individual taxpayers and the elimination/reduction of direct mailing 

of a number of tax packages to businesses; these eliminations/reductions have resulted in postage and printing 

cost savings in excess of $20 million

 Enhanced electronic receipt of background investigation cases through eDelivery, resulting in a cost savings of 

$820,621 and significant improvements in data communications with the Office of Personnel Management

 Closed the Atlanta Submission Processing center, the fifth such closure in recent years, reflecting the success of 

IRS’s e-File program and reduced need for paper processing

 Deployed the paper check conversion technology to 401 TACs to process checks through electronic transmission, 

improving reporting systems, reducing the amount of time to process checks that TACs previously mailed to 

central locations for processing, and reducing the number of lost remittances from transshipments

 Expanded use of cost accounting information to improve program effectiveness, including analysis of programs 

within the CFO function, the notice process, the Combined Annual Wage Reporting/Federal Unemployment Tax 

Act and 6020(b) programs, and certain criminal investigation processes

 Started an initiative to develop standard operating procedures to address storage needs for property; these 

procedures will consider current and future budget constraints, the sustainability initiative to increase the re-use 

and recycling of furniture, costs to store versus to purchase new furniture, and transportation costs

 Updated procedures used by the business units to calculate their unemployment trust fund (UTF) administrative 

expenses; required retention of audit files for a minimum of three years; and instituted periodic Chief Financial 

Officer (CFO) reviews of the business units’ UTF expense submissions and supporting documentation

Actions Planned or Underway 

 Continue to review internal operations, conducting additional cost benefit analyses and development 

of performance measures to improve program evaluation and decision making
U.S. Department of the Treasury | Fiscal Year 2011

207 

APPENDIX D:

MATERIAL WEAKNESSES, AUDIT FOLLOW-UP, AND

FINANCIAL SYSTEMS 

This section provides detailed descriptions of Treasury’s material weakness inventory, including summaries of actions taken and 

planned to resolve the weaknesses; tracking and follow-up activities related to Treasury’s GAO, OIG, TIGTA, and SIGTARP audit 

inventory; an analysis of potential monetary benefits arising from audits performed by Treasury’s three IGs; and an update on 

Treasury’s financial management systems framework. 

I. 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. The FMFIA and FFMIA require agency reporting on material 

weaknesses. 

FMFIA 

The FMFIA requires agencies to establish and maintain internal controls. The Secretary must evaluate and report annually on 

the operations and financial reporting 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. 

On April 20, 2011, the IRS’s FMC ESC recommended downgrade of the material weakness titled ―Improve Modernization 

Management Controls and Processes.‖ IRS provided documentation to both GAO and TIGTA that validated completion of 

corrective actions that addressed the identified internal management processes and control weaknesses. On August 5, 2011, the 

Assistant Secretary for Management and Chief Financial Officer concurred with the request to downgrade this material weakness 

to a control deficiency. 

As of September 30, 2011, Treasury had three 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 2011 4 0 4

Closures/Downgrades during FY 2011 1 0 1

Reassessed during FY 2011 0 0 0

New MW Declared during FY 2011 0 0 0

Balance at the End of FY 2011 3 0 3

Below are detailed descriptions of Treasury’s three material weaknesses:

Material Weakness Description

Internal Revenue Service – Unpaid Tax Assessments

The IRS needs to improve its internal control over Unpaid Assessments. Original key elements:

 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

 IRS’ general ledger for its custodial activities does not use the standard federal accounting classification structure

Actions Completed What Remains to be Done

 Implemented programming in the Custodial Detail Data Base in 

February 2011, to improve classification when either the business or 

related TFRP individual modules are removed from the Unpaid Tax 

Assessments inventory, and to reduce the amount of adjustments to 

the financial statements. The programming change improved 

classification of instances, where previously, multiple tax periods 

were rolled up into one module.

Achievement of CADE 2 Transition State 2 target of a single, 

data-centric solution system which provides for daily 

processing of taxpayer accounts 

Targeted Downgrade/Closure: Fiscal year 2015
U.S. Department of the Treasury | Fiscal Year 2011

208 

Material Weakness Description

Internal Revenue Service - Computer Security

The IRS has various computer security controls that need improvement. Original key elements:

 Adequately restrict electronic access to and within computer network operational components

 Adequately ensure that access to key computer applications 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, per FISMA

 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

 Developed and executed implementation plans for 

systems/application access controls 

 Documented security configuration standards and change control 

process in place; secure configuration baselines implemented and 

maintained; system software patched; processes in place for systems 

software configuration access controls

 Implemented back-up recovery capabilities for contingency planning

 Deployed Release 1 - Audit Trails

Develop application monitoring capability for Release 2 

Supplement – Audit Trails

Network and system monitoring for Release 3 – Audit Trails

Deployment of Release 3 – Audit Trails

Targeted Downgrade/Closure: Fiscal year 2012

Material Weakness Description

Financial Management Service – Systems, Controls, and Procedures to Prepare the Government-wide Financial Statements

The government does not have adequate systems, controls, and procedures to properly prepare the Consolidated Government-wide Financial 

Statements. Original 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 the 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 fiscal year 2010 operating revenues with budget 

receipts

 Refined analysis model for 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

 Completed closing package submitted to GAO by federal agencies

 Established traceability from agency footnotes to the Consolidated 

Financial Statements (CFS) 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 

Advisory Board criteria

Include all disclosures as appropriate

Include all loss contingencies as appropriate

Targeted Downgrade/Closure: Fiscal year 2014

II. Audit Follow-up Activities 

During fiscal year 2011, Treasury continued to place emphasis on both the general administration of internal control issues 

throughout the Department and the timely resolution of findings and recommendations identified by GAO, OIG, TIGTA, 

SIGTARP, external auditors, and management. 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, SIGTARP, 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 audit follow-up program. 

Potential Monetary Benefits 

The Inspector General Act of 1978, as amended, Public Law 95-452, requires the IGs and 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 OIG, TIGTA, SIGTARP, 

and Treasury management. 
U.S. Department of the Treasury | Fiscal Year 2011

209 

In the course of their audits, the IGs periodically identify questioned costs, recommend 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 

 Finding, at the time of the audit, that such costs are not supported by adequate documentation (i.e., an unsupported 

cost) 

 Finding that expenditure of funds for the intended purpose is unnecessary or unreasonable 

The Department regularly reviews progress made by the bureaus to realize 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 tracked in JAMES. 

The statistical data in the following summary tables represent audit report activity for the period from October 1, 2010 through 

September 30, 2011. The data reflect information on OIG, TIGTA, and SIGTARP reports that identified potential monetary 

benefits. Fiscal year 2011 was the first year that SIGTARP issued reports containing monetary benefits. 

Audit Report Activity With Potential Monetary Benefits

for Which Management Has Identified Corrective Actions

(OIG, TIGTA, and SIGTARP)

October 1, 2010 through September 30, 2011

(Dollars in Millions)

Disallowed Costs Funds Put to

Better Use

Revenue

Enhancements Totals

Reports Dollars Reports Dollars Reports Dollars Report

Total

Total

Dollars

Beginning Balance 4 $33.0 13 $2,822.6 17 $5,558.9 34 $8,414.5

New Reports 9 39.7 8 7,412.1 8 2,524.8 25 9,976.6

Total 13 72.7 21 10,234.7 25 8,083.7 59 18,391.1

Reports Closed 3 0.5 10 329.5 17 4,348.0 30 4,678.0

a. Realized or 

Actual1

2 0.1 6 142.3 6 402.1 14 544.5

b. Unrealized or

Written off1

2 0.4 8 187.22 14 3,945.93 24 4,133.5

Ending Balance 10 $72.2 11 $9,905.2 8 $3,735.7 29 $13,713.1

1

 Report numbers in categories a and b may not equal the Reports Closed. One report can be included in one or both categories. 

2 This figure includes one TIGTA report, with $18.3 million written off, for which IRS management did not concur with TIGTA’s projected 

benefits; and three TIGTA reports with $132.9 million written off, for which TIGTA does not agree with the IRS that the benefits have not 

been realized. 

3 This figure includes ten TIGTA reports, with $2,124.5 million written off, for which IRS management did not concur with TIGTA’s 

projected benefits; and two TIGTA reports, with $390.4 million written off, for which TIGTA does not agree with the IRS that the benefits 

have not been realized.
U.S. Department of the Treasury | Fiscal Year 2011

210 

The following table presents a summary of OIG, TIGTA, and SIGTARP audit reports with potential monetary benefits that were 

open for more than one year as of the end of fiscal years 2009, 2010, and 2011. 

Number of Reports with Potential Monetary Benefits

Open for More than One Year

(Dollars In Millions)

PAR/AFR Report Year 9/30/2009 9/30/2010 9/30/2011

OIG No. of Reports 0 1 0

$ Projected Benefits $ 0 $ 10.5 $ 0

TIGTA No. of Reports 10 12 11

$ Projected Benefits $ 673.8 $ 1,783.7 $ 4,384.6

SIGTARP No. of Reports 0 0 0

$ Projected Benefits $ 0 $ 0 $ 0

The following table presents a summary of the audit reports containing potential monetary benefits, broken out by year of report 

issuance, on which management decisions were made on or before September 30, 2010, but the final actions had not been taken 

as of September 30, 2011. 

Details of the Audit Reports with Potential Monetary Benefits

on Which Management Decisions Were Made On or Before September 30, 2010,

But Final Actions Have Not Been Taken as of September 30, 2011

(Dollars In Millions)

Bureau Report No.

Report 

Issue Date Brief Description

Disallowed 

Costs

Funds

Put to

Better Use

Revenue

EnhancementTotal Due Date

IRS 2006-1c-142 9/25/2006

The IRS Contracting Officer 

(CO) should use the results of 

the Defense Contract Audit

Agency (DCAA) report to fulfill 

his/her duties in awarding and 

administering contracts.

$ 32.4 - - $ 32.4

10/15/2012

(delayed)

FY 2006 1 $ 32.4 $ 32.4

FY 2007 N/A N/A - - - - N/A

FY 2008 N/A N/A - - - - N/A

IRS 2009-10-107 7/24/2009

IRS should develop procedures 

requiring that workstation 

sharing levels are included in 

space needs assessments. When 

implementing these 

procedures, IRS should adjust 

its space needs to reflect 

workstation sharing and take 

action to release any unneeded 

space identified, where 

appropriate.

- 30.0 - 30.0

1/15/2014

(delayed)

IRS 2009-40-137 9/24/2009

IRS should develop processes to 

identify erroneous Health 

Coverage Tax Credit claims 

based on criteria used to select 

taxpayers for examination and 

reject e-filed tax returns or 

forward paper-filed tax returns 

to the Error Resolution 

function at the time the tax 

return is filed.

- 9.0 - 9.0

12/15/2012

(delayed)

Table continued on the next page
U.S. Department of the Treasury | Fiscal Year 2011

211 

Bureau Report No.

Report 

Issue Date Brief Description

Disallowed 

Costs

Funds

Put to

Better Use

Revenue

EnhancementTotal Due Date

IRS 2009-40-138 9/23/2009

IRS should discontinue 

providing the option to 

taxpayers of self-identifying by 

annotating a tax return with 

―Combat Zone‖ and continue to 

provide individuals the option 

of self-identifying by telephone 

or electronically.

- - 1.1 1.1 1/15/2012

IRS 2009-1c-134 9/28/2009

The IRS CO should use the 

results of the DCAA report to 

fulfill his/her duties in 

awarding and administering 

contracts.

0.1 - - 0.1 10/15/2012

FY 2009 4 $ 0.1 $ 39.0 $ 1.1 $ 40.2

IRS 2010-20-044 5/07/2010

IRS should ensure policies and 

procedures are established to 

evaluate and determine which 

best practices to implement to 

improve data center energy 

efficiency

3.2 - - 3.2 12/15/2011

IRS 2010-30-025 3/23/2010

IRS should ensure that paper 

and electronically filed returns 

with Forms 8919 attached are 

compared to filed Forms SS-8 

through a post-filing 

compliance program, and 

ensure that paper returns 

flagged during processing are 

reviewed and any 

noncompliance addressed.

- - 131.1 131.1 1/15/2012

IRS 2010-30-104 9/17/2010

IRS should explore the 

feasibility of making greater use 

of Currency Transaction 

Reports to pursue additional 

nonfilers and underreporters 

for audit.

- - 1,300.0 1,300.0 6/15/2013

IRS 2010-40-043 3/29/2010

IRS should ensure a Servicewide strategy is developed to 

address retirement provision 

noncompliance. This strategy 

should include the development 

of processes to identify 

individuals who do not comply 

with retirement provisions 

along with compliance efforts to 

address the noncompliance.

- - 405.1 405.1 10/15/2012

IRS 2010-40-062 7/13/2010

IRS should use the authority 

already provided in the law to

(1) freeze refunds while 

contacting those taxpayers with 

potentially invalid EITC claims 

or questionable information on 

their tax returns, (2) require a 

valid response from the 

taxpayers before allowing the 

EITC, and (3) adjust the return 

if the taxpayer does not respond 

within a specified time period.

- 1,175.0 - 1,175.0 1/15/2012

Table continued on the next page 
U.S. Department of the Treasury | Fiscal Year 2011

212 

Bureau Report No.

Report 

Issue Date Brief Description

Disallowed 

Costs

Funds

Put to

Better Use

Revenue

EnhancementTotal Due Date

IRS 2010-40-117 9/14/2010

IRS should revise the criteria 

used to determine who will 

receive a notice to include 

individuals identified by the 

Duplicate TIN Use database 

when (1) a TIN is used as a 

secondary taxpayer on one tax 

return and as a dependent 

and/or for the EITC on another 

tax return, and (2) a TIN is 

used as a qualifying child for 

the child and dependent care 

credit, adoption credit, 

education credits, and child tax 

credit.

- 1,297.6 - 1,297.6 1/15/2013

FY 2010 6 $ 3.2 $ 2,472.6 $ 1,836.2 $ 4,312

Total 12 $ 35.7 $ 2,511.6 $ 1,837.3 $ 4,384.6

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, 2010 and September 30, 2011, 

respectively. OIG and TIGTA define ―significant‖ as any recommendation open for more than one year. There were no 

―Undecided Audit Recommendations‖ during the same periods. 

Audit Reports with Significant Unimplemented Recommendations

9/30/2010 9/30/2011

OIG TIGTA OIG TIGTA

No. of Reports 6 24 7 12

SIGTARP issued its first report on TARP-related activity in April 2009. The following table provides a snapshot of the number 

of recommendations made in SIGTARP audit reports and quarterly reports for which corrective actions had not been completed 

as of September 30, 2010, and September 30, 2011, respectively. SIGTARP defines a recommendation as ―unimplemented‖ if it 

is listed as ―partially implemented,‖ ―in process,‖ or ―not implemented‖ in SIGTARP’s quarterly report.

Unimplemented SIGTARP Recommendations

9/30/2010 9/30/2011

No. of Unimplemented 

Recommendations 30 12

III. 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 also maintain 

data on 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 monthly basis, the required financial data submitted 

to FARS to meet Departmental analysis and reporting requirements. The Department uses FARS to produce its periodic 

financial reports as well as the annual Agency Financial Report. 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 that process and record detailed financial transactions 

 Treasury Information Executive Repository (TIER) - consolidates bureau financial data 
U.S. Department of the Treasury | Fiscal Year 2011

213 

 CFO Vision - produces monthly financial statements and performs financial analysis 

 JAMES - tracks information on audit findings, recommendations, and planned corrective actions 

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 2011, Treasury continued to upgrade its FARS applications to take advantage of technology 

improvements such as information security and the technical environment. 

As part of the Department’s enhancement effort, 14 Treasury bureaus and reporting entities are cross-serviced for financial 

systems by the Bureau of the Public Debt’s (BPD) Administrative Resource Center (ARC). Cross-servicing enables these bureaus 

to have access to core financial systems without having to maintain the necessary technical and systems architectures. 

BPD/ARC also provides administrative services in the areas of accounting, travel, payroll, human resources, and procurement to 

Treasury bureaus and offices and to other federal entities to support core business activities. In an ongoing effort to streamline 

its financial systems environment, Treasury continues to work with the bureaus to evaluate plans for continuous improvement to 

their financial management systems structure. 

Continued Improvement 

Treasury’s target financial management systems structure continues to build upon the current FARS foundation. Treasury has 

enhanced FARS to support new financial and performance requirements and continues to provide management with the 

appropriate tools needed to align the Department’s goals and objectives. 

In fiscal year 2011, the TIER Focus Group continued to meet to improve communication with the bureaus and coordinate 

changes impacting financial management systems and financial operations. Treasury enhanced the FARS applications to be 

Section 508 compliant, which assists users with disabilities in accessing reports and performing data entry. In addition, 

Treasury upgraded the FARS servers to improve performance. 

The IRS continued to modernize its tax administration systems, improving the speed in which the IRS processes tax returns. In 

fiscal year 2011, the Customer Account Data Engine (CADE) posted over 40 million tax returns and over 35.1 million refunds. 

The Account Management Services System, which stores taxpayer information, has been enhanced to eliminate the processing of 

paper and reduce case cycle time from 14 days to zero (real-time); and IRS upgraded the servers which host the financial 

management system. In fiscal year 2012, CADE is expected to be a single integrated tax processing environment, resulting in 

even faster refunds, improved customer service, elimination of notices based on out-of-date information, faster resolution of 

taxpayer account issues, and better online tools and services for taxpayers. 

In fiscal year 2011, BPD/ARC upgraded the core financial management systems platform to increase its responsiveness in 

producing financial management reports and to align with new financial reporting governance standards. BPD/ARC also began 

implementing the Internet Payment Platform system to convert a paper-based process to an electronic centralized invoice 

payment information service for use by their customers and suppliers. 

In fiscal years 2012 and 2013, the Department and BPD/ARC plan to develop their financial management system to transition to 

the Common Government-wide Accounting System and plan to meet compliance expectations. In addition, the Department and 

BPD/ARC are developing projects which will capture business analytics data at a high level to gain insight on business 

performance and assist with business planning. 

The Bureau of Engraving and Printing (BEP) completed the first phase of replacing its legacy core manufacturing system to a 

fully integrated system and converted the general ledger, accounts receivable, and fixed assets modules to the new 

manufacturing system in fiscal year 2011. The second phase will be implemented early in fiscal year 2012, and will include the 

conversion of supply chain management, manufacturing management, project accounting, and contract lifecycle management 

modules to the new system. 
U.S. Department of the Treasury | Fiscal Year 2011

214 

APPENDIX E:

GLOSSARY OF ACRONYMS

Glossary of Acronyms

ABS Asset-Backed Securities

ACA Patient Protection and Affordable Care Act

ACD Advanced Counterfeit Deterrent

ACH Automated Clearing House

AD Audit Division

ADR Alternative Dispute Resolution

AFR Agency Financial Report

AGI Adjusted Gross Income

AGP Asset Guarantee Program

AIFP Automotive Industry Financing Program

AIG American International Group, Inc.

AML Anti-money laundering

AMS Account Management Services

APR Annual Performance Report

ARC Administrative Resource Center

ASM/CFO Assistant Secretary for Management & Chief 

Financial Officer

ATFC Afghanistan Threat Finance Cell

AUR Automated Underreporter

BCPO Bureau Chief Procurement 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 Capital Assistance Program

CAP Compliance Assurance Process

CAR Collection Activity Report

CBP U.S. Customs and Border Patrol

CBLI Consumer and Business Lending Initiative

CBO Congressional Budget Office

CCMM Collections and Cash Management Modernization

CDCI Community Development Capital Initiative

CDFI Community Development Financial Institutions

CDS Credit Default Swaps

CFPB Consumer Financial Protection Bureau

CFO Chief Financial Officer

CFS Consolidated Financial Statements

CFTC Commodity Futures Trading Commission

CHCO Chief Human Capital Officer

CHIPRA Children’s Health Insurance Program 

Reauthorization Act of 2009

CI Criminal Investigation (or Investigator)

Glossary of Acronyms

CIF Climate Investment Fund

CIGFO Council of Inspectors General on Financial 

Oversight

CIO Chief Information Officer

CMBS Commercial Mortgage Backed Securities

CMF Capital Magnet Fund

CO Contracting Officer

COBRA Consolidated Omnibus Budget Reconciliation Act of 

1985

COP Congressional Oversight Panel

COSO Committee of Sponsoring Organizations of the 

Treadway Commission

CPP Capital Purchase Program

CRA Community Reinvestment Act

CRE Commercial Real Estate

Credit CARD Act Credit Card Accountability, Responsibility, and 

Disclosure Act of 2009

CSI Customer Service Index

CSR Customer Service Representative

CSRS Civil Service Retirement System

CTF Clean Technology Fund

DASHR/CHCO Office of the Deputy Assistant Secretary for Human 

Resources/Chief Human Capital Officer

DASMB Deputy Assistant Secretary for Management and 

Budget

DASPTR Deputy Assistant Secretary for Privacy, 

Transparency, and Records

DCAA Defense Contract Audit Agency

DCFO Deputy Chief Financial Officer

DCIA Debt Collection Improvement Act of 1996

DCP Office of D.C. Pensions

DIP Debtor-in-Possession

DISC Discontinued

DMAS Debt Management Account System

DO Departmental Offices

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010

DOJ Department of Justice

EBRD European Bank for Reconstruction and 

Development

ECM Enterprise Content Management

EEO Equal Employment Opportunity

EESA Emergency Economic Stabilization Act of 2008

EFT Electronic Funds Transfer

EFTPS Electronic Federal Tax Payment System

EGTRRA Economic Growth and Tax Relief Reconciliation Act

EITC Earned Income Tax Credit

EO Executive Order
U.S. Department of the Treasury | Fiscal Year 2011

215 

Glossary of Acronyms

ERP Economic Recovery Payment

ESC Executive Steering Committee

ESF Exchange Stabilization Fund

ETD Error Tracking Database

EU European Union

FAET Firearms and Ammunition Excise Tax

Fannie Mae Federal National Mortgage Association

FARS Financial Analysis and Reporting System

FASAB Federal Accounting Standards Advisory Board

FATCA Foreign Account Tax Compliance Act

FATF Financial Action Task Force

FCDA Foreign Currency Denominated Assets

FCRA Federal Credit Reform Act

FDIC Federal Deposit Insurance Corporation

FECA Federal Employees’ Compensation Act

FEGLI Federal Employees Group Life Insurance

FEHBP Federal Employees Health Benefits Program

FFB Federal Financing Bank

FFETF Financial Fraud Enforcement Task Force

FFIEC Federal Financial Institutions Examination Council

FFMIA Federal Financial Management Improvement Act

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FHLB Federal Home Loan Bank

FinCEN Financial Crimes Enforcement Network

FinTRACA Financial Transactions and Reports Analysis Center 

of Afghanistan

FIO Federal Insurance Office

FISMA Federal Information Security Management Act

FIRST Financial Information and Reporting 

Standardization

FIST Fraud Investigative Strike Team

FIU Financial Intelligence Unit

FMFIA Federal Managers’ Financial Integrity Act

FMIS Financial Management Information System

FMS Financial Management Service

FOIA Freedom of Information Act

FONL Formulas Online

FR Consolidated Financial Report of the United States 

Government

FRB Federal Reserve Bank

FRBNY Federal Reserve Bank of New York

Freddie Mac Federal Home Loan Mortgage Corporation

FSB Financial Stability Board

FSOC Financial Stability Oversight Council

FST Floor Stocks Tax

FTD Federal Tax Deposit

FTHBC First-Time Homebuyer Credit

Glossary of Acronyms

FTO Fine Troy Ounce

FY Fiscal Year

G-7 Group of Seven

G-20 Group of Twenty

GAAP Generally Accepted Accounting Principles

GAB General Arrangement to Borrow

GAFSP Global Agriculture and Food Security Program

GAIS Government Agency Investment Services

GAO Government Accountability Office

GEF Global Environmental Facility

GFRA General Fund Receipt Account

Ginnie Mae Government National Mortgage Association

GM General Motors Company

GMAC General Motors Acceptance Corporation

GPRA Government Performance and Results Act

GSA General Services Administration

GSE Government Sponsored Enterprise

GWA Government-wide Accounting

HAMP Home Affordable Modification Program

HCTC Health Coverage Tax Credit

HEAT Health Care Fraud Prevention and Enforcement 

Action Team

HECM Home Equity Conversion Mortgage

HERA Housing and Economic Recovery Act

HFA Housing Finance Agency

HFFI Healthy Food Financing Initiative

HHF Hardest Hit Fund

HHS Department of Health and Human Services

HIRE Hiring Incentives to Restore Employment Act of 

2010

HRF Haitian Reconstruction Fund

HSPD Homeland Security Presidential Directive

HUD Department of Housing and Urban Development

I&E Inspections and Evaluations

IAP International Assistance Programs

IDB Inter-American Development Bank

IEEPA International Emergency Economic Powers Act

IFI International Financial Institution

IFSR Iranian Financial Sanctions Regulations

IG Inspector General

IMF International Monetary Fund

IPERA Improper Payments Elimination and Recovery Act

of 2010

IPIA Improper Payments Information Act of 2002

IPP Internet Payment Platform

IPPIN Identify Protection Personal Identification Number

IRC Internal Revenue Code

IRIS Integrated Revenue Information System
U.S. Department of the Treasury | Fiscal Year 2011

216 

Glossary of Acronyms

IRISL Islamic Republic of Iran Shipping Lines

IRS Internal Revenue Service

ISO International Organization for Standardization

IT Information Technology

ITA Interactive Tax Law Assistant

ITR Iranian Transactions Regulations

JAMES Joint Audit Management Enterprise System

Kingpin Act Foreign Narcotics Kingpin Designation Act

LIBOR London Interbank Offered Rate

LIC Low-Income Community

MBS Mortgage-Backed Security

MDB Multilateral Development Bank

MeF Modernized Electronic File

MHA Making Home Affordable Program

MOU Memorandum of Understanding

MRADR Market Risk Adjusted Discount Rate

MSB Money Services Business

MV&S Modernization, Vision, and Strategy

NAB New Arrangement to Borrow

NDIC National Drug Intelligence Center

NEI National Export Initiative

NOL Net Operating Loss

NPRM Notice of Proposed Rulemaking

NRC National Revenue Center

NTDO Non-Treasury Disbursing Office

OA Office of Audits

OCC Office of the Comptroller of the Currency

ODM Office of Debt Management

OECD Organization for Economic Co-operation and 

Development

OFAC Office of Foreign Assets Control

OFAS Office of the Fiscal Assistant Secretary

OFIT Office of Financial Innovation and Transformation

OFP Office of Fiscal Projections

OFPP Office of Federal Procurement Policy

OFR Office of Financial Research

OFS Office of Financial Stability

OI Office of Investigations

OIA Office of Intelligence and Analysis

OID Original Issue Discount

OIG Office of Inspector General

OMB Office of Management and Budget

OPCL Office of Privacy and Civil Liberties

OPE Office of the Procurement Executive

OPEB Other Post-Employment Benefits

OPM Office of Personnel Management

Glossary of Acronyms

ORB Other Retirement Benefits

OTC Over-the-Counter

OTS Office of Thrift Supervision

PACT Act Prevent All Cigarette Trafficking Act of 2009

PAM Payments Application Modernization

PAR Performance and Accountability Report

PB President’s Budget

PCA Planned Corrective Action

PII Personal Identifiable Information

P.L. Public Law

PONL Permits Online

PP&E Property, Plant, and Equipment

PPIF Public-Private Investment Fund

PPIP Public-Private Investment Program

PSPA Preferred Stock Purchase Agreements

PTIN Preparer Tax Identification Number

QEO Qualified Equity Offering

QFI Qualified Financial Institution

QTDP Qualified Therapeutic Discovery Project

Recovery Act American Recovery and Reinvestment Act of 2009

RMBS Residential Mortgage Backed Securities

RRACS Redesign Revenue Accounting Control System

S&ED Strategic and Economic Dialogue

S.A.F.E. Act Secure and Fair Enforcement for Mortgage 

Licensing Act of 2008

SAR Suspicious Activity Report

SAS Statement on Auditing Standards

SBA Small Business Administration

SBLF Small Business Lending Fund

SBR Statement of Budgetary Resources

SCAP Supervisory Capital Assessment Program

SCF Strategic Climate Fund

SCMA Strategic Cash Management Agreements

SDR Special Drawing Rights

SEC Securities and Exchange Commission

SES Senior Executive Service

SFFAS Statement of Federal Financial Accounting 

Standards

SFP Supplementary Financing Program

SIG Special Inspector General

SIGTARP Special Inspector General for TARP

SME Small and Medium-sized Enterprise

SNC Statement of Net Cost

SOI Statistics of Income

SOMA System Open Market Account

SPSPA Senior Preferred Stock Purchase Agreements

SPV Special Purpose Vehicle
U.S. Department of the Treasury | Fiscal Year 2011

217 

Glossary of Acronyms

SSBCI State Small Business Credit Initiative

SSG Senior Supervisors’ Group

SSP Shared Service Provider

SSP Stable Share Price

STR Suspicious Transaction Report

TAC Taxpayer Assistance Center

TAIFF Troubled Asset Insurance Finance Fund

TALF Term Asset-Backed Securities Loan Facilities

TARP Troubled Asset Relief Program

TCE Tax Counseling for the Elderly

TCLP Temporary Credit and Liquidity Program

TE/GE Tax Exempt and Government Entities

TEOAF Treasury Executive Office for Asset Forfeiture

TFF Treasury Forfeiture Fund

TFFC Office of Terrorist Financing and Financial Crimes

TFI Terrorism and Financial Intelligence

TFR Thrift Financial Reports

TFTP Terrorist Finance Tracking Program

TIER Treasury Information Executive Repository

TIGTA Treasury Inspector General for Tax Administration

TIP Targeted Investment Program

TIN Taxpayer Identification Number

TIPS Treasury Inflation-Protected Securities

TOP Treasury Offset Program

TPP Trans-Pacific Partnership

TRIA Terrorism Risk Insurance Act

TTB Alcohol and Tobacco Tax and Trade Bureau

TWEA Trading with the Enemy Act

UN United Nations

UNSCR United Nations Security Council Resolution

UP Unemployment Program

USA PATRIOT 

Act

Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and 

Obstruct Terrorism Act of 2001

USDA United States Department of Agriculture

USC United States Code

USPS United States Postal Service

USSGL United States Standard General Ledger

UTF Unemployment Trust Fund

VA Department of Veterans Affairs

VITA Volunteer Income Tax Assistance

WHBAA Worker, Homeownership, and Business Assistance 

Act of 2009

WMD Weapons of Mass Destruction

WTO World Trade Organization
U.S. Department of the Treasury | Fiscal Year 2011

218 
U.S. Department of the Treasury | Fiscal Year 2011

219