the department 

of the treasury 

performance and 

accountability 

report 

fiscal year 2010 

November 15, 2010 
the united states 

department

 of the treasury

our vision 

Set the global standard in financial and economic leadership 

our mission 

Serve the American people and strengthen national security by managing the 

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

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

our values 

service 

Work for the benefit of the American people 

integrity 

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

excellence 

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

objectivity 

Encourage independent views 

accountability 

Responsible for our conduct and work 

community 

Dedicated to excellent customer service, collaboration, 

and teamwork while promoting diversity 
performance and 

accountability 

report 

fiscal year 2010 

the department 

of the treasury 
the department of the treasury 

ii 

This page left intentionally blank 
performance and accountability report | fiscal year 2010 

iii 

table of contents 

Message from the Secretary of the Treasury
 v 

Part 1: Management’s Discussion and Analysis 

Introduction 3
 

Organization 4
 

The Treasury Department’s 2007-2012 Strategic Framework 7
 

Fiscal Year 2010 Summary of Performance by Strategic Goal 8
 

Treasury’s Priority Performance Goals 10
 

Financial Highlights 11
 

Fiscal Year 2010 Performance by Strategic Goal 12
 

Effectively Managed U S Government Finances 12
 

U S and World Economies Perform at Full Economic Potential 15
 

Prevented Terrorism and Promoted the Nation’s Security 

Through Strengthened International Financial Systems 29
 

Management and Organizational Excellence 32
 

Department of the Treasury Key Performance Measures for 2010 35
 

Summary of Management and Performance Challenges and High-Risk Areas 37
 

Analysis of Financial Statements 40
 

Improper Payments Information Act and Recovery Auditing Act 45
 

Management Assurances 47
 

Material Weaknesses, Audit Follow-up, and Financial Systems 48
 

table of contents 

table of contents
 
the department of the treasury 

table of contents 

iv 

Part 2: Annual Performance Report 

Introduction 53 

Completeness and Reliability of Performance Data 54 

Strategic Objective: Available Cash Resources to Operate the Government 56 

Strategic Objective: Improved Economic Opportunity, Mobility and Security with 

Robust, Real, Sustainable Economic Growth at Home and Abroad 77 

Strategic Objective: Trust and Confidence in U S Currency Worldwide 99 

Strategic Objective: Pre-Empted and Neutralized Threats to the International 

Financial System and Enhanced U S National Security 104 

Strategic Objective: Enabled and Effective Treasury Department 118 

Part 3: Annual Financial Report 

Message from the Assistant Secretary for Management and Chief Financial Officer 133 

Inspector General’s Transmittal Letter 135 

Auditors’ Report on the Department’s Financial Statements 137 

Management’s Response to Auditors’ Report 151 

Financial Statements 152 

Notes to the Financial Statements 160 

Required Supplemental Information (Unaudited) 266 

Part 4: Other Accompanying Information 

APPENDICES 

Appendix A: Other Accompanying Information (Unaudited) 273 

Appendix B: Improper Payments Information Act and Recovery Auditing Act 277 

Appendix C: Management and Performance Challenges and Responses 285 

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

and Recovery Act Risk Management 333 

Appendix E: Glossary of Acronyms 343 

table of contents 
performance and accountability report | fiscal year 2010 

Message froM the secretary of the treasury
 

november 15, 2010 

over the past two years, the treasury Department has taken a series of unprecedented steps to 

pave the way for the nation’s recovery from the worst recession in our lifetimes. the Department’s 

top priority has been to serve the american people by strengthening the u.s. economy, helping 

create jobs, and restoring confidence in our financial system. 

since the last report, we have made important progress on all fronts. over the past year, in addition to continued implementation of the recovery act, we have recovered most of our investments in the financial system; helped usher in a historic law to reform our financial system; crafted 

important new consumer protections; and significantly increased support for small businesses. 

there is much work still to be done to get our economy growing faster. In 2010, the private sector 

added more than 1.1 million jobs—an average of 112,000 jobs a month for 10 straight months. treasury will continue to work to 

build on these positive trends, accelerate job creation, and drive economic recovery. 

the financial system today is also much stronger—and looks much different—than it did two years ago. the firms that remain are 

in a much better position to withstand future stress. Most banks have more capital than before the crisis and more than their global 

competitors. overall, private capital has replaced public funds, and the government is winding down its financial system rescue 

efforts faster than anticipated. 

because of treasury’s careful stewardship of taxpayer dollars and the further strengthening of the financial system, the troubled 

asset relief Program will likely cost substantially less than originally thought possible. since its inception, the projected cost of 

this program has continued to decline dramatically. the Department has stopped committing new funds and has already recovered 

$204.1 billion of the total $387.7 billion that has been disbursed for the program, and has received nearly $28 billion in additional 

profits from dividends, interest, warrants, and other transactions. Moving forward, further progress towards replacing public support 

with private investment will continue to demonstrate treasury’s ongoing commitment to maximize repayments to taxpayers. 

In addition to the important efforts to meet our immediate obligations, the Department worked closely with congress to pass 

fundamental financial reform. our financial system helped trigger the most severe economic recession in 70 years. the flaws in 

that system had to be fixed to protect future generations. In July, after months of negotiations and hard work, congress passed the 

Dodd-Frank Wall Street Reform and Consumer Protection Act—the most sweeping financial reforms since the great Depression. the 

President quickly signed it into law, and treasury immediately began implementing the new reforms. the Department is now standing up the consumer financial Protection bureau, conducting meetings of the financial stability oversight council, and putting in 

place the office of financial research. 

against this backdrop of dramatic change, treasury continues to pursue its goals of effectively managing u.s. government finances, 

helping u.s. and world economies perform at full economic potential, promoting the nation’s security through strengthened 

international financial systems, and efficiently managing the Department’s resources. 

message from the secretary 

message from the secretary v 
the department of the treasury 

vi 

the Department again received an unqualified opinion on our treasury consolidated financial statements, and we also received 

another unqualified opinion on the financial statements of our office of financial stability/troubled asset relief Program, which 

reflect the financial results of their second year of operations. 

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 

secretary of the treasury 

message from the secretary

message from the secretary 
part 1: 

management’s

discussion

 and analysis 

performance and accountability report | fiscal year 2010 

3 

IntroDuctIon
 

to repair and reform the financial system, treasury implemented 

measures ranging from preparation and initial implementation 

of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (Dodd-frank act) to ongoing rescue and economic recovery 

initiatives begun in 2008 and 2009 and to work with international partners to reform the international financial system. 

treasury also plays a critical role in achieving one of the obama 

administration’s top domestic priorities in the implementation 

of health care reform. In addition to these priorities, treasury 

continued to focus on managing the government’s finances and 

streamlining operations, including maximizing paperless transactions and strong performance management in fiscal year 2010. 

the Dodd-frank act, passed in July 2010, introduced wideranging financial reforms to better protect consumers, prevent 

financial firms from taking risks that threaten the economy, and 

provide the government more effective tools to manage financial 

crises. to implement the Dodd-frank act, treasury is establishing new regulatory bodies, including the consumer financial 

Protection bureau, financial stability oversight council, office 

of financial research, and federal Insurance office; overseeing 

the closure of the office of thrift supervision and its integration 

into the office of the comptroller of the currency; and working 

with other government agencies to develop new market regulations and guidance. 

as the economy recovers from the financial crisis and recession, 

treasury has continued its efforts to restore growth and create jobs 

through implementation of the Housing and Economic Recovery 

Act of 2008 (hera), the Emergency Economic Stabilization Act 

of 2008 (eesa), and the American Recovery and Reinvestment 

Act of 2009 (recovery act); coordination with federal and state 

partners; execution of treasury’s housing Programs; regulation of 

national banks and thrifts; and various other initiatives. as the 

financial system continues to stabilize and the economy recovers, 

the troubled asset relief Program (tarP) will wind down and 

efforts will be focused on implementing financial regulatory reform 

and protection for consumers. 

treasury continued to secure strong international support 

through the group of 20 (g-20) to reform the international 

financial system based on the fundamental principles of a strong 

regulatory framework, effective supervision, management of risks 

associated with systemic institutions, and transparent international assessment and peer review. the Department also helped 

strengthen global bank capital standards through establishment 

of a new basel III capital agreement. 

the Department has a major role in implementing health care 

reform. the Irs began developing new systems and business 

processes for near term provisions, conducting initial planning 

for longer-term provisions, and defining appropriate outreach 

activities for each affected taxpayer group. While implementing new provisions, the Irs continued to focus on its priority 

performance goal of improving voluntary tax compliance. 

fiscal year 2010 saw strong demand in wholesale government 

securities. During the year, the Department conducted over 290 

government securities auctions, a near record, and issued $8.41 

trillion in marketable treasury securities. only fiscal year 2009 

had a greater number of auctions. on average, nominal note and 

bond auctions have been oversubscribed by 1.9 times, significantly above the previous record of 1.5 times in fiscal year 2009. 

the Department accelerated its efforts to increase the number 

of electronic transactions with the public to reduce paper use, 

increase efficiency, and reduce costs. one of treasury’s three 

priority performance goals sets a target to increase electronic 

transactions with the public by 33 percent by the end of fiscal 

year 2011. Initiatives related to tax payments, savings bond 

purchases, benefit payments, and vendor invoicing will all be 

included in this effort. savings are estimated at $400 million 

over five years. In addition to these initiatives, e-filing of tax 

returns continued to increase in 2010. sixty-nine percent of 

individual returns were filed electronically, up from 66 percent 

in fiscal year 2009. business returns electronically filed increased 

12 percent over 2009, reaching 25.5 percent. 

part 1: management’s discussion and analysis 

introduction 
the department of the treasury 

part 1: management’s discussion and analysis

4 

finally, the Department launched a new performance management process led by the Deputy secretary and coordinated 

through the assistant secretary for Management. Performance 

review meetings are conducted every quarter for treasury 

bureaus and policy offices. the meetings in 2010 focused on 

clarifying missions, goals, and performance measures and formulation of the fiscal year 2012 budget. the performance review 

process will mature over the next fiscal year as a deeper understanding of the factors that drive performance are analyzed, and 

strategies are developed to deliver improved results. 

for the online version of this report, please see http://www. 

treasury.gov/offices/management/dcfo/accountability-reports. 

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 and 

nine 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. 

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. 

organization 
performance and accountability report | fiscal year 2010 

5 

Treasurer of the United States serves as a senior advisor 

and representative of treasury on behalf of the secretary in 

the areas of community development, real estate, and other 

business development initiatives. the treasurer also serves 

as one of the agency’s principal advisors and is a spokesperson in the areas of financial literacy, education and public 

engagement. 

Community Development Financial Institutions Fund 

(cDfI fund) expands the capacity of community development financial institutions and community development 

entities to provide credit, capital, tax credit allocations, 

and financial services to underserved domestic populations 

and communities. 

Internally, the departmental offices are responsible for overall 

management of the Department. The Office of Management and 

the Chief Financial Officer is responsible for internal management and controls, as well ensuring contracting opportunities through the Office of Small and Disadvantaged Business 

Utilization. support organizations 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 for the Department of the treasury and its programs. 

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. 

The Bureau of Engraving and Printing (beP) designs and 

manufactures high quality notes and other financial 

documents that deter counterfeiting and meet customer 

requirements for quality, quantity, and performance. 

The Bureau of the Public Debt (bPD) borrows the money 

needed to operate the federal government through the 

sale of marketable, savings, and special purpose u.s. 

treasury securities. In addition, it accounts for and services the public debt and provides reimbursable support 

services to federal agencies. 

The Financial Crimes Enforcement Network (fincen) 

safeguards the financial system from the abuses of 

financial crime, including terrorist financing, money 

laundering, and other illicit activity. 

The Financial Management Service (fMs) provides 

central payment services to federal program agencies, 

operates the federal government’s collections and 

deposit systems, provides government-wide accounting 

and reporting services, and manages the collection of 

delinquent debt owed to the u.s. government. 

The Internal Revenue Service (Irs) is the largest of the 

Department’s bureaus and determines, assesses, and 

collects tax revenue for the federal government. 

The United States Mint designs, produces, and issues circulating and bullion coins, numismatic coins and other items, 

congressional gold medals, and other medals of national 

significance. the united states Mint maintains physical 

custody and protection of the nation’s gold assets. 

The Office of the Comptroller of the Currency (occ) 

charters, regulates, and supervises national banks to 

ensure 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) charters, examines, 

supervises, and regulates federal and state-chartered 

savings associations and their holding companies in 

order to maintain each thrift’s safety and soundness and 

compliance with consumer laws. 

part 1: management’s discussion and analysis 

organization 
part 1: management’s discussion and analysis

the department of the treasury 

6 

the Department Of the treasury OrganizatiOnal Chart 

Secretary 

Deputy Secretary 

Treasury Inspector 

General for Tax 

Administration 

Special Inspector General 

for the Troubled Asset 

Relief Program 

Office of the Chief of Staff 

Internal Revenue 

Service 

Bureau of Engraving 

and Printing 

Assistant Secretary 

Tax Policy 

Alcohol and Tobacco 

Tax and Trade Bureau 

Assistant Secretary 

Economic Policy 

Assistant Secretary 

Public Affairs 

Assistant Secretary 

Legislative Affairs 

Assistant Secretary 

for Management and 

Chief Financial Officer 

General Counsel 

Treasurer 

United States Mint 

Office of the 

Comptroller of the 

Currency 

Office of Thrift 

Supervision 

Bureau of 

the Public Debt 

Financial 

Management 

Service 

Inspector General 

Under Secretary Domestic 

Finance 

Assistant Secretary 

Financial Markets 

Assistant Secretary 

Financial Institutions 

Assistant Secretary 

Financial Stability 

Community Development 

Financial Institutions Fund 

Assistant Secretary 

Fiscal 

Under Secretary Terrorism 

Financial Intelligence 

Assistant Secretary 

Terrorist Financing 

Assistant Secretary 

Intelligence and Analysis 

Financial Crimes 

Enforcement Network 

Under Secretary 

International Affairs 

Assistant Secretary 

International Markets 

& Development 

Senior Coordinator 

China Affairs & Strategic 

and Economic Dialogue 

Assistant Secretary 

International Finance 

the department of the treasury organizational chart 
performance and accountability report | fiscal year 2010 

7 

the treasury DePartMent’s 

2007-2012 strategIc fraMeWork 

the treasury Department’s Strategic Framework is a summary of our goals, objectives, and outcomes. this framework provides the 

basis for performance planning and continuous improvement. 

Strategic Goals Strategic Objectives Value Chains** Value Chain Outcomes 

Financial 

Effectively Managed U.S. 

Government Finances 

Available cash resources to operate the 

government 

Collect 

Disburse 

Borrow 

Account 

Invest 

•	 Revenue collected when due through a fair and uniform 

application of the law at the lowest possible cost 

•	 Timely and accurate payments at the lowest possible cost 

•	 Government financing at the lowest possible cost over time 

•	 Effective cash management 

•	 Accurate, timely, useful, transparent and accessible financial 

information 

Economic 

U.S. and World Economies 

Perform at Full Economic 

Potential 

Improved economic opportunity, 

mobility and security with robust, real, 

sustainable economic growth at home 

and abroad 

Strengthen 

Regulate 

•	 Strong U.S. economic competitiveness 

•	Free trade and investment 

•	 Decreased gap in global standard of living 

•	 Competitive capital markets 

•	 Prevented or mitigated financial and economic crises 

Trust and confidence in U.S. currency 

worldwide 

Manufacture •	 Commerce enabled through safe, secure U.S. notes and coins 

Security 

Prevented Terrorism and 

Promoted the Nation’s 

Security Through 

Strengthened International 

Financial Systems 

Pre-empted and neutralized threats to 

the international financial system and 

enhanced U.S. national security 

Secure •	 Removed or reduced threats to national security from 

terrorism, proliferation of weapons of mass destruction, 

narcotics trafficking and other criminal activity on the part of 

rogue regimes, individuals, and their support networks 

•	 Safer and more transparent U.S. and international financial 

systems 

Management 

Management and 

Organizational Excellence 

Enabled and effective Treasury 

Department 

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

organization 

•	 Exceptional accountability and transparency 

** Value Chains – Programs grouped by a common purpose. 

part 1: management’s discussion and analysis 

the treasury department’s 2007-2012 strategic framework 
part 1: management’s discussion and analysis

the department of the treasury 

8 

fIscal year 2010 suMMary of PerforMance by 

strategIc goal 

Strategic Goal Key Accomplishments Key Challenges Trend 

Effectively Managed 

U.S. Government 

Finances 

•	 Collected $2.3 trillion in tax revenue and $23.8 billion 

in federal excise taxes on tobacco, alcohol, firearms, 

and ammunition 

•	 Processed over 141.9 million individual returns and 

•	 Continue to work toward the Congressional goal of having 

80 percent of tax returns filed electronically 

•	 Continue “Paperless” initiatives to convert paper savings 

bonds, payments, vendor invoices, and collections to 

Performance 

Budget 

Cost*: 

2009: $14.4 billion 

2010: $15.5 billion 

U.S. and World 

Economies Perform at 

Full Economic Potential 

Cost*: 

2009: $4.4 billion 

2010: $5.5 billion 

issued over 109.5 million refunds 

•	 Processed 69 percent of individual tax returns 

electronically, up from 66 percent in fiscal year 2009 

•	 Converted nearly 1.5 million federal benefit check 

recipients to direct deposit in fiscal year 2010, 50 

percent more than fiscal year 2009 

•	 Conducted 47 percent more auctions than the fiscal 

year 2000 to 2008 average 

•	 Extended the average maturity of the debt by five 

months to an historic average of 58 months 

•	 Supported enactment of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 and 

initiated implementation of financial reforms 

•	 Continued implementation of the Emergency Economic 

Stabilization Act of 2008 to repair financial and 

housing markets 

•	 Improved mortgage availability and housing market 

stability by implementing the Housing and Economic 

Recovery Act of 2008 

•	 Implemented economic stimulus measures under the 

American Recovery and Reinvestment Act of 2009 

•	 Supported enactment of the Small Business Jobs Act 

of 2010 to strengthen the capacity of small businesses 

to create jobs 

•	 Coordinated with G-20 nations and other partners to 

strengthen international financial regulations 

•	 Contributed to fiscal stabilization efforts in countries 

most directly affected by the financial crisis and 

economic recession 

•	 Coordinated the economic track of the U.S. – China 

Strategic and Economic Dialogue 

•	Led U.S. engagement in the multilateral development 

banks to further alleviate poverty and foster broadbased economic growth 

electronic forms 

•	 Implement tax provisions in the Patient Protection and 

Affordable Care Act 

•	 Expand efforts to address offshore tax evasion 

•	 Increase compliance among corporate returns 

•	 Improve audit coverage of high net-worth/high-income 

taxpayers 

•	 Continue to make progress toward completing the new 

taxpayer account database (the Customer Account Data 

Engine II) 

•	 Accurately forecast government receipts 

•	 Develop standard electronic invoicing platform and intragovernmental transaction processing systems 

•	 Stand up the Consumer Financial Protection Bureau, 

Financial Stability Oversight Council, Office of Financial 

Research, and Federal Insurance Office 

•	 Close the Office of Thrift Supervision and transfer its 

functions to the Office of the Comptroller of the Currency, 

the Federal Reserve, and the Federal Deposit Insurance 

Corporation 

•	 Reform the housing finance system to improve long-term 

market stability 

•	 Continue to monitor and mitigate risks at national banks 

and thrifts 

•	 Reduce mortgage delinquency and foreclosure rates 

•	 Maintain and promote open economies despite rising 

protectionist interests 

•	 Reform Medicare and Social Security to ensure long-term 

solvency 

•	 Manage cost, productivity, and quality issues related to 

coin and currency production 

•	 Increase financial literacy and access to financial services 

in low-income and underserved communities 

•	 Monitor compliance of Recovery Act tax provisions 

Cost 

Performance 

Budget 

Cost 

Table continued on next page 

fiscal year 2010 summary of performance by strategic goal 
performance and accountability report | fiscal year 2010 

9 

Strategic Goal Key Accomplishments Key Challenges Trend 

Prevented Terrorism •	 Obtained commitment from financial institutions to •	Fully implement anti-money laundering and counter- Performance 

and Promoted the reduce business relations with Iran and Iranian banks terrorist financing laws in key countries 

Nation’s Security 

Through Strengthened 

International Financial 

Systems 

•	 Implemented sanctions against North Korean arms 

trafficking, luxury goods procurement, and illicit 

economic activities 

•	 Supported establishment of the Afghanistan Threat 

•	 Continue to support efforts in Mexico to detect, interdict, 

and investigate the flow of illicit proceeds from narcotics 

and human smuggling 

•	 Modernize Bank Secrecy Act information and analysis 

Budget 

Cost 

Cost*: 

Finance Cell •	 Develop compliance practices and regulations for newly 

2009: $570 million •	 Enhanced mechanisms to combat mortgage and loan 

modification fraud and detect health care fraud 

regulated industries, such as pre-paid access cards and 

mortgage brokers 2010: $668 million •	 Provided key information on Southwest border cash 

flows to law enforcement 

•	 Seized over $1 billion in forfeitures and recoveries 

•	 Strengthen evaluation methodology for Terrorism and 

Financial Intelligence impact measure 

Management and •	 Achieved second most-improved agency in the Best •	 Increase implementation of SIGTARP recommendations Performance 

Organizational Places to Work Rankings by the Partnership for Public for the Troubled Asset Relief Program 

Excellence 

Cost*: 

2009: $296 million 

2010: $337 million 

Service 

•	 Provided management, financial, budget, IT, facilities, 

procurement, and human capital support to implement 

the Dodd-Frank Wall Street Reform and Consumer 

Protection Act 

•	 Exceeded procurement savings and high-risk contract 

•	Launch re-designed Treasury website 

•	 Implement next stage of Homeland Security Presidential 

Directive 12 (HSPD-12) logical and physical access 

•	 Continue consolidation of Treasury data centers 

•	 Implement Enterprise Content Management technology 

Budget 

Cost 

reduction goals set by Office of Management and 

Budget (OMB) 

•	 Maintained status as the only agency to consistently 

receive fully green marks on the OMB Environment and 

Energy Scorecard 

•	 Established and conducted data driven budget and 

performance reviews at the Deputy Secretary level for 

all bureaus 

initiative to improve Department-wide efficiency 

•	 Continue to implement aggressive paper reduction targets 

•	 Complete all material loss review work (due to bank 

failures) on time 

•	 Close planned corrective actions from audits on time 

•	 Streamline hiring process 

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

resources. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

part 1: management’s discussion and analysis 

fiscal year 2010 summary of performance by strategic goal 
part 1: management’s discussion and analysis

the department of the treasury 

10 

treasury’s PrIorIty PerforMance goals
 

the Department established three Priority Performance goals 

in 2010 to drive its focus and achieve measurable results for the 

american people in the next two years. these goals are based 

on existing priorities and the strategic goals of the treasury 

Department. 

Repair and Reform the Financial System 

the financial crisis of the last two years, with its attendant 

recession, job losses, and foreclosures, has required the 

Department to take extraordinary actions to preserve the functioning of financial and housing markets and restore confidence 

in the integrity of the financial system. gaps and weaknesses 

in the supervision and regulation of financial firms limited the 

government’s ability to: 

•	 Monitor and prevent risks that built up in the financial 

system 

•	 Provide adequate protections for consumers and investors 

Increase Voluntary Tax Compliance 

Improving both service and enforcement, along with reforms to 

simplify the tax law, are essential to ensure the u.s. tax system 

remains the most effective and fairest voluntary compliance 

system in the world. reliance on a voluntary compliance tax 

system requires: 

•	 effective taxpayer services that enable taxpayers to understand and meet their tax obligations 

•	 effective enforcement to ensure that all businesses and 

individuals pay the tax they owe 

Significantly Increase the Number of 

Electronic Transactions with the Public 

the safety, security, efficiency, and reliability of treasury 

transactions are paramount to maintaining public trust. billions 

of transactions for payments to recipients, savings bonds 

purchases, and tax collections are executed in a year. Increasing 

the number of electronic transactions with the public will: 

•	 reduce costs 

•	 reduce errors 

•	 Decrease the public’s vulnerability to fraud 

•	 Increase convenience for recipients and taxpayers 

•	 reduce environmental impact 

treasury’s priority performance goals 
performance and accountability report | fiscal year 2010 

11 

fInancIal hIghlIghts 

Total Assets 

Fiscal Year Fiscal Year 

The increase of $1.8 trillion in total assets in fiscal year 2010 is largely due to the

increase in future funds required from the General Fund of the U.S. Government to

pay for the federal debt owed to the public and other federal agencies. 

$14,000

Total Liabilities 

$14,000

Total liabilities increased by $2.1 trillion from fiscal year 2009 to fiscal year 2010. The 

majority of the increase is due to borrowings from other federal agencies and debt 

issued to the public.

$16,000 $16,000 $8,988.0 $9,528.8 $11,117.0 $13,846.6 $15,599.3 

$8,873.1$9,407.7$10,807.3$13,418.5$15,498.2 

2006 2007 2008 2009 2010 

$12,000 $12,000

Dollars (in Billions) Dollars (in Billions) 

$10,000 $10,000

$8,000 $8,000

$6,000 $6,000

$4,000 $4,000

$2,000 $2,000

$0 $0 2006 2007 2008 2009 2010 

Net Federal 

Debt Interest 

Costs 

Fiscal Year Fiscal Year 

The increase of $27.4 billion in net interest paid on the federal debt is due to the 

increase in the debt. Total federal debt and interest payable increased by $1.66

trillion in fiscal year 2010. 

Total Budgetary 

Resources 

The majority of the decrease in total budgetary resources for fiscal year 2010 was 

due to the reduction of Troubled Asset Relief Program (TARP) activity and investments 

in the Government Sponsored Enterprises (GSEs). 

$390.9$420.4$440.9$363.2$390.6 

$1,600 $350

$450 $2,000

$1,800

$503.1$523.0$772.2$1,835.0$1,193.1 

2006 2007 2008 2009 2010 

$400

Dollars (in Billions) Dollars (in Billions) 

$1,400 $300

$1,200 $250

$1,000 $200 $800

$150 $600

$100 $400

$50 $200

$0 $0 2006 2007 2008 2009 2010 

Net Outlays 

Fiscal Year 

The majority of the $581.7 billion decrease in net outlays was due to the reduction 

of Troubled Asset Relief Program (TARP) activity and investments in the Government 

Sponsored Enterprises (GSEs). 

Net Cash 

Revenue 

Received 

Fiscal Year 

Net cash revenue received on behalf of the U.S. Government increased by $12.7 

billion for fiscal year 2010. This increase can be attributed to an overall improvement 

in the economy. 

$1,000 $2.5

$2.28$2.45$2.37$1.96$1.98 

2006 2007 2008 2009 2010 

$900

$800

$413.0$436.0$462.9$922.2$340.5 

2006 2007 2008 2009 2010 

$2.0

Dollars (in Billions) Dollars (in Trillions) 

$700

$600 $1.5

$500

$400 $1.0

$300

$200 $0.5

$100

$0 $0.0

part 1: management’s discussion and analysis 

financial highlights 
part 1: management’s discussion and analysis

the department of the treasury 

12 

fIscal year 2010 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. In fiscal year 2010, the 

treasury implemented tax provisions contained in the Patient 

Protection and Affordable Care Act of 2010 (aca) and the 

Hiring Incentives to Restore Employment Act of 2010 (hIre). the 

Department also sought to improve processes for tax filing and 

payments and created a new office of financial Innovation and 

transformation (fIt). 

IRS Implementation of the Patient 

Protection and Affordable Care Act 

of 2010 

the aca was signed into law on March 23, 2010 and was 

later amended by the Health Care and Education Reconciliation 

Act of 2010 on March 30, 2010. aca represents the largest 

set of tax law changes in more than 20 years, with more than 

40 provisions that amend the tax laws. although the new law 

goes into effect gradually over many years, numerous provisions 

like the small business health care tax credit, the Qualifying 

therapeutic Discovery credit, and the expanded adoption 

credit require immediate action. 

the Irs established teams to implement the various provisions. 

efforts focused on: 

•	 Developing new systems and business processes for nearterm provisions 

•	 conducting initial planning for longer-term provisions 

•	 Defining appropriate outreach activities for each affected 

taxpayer group 

the Irs and the Department of health and human services 

(hhs) partnered to form a coordinating committee to assess 

cross-cutting policy considerations. Interagency working teams 

were formed to assess operational needs such as data infrastructure, eligibility, enrollment, customer service, communications, 

and payment of premium tax credits. the Irs is assessing the 

overall impact of new health insurance exchanges on tax administration and analyzing information technology (It) system 

designs that will be needed for enrollment verification, payment 

and accounting processes, tax reconciliation, and administration 

of both individual and employer requirements. 

Provisions effective in later years will place new administrative 

responsibilities on the Irs and require new systems, business 

processes, and coordination with other federal and state entities. 

efforts will continue into fiscal year 2011. In addition, tIgta 

reviewed the aca for its impact on tax administration. 

Creation of Office of Financial Innovation 

and Transformation 

In fiscal year 2010, treasury created the fIt to develop a 

standard electronic invoicing platform and intra-governmental 

transaction processing systems. the goals of this effort are to 

lower overall financial transaction processing costs, facilitate the 

resolution of audit issues, and increase transparency of financial 

information. fIt’s work comes at a critical time as agencies are 

looking for ways to improve financial transaction procedures 

that are inefficient, fragmented, and expensive. Performance 

will be measured by the reduction in duplicative systems and 

improved transparency. Potential government-wide savings are 

estimated at hundreds of millions of dollars annually. 

Implemented the Hiring Incentives to 

Restore Employment Act 

the hIre act of 2010 provides employers an incentive to hire 

workers who have been unemployed for 60 days or longer by 

exempting wages paid to these workers from the employer’s 6.2 

percent share of social security payroll taxes for the remainder 

of the year. In addition to exempting employers from these 

payroll taxes, the hIre act allows employers to claim a tax 

credit of up to $1,000 for each newly hired qualifying worker 

who is retained for one year. 

the Irs collaborated with the payroll industry to implement 

these provisions. treasury estimated that businesses hired 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

13 

8.1 million new workers who were unemployed for 60 days or 

longer between february to august 2010, making those businesses eligible to receive hIre act tax exemptions and credits. 

Increased Tax Compliance through 

Greater Openness and Transparency 

the Irs continues to use more efficient strategies to ensure 

large corporate taxpayers are in compliance. the commissioner 

of the Irs announced changes to filing uncertain tax positions, 

mainly that filers will now be required to provide a concise 

description for positions taken on their tax returns. Providing 

descriptions will increase certainty and lead to more efficient 

examinations. over the next year, Irs examiners will receive 

special training on the handling of uncertain tax positions. 

In exchange for more openness and transparency before filing, 

the Irs compliance assurance Process (caP) program has 

helped resolve issues with large corporate taxpayers earlier and 

ensured filing of more accurate returns. the caP program allows taxpayers who identify their tax issues to get certainty with 

respect to their tax obligations at the time of filing, as opposed 

to having to wait for the Irs to examine issues during an audit. 

the caP program benefits both the Irs and the taxpayer by 

fostering compliance, reducing the time it takes to process a 

return, and improving both customer and employee satisfaction 

while maintaining a high level of quality. In fiscal year 2010, 

participation increased to 112 corporate taxpayers, with all 102 

from 2009 returning. 

Tax Returns Filed Electronically 

In fiscal year 2010, treasury processed 141.9 million individual 

returns and issued more than 109.5 million refunds totaling $366 

billion. sixty-nine percent of individual returns were filed electronically, up from 66 percent in fiscal year 2009. business returns 

filed electronically increased 12 percent over 2009, reaching 25.5 

percent. although this is a clear improvement, treasury has not 

yet reached the congressional goal of 80 percent of tax returns 

filed electronically. treasury is improving online resources and 

engaging in a tax preparer strategy to improve the e-file rate. 

Improved Outreach and Automated Tools 

to Improve Taxpayer Service 

treasury strives to ensure taxpayers have access to the information and support necessary to meet their tax obligations. the 

Irs continued to improve its automated web tools and services, 

such as “Where’s My refund?,” earned Income tax credit 

(eItc) assistant, and podcasts. over 213 million tax products 

were downloaded, an increase of almost 12 percent. In addition, the Irs created youtube videos on subjects including the 

education tax credit, Making Work Pay, and the homebuyer 

credit (see www.youtube.com/user/irsvideos). Many were available in english, american sign language, and spanish. 

the Irs and its partners provide free tax assistance to the 

elderly, disabled, and people with limited english proficiency at 

more than 12,000 Volunteer Income tax assistance and tax 

counseling for the elderly sites throughout the nation. More 

than 3.1 million tax returns were prepared in fiscal year 2010. to 

assist taxpayers in the gulf coast, treasury provided a dedicated 

toll-free telephone line and hosted a gulf coast assistance Day 

at seven taxpayer assistance centers in the gulf coast region. 

overall, the customer service representative level of service 

increased from 70 percent in fiscal year 2009 to 74 percent in 

fiscal year 2010. 

ttb continued its efforts to promote voluntary compliance 

among industry members in 2010 through industry seminars, web 

site tutorials, and other outreach efforts. Despite the prolonged 

economic downturn, efforts were successful in maintaining the 

voluntary compliance rate achieved in fiscal years 2008 and 

2009. ttb had a compliance rate of 94 percent for timely filed 

tax payments among large excise taxpayers this fiscal year. 

Expanded Enforcement of Tax Laws to 

Ensure Tax Compliance 

Irs enforcement initiatives continued to focus on pursuing 

noncompliant high-income and high net-worth individuals and 

reducing overseas tax evasion. as a result of these efforts, fiscal 

year 2010 Irs total enforcement revenue was $57.6 billion, 

exceeding the $48.9 billion in revenue received in fiscal year 

2009 by 18 percent. the number of audits of high net-worth 

individuals increased more than five percent. 

the Irs strengthened international enforcement efforts by doubling its offshore presence, including establishing new offices in 

asia and central america, placing additional law enforcement 

personnel at existing offices, and expanding interactions with 

key international organizations involved in tax and financial 

law compliance. the Irs also identified and examined 17,888 

foreign resident tax returns with tax deficiencies totaling over 

$1.4 billion. 

part 1: management’s discussion and analysis 

effectively managed u.s. government finances 
the department of the treasury 

part 1: management’s discussion and analysis

14 

to enforce the floor stocks tax (fst) on tobacco products in 

the Children’s Health Insurance Program Reauthorization Act of 

2009 (chIPra), ttb developed a targeted audit plan. ttb 

completed more than 250 field visits to verify fst payment, 

which identified $10.2 million in additional tax, or an average 

underpayment of $40,000. fst collections at the end of the fiscal year totaled nearly $1.3 billion. During fiscal year 2010, ttb 

carried out 35 joint investigations with various federal, state, 

and local law enforcement agencies, resulting in the seizure of 

more than 3,000 cases of alcohol beverage products and nearly 

100,000 cartons of cigarettes having an estimated federal and 

state tax liability of $30 million. 

High Number of Debt Auctions with High 

Demand 

there has been an unprecedented demand for treasury securities. In fiscal year 2010, the Department conducted over 290 

government auctions, a near-record. on average, nominal note 

and bond auctions have been oversubscribed by 1.9 times, 

significantly above the previous record of 1.5 times in fiscal year 

2009. the value of marketable securities issues, $8.41 trillion, 

was only lower than the fiscal year 2009 level of $8.87 trillion. 

In this strong demand environment, treasury extended the 

average maturity of the debt by 5 months, back to an historic 

average of 58 months. 

Prepared to End Paper Payroll Saving 

Bonds and Expanded Online Savings 

Bond Customer Base 

In fiscal year 2010, treasury announced an initiative to end 

the sale of paper savings bonds through payroll savings plans by 

January 2011. throughout 2010, the bPD worked with federal 

reserve banks, agents, and employers to encourage customers 

to transition to treasuryDirect, an online system for purchasing 

electronic treasury securities. outreach efforts included direct Dollars (in Millions) 

Fiscal Year 

Number of 

Debt Auctions 

vs. Debt 

Outstanding 

0 

80 

160 

240 

320 

400 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

Debt Outstanding Number of Auctions

$0 

$3,000,000 

$6,000,000 

$9,000,000 

$12,000,000 

$15,000,000 

mail, bond inserts, webcasts and other online information, and 

targeted print and radio advertising. 

treasuryDirect continued to grow, adding 99,800 new customer 

accounts to reach nearly one million accounts in fiscal year 

2010. bPD continues to improve the system and added a 

streamlined process for reinvesting marketable securities. 

Greater Use of Electronic Fund Transfers 

for Payments 

During fiscal year 2010, fMs continued to expand the use of 

electronic fund transfers to deliver federal payments, improve 

service to payment recipients, and reduce government program 

costs. go Direct, a campaign to motivate federal benefit recipients to use direct deposit, recently concluded a successful fifth 

year in which nearly 1.5 million conversions were attributed to 

the campaign. a total of five million conversions have occurred 

since the inception of the campaign in 2005. fMs has also 

helped unbanked federal check recipients receive electronic payments through Direct express, a program which allows federal 

benefits recipients to receive payments on a pre-paid debit card. 

More than one million people have signed up for the card since 

it was introduced in april 2008. overall, 82 percent of treasury 

payments and associated information were made electronically, 

an increase of one percentage point from fiscal year 2009. 

Challenges Forecasting Government 

Receipts During the Recovery 

several factors in the current climate have complicated efforts to 

forecast government receipts. key economic factors such as gross 

domestic product and employment did not improve as much as 

assumed in the President’s fiscal year 2011 budget. In addition, 

individual tax payments in april 2010 came in below forecast 

as liabilities for tax year 2009 were much lower than expected. 

credits from the American Recovery and Reinvestment Act of 

2009 (recovery act) further reduced these taxes. corporate 

profitability and thus corporate tax receipts also turned around, 

showing strong increases in fiscal year 2010. federal reserve 

earnings, reflecting the increase in securities held by the federal 

reserve, more than doubled from their level in fiscal year 2009. 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

15 

u.s. anD WOrlD eCOnOmies 

perfOrm at full eCOnOmiC 

pOtential 

to achieve conditions that enable economies to perform at full 

economic potential, the treasury Department must stimulate 

growth through the development and implementation of policies that effectively strengthen private sector growth, regulate 

banking and financial markets, create pro-growth tax policies, 

advocate free trade and investment, and foster sustained and 

broad-based economic development. 

In fiscal year 2010, the Department focused primarily on 

repairing and reforming the financial system and implementing stimulus measures to restore the country’s foundation for 

economic growth and jobs creation. the Dodd–Frank Wall 

Street Reform and Consumer Protection Act of 2010 (Doddfrank act), enacted in July 2010, is the most comprehensive 

reform of financial regulation since the great Depression. the 

Department is implementing these reforms in partnership 

with other federal agencies, state regulators, and international 

authorities. continuing implementation of the recovery act 

and passage of the Small Business Jobs Act of 2010 provide important support for businesses and consumers contending with a 

weakened economy. In addition, the Department continued to 

implement the troubled asset relief Program (tarP) under 

the Emergency Economic Stabilization Act of 2008 (eesa); manage initiatives to support the housing market under the Housing 

and Economic Recovery Act of 2008 (hera); regulate national 

banks and thrifts; and execute other initiatives to stabilize the 

financial system and support economic recovery. 

Financial Regulatory Reform 

on July 21, 2010, President obama signed the Dodd-frank act 

into law, enacting historic reforms that replaced an outdated 

financial regulatory system with a new foundation for investment, innovation, and growth. these reforms will help ensure 

that risks taken by financial institutions do not threaten the 

health of the economy as a whole. 

Monitoring and mitigating systemic risk 

In the recent crisis, insufficient monitoring of emerging concentrations of risk in the financial system created the perception 

that some large firms were “too-big-to-fail.” to eliminate this 

perception, the Dodd-frank act reformed the financial regulatory system by providing an effective system for monitoring 

and responding to systemic risks that could threaten financial 

stability; creating a single point of accountability for tougher, 

more consistent supervision of the largest and most interconnected institutions; and providing regulatory coverage of the full 

range of risks and participants in the financial system. the act 

addressed these reforms in the following ways: 

•	 Created a Financial Stability Oversight Council. the 

financial stability oversight council (the council) 

includes the heads of the principal federal financial regulators and is chaired by the secretary of the treasury. the 

council has primary responsibility for examining emerging 

threats to the financial system, facilitating the coordination of financial regulatory policy, designating firms for 

heightened supervision by the federal reserve, and making 

recommendations to the federal reserve and other federal 

financial regulators concerning heightened prudential 

standards. 

•	 Created an Office of Financial Research. the office 

of financial research (ofr) is a new treasury office 

established to support the council in its identification and 

analysis of risks in the financial system. ofr will collect 

and standardize financial data, develop and publish key reference databases, and conduct research on financial market 

activities to identify potential sources of systemic risk. 

•	 Established a Federal Insurance Office. the federal 

Insurance office (fIo) is a new treasury office established 

to advise the secretary on insurance policy and regulatory 

issues; monitor the insurance industry to identify gaps in 

regulation that could contribute to a systemic crisis; and 

assist the secretary and the u.s. trade representative in 

negotiating international insurance agreements. 

•	 Improved supervision and regulation of the largest, most 

interconnected financial firms. any financial firm which 

could pose a threat to financial stability through a combination of size, leverage, or interconnectedness will be subject 

to comprehensive supervision and regulation by the federal 

reserve. larger, more interconnected firms will be subject 

to higher prudential standards requiring them to internalize 

the risks they impose on the system and submit to early 

remediation action should their capital levels decline. 

through the reforms, shareholders and creditors will bear 

the risks, and the ultimate costs, of failure, not taxpayers. 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
part 1: management’s discussion and analysis

the department of the treasury 

16
 

•	 Strengthened oversight of systemically important payment, clearing, and settlement systems. the council 

has been provided authority under the act to designate 

systemically important payment, clearing, and settlement 

systems and activities, and subject them to risk management standards. these will generally be prescribed by the 

federal reserve, sec, and commodity futures trading 

commission (cftc) in consultation with the council. 

•	 Constrained the size of the largest firms. the Dodd-frank 

act prevents any financial firm from growing by acquisition to hold more than ten percent of the liabilities in 

the financial system, limiting the adverse effects from the 

failure of any single firm, and preventing further concentration within the financial system. 

•	 Comprehensive oversight of the over-the-counter (OTC) 

derivatives markets for the first time. growth and 

rapid innovation of credit default swaps and other otc 

derivatives created new financial risks. the Dodd-frank 

act regulates otc derivative markets for the first time, 

requiring standardized derivative contracts be centrally 

cleared and traded on regulated exchanges or other trading 

platforms, and establishes stronger prudential and business 

conduct standards for all major participants in otc derivatives markets. 

•	 Separated banking and speculative trading. the Doddfrank act separates speculative proprietary trading from 

the business of banking to safeguard taxpayers and depositors. the act further limits banks’ investments in hedge 

funds and private equity funds. 

•	 Required registration of advisors to hedge funds and 

other private pools of capital. under the Dodd-frank act, 

hedge funds and other private pools of capital, including 

private equity funds, are now required to register with the 

sec. Prior to the financial crisis, the government lacked 

the data necessary to monitor these funds’ activities and 

assess potential risks in the market. 

Requiring basic reform of capital, 

supervision, and resolution authority 

the Dodd-frank act imposes higher prudential standards 

on the largest, most interconnected firms, including stronger 

capital, leverage, and liquidity requirements. 

•	 Raised standards for all financial firms. the Dodd-frank 

act, together with the basel III capital agreements, raised 

capital ratios for financial firms, as well as the standards 

for the quality of capital held. In addition, significant 

exposures between financial firms will carry added capital 

charges. the combination of higher capital ratios, new 

capital requirements, and tougher and more extensive 

measurement standards will help ensure that firms have 

sufficient resources to weather financial crises without 

government assistance. 

•	 Enhanced resolution authority. although bankruptcy is 

the primary solution for failing non-bank financial companies, the recent financial crisis demonstrated the need for 

an additional legal mechanism to wind down these firms. 

the Dodd-frank act established an emergency resolution 

regime, modeled on the existing system for federal Deposit 

Insurance corporation (fDIc) resolution of failed banks, 

to resolve any large, interconnected financial firm whose 

imminent failure could threaten the stability of the financial system. under the regime, major financial firms are 

required to develop rapid resolution plans to be deployed 

in the event of their failure and treasury possesses the 

authority to appoint the fDIc as receiver for any failing 

firm which poses a threat to the broader system. 

Restoring discipline to the market 

the Dodd-frank reforms help restore market discipline by limiting regulatory arbitrage and reducing incentives for excessive 

risk-taking. 

•	 Abolished OTS and transferred its duties to the OCC, 

Federal Reserve, and FDIC. the Dodd-frank act 

abolishes ots, and transfers its duties to occ, the federal 

reserve, and fDIc. this reform streamlines the regulatory 

system and reduces potential for regulatory arbitrage. 

•	 Strengthened supervision and regulation of securitization markets. to better align investor and issuer interests, 

the Dodd-frank act requires that originators or issuers of 

certain asset-backed securities retain a five percent stake 

in the credit risk of the securities they sell. the act also 

provides the sec authority to require robust reporting by 

these originators and issuers. 

•	 Strengthened credit rating agency regulation. the 

Dodd-frank act includes provisions expanding transparency and disclosure requirements for credit rating agencies 

and institutes tougher examinations of internal controls at 

these agencies to help ensure investors have more reliable 

information to assess the risks they are taking. 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

17 

•	 Realigned executive compensation. the Dodd-frank act 

requires all publicly-traded companies hold non-binding 

shareholder votes on executive compensation packages and 

establishes greater independence for board compensation 

committees. the measures are intended to better align 

executive compensation with long-term shareholder value 

and prevent use of compensation incentives that could 

threaten a firm’s safety and soundness. 

Protecting consumers and investors from 

financial abuse 

the Dodd-frank act contains historic reforms to protect consumers and investors from the kinds of abuse that contributed to 

the recent financial crisis. 

•	 Created a Consumer Financial Protection Bureau. the 

Dodd-frank act consolidates authorities for consumer 

financial protection—which were fragmented across seven 

federal agencies—into a single, independent consumer 

financial Protection bureau (cfPb) within the federal 

reserve system. the cfPb will protect consumers in the 

financial marketplace against deceptive and unscrupulous 

practices and ensure that they have the information needed 

to choose financial products wisely. 

•	 Strengthened investor protections. the Dodd-frank act 

strengthens the sec’s authority to protect investors by 

establishing consistent standards of conduct and accountability for broker-dealers and investment advisors, improving the timing and quality of disclosures, and restricting 

“short sale” activities. the act also creates an Investor 

advocate to identify issues of concern to investors and 

raises the maximum cash advance amount provided by the 

securities Investor Protection corporation from $100,000 

to $250,000. 

Treasury’s implementation of the Dodd-Frank 

Act 

In implementing the Dodd-frank act, treasury is working 

hard to ensure that the new rules provide necessary protections against financial excess, while preserving the benefits of 

financial innovation. 

Guiding Principles for Implementation 

•	 reforms are implemented as quickly as possible to provide 

clarity to the public and the markets 

•	 full transparency and disclosure are provided in the 

implementation process, through publication of draft rules, 

available opportunities for public comment, and consultation with a broad range of groups and individuals 

•	 regulations are streamlined and simplified where possible to 

minimize duplication and eliminate rules that do not work 

•	 Implementation is coordinated with other federal agencies 

to ensure that new rules across government work together 

and not against each other 

•	 every effort is made to create a more level playing field, 

both between banks and non-banks in the u.s., as well as 

between major financial institutions globally 

•	 freedom of innovation is protected to ensure economic 

growth 

Treasury’s support for new entities 

treasury has primary responsibility under the legislation to 

stand-up the cfPb, the council, ofr, and fIo. the secretary 

also has general direction over the transfer of authorities from 

ots to occ. 

The Consumer Financial Protection Bureau 

under the act, the secretary is responsible for standing up 

the cfPb until the first Director is confirmed by the senate. 

the secretary has designated July 21, 2011, as the “designated 

transfer date” on which the cfPb will assume certain authorities from seven federal agencies. after the designated transfer 

date, the cfPb will implement rules for consumer financial 

products and services, develop supervision programs to regularly 

examine the most critical bank and nonbank financial services 

providers, operate programs to promote greater financial 

literacy among consumers, and establish a nationwide consumer 

complaint response unit. Immediate tasks include designing an 

organizational structure, establishing program and administrative support offices, and recruiting staff. on september 17, 

2010, President obama named elizabeth Warren as assistant to 

the President and the secretary named her as special advisor 

on the cfPb to help stand-up the bureau. 

Financial Stability Oversight Council 

Prior to the Dodd-frank act, the regulatory framework was 

structured to focus regulators narrowly on individual institutions 

and markets, allowing loopholes, gaps and inconsistencies to 

emerge which weakened standards. the council’s primary role 

is to overcome this siloed structure and improve coordination 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
the department of the treasury 

part 1: management’s discussion and analysis

18 

between financial regulators. the council also plays an important role in making regulatory decisions, including determining 

which major non-bank financial firms and critical financial 

market utilities should be subject to heightened supervision and 

development of prudential standards. federal and state regulators will work together through the council to identify risks 

to financial stability, respond to any emerging threats in the 

system, and promote market discipline. the first meeting of the 

council was held on october 1, 2010. 

The Office of Financial Research 

ofr was established to support the council by providing 

information and analysis necessary to fulfill its mission. under 

the legislation, ofr has two primary divisions: a Data center 

and a research and analysis center. the Data center will set 

standards for financial reporting and collect data to improve the 

quality of information that supervisors and market participants 

rely on to manage risk. the Data center will also develop and 

publish reference databases identifying and describing financial 

contracts and institutions to increase market transparency 

and facilitate research on the financial system. the research 

and analysis center will analyze market activities to identify 

possible concentrations of risk or sources of market instability 

and report findings to council members and congress. treasury 

is committed to seeking advice and expertise from the private 

sector, academia, and congress in standing up ofr and will 

make every effort to avoid duplicating existing government data 

collection efforts or imposing unnecessary burdens on industry 

participants. 

The Federal Insurance Office 

fIo was created to provide the federal government dedicated 

expertise for the first time regarding the insurance industry. the 

office will monitor 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 the 

financial system. fIo may receive and collect data and information on and from the insurance industry and insurers; enter into 

information-sharing agreements; analyze and disseminate data 

and information; and issue reports. treasury will work closely 

with the u.s. trade representative to effectively engage representatives from other countries on prudential insurance issues. 

Transfer of OTS Authorities 

under the Dodd-frank act, the responsibilities of ots are transferred to occ, the federal reserve, and fDIc. the bulk of these 

responsibilities will be transfered to occ. currently, occ and 

ots staff are working together under the general direction of the 

secretary to ensure a smooth transfer of authorities to occ. 

Troubled Asset Relief Program (TARP) 

tarP was established by treasury following passage of eesa on 

october 3, 2008. established during the height of the financial 

crisis, tarP, in conjunction with other federal government 

actions, helped to unfreeze the markets for credit and capital, 

bringing down the cost of borrowing for businesses, individuals, 

and state and local governments, restoring confidence in the 

financial system, and restarting economic growth. tarP did so 

faster, and at a much lower cost, than many anticipated. 

at the peak of the financial crisis, many banks were not making 

new loans to businesses, or even to one another. Many businesses could not get financing in capital markets. numerous 

municipalities and state governments could not issue bonds at 

reasonable rates. the securitization markets — which provide 

financing for credit cards, student loans, auto loans and other 

consumer financing — had basically stopped functioning. the 

economy was contracting at an accelerating rate, with millions 

of americans losing their jobs. 

by the middle of 2009, assisted by the combined impact of the 

federal government’s financial programs, borrowing rates had 

fallen sharply for businesses, individuals, and state and local 

governments. More companies could fund themselves in private 

markets by issuing equity and long-term debt. housing prices 

began to stabilize. the value of the savings of american workers 

had begun to recover. economic growth turned from negative to 

positive. 

eesa provided the secretary of the treasury with the authority 

to purchase or guarantee $700 billion but it has been clear for 

some time that tarP will cost taxpayers substantially less than 

$700 billion. In December 2009, the secretary of the treasury 

announced that no more than $550 billion of the authority 

would be used. In July 2010, the Dodd-frank act reduced the 

cumulative authority to $475 billion, in line with expected 

investment amounts. finally, many of the investments under 

the program, particularly those aimed at stabilizing banks, have 

thus far delivered positive returns for taxpayers. 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

19 

as a result of improved market conditions, lower utilization 

of the program, and careful stewardship, the expected cost of 

tarP over its lifetime continues to decline. In the august 2009 

Midsession review of the President’s 2010 budget, the lifetime 

cost of tarP, based on budget scoring conventions, was projected to be $341 billion (assuming the full $700 billion of tarP 

authority was utilized). by the february 2011 President’s budget, 

the lifetime cost of tarP had decreased to $117 billion (assuming $546 billion of the $700 billion tarP authority was utilized). 

the Department’s most recent analysis of the potential lifetime 

cost of tarP suggests that if the proposed restructuring of aIg 

is completed as announced the lifetime cost of tarP could 

be less than $50 billion. under the proposed restructuring of 

aIg, treasury would receive 1.1 billion shares of aIg common 

stock in exchange for its tarP investment. While this cost is 

based on the october 1, 2010 market price, it should be noted 

that the proceeds that would actually be received by treasury 

from the future sale of such stock would be based on the market 

price at the time of sale, which may differ materially from the 

october 1, 2010 market price. of course, the final lifetime cost 

of tarP will depend on how financial conditions evolve in the 

future, including the price of aIg shares, and other common 

stock held by tarP. 

the estimated lifetime cost of tarP reflects several factors, including the cost of the initiatives to help responsible homeowners 

avoid foreclosure, for which $45.1 billion is budgeted and which 

has not yet been spent. all funds disbursed for housing programs 

result in a cost because these funds will not be returned. It also 

reflects primarily losses on investments in the auto companies 

and aIg. these losses are largely offset in part by gains on tarP 

investments in banks and gains in other programs. 

because the restructuring has not occurred and its completion is 

subject to contingencies, the value of the aIg investment in the 

fiscal year 2010 financial statements does not reflect any potential 

from the restructuring. 

note that the lifetime cost of tarP, based on budget scoring 

conventions, differs from the cost included in the treasury 

financial statements. estimates of lifetime costs assume that 

all planned expenditures are made. by contrast, the tarP 

financial statement costs are based on transactions through 

september 30, 2010. 

the reported cost of tarP activities from inception (october 

3, 2008) through september 30, 2010 based on the treasury 

financial statements was $18.5 billion. unlike the federal budget 

cost estimate, this reflects only transactions through september 

30, 2010. thus, it does not include the committed but undisbursed funds for housing programs as well as other programs, all 

of which are included in the expected lifetime cost for budget 

purposes. the $18.5 billion cost consists of $23.1 billion of 

reported tarP net income in the treasury financial statements 

for fiscal year 2010 and the $41.6 billion of reported tarP net 

cost for the year ended september 30, 2009. the change since 

last year is primarily due to the early repayment of tarP investments by the larger banks and an improvement in the financial 

markets and the economy. 

since its inception, tarP has disbursed $387.7 billion in 

direct loans and equity investments; collected $204.1 billion in 

repayments; and reported $16.7 billion in dividends, interest, 

and fees, and $10.9 billion in net proceeds from the sale and 

repurchase of assets in excess of cost. as of september 30, 2010, 

tarP had $179.2 billion in gross outstanding direct loans 

and equity investments, which are valued at $142.4 billion. In 

addition, from inception through september 30, 2010, tarP 

incurred costs related to treasury housing programs of $0.8 

billion and administrative costs of $0.5 billion. 

the cost estimates for budget and financial statement purposes 

are only estimates. they are based on current market prices 

where available. because market prices change, such estimates 

will change. the ultimate cost of the outstanding tarP 

investments is therefore subject to significant uncertainty and 

will depend on, among other things, how the economy, financial 

markets and particular companies perform. 

treasury is moving quickly to recover the federal government’s 

investments. treasury aims to dispose of its investments as 

quickly as practicable, in a timely and orderly manner consistent 

with the duty to promote financial stability and protect taxpayers’ interests. 

•	 treasury continues to carefully manage the tarP assets 

and has recovered more than 75 percent of the tarP 

funds provided to banks, principally through the capital 

Purchase Program (cPP), and expects these capital support 

programs for banks to provide an overall positive return for 

taxpayers. 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
the department of the treasury 

part 1: management’s discussion and analysis

20 

•	 treasury is beginning to recover investments in the auto 

industry. gM has repaid the assistance it received that 

remained outstanding as a loan and has recently agreed 

to repurchase the preferred stock issued to treasury. the 

ultimate loss estimate on investments in chrysler and ally 

financial, Inc. (formerly gMac) is expected to be less than 

last year as well due to financial improvements in both firms. 

•	 the restructuring plan announced by aIg on september 

30, 2010, assuming it is completed as announced, will 

accelerate the timeline for repaying the federal government 

and put taxpayers in a considerably stronger position to 

recoup treasury investments in the company. as noted 

earlier, the aIg restructuring is not yet completed and its 

closing is subject to contingencies. 

treasury also expanded the treasury housing Programs under 

tarP. treasury launched the housing finance agency (hfa) 

Innovation fund for the hardest hit housing Markets (hfa 

hardest hit fund, or hhf) to help state housing finance 

agencies provide additional relief to homeowners in the states 

hit hardest by unemployment and house price declines. In 

addition, treasury and the Department of housing and urban 

Development (huD) enhanced the fha-refinance program 

to enable homeowners whose mortgages exceed the value of 

their homes to refinance into more affordable mortgages if their 

lenders agree to reduce the unpaid principal balance by at least 

ten percent. 

final authority to make commitments within the reduced 

tarP authorization expired on october 3, 2010. servicers that 

participate in the Making home affordable Program (Mha) 

can continue to make mortgage modifications through the end 

of calendar year 2012. the hfa hardest hit fund permits 

participating state housing agencies to provide support through 

their programs until as late as calendar year 2017, depending 

on available funding. the fha-refinance program is designed 

to enable homeowners to refinance their mortgage loans and 

reduce their overall mortgage debt through the end of calendar 

year 2012. 

treasury continues to provide detailed information about 

tarP to insure transparency. treasury published a Two-Year 

Retrospective Report on tarP on october 5, 2010. this report 

includes information on tarP programs and the effects of 

tarP and other federal government actions to address the 

financial crisis. readers are invited to refer to this document at 

www.financialstability.gov. 

Housing and Government Sponsored 

Enterprise Programs 

treasury’s housing initiatives have sought to assist responsible 

homeowners who are struggling in the aftermath of the 

recent financial crisis and recession. the home affordable 

Modification Program (haMP) in tarP and tax relief for 

first-time home buyers provided direct assistance to homeowners. treasury support for state hfas, ongoing functions of the 

government sponsored enterprises (gses, in this case fannie 

Mae and freddie Mac), and stability in the mortgage-backed 

securities (Mbs) market have sought to ensure overall stability 

in housing financial markets. 

the haMP program is designed to help make housing affordable to american homeowners who are strained by the double 

impact of high mortgage payments and a significantly reduced 

home value. the program has reached out to these borrowers and provided an industry-leading solution for servicers to 

negotiate lower mortgage payments with qualifying homeowners, allowing those homeowners to make continued mortgage 

payments through a trial program and remain in their homes. 

through september 30, 2010, treasury has made commitments 

to fund up to $29.9 billion in haMP payments. eighteen 

months into the program, treasury under haMP has helped 

more than 619,000 homeowners enter a trial modification, 

reducing their monthly mortgage payments to more affordable levels. this includes nearly 220,000 homeowners whose 

mortgage terms have been modified permanently. 

Senior Preferred Stock Purchase Agreements 

the Housing and Economic Recovery Act of 2008 (hera) authorized treasury 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 was originally $100 

billion and in May 2009 was raised to $200 billion. In December 

2009, the Department amended the sPsPas to replace the $200 

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 billion, 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

21 

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, 2010, treasury’s gross investment 

in fannie Mae and freddie Mac were $85.9 billion and $63.9 

billion, respectively. the losses the gses continue to report are 

largely the result of delinquencies and defaults on loans that 

were originated and guaranteed in 2006, 2007, and 2008. less 

than one percent of losses have come from loans originated in 

2009 or 2010. 

the u.s. government’s investment in and support of the 

gses through the sPsPas was structured in such a way that 

ensures that 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, while for fiscal year 

2010 the gses’ draws exceeded dividends by $40.5 billion, 

in the quarter ending september 30, 2010 the government 

received more in dividend payments than the companies drew 

from the treasury sPsPas. 

the gses are projected to have positive net operating income 

after 2012. 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 do not assume any changes to operating 

assumptions on the single family guarantee business. 

the chart below depicts the expected gross and net draws under 

the existing sPsPas, without considering the likely future 

fair value adjustments to the senior preferred stock liquidation 

preference. the net draws reflect the net payout by treasury 

for each gse to maintain positive net worth at the end of each 

period. as shown below, beyond 2013 the gses’ draws under 

the sPsPas are only required to cover dividend payments above 

the amount of anticipated positive net income. no dividend 

receipts are projected beyond the years when the commitment 

caps are reached, which is 2022 and 2031 for fannie Mae and 

freddie Mac, respectively. 

GSEs Actual and Projected Draw Payments and Dividend Receipts 

(in millions): 

Fiscal Year 

Ending 

September 30 

Draw 

Payments 

Dividend 

Receipts 

Net Draws 

(Dividends)

 Beginning 

Balance 

2009 $ 95,600 $ (4,336) $ 91,264 

Actual 2010 52,600 (12,142) 40,458 

Projected1 2011-2013 87,600 (61,772) 25,828 

Projected2 2014-2017 51,400 (102,781) (51,381) 

Projected2 2018-2022 113,000 (151,795) (38,795) 

Projected3 2023-2031 107,900 (139,334) (31,434) 

Net Cumulative Draws $ 508,100 $ (472,160) $ 35,940 

1 / No cap 

2 / Fannie Mae and Freddie Mac with cap 

3 / Freddie Mac only with cap 

the $508 billion in total gross draw payments, of which $360 

billion is recorded as an accrued contingent liability as of 

september 30, 2010, has a counterpart increase in the projected 

senior preferred stock liquidation preference and this asset value 

would then be subject to any expected fair value adjustments. 

ultimately, the cost to the government is expected to be the 

valuation losses on the senior preferred stock and common stock 

warrants, partly offset by dividend revenues received from the 

gses, which will be received until the point in time in which 

the funding commitment caps are reached. freddie Mac would 

reach its adjusted cap of $224 billion in 2031. While fannie 

Mae is projected to begin generating positive net income in 

2013, because of its greater level of credit losses (and draws) 

than freddie Mac, it would reach its cap of $284 billion in 2022. 

as shown, the projections would imply that a total of $472 

billion of dividends are received, resulting in a total net draw of 

$36 billion. 

GSE MBS Purchase Program 

the gse Mbs Purchase Program helped support the availability 

of mortgage credit by temporarily providing additional capital 

to the mortgage market. by purchasing these securities, treasury 

sought to broaden access to mortgage funding for current and prospective homeowners, as well as promote market stability. In total, 

since inception of the program in september 2008, the treasury 

Department purchased Mbs worth approximately $225.5 billion, 

$29.9 billion of which were purchased in fiscal year 2010. In total, 

treasury has received back $61.1 billion in principal and $13.9 

billion in interest from Mbs holdings; of those amounts, $38.9 

billion in principal and $8.9 billion in interest were received in 

fiscal year 2010. as of september 30, 2010, the valuation of Mbs 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
the department of the treasury 

part 1: management’s discussion and analysis

22 

held under hera programs was $172.2 billion. the gse Mbs 

Purchase Program expired on December 31, 2009. 

Housing Finance Agencies Initiative 

state and local hfas are agencies or authorities created by state 

law charged with helping individuals and families of low or moderate income obtain affordable housing. hfas provide mortgage 

financing for new homebuyers, refinancing and modification 

opportunities to existing homeowners at risk, loans for rehabilitation of single-family homes, and support for the development 

and rehabilitation of multifamily properties. In the course of the 

financial crisis, hfas experienced challenges obtaining funding 

in private markets, limiting their ability to provide support for 

economically-distressed communities. the hfa Initiative provided funding to more than 90 hfas to enable them to continue 

supporting housing markets. In fiscal year 2010, treasury under 

the hfa new Issue bond Purchase Program (nIbP) purchased 

$15.3 billion of gse-issued securities backed by hfas’ mortgage 

revenue bonds. under the hfa temporary credit and liquidity 

Program, treasury purchased participation interests from the 

gses in liquidity facilities supporting $8.2 billion of existing 

hfa variable rate demand obligations (VrDos) single family 

and certain multi-family mortgage loans. since inception of the 

program, treasury’s obligation has been reduced to $7.6 billion. 

treasury’s actions are authorized by hera authority, which 

expired on December 31, 2009. 

Helping those hit hardest 

In february 2010, the obama administration announced the 

housing finance agency Innovation fund for the hardest hit 

housing Markets (hfa hardest hit fund, or hhf), allowing 

hfas in the nation’s hardest hit housing markets with high 

unemployment to design innovative, locally-targeted foreclosure 

prevention programs. states included those with average home 

price declines greater than 20 percent since the housing market 

downturn, accounting for the majority of “underwater” mortgages in the country; those with concentrated areas of economic 

distress due to unemployment; or those with an unemployment 

rate at or above the national average for the past year. 

a total of $7.6 billion is being made available to 18 states 

and the District of columbia. these states include alabama, 

arizona, california, florida, georgia, Illinois, Indiana, 

kentucky, Michigan, Mississippi, nevada, new Jersey, north 

carolina, ohio, oregon, rhode Island, south carolina, and 

tennessee. as of september 30, 2010, $56.1 million has been 

disbursed to states participating in hhf, largely for administrative and startup expenses. further information on the funded 

programs is available at http://www.FinancialStability.gov/roadtostability/hardesthitfund.html. 

Comprehensive reform of the U.S. housing 

finance system 

the Dodd-frank act includes fundamental reform of mortgage 

market rules, including ability-to-pay requirements and risk 

retention standards for mortgages, and treasury and huD 

are preparing to offer recommendations for further reform of 

the housing finance system. In april 2010, treasury and the 

Department of housing and urban Development (huD) 

posted seven questions for public comment and received over 

300 responses from a broad cross-section of stakeholders. In 

august, treasury and huD hosted a conference on the future 

of housing finance, including experts from academia, consumer and community organizations, industry groups, market 

participants, congressional staff, and other stakeholders. In 

september, the secretary and elizabeth Warren, assistant to 

the President, held a forum on simplifying mortgage disclosure 

forms. to provide for long-term stability in housing markets, 

the obama administration has committed to deliver a proposal 

for comprehensive reform of the u.s. housing finance system to 

congress in January 2011. 

Supporting America’s Small Businesses 

treasury and the small business administration (sba) led 

efforts to pass the Small Business Jobs Act of 2010. enacted on 

september 27, 2010, the act will strengthen the capacity of small 

businesses to create jobs and support economic recovery by: 

•	 creating a small business lending fund (sblf) to provide 

$30 billion in capital to small banks 

•	 establishing a state small business credit Initiative 

(ssbcI) to provide $1.5-2 billion to spur $20 billion of 

private sector lending through innovative state programs 

•	 extending and expanding key sba loan programs 

•	 Instituting small business tax cuts, including zero capital 

gains for key small business investments 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

23 

under the legislation, treasury will manage implementation of 

the tax cuts and distribution of funding through the sblf and 

ssbcI. 

American Recovery and Reinvestment 

Act of 2009 

the Department of the treasury played a pivotal role in 

implementing the American Recovery and Reinvestment Act of 

2009 (recovery act). by providing targeted investments and 

implementing tax provisions to benefit both businesses and 

individuals, the Department continued to stimulate the u.s. 

economy, create and sustain jobs, and build the foundation 

for long-term economic growth. of the $787 billion provided 

by the recovery act, treasury is managing programs that will 

contribute nearly $300 billion in benefits to the american 

people through the year 2019. treasury’s recovery act programs 

include the following: 

• Making Work Pay Tax Credit: In 2009 and 2010, the 

Making Work Pay provision of the recovery act provided 

a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. 

an estimated $49 billion will have been made available to 

taxpayers under the Making Work Pay provision through 

calendar year 2010. 

•	 American Opportunity Tax Credit: the american 

opportunity tax credit expanded the number of parents 

and students who qualify for a tax credit to pay for college 

expenses for 2009 and 2010. to date, 8.8 million people 

have benefitted from this tax credit totaling over $7 billion. 

•	 Consolidated Omnibus Budget Reconciliation 

Act of 1985 (COBRA) health insurance continuation premium subsidy: the recovery act expanded 

eligibility for cobra health insurance premium assistance 

to longer-term unemployed workers. nearly four million 

households have benefited from the cobra premium 

assistance program. 

•	 Build America Bonds: build america bonds are taxable 

municipal debt for which the issuer receives a direct 

federal subsidy equal to 35 percent of the borrowing costs. 

since april 2009 there have been 1,556 issuances of build 

america bonds, which provided over $107 billion for states 

and local governments throughout the country to help 

finance projects including schools, utilities, public safety 

and transportation. states, counties and municipalities also 

received allocations of authority to issue recovery Zone 

bonds, which modified build america bonds with a higher 

subsidy rate of 45 percent of the borrowing costs, based on 

individual employment declines in 2008. 

•	 Sales tax deduction for vehicle purchases: the 

recovery act allowed taxpayers to deduct state and local 

sales and excise taxes paid on the purchase of certain new 

cars, light trucks, motor homes, and motorcycles through 

calendar year 2009. 

•	 Economic recovery payments: the recovery act 

provided $250 one-time economic recovery payments 

to eligible retirees, veterans, and other high-need recipients. fMs, in coordination with the social security 

administration, the railroad retirement board, and the 

Department of Veterans affairs, issued over 55 million 

payments, totaling over $13.8 billion to benefit recipients. 

fMs processed 46.6 million of these payments electronically rather than by paper check, saving taxpayers over $17 

million. 

•	 Community Development Financial Institutions 

(CDFI) awards: the recovery act appropriated $98 million in grants to expand funding for the cDfI and native 

american cDfI assistance (naca) programs, providing 

community banks, credit unions, loan funds, and venture 

capital funding to increase lending to individuals or businesses lacking access to mainstream financial institutions. 

•	 New Markets Tax Credit (NMTC): the nMtc 

Program, administered by the cDfI fund, facilitates 

investment in low-income communities by permitting 

credits against federal income taxes for equity investments 

in designated treasury-certified community Development 

entities (cDes). cDes are required to use substantially 

all nMtc proceeds to make loans and investments in 

businesses and real estate developments in low-income and 

distressed urban and rural communities. the recovery act 

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

billion was awarded to 56 organizations in 2009. 

•	 Health Coverage Tax Credit (HCTC): hctc was 

created by the Trade Adjustment Assistance Reform Act of 

2002 to help displaced workers and retirees who have lost 

their jobs due to free trade to assist eligible beneficiaries 

to receive affordable health care. the program originally 

provided a refundable tax credit for 65 percent of the cost 

of qualified insurance. In May 2009, the tax credit was 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
part 1: management’s discussion and analysis

the department of the treasury 

24 

increased from 65 percent to 80 percent of qualified health 

insurance premiums, allowing participants to only pay 20 

percent for health insurance each month. the increased 

credit will expire on December 31, 2010. the recovery 

act provisions have assisted 32,000 additional taxpayers 

with enrolling in hctc. 

•	 Payments for Specified Energy Property in Lieu of 

Tax Credits: this program responded to the devaluation 

of after-market tax credits as a result of the credit crisis and 

recession by converting an existing tax credit for investments in renewable energy production to a cash payment of 

equivalent value. as of the end of fiscal year 2010, treasury 

has awarded $4.3 billion in cash assistance to over 3,000 

eligible applicants. treasury estimates that $16 billion in 

financial support will be distributed over the life of the program to thousands of renewable energy production facilities. 

•	 Payments for Low-Income Housing Projects in Lieu 

of Tax Credits: the recovery act gives state housing 

credit agencies the choice to receive cash payments for all 

or part of their 2009 low-income housing tax credit allocation. as of the end of fiscal year 2010, 55 state housing 

agencies have applied for funds, and $4.9 billion in awards 

have been made to those agencies. state agencies used 

these funds to finance nearly 1,100 affordable housing projects that will add over 67,000 units of affordable housing to 

the housing supply and create approximately 105,000 jobs. 

•	 First-Time Homebuyer Credit Expansion: the 

recovery act allowed eligible first-time homebuyers to 

claim a refundable credit up to $8,000 without a payback 

requirement. nearly 2.4 million taxpayers claimed over 

$17 billion in first time homebuyer credits for houses 

purchased in 2009. 

•	 Indian Tribal Economic Development Bonds: the 

recovery act added $2 billion in bond-issuing authority 

for Indian tribal governments. the new bond program 

gives Indian tribal governments the same broad flexibility 

afforded to state and local governments to use tax-exempt 

bonds to finance economic development projects. certain 

gaming facilities are excluded from participation. two 

award rounds of $1 billion each were conducted in 2009 to 

76 Indian tribal governments 

•	 Qualified School Construction Bond Allocation: the 

recovery act established an allocation cap of $11 billion 

for Qualified school construction bonds in 2009, and 

another $11 billion in 2010, totaling $22 billion over two 

years. the act provides a federal subsidy for school construction financing to states and the 100 largest educational 

agencies based on school funding data. the bonds provide a 

federal tax credit to investors designed to cover 100 percent 

of the interest. over $7.4 billion in Qualified school 

construction bonds were issued through september 2010. 

•	 Qualified Energy Conservation Bonds and 

Clean Renewable Energy Bonds: Qualified energy 

conservation bonds provide a subsidy for energy 

conservation-oriented repair and rehabilitation of public 

schools through a federal tax credit to investors covering 

70 percent of the interest on the bonds. the recovery 

act established a cap of $3.2 billion for these bonds. new 

clean renewable energy bonds (“new crebs”) provide 

incentives for entities not eligible for renewable energy tax 

credits, such as public power providers, government bodies, 

and cooperative electric companies, to invest in renewable 

electricity generation. a total of $2.4 billion of clean 

renewable energy bonds (crebs) was allocated to 1,067 

applicants through september 30, 2010. 

•	 Net Operating Loss Carry Back: the recovery act 

extended the period for business taxpayers to carry back a 

2008 net operating loss (nol) to offset taxable income in 

preceding taxable years from two to five years. over $3.5 

billion in nol carryback adjustments were claimed by 

businesses to offset taxable income for the preceding three 

to five years. 

Strengthened International Economic 

Coordination 

treasury protects and supports economic prosperity at home 

by encouraging financial stability and sound economic policies 

abroad. In fiscal year 2010, treasury pursued this agenda by 

focusing on restarting economic growth following the financial 

crisis, encouraging open trade and investment policies, supporting multilateral and bilateral engagements, reforming the 

international financial system by addressing international financial regulatory reform and the role and responsibilities of the 

international financial institutions (IfIs), and by continuing to 

encourage broad-based, sustainable economic growth around the 

world to create new engines of growth in the global economy. 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

25 

Demonstrated U.S. leadership at G-20 

meetings 

the g-20 is a multilateral forum that includes the leaders from 

the 20 largest economies in the world, accounting for 85 percent 

of world output. beginning with the g-20 summit in london, 

when President obama joined other g-20 leaders to develop collaborative and coordinated responses to the economic crisis, the 

obama administration and treasury have actively engaged with 

the g-20 nations, and through other multilateral and bilateral 

forums, to foster economic growth and address challenges, including the need for international financial regulatory reform and 

transnational issues, such as food security and climate change. 

Participated in development of new global 

capital standards for banks 

one of the lessons of the financial crisis was that more robust 

capital standards must be at the heart of efforts to make the 

financial system stronger and more secure. treasury has played 

a key role with global partners in strengthening capital standards. In september 2010, new global capital standards—basel 

III— were announced, which will require banks to hold enough 

capital so they can withstands losses similar to those witnessed 

during the depths of the financial crisis without turning to 

the taxpayer for help. the standards require banks to hold 

significantly more capital against risky trade-related assets and 

obligations, hold a higher percentage of their capital reserves in 

common equity and other less risky assets, and hold an additional 2.5 percent capital conservation buffer on top of an eight 

percent reserve, which if breached would trigger restrictions on 

a firm’s ability to pay dividends or buy back stock. through the 

g-20 process, the financial stability board, and engagement 

with international standard setting bodies, treasury led efforts 

to ensure that reforms in the international financial system 

matched domestic regulatory reform initiatives. 

Worked with global partners to avert regional 

economic instability 

the IfIs responded quickly to meet their members’ needs for 

financial support and policy advice during the global economic 

and financial crisis. u.s. support for the International Monetary 

fund (IMf)—including the IMf’s recent lending commitments 

to europe—were critical to restoring market confidence and 

stability, promoting global growth and recovery, and protecting 

u.s. jobs. 

similarly, u.s. support for and continued engagement in the 

multilateral development banks (MDbs) has also been vital. 

the MDbs acted with speed and force to protect the poorest 

around the world from the worst impacts of the crisis, and 

continued u.s. leadership in these institutions will help further 

strengthen the global economy, reduce poverty and help fragile 

nations. for example, in July, following passage of the 2010 

Supplemental Appropriations Act, the treasury Department 

announced that the united states, the IfIs, and other donors 

had achieved the goal of eliminating haiti debt owed to the 

IfIs at the time of the January earthquake. the announcement 

marked one of the fastest multilateral debt reductions in history. 

In september 2010, treasury delivered u.s. funds allowing the 

Inter-american Development bank (IDb) to cancel $447 million in debt and initiate the provision of $2.5 billion in grants 

which will extend over the next decade. 

National Export Initiative and support for 

free trade and investment 

treasury, with other agencies, helped launch and implement 

the President’s national export Initiative (neI). President 

obama underscored the importance of trade as a catalyst for 

american jobs and set the goal to “double our exports over 

the next five years, an increase that will support two million 

jobs in america.” treasury’s primary role in the neI focuses on 

macroeconomic rebalancing. treasury works to promote free 

trade and investment as part of the obama administration’s 

broader economic agenda, and partners with g-20 nations and 

other countries to achieve these objectives. 

U.S.-China Strategic and Economic Dialogue 

the u.s.-china strategic and economic Dialogue (s&eD) 

was established by President obama and chinese President hu 

in april 2009 and represents the highest-level bilateral forum 

to discuss a broad range of issues between the two nations. 

treasury secretary geithner and secretary of state clinton, as 

special representatives of President obama, and Vice Premier 

Wang and state councilor Dai, as special representatives of 

President hu, co-chair the Dialogue, which includes strategic 

and economic tracks and takes place annually in alternating capitals. the second meeting of the s&eD took place in 

beijing in late May 2010. secretary geithner led ten heads 

of u.s. government agencies for discussions with chinese 

President hu, Premier Wen, Vice Premier Wang, and a delegation comprised of key chinese economic ministries and agency 

heads. Discussions focused on creating new opportunities for 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
the department of the treasury 

part 1: management’s discussion and analysis

26 

u.s. workers and firms; promoting strong recovery and more 

balanced growth; promoting more resilient, open, and marketoriented financial systems; and strengthening the international 

financial architecture. significant progress was made on top 

obama administration priorities, including encouraging china 

to move towards a more market-based exchange rate, agreeing 

to launch expert and high-level bilateral innovation discussions 

to ensure innovation policies encourage the best ideas wherever 

they originate, and strengthening opportunities for u.s. firms 

and workers by reducing barriers to foreign investment in 

services, high-technology goods, high-end manufacturing, and 

energy saving products. economic policy cooperation between 

the united states and china, including mutual efforts to 

boost domestic demand through decisive monetary and fiscal 

policy actions, has been one of the most important elements 

of the international effort to bring about a global economic 

recovery. the u.s. will host the next round of the strategic and 

economic Dialogue in 2011. 

Global Agricultural and Food Security 

Program 

treasury led efforts to establish the global agriculture and food 

security Program (gafsP) , a food security trust fund that is 

administered by the World bank and is an integral part of the 

obama administration’s broader “feed the future” initiative. 

the gafsP seeks to improve food security and reduce poverty 

by delivering rapid and predictable financing for agriculture 

sectors in low-income countries. launched in april 2010 with 

$880 million in commitments from the united states, canada, 

south korea, spain, and the bill & Melinda gates foundation, 

gafsP represents a global effort to aid vulnerable populations 

afflicted by hunger and poverty and is a key element of the 

obama administration’s initiative to enhance food security in 

poor countries. the fund was created in response to a call by 

g-20 leaders at the Pittsburgh summit in 2009 for nations to 

address the food security challenge in order to foster economic 

growth over time. 

Supported global agreement on climate 

change 

treasury supports u.s. efforts to address climate change by 

managing u.s. engagement in the multilateral climate finance 

funds, the global environment facility (gef) and climate 

Investment funds (cIf). the gef provides partial funding, 

mostly in grants, for projects that provide global environmental benefits, such as reducing greenhouse gas emissions 

and conserving bio diversity. cIf are comprised of the clean 

technology fund (ctf) and strategic climate fund (scf). 

the ctf seeks to reduce the growth of greenhouse gas emissions in developing countries through financing the additional 

costs of deploying commercially available cleaner technologies 

over dirtier, conventional alternatives. the scf supports three 

targeted programs: the Pilot Program for climate resilience, 

the forest Investment Program, and the Program for scaling-up 

renewable energy in low-Income countries. each program 

seeks to pilot new approaches and scaled-up activities to address 

climate change challenges in developing countries, while 

promoting low-carbon, climate-resilient economic growth. 

Regulation of Banks and Thrifts 

occ and ots are the primary regulators of national banks, 

savings associations, and savings and loan holding companies. 

given the weak economy, fiscal year 2010 activity focused on 

monitoring and responding to adverse conditions in credit 

and financial markets, improving credit risk management at 

supervised institutions, and monitoring loan portfolios. to 

streamline the regulatory system, the Dodd-frank act provides 

for the abolishment of ots and transfer of its duties to occ, 

the federal reserve, and fDIc. occ and ots are currently 

working with other agencies to ensure a smooth transition. 

 Calendar Year 

Assets of 

Failed Banks 

by Primary 

Regulator 

by Year 

(through 

9/30/2010) 

Dollars (in Billions) 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $0 

$50 

$100 

$150 

$200 

$250 

$300 

$350 

$400 

■ State ■ OTS ■ OCC 

Calendar Year 

Number of 

Bank Failures 

by Primary 

Regulator 

by Year 

(through 

9/30/2010) 

Number of Bank Failures 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 

25 

50 

75 

100 

125 

150 

175 

■ State ■ OTS ■ OCC 

fiscal year 2010 performance by strategic goal
performance and accountability report | fiscal year 2010 

27 

Despite efforts to identify and correct issues at an early stage, 

federal regulators closed a number of national banks and thrifts 

in fiscal year 2010. In total, 172 insured depository institutions 

insured by fDIc with $121.7 billion in deposits were resolved 

by the fDIc over the year. of these, 30 were national banks 

regulated by occ with $25.7 billion in deposits, 23 were federal 

thrifts regulated by ots with $25.1 billion in deposits, and 

119 were state banks with $70.9 billion in deposits. Work-out 

solutions, whereby some or all deposits and assets were assumed 

by another existing bank, were arranged by fDIc and regulators 

for almost all failed institutions. 

occ’s and ots’s on-site supervisory assessments focused 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. Primary emphasis was placed on ensuring 

the strength of capital buffers to weather earnings pressures and 

asset quality deterioration. other critical areas included sound 

liquidity risk management through diversified funding sources 

and realistic contingency funding plans, and maintenance of 

consistent underwriting standards regardless of intent to hold or 

sell a loan. for troubled institutions, occ and ots employed 

a number of remedial measures, including Prompt corrective 

action determinations when institution capital deteriorated 

below specified thresholds, requirements to increase available 

capital and liquidity, required changes in bank management, 

and required approval for changes in business plans. to combat 

mismanagement, formal enforcement actions such as ceaseand-desist orders, removal or prohibition orders, civil money 

penalties, and formal agreements were utilized. In severe cases, 

financial institutions were required to enter into sales, mergers, 

or liquidation or enter fDIc receivership. through the first half 

of fiscal year 2010, the occ issued 207 enforcement actions 

against national banks and 82 against institution-affiliated 

parties. ots issued a total of 170 formal enforcement actions 

against institutions and 68 formal enforcement actions against 

individuals. 

In addition to individual bank examinations, the occ 

conducted 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. occ examiners 

and credit risk staff completed the annual survey of credit 

underwriting Practices, assessing standards at the 51 largest 

national banks with assets of $3 billion or more. occ and ots 

issued industry guidance related to concentration risks and 

meeting the credit needs of small businesses. occ, ots, and 

the federal reserve, and fDIc continued their shared national 

credit review of large syndicated loans held by multiple banks. 

the 2010 review covered 8,700 credit facilities with commitments totaling $2.7 trillion. occ, ots, and other federal 

banking agencies also warned financial institutions of the risks 

that were accumulating in many banks’ commercial real estate 

(cre) loan portfolios. occ developed several diagnostic 

tools to help assess risks in cre portfolios and conducted asset 

quality reviews of all community and mid-size banks that have 

significant cre concentrations to assess the adequacy of credit 

underwriting, problem loan identification, and loan-loss reserves 

for these portfolios. occ also provided additional supervisory 

guidance on accounting and classification issues associated 

with residential mortgage modifications and cre work-outs. 

Monitoring banks with significant cre concentrations will 

continue to be a primary focus of occ supervisory strategies in 

2011 and 2012. 

In an effort to make key aspects of mortgage loan data more 

transparent and publicly available, the occ and ots publish 

joint quarterly reports on loan performance, delinquencies, 

and foreclosures. the Mortgage Metrics Report presents data 

from nine national banks and thrifts with the largest mortgage 

portfolios (about 65 percent of all first-lien mortgages in the 

country). the report can be used by examiners to assess emerging trends, evaluate asset quality and loan-loss reserve needs, 

identify anomalies, and evaluate loss mitigation actions among 

federally-regulated banks and thrifts. occ and ots continue 

to encourage bankers to work with creditworthy borrowers who 

may be facing financial difficulties. 

occ and ots are also working closely with other domestic 

and international supervisors, including members of the 

council, the basel committee on bank supervision, the 

financial stability board (fsb), and the senior supervisors’ 

group (ssg), to identify and coordinate actions aimed at both 

restoring functioning markets and strengthening risk management practices. 

key initiatives related to these efforts are the following: 

•	 Enhanced capital standards. the financial crisis highlighted areas where the basel II capital framework required 

strengthening. the occ worked together with other 

basel committee members to revise and publish the new 

basel III rules to improve capital standards. the occ and 

part 1: management’s discussion and analysis 

u.s. and world economies perform at full economic potential 
the department of the treasury 

28 

part 1: management’s discussion and analysis

other u.s. banking agencies will implement the new basel 

standards through the u.s. notice and rulemaking process. 

•	 Enhanced liquidity risk management and liquidity 

buffers. In March 2010, the occ, with federal financial 

Institutions examination council (ffIec) member 

agencies and the conference of state banking supervisors, 

issued Interagency guidance on funding and liquidity 

risk Management. 

• Correspondent banking concentrations. In april 2010, the 

occ and other federal banking agencies issued guidance to 

address risks associated with funding and credit concentrations arising from correspondent relationships. 

• Interest rate risk. In January 2010, the occ, the other 

federal banking agencies, and the conference of state 

banking supervisors issued a joint advisory statement 

reminding institutions of supervisory expectations regarding sound practices for managing interest rate risk. the 

advisory statement reminds institutions of the importance 

of maintaining processes for measuring and, where necessary, mitigating exposure to unexpected or substantial 

increases in rates. 

•	 Incentive compensation structures. occ participated 

with the federal reserve in a horizontal review of incentive 

compensation structures and practices across the largest 

financial institutions. follow-up work is being conducted 

by the agencies’ examination teams and will continue into 

2011. as announced in June 2010, the occ along with 

the federal reserve, the fDIc, and ots, issued guidance 

on incentive compensation policies to ensure that these 

policies take into account risk and are consistent with safe 

and sound practices. 

• Addressing off-balance sheet risks. In January 2010, the 

occ and other federal banking agencies amended their 

risk-based capital rules to include certain consolidated 

asset-backed commercial paper in their list of risk-weighted 

assets. In addition, new regulations were issued requiring 

banking organizations to include all of their entities in their 

calculations of risk-based capital needs, including those 

they typically do not report in their financial statements. 

this rule is in response to changes in the accounting for 

certain off-balance sheet structures that went into effect in 

January 2010. 

•	 Accounting and financial disclosure issues. the occ 

and other federal banking agencies continue to work 

closely with the sec, financial accounting standards 

board, and International accounting standards board to 

improve financial disclosure rules. 

as a participant in the council, occ will be actively involved 

in promoting measures to improve coordination among federal 

regulators to help identify and address systemic risks. 

Provided Assistance to Low-Income and 

Underserved Communities 

the cDfI fund provides grants, loans, and tax credits to cDfIs, 

which provide capital, credit, and financial services to underserved populations and economically distressed communities 

in the united states. the cDfI fund awards funds through an 

annual competitive application process. since its inception, the 

cDfI fund has awarded over $932 million through its largest 

program, the cDfI Program. the cDfI Program competitively 

awarded $104.8 million in fiscal year 2010 to 179 cDfIs and 

organizations. 

Managed Currency and Coin 

Manufacturing 

Planned productivity improvements for 

printing and engraving currency notes 

at the beP, the production of newly-redesigned $100 currency 

notes led to a 8.8 percent decrease in productivity due to high 

spoilage and slower operating speeds. to improve productivity 

and efficiency, the beP is undertaking a multi-year project to install new equipment to enable production of 50 currency notes 

per printed note sheet, which is expected to increase productivity by 40 to 50 percent. this project is slated for completion in 

fiscal year 2013. 

Improved supply management for bullion 

coin production 

as financial market volatility continued, investors increased 

their holdings of precious metals. throughout fiscal year 2010, 

the united states Mint made significant efforts to expand raw 

materials supply and enhance productivity to meet demand. 

revenue from the sale of gold and silver bullion coins increased 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

29 

from $1.7 billion in fiscal year 2009 to $2.9 billion in fiscal year 

2010, a 70.6 percent increase. the u.s. Mint expanded average 

monthly gold and silver blank supply by 1.5 million ounces (a 56 

percent increase from fiscal year 2009 to 2010) by working with 

fabricators and identifying a new supplier. the production facility 

in West Point, new york realized higher output without incurring significant costs by automating processes, shifting employees 

where they were needed, and maintaining continuous assaying, 

inspection, and coin production. output per labor hour increased 

23 percent from 175 ounces per hour in fiscal year 2009 to 215 

ounces per hour in fiscal year 2010. 

In fiscal year 2010, the u.s. Mint fully satisfied demand for 

american eagle gold bullion products and sufficiently expanded 

silver blank supply to remove ordering limits on silver bullion 

coins in august 2010. by the close of fiscal year 2010, expanded 

supply reached levels sufficient to allow the u.s. Mint to 

redirect a portion of both gold and silver blanks to numismatic 

production, enabling the Mint to launch previously suspended 

american eagle proof numismatic products late in calendar year 

2010. 

Explored cost-reduction options related 

to the penny, nickel, and other coin 

denominations 

for the fifth year in a row, the penny and nickel cost more to 

produce than their face value. global prices for copper, nickel, 

and zinc (the metals used to produce the penny and nickel) 

remain high, elevating per-unit production costs. the united 

states Mint and the Department of the treasury are developing 

options for more cost-effective ways to produce circulating coins. 

preventeD terrOrism anD 

prOmOteD the natiOn’s seCurity 

thrOugh strengtheneD 

internatiOnal finanCial systems 

While promoting financial and economic growth at home and 

abroad, the treasury Department performs a unique role in preserving national security. In fiscal year 2010, treasury continued 

to disrupt the financial networks of terrorists, drug traffickers, 

and weapons of mass destruction (WMD) proliferators. treasury 

safeguarded the nation’s financial security and carried out 

critical law enforcement responsibilities pertaining to predatory 

lending practices. 

Combated Iran’s Efforts to Acquire 

Proliferation-Related Materials 

In June 2010, the united nations (un) adopted united 

nations security council resolution (unscr) 1929, broadening the existing un sanctions on Iran. shortly thereafter, 

treasury announced new designations under executive order 

(eo) 13382 targeting individuals and entities that facilitate 

Iranian proliferation activities. Most prominently, treasury 

designated Post bank, an Iranian state-owned bank, for providing support to and acting on behalf of unscr 1929 designee 

bank sepah. treasury also designated five Islamic republic of 

Iran shipping lines (IrIsl) front companies and blocked 27 

vessels due to their connection to IrIsl. In august, treasury 

announced a set of designations targeting the government of 

Iran’s support for terrorism and terrorist organizations, including 

hizballah, hamas, Palestinian Islamic Jihad, the Popular front 

for the liberation of Palestine-general command, and the 

taliban. 

the european union (eu), australia, canada, norway, Japan, 

and south korea have implemented sanctions to press Iran 

to resume negotiations on its nuclear program and meet its 

international obligations. the financial measures the u.s. 

and others have implemented are imposing serious costs and 

constraints on Iran. Iran is effectively unable to access financial 

services from reputable banks, conduct major transactions in 

dollars or euros, or secure needed foreign investment, financing, 

and technology to modernize its aging energy infrastructure. 

these financial measures threaten Iran’s oil and gas production 

and export capacity. 

part 1: management’s discussion and analysis 

prevented terrorism and promoted the nation’s security through

strengthened international financial systems 
the department of the treasury 

part 1: management’s discussion and analysis

30 

Prevented North Korean Proliferation and 

Other Illicit Activities 

a new sanctions program, established by President obama 

on august 30, targets north korean arms trafficking, luxury 

goods procurement, and illicit economic activities. these 

sanctions enhance u.s. implementation of unscr 1718 and 

1874 on north korea, address threats to u.s. national security, 

and protect the international financial system. the treasury 

Department continues to implement sanctions targeting north 

korean proliferation activities. 

Supported Counterterrorism Efforts in 

Afghanistan 

treasury served a leading role in establishing the afghanistan 

threat finance cell (atfc). the atfc is a kabul-based task 

force charged with collection, analysis, and dissemination of 

intelligence to disrupt funding and support for the taliban and 

other terrorist and insurgent networks in afghanistan. the 

atfc provides threat finance expertise to u.s. civilian and 

military leaders and assists afghan authorities in investigations 

of insurgent finance, narcotics trafficking, and government 

corruption. through this assistance, the atfc has helped build 

the capacity of afghan authorities to operate independently, a 

key u.s. policy goal in afghanistan. 

In June 2010, the financial transactions and reports analysis 

center of afghanistan (fintraca) formally entered the 

egmont group under treasury sponsorship. the egmont 

group is the world’s organization of financial intelligence units 

(fIus), which share financial intelligence to improve global law 

enforcement. fintraca can now engage with the other 119 

fIus that form this global network. 

treasury will continue to investigate bulk cash movements and 

illicit financial flows into and out of afghanistan. to support 

these efforts, treasury is planning to deploy additional personnel 

to the attaché office in kabul to bolster the regulatory and 

investigative capacity of the afghan government. 

Finalized Terrorist Finance Tracking 

Program Agreement 

treasury, in conjunction with the Departments of Justice (DoJ) 

and state, successfully led negotiations for a new terrorist 

finance tracking Program agreement (tftP) with the eu. 

the new agreement which came into effect on august 1, allows 

treasury to subpoena financial payment messaging data stored 

in the eu for use in u.s. counterterrorism investigations. the 

tftP was initiated by treasury to identify, track, and pursue 

terrorists and their networks. since the start of the program, 

the tftP has provided thousands of valuable leads to u.s. 

government agencies and other governments to investigate and 

prevent terrorist attacks. 

Supported Efforts to Combat Money 

Laundering and Drug Trafficking in 

Mexico 

over the past year, treasury and its Mexican counterparts 

increased efforts to combat money laundering and target the 

financial underpinnings of criminal organizations in Mexico. 

treasury provided technical assistance to Mexico through 

training on forensic accounting, financial investigations, and 

financial sector supervision to address money laundering. In 

august 2010, the Director of the office of foreign assests 

control (ofac) met with private and public sector officials 

in Mexico city to strengthen coordination between treasury 

and Mexican actions against cartels. During the year, treasury 

has designated 49 individuals and 25 entities associated with 

Mexican drug cartels, enhanced information exchange with 

the Mexican fIu, and improved coordination on a variety of 

counter narcotics initiatives. 

treasury continued to leverage partnerships with u.s. law 

enforcement and the Mexican fIu to support the detection, interdiction, and investigation of the flow of illicit proceeds from 

narcotics and human smuggling into u.s. and Mexican banks. 

In support of these efforts, treasury completed a joint study with 

the Mexican fIu to more accurately baseline u.s. dollar currency activity in Mexico. the study will allow both countries to 

more effectively measure the scope of bulk cash smuggling into 

Mexico and the effectiveness of future anti-money laundering 

(aMl) and cash interdiction efforts. treasury and the Mexican 

fIu produced a joint intelligence advisory with the national 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

31 

Drug Intelligence center (nDIc) on trends in trade-based 

money laundering and black market peso exchange. further, 

treasury initiated support for a newly-created southwest border 

anti-Money laundering alliance through analysis of wire remittance data; issued an advisory on a new Mexican regulation 

that may precipitate a significant change in recent cash smuggling trends; and identified and referred Mexican cartel money 

laundering suspects to u.s. and Mexican law enforcement. 

Major Asset Seizures and Forfeitures 

the treasury forfeiture fund collected over $1 billion in forfeitures and recoveries. the abn aMro bank signed a Deferred 

Prosecution agreement with the u.s. government and agreed 

to forfeit $500 million to the treasury forfeiture fund in connection with a conspiracy to defraud the united states, violate 

the International emergency economic Powers act (IeePa), 

violate the trading with the enemy act (tWea), and violate 

the bank secrecy act (bsa). of this amount, $250 million was 

shared with the Justice forfeiture fund. In another case jointly 

managed by treasury and the DoJ, credit suisse bank signed a 

Deferred Prosecution agreement and agreed to a total forfeiture 

of $536 million. the District attorney of the county of new 

york received half, $268 million, the treasury forfeiture fund 

received $134 million in equitable sharing from the Justice 

forfeiture fund, and the balance of $134 million was retained 

by DoJ as the lead agency. In both cases, these banks permitted 

illegal transactions on behalf of customers and other countries 

sanctioned in programs administered by the Department of the 

treasury. 

Enhanced Mechanisms to Combat 

Mortgage and Loan Modification Fraud 

treasury continued to combat mortgage fraud, foreclosure rescue 

scams, and loan modification fraud, an activity begun in prior 

years. treasury developed a notice of proposed rulemaking 

that would require non-bank residential mortgage lenders and 

originators to guard against and report on illicit financial transactions. fincen published an advisory to financial institutions 

on fraud related to home equity conversion mortgages (hecMs) 

in april 2010 and an updated advisory to financial institutions 

on loan modification fraud in June 2010. 

fincen released a report specifically describing trends found 

in depository institution suspicious activity reports (sars) 

on loan modification and foreclosure rescue scams in June 

2010. the relevant sars increased from 28 reports filed by 

depository institutions and money services businesses in 2004, 

to over 3,000 sars filed in 2009. the sars in the sample 

dataset revealed that in the eight months between the issuance 

of an april 2009 fincen advisory requesting filers report loan 

modifications and foreclosure rescue fraud activity in sars, filers increased reporting by over 100 percent In addition, fincen 

published its latest mortgage fraud report in July 2010, which 

provided analysis of depository institution sars and described 

filing trends, evolving patterns, and emerging typologies. the 

report is intended to benefit law enforcement, regulators, and 

financial industries. 

fincen was recognized by the DoJ for playing an important 

role in operation stolen Dreams, an effort over 3.5 months 

to take down mortgage fraud schemes across the country. the 

operation involved 1,215 criminal defendants nationwide who 

were allegedly responsible for more than $2.3 billion in losses. 

Collaborated to Detect Health Care Fraud 

treasury is working with the health care fraud Prevention and 

enforcement action team (heat), which brings investigators 

and prosecutors together in selected geographical areas to target 

individuals and organizations who are defrauding the health 

care system. treasury is working closely with hhs, DoJ, and 

other federal and state law enforcement agencies to identify 

increasingly complex health care fraud schemes. treasury 

developed an initiative to use the bank secrecy act (bsa) 

analytical assessments to identify the most egregious individual 

perpetrators and organized groups in these schemes. through 

this analytical process, treasury will be able to provide the 

investigators with an overall assessment of the targeted jurisdictions, as well as the organizations and individuals that are 

suspected of being engaged in health care fraud. 

part 1: management’s discussion and analysis 

management and organizational excellence 
the department of the treasury 

part 1: management’s discussion and analysis

32 

management anD OrganizatiOnal 

exCellenCe 

the Department of the treasury strives to achieve excellence in 

the design and execution of its management processes, enabling it 

to better accomplish its mission. continual improvement in the 

effectiveness and efficiency of these processes through institutionalized performance reviews and relentless follow-up will drive 

improved results. some of the highlights of these areas follow. 

Performance Management 

In fiscal year 2010, the Department began to conduct quarterly 

formal performance reviews of its bureaus and policy offices. 

Meetings are held with the Deputy secretary, the assistant 

secretary for Management, and bureau and policy officials. the 

intent is to utilize performance information to drive improved 

results and improve the performance culture of the organization. 

the first session in 2010 reviewed existing bureau missions, 

goals, and measures. the second session focused on the fiscal 

year 2012 budget formulation. the third session reviewed 2010 

performance and plans for 2011. 

Improved Management of Human Capital 

attention in fiscal year 2010 focused on employee Viewpoint 

survey (now called the fedView survey) scores, the best Places 

to Work rankings, and revisions to the senior executive service 

(ses) rating system. by targeting key areas for improvement, 

the Department moved from 17th to 12th on the best Places 

to Work in government survey, making treasury one of the 

most improved agencies across the federal government. the 

Department also improved its scores in all four key areas of the 

employee Viewpoint survey: leadership and knowledge management, results-oriented performance culture, talent management, 

and job satisfaction. see http://bestplacestowork.org/BPTW/rankings/overall/large for survey rankings. 

treasury implemented several changes to the ses performance 

management process to clarify performance expectations and 

support more meaningful distinctions in ratings and rewards. 

because ses reform has been identified as a major priority of 

the President’s Management council, treasury plans to pursue 

additional initiatives in fiscal year 2011 related to performance, 

hiring, and executive development. 

Modernized Information Technology 

With an annual It budget of over $3 billion dollars, the 

Department is focused on enabling innovation in support of its 

expanding financial and economic missions, while increasing 

the operational efficiency and effectiveness of existing It assets. 

Primary examples of this innovation include enterprise content 

Management, the Irs’s customer account Data engine II, 

fincen’s It Modernization, It projects central to treasury’s 

duties under the Dodd-frank act, Data center consolidation, 

and increasing the amount of data that is readily accessible 

to the public through the obama administration’s open 

government effort. to track performance, treasury utilizes the 

federal It Dashboard to monitor and assess its key programs. 

treasury had two high risk investments in fiscal year 2010. 

for the Department’s first high risk investment related to its 

network, “tnet,” the following actions were taken during fiscal 

year 2010: 

•	 treasury officials met with the federal cIo, Vivek kundra, 

on september 29, 2010, to discuss the investment 

•	 treasury and oMb finalized a plan on actions to improve 

performance 

•	 In fiscal year 2011 treasury’s legacy wide area network will 

be fully decommissioned and treasury will complete its data 

transition to gsa’s network realizing a cost savings of $40 

million per year 

•	 treasury will corporatize the decision making related to the 

investment and appointed a new program manager 

for the Department’s second high risk investment, treasury 

enterprise Identity, credential and access Management 

(teIcaM), the following actions were taken during fiscal year 

2010: 

•	 treasury officials met with the federal cIo on october 25, 

2010 to discuss the investment 

•	 an improvement plan is in development but is not yet 


finalized
 

the Department continues to implement effective information 

security tools to thwart attacks and keep key information safe. 

two of treasury’s Department-wide strategic security objectives 

include use of homeland security Presidential Directive-12 

credentials for access to business applications and use of 

data-loss prevention tools to prevent the accidental leakage of 

fiscal year 2010 performance by strategic goal 
performance and accountability report | fiscal year 2010 

33 

information. Treasury is also enhancing its capability to monitor 

the use of illegal and unauthorized software in its networks and 

systems. This capability will help prevent software piracy and 

the introduction of hostile software which would put Treasury’s 

IT-based business processes and information at risk of theft, 

compromise, or disruption. 

Increased Use of Electronic Transactions 

In 2010, Treasury began implementing a “paperless” initiative to 

increase the use of electronic transactions with the public. The 

largest effort involves migrating Social Security, Supplemental 

Security Income, Veterans, Railroad Retirement, and Office of 

Personnel Management payments to electronic transactions. 

Individuals will be able to receive benefits either through 

direct deposit or Treasury’s Direct Express debit card. Today, 

one million Americans are receiving their benefit payments 

through Direct Express. Beginning March 1, 2011, Treasury will 

require that new enrollees receive payments electronically. All 

recipients will be required to receive payments electronically by 

March 1, 2013. Currently, 85 percent of federal benefit recipients receive their payments electronically. Moving all recipients 

of these benefits to electronic payments is expected to save 

upwards of $300 million in the first five years. 

Currently, nearly 98 percent of all business tax dollars are paid 

electronically through Treasury’s free Electronic Federal Tax 

Payment System (EFTPS). IRS research has shown that businesses using EFTPS are 31 times less likely to make an error. For 

tax collection, businesses with $2,500 or more in quarterly tax 

liabilities that are permitted to use paper Federal Tax Deposit 

coupons will have to make those deposits electronically beginning in 2011. This change will save an estimated $65 million in 

the first five years. 

Finally, Treasury will eliminate the option to purchase paper 

savings bonds through payroll deductions for federal employees 

on September 30, 2010 and for the private sector by January 

1, 2011. Individuals will still be able to purchase paper savings bonds at financial institutions for themselves and as gifts. 

Payroll savers will be encouraged to continue their purchases 

through TreasuryDirect, a web-based system that allows investors to buy and hold electronic Treasury securities. This change 

is estimated to save nearly $50 million in the first five years. 

Achieved Acquisition Savings 

The Department executed its fiscal year 2010 plan to meet the 

OMB acquisition improvement mandate to deliver 3.5 percent 

in procurement savings in fiscal year 2010 and achieve a ten 

percent reduction in high risk contracting in fiscal year 2010. 

As of September 30, Treasury had exceeded both goals, realizing 

over $241.9 million in savings versus the goal of $158.4 million, 

and $129.4 million in high risk contracting reduction versus the 

goal of $48.8 million. 

The Department has taken steps to achieve 3.5 percent savings 

in fiscal year 2011 ($158 million) and reduce the use of high risk 

contracting authorities. Treasury will continue to actively transition to lower risk contracting strategies. Treasury will achieve 

its targets through active management of acquisition operations 

and increased examination of high dollar/risk contracts. 

Improved Transparency and 

Accountability 

In April 2010, the Department of Treasury published 

its first Open Government plan in line with the Obama 

Administration’s Open Government Directive. An Open 

Government Steering Committee with representatives from 

each of Treasury’s bureaus was established to develop guidance 

and lead activities across the Department. In executing the 

plan, Treasury released 84 data sets, increased stakeholder 

outreach efforts, and began a more focused approach to tracking 

reductions in the Freedom of Information Act (FOIA) request 

backlog. In addition, the Department identified costs savings 

from Open Government initiatives such as tracking the impact 

of proactive disclosure through FinancialStability.gov on FOIA 

requests to the Office of Financial Stability (OFS). Using this 

data, Treasury developed a cost-benefit matrix to assess open 

government initiatives. 

The Department of the Treasury received a Leading Practices 

Award for Participation and Collaboration for achievement 

above and beyond the requirements of the Directive. This award 

recognized Treasury as an agency that outlined the best and 

most innovative strategies for promoting open government over 

the next two years. Treasury was only one of eight agencies to 

receive an award. 

part 1: management’s discussion and analysis 

management and organizational excellence 
the department of the treasury 

34
 

part 1: management’s discussion and analysis

Provided Effective Oversight of Treasury 

Programs 

the treasury Inspector general chairs the council of Inspectors 

general on financial oversight (cIgfo), which was established by the Dodd-frank act. cIgfo facilitates information 

sharing among inspectors general with a focus on concerns that 

may apply to the broader financial sector and on ways to improve financial oversight. the treasury Inspector general also 

serves as a statutory member of the recovery accountability 

and transparency board which was established in 2009 to 

coordinate and conduct oversight of recovery act funds to 

prevent fraud, waste, and abuse. 

the oIg committed nearly all audit resources to mandated 

work primarily related to material loss reviews of failed banks 

during the fiscal year. Due to the unprecedented number of 

treasury-regulated bank failures requiring review, the oIg was 

unable to meet its performance goal of completing 100 percent 

of audits by the statutory deadline. During fiscal year 2010, 53 

treasury-regulated banks failed. by comparison, 27 treasuryregulated banks failed during fiscal year 2009. for fiscal year 

2010, oIg had 18 required material loss reviews in progress 

at the start of the year; initiated 20 new material loss reviews 

during the year; and completed ten. During fiscal year 2010, material loss reviews were required when the bank failure caused a 

loss to the Deposit Insurance fund of $25 million or more. this 

threshold was recently increased to $200 million. In addition, 

the office of Investigations initiated four criminal investigations 

of failed treasury banks as a result the office of audit’s findings. 

During fiscal year 2010, the oIg office of audit completed 

50 percent of statutory audits by their required deadline and 

completed 68 products overall. 

tIgta is responsible for successful investigations of entities 

and individuals who threaten the u.s. tax system. tIgta 

estimates approximately $11.46 billion in potential financial 

benefits could be realized through implementation of its audit 

recommendations in fiscal year 2010 and $230 million in 

potential savings could be realized from investigative recoveries 

from embezzlements, thefts, court order fines, penalties, and 

restitution. these benefits included $2.8 billion in cost savings 

recommendations, $8.6 billion in potential increased revenue/ 

revenue protected recommendations, $0.2 million in taxpayer 

rights and entitlement recommendations, and $36 million in 

recommendations related to inefficient use of resources. these 

reports also included recommendations impacting over two 

million taxpayer accounts. 

sIgtarP promotes efficiency and effectiveness in treasury’s 

management of the tarP through transparency, coordinated 

oversight, and robust enforcement against those who waste, 

steal, or abuse tarP funds. sIgtarP’s primary tools for 

informing taxpayers about tarP are audit and quarterly reports, 

which are available for inspection at www.sigtarp.gov. since 

its inception, sIgtarP has conducted 22 distinct audits and 

issued 11 audit reports on topics such as use of tarP funds, 

external influences on program decision-making, oversight 

of aIg’s executive compensation, and treasury’s role in the 

decision to reduce the number of gM and chrysler dealerships. 

sIgtarP’s investigations division has over 104 ongoing major 

criminal and civil investigations. sIgtarP closely coordinates 

its oversight activities with other tarP oversight bodies to 

ensure maximum coverage while avoiding redundancy and 

undue burden. 
performance and accountability report | fiscal year 2010 

35 

DePartMent of the treasury 

key PerforMance Measures for 2010 

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

for 2010. 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 Official Title Bureau2007 Target2007 Actual2008 Target2008 Actual2009 Target2009 Actual2010 Target2010 ActualPercent Target Achieved 20102010 Actualvs. Target4-yearTarget Trend4-yearActual Trend 

Percentage collected electronically of total dollar 

amount of Federal government receipts (%) 

FMS 80 79 79 80 80 84 80 85 106% Exceeded ► ▲

Customer Service Representative (CSR) Level of 

Service (%) 

IRS 82 82.1 82 52.8 70 70 71 74 104% Exceeded ▼ ▼

Percent of Business Returns Processed Electronically 

(%) 

IRS 19.5 19.1 20.8 19.4 21.6 22.8 24.3 25.5 105% Exceeded ▲ ▲

Percent of Individual Returns Processed Electronically 

(%) 

IRS 57 57.1 61.8 57.6 64 65.9 70.2 69.3 99% Unmet ▲ ▲

Number of full-time equivalent jobs created or 

maintained in underserved communities by businesses 

financed by CDFI program awardees 

CDFI 34,009 35,022 28,676 29,539 30,000 70,260 85,000 80,796 95% Unmet ▲ ▲

Rehabilitated national banks as a percentage of 

problem national banks one year ago (CAMELS 3, 4 

or 5) (%) 

OCC 40 52 40 47 40 29 40 23 58% Unmet ► ▼

Clean audit opinion on TARP financial statements DO Baseline Met 1 1 100% Met ► ►

Percent of customers satisfied with Financial Stability. 

gov (%) 

DO Baseline 65 70 63 90% Unmet ▲ ▼

Percent of timely completed Planned Corrective 

Actions (%) 

DO 85 71.7 85 82.5 85 85.6 87.5 88.4 101% Exceeded ▲ ▲

Impact of TFI programs and activities DO Baseline 7.81 7.4 8.1 109% Exceeded ► ▲

Note: Performance measures were not audited. 

In fiscal year 2010, fMs collected nearly $2.94 trillion through 

approximately 9,000 financial institutions, with 85.3 percent of 

the dollars collected electronically. fMs’s metric “Percentage 

collected electronically of total dollar amount of federal government receipts” exceeded its performance target by five percentage points and showed a one percentage point improvement over 

2009. More than 108 million payments were processed through 

eftPs, an increase in transaction volume of seven percent, 

despite only a 3.5 percent growth in tax revenue collected. fMs 

regularly reaches out to the banking community to promote 

electronic collection and is implementing marketing programs 

to encourage migration of paper-based collections to electronic 

collection systems and Pay.gov. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

part 1: management’s discussion and analysis 

department of the treasury key performance measures for 2010 
the department of the treasury 

part 1: management’s discussion and analysis

36 

the Irs metric “customer service representative (csr) level 

of service” exceeded its performance target by four percent in 

fiscal year 2010 and improved on the prior fiscal year’s result by 

four percentage points. the Irs is addressing demand through 

improved self-service options. twenty-one percent more 

automated calls were completed compared to fiscal year 2009, 

reaching 35.1 million calls. the number of assistor answered 

calls was 36.7 million, lower than the 39 million assistor calls 

answered in fiscal year 2009. 

Irs electronic filing metric “Percent of business returns 

Processed electronically” exceeded its performance target by 

five percent, a 12 percent increase over fiscal year 2009. the 

“Percent of Individual returns Processed electronically” came 

within one percent of meeting its target. Increased electronic 

filing can be attributed to changes in filing patterns, economic 

and demographic trends, legislative requirements, and Irs 

administrative processes. Irs expects the percentage of both 

business and individual returns filed electronically to increase 

in fiscal year 2011 based on recent experience, historical growth 

trends, increased marketing, and expanded programs aimed at 

boosting electronic filing. Irs will continue to pursue additional 

legislative mandates to increase electronic filing for businesses 

taxpayers, such as a 2011 provision requiring taxpayers filing 

more than ten individual returns during a calendar year to file 

electronically. 

the cDfI fund’s metric “number of full-time equivalent jobs 

created or maintained in underserved communities by businesses 

financed by cDfI Program awardees” achieved 80,796, a 15 

percent increase over the prior year and within five percent of 

the target. this target was unmet primarily due to the effects of 

the economic downturn. the cDfI Program in fiscal year 2010 

competitively awarded $104.8 million in funding to 179 cDfIs 

and organizations for providing loans, investments, financial 

services, and technical assistance to underserved populations 

and low-income communities. the amount of money cDfIs 

were able to attract from private investment reached nearly 

$2 billion, more than triple the 2010 target of $600 million, 

largely due to higher program funding provided in legislation 

passed after the target was set. 

During fiscal year 2010, occ’s metric “rehabilitated national 

banks as a percentage of problem national banks one year ago 

(caMels 3, 4 or 5)” achieved 58 percent of its performance 

target, dropping by 21 percent compared with fiscal year 2009. 

national banks continued to operate in a highly challenging 

and volatile environment. the impact of the past and current economic climates on these banks requires longer term 

rehabilitation efforts. given the weak economy, occ focused 

on monitoring and responding to adverse conditions in credit 

and financial markets, improving credit risk management at 

supervised institutions, and monitoring loan portfolios. for all 

national banks, occ is continuing to focus on quick responses 

to deteriorating bank credit quality and on ensuring banks 

maintain adequate liquidity, loan-loss reserves, and capital 

buffers. because of changing conditions, occ should consider 

changing their target setting methodology. 

for fiscal year 2010, the office of financial stability (ofs) 

received a clean audit opinion on tarP financial statements. 

this is a significant accomplishment, and ofs will continue 

to strive for accuracy and transparency in its financial statements. however, the metric “Percent of customers satisfied 

with financialstability.gov” fell short of its 70 percent target 

by seven percentage points and was also two percentage points 

lower than fiscal year 2009. ofs is using survey analysis results 

to identify opportunities for implementing new webpage layouts. 

During fiscal year 2010, the Department achieved 88.4 percent 

of timely completed Planned corrective actions (Pcas), 

which exceeded its target of 87.5 percent. throughout fiscal 

year 2011, the Department will continue to monitor progress 

on the timely completion of Pcas and continue to provide 

valuable information on various aspects of audit follow-up. 

In addition, the target completion rate has been raised to 90 

percent for fiscal year 2011. 

tfI’s performance metric “Impact of tfI programs and activities” exceeded its performance target and improved on the fiscal 

year 2009 results by nine percent. this metric consists of four 

overall focus areas, with additional detailed focus area components. these components align to performance goals established 

by tfI. the external review process for this measure still needs 

to be developed, but the implementation of this measure is a 

large step in the effort to measure performance for a policy office 

that also has operational responsibilities. 

department of the treasury key performance measures for 2010 
performance and accountability report | fiscal year 2010 

37 

suMMary of ManageMent anD PerforMance 

challenges anD hIgh-rIsk areas 

annually, in accordance with the Reports Consolidation Act of 2000, the treasury office of Inspector general (oIg) and the treasury 

Inspector general for tax administration (tIgta) identify the most significant management and performance challenges facing the 

Department. the government accountability office (gao) identifies high-risk areas biennially. these challenges do not necessarily indicate deficiencies in performance; rather, some represent inherent risks that must be monitored continuously. treasury made 

much progress on these issues in fiscal year 2010, and will continue to focus on resolving them during fiscal year 2011. 

summaries of the Ig-identified management challenges and gao-identified high-risk areas are below. for details, refer to appendix c 

for this year’s oIg and tIgta memoranda identifying major management and performance challenges, and the secretary’s responses. 

treasury-WiDe management Challenges – as iDentifieD by Oig 

Management Challenge Summary of Major Issues 

Transformation of Financial Regulation •	 Implement and enforce the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection 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 

Management of Treasury’s Authorities Intended 

to Support and Improve the Economy 

•	 Protection of the taxpayer from unnecessary risk associated with the implementation and administration of 

programs intended to support and improve the economy, including the provisions of: 

•	 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 

Anti-Money Laundering and Terrorist 

Financing/ Bank Secrecy Act Reporting 

•	 Prevent and detect money laundering and terrorist financing 

•	 U.S. and international financial systems that are safe and transparent 

•	 Efficient management, safeguarding, and use of Bank Secrecy Act information 

Management of Capital Investments •	 Effective use of taxpayer funds for large capital investments 

irs management Challenges – as iDentifieD by tigta 

Management Challenge Summary of Major Issues 

Security Appropriate physical security and protection of financial, personal, and other information 

Modernization Improve taxpayer service and efficiency of operations 

Tax Compliance Initiatives Improve compliance and fairness in the application of the tax laws 

Implementing Health Care and Other Tax Law 

Changes 

Responsiveness to new tax provisions, including tax-related health care provisions of the Patient Protection and 

Affordable Care Act, the Recovery Act, and adjusting to expiring provisions 

Providing Quality Taxpayer Service Operations Improve taxpayer service 

Human Capital Enable the IRS to achieve its mission 

Erroneous and Improper Payments and Credits Effective use of taxpayer funds 

Globalization Increase outreach efforts to foreign governments on cross-border transactions 

Taxpayer Protection and Rights Apply the tax laws fairly 

Leveraging Data to Improve Program 

Effectiveness and Reduce Costs 

Use resources to focus on producing the best value for stakeholders 

part 1: management’s discussion and analysis 

summary of management and performance challenges and high-risk areas 
the department of the treasury 

38 

part 1: management’s discussion and analysis

high-risk areas – 

as iDentifieD by gaO 

Enforcement of the Tax Laws 

Issue: the Irs needs to improve its enforcement of tax laws, 

not only to catch tax cheats, but also to promote broader 

compliance by giving taxpayers confidence that others are 

paying their fair share. 

Goal: Improve research on noncompliance, increase the use of 

third party information reporting, focus on improving standards among tax return preparers, and increase emphasis on 

international noncompliance. 

Challenges and Actions Taken/Planned: 

Reduce the opportunity for evasion 

•	 During fiscal year 2010, the Irs continued to focus 

on the many taxpayers that shift income abroad and 

engage in offshore tax evasion schemes in order to hide 

their wealth and avoid paying taxes. With cross-border 

transactions on the rise, the Irs more than doubled 

offshore presence by opening new offices in asia and 

central america, placing additional personnel at its 

existing offices throughout the world, and expanding its 

interaction with key international organizations involved 

in tax and financial law compliance. 

•	 In fiscal year 2010, the Irs began mining the information from participants of its offshore voluntary disclosure 

program started in 2009, to identify financial institutions, 

advisors, and others who promoted or otherwise helped 

u.s. taxpayers hide assets and income offshore. the Irs 

also used audit results and intelligence from ongoing 

offshore initiatives to refine case identification and selection methods and to identify promoters, facilitators, and 

participants in abusive offshore arrangements. 

•	 In fiscal year 2011, the Irs will use mined data from the 

offshore voluntary disclosure program to develop additional strategies to prohibit promoters and facilitators 

from soliciting new clients. 

Target specific areas of noncompliance and improve 

voluntary compliance with extensive research 

•	 the Irs continued to focus examinations on high-net 

worth individuals, flow-through entities, and large 

corporations (assets > $10 million). In fiscal year 2010, 

the Irs conducted over 153,000 high-net worth audits, 

an increase of 5.5 percent. audits of large corporations 

increased by 8.1 percent, a significant achievement given 

the size (more than $10 million in assets) and complexity 

of these corporate entities. the number of flow through 

audits totaled more than 29,000. 

•	 During fiscal year 2010, the Irs began laying the groundwork to ensure the quality and integrity of professional 

tax return preparation, which most taxpayers rely on in 

one form or another. the Irs successfully implemented 

an application process to comply with the mandate 

that all paid tax return preparers obtain a preparer tax 

identification number. 

•	 In fiscal year 2010, the Irs released the research 

community strategic Plan. the plan focuses on research 

efforts aimed at effectively determining ways to address 

taxpayer compliance. 

•	 In fiscal year 2011, the Irs will continue to expand its 

efforts to address international tax evasion, expand the 

focus on corporate and high net-worth returns to integrate significant new information reporting authorities 

into compliance programs, and proceed with additional 

mandates for paid tax preparers. the mandates include 

the requirement that all paid tax return preparers except 

attorneys, certified public accountants, and enrolled 

agents pass a competency test and complete continuing 

professional education of 15 hours per year. the Irs also 

plans to conduct research to enhance compliance and 

use analytically-based technologies to provide tools for 

detecting and reducing noncompliance. 

summary of management and performance challenges and high-risk areas 
performance and accountability report | fiscal year 2010 

39 

IRS Business Systems Modernization 

Issue: the business systems Modernization (bsM) program is 

developing and delivering a number of modernized systems 

to replace the aging business and tax processing systems 

currently in use. this effort is highly complex and scheduled to be carried out over a numbers of years, ultimately 

creating a more efficient and effective Irs. though the 

Irs experienced delays and cost overruns in the early years 

of the effort, improved practices and oversight are now 

contributing to better delivery of outcomes. 

Goal: Meet all bsM project milestones within a cost and 

schedule variance of 10 percent of the initial estimate. 

Challenges and Actions Taken/Planned: 

Fully implement all projects and programs for the BSM 

program 

•	 In fiscal year 2010, Irs modernization efforts continued 

to focus on core tax administration systems designed 

to provide more sophisticated tools to taxpayers and to 

Irs employees. the customer account Data engine 

(caDe), Modernized e-file (Mef), and account 

Management services (aMs) modernization projects 

delivered the changes necessary for a successful filing 

season, and continued to support implementation of 

recovery act tax provisions. 

•	 the Irs revised its caDe strategy (caDe 2) to implement a new taxpayer account database for the 2012 filing 

season that provides for daily updating of individual 

taxpayer accounts to improve taxpayer service and 

accuracy, reduce interest paid on late refunds, improve 

data security, and allow the development of new tools 

to combat fraud and improve enforcement activities. 

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

expansion of online services and transactions and next 

generation of enforcement technologies. 

•	 the Irs also deployed an additional release of Mef that 

enabled acceptance of the forms and schedules to reach 

61 percent of the e-file population, and with enhanced 

disaster recovery capabilities to manage operational risk. 

In addition, the Irs deployed the final release of aMs, 

enabling users to view correspondence images online, 

eliminating manual processing and reducing case cycle 

time from 10-14 days to zero days. aMs also facilitated 

the identification of unallowable or fraudulent claims 

for first-time home buyer credits claimed by taxpayers 

filing amended returns. 

•	 In fiscal year 2011, the Irs will continue to focus on 

modernization of the tax administration systems to 

provide additional benefits to taxpayers. the Irs will 

further develop caDe 2 to accommodate tax law 

changes in the 2012 filing season. 

Modernizing the Outdated U.S. 

Regulatory System 

Issue/Goal: efficient and effective implementation of financial 

regulatory reform legislation. 

Challenges and Actions Taken/Planned: 

actions related to this high-risk area are provided on page 

15 (financial regulatory reform), page 24 (strengthened 

International economic coordination), and page 26 

(regulation of banks and thrifts). 

part 1: management’s discussion and analysis 

summary of management and performance challenges and high-risk areas 
part 1: management’s discussion and analysis

the department of the treasury 

40 

analysIs of fInancIal stateMents 

CONDENSED BALANCE SHEET (in millions): 

Due From the General Fund 

Other Intra-governmental Assets 

Cash, Foreign Currency, and Other Monetary Assets 

Gold and Silver Reserve 

TARP Direct Loans and Equity Investments, Net and Asset Guarantee Program 

Investments in Government Sponsored Enterprises 

Investments and Related Interest 

Credit Program Receivables and Direct Loans, Net 

Tax, Other Related Interest Receivables, Net 

Beneficial Interest in Trust 

Other Assets 

Total Assets 

Federal Debt and Interest Payable 

Other Intra-governmental Liabilities 

Liabilities to Government Sponsored Enterprises 

Other Liabilities 

Total Liabilities 

Unexpended Appropriations 

Cumulative Results of Operations 

Total Net Position 

Total Liabilities and Net Position 

$ 

$ 

$ 

$ 

2010 

13,655,637 

1,025,169 

375,282 

11,062 

144,692 

109,216 

12,639 

186,396 

36,976 

20,805 

21,383 

15,599,257 

13,623,731 

1,424,976 

359,900 

89,554 

15,498,161 

400,557 

(299,461) 

101,096 

15,599,257 

$ 

$ 

$ 

$ 

2009 

11,992,719 

923,457 

341,308 

11,062 

239,657 

64,679 

13,565 

184,460 

30,408 

23,472 

21,814 

13,846,601 

11,962,385 

1,275,613 

91,937 

88,610 

13,418,545 

455,144 

(27,088) 

428,056 

13,846,601 

CONDENSED STATEMENT OF NET COST (in millions): 

Net Financial Program Cost 

Net Economic Program (Revenue)/Cost 

Net Security Program Cost 

Net Management Program Cost 

Total Program Cost before Assumption Changes 

(Gains)/Losses Due To Changes in Actuarial Assumptions 

Total Net Cost of Treasury Operations 

Net Federal Costs (primarily interest on the Federal Debt) 

$ 

$ 

$ 

2010 

13,243 

297,234 

340 

526 

311,343 

820 

312,163 

346,678 

$ 

$ 

$ 

2009 

13,055 

195,705 

322 

509 

209,591 

0 

209,591 

313,341 

CONDENSED STATEMENT OF CHANGES IN NET POSITION (in millions): 

Beginning Balance 

Budgetary Financing Sources 

Other Financing Sources (Uses) 

Total Financing Sources 

Net Cost of Operations 

Net Change 

Cumulative Results of Operations 

Beginning Balance 

Appropriations Received 

Appropriations Used 

Other 

Total Budgetary Financing Sources 

Total Unexpended Appropriations 

Net Position - Year End 

$ 

$ 

$ 

2010 

(27,088) 

503,042 

(116,574) 

386,468 

(658,841) 

(272,373) 

(299,461) 

$455,144 

456,970 

(502,439) 

(9,118) 

(54,587) 

400,557 

101,096 

$ 

$ 

$ 

2009 

37,743 

668,894 

(210,793) 

458,101 

(522,932) 

(64,831) 

(27,088) 

$271,968 

855,762 

(668,153) 

(4,433) 

183,176 

455,144 

428,056 

analysis of financial statements 
performance and accountability report | fiscal year 2010 

Condensed statement of Budgetary resourCes (in millions): 

Unobligated Balances, Brought Forward 

Recoveries of Prior Year Obligations 

Budget Authority 

Other Budget Authority 

total Budgetary resources 

Obligations Incurred 

Unobligated Balance 

Unobligated Balance, Not Available 

total status of Budgetary resources 

Total Unpaid Obligated Balances, Net 

Obligations Incurred, Net 

Gross Outlays 

Recoveries of Prior Year Unpaid Obligations, Actual 

Changes in Uncollected Customer Payments Federal 

total unpaid obligated Balance, net, end of year 

net outlays 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

2010 

457,588 

42,349 

929,687 

(236,543) 

1,193,081 

820,838 

301,811 

70,432 

1,193,081 

158,323 

820,838 

(733,710) 

(42,349) 

5,087 

208,189 

340,510 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

2009 

284,630 

8,096 

1,814,086 

(271,778) 

1,835,034 

1,387,195 

413,998 

33,841 

1,835,034 

56,977 

1,387,195 

(1,248,916) 

(8,096) 

(28,748) 

158,412 

922,165 

Condensed statement of Custodial aCtivity (in millions): 

Individual Income and FICA Taxes 

Corporate Income Taxes 

Other Revenues 

total Cash revenue received 

Less Refunds 

net Cash revenue received 

Beneficial Interest in Trust 

Accrual Adjustment 

total Custodial revenue 

Amounts Provided to Fund the Federal Government 

Amounts Provided to Fund Non-Federal Entities 

Non-cash Revenue - Beneficial Interest in Trust 

Accrual Adjustment 

total disposition of Custodial revenue 

net Custodial revenue activity 

$ 

$ 

2010 

1,988,760 

277,937 

179,613 

2,446,310 

(469,937) 

1,976,373 

(2,666) 

6,539 

1,980,246 

1,975,986 

387 

(2,666) 

6,539 

1,980,246 

0 

$ 

$ 

2009 

2,036,557 

225,482 

139,648 

2,401,687 

(437,972) 

1,963,715 

23,472 

(1,097) 

1,986,090 

1,963,228 

487 

23,472 

(1,097) 

1,986,090 

0 

part 1: management’s discussion and analysis 

analysis of financial statements 41 
part 1: management’s discussion and analysis

the department of the treasury 

42 

summary Of auDitOr’s repOrt On the treasury Department’s finanCial 

statements 

the Department received an unqualified audit opinion on its fiscal year 2010 financial statements. as summarized in the table 

below, the auditor reported one open material weakness as of september 30, 2010. During the fiscal year 2010 financial audit, 

the auditors downgraded the material weakness they identified in the fiscal year 2009 audit, “financial Management Practices 

at the Departmental level,” to a significant deficiency. the office of accounting and Internal control (aIc) and the office of 

Performance budgeting (oPb) worked diligently during the year to close many of the planned corrective actions to improve its 

financial management practices and made significant progress. the auditor also reported significant deficiencies related to financial 

reporting at the office of financial stability and information system controls at the financial Management service. 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. 

SUMMARY OF FINANCIAL STATEMENT AUDIT 

Audit Opinion Unqualified 

Restatement No 

Material Weaknesses 

Beginning 

Balance New Resolved Consolidated Ending Balance 

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

Financial Management Practices at the Departmental level 1 0 1 0 0 

Totals 2 0 1 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 u.s.c. 3515 (b). While the statements have been prepared from the books and 

records of the Department of the treasury, in accordance with gaaP for federal entities and the formats prescribed by oMb, the 

statements are, in addition to the financial reports, used to monitor and control budgetary resources which are prepared from the 

same books and records. 

the financial statements should be read with the realization that they are for a component of a sovereign entity, that liabilities not 

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

analysis of financial statements 
performance and accountability report | fiscal year 2010 

43 

part 1: management’s discussion and analysis 

majOr highlights 

the following provides the major highlights of the 

Department’s financial position and results of operations for 

fiscal year 2010. 

Assets. total assets increased from $13.9 trillion at september 

30, 2009 to $15.6 trillion at september 30, 2010. the primary reason for the increase is the rise in the federal debt, 

which causes a corresponding rise in the “Due from the 

general fund of the u.s. government” account ($13.7 

trillion.) this account represents future funds required 

from the general fund of the u.s. government to pay 

borrowings from the public and other federal agencies. 

the majority of loans and interest receivable ($552.9 billion) included in “Intra-governmental” assets are the loans 

issued by the bureau of the Public Debt to other federal 

agencies for their own use or to private sector borrowers, 

whose loans are guaranteed by the federal agencies. 

Total Assets 

88% 

Due from the 

General Fund 

9% 

Other Assets 

3% Intra-governmental 

Loans and Interest 

Receivable 

Liabilities. Intra-governmental liabilities totaled $6 trillion, 

and include $4.6 trillion of principal and interest payable 

to various federal agencies, such as the social security 

trust fund. these borrowings do not include debt issued 

separately by other governmental agencies, such as the 

tennessee Valley authority or the Department of housing 

and urban Development. 

liabilities also include federal debt held by the public, 

including interest, of $9 trillion; this debt was mainly 

issued as treasury notes. the increase in total liabilities 

in fiscal year 2010 over fiscal year 2009 ($2.1 trillion and 

15.5 percent), is the result of increases in borrowings from 

various federal agencies ($184.7 billion), and federal debt 

held by the public, including interest, ($1.5 trillion). Debt 

held by the public increased primarily because of the need 

to finance budget deficits. 

Total Liabilities 

58% 

Federal Debt and 

Interest Payable 

(With the Public) 

12% 

Other Liabilities 

30% 

Federal Debt and 

Interest Payable 

(Intra-governmental) 

analysis of financial statements 
the department of the treasury 

part 1: management’s discussion and analysis

44 

Net Cost of Treasury Operations. the consolidated 

statement of net cost presents the Department’s gross and 

net cost for its four strategic missions: financial program, 

economic program, security program, and management program. the majority of the net cost of treasury operations 

is in the economic program which includes troubled asset 

relief Program (tarP) activity and investments in the 

government sponsored enterprises (gses). financial 

program costs include costs associated with treasury’s role 

as the primary fiscal agent for the federal government 

in managing the nation’s finances by collecting revenue, 

making federal payments, managing federal borrowing, 

performing central accounting functions, and producing 

coins and currency sufficient to meet the demand. 

Total Treasury 

Program Costs 

Net Cost of 

Treasury 

Operations 

by Fiscal Year 

Net Federal Debt Interest Costs. the increase of $27.4 

billion in net interest paid on the federal debt is due to the 

increase in the debt. 

Net Federal 

Debt Interest 

Cost 

$0

$500

$450

$400

$390.9$420.4$440.9$363.2$390.6

2006 2007 2008 2009 2010 

Dollars (in Millions) 

$350

$300

$250

$200

$150

$100

$50

Fiscal Year 

Dollars (in Billions) Dollars (in Millions) 

Custodial Revenue. total net cash revenue collected by 

treasury on behalf of the federal government includes 

various taxes, primarily income taxes, user fees, fines and 

penalties, and other revenue. over 92.7 percent of the 

revenues are from income and social security taxes. 

Total Cash 

Revenue 

Received 

7% 

Other Revenue 

81% 

Individual Income 

and FICA Taxes 

12% 

Corporate 

Income Taxes 

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

$13,243$297,234$340$526 

Financial Economic Security Management 

Program Costs 

$350

$300

$250

$200

$150

$14.03$12.02$27.14$209.59$312.16

Net Cash 

Revenue 

Received 

Dollars (in Trillions) 

$100

$3.0 $50

$0 $2.5

$2.0

$1.5

$1.0

$0.5

$0.0

2006 2007 2008 2009 2010 

$2.28$2.45$2.37$1.96$1.98 

2006 2007 2008 2009 2010 

Fiscal Year 

Fiscal Year 

analysis of financial statements 
performance and accountability report | fiscal year 2010 

45 

IMProPer PayMents InforMatIon act 

anD recoVery auDItIng act 

imprOper payments 

infOrmatiOn aCt 

Background 

the Improper Payments Information Act of 2002 (IPIa) requires 

agencies to review their programs and activities annually to 

identify those susceptible to significant improper payments. 

according to office of Management and budget (oMb) 

circular a-123, Management’s Responsibility for Internal Control, 

appendix c, Requirements for Effective Measurement and 

Remediation of Improper Payments (a-123, appendix c), “significant” means that an estimated error rate and a dollar amount 

exceed the threshold of 2.5 percent and $10 million of total 

program funding. a-123, appendix c also requires the agency 

to implement a corrective action plan that includes improper 

payment reduction targets. 

however, some federal programs are so complex that developing 

an annual error rate is not feasible. the government-wide chief 

financial officers council developed an alternative for such programs to assist them in meeting the IPIa requirements. agencies 

may establish an annual estimate for a high-risk component of 

a complex program (e.g., a specific program population) with 

oMb approval. agencies must also perform trend analyses to 

update the program’s baseline error rate in the interim years 

between detailed program studies. When development of a 

statistically valid error rate is possible, the reduction targets are 

revised and become the basis for future trend analyses. 

Treasury’s Risk Assessment Methodology 

and Results for Fiscal Year 2010 

each year, treasury develops a comprehensive inventory of all 

funding sources and conducts a risk assessment for improper 

payments on all of its programs and activities. the risk assessment performed on all of treasury’s programs and activities in 

fiscal year 2010 resulted in low and medium risk susceptibility 

for improper payments except for the Internal revenue service’s 

(Irs) earned Income tax credit (eItc) program. the high-risk 

status of this program is well-documented. oMb has deemed the 

eItc a complex program for the purposes of the IPIa. 

Earned Income Tax Credit 

the eItc is a refundable tax credit that offsets income tax 

owed by low-income taxpayers and, if the credit exceeds the 

amount of taxes due, provides a lump-sum payment in the form 

of a refund to those who qualify. the fiscal year 2010 estimate is 

that a maximum of 28.7 percent ($18.4 billion) and a minimum 

of 23.9 percent ($15.3 billion) of the eItc total program payments are overclaims. 

the Irs has a robust base enforcement program for the eItc 

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

document matching. In fiscal year 2010, the Irs expanded its 

approach to decrease improper payments. 

exeCutive OrDer 13520 - 

reDuCing imprOper payments anD 

eliminating Waste in feDeral 

prOgrams 

on november 20, 2009, President barack obama issued 

executive order 13520 - Reducing Improper Payments and 

Eliminating Waste in Federal Programs (eo 13520). according 

to eo 13520, the purpose of the order is to “reduce improper 

payments by intensifying efforts to eliminate payment error, waste, 

fraud, and abuse in the major programs administered by the Federal 

Government, while continuing to ensure that Federal programs 

serve and provide access to their intended beneficiaries.” 

section 2 of the order, “transparency and Public Participation,” 

directed oMb “to identify federal programs in which the 

highest dollar value or majority of government-wide improper 

payments occur.” oMb identified the eItc as a “high-priority 

program” under eo 13520. the requirements of the highpriority programs are described in appendix b. 

part 1: management’s discussion and analysis 

improper payments information act and recovery auditing act 
the department of the treasury 

part 1: management’s discussion and analysis

46 

reCOvery auDiting aCt 

Background 

In accordance with the Recovery Auditing Act of 2002, a-123, 

appendix c, requires agencies issuing $500 million or more in 

contracts to establish and maintain recovery auditing activities 

and report on the results of those recovery efforts annually. 

recovery auditing activities include the use of (1) contract 

audits, in which an examination of contracts pursuant to 

the audit and records clause incorporated in the contract is 

performed; (2) contingency contracts for recovery services in 

which the contractor is paid a percentage of the recoveries; and 

(3) internal review and analysis in which payment controls are 

employed to ensure that contract payments are accurate. 

for recovery auditing act compliance, treasury requires each 

bureau and office to review its post-payment controls and report 

on recovery auditing activities, contracts issued, improper payments identified, and recoveries achieved. bureaus and offices 

may use recovery auditing firms to perform many of the steps 

in their recovery program and identify candidates for recovery 

action. 

Results for Fiscal Year 2010 

During fiscal year 2010, treasury issued $6.4 billion in contracts 

(defined as issued and obligated contracts, modifications, 

task orders, and delivery orders). the Department identified 

improper payments in the amount of $467,000 from recovery 

auditing efforts, and recovered $518,000, including prior year 

recoveries, with $58,000 outstanding as accounts receivable on 

september 30, 2010. 

note: additional detail on treasury’s IPIa and recovery 

auditing act Programs can be found in appendix b. 

improper payments information act and recovery auditing act 
performance and accountability report | fiscal year 2010 

47 

ManageMent assurances 

the seCretary’s letter Of assuranCe 

the Department of the treasury’s management is responsible for establishing and maintaining effective internal 

control and financial management systems that meet the objectives of the Federal Managers’ Financial Integrity Act 

(fMfIa). treasury has evaluated its management controls, internal controls over financial reporting, and compliance with federal financial systems standards. as part of the evaluation process, we considered results of extensive 

testing and assessment across the Department and independent audits. 

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

have been achieved, except for the material weaknesses noted below. In accordance with oMb circular a-123, 

appendix a, we provide qualified assurance that internal control over financial reporting was operating effectively based on the results of the assessment as of June 30, 2010. treasury is not in substantial compliance with 

the Federal Financial Management Improvement Act due to the material weakness related to revenue accounting 

systems. 

as of september 30, 2010, treasury has four material weaknesses as follows (with origination/resolution timeframes indicated): 

Operations: 

Internal Revenue Service 

•	 Improve Modernization Management controls and Processes (fiscal year 1995/2011) 

•	 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: 

Internal Revenue Service 

•	 unpaid assessments (remaining portions of financial accounting of revenue – custodial) 

(fiscal year 1995/2015) 

treasury management remains dedicated to the resolution of these weaknesses. overall, treasury continues 

to make progress in reducing management and control weaknesses and in meeting federal financial systems 

requirements. 

timothy f. geithner 

part 1: management’s discussion and analysis 

november 15, 2010 

management assurances 
part 1: management’s discussion and analysis

the department of the treasury 

48 

MaterIal Weaknesses, auDIt folloW-uP, 

anD fInancIal systeMs 

summary Of management assuranCes 

Summary of Material Weaknesses 

Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance 

IRS – Unpaid Assessments (remaining portions of Financial Accounting 

of Revenue – Custodial) 

1 0 0 0 0 1 

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

IRS – Computer Security 1 0 0 0 0 1 

FMS – Systems, Controls, and Procedures to Prepare the Governmentwide Financial Statements 1 0 0 0 0 1 

DO – Financial Management Practices 1 0 1 0 0 0 

Total Material Weaknesses 5 0 1 0 0 4 

as of september 30, 2010, treasury has four material weaknesses under section 2 of the Federal Managers’ Financial Improvement Act 

as shown in the tables below. 

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

Statement of Assurance Qualified 

Material Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance 

IRS – Unpaid Assessments (remaining portions of Financial Accounting 

for Revenue – Custodial) (See Appendix D) 

1 0 0 0 0 1 

DO – Financial Management Practices 1 0 1 0 0 0 

Total Material Weaknesses 2 0 1 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 0 0 0 1 

IRS – Computer Security 1 0 0 0 0 1 

FMS – Systems, Controls, and Procedures to Prepare the Governmentwide Financial Statements 1 0 0 0 0 1 

Total Material Weaknesses 3 0 0 0 0 3 

Conformance with Financial Management System Requirements (FMFIA § 4) 

Statement of Assurance Systems conform to financial management system requirements 

Non-Conformances Beginning Balance New Resolved Consolidated Reassessed Ending Balance 

Total Non-conformances 0 0 0 0 0 0 

material weaknesses, audit follow-up, and financial systems 
performance and accountability report | fiscal year 2010 

49 

Compliance with Federal Financial Management Improvement Act (FFMIA) 

Agency Auditor 

Overall Substantial Compliance No No 

1. System Requirements No 

2. Accounting Standards No 

3. USSGL at Transaction Level Yes 

Federal Managers’ Financial Integrity Act 

(FMFIA) 

the management control objectives under fMfIa are to 

reasonably ensure that: 

•	 Programs achieve their intended results 

•	 resources are used consistent with overall mission 

•	 Programs and resources are free from waste, fraud, and 


mismanagement 


•	 laws and regulations are followed 

•	 controls are sufficient to minimize any improper or erroneous payments 

•	 Performance information is reliable 

•	 system security is in substantial compliance with all 


relevant requirements 


•	 continuity of operations planning in critical areas is sufficient to reduce risk to reasonable levels 

•	 financial management systems are in compliance with 


federal financial systems standards 


Deficiencies that seriously affect an agency’s ability to meet 

these objectives are deemed “material weaknesses.” treasury 

can provide assurance that the objectives of the fMfIa have 

been achieved, except for the material weaknesses noted in the 

secretary’s letter of assurance. During fiscal year 2010, treasury 

downgraded or closed one material weakness. although the 

last open material weakness is targeted to be closed in fiscal 

year 2015, treasury is focusing on making sufficient progress to 

downgrade the weakness sooner. 

each year, material weaknesses, both the resolution of existing 

ones and the prevention of new ones, receive special attention 

from management. In fiscal year 2010, treasury continued to 

make resolution of material weaknesses a performance requirement for every executive, manager, and supervisor. 

Office of Management and Budget 

Circular A-123, Appendix A 

the Department continues to strengthen and improve the 

execution of the treasury mission through the application of 

sound internal controls over financial reporting. In response 

to office of Management and budget (oMb) circular a-123, 

Management’s Responsibility for Internal Control, appendix a, 

Internal Control over Financial Reporting, treasury developed 

and implemented an extensive annual testing and assessment 

methodology that identified and documented internal controls 

over financial reporting at the transaction level integrated with 

the government accountability office’s Standards for Internal 

Control. the testing and assessment were completed across all 

material treasury bureaus and offices by June 30, 2010. treasury 

provides qualified assurance that internal controls over financial 

reporting are effective as of June 30, 2010, due in large part to 

the unpaid assessment weakness (remaining portions of the 

financial accounting of revenue - custodial weaknesses) at the 

Internal revenue service (Irs). 

Audit Follow-Up 

During fiscal year 2010, treasury continued its efforts to 

improve both the general administration of management 

control issues throughout the Department and the timeliness of 

the resolution of all findings and recommendations identified 

by the office of the Inspector general (oIg), the treasury 

Inspector general for tax administration (tIgta), the 

special Inspector general for the troubled asset relief Program 

(sIgtarP), the government accountability office (gao), 

and external auditors. 

treasury management at every level will maintain the momentum on accomplishing planned corrective actions (Pcas) to 

resolve and implement sound solutions for all audit recommendations. treasury has made considerable progress by focusing 

on achieving a high rate of timely implementation of planned 

part 1: management’s discussion and analysis 

material weaknesses, audit follow-up, and financial systems 
the department of the treasury 

part 1: management’s discussion and analysis

50 

corrective actions (Pcas). In fiscal year 2010, treasury’s offices 

and bureaus completed 88.4 percent of Pcas on time or early. 

Federal Financial Management 

Improvement Act (FFMIA) 

the Federal Financial Management Improvement Act (ffMIa) 

of 1996 mandates that agencies “... implement and maintain 

financial management systems that comply substantially with 

federal financial management systems requirements, applicable federal accounting standards, and the united states 

government standard general ledger at the transaction level.” 

ffMIa also requires that remediation plans be developed for 

any entity that is unable to report substantial compliance with 

these requirements. 

During fiscal year 2010, the Department issued revised ffMIa 

guidance and procedures based on federal guidance issued by 

the office of Management and budget (oMb). oMb requires 

agencies to use a risk-based approach to assess their financial 

management systems’ compliance with ffMIa. In compliance with the revised guidance, treasury’s bureaus and offices 

conducted a self-assessment to determine their risk level. 

With the exception of the Internal revenue service (Irs), all 

treasury bureaus and offices are in compliance with ffMIa. 

as required, the Irs has a remediation plan in place to correct 

the identified deficiencies. for each identified deficiency, the 

remediation plan provides specific remedies, target dates, 

responsible officials, and estimated resources required to correct 

the deficiencies. this plan is reviewed and updated quarterly. 

(refer to appendix D for detailed information.) 

Financial Management Systems 

Framework 

the Department’s overall financial management systems 

framework consists of a treasury-wide financial data warehouse, 

supported by a financial reporting tool, and separate bureau 

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. In addition to the existing fars applications, 

the Department is reviewing existing government owned and 

operated systems for the implementation of a Department-wide 

fleet management information system, which would streamline 

and enhance management controls and reporting and improve 

fleet management planning and decision making. 

treasury’s fars applications operate at a contractor operated 

hosting facility. In accordance with the guidance contained 

in the american Institute of certified Public accountants’ 

statement of auditing standards (sas) no. 70, Service 

Organizations, the service provider’s independent auditors 

examined the controls for the dedicated hosting service. In 

the opinion of the auditors, the description of the controls 

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

the provider’s controls that had been placed in operation as of 

september 30, 2010. 

fourteen treasury bureaus and offices use the financial operations services and systems support from the bureau of the Public 

Debt’s administrative resource center. utilizing 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. treasury continues 

to work with the bureaus to evaluate plans for continuous 

improvement to their financial management systems structure. 

material weaknesses, audit follow-up, and financial systems 
part 2: 

annual 

performance 

report 

performance and accountability report | fiscal year 2010 

53 

introduction
 

the annual Performance report (aPr) provides information 

that enables the public to assess the Department’s performance 

relative to its mission and stewardship of the resources entrusted 

to it. the report is organized by strategic goal, objective, and 

outcome, and provides detail on how each of the metrics 

contributes to the Department’s overall mission. a performance 

statement is provided for each objective, along with charts and 

tables for cost and budget. baseline measures are included in the 

calculations and count as having “met” their targets. as in prior 

years, treasury has developed new measures and discontinued 

measures based on analysis of performance management needs. 

the table of key performance measures in each goal section 

includes data from the last two years; a performance rating 

for 2010; the percent of target achieved; the percent change 

in actual results from the last fiscal year; the fiscal year 2011 

target; and trends in both performance and targets over the 

last four years. trends are indicated by colored arrows, with red 

indicating an unfavorable direction, green a favorable direction, 

black indicating no change, and “b” for a baseline measure. 

the Department considers external factors when evaluating 

performance. In some cases, additional indicators are discussed 

to provide an enhanced description of progress. 

each section of the aPr concludes with a “Moving forward” 

piece that describes future actions to be taken. actions could 

include closing performance gaps, developing new measures, or 

drafting new polices and regulations. 

throughout the report, cost is stated as “Performance cost,” 

and represents imputed costs, depreciation, losses, and other 

expenses not requiring budgetary resources. Performance 

cost was used rather than net cost because it more accurately 

represents the total cost to achieve a result or outcome. for 

instance, while the net cost to manufacture coins and currency 

for non-appropriated bureaus such as the u.s. Mint and the 

bureau of engraving and Printing is zero because it is essentially 

self-funded, the real cost of operating these organizations is over 

$4 billion once all imputed costs, depreciation, losses, and other 

expenses are included. While performance cost is more than 

net cost, it is less than the gross cost reported on the statement 

of net cost because it excludes accounts that do contribute to 

the cost of achieving performance for the agency, such as the 

exchange stabilization fund and the federal financing bank. 

fiscal year 2010 is the fourth year that treasury has included 

this information. 

overall, the Department set more aggressive targets on 37 

percent of its measures in 2010 compared to 2009, and achieved 

72 percent of those targets compared to 80 percent in 2009. 

the treasury Department continues to review its performance 

measure set and eliminate or modify measures to obtain the 

best information possible on performance. treasury’s annual 

Performance report has not been audited. 

see http://www.treasury.gov/offices/management/dcfo/ 

accountability-reports for the full report of the treasury 

Department’s fiscal year 2010 Performance Measures. 

introduction 

part 2: annual performance report
the department of the treasury 

54 

coMPleteness anD relIabIlIty 

of PerforMance Data 

aCCuraCy Of perfOrmanCe 

m * easures 

Measures are classified for accuracy as follows: 

•	 Reasonable Accuracy: Judged to be sufficiently accurate for 

program management and performance reporting purposes 

(specified in office of Management & budget circular 

a-11, section 230-4(f)) 

•	 Questionable or Unknown Accuracy: Judged to be materially 

inadequate (specified in office of Management & budget 

circular a-11, section 230-4(f) as “materially inadequate”) 

prOCeDures fOr COnDuCting 

revieW Of the Department’s 

perfOrmanCe measure Data 

the Department of the treasury’s office of strategic Planning 

and Performance Management prepares the annual report on 

performance measures and monitors component-submitted 

performance information. based on a finding in fiscal year 2006, 

it was determined that improvements to the internal control 

process for performance measures were needed. Improvements 

to the process included: 

•	 all measures are now prioritized as high, medium, or low, 

based on the relationship to achieving the Department’s 

goals 

•	 a representative sample of measures are selected for review 

every fiscal quarter 

•	 supporting documentation from that sample is reviewed for 

accuracy, reliability, and completeness 

•	 all measure calculations are verified, data sources are 

validated, and comparisons are made to prior year results 

•	 Information related to the measures is maintained in hardcopy form and can be reviewed at any time 

as a result, performing this process will uncover any potential 

data or calculation error and will provide additional assurances 

on the integrity of the information and data presented in the 

annual Performance and accountability report. 

COmpleteness Of Data 

Not Available: there were no measures in fiscal year 2010 for 

which data was not available. 

Discontinued: the following performance measures were 

discontinued in fiscal year 2010 and will not have data 

available for this report. explanations for why these 

measures were discontinued can be found at http://www. 

treasury.gov/offices/management/dcfo/accountability-reports. 

Bureau Performance Measure 

BEP Currency Production 

BEP Improper and/or erroneous payments or purchases 

BEP Maintain ISO certification 

BEP Other financial losses 

BEP Security costs per 1000 notes delivered 

BEP Total financial losses 

BEP Total regulatory fines and claims paid 

CDFI Administrative cost per number of Bank Enterprise Award (BEA) 

applications processed 

CDFI Administrative costs per financial assistance (FA) application 

processed 

CDFI Administrative costs per number of Native American CDFI 

Assistance (NACA) applications processed 

CDFI Administrative costs per number of New Markets Tax Credit 

(NMTC) applications processed 

DO Number of material weaknesses closed (significant management 

problems identified by GAO, the IGs and/or other bureaus) 

MINT Absolute Value of Production Percent Deviation from net Pay 

MINT Employee Confidence in Protection 

MINT Numismatic Net Margin 

MINT Protection Cost Per Square Foot 

Treasury 

Franchise Fund 

Operating expenses as a percentage of revenue – Consolidated/ 

Integrated Administrative Management 

Treasury 

Franchise Fund 

Operating expenses as a percentage of revenue – Financial 

Systems, Consulting and Training 

* Performance measures were not audited. 

completeness and reliability of performance data 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

55 

Baseline: the following measures established baseline values 

and targets in fiscal year 2010: 

Bureau Performance Measure 

BPD Percent of overall customer satisfaction with Government Agency 

Investment Services 

BPD Percent of Summary Debt Accounting business processes 

restructured or eliminated 

BPD Percent of Primary Dealers that submit live bids from their disaster 

recovery site on two separate auction dates 

CDFI Application Cycle Time - BEA 

CDFI Application Cycle Time - CDFI 

CDFI Application Cycle Time - NMTC 

CDFI Application Cycle Time - Native Initiatives 

CDFI Disbursement Cycle Time - BEA 

CDFI Disbursement Cycle Time - CDFI 

CDFI Disbursement Cycle Time - NMTC 

CDFI Disbursement Cycle Time - Native Initiatives 

Mint Circulating on-time delivery 

MINT Safety Incident Recordable Rate 

Data Reliability: Performance data presented in this report 

meets the standards for reliability set forth in office of 

Management & budget circular a-11, section 230-5(f). 

the circular states that performance data must be accurate 

and reliable and that verification and validation techniques 

should be in place. 

for additional details on performance measure information, see 

http://www.treasury.gov/offices/management/dcfo/accountabilityreports. 

completeness and reliability of performance data 

part 2: annual performance report
the department of the treasury 

56 

strategic goal: 

effectIVely ManageD 

u.s. goVernMent fInances 

strategic objective: 

available cash resources to operate the Government 

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 fiscal management ensures the continual operation of essential government 

services and allows the Department to meet its financial obligations while minimizing borrowing costs. accurate projections of 

the u.s. government’s cash requirements ensure that funds are 

available to cover federal payments on an ongoing basis. the 

ability of the treasury to manage the nation’s finances is essential to maintaining the stability and integrity of the financial 

system. 

the bureaus and policy offices responsible for the achievement 

of this objective are the following: 

•	 alcohol and tobacco tax and trade bureau (ttb) 

•	 bureau of the Public Debt (bPD) 

•	 financial Management service (fMs) 

•	 Internal revenue service (Irs) 

•	 office of Domestic finance 

the outcomes associated with this objective are the following: 

•	 revenue collected when due through a fair and uniform 

application of the law at the lowest possible cost 

•	 timely and accurate payments at the lowest possible cost 

•	 government financing at the lowest possible cost over time 

•	 effective cash management 

•	 accurate, timely, useful, transparent and accessible 

financial information 

Performance measures associated with this objective had 46 

percent more aggressive targets compared to 2009. 

Budget Trend 

Available Cash 

Resources to 

Operate the 

Government 

$0

$15,000,000

$11,498,755$10,759,020$11,699,999$12,024,656$12,642,310$13,785,364$13,851,632 

2004 2005 2006 2007 2008 2009 2010 

Dollars (in Thousands) Dollars (in Thousands) $12,000,000

$9,000,000

$6,000,000

$3,000,000

Fiscal Year 

Performance 

Cost Trend 

Available Cash 

Resources to 

Operate the 

Government 

$20,000,000

$11,910,415$13,111,129$12,979,117$13,354,531$14,042,171$14,425,866$15,511,409 

2004 2005 2006 2007 2008 2009 2010 

$15,000,000

$10,000,000

$5,000,000

$0

Fiscal Year 

Performance Cost 

by Outcome 

Available Cash 

Resources to 

Operate the 

Government 

possible cost

transparent and accessible 

financial information 

2.3% Government 

management

2.2%Timely and financing at the lowest 

accurate payments possible cost over time at the lowest 

possible cost 

94.7% Revenue 

collected when 

due through a fair 

and uniform 

application of the 

law at the lowest 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

57 

revenue COlleCteD When Due thrOugh a fair anD unifOrm appliCatiOn 

Of the laW at the lOWest pOssible COst 

based on performance results, treasury was mostly successful in achieving this strategic outcome for fiscal year 2010 as demonstrated by the 

chart below. It is important to note that 2010 targets for this outcome were over 50 percent more aggressive than in 2009. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Amount of delinquent debt collected per $1 spent ($) FMS $53.76 $43.00 $54.54* 126.8% 1.5% Exceeded $43.00  

Amount of delinquent debt collected through all available tools 

($ billions) 

FMS $5.03 $4.65 $5.45 117.2% 8.4% Exceeded $4.84  

Percentage collected electronically of total dollar amount of 

Federal government receipts (%) 

FMS 84 80 85 106.3% 1.2% Exceeded 82  

Percentage of delinquent debt referred to FMS for collection 

compared to amount eligible for referral (%) 

FMS 100 97 100 103.1% 0.0% Exceeded 97  

Unit cost to process a Federal revenue collection transaction ($) FMS $1.57 $1.25 $1.67 66.4% 6.4% Unmet $1.70  

Customer Contacts Resolved per Staff Year IRS 12,918 9,398 10,744 114% -16.8% Exceeded 10,181  

Customer Service Representative (CSR) Level of Service (%) IRS 70 71 74 104.2% 5.7% Exceeded 75  

Examination Quality (LMSB) - Industry (%) IRS 88 89 87 97.8% -1.1% Unmet 89  

Field Collection National Quality Review Score IRS 80.5 81 80.6 99.5% 0.1% Unmet 82  

Field Examination National Quality Review Score (%) IRS 85.1 86.3 84.9 98.4% -0.2% Unmet 86.3  

Percent of Business Returns Processed Electronically (%) IRS 22.8 24.3 25.5 104.9% 11.8% Exceeded 25.4  

Percent of Individual Returns Processed Electronically (%) IRS 65.9 70.2 69.3 98.7% 5.2% Unmet 74.7  

Refund Timeliness - Individual (paper) (%) IRS 99.2 98.4 96.1 97.7% -3.1% Unmet 98.4  

Taxpayer Self Assistance Rate IRS 69.3 61.3 64.4 105.1% -7.1% Exceeded 62.7  

Amount of revenue collected per program dollar ($) (New data 

compilation methodology, 2008) 

TTB $427 $400 $478 119.5% 11.9% Exceeded $410  

Percent of voluntary compliance from large taxpayers in filing 

tax payments timely and accurately (in terms of revenue) 

TTB 94 92 94 102.2% 0.0% Exceeded 94  

*Estimated 

Analysis of Performance Results 

the table presents a sample of the measures associated with 

the achievement of the revenue collection outcome. based on 

the full suite of measures relating to this outcome, during fiscal 

year 2010, treasury met or exceeded targets for 69 percent of 

its performance measures relative to this strategic outcome (27 

measures out of 39). this was a decrease from fiscal year 2009, 

when targets for 73 percent of performance measures were either 

met or exceeded. however, 50 percent of our performance 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

58

targets were made more aggressive in fiscal year 2010 contributing to the lower percentage of met or exceeded. two measures 

were discontinued in fiscal year 2010. 

Irs is the largest contributor to this outcome. for fiscal year 

2010, Irs achieved an overall success rate of 66 percent, 

meeting or exceeding the target for 21 of its 32 performance 

measures. In fiscal year 2010, Irs met or exceeded 56 percent 

(10 of 18) of its enforcement targets, and 50 percent (one of 

two) of its business system Modernization targets. 

In fiscal year 2010, the Irs met or exceeded 83 percent (10 

of 12) of the taxpayer service performance targets. the two 

measures that fell short of the target were the individual e-file 

rate and refund timelines, which were both within 97 percent 

of their targets. the individual e-file rate fell short of the target 

due to a higher than anticipated number of paper returns received during fourth quarter. refund timeliness fell short of the 

target due to delays caused by the computation of the Making 

Work Pay credit and the first time homebuyer credit. 

Performance at fMs was generally positive. Performance targets 

for four of fMs’s five measures were either met or exceeded in 

fiscal year 2010. fMs failed to meet its target for “unit cost to 

process a federal revenue collection transaction.” the average 

cost to process a collection item has increased in recent years 

due to a downturn in the economy, and due to additional 

development expenses related to the collections and cash 

Management Modernization (ccMM) Initiative. 

the ttb measures for this outcome, “amount of revenue per 

Program Dollar” and “Percent of Voluntary compliance from 

large taxpayers in filing tax payments timely and accurately (in 

terms of revenue),” exceeded their fiscal year 2010 performance 

targets by 19.5 percent and two percent, respectively. Voluntary 

compliance results were 94 percent of revenue, the same compliance rate achieved in 2009. amount of revenue per program 

dollar was $478, an increase from $427 in fiscal year 2009. 

Taxpayer Service and Revenue 

Processing 

Internal Revenue Service 

the Irs delivered a successful 2010 filing season, while rising 

to challenges posed by the implementation of provisions in 

the American Reinvestment and Recovery Act of 2009 (recovery 

act), the Worker, Homeownership, and Business Assistance 

Act of 2009 (Whbaa), and increased telephone demand for 

economic recovery Payment inquiries. In fiscal year 2010, the 

total revenue collected by the Irs was $2.3 trillion. results of 

the 2010 filing season include: 

•	 Processed 141.9 million individual returns and issued more 

than 109.5 million refunds totaling $366 billion, compared 

to 144.4 million returns resulting in 111.4 million refunds 

totaling $339.6 billion for the same period in 2009 

•	 achieved a 74 percent telephone level of service, an 

increase from 70 percent in 2009, while answering 36.7 

million assistor calls 

•	 Processed over 2.9 million free file returns 

•	 responded to more than 5.6 million web and 815,300 

telephone requests for information on the one time $250 

economic recovery Payment 

In fiscal year 2010, electronic filing increased compared to 2009 

results. Individual returns electronically filed increased to 69.3 

percent, up from 65.9 percent in 2009, with the total number 

of individual returns filed electronically reaching 98.4 million. 

business returns electronically filed increased 12 percent over 

2009, reaching 25.5 percent. tax professional use of e-file 

reached 62.3 million returns. filing via home-computer reached 

34.6 million returns, 7.4 percent greater than 32.2 million in 

2009. 

IRS Customer 

Service 

Representative 

Level of 

Service 

Customer Service Representative


Level of Service
 

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

Fiscal Year 

87% 83% 82% 82%

70% 74%

53%

2004 2005 2006 2007 2008 2009 2010 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

59 

“customer contacts resolved per staff year” was 10,744, 

achieving 114 percent of the target. the Irs is addressing 

demand through improved self-service options. More automated 

calls were completed, reaching 35.1 millions calls, a 21 percent 

increase from the 29 million automated calls completed in 

fiscal year 2009. the number of assistor answered calls was 36.7 

million, lower than the 39 million assistor calls answered in 

fiscal year 2009. responses to account questions received via 

the telephone were correct 95.7 percent of the time, an increase 

over the 94.9 percent accuracy achieved in fiscal year 2009. 

In addition to e-filing, Irs internet presence facilitates better 

information and service. the Irs added more automated web 

tools and services in 2010. over 213 million tax products were 

downloaded by taxpayers, an increase of almost 12 percent. 

More than 108.8 million electronic payments totaling over 

$1.9 trillion were processed through the electronic federal tax 

Payment system (eftPs). More than 66.9 million taxpayers 

used “Where’s My refund?” an increase of 23.8 percent from 

2009. the Irs website also: 

•	 Provided taxpayers with electronic tools such as the earned 

Income tax credit (eItc) assistant to determine if they 

qualify for the refundable tax credit 

•	 Provided explanations of tax benefits of the recovery act 

•	 Developed an automated service for taxpayers to obtain 

a PIn to satisfy signature requirements when e-filing a 

current year return 

•	 created a system that allows taxpayers to self screen and 

make online appointments for return preparation in the 

taxpayer assistance centers. taxpayers made approximately 19,000, or 18 percent of scheduled appointments, 

on-line 

•	 created a special section on Irs.gov titled “tax center 

to assist unemployed taxpayers” for taxpayers who are 

struggling financially 

reaching taxpayers through social media was expanded by the 

Irs during the fiscal year 2010 filing season. the Irs produced 

a number of podcasts that were available on Irs.gov and 

itunes. In addition, the Irs created youtube videos on subjects 

including the education tax credit, Making Work Pay, and 

the new homebuyer credit. Many were available in english, 

american sign language, and spanish (www.youtube.com/user/ 

irsvideos). the Irs and its partners educated and promoted asset 

building to low- and moderate- income taxpayers by creating six 

customized webcasts to cover a wide range of activities, such as 

establishing savings and Individual Development accounts (a 

special savings account where money is matched by donations), 

credit counseling, and financial coaching. 

to help taxpayers address questions, the Irs partnered with 

external stakeholder organizations to expand the availability 

and hours of service at taxpayer assistance sites. the Irs also 

helped facilitate filing compliance by developing new products 

and enhancing communication with the taxpayer community. 

the Irs updated forms and made forms accessible to the visually impaired. the Irs also translated more tax products into 

spanish and implemented a multilingual website. 

each year, the Irs and its partners provide free tax assistance to 

the elderly, disabled, and people with limited english proficiency at Volunteer Income tax assistance (VIta) and tax 

counseling for the elderly (tce) sites. In fiscal year 2010, more 

than $13.5 million in VIta and tce grants were awarded 

to 171 organizations, a 17 percent increase in the number of 

organizations from 2009. the Irs developed a “VIta site list” 

on Irs.gov to provide information on site locations throughout 

the nation, which attracted over 45,000 visits. assistors at the 

more than 12,000 VIta and tce sites throughout the nation 

prepared more than 3.1 million tax returns. the number of 

returns prepared for individuals with disabilities and/or families 

with disabled dependents increased by 99 percent, preparing 

360,500 returns, compared to 181,200 prepared in fiscal year 

2009. 

In an effort to assist the taxpayer community during the 

economic downturn, the Irs and its partners hosted five open 

house events at 200 taxpayer assistance centers (tacs) and 

partner sites across all 50 states. the goals of these events were 

to help resolve tax issues and assist taxpayers in preparation of 

tax returns. as a result, more than 31,400 taxpayers were served, 

and over 7,700 returns were prepared. other outreach efforts 

included: 

•	 held two special saturday events in which more than 


9,500 taxpayers faced with unresolved tax related issues 


were assisted, and over 4,000 returns were prepared 


•	 Provided a dedicated toll-free telephone line and hosted 

a gulf coast assistance Day at seven tacs in the gulf 

coast region, that provided guidance and assistance to 

taxpayers affected by the oil spill in the gulf of Mexico 

•	 used state-of-the-art automated check processing to 


deposit checks electronically at point of receipt at ten 


strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

60 

tacs, thereby protecting a taxpayer’s personal identifiable 

information (PII) from identity theft when mailing checks 

to processing sites, resulting in $95 million in checks 

processed 

the Irs also assisted taxpayers who owed delinquent taxes, 

especially those who were having difficulties meeting their 

tax obligations because of unemployment or other financial 

problems, by: 

•	 granting assistors greater authority to suspend collection 

actions in certain hardship cases, preventing an automatic 

default of an installment agreement and expediting levy 

releases, if warranted 

•	 considering offers in compromise from taxpayers facing 

economic troubles, including those who were recently 

unemployed 

•	 Increasing taxpayers’ ability to speak to an assistor by 

expanding the number of call sites for taxpayers looking to 

resolve their balance due and/or delinquent return account 

while experiencing shorter wait times 

as one of the federal government’s largest benefit programs for 

working families and individuals, the earned Income tax credit 

(eItc) provides additional help for those taxpayers struggling 

financially. In fiscal year 2010, the Irs conducted its fourth 

annual eItc awareness Day in order to educate the public on 

the availability and benefits of this important tax credit. the 

Irs hoped to reach qualifying taxpayers by communicating the 

benefits of eItc through interviews, news conferences, and 

media tours. 

Alcohol and Tobacco Tax and Trade Bureau 

ttb collects excise taxes associated with the sale of alcohol, 

tobacco, firearms, and ammunition through its collect the 

revenue program. In fiscal year 2010, ttb collected $23.8 

billion in federal taxes from nearly 7,100 excise taxpayers. this 

represents a 15 percent increase in tax revenue compared with 

fiscal year 2009, collected from a taxpayer base that grew by 

only six percent. ttb collected $478 in revenue for every 

dollar spent on its revenue collection program, an 11.9 percent 

increase over the prior year. 

the increased rate of return is principally due to the higher 

federal excise tax rate imposed on tobacco products by the 

children’s health Insurance Program reauthorization act 

(chIPra), enacted in february 2009. tobacco excise tax 

collections nearly doubled between fiscal year 2008 and fiscal 

year 2009 and, in the first full year of collections under the new 

tax rate, tobacco revenues were up nearly 38 percent compared 

to the prior year. 

firearms and ammunition excise tax (faet) collections have 

also grown significantly in recent years. since ttb assumed 

responsibility for administering the faet tax program in 2003, 

collections have increased 87 percent. consumer spending 

patterns contributed to a spike in faet revenues in fiscal year 

2009, followed by a decline in collections of approximately 20 

percent in fiscal year 2010. however, faet collections remain 

15 percent above fiscal year 2008 levels, due to the enforcement 

efforts of ttb tax specialists and auditors. 

ttb expanded its electronic tax filing program to enable all 

excise taxpayers to file and pay taxes electronically through 

the Pay.gov web-based system. More than 6,400 ttb taxpayers 

are registered to use Pay.gov to pay excise taxes and file excise 

tax returns and monthly operational reports, an increase of 23 

percent over the prior year. 

the national revenue center (nrc), ttb’s tax processing 

center, receives approximately 68,000 telephone calls and 

inquiries on an annual basis. In fiscal year 2010, ttb developed 

and implemented an improved phone tree menu system for the 

main toll-free telephone number that better directs calls related 

to routine questions to clerks or contractors, and evenly rotates 

incoming calls of a technical nature to specialists. this system 

ensures that specialists’ time is reserved for more complex or 

specific questions. 

Financial Management Service 

fMs collects revenues needed to operate the federal government. In fiscal year 2010, fMs collected nearly $2.94 trillion 

through a network of roughly 9,000 financial institutions, with 

85.3 percent of the dollars collected electronically. the most 

important program that supports electronic collections is 

the electronic federal tax Payment system (eftPs), which 

supports electronic tax payments at any time. In fiscal year 

2010, more than 108 million payments were processed through 

eftPs, reflecting an increase in transaction volume of seven 

percent despite only a 3.5 percent growth in tax revenue 

collected. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

61 

Pay.gov is a system that allows individuals and businesses to 

make non-tax payments to federal agencies over the internet. 

Pay.gov provides collections, form submittal, bill presentment, 

and agency financial reporting services. Pay.gov, which has been 

implemented with 153 federal agencies representing 667 cash 

flows, has collected $81.9 billion and processed 49.4 million 

transactions in fiscal year 2010. 

the Paper check conversion over-the-counter (Pcc otc) 

program converts paper checks received at federal agency 

points-of-sale locations throughout the united states and 

overseas into electronic debits to the check writer’s account 

through the automated clearing house (ach) system or into 

a substitute check image that is truncated and cleared under the 

authority of check 21. Pcc otc fully automates and improves 

the collection, reconciliation, research of returned checks, and 

reporting processes associated with the over the counter collections of federal Program agencies (fPas). Pcc otc has been 

implemented with 11 new agencies and collected $16.6 billion 

in fiscal year 2010. since the inception of Pcc otc in 2001, 

70 agencies have used the program. 

In addition, fMs is implementing collections and cash 

Management Modernization, a comprehensive effort to 

streamline, modernize, and improve the processes and systems 

supporting treasury’s collections and cash management program. 

this effort will improve financial performance by enabling 

fMs and fPas to more effectively manage financial transaction information and improve the efficiency of the collections 

information reporting processes. for example, the transaction 

reporting system is a single touch point to standardize and 

consolidate collections information and eliminate redundancies 

in the federal government’s collections reporting processes. 

additionally, partnerships are being formed with fPas to 

implement the holistic approach to improve cash management 

practices. through this effort, agencies are signing strategic 

cash Management agreements (scMas) to convert electronic 

and paper processes to more efficient electronic collection 

mechanisms. In fiscal year 2010, 11 scMas were signed. 

fMs’ Debt collection program recovers delinquent government 

and child support debt by providing centralized debt collection 

management and operational services to fPas and states as 

required by the Debt collection Improvement act of 1996 

(DcIa) and related legislation. 

In fiscal year 2010, fMs collected $5.45 billion in delinquent 

debt including economic recovery Payments in the following 

categories: 

•	 $2.10 billion in past due child support 

•	 $2.30 billion in federal non-tax debt 

•	 $435 million in state tax offsets 

•	 $618 million in tax levies 

as a result of fMs’ continued improvements to the program, 

collections have steadily increased to more than $47.9 billion 

since the enactment of the DcIa in 1996. agencies referred 

100 percent of their eligible delinquent debt at the end of fiscal 

year 2010. In calendar year 2010, Irs is expected to refer an 

additional $47.7 billion of tax debts for continuous levy, a 13 

percent increase from calendar year 2009. 

the Department of education started the federal salary offset 

Pilot in June 2010 by removing the salary bypass indicator 

from 170 of their direct loan debts. the centers for Medicare 

and Medicaid services, u.s. Postal service, u.s. army corps 

of engineers, and Defense finance and accounting service 

continue to take offsets and levies using the non-treasury 

Disbursing office process. fMs continues to roll out the state 

reciprocal Program, allowing states to submit other state debt 

to treasury offset Program (toP) for offset against federal 

vendor payments and offset of state tax and vendor payments 

to satisfy federal non-tax debt. currently, three states are 

participating in the program. fMs also continued to roll out 

Debt check, an online program used to help agencies bar 

delinquent debtors from obtaining new loans or loan guarantees. the Department of commerce’s economic Development 

administration will be the next agency to utilize Debt check. 

In addition, fMs began providing Debtor locator report data 

with partial matches to the federal and state agencies in toP. 

With partial match information, the agencies and states will be 

able update their debtor files, improve their debt matching in 

toP, and increase offset collections. 

Improving Voluntary Compliance and 

Narrowing the Tax Gap 

the Irs remains committed to finding ways to increase 

compliance and reduce the tax gap. In fiscal year 2010, the 

Irs developed new methodologies for estimating the corporate 

income tax gap; updated the estate and gift tax nonfiling and 

part 2: annual performance report

strategic objective: available cash resources to operate the government
the department of the treasury 

62 

underreporting tax gap estimates; and developed a new basis for 

estimating the individual income tax nonfiler gap. 

research allows the Irs to target specific areas of noncompliance to improve voluntary compliance and allocate resources 

more effectively to reduce the tax gap. the fiscal year 2010 

national research Program (nrP) efforts included a study to 

assess the reporting compliance of employment taxes. the study 

spans three tax years from 2008 through 2010 and examines approximately 2,200 randomly-selected taxpayers each year. this 

new study complements the ongoing study of individual reporting compliance and the study of subchapter s corporations due 

to be released in 2011. 

the Irs continues to study the effects of services it offers to 

taxpayers on the internet, at walk-in sites, and on its toll-free 

telephone lines as well as exploring the relationships between 

taxpayer errors and unclear correspondence. as part of this 

effort, the Irs is testing the impact of on-line assistance and 

instruction, and the impact of service quality to aid in the 

development of new approaches to service. 

ttb continued its efforts to promote voluntary compliance 

among industry members in 2010 through industry seminars, 

web site tutorials, and other outreach efforts. Despite the prolonged economic downturn, ttb believes its outreach efforts 

were successful in improving upon the voluntary compliance 

rate. ttb had a compliance rate of 94 percent for timely filed 

tax payments among large excise taxpayers this fiscal year. 

Enforcement 

Internal Revenue Service 

enforcement of the tax laws is an integral component of the 

Irs effort to enhance voluntary compliance. Irs enforcement 

activities, such as examination and collection, target elements 

of the tax gap and are a high priority. Dollars (in Billions) $37.6 $43.1 $47.3

$48.7$59.2$56.4$48.9$57.6

2003 2004 2005 2006 2007 2008 2009 2010 

$70.0

$60.0

$50.0

$40.0

$30.0

$20.0

IRS 

Enforcement 

Revenue 

In fiscal year 2010, the Irs met 56 percent (10 of 18) of 

examination performance measures in fiscal year 2010. of the 

eight measures that fell short of the target, two were within 99 

percent (field collection quality and collection coverage) of the 

fiscal year 2010 target, three were within 98 percent (field exam 

quality, exam quality for coordinated industry, and conviction 

rate), one was within 97 percent (exam quality – industry), 

one was within 96 percent (collection efficiency), and one 

(tax exempt/government entity (te/ge) determination case 

closures) fell within 74 percent of the target. 

of the eight Irs measures that did not meet their target, four 

were related to quality of the examination and collection 

programs. the field exam national Quality review score was 

84.9 percent, within two percentage points of the 86.3 percent 

target. examination quality for industry was 87 percent, two 

percentage points below the target. field collection quality, at 

80.6 percent, was only half a percentage point away from the 

target. Quality for coordinated industry was 95 percent, within 

one percentage point of target. Major contributors to the 

shortfall were gaps in quality related to efficient resolution of 

issues, meeting timeframes, income determination and verification, and documentation of the audit trail. 

the conviction rate in fiscal year 2010, 90.2 percent, missed 

the target of 92 percent because of the increase in the number 

of dismissals caused by unavailability of witnesses or fugitive 

subjects. these are primarily money laundering investigations 

in which more than three years passed since the date of indictment. collection efficiency and coverage were not met due to 

delays in the issuance of return delinquency notices resulting in 

fewer balance due dispositions. 

the last measure, te/ge determination case closures, was 

105,247 and fell short of the target for two reasons. first, a 

planned system conversion took longer than expected, requiring 

staff to switch to manual processing multiple times throughout 

the year. second, te/ge received 47 percent fewer applications 

of plans that required much less time (0.25 hrs) to complete 

than anticipated. 

the Irs enforcement activities, which target elements of the 

tax gap, showed steady progress, building on fiscal year 2009 

successes in key enforcement programs: 

Fiscal Year 

•	

20 percent 

strategic goal: effectively managed u.s. government finances 

total individual audits increased 11 percent $10.0

$0.0 •	 automated underreporter contact closures increased almost 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

63 

•	 number of high net-worth audits increased more than five 

percent 

•	 large corporate audits increased 8.1 percent—a significant 

achievement given the size (more than $10 million) and 

complexity of these corporate entities 

as a result of these efforts, fiscal year 2010 Irs total enforcement revenue was $57.6 billion, exceeding the $48.9 billion in 

revenue received in fiscal year 2009. 

In fiscal year 2010, the Irs placed extraordinary focus on identifying those who hide assets overseas to avoid paying taxes. as 

part of an overall strategy to improve offshore compliance, the 

Irs continued to take aggressive steps to track tax evaders who 

hide their wealth by engaging in offshore tax evasion schemes. 

the Irs more than doubled its offshore presence by opening 

new offices in asia and central america, placed additional 

law enforcement personnel at its existing offices throughout 

the world, and expanded its interaction with key international 

organizations involved in tax and financial law compliance. all 

of these steps are designed to develop new leads in ongoing 

criminal tax and financial crime investigations. 

some notable accomplishments include: 

•	 expanding international presence and coordination with 

treaty partners and international organizations to improve 

offshore compliance 

•	 establishing a global illicit financial unit to identify and 

investigate large multinational tax and financial crime 

cases generally perpetrated by organized crime syndicates 

•	 Identifying and examining 17,888 foreign resident tax 

returns with tax deficiencies totaling over $1.64 billion 

the voluntary disclosure program the Irs offered in 2009, combined with powerful whistle-blower initiatives, yielded information on illegal transactions and violations of international laws 

and fraud by banks and professionals. In fiscal year 2010, the 

Irs began reviewing the information from program participants 

to identify financial institutions, advisors, and others who 

promoted or otherwise helped u.s. taxpayers hide assets and 

income offshore. the u.s. expanded its crackdown on offshore 

tax evasion beyond the largest swiss bank to europe’s biggest 

lender by market share. the Justice Department is conducting 

criminal investigations of clients who kept accounts at overseas 

bank branches and failed to report them to the Irs. 

the pressure on offshore financial institutions known to facilitate concealment of income by u.s. citizens resulted in: 

•	 a large bank entering into a deferred prosecution agreement on charges of conspiring to defraud the united states. 

Investigations resulted in indictments or guilty pleas of 

clients and bankers on federal income tax related charges, 

including filing false income tax returns, failing to report 

foreign bank accounts, and concealing over millions in 

income subject to taxation. 

•	 a bank in scotland agreeing to forfeit $500 million as part 

of a deferred prosecution agreement. the bank violated 

the bank secrecy act (bsa) and conspired to defraud the 

u.s. by altering or removing names and references from 

payment messages to sanctioned countries, thereby allowing these entities to move hundreds of millions of dollars 

through the u.s. financial system without identification. 

•	 a swiss corporation agreeing to forfeit $536 million to 

the united states. the violations relate to transactions 

illegally conducted on behalf of customers and other 

countries sanctioned in programs administered by the 

Department of the treasury. the corporation deliberately 

removed material information from payment messages so 

that wire transfers would pass undetected through filters at 

u.s. financial institutions. 

original Issue Discount (oID) redemption is a tax scheme in 

which promoters convince taxpayers to file a series of false Irs 

forms and request fraudulent tax refunds based on fictional 

claims of large income tax withholding. the Irs identifies 

and blocks the vast majority of these refund requests, however, 

clients of these promoters are subject to significant tax, penalty, 

and interest for obtaining a fraudulent refund. In fiscal year 

2010, the Irs set up a task force to investigate oID cases 

resulting in: 

•	 100 open investigations 

•	 Decreases in frivolous returns filed from 14,290 in 2009 to 

5,540 in 2010 

•	 Decreases in frivolous refund claims from $24 trillion in 


2009 to $1.2 trillion in 2010
 

the Irs continues to ensure large corporate taxpayers are in 

compliance and use strategies that are less time and resource 

intensive. the compliance assurance Process (caP) program 

has been the most successful example of enhanced transparency 

between the Irs and large corporate taxpayers. In exchange for 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

64 

more openness and transparency before filing, the Irs resolves 

issues early and ensures filing of accurate returns. the caP 

program allows taxpayers who identify their tax issues to get 

certainty with respect to their tax obligations at the time the 

return is filed, rather than waiting for the Irs to examine issues 

during an audit. 

the caP program benefits both the Irs and the taxpayer by 

fostering compliance, reducing the time it takes to process a 

return, and improving both customer and employee satisfaction 

while maintaining a high level of quality. In fiscal year 2010, 

participation increased to 112 corporate taxpayers, with all 102 

from 2009 returning. 

In fiscal year 2010, the Irs introduced a new quality examination process to replace the old joint audit planning process. 

the new process improves efficiency by streamlining internal 

administrative processes, increasing consistency, clearly defining 

roles and responsibilities, and providing the examination teams 

with more administrative flexibility. this approach ensures 

taxpayers are actively engaged with the audit team throughout 

the entire examination process. 

the Irs criminal investigation program continued investigating 

egregious tax, money laundering, and other financial crimes that 

adversely affect tax administration. Improved case development 

and selection methods, coupled with heightened fraud awareness resulted in the successful prosecution of taxpayers involved 

in abusive tax schemes, high income non-filers, employment 

tax evasion cases, and other flagrant forms of tax evasion. using 

its unique statutory jurisdiction and financial expertise, the 

Irs made significant contributions to important national law 

enforcement priorities. Performance levels for the Irs criminal 

investigation program remained high in fiscal year 2010, as 

indicated by the following: 

•	 completion of 4,325 criminal investigations 

•	 a conviction rate of 90.2 percent 

•	 a Department of Justice acceptance rate of 93.9 percent, 

with a u.s. attorney acceptance rate of 91.8 percent, 

which compares favorably with other federal law enforcement agencies 

•	 2,184 convictions secured 

In fiscal year 2010, the Irs continued to ensure compliance of 

exempt organizations and expanded its enforcement presence in 

the tax return preparer community. 

colleges and universities make up one of the largest non-profit 

segments in terms of revenue and assets. the colleges and 

universities project is part of an ongoing effort by Irs to review 

the largest, most complex organizations in the tax-exempt sector 

to identify issues that warrant additional guidance or scrutiny. In 

fiscal year 2010, the Irs released an interim report summarizing 

responses to compliance questionnaires sent to 400 public and 

private colleges and universities. the report discusses the respondents’ organizational structures, demographics, exempt and 

unrelated business activities, endowments, executive compensation, and governance practices. the Irs opened examinations 

on several organizations that were selected based on responses 

to the questionnaire. these examinations focus primarily on 

unrelated business income and executive compensation issues. 

In fiscal year 2010, the Irs launched a number of important 

changes to its oversight of the tax return preparer community to 

improve tax administration and tax compliance. these included 

a coordinated return preparer compliance strategy to ensure that 

the more than one million tax return preparers are competent, 

helping ensure the Irs collects the right amount of tax. key 

elements of this compliance strategy include: 

•	 requiring registration and the assignment of preparer 

tax identification number (PtIn) for all paid tax return 

preparers 

•	 establishing mandatory testing and continuing education 

for paid tax return preparers who are not an attorney, certified public accountant, or enrolled agent 

•	 Developing a public database so taxpayers can ensure their 

tax return preparer is registered with the Irs 

•	 Making all tax return preparers subject to ethical standards 

of treasury circular 230 and subject to discipline by the 

Irs 

•	 Increasing the Irs enforcement presence in the tax return 

preparer community 

In fiscal year 2010, the Irs made a number of due diligence 

visits and took enforcement actions where warranted on paid 

tax preparers resulting in the following: 

•	 completed more than 5,000 field visits to tax return 


preparers
 

•	 completed 265 undercover “shops,” of which 62 percent 

resulted in preparation of fraudulent returns during the 

2010 filing season 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

65 

•	 completed 165 knock and talk Visits, which identified 

at-risk tax return preparers during the 2010 filing season 

•	 achieved 91 convictions (a 100 percent conviction rate) 

on tax return preparer program criminal investigations 

•	 Promoted compliance through publicity and education by 

participating in several outreach events for the tax return 

preparer program 

Alcohol and Tobacco Tax and Trade Bureau 

In conjunction with the increased excise tax rate, chIPra 

imposed a requirement to pay a floor stocks tax (fst) on all 

tobacco products held for sale as of april 1, 2009. through onpremises visits to industry and targeted post audit verifications, 

ttb auditors enforced collection of the tobacco fst from the 

manufacturers, importers, wholesalers, and retailers who held 

tobacco products for sale at the time of the tax rate increase. 

ttb combined technology, outreach to federal and state agency 

stakeholders, and sophisticated targeting techniques to develop 

a targeted audit plan. 

using a short field examination program developed for its 

auditors and investigators, ttb completed more than 250 field 

visits to verify fst payment, which identified $10.2 million in 

additional tax, or an average underpayment of $40,000. fst 

collections to date to more than $1.3 billion. the strategic 

approach used to deploy limited staff resources enabled ttb to 

leverage its field presence to cover a wide universe of potential 

fst taxpayers without adversely impacting the bureau’s other 

audit and investigation priorities. In addition to fst examinations, ttb completed 145 targeted audits to ensure overall tax 

compliance, resulting in the identification of $7.4 million in 

additional tax, penalties, and interest in fiscal year 2010. 

tax fraud in the alcohol and tobacco industries poses a high 

risk to federal revenue collection, as well as a lucrative funding 

source for criminal or terrorist organizations. Diversion includes 

tax evasion, theft, distribution of counterfeit products, and 

distribution in the united states of products marked for export 

or for use outside the country. the Department of the treasury’s 

february 2010 report to congress on “federal tobacco receipts 

lost Due to Illicit trade and recommendations for Increased 

enforcement” estimated that the federal revenue loss on 

cigarettes diverted from lawful commercial channels may 

have reached $1.5 billion in the years prior to the tax increase 

imposed by chIPra. at the new tax rate, revenue losses 

could exceed $3 billion. In June 2010, the ttb administrator 

testified before the house Ways and Means committee, 

subcommittee on oversight regarding the illicit tobacco trade 

and ttb’s jurisdiction and enforcement profile. 

During fiscal year 2010, ttb carried out 35 joint investigations 

with various federal, state, and local law enforcement agencies, 

resulting in the seizure of more than 3,000 cases of alcohol 

beverage products and nearly 100,000 cartons of cigarettes 

having an estimated federal and state tax liability of $30 million. 

ttb closed 33 investigations involving diversion of products 

having an estimated tax liability of more than $30.3 million. as 

a result of these activities, ttb assessed or collected roughly 

$1.9 million in taxes owed. ttb is also involved in multiple 

ongoing criminal investigations of illegal activity. 

ttb collaborated with several federal agencies, international 

organizations, and other stakeholders to ensure that the revenue 

due on imported alcohol and tobacco products is collected. 

through its partnership with u.s. customs and border 

Protection (cbP), and by using data from cbP’s International 

trade Data system, ttb identified 165 entities (15 percent 

of those who imported cigarettes or other tobacco products in 

fiscal year 2010) as having imported tobacco products without 

a federal permit. ttb notified each entity to cease their illegal 

operations, and all have stopped importing or obtained a permit 

to import tobacco products. the tax value of these imports is 

$500,000. 

ttb participated with cbP and Immigration and customs 

enforcement on the fraud Investigative strike team (fIst). 

the fIst initiative addresses smuggling and fraud activity 

along united states’ borders. ttb field personnel participated 

in fIst operations in six u.s. cities with ports or international 

borders. through these efforts, ttb identified regulated 

industry members for comprehensive audits and identified more 

than $250,000 of additional excise tax liability based on these 

examinations. 

Business Systems Modernization 

Internal Revenue Service 

the Irs modernization efforts continue to focus on core tax 

administration systems designed to provide more sophisticated 

tools to taxpayers and to Irs employees. In 2010, 50 percent 

(one of two) of its business system Modernization targets were 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

66 

achieved. the schedule variance measure was met, but only two 

of the five releases met the cost variance threshold of +/- ten 

percent. 

Irs accomplishments in fiscal year 2010 include: 

•	 customer account Data engine (caDe). caDe posted 

more than 41.2 million tax returns and processed more 

than 35.8 million refunds. for the first time, caDe posted 

more than seven million payments submitted with taxpayer 

returns and issued 8,128 savings bonds refunds. In fiscal 

year 2010, the Irs revised its caDe strategy to implement a new taxpayer account database for the 2012 filing 

season. this new database will support daily processing and 

accelerate the refund processing time for most taxpayers. 

the cost of caDe release 5.2 Milestone 4b was less than 

planned because legislative and filing season changes were 

reduced in scope and complexity. 

•	 Modernized e-file (Mef). the Irs deployed an additional 

release that enabled the acceptance of individual forms 

1040 (federal and state returns), form 4868 extensions, and 

21 other supporting 1040 forms and schedules. Modernize 

e-file release 6.1 Milestone 4a-5 required additional funding to support unplanned, required needs including disaster 

recovery activities, increased performance testing, and 

back-end validation and expanded functionality, including 

the development of a transactional national account profile. 

In fiscal year 2010, Mef accepted over 6.9 million returns. 

•	 account Management services (aMs). aMs deployed its 

final release in february 2010. the cost of aMs release 2.1 

Milestone 5 deployment was less than planned due to the 

required realignment of aMs project funds to support r1.3 

software and infrastructure design activities. since the deployment, aMs processed more than 2.3 million accounts 

and distributed more than 2.2 million electronic transcript 

cases. the final aMs release provided users the ability to 

view correspondence images online and on-demand, eliminating manual processing and reducing case cycle time from 

days to minutes. aMs also facilitated the identification of 

unallowable or fraudulent claims for first-time home buyer 

credits claimed through amended returns. 

Alcohol Tobacco Tax and Trade Bureau 

ttb continued with business application development to 

improve internal efficiency and to reduce regulatory burden on 

industry members. ttb undertook a major software development effort in fiscal year 2010 that will allow industry members 

to electronically submit new and amended permit applications 

for approval. the Permits online (Ponl) project will provide 

a secure, web-based system to support online submission, routing, and processing of original and amended permit applications. 

Ponl will allow ttb to screen and authorize applicants to operate alcohol and tobacco businesses under the Federal Alcohol 

Administration Act and the Internal revenue code. Ponl will 

reduce costs to the industry and to ttb, help meet increasing 

demand for services, and improve customer satisfaction. the 

system will be released in early fiscal year 2011. 

ttb made significant progress in its development of the 

formulas online (fonl) business application development 

project in fiscal year 2010. this system will allow industry 

members to submit beverage and nonbeverage alcohol formula 

forms and documentation via the web, and grants formula 

read access rights to certificate of label approval (colas) 

online industry users based on their permit numbers stored in 

Integrated revenue Information system (IrIs), ttb’s permit 

and tax database. this effort also enables industry members to 

register for both fonl and colas online via the web. this 

online filing solution is scheduled for release in fiscal year 2011. 

Protection of Sensitive Information 

the Irs takes the issue of identity theft very seriously. In fiscal 

year 2010, to preserve and enhance public confidence, the Irs 

advocated the protection and proper use of identity information 

by: 

•	 Placing markers on more than 284,000 taxpayer accounts 

to alert employees the account belongs to a substantiated 

identity theft victim; and 

•	 ensuring identity theft indicators and business rules isolate 

returns for additional screening to validate whether the 

true taxpayer filed the return. More than 82,000 returns 

were selected for additional screening and closed; and $245 

million was protected from being refunded to perpetrators 

on thousands of fraudulent returns. 

the Irs also protects its systems and taxpayers from evolving 

online threats. by identifying fraudulent sites and phishing 

scams, the Irs helps to reduce the number of taxpayers who 

fall victim to online fraud schemes. During fiscal year 2010, the 

Irs shut down 4,109 phishing sites (899 domestic and 3,210 

international), compared to 3,444 sites in fiscal year 2009. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

67 

Conclusion 

the treasury Department, through its bureaus Irs, fMs, and 

ttb, was relatively successful in achieving its strategic outcome 

“revenue collected when due through a fair and uniform application of the law.” In fiscal year 2010, 69 percent of the targets 

were met or exceeded. going forward, target setting in fiscal 

year 2011 for 14 of 39 metrics (36 percent) is more aggressive 

than in 2010. 

Despite missing some key performance targets for fiscal year 

2010, such as its quality metrics, Irs generally met or exceeded 

its performance targets. the Irs remains committed to finding 

ways to increase compliance and reduce the tax gap. In fiscal year 

2010, the Irs developed new methodologies for estimating the 

corporation income tax gap; updated the estate and gift tax nonfiling and underreporting tax gap estimates; and developed a new 

basis for estimating the individual income tax non-filer gap. 

Moving Forward 

In fiscal year 2011, the Irs will focus efforts on the following 


priorities:
 

•	 Taxpayer Service – Increase the telephone level of service 

and improve the Irs website where an increasing percentage of taxpayers find the help they need 

•	 Enforcement – expand efforts to address offshore tax evasion and expand the focus on corporate and high-wealth 

returns 

•	 Business Systems Modernization – complete the new 

taxpayer account database. build and deploy advanced 

information technology systems, processes, and tools to improve Irs efficiency and productivity. ensure the privacy 

and security of data and safety and security of employees. 

•	 Human Capital – Make the Irs the best place to work in 

government 

the Irs will continue to invest in strong compliance programs, 

including a robust international enforcement initiative to address offshore tax evasion. enforcement initiatives will address 

underreporting of income associated with international activities and expand enforcement efforts on noncompliance among 

corporate and high-wealth taxpayers and the complex business 

enterprises they control (including corporations, partnerships, 

and trusts). 

In 2010, the Irs announced new recommendations to improve 

oversight of federal tax return preparers, including new registration, testing, and continuing education requirements. the 

recommendations are intended to increase taxpayer compliance 

and ensure uniform and high ethical standards of conduct for 

tax return preparers. Primary implementation of the initial 

changes is anticipated in fiscal year 2011. 

assisting taxpayers with their tax questions before they file 

prevents inadvertent noncompliance and reduces burdensome 

post-filing notices and other correspondence from the Irs. 

In fiscal year 2011, the Irs plans to increase level of service 

by adding resources to meet the ever increasing demand and 

continue to make efficiency improvements such as automated 

self-service applications that allow taxpayers to obtain information on less complex issues such as refund inquiries. these 

improvements free up staff to deal with the more complex tax 

law issues stemming from the passage of new legislation. 

Data and technology are central to the future of tax administration. In fiscal year 2011, the Irs plans to complete the 

new taxpayer account database and continue investments 

in electronic filing systems. completion of the core taxpayer 

account database is the cornerstone of Irs It modernization 

that will expedite refunds to 140 million individual taxpayers. It 

is also a prerequisite for other major initiatives, such as expansion of online paperless services. In addition, next generation 

compliance systems require a relational database structure and 

movement away from the legacy data storage model. the ability 

of the Irs to support increasingly complex taxpayer service and 

compliance initiatives will be severely limited until the new 

taxpayer account database is completed. 

Improving compliance by businesses of all sizes is important. 

specific proposals to improve compliance by businesses would: 

•	 Provide treasury regulatory authority to require that 


information returns be filed electronically
 

•	 require corporations and partnerships with assets of $10 

million or more that are required to file schedule M-3 to 

file their tax returns electronically 

•	 Provide treasury regulatory authority to reduce the current 

threshold, filing 250 or more returns during a calendar year, 

to require electronic filing of certain other large taxpayers not required to file schedule M-3 (such as exempt 

organizations) 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

68 

•	 Implement standards clarifying when employee leasing 


companies can be held liable for their clients’ federal 


employment taxes
 

•	 Increase certainty about the rules pertaining to classification of employees as independent contractors 

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 fPas. 

In fiscal year 2011, ttb expects to support the Department’s 

high priority performance goal related to voluntary tax 

compliance by achieving a compliance rate of 94 percent for 

timely filed tax payments among its largest taxpayers (those 

paying more than $50,000 in excise taxes annually). ttb will 

sustain its high compliance rate through its continued efforts 

to promote industry member use of the online tax return and 

payment filing system, Pay.gov. ttb will further enhance its tax 

verification program, building on the error tracking Database 

(etD) developed in fiscal year 2010 to identify late filers, 

non-filers, and errant filings of operational reports. In fiscal year 

2011, the etD will be expanded to include operational reports 

for all ttb-regulated commodity types. ttb also intends to 

create a module in the etD to address missing and late excise 

tax returns. 

In the first full year of collections under the new tobacco tax 

rates imposed by chIPra, ttb collection efforts resulted in 

year-to-year revenue increase of 15 percent. going forward, revenue collection activities will focus both on legitimate industry 

members and those operating outside of legal distribution chains. 

ttb will continue to include in its audit plan a mix of comprehensive audits, limited scope audits, and examinations in order 

to maximize ttb’s audit resources and provide broad industry 

coverage. ttb also plans to address revenue risk areas in fiscal 

year 2011 through enhanced risk modeling and audit programs. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

69 

timely anD aCCurate payments at the lOWest pOssible COst 

as the government’s financial manager, fMs oversees a daily cash flow in excess of $94 billion, disbursing over $2.3 trillion in payments to more than 100 million people. these payments include income tax refunds, social security benefits, veterans’ benefits and 

other federal payments to individuals and businesses. based on performance results, treasury was successful in achieving timely and 

accurate payments at the lowest possible cost during fiscal year 2010. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Percentage of paper check and electronic funds transfer (EFT) 

payments made accurately and on-time (%) 

FMS 100.0 100.0 100.0 100.0% 0.0% Met 100.0  

Percentage of Treasury payments and associated information 

made electronically (%) 

FMS 81.0 81.0 82.0 101.2% 1.2% Exceeded 83.0  

Unit cost for federal government payments ($) FMS $0.37 $0.40 $0.36* 110.0% -2.7% Exceeded $0.40  

*Estimated 

Analysis of Performance Results 

In fiscal year 2010, treasury exceeded targets for 67 percent and 

met targets for 33 percent of its measures related to this outcome. 

fMs has consistently made 100 percent of payments accurately 

and on-time. the percentage of payments made electronically 

increased by one percentage point, and the unit cost for federal 

government payments was down 2.7 percent, or $0.01. 

Financial Management Service 

During fiscal year 2010, fMs 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. through fMs, treasury met or exceeded targets 

for 100 percent of its performance measures relative to this 

strategic outcome. this is in line with fiscal year 2009, when 

the bureau met or exceeded 100 percent of its targets. 

the first of the three performance measures for this strategic 

outcome concern accuracy and timeliness of payments. During 

fiscal year 2010, 100 percent of paper check and electronic 

funds transfer (eft) payments were made accurately and on 

time, matching the performance target and actual performance 

results from fiscal year 2009. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

the second measure is the percentage of treasury payments and 

associated information made electronically. this measure is an 

indication of the decrease in the number of paper checks issues, 

which reduces costs associated with postage, printing, and 

re-issuance of checks. overall, 82 percent of treasury payments 

and associated information were made electronically in fiscal 

year 2010 versus 81 percent in fiscal year 2009, a one percentage 

point increase. 

fMs manages several payment systems and technologies to 

promote electronic payments. the Payments application 

Modernization (PaM) is an effort to replace legacy applications 

that are used to disburse approximately one billion federal 

payments valued at over $2.3 trillion. PaM involves replacing 

over thirty applications with a single standardized application. 

In addition, fMs manages a stored Value card program that 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

70 

facilitates transactions by military personnel in remote and dangerous locations. finally, the automated standard application 

for Payments (asaP.gov) allows grantee organizations receiving federal funds to electronically draw from accounts. 

fMs’s nationwide go Direct campaign, encouraging current 

federal benefit check recipients to switch to direct deposit, is 

now in its sixth year. go Direct recently concluded an extremely 

successful fifth year in which over 1.5 million conversions were 

attributed to the campaign. the current number of total conversions obtained since the inception of the campaign in 2005 is 

five million. fMs has also facilitated unbanked federal check 

recipients to receive electronic payments through Direct express. 

More than one million people have signed up for the card since it 

was introduced in april 2008. 

the third measure is unit cost for federal government payments. 

this is a measure showing the efficiency of payments. In fiscal year 

2010, the unit cost was $0.36, a decrease from fiscal year 2009. 

Bureau of the Public Debt 

In 2010, bPD implemented an electronic payment system 

using Pay.gov that allows debtors to pay what they owe online. 

Debtors began using the system the same day it was implemented and within the first two weeks, 36 payments were received 

totaling over $11,400. earlier, in 2010, bPD implemented a 

similar system, also using Pay.gov, which allows individuals to 

give gifts online to reduce the public debt. 

Conclusion 

During fiscal year 2010, treasury, through fMs, successfully 

achieved timely and accurate payments at a unit cost of $0.36 

as indicated by having met or exceeded its performance measure 

targets. as the acceptance of electronic payments continues to 

expand, increased efficiency should result in further cost reductions. fMs is working to support greater adoption of electronic 

payments and to renovate systems that accept electronic 

payments. 

Moving Forward 

over the next fiscal year, fMs will continue efforts to expand 

electronic funds transfer, improve service to payment recipients, 

and decrease the average unit cost of payments. the fiscal year 

2011 target for percent of electronic payments is 83 percent, 

an increase of two percentage points from the fiscal year 2010 

target. fMs will also continue its go Direct campaign. for 

fiscal year 2011, fMs plans to continue issuing 100 percent of 

payments accurately and on-time. the PaM will contribute to 

more efficient processing of payments. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

71 

gOvernment finanCing at the lOWest pOssible COst Over time 

bPD conducts the Department’s debt financing operations by issuing and servicing treasury securities. In fiscal year 2010, bPD 

conducted more than 290 auctions resulting in the issuance of more than $8.41 trillion in marketable treasury bills, notes, bonds, 

and treasury Inflation Protected securities. bPD’s government agency Investment services (gaIs) program supports federal, state, 

and local government agency investments in non-marketable treasury securities and also manages over $4 trillion in customer assets. 

based on performance results, through bPD, treasury was generally successful in achieving or exceeding the performance measures for 

government financing at the lowest possible cost over time during fiscal year 2010 by meeting or exceeding 89 percent of its targets. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011

 Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Cost per debt financing operation ($) BPD $170,214 $193,962 $154,790* 120.2% -9.1% Exceeded $201,258  

Cost per federal funds investment transaction ($) BPD $41.71 $45.70 $74.05* 38.0% 77.5% Unmet $76.91  

Cost per TreasuryDirect assisted transaction ($) BPD $8.72 $8.57 $8.17* 104.7% -6.3% Exceeded $7.95  

Cost per TreasuryDirect online transaction ($) BPD $5.21 $5.69 $5.60* 101.6% 7.5% Exceeded $5.46  

Percent of auction results released in two minutes 

+/- 30 seconds (%) 

BPD 100 95 100 105.3% 0.0% Exceeded 100  

*Estimated 

Analysis of Performance Results 

the table above is a sample of the measures associated with 

the achievement of the government financing outcome. bPD 

exceeded 56 percent of its nine performance measures associated with this outcome, met 33 percent, and failed to meet 11 

percent (one measure) related to this outcome. these results 

are consistent with fiscal year 2009 performance when bPD 

met or exceeded all but one target. this year, “cost per federal 

funds investment transaction” was unmet, while bPD met the 

target for the metric it missed last year, “cost per treasuryDirect 

online transaction.” 

In order to effectively finance the u.s. government, treasury 

must efficiently execute its securities auctions. by minimizing 

the time that bidders are exposed to the risk of adverse market 

movements, participants are likely to bid at rates and yields 

more favorable to the federal government. bPD consistently 

releases securities auction results within two minutes, plus or 

minus 30 seconds, of the auction close. bPD exceeded its target 

of 95 percent for the percent of auctions with results released 

within two minutes and achieved 100 percent. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

In fiscal year 2010, the Department conducted over 290 government securities auctions, similar to the number conducted in 

fiscal year 2009. however, the cost per debt financing operation 

fell considerably from $170,214 in fiscal year 2009 to $154,790 

in fiscal year 2010. going forward, treasury will start to measure 

the cost of debt financing operations using a five-year rolling 

average, which will smooth out the effects of spikes in the 

number of auctions. 

In 2010, bPD made the decision to end sellDirect services 

effective December 17, 2010. this program allows investors 

who hold marketable securities in the treasuryDirect and 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

72 

legacy treasury Direct systems the option to sell their securities 

on the secondary market through the federal reserve bank of 

chicago. the decision was based on escalating operating costs, 

which would result in user fees comparable to those charged 

by brokers/dealers. transaction volumes for this service are low, 

averaging 13,000 per year. 

a key component of treasury’s retail securities programs is 

treasuryDirect, which continues to grow in size and function. 

In the past year, 99,800 new customer accounts were added 

and treasuryDirect reached a milestone one million accounts 

in august. bPD enhances the system regularly, and in 2010, the 

bureau added a streamlined process for reinvesting marketable 

securities. In addition, bPD partnered with its largest issuing 

agent, national bond and trust, to reach that agent’s customer 

base, and 12,000 new customers enrolled in treasuryDirect in 

the first half of august, up from a consistent monthly average of 

about 6,000 new accounts. overall, the cost per treasuryDirect 

online transaction was $5.60, meeting the target of $5.69, but an 

increase from the fiscal year 2009 cost of $5.21. 

the gaIs program accounts for over $6 trillion in investment 

and borrowing activities implemented by various federal, state, 

and local government entities. this year bPD completed its 

long-term goal of consolidating the entire gaIs line of business 

into one information technology system. the systems reduction 

allows Public Debt to streamline the diversity of technology 

involved in supporting gaIs programs, as well as consolidate 

and standardize internal control processes. fifty-five percent 

of gaIs customers reported overall “excellent” satisfaction 

with the program, a baseline for this new measure. In addition, 

the cost per federal funds investment transaction was $74.05, 

greater than the target of $45.70 due to a methodology change 

that better aligns costs with transactions. 

Bureau of the Public Debt 

In fiscal year 2010, treasury announced an initiative to end 

the sale of paper savings bonds through payroll savings plans 

by January 2011. throughout 2010, bPD worked with federal 

reserve banks, agents, and employers to encourage customers 

to transition to treasuryDirect. extensive outreach efforts were 

employed including: direct mail, bond inserts, use of Public 

Debt and federal reserve bank websites, on-demand webcasts 

and targeted print, and radio advertising. 

In support of the treasury-wide initiative to reduce paper, bPD 

implemented electronic issue folders for treasury’s marketable 

securities auctions. an auction issue folder, created each time a 

security was auctioned, contained up to 32 different documents 

related to auction processing. this initiative eliminated the 

retention of multiple copies of paper-based folders. 

Office of Debt Management 

the long-standing goal of the treasury’s office of Debt 

Management (oDM) is to maintain the lowest cost of borrowing over time. this objective is achieved by being regular and 

predictable with treasury debt issuance and communication to 

market participants while optimizing the size, mix, and calendar 

of debt issuance. the ability of treasury to manage the nation’s 

debt management is essential to maintaining the stability and 

integrity of the financial system. oDM pursued a number of 

policies to support the liquidity and functioning of the market 

for treasury securities. 

treasury auctions in fiscal year 2010 have witnessed unprecedented demand. on average, nominal note and bond auctions 

have been oversubscribed by 1.9 times, significantly above the 

previous record of 1.5 times in fiscal year 2009. In this strong 

demand environment, treasury extended the average maturity 

of the debt by 5 months, back to an historic average of 58 

months. after large scale changes to the auction calendar in 

fiscal year 2009, this year’s financing need have been reached 

mainly through changes to auction sizes. 

Conclusion 

In fiscal year 2010, treasury met or exceeded 89 percent of the 

targets that were established to demonstrate the achievement of 

financing the government at the lowest possible cost over time. 

there was a nearly 9 percent year over year decrease in cost per 

debt financing operation associated with the increased number 

of auctions. 

Moving Forward 

bPD will move toward an all-electronic environment for retail 

securities. although a date has not been established, proposed 

future plans include eliminating the issuance of paper over-thecounter savings bonds and decommissioning the legacy system 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

73 

for marketable securities. treasuryDirect will be enhanced to 

streamline payroll savings purchases and make it easier for 

investors to purchase securities as gifts. retail payment systems 

will be updated to refer payments to the toP to offset any debts 

that payees owe to the federal government. 

bPD is also exploring the feasibility of conducting treasury’s 

marketable securities auctions via remote access. remote access 

will strengthen bPD’s ability to continue to execute auctions in 

a contingency situation. 

along with the federal reserve bank of Philadelphia, bPD is 

working to automate the regression testing of major functionality within the treasury automated auction Processing system. 

scheduled for completion by the end of calendar year 2010, this 

project will save time and improve the quality of application 

software releases. 

the gaIs program will work to maintain a high customer 

satisfaction rating from customers. additionally, system functionality and reporting will continue to be enhanced to better 

serve customer needs. 

treasury anticipates that oDM will continue to be challenged 

given continued volatility in global financial markets. oDM 

has been working with outside consultants to develop models to 

improve its forecasting ability and is currently in the process of 

testing those models. 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

74 

effeCtive Cash management 

the treasury manages the government’s central operating account and cash position to support gross annual transactions totaling 

$24 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 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. this has been particularly challenging for the past few years due to the financial crisis. treasury did not meet 

its aggressive goal of a five percent or lower variance in fiscal year 2010. the fiscal year 2010 result is consistent with the variance in 

the past four years. 

Key Performance Measure Table 

the following table contains the key performance measure associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Variance between estimated and actual receipts (annual forecast) (%) DO 5.5 5 5.8 84.0% 5.5% Unmet 5  

Analysis of Performance Results 

given economic uncertainties and legislative changes, the 

forecasts for fiscal year 2010 were not as good as those for fiscal 

year 2009. the estimated variance for fiscal year 2010 is 5.8 

percent, higher than the 5.0 percent target. revenue has been 

volatile over the past few years due to the financial crisis. 

Individual tax payments in april came in below forecast as liability for tax year 2009 was much lower than expected. credits 

from the recovery act, while stimulating the economy, further 

reduced these taxes. corporate profitability and thus corporate 

tax receipts turned around, showing strong increases in fiscal 

year 2010. federal reserve earnings, reflecting the increase in 

securities held by the federal reserve, more than doubled from 

their level in fiscal year 2009. 

Conclusion 

ofP continues to effectively manage the government’s daily cash 

position and to minimize borrowing costs over time to ensure 

that government activities and services continue uninterrupted. 

Despite not meeting the targeted variance between forecast and 

actual budget receipts, ofP continues to update and modify 

existing models and monitor new initiatives as they are introduced. the actual results came in close to the target considering 

the volatility and extent of the current economic environment. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

Moving Forward 

treasury anticipates that forecasting government receipts and 

outlays in fiscal year 2011 will continue to be challenging due to 

the difficulty in forecasting the strength of the current recovery. 

Volatility caused by changing economic conditions and new 

programs enacted by congress will have to be accounted for in 

current forecasting models. 

further, treasury is currently working to enhance its forecasting ability. ofP is in the process of developing a new system 

to create and manage its forecasts and expects this system to 

facilitate and strengthen its estimation process. the targeted 

variance between estimated and actual receipts will continue to 

be 5 percent in fiscal year 2011. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

75 

aCCurate, timely, useful, transparent anD aCCessible finanCial 

infOrmatiOn 

the government-wide accounting and reporting Program maintains the federal government’s books and accounts for its monetary assets and liabilities by operating and overseeing the government’s central accounting and reporting system. based on performance results, 

treasury was successful in achieving accurate, timely, useful, transparent and accessible financial information during fiscal year 2010. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Cost per summary debt accounting transaction ($) BPD $8.66 $11.81 $11.41* 103.4% 31.8% Exceeded $12.54  

Release federal government-wide statements on time DO 1 1 1* 100.0% 0.0% Met 1  

Percentage of government-wide accounting reports issued 

accurately (%) 

FMS 100 100 100 100.0% 0.0% Met 100  

Percentage of government-wide accounting reports issued 

timely (%) 

FMS 100 100 100 100.0% 0.0% Met 100  

Unit cost to manage $1 million dollars of cash flow ($) FMS $7.08 $11.77 $7.36 139.8% 4.0% Exceeded $10.15  

*Estimated 

Analysis of Performance Results 

fMs met or exceeded all three of its performance targets for 

this strategic outcome during fiscal year 2010. the unit cost to 

manage one million dollars of cash flow was $7.36, substantially 

lower than the $11.77 target but above the $7.08 level achieved 

in fiscal year 2009. fMs also met both its targets of 100% for 

accurate and timely reports on government-wide accounting. 

bPD surpassed the target for its performance measure “cost per 

summary Debt accounting transaction.” the cost was $11.41 

in fiscal year 2010, below the target of $11.81. however, the 

cost was 32 percent above the fiscal year 2009 actual of $8.66. 

Financial Management Service 

the Department, through fMs’ government-wide accounting 

and reporting Program, maintains the federal government’s 

books and accounts for its monetary assets and liabilities by 

operating and overseeing its accounting and reporting system. 

the consolidated financial report of the united states 

government (fr) provides a comprehensive view of the 

federal government’s finances and is critical to a fully informed 

budget process. fMs met the 45-day reporting deadline for the 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

past five years for the fr. however, in fiscal year 2009, the 

oMb extended the release date of the financial report to 

february 26, 2010, due to substantial reporting requirements of 

the recovery act. the Department anticipates a return to the 

regular release schedule for the fiscal year 2010 fr of just 75 

days after the close of the fiscal year. 

to complement and support the accelerated release of the fr, 

treasury continues to release the Monthly Treasury Statement on 

the eighth workday of each month. this release schedule allows 

treasury to provide agency financial managers complete and 

accurate financial data more often as a basis for preparation of 

their financial statements. 

strategic objective: available cash resources to operate the government 

part 2: annual performance report
the department of the treasury 

76 

office of the fiscal assistant secretary (ofas), in cooperation with oMb, and with the support of the government 

accountability office (gao) develops, produces, and issues 

The Federal Government’s Financial Health – A Citizens’ Guide 

to the Financial Report of the U.S. Government. this guide 

provides a summary of the key data and issues addressed in the 

full fr in a manner that is user-friendly to the general public. 

the government-wide accounting (gWa) Modernization 

Program is improving long standing federal accounting processes 

and provides agencies with methodologies and tools to improve 

the accuracy and consistency of their financial data. this multiyear effort will improve the reliability, usefulness, and timeliness 

of the government’s financial information and provide agencies 

and other users with better access to that information. It will 

also eliminate duplicate reporting and reconciliation burdens by 

agencies, resulting in significant government-wide savings. 

to date, the program has implemented several improvements 

to provide agencies more timely data and enhanced tools to 

reconcile their fund balances with treasury. the authority 

transaction Module automated the processes for borrowing 

from treasury, non-expenditure transfers, and appropriation 

warrant transactions. the Provisional account statement now 

provides gWa reporting organizations the capability to view 

their submitted transactions on a daily basis, permitting a daily 

reconciliation of fund balances. 

Bureau of the Public Debt 

through its summary Debt accounting program, bPD continues to reliably account for the borrowing activity of the federal 

government and report timely on the resulting debt. During 

fiscal year 2010, 100 percent of daily financial statements 

were produced within three business days, and 100 percent of 

monthly ledgers closed within one business day. as noted in the 

Schedules of Federal Debt, these accomplishments contributed to 

continuous unqualified audit opinions and no material weaknesses of internal controls. 

Conclusion 

fMs continues to make improvements to its policies, procedures, information systems, and internal controls associated 

with compiling and issuing the fr. gao closed two of 44 

recommendations in the fiscal year 2009 audit report. fMs 

will continue to resolve the preparation issues that are within 

its realm of control. ofas continues to oversee increased 

efforts to resolve the significant disclaimers that have impacted 

the government-wide audit for more than a decade, including 

the development of a general fund reporting entity, which is 

intended to facilitate interagency accounting, promote centralization and efficiency, and improve data integrity. 

Moving Forward 

treasury will continue to work to produce more accurate and 

useful financial statements and reports for the public. the 

financial Information and reporting standardization (fIrst) 

initiative addresses the core of federal financial management 

problems, which is improving the quality of agency accounting. once this foundation is in place, the federal government 

will be in a position to receive a clean audit opinion on the 

financial report of the u. s. government. More importantly, 

fIrst will be the foundation for a central repository of accurate financial information. 

early in fiscal year 2011, the gWa Modernization Program will 

implement enhancements to all of its public facing components to allow agencies to enter and review the component 

based treasury account symbol as published in the common 

government-wide accounting classification code July 2007 

Version 1.0 Document. additionally, in mid fiscal year 2011, 

the program will implement the first non-treasury Disbursed 

organization as a gWa reporter. additionally, the new 

classification transaction and accountability Module will be 

deployed in 2011, facilitating the ability of agencies to more 

quickly transition to becoming gWa reporters. 

bPD will continue to accurately account for and report on 

federal debt. bPD will modernize its current summary debt 

accounting system and has established a goal to migrate to a 

shared service solution by fiscal year 2013. this approach will 

standardize business, system, and data elements and reduce 

operational risk and costs. 

strategic goal: effectively managed u.s. government finances 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

77 

strategic goal: 

u.s. anD WorlD econoMIes PerforM at full 

econoMIc PotentIal 

strategic objective: 

improved economic opportunity, Mobility, and security with robust, 

real, sustainable economic Growth at Home and abroad 

economic growth stimulates economic opportunity, mobilPromoting the development of new markets in the u.s. ensures 

ity, and security for americans and others around the world. 

that all americans benefit from economic growth. the expansion of underdeveloped economies abroad opens markets, 

enhances regional stability, reduces the spread of disease, creates 

opportunities for profitable trade, and demonstrates democracy 

in action. treasury promotes economic growth through direct 

and indirect regulation of financial markets; regulation of 

national banks and thrifts; implementation of policies promoting international trade, investment, and economic security; 

programs encouraging investment in economically distressed 

communities; and policy initiatives directed at expanding the 

capacity of financial institutions to provide affordable credit, 

capital, and financial services to the american people. 

the bureaus and offices responsible for achievement of this 

objective are: 

•	 alcohol and tobacco tax and trade bureau (ttb) 

•	 community Development financial Institutions fund 

(cDfI fund) 

•	 the office of the comptroller of the currency (occ) 

•	 the office of Domestic finance 

•	 the office of economic Policy 

•	 the office of International affairs 

•	 the office of thrift supervision (ots) 

•	 the office of financial stability (ofs) 

Performance measures associated with this objective had 24 

percent more aggressive targets compared to 2009. 

the outcomes associated with this objective are: 

•	 strong u.s. economic competitiveness 

•	 competitive capital markets 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

•	 free trade and investment 

•	 Prevented or mitigated financial and economic crises 

•	 Decreased gap in global standard of living

Budget Trend 

Improved 

Economic 

Opportunity, 

Mobility, and 

Security with 

Robust, Real, 

Sustainable 

Economic 

Growth at 

Home and 

Abroad 

Performance 

Cost Trend 

Improved 

Economic 

Opportunity, 

Mobility, and 

Security with 

Robust, Real, 

Sustainable 

Economic 

Growth at 

Home and 

Abroad 

Fiscal Year 

$2,000,000

$825,793$874,059$975,283$1,057,863$1,383,230$1,678,247$1,627,776 

2004 2005 2006 2007 2008 2009 2010 

Dollars (in Thousands) Dollars (in Thousands) $1,500,000

$1,000,000

$500,000

$0

$1,500,000

$829,468$927,076$1,016,696$1,077,080$1,162,382$1,423,847$1,403,829 

2004 2005 2006 2007 2008 2009 2010 

$1,200,000

$900,000

$600,000

$300,000

$0

Fiscal Year 

Performance Cost 

by Outcome 

Improved 

Economic 

Opportunity, 

Mobility, and 

Security with 

Robust, Real, 

Sustainable 

Economic 

Growth at 

Home and 

Abroad 

1.2% Decreased gap in 

global standard of living 

74.2% Prevented 

or mitigated 

financial and 

economic crises 

.08% Free trade and 

investment 1.5% Competitive 

capital markets 

22.3% Strong 

U.S. economic 

competitiveness 

part 2: annual performance report
the department of the treasury 

78 

assessing the effeCtiveness Of 

eCOnOmiC pOliCy 

the Department’s economic policy efforts can be separated 

into two categories: policy initiatives and established programs. 

Differences between them largely correspond to timing in 

the policy process. Policy initiatives are efforts to influence 

economic growth and financial market activity through new legislative proposals or government-wide policy. the Management 

Discussion and analysis in Part one covers policy initiatives. 

established programs are typically already defined by law or 

administrative function and have specific objectives and management scope. for performance management, it is generally 

easier to assess the performance of established programs, given 

their clearer objectives and scope. Most of the Department’s 

performance measures consequently assess established programs 

and not policy initiatives. 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

79 

strOng u.s. eCOnOmiC COmpetitiveness 

strong u.s. economic competitiveness is crucial for robust economic growth worldwide, continued investment in the united states, 

and job creation. the treasury Department develops policies and programs intended to promote a prosperous financial infrastructure, 

a balanced macroeconomy, market efficiency, technological readiness, and innovation. for fiscal year 2010, treasury generally met or 

exceeded its performance targets for established programs promoting u.s. economic competitiveness. 

Key Performance Measure Table 

the following table contains key performance measures associated with this outcome. actual and target trends represent four years of 

data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/management/ 

dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Annual percentage increase in the total assets of Native CDFIs (%) CDFI 23 15 26 173.3% 13.0% Exceeded 19  

Commercial real-estate properties financed by BEA Program applicants 

that provide access to essential community products and services in 

underserved communities 

CDFI 500 285 283 99.3% -43.4% Unmet DISC  

Community Development Entities' annual investments in low-income 

communities ($ billions) 

CDFI $3.60 $2.50 $3.10 124.0% -13.9% Exceeded $2.50  

Community Development Entities' cumulative investments in low-income 

communities ($ billions) 

CDFI $12.50 $10.00 $15.80 158.0% 26.4% Exceeded $10.00  

Dollars of private and non-CDFI Fund investments that CDFIs are able to 

leverage because of their CDFI Fund Financial Assistance ($ millions) 

CDFI $1,298 $600 $1,989 331.5% 53.2% Exceeded $1080  

Increase in community development activities over prior year for all BEA 

program applicants ($ millions) 

CDFI $292 $210 $290 138.1% -0.7% Exceeded $210  

Increase in the percentage of eligible areas served by a CDFI CDFI 25.1 21 27.5 131.0% 9.6% Exceeded 20  

Number of full-time equivalent jobs created or maintained in underserved 

communities by businesses financed by CDFI program awardees 

CDFI 70,260 85,000 80,796 95.1% 15.0% Unmet 85,000  

Number of small businesses located in underserved communities 

financed by BEA Program applicants 

CDFI 640 252 1005 398.8% 57.0% Exceeded 250  

Percent of CDFIs that increased their total assets (cumulative) (%) CDFI 88 65 84 129.2% -4.6% Exceeded 60  

Percent of CDFIs that increased their total assets over the previous year (%) CDFI 69 66 52 78.8% -24.6% Unmet DISC  

Percentage of eligible areas served by one or more CDFI (%) CDFI 14.8 5 16.6 332.0% 12.2% Exceeded DISC  

Percentage of loans and investments that went into severely distressed 

communities (%) 

CDFI 81 66 73.4 111.2% -9.4% Exceeded 66  

Average number of days to process an original permit application at the 

National Revenue Center (%) 

TTB 64 72 65 109.7% 1.6% Exceeded 70  

National Revenue Center (NRC) customer satisfaction survey TTB 89 85 89 104.7% 0.0% Exceeded 85  

Percent of electronically filed Certificate of Label Approval applications (%) TTB 74 78 79 101.3% 6.8% Exceeded 81  

Percentage of importers identified by TTB as illegally operating without 

a Federal permit (%) 

TTB 15 19 15 121.1% 0.0% Exceeded 15  

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

Legend Symbol 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

80 

Analysis of Performance Results 

Performance for established programs promoting strong u.s. 

economic competitiveness exceeded target levels for 56 percent 

of measures, met targets for 32 percent of measures, and did not 

meet target levels for 12 percent of measures. five performance 

measures were discontinued. cDfI fund met or exceeded 18 of 

its 21 active performance measures, while ttb exceeded its four 

active performance measures. these results indicate that these 

programs generally succeeded in achieving their performance 

goals, although targets may need to be set more aggressively in 

some cases. 

Community Development Financial 

Institutions Fund 

the cDfI fund promotes economic opportunity by expanding 

the capacity of community development financial institutions 

to provide capital, credit, and financial services to underserved 

populations and economically distressed communities in the 

united states. the cDfI fund receives applications on an annual basis and awards funds through a competitive process. the 

fund’s fiscal year 2010 activities can be broken up into six program areas: financial and technical assistance (cDfI Program), 

new Markets tax credits Program (nMtc Program), native 

Initiatives, bank enterprise award Program (bea Program), 

financial and education counseling Pilot Program (fec Pilot 

Program), and the capital Magnet fund (cMf). 

•	 the cDfI Program in fiscal year 2010 awarded $104.8 million in funding to 179 community development financial 

institutions (cDfIs) and organizations to provide loans, 

investments, financial services, and technical assistance to 

underserved populations and low-income communities. In 

fiscal year 2010, the cDfI Program met its administrative 

target for cycle time from application deadline to the date 

of award announcement. the cDfI Program also met its 

administrative target of disbursing at least 85 percent of 

award funds in 60 days from the date of announcement. 

Due to increased program funding associated with the 

economic downturn, cDfIs were able to attract $1,989 

million in private investment, far more than the target of 

$600 million. cDfIs provided funds for projects that created or maintained 80,796 jobs, which in the aftermath of 

the recession is lower than the target of 85,000 jobs. since 

its inception in 1994, the cDfI fund has awarded over 

$932 million through the cDfI Program. 

•	 the nMtc Program, which provides tax credit allocation 

authority to cDes for targeted investments in low-income 

communities, awarded $5 billion in tax allocation authority, including both the recovery act and regular tax credit 

authority. cumulative investments in low-income communities rose to $15.8 billion, exceeding the performance 

target, an increase of $3.1 billion over the prior year. 

allocatees projected 77,000 jobs will be created which 

would exceed the target of 60,000 jobs. 

•	 naca provides financial assistance, technical assistance, 

and training to native american cDfIs and other native 

entities seeking to become or create native american 

cDfIs. naca awarded $10.3 million in financial and 

technical assistance to 45 organizations. the naca 

program disbursed 85 percent of both award fund rounds 

(recovery act and regular appropriations) 60 days from announcement. the naca program registered a 26 percent 

increase in the total assets of naca awardees, thereby 

exceeding its target. 

•	 the bea Program, which provides cash awards to banks 

for increasing their investment in low-income communities and cDfIs, registered an increase in community 

development activities. fiscal year 2010 bea Program 

awardees increased their qualified community development 

activities by $343.4 million over the prior fiscal year. this 

included a $276.2 million increase in loans and investments in distressed communities, a $53.4 million increase 

in loans, deposits, and technical assistance to cDfIs, 

and a $13.8 million increase in the provision of financial 

services in distressed communities. In fiscal year 2010, the 

bea Program met its administrative cycle time target for 

processing applications to the date of award announcement 

in 21 weeks (which was less than the six month target). 

the bea Program met its administrative cycle time target 

for disbursing at least 85 percent of the award funds within 

60 from the date of award announcement. 

•	 the fec Pilot Program provides grants to organizations to 

establish and expand financial education and counseling 

services for prospective homebuyers. a total of $2 million 

was awarded equally to five organizations. 

•	 the cMf will provide $80 million in grants to cDfIs and 

qualified nonprofit housing organizations in fiscal year 2011 

following an application cycle which began in fiscal year 

2010. cMf awards can be used to finance affordable housing activities, related economic development activities, 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

81 

and community service facilities. applications identified 

proposed housing projects in 49 states, the District of 

columbia, and Puerto rico and requested more than $1 

billion in grants that would leverage an estimated $23.38 

billion in total investments. the cDfI fund met the 

application-award cycle time of 6 months with an application deadline of april 15 and an award announcement date 

of october 14, 2010. 

Protecting the Public through Alcohol 

and Tobacco Regulation 

ttb uses its label approval, formula approval, and product 

integrity enforcement functions to protect alcohol consumers 

from fraud and deception. ttb received and processed about 

6,700 domestic and imported alcohol beverage formulas and 

laboratory analyses to ensure that all ingredients met the food 

and Drug administration (fDa) food safety standards and 

were properly classified for tax and labeling purposes. before 

alcohol beverages can be introduced into interstate commerce, 

a certificate of label approval (cola) or an exemption must 

be obtained from ttb by the importer or bottler. ttb seeks to 

protect consumers through its permitting process, ensuring that 

operators in the alcohol and tobacco industries are qualified. In 

fiscal year 2010, ttb issued 5,770 original and 18,200 amended 

permits; the total number of regulated industry members is now 

well over 52,000. ttb averaged 65 days to process original 

permit applications. expeditiously processing permit applications allows qualified persons to commence operations sooner, 

and contributes to the overall growth and health of the u.s. 

and global economy. additionally, through its screening process, 

ttb works to prevent illegal operations in the alcohol and 

tobacco industries. because alcohol and tobacco trade is a lawful 

trade, and subject to substantial tax, it provides a compelling 

venue for organized crime and terrorist organizations to use the 

commodities for unlawful profits. 

In fiscal year 2010, ttb approved 102,500 (78 percent) of the 

132,600 cola applications received; the remaining 30,100 

applications were either rejected, returned for correction, withdrawn, expired, or surrendered. applications received increased 

by more than six percent over fiscal year 2009, bringing total 

applications back to levels seen in 2008. as of august 23, 2010, 

79 percent of the applications received were filed electronically 

through ttb’s electronic label application system, colas 

online, an increase of 5 percent over the prior year. usage rates 

for the colas online have increased more than 75 percent 

since the end of fiscal year 2003 when the system was introduced. ongoing system enhancements and outreach efforts have 

contributed to high adoption rates. 

In fiscal year 2010, ttb investigators closed more than 560 field 

investigations into permit applications, product integrity, and 

consumer complaints, and continued work on 280 in-progress 

investigations. to increase program effectiveness ttb revised 

its operating plan, directing resources to more complex and 

long-term investigations. under the plan, ttb reduced its 

caseload to enable more in depth reviews of civil violations to 

determine if criminal conduct was involved. the flexibility built 

in to the new operating plan allowed ttb to redirect resources 

to address a scandal involving the fraudulent labeling of wine 

imported as Pinot noir from france. ttb’s work prevented 

approximately 1.9 million bottles of mislabeled Pinot noir wine 

from reaching u.s. consumers in the marketplace. 

ttb’s International trade program helps keep the u.s. economy strong by facilitating import and export trade in alcohol and 

tobacco products, while administering the consumer protection 

standards provided under its jurisdiction. by maintaining and 

enhancing collaboration with its counterpart regulators in 

foreign countries, ttb ensures that products entering the u.s. 

market are safe and compliant. ttb made significant progress in 

working with foreign counterparts and negotiating international 

agreements. Memoranda of understanding (Mous) in progress 

will facilitate trade by increasing mutual understanding of each 

country’s alcohol and tobacco production requirements, labeling 

and licensing standards, and revenue protection measures. 

these agreements also provide a formal process whereby each 

party can exchange information that has the potential to impact 

trade, regulatory compliance, and product safety. 

Improving Access to Financial Services 

and Promoting Financial Capability 

the office of financial education promotes policies and 

programs that help empower americans with the knowledge 

and skills they need to make wise financial choices. the office 

also works to expand access to financial services for those 

outside the financial mainstream, such as americans without 

bank accounts. Individuals and families with strong financial 

capabilities and access to financial services are more likely to 

be financially stable and invest for future goals such as homeownership, education, and retirement. the office launched a 

pilot to help use tax refund season as an opportunity to provide 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

82 

unbanked and underbanked americans with access to safe, 

low-cost financial accounts. 

recent financial education efforts include launching an 

enhanced nationwide “financial capability challenge” with 

the Department of education to improve high school students’ 

financial capabilities; providing leadership and support to the 

multi-agency financial literacy and education commission, 

which promotes federal interagency collaboration on financial 

education; overhauling the financial literacy and education 

commission’s financial education website, www.MyMoney.gov, 

to make it a more powerful tool for consumers; and developing a 

national strategic plan to promote financial literacy. 

Conclusion 

the cDfI fund increased essential financial support to 

institutions serving low-income communities and underserved 

populations in the u.s. through its programs and initiatives, 

the cDfI fund enabled locally-based organizations to further 

economic development related to affordable housing, small 

businesses, community facilities, and community development 

financial services. to improve program management, the cDfI 

fund has initiated development of new performance measures. 

ttb’s Protect the Public program exceeded all of its performance targets in fiscal year 2010. ttb’s efforts to boost 

electronic filing of alcohol beverage label applications resulted 

in performance results that exceeded the fiscal year target and 

improved upon 2009 performance results by seven percent. the 

bureau’s rate of customer satisfaction with the permit and claims 

processing services at the nrc did not change from the prior 

year but efforts to improve turnaround times still helped ttb 

achieve a level of customer satisfaction five percent greater than 

its target. ttb’s push for processing efficiency resulted in an 

average cycle time of 65 days to process an original permit application, better than its target of 72 days. however, this is one 

day longer than the 2009 average cycle time. ttb’s ongoing 

mission to protect the public through improved enforcement 

is further evidenced by ttb’s identification of only 15 percent 

of importers operating without a permit, unchanged from 

2009. this measure gauges the threat to consumers and federal 

revenue collection by illicit import activity. ttb is reviewing 

alternative methods to assess importer compliance. 

Moving Forward 

economic recovery in low-income communities has historically 

lagged recovery elsewhere in the country. like the communities 

they serve, cDfIs were hit especially hard by the economic 

downturn, and have found it more challenging to obtain sources 

of capital. In response, the cDfI fund has been asked to implement several new programs and expand existing core programs. 

these initiatives will enable the cDfI fund to expand assistance 

to underserved communities in new and highly focused ways. 

In order to keep pace with this growth, the cDfI fund has 

several priority projects planned for fiscal year 2011. the cDfI 

fund is streamlining and enhancing its It systems and data 

management processes to ensure there is sufficient capability to 

handle increased application workloads and the implementation 

of new programs. the cDfI fund will continue to evaluate the 

high demand and impact of its programs and devise additional 

strategies to help meet those demands. the cDfI fund will also 

evaluate innovative financial tools to promote access to capital 

and stimulate local economic growth. finally, the launch of an 

enhanced compliance, monitoring, and certification effort is 

underway to ensure that cDfIs are satisfying all requirements. 

In fiscal year 2011, ttb will continue to inform industry 

members of the benefits of e-filing and will continue to provide 

system demonstrations and publish online guidance to the user 

community. the introduction of formulas online (fonl), 

the new e-filing system that enables the online submission of 

alcohol beverage formulas, will also support increased user rates 

for colas online. the integration of fonl with the existing 

colas online system will streamline the process of obtaining 

both formula and label approval for those in the alcohol beverage trade. ttb adjusted its targets for fiscal year 2011 in response 

to the noncompliance rates reported in the last two years. 

even during the economic contraction, applications to open 

new businesses in the alcohol and tobacco industries continued 

to rise. original permit applications have grown 19 percent over 

the last five years, and four percent in the last fiscal year. to address growing workloads, ttb purchased a commercial product 

to enable the electronic submission and processing of original 

and amended permit applications. In fiscal year 2011, ttb will 

begin its phased release of the new Permits online (Ponl) 

system. the first phase will enable electronic filing for the three 

highest volume permit areas. ttb anticipates increased cusstrategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

83 

tomer satisfaction as applicants experience faster response times 

and the ease of using the electronic filing system. additionally, 

to streamline the permit application process, ttb created a task 

force to analyze and improve ttb bond forms, instructions, and 

internal business processes to improve service to industry. 

ttb will continue to monitor imports of tobacco products by 

non-permitted entities, placing special emphasis on enforcing 

the Prevent All Cigarette Trafficking Act (Pact), legislation 

enacted in april 2010 to prevent tobacco smuggling and ensure 

the proper payment of all tobacco taxes. the methods most 

commonly used to import tobacco products without a permit 

and without payment of the appropriate taxes are internet and 

mail-order purchases. the Pact act prohibits shipments of 

tobacco products via the u.s. Postal service (usPs). In fiscal 

year 2011, ttb will coordinate with the usPs and other common carriers to provide enforcement assistance. furthermore, 

under chIPra, all importers of processed tobacco are required 

to obtain an importers permit from ttb. In the year ahead, 

ttb will assess the number of legitimate importers of processed 

tobacco and ensure they apply for and obtain a permit or cease 

importations. 

COmpetitive Capital markets 

Prosperous capital markets play an important role in facilitating 

economic growth by inspiring investor confidence and ensuring 

fair asset pricing. treasury strives to preserve the integrity of the 

u.s. market, which is essential to maintaining effectiveness. 

robust supervision and regulation of financial firms, more 

comprehensive supervision of financial markets, provisions 

to protect consumers and investors from financial abuse, and 

establishment of viable government tools to manage financial 

crises are fundamental to a thriving and competitive financial 

system. 

for a description of treasury’s initiatives associated with 

the maintenance of capital market stability, please refer to 

Management’s Discussion and analysis and the “Prevented and 

Mitigated financial and economic crises” section. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

84 

free traDe anD investment 

open foreign and domestic markets for goods and services are vital for a robust, growing, and sustainable u.s. economy. treasury 

continues to work with other agencies to fight protectionism and maintain open markets for american products and services. for 

fiscal year 2010, treasury exceeded its performance targets for programs seeking to promote free trade and investment. 

Key Performance Measure Table 

the following table contains key performance measures associated with this outcome. actual and target trends represent four years of 

data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/management/ 

dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Number of New Trade and Investment Negotiations 

Underway or Completed 

DO 15 6 13 216.7% -13.3% Exceeded 6  

Number of specific new trade actions involving Treasury 

interagency participation in order to enact, implement and 

enforce U.S. trade law and international agreements 

DO 98 40 83 207.5% -15.3% Exceeded 50  

Analysis of Performance Results 

Performance for programs aimed at promoting free trade and 

investment greatly exceeded target levels for both measures. 

While actual results decreased from their 2009 levels, performance stayed well above operational targets for the year. this 

performance reflects the aggressive role treasury is taking to 

strengthen international trade partnerships. 

Maintaining Attractiveness of Investment 

and Trade Environment 

Maintaining the attractiveness of Investment and trade environment in a global economy requires coordination with and 

the cooperation of international partners. In this area, treasury 

worked with partners to improve joint stewardship of the global 

economy and has continued to play a leading role in advocating 

for a stronger and safer global financial system while fighting 

against protectionism. 

•	 treasury helped advance strategic & economic Dialogue 

(s&eD) trade issues with china, in particular indigenous 

innovation, government procurement, and investment 

liberalization, to ensure that u.s. invested companies and 

exports are treated fairly. 

•	 treasury supports trade liberalization and budget discipline 

through its role in negotiating, implementing, and policing 

international agreements to reduce official export subsidies. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

treasury drastically reduced the number of subsidies that 

organization for economic co-operation and Development 

(oecD) member governments can provide when financing 

national exports. the oecD agreements open markets 

and level the playing field for u.s. exporters and save u.s. 

taxpayers about $800 million annually. 

•	 treasury has actively engaged in interagency deliberations and decisions impacting more than 80 specific trade 

actions, including trade legislation (generalized system of 

Preferences and andean trade Preferences act extensions 

and enactment of the haiti economic lift Program act), 

trade disputes, review of country eligibility for preference programs, and review of specific trade petitions and 

recommendations. 

•	 u.s initiatives to negotiate trade and investment agreements, particularly with regard to financial services and 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

85 

financial transfers, were advanced by treasury. treasury 

participated in the launching, negotiation and, implementation of 13 trade and investment agreements. the centerpiece of the fiscal year 2010 trade agenda was the commencement of negotiations of the trans-Pacific Partnership 

(tPP) agreement, which includes australia, new Zealand, 

singapore, chile, Peru, brunei, Malaysia, and possibly 

Vietnam. successful conclusion of the tPP agreement, 

which could serve as a platform for economic integration 

across the asia-Pacific region, can help america ensure 

its share of the job-creating economic opportunities this 

region has to offer. 

•	 efforts were made to further advance an ambitious and 

balanced Doha round that would provide substantial new 

market access, and to address outstanding concerns with 

pending free trade agreements with korea, colombia, and 

Panama. Intensified engagement is expected to continue 

during the next fiscal year. In addition, several negotiations 

of bilateral Investment treaties are expected to continue. 

Conclusion 

Improving trade and investment linkages with international 

partners is essential to sustaining the u.s. economy in a global 

market. to that end, treasury exceeded its targets with regard 

to trade and investment negotiations, as well as trade actions. 

however, measures should be reassessed since results are heavily 

dependent on actions not necessarily within treasury’s control. 

Moving Forward 

the Department will continue to play a critical role in advocating for free trade and preventing the effects of the global recession from leading to increased protectionism. In fiscal year 2011, 

treasury is committed to moving forward with the pending free 

trade agreements with korea, columbia, and Panama as soon 

as possible. however, progress towards the Department’s goals 

could be slowed if weaker economic conditions persist. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

86 

preventeD Or mitigateD finanCial anD eCOnOmiC Crises 

treasury has been at the forefront of the u.s. government’s response to the financial crisis and economic recession. through implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-frank act), Housing and Economic Recovery Act 

of 2008 (hera), Emergency Economic Stabilization Act of 2008 (eesa), American Recovery and Reinvestment Act of 2009 (recovery 

act), coordination with federal, state and international partners, treasury’s housing Programs, regulation of national banks and 

thrifts, and various other initiatives, treasury made concerted efforts in fiscal year 2010 to restore economic growth and create jobs. 

a description of some of these initiatives can be found in the Management Discussion and analysis in Part I. summary descriptions 

of these programs and their performance follows. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Average days to close a FOIA case DO 67 64 95 51.6% 41.8% Unmet 80  

Changes that result from project engagement (Impact) DO 3.1 3.1 3 96.8% -3.2% Unmet 3.1  

Clean audit opinion on TARP financial statements DO 1 1 1 100.0% 0.0% Met 1  

Percentage of Congressional correspondence responses drafted 

within 48 hours (%) 

DO 87 90 97 107.8% 11.5% Exceeded 93  

Percentage of Customers Satisfied with FinancialStability.gov (%) DO 65 70 63 90.0% -3.1% Unmet 65  

Percentage of SIGTARP and GAO oversight recommendations 

responded to on time 

DO 100 100 93 93.0% -7.0% Unmet 100  

Scope and intensity of engagement (Traction) DO 3.7 3.6 3.5 97.2% -5.4% Unmet 3.6  

Percent of national banks with composite CAMELS rating of 1 or 

2 (%) 

OCC 82 90 70 77.8% -14.6% Unmet 90  

Percentage of national banks that are categorized as well 

capitalized (%) 

OCC 86 95 90 94.7% 4.7% Unmet 95  

Rehabilitated national banks as a percentage of problem national 

banks one year ago (CAMELS 3, 4 or 5) (%) 

OCC 29 40 23 57.5% -20.7% Unmet 40  

Total OCC costs relative to every $100,000 in bank assets 

regulated ($) 

OCC $8.81 $9.22 $9.28* 99.4% 5.3% Unmet $9.22  

Percent of safety and soundness exams started as scheduled (%) OTS 94 90 97 107.8% 3.2% Exceeded 90  

Percent of thrifts that are well capitalized (%) OTS 97 95 95 100.0% -2.1% Met 95  

Percent of thrifts with composite CAMELS ratings of 1 or 2 (%) OTS 84 80 77 96.3% -8.3% Unmet 80  

Total OTS costs relative to every $100,000 in savings association 

assets regulated ($) 

OTS $19.88 $22.00 $24.01 90.9% 20.8% Unmet $24.00  

*Estimated 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

Legend Symbol 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

87 

Analysis of Performance Results 

Performance results for this outcome generally reflect the 

challenges associated with the slow economic recovery and stillweakened financial system. the performance measures for these 

programs are to a significant degree outcome-oriented, and their 

results will improve as the economy grows and the impact of 

the Department’s programs mature. target trends were generally 

level with 2009 results. of the 11 measures that did not meet 

their targets, eight measures achieved 90 percent or higher of 

the target level. 

six new measures were baselined in fiscal year 2009 for ofs. 

the measures assess management of program operations and are 

intended to complement performance indicators used by the 

Department to track financial market conditions. In fiscal year 

2010, ofs exceeded targets for 17 percent of these measures, 

met targets for 50 percent, and did not meet targets for 33 

percent of measures. the widest gap between target and actual 

was for average days to process a foIa request, which was 95 

days rather than the target of 64. the result is associated with 

managing the most difficult legacy foIa requests as the majority 

of foIa cases on backlog were completed during the fiscal year. 

occ exceeded targets for 33 percent of its six measures and did 

not meet targets for 66 percent. ots exceeded targets for 40 

percent of its five measures, met targets for 20 percent, and did 

not meet targets for 40 percent. 

OFS Strategic and Operational Goals 

the purpose of eesa was to provide the secretary of the 

treasury with the authorities and facilities necessary to restore 

liquidity and stability to the u.s. financial system. In addition, 

the secretary was directed to ensure that such authorities were 

used in a manner that protects home values, college funds, 

retirement accounts, and life savings; preserves homeownership; 

promotes jobs and economic growth; maximizes overall returns 

to taxpayers; and provides public accountability. eesa also 

provided specific authority to take certain actions to prevent 

avoidable foreclosures. 

In light of this statutory direction, treasury established the 

following as its operational goals: 

1.	 ensure the overall stability and liquidity of the financial 

system 

a. Make capital available to viable institutions 

b. Provide targeted assistance as needed 

c. Increase liquidity and volume in securitization 

markets 

2.	 Prevent avoidable foreclosures and help preserve 


homeownership
 

3.	 Protect taxpayer interests 

4.	 Promote transparency 

1. Ensure the Overall Stability and Liquidity of the 

Financial System 

to ensure the overall stability and liquidity of the financial 

system, treasury developed several programs under tarP that 

were broadly available to financial institutions. under the 

capital Purchase Program (cPP), treasury provided capital 

infusions directly to banks and insurance companies deemed 

viable by their regulators but in need of a stronger asset base to 

weather the crisis. the capital assistance Program (caP) was 

developed to supplement the supervisory capital assessment 

Program (scaP), or “stress test” of the largest u.s. financial 

institutions. If these institutions were unable to raise adequate 

private funds to meet the scaP requirements, treasury stood 

ready to provide additional capital. 

In addition, treasury provided direct aid to certain financial 

industry participants through the targeted Investment Program 

(tIP), the asset guarantee Program (agP), and the aIg 

Investment Program. these programs were designed to mitigate 

the potential risks to the system as a whole from the difficulties 

facing these firms. 

similarly, the automotive Industry financing Program (aIfP) 

provided funding for general Motors corporation (gM) and 

chrysler llc (chrysler), as well as their financing affiliates, 

in order to prevent a significant disruption of the automotive 

industry that would have posed a systemic risk to financial markets and negatively affected economic growth and employment. 

treasury’s actions helped gM and chrysler undertake massive 

and orderly restructurings through the bankruptcy courts that 

have resulted in leaner and stronger companies. 

the Public-Private Investment Program (PPIP) was established 

to facilitate price discovery and liquidity in the markets for 

troubled real estate-related assets as well as the removal of such 

assets from the balance sheets of financial institutions. In addition to these initiatives, treasury implemented the consumer 

and business lending Initiative (cblI) to enhance liquidity 

and restore the flow of credit to consumers and small businesses. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

88 

treasury developed programs to revitalize asset-backed securities 

markets critical to restoring the flow of credit to consumers and 

small businesses. cblI is composed of the term asset-backed 

securities loan facility, the sba 7a securities Purchase 

Program, and the community Development capital Initiative. 

2. Prevent Avoidable Foreclosures and Help Preserve 

Homeownership 

to prevent avoidable foreclosures and preserve homeownership, treasury launched the Making home affordable Program 

(Mha), which includes the home affordable Modification 

Program (haMP). after 18 months, more than 1.3 million 

homeowners participating in haMP have entered into trial 

modifications that reduced their mortgage payments to more 

affordable levels. this includes 619,000 homeowners with 

non-gse loans. nearly 500,000 homeowners participating in 

the haMP Program have had their mortgage terms modified 

permanently, with over 220,000 of those participants in nongse loans that would be funded by the Department. haMP 

participants (both gse and non-gse loans) collectively have 

experienced a 36 percent median reduction in their mortgage 

payments—more than $500 per month—amounting to a total, 

program-wide anticipated savings for homeowners of more than 

$3.2 billion. Mha has also spurred the mortgage industry to 

adopt similar programs that have helped millions more at no 

cost to the taxpayer. 

In addition, treasury launched the housing finance agency 

(hfa) Innovation fund for the hardest hit housing Markets 

(hfa hardest hit fund, or hhf) to help state housing 

finance agencies provide additional relief to homeowners in the 

states hit hardest by unemployment and house price declines, 

and treasury and the Department of housing and urban 

Development (huD) enhanced the fha refinance Program 

by creating the fha short refinance option to enable more 

homeowners whose mortgages exceed the value of their homes 

to refinance into more affordable mortgages if their lenders agree 

to reduce principal by at least ten percent. 

3. Protect Taxpayer Interests 

federal government financial programs, including tarP, helped 

prevent the u.s. financial system from collapse, which could 

have resulted in a much more severe contraction in employment 

and production. the manner in which tarP was implemented 

is also designed to protect taxpayers and to compensate them for 

risk. for example, in exchange for capital injections, recipients of tarP funds have to adhere to corporate governance 

standards, limit executive pay, and provide additional reporting 

on lending activity. In addition, treasury generally received 

preferred equity, which provides dividends. the dividend rates 

increase over time to encourage repayment. 

further, eesa stipulated that the taxpayer benefit as the 

institutions which received tarP funds recovered. In connection with most investments, treasury also receives warrants 

for additional securities in the institutions. under the broad 

programs described above, the treasury has priority over existing 

shareholders of tarP recipients for which tarP holds equity 

investments. this gives taxpayers the ability to share in the 

potential upside along with existing shareholders. 

finally, treasury seeks to achieve the goal of protecting the 

taxpayer through the effective management and disposition of 

all tarP investments. 

4. Promote Transparency 

eesa requires transparency and accountability. specifically, 

eesa requires treasury to provide congress with a variety 

of reports. these include a monthly report to congress on 

tarP activity, and transaction reports posted within two days 

detailing every tarP transaction. In carrying out its operations, 

treasury has sought to not only meet the statutory requirements 

but also to be creative and flexible with respect to additional 

transparency initiatives. treasury proactively provides to the 

public monthly “Dividends and Interest reports” reflecting 

dividends and interest paid to treasury from tarP investments, 

loans, and asset guarantees, as well as monthly reports detailing 

the lending activity of participants in the cPP. 

eesa also provided for extensive oversight of the tarP, 

including by the congressional oversight Panel, the special 

Inspector general for the tarP, the financial stability 

oversight board (fsob), and the gao. In addition, treasury 

officials frequently testify before congress on the progress 

of tarP programs, and treasury staff provide briefings to 

congressional staff on programmatic developments. 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

89 

Troubled Asset Relief Program and the Office of Financial Stability 

Table 1: TARP Summary1 

From TARP Inception through September 30, 2010 

Dollars in billions 

Purchase Price or 

Guarantee Amounts 

Total $ 

Disbursed 

Investment 

Repayments 

Outstanding 

Balance2 

Received from 

Investments 

Capital Purchase Program3 204.9 204.9 152.54 49.8 19.8 

Targeted Investment Program 40.0 40.0 40.0 0.0 4.2 

Asset Guarantee Program 5.0 0.0 0.0 0.0 0.7 

American International Group Investment Program5 69.8 47.6 0.0 47.6 0.0 

Consumer and Business Lending Initiative 5.3 0.94 — 0.9 — 

Public Private Investment Program 22.4 14.1 0.4 13.7 0.2 

Automotive Industry Financing Program 81.8 79.7 11.2 67.2 2.9 

Treasury Housing Programs Under TARP 45.6 0.5 N/A N/A N/A 

Totals 474.8 387.7 204.1 179.2 27.8 

1 / This table shows the TARP activity for the period from inception through September 30, 2010, on a cash basis. Received from investments includes dividends and interest income reported in the 

Statement of Net Cost, and Proceeds from sale and repurchases of assets in excess of costs. 

2 / Total disbursements less repayments do not equal the outstanding balance. Other transactions affecting the outstanding balance include Treasury housing program funding of $0.5 billion as 

repayments are not required (or expected). Also, the outstanding balance is affected by certain non-cash items including capitalized interest of $0.3 billion, write-offs totaling $3.9 billion, and 

losses on two preferred stock transactions of $0.2 billion. 

3 / Treasury received $16.1 billion in proceeds from sales of Citigroup common stock, of which $13.1 billion is included at cost in investment repayments, and $3.0 billion of net proceeds in excess of 

cost is included in Received from Investments. 

4 / Includes Community Development Capital Initiative exchange from CPP of $363 million. 

5 / The disbursed amount is lower than purchase price because of the $29.8 billion facility available to AIG. During the periods ended September 30, 2010 and September 30, 2009, AIG drew $4.3 

billion and $3.2 billion respectively from the facility, leaving an undrawn amount of $22.3 billion under this facility. 

Total Dollars 

Disbursed by 

TARP 

(in Billions) 

$204.9 

Capital 

Purchase 

Program 

$0.5 Treasury Housing 

Programs Under TARP 

$40.0 Targeted 

Investment Program 

$0.0 Asset 

Guarantee Program 

$47.6 American 

International Group 

Investment Program 

$0.9 Consumer 

and Business 

Lending Initiative 

$14.1 Public Private 

Investment Program 

$79.7 Automotive 

Industry Financing 

Program 

TARP 

Investment 

Repayments 

and Other 

Amounts 

Received from 

Investments 

(in Billions) 

$172.3 

Capital 

Purchase 

Program 

$44.2 Targeted 

Investment 

Program 

$0.7 Asset 

Guarantee Program 

$0.6 Public Private 

Investment Program $14.1 Automotive 

Industry Financing 

Program 

additional information on the tarP program is available in 

the Two-Year Retrospective Report on the Troubled Asset Relief 

Program and ofs Fiscal Year 2010 Agency Financial Report, 

which can be found at www.FinancialStability.gov. 

Regulation of Banks and Thrifts 

occ and ots are the primary regulators of national banks and 

thrifts, respectively. occ and ots work to streamline their 

licensing and supervisory procedures and to keep regulations 

current, clearly written, and supportive of an effective process 

that promotes competitive financial services, consistent with 

safety and soundness. fiscal year 2010 activity focused on monitoring and responding to adverse conditions in the credit and 

financial markets, credit risk management, and national banks’ 

and thrifts’ loan portfolios. the Dodd-frank act calls for many 

of the duties of ots to be transferred to occ in July 2011, and 

for ots to be abolished. 

as the regulator of national banks, the occ has established 

four strategic goals that help support a strong economy for the 

american public: 1) a safe and sound national banking system; 

2) fair access to financial services and fair treatment of bank customers; 3) a flexible legal and regulatory framework that enables 

the national banking system to provide a full competitive array 

of financial services; and 4) an expert, highly motivated, and 

diverse workforce that makes effective use of occ resources. 

to achieve the goals and objectives outlined in its strategic 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

90 

plan, the occ organizes its activities under three programs: 

supervise, regulate, and charter. 

as the supervisor of national banks, the occ has various ways 

to influence the national banking system: policy guidance and 

regulations that set forth standards for sound banking practices; 

on-site examinations and ongoing off-site monitoring that 

enable occ to assess compliance with those standards and to 

identify emerging risks or trends; and a variety of supervisory 

and enforcement tools—ranging from matters requiring boards’ 

and managements’ attention to informal and formal enforcement actions—that are used to obtain corrective action to 

remedy weaknesses, deficiencies, or violations. 

as of June 30, 2010, occ supervised 1,497 institutions with 

national bank charters and 51 federal branches, with assets 

totaling approximately $8.5 trillion. ninety-one percent of 

national banks were classified as well capitalized. ots supervised 753 private sector thrifts with assets of $931.2 billion. 

In addition, ots supervised 441 holding company enterprises 

with approximately $4.1 trillion in u.s. domiciled consolidated 

assets. these enterprises owned 402 thrifts with total assets 

of $714 billion, or 77 percent of total thrift industry assets. a 

majority of thrifts, 95 percent, were classified as well-capitalized. 

occ’s supervision ensures that the national banking system 

operates in a safe and sound manner while complying with consumer protection laws and regulations. as of september 30, 2010, 

70 percent of national banks earned composite ratings of either 

1 or 2 under the standard method of evaluating a bank’s operations, to include capital adequacy, asset quality, Management, 

earnings, liquidity, and sensitivity to market risk (caMels). 

the occ’s early identification and intervention with problem 

banks can lead to successful remediation of these banks. 

the measure “total occ costs relative to every $100,000 in 

bank assets regulated” gauges the efficiency of occ operations in meeting the supervisory demands of a growing, more 

complex national banking system. the measure supports the 

occ’s strategic goal of efficient use of agency resources. occ’s 

fiscal year 2010 cost relative to every $100,000 regulated was 

$9.28, while the target was $9.22. In fiscal year 2010, the occ 

conducted a survey of national banks to assess the effectiveness of its supervisory policies. over 75 percent of those who 

responded reported receiving the right amount of information 

for all subject areas. bankers were also generally pleased with 

the overall quality of bulletins and handbooks. 

ots gauges efficiency through the measures “Percent of safety 

and soundness exams started as scheduled” and “total ots 

costs relative to every $100,000 in savings association assets 

regulated.” In fiscal year 2010, targeted costs for regulating 

$100,000 in assets were $22.00, while actual costs were higher at 

$24.01. these costs are 21 percent higher than fiscal year 2009, 

largely due to the failure or merger of a number of larger thrifts. 

ninety-seven percent of safety and soundness exams were 

started as scheduled in fiscal year 2010. this is an improvement 

over 94 percent in 2009 and surpasses the target of 90 percent. 

Promoting Credit Availability to Creditworthy 

Borrowers 

throughout the economic turmoil, the occ has encouraged 

national banks to work constructively with borrowers who may 

be facing financial difficulty and to extend credit in a responsible and prudent manner. ensuring that credit is extended in a 

responsible manner is especially important to the restoration of 

a healthy financial sector and strong economy. 

•	 Small Business Lending: to help promote increased small 

business lending, the occ and other federal banking 

agencies partnered with the small business administration 

(sba) and held seminars for bankers on small business 

lending issues and the sba’s loan programs. In february 

2010, the occ and other banking agencies issued an interagency statement on meeting the credit needs of creditworthy small business borrowers. the statement reiterates the 

agencies’ policy that financial institutions that engage in 

prudent small business lending after performing a comprehensive review of a borrower’s financial condition will not 

be subject to criticism for loans made on that basis. 

to improve the agencies’ ability to monitor the credit 

available to households and businesses, the occ and 

other federal banking agencies made several changes to 

the information that banks and thrifts must report in their 

consolidated reports of condition and Income (call 

reports) and thrift financial reports (tfr). effective with 

their March 2010 filings, institutions have begun reporting 

small business loan data on a quarterly rather than annual 

basis. Institutions with $300 million or more in total assets 

or unused credit card commitments will also provide separately the amount of unused credit card lines for consumers 

and for other credit card borrowers. additional breakdowns 

of other unused loan commitments will also be gathered. 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

91 

this information will allow the agencies to better monitor 

credit flows throughout a business cycle. 

•	 residential Mortgage Modifications and commercial real 

estate (cre) loan Work-outs: the occ has also worked 

closely with treasury on its various mortgage modification 

programs and efforts to help homeowners facing financial 

difficulty. the occ has provided technical assistance on 

program design and implementation and has encouraged national banks to participate in those programs. In early 2009, 

congress adopted the Helping Families Save Their Homes Act 

of 2009. section 104 of this act requires the occ and ots 

to submit the Mortgage Metrics report to congress on a 

quarterly basis and specifically requires the number of mortgage modifications made that resulted in lower payments and 

the number of modified mortgage that re-defaulted. 

In response to the growing number of residential mortgage 

modifications and cre work-outs, in fiscal year 2010 the 

occ provided additional supervisory guidance on accounting and classification issues associated with such activities. 

the occ supervisory guidance to examiners on residential 

mortgage modifications stressed that the occ expects 

mortgage modifications to be undertaken in a manner 

that improves the likelihood that borrowers can repay the 

restructured credit under modified terms and in accordance with a reasonable repayment schedule. In october 

2009, the occ and other banking agencies issued a joint 

policy statement on prudent cre workout programs. the 

statement is intended to promote supervisory consistency, 

enhance the transparency of cre workout transactions, 

and ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to creditworthy 

borrowers. the statement includes a variety of examples to 

illustrate how examiners will apply the principles outlined 

in the guidance. the agencies hosted a seminar for the 

banking industry on the guidance in December 2009. 

Bank Secrecy Act/Anti-Money Laundering 

(BSA/AML) 

through on-site examination activities, the occ and ots 

examiners evaluate banks’ and thrifts’ compliance with bsa/ 

aMl requirements and, where weaknesses are noted, seek 

corrective action. the occ has also developed a Money 

laundering risk system that provides community banks with 

succinct bsa/aMl risk assessment information to enhance the 

effectiveness of bsa/aMl supervision. the occ, the ots, 

and other federal financial Institutions examination council 

(ffIec) member agencies issued a revised ffIec bsa/aMl 

examination manual in april 2010 to incorporate regulatory 

changes and new supervisory guidance. In March 2010, the 

occ and the ots, along with the other federal banking 

agencies, fincen, sec, and commodity futures trading 

commission (cftc) issued interagency guidance on obtaining 

and retaining beneficial ownership information. the guidance 

clarifies and consolidates existing regulatory expectations for 

financial institutions obtaining beneficial ownership information for certain accounts and customer relationships. 

Fair Access to Financial Services and Fair 

Treatment of Bank Customers 

the occ fulfills its strategic goal of fair access to financial 

services and fair treatment of bank customers through its ongoing supervisory programs for national banks and their operating 

subsidiaries. these programs include ongoing supervisory 

examinations to ensure compliance with fair lending laws, the 

Community Reinvestment Act (cra), section 5 of the Federal 

Trade Commission Act (prohibiting unfair or deceptive acts 

and practices), and other consumer laws and regulations. In 

addition to supervisory activities, the occ issues guidance and 

handbooks, and offers training to bankers and bank directors 

to help them understand and meet their compliance and cra 

obligations. 

Fair Lending 

the occ’s and ots’s fair lending supervisory process is designed to assess and monitor the level of fair lending risk in every 

national bank and thrift. the occ and the ots assess compliance with fair lending laws and regulations; obtain corrective 

action when significant weaknesses or deficiencies are found in a 

bank’s policies, procedures, and controls relating to fair lending; 

and ensure enforcement action is taken when warranted. 

the occ and the ots responded to the mortgage crisis by 

encouraging national banks and thrifts to work with consumers, 

supporting private and public sector initiatives and programs 

that seek to assist these borrowers, and collecting and analyzing 

extensive mortgage lending and workout data from the largest 

national banks and thrifts. In January 2010, the occ updated 

its fair lending examination handbook to more effectively address disparate treatment in loan pricing, broker activity redlining, and steering borrowers to higher cost loans. these updates 

were coordinated with the other federal banking agencies. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

92 

Community Development 

the occ actively supports the efforts of national banks to 

engage in sound and successful community development activities and processes community development investment notices 

and proposals under title 12, code of federal regulations Part 

24. the occ, the ots, and other federal banking agencies, 

were co-sponsors of the 2010 national Interagency community 

reinvestment conference. through the first half of fiscal year 

2010, national banks made $2.31 billion in Part 24 investments. 

the occ and the ots also conduct outreach with a variety 

of organizations, including advocacy groups, research organizations, community development practitioners, and community 

development membership organizations whose constituencies 

include or affect low- and moderate-income consumers, distressed communities, and small and minority-owned businesses. 

During fiscal year 2010, the occ identified and publicized 

strategies for stabilizing communities affected by foreclosure 

and resulting property vacancies and continued its support of 

financial literacy programs. the agency issued publications 

and partnered with the sba to promote bank involvement in 

economic stimulus and recovery measures. 

While maintaining its consumer help Web site, which was 

launched in 2007 (www.helpwithmybank.gov), the occ 

continued to seek ways to work with the other federal financial 

regulatory agencies to better assist consumers when they have 

questions or need help in resolving issues with their banks. 

Consumer Protection 

During fiscal year 2010, the occ and the ots continued their 

work with the other federal banking agencies to improve consumer protection. these efforts included an interagency initiative to design and test a more understandable financial privacy 

notice that is clear so that consumers can effectively exercise 

their preferences for information sharing. after conducting both 

quantitative and qualitative consumer research, the occ, the 

ots, and other federal agencies (including the cftc, ftc, 

and sec) finalized model privacy notice forms. In november 

2009, the forms were provided to the industry through amendments to the rules that implement the financial privacy requirements of the gramm-leach-bliley act. In april 2010, the eight 

federal regulators released an online form builder that financial 

institutions can download and use to develop and print customized versions of the model consumer privacy notice. 

In December 2009, the occ, the ots, and other federal banking agencies issued for public comment proposed supervisory 

guidance on managing consumer compliance and reputation 

issues involved with reverse mortgages. the guidance discusses 

legal questions raised by reverse mortgages and stresses the 

need to provide adequate information to consumers about these 

products, provide qualified independent counseling to consumers 

considering them, and avoid potential conflicts of interests. the 

guidance also addresses related policies, procedures, internal 

controls, and third party risk management. final guidance was issued in 2010. effective with the December 31, 2010, call report 

and tfr filings, financial institutions will be required to provide 

information on the volume of reverse mortgages that they hold 

or have originated and sold during the year and on the volume of 

referrals they made to other lenders for a fee for such products. 

the occ is leading the interagency effort and ots is participating along with other federal agencies in implementing the 

registration requirements of the Secure and Fair Enforcement for 

Mortgage Licensing Act of 2008 (s.a.f.e. act). In June 2009, 

the agencies issued a proposal that establishes the registration 

requirements for mortgage loan originators employed by agencyregulated institutions, as well as requirements for these institutions, including the adoption of policies and procedures to 

ensure compliance with the s.a.f.e. act and final rule. the law 

also requires these mortgage loan originators to obtain a unique 

identifier through the nationwide Mortgage licensing system 

and registry (registry) that will remain with that originator, 

regardless of changes in employment. When the system is fully 

operational, consumers will be able to use the unique identifiers 

to access employment and other background information of 

registered mortgage loan originators. the final rule was issued in 

July 2010. substantial progress also has been made in modifying 

the registry to accommodate the registration of employees of 

agency-regulated institutions. the registry is expected to be 

fully operational in January 2011. 

In april 2010, ots proposed supplemental overdraft 

guidance, and in May, 2010, issued examination procedures for 

reviewing unfair or deceptive acts or practices under the federal 

trade commission act. occ, ots and the other federal 

banking regulators issued revised examination procedures for 

regulations incorporating consumer protections for credit cards, 

gift cards, and electronic transaction overdrafts in the Credit 

Card Accountability, Responsibility and Disclosure Act of 2009. 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

93 

In addition to these interagency efforts, in fiscal year 2010 the 

occ issued guidance on consumer protection and safety and 

soundness issues associated with tax refund anticipation loans, 

guidance to national banks on complying with provisions of 

the new opt-in requirements relating to overdraft protection 

programs, and provisions of the credit carD act of 2009. 

the occ also worked with the other federal banking agencies 

to develop and issue examination procedures related to the 

unlawful Internet gambling enforcement act of 2006 and the 

Protecting tenants at foreclosure act of 2009. 

In 2010, the occ continued the quarterly public service 

advertisement program, started in 2006, to promote awareness 

of banking issues and policies that affect consumers. the agency 

released print articles and 30-second radio spots in english and 

spanish for use in local newspapers and radio stations. topics 

covered in 2010 included gift cards, tenants in foreclosure, 

overdraft protection and refund anticipation loans. the spots 

ran more than 6,500 times in 44 states. 

Enforcement 

as needed, the occ uses its enforcement authority to address 

safety and soundness violations and noncompliance with laws 

and regulations. through the first half of fiscal year 2010, the 

occ issued 207 enforcement actions against national banks 

and 82 against institution-affiliated parties. the occ assessed a 

$50 million civil money penalty against a national bank for violations of the bank secrecy act (bsa) as part of a coordinated 

action with the DoJ, financial crimes enforcement network 

(fincen), and other federal agencies. the bank also agreed to 

forfeit $110 million to the u.s. under a deferred prosecution 

agreement with the u.s. attorney’s office in the southern 

District of florida and the Department of Justice. 

the occ also entered into a formal agreement with a national 

bank to reimburse consumers harmed by the bank’s credit card 

account closing practices; agreed-upon reimbursement totaled 

$775,000. In another action, a national bank was directed to 

make $5.1 million in restitution to over 60,000 consumers 

adversely affected by its relationships with a third party payment 

processor. the bank also received a $100,000 civil money penalty. 

Contributions of the Office of Economic 

Policy 

economic Policy continued to support the secretary and other 

senior policy makers by providing technical analysis, economic 

forecasts, and policy guidance. the office routinely provided 

economic intelligence on current and prospective economic 

developments in the united states. throughout the fiscal year, 

staff monitored and analyzed a number of trends and economic 

developments, including the ongoing housing market correction, the pace of economic recovery, and developments in labor 

markets. economic Policy continued to carry out its traditional 

role in the preparation of the President’s budget and supported 

the secretary of the treasury in his roles as chairman and 

Managing trustee of the social security and Medicare boards of 

trustees. specific examples of contributions are listed below: 

•	 economic Policy continued to play a key role in the 

development and operations of the haMP component 

of the Making home affordable Initiative, which aims to 

provide relief to struggling homeowners and stabilize the 

housing market. 

•	 economic Policy conducted ongoing research on policies 

enacted to assist in the recovery of the economy. the 

research culminated in a series of reports to increase understanding of the impact of the policies and provide guidance 

on future policy development. topics covered include the 

cobra tax credit, the hIre act tax exemption, and 

build america bonds. 

•	 economic Policy has also been involved in the implementation of the affordable care act, specifically in providing 

analysis and recommendations for the regulations that are 

being issued. 

Conclusion 

treasury supported key legislation, the Dodd-frank act and the 

small business Jobs act, in its efforts to repair and reform the 

financial system and the economy. treasury made a substantial 

contribution towards stabilizing the housing market through 

haMP and treasury housing Programs; however, this critical 

sector of the economy remains fragile. Private capital has not 

yet returned to the market, and the gses and the government 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

94 

continue to play an outsized, though necessary, role in ensuring the availability of mortgage credit. roughly 95 percent of 

all mortgages are currently financed through either the gses, 

ginnie Mae, the federal housing administration (fha), the 

Department of Veterans affairs (Va), or the Department of 

agriculture (usDa). 

treasury seeks to exit investments as soon as practicable to 

remove treasury as a shareholder, eliminate or reduce treasury 

exposure, return tarP funds to reduce the federal debt, and 

encourage private capital formation to replace federal government investment. the desire to achieve such objectives must 

be balanced against a variety of other objectives, including 

avoiding further financial market or economic disruption and 

the potentially negative impact to the issuer’s health or capital 

raising plans from treasury’s disposition. treasury must also 

consider the limited ability to sell an investment to a third 

party due to the absence of a trading market or lack of investor 

demand, and the possibility of achieving potentially higher 

returns through a later disposition. an issuer typically needs 

the approval of its primary federal regulator in order to repay 

treasury, and therefore regulatory approvals also affect how 

quickly an institution can repay. 

Moving Forward 

treasury’s implementation of key financial reforms and efforts to 

support economic recovery will continue into fiscal year 2011. 

Implementation of Dodd-frank act and small business Jobs 

act initiatives, continued implementation of recovery act 

programs, management of the wind-down of tarP, implementation of housing programs, and other efforts are essential to 

supporting the Department’s goal of restoring financial strength 

and long-term stability. 

In fiscal year 2011, treasury will play a key role in facilitating 

development of a new system for housing finance, while being 

careful to maintain relative stability in the housing market 

through this difficult time. a stable, well-functioning market 

should achieve the following objectives: 

•	 Widely available mortgage credit 

•	 housing affordability 

•	 consumer protection, including easy-to-understand 


mortgage products and honest practices
 

•	 financial stability, meaning that credit and interest rate 

risk are spread in an efficient and transparent manner that 

does not generate excess volatility 

•	 alignment of incentives of issuers, originators, brokers, 

ratings agencies and insurers for long-term viability rather 

than short term gains 

•	 avoidance of privatized gains funded by public losses 

•	 strong regulation to ensure capital adequacy throughout 

the mortgage finance chain, enforce strict underwriting 

standards and protect borrowers from unfair, abusive or 

deceptive practices 

•	 standardization of mortgage products 

•	 support for affordable single and multifamily housing 

•	 Diversified investor base and sources of funding 

•	 accurate and transparent pricing 

•	 secondary market liquidity 

•	 clear goals and objectives for institutions that have 


government support, charters, or mandates 


In addition, in March 2010, the obama administration 

announced enhancements to an existing fha program that 

will permit lenders to provide additional refinancing options to 

homeowners who owe more than their homes are worth because 

of large declines in home prices in their local markets. this 

fha short refinance program will provide more opportunities 

for qualifying mortgage loans to be restructured and refinanced 

into fha-insured loans. tarP funds will be made available up 

to approximately $8 billion in the aggregate to provide additional coverage to lenders for a share of potential losses on these 

loans and to provide incentives to support the write-downs of 

second liens and encourage participation by servicers. 

treasury is also planning studies and program evaluations. In 

order to understand what drives mortgage defaults, treasury will 

link data on individual mortgages to administrative data on employment status and individual borrowers from credit bureaus. a 

more thorough understanding of what drives mortgage performance could expand the options available to the government 

to manage its exposure to mortgage risk, address the problem of 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

95 

legacy assets in the financial system, and contribute to effective 

housing policies that strengthen the market. 

treasury will also ensure that ots authorities, duties, employees, and property are transferred in an orderly fashion to 

occ, federal reserve, and fDIc. occ’s priorities for fiscal 

years 2011-2012 will focus on strengthening the resiliency 

of the national banking system through our supervisory and 

regulatory programs and activities. other supervisory priorities 

include identifying and resolving potential problem banks at 

the earliest possible stage; encouraging national banks to meet 

the needs of credit worthy borrowers, including appropriate 

and effective residential mortgage modification programs; and 

ensuring that national banks comply with cra, the bsa/aMl, 

and usa PatrIot act requirements; and further enhancing 

supervisory analytical tools. Many national banks will continue 

to have substantial volumes of troubled loans. In addition, the 

occ expects the level of enforcement actions associated with 

problem banks and bank failures to continue through the next 

fiscal year. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

96 

DeCreaseD gap in glObal stanDarD Of living 

a decreased gap in the global standard of living, associated with improved economic conditions in emerging markets, improves 

economic opportunity for americans. for the two performance measures associated with decreasing the gap in the global standard 

of living, treasury exceeded the 2010 performance target for one and the other was baselined. this performance reflects an improvement from 2009, when one target was not met. 

Key Performance Measure Table 

the following table contains key performance measures associated with this outcome. actual and target trends represent four years of 

data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/management/ 

dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Monitor quality and enhance effectiveness of International 

Monetary Fund (IMF) lending through review of IMF country 

programs (%) 

DO Baseline 97 100.0% NA Met 100 B B 

Percentage of Grant and Loan Proposals Containing Satisfactory 

Frameworks for Results Measurement (%) 

DO 94 90 92.5 102.8% -1.6% Exceeded 90  

Analysis of Performance Results 

Performance for programs seeking to decrease the gap in the 

global standard of living exceeded one target and met the 

other. the measure related to IMf program effectiveness was 

baselined, and the previous measure was discontinued. for 

“Percentage of grant and loan proposals containing satisfactory 

frameworks for results measurement,” the actual result exceeded 

the target but decreased from 2009 actuals. given that actual 

results have exceeded targets for this measure for the last four 

years, it may be worth revising the target upward in the future. 

International Financial Institution Support 

the treasury Department provided critical support for u.s. 

efforts to foster a strong and sustainable global economic 

recovery through g-20 actions. robust foreign growth, particularly robust foreign domestic demand growth, is extremely 

important to a vibrant u.s. economy and u.s. job creation. 

this is especially true at a time when americans are re-building 

their personal finances and saving more. recognizing the need 

for a balanced global economy in which foreign economies are 

more reliant on domestic sources of growth and u.s. growth 

is less skewed toward domestic demand, the u.s. proposed a 

framework for strong, sustainable, and balanced growth, 

which was adopted at the Pittsburgh summit by g-20 leaders. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

the framework is essentially a commitment by the world’s leading economies to monitor current and prospective economic 

developments and cooperate on implementing globally consistent policies. achievements in the first year have focused on 

establishing five-year baseline forecasts for growth, demand, and 

the evolution of external balances and on developing baskets 

of policies that potentially could improve outcomes relative to 

the baseline. the key u.s. objectives within the g-20 macroeconomic dialogue are to ensure a strong recovery, create jobs, 

reduce unemployment, and foster durable, long-term growth 

through a more balanced global economy. 

the treasury Department continued to play a central role in 

efforts to build a stronger and safer global financial system. 

through the g-20 process, the financial stability board, and 

engagement with international standard setting bodies, treasury 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

97 

led efforts to ensure that reforms in the international financial 

system matched domestic regulatory reform initiatives. this will 

ensure that banks here and in foreign countries comply with 

high standards and are prevented from a “race to the bottom.” 

In fiscal year 2010, the treasury Department strongly supported 

international efforts to strengthen bank capital standards. these 

standards will require banks to hold enough capital so they can 

withstand losses similar to those sustained in the depths of the 

recession without turning to the taxpayer for help. banks will be 

required to hold significantly more capital against the types of 

risky trading-related assets and obligations that caused so much 

unexpected financial damage during the crisis. 

the treasury Department’s leadership in the International 

Monetary fund (IMf) helped advance u.s. priorities of 

modernizing the IMf’s governance structures to reflect global 

economic realities and enhancing the IMf’s lending toolkit 

for more effective crisis prevention and response. With strong 

support from the u.s., the IMf membership is working to 

achieve a five percent shift in IMf quota share from overrepresented countries to underrepresented, dynamic emerging market 

and developing countries. In fiscal year 2010, the treasury 

Department supported international efforts to strengthen the 

global financial safety net through enhancements to the IMf’s 

flexible credit line for the strongest performing members and 

the creation of a Precautionary credit line for emerging market 

members with sound policies and need for contingent financing 

to maintain market confidence. 

Provided financial and logistic support 

for Haiti earthquake relief 

Immediately following the January 12 earthquake, treasury 

officials facilitated the delivery of roughly $2 million in cash 

to a major haitian microfinance institution to help survivors 

access savings and remittances, even while domestic banks 

remained closed. treasury deployed a senior advisor within 

two weeks of the earthquake to assist in reconstructing the tax 

system database, recovering and protecting two hundred years’ 

worth of land titles and official records of all bank loans, and 

participated in the post-disaster needs assessment team which 

supported the haitian government’s presentation of a credible 

needs estimate to international donors in March. furthermore, 

treasury personnel led the global initiative to relieve haiti’s 

debt to the international financial institutions and worked 

extensively to help secure funding from congress for a u.s. 

contribution of up to $120 million in reconstruction aid for 

the multi-donor haitian reconstruction fund (hrf). at the 

request of the government of haiti, treasury played an integral 

role in designing and negotiating a partial credit guarantee fund 

to assist banks in restructuring loans and extending new credit 

to small and medium-sized enterprises (sMes) and credit cooperatives. the credit guarantee fund was subsequently supported 

by funding from the hrf trust fund, the World bank, and the 

Inter-american Development bank (IDb). 

Expanded access to financial services for 

consumers and small and medium-sized 

enterprises 

treasury worked with fellow g-20 co-chairs canada and 

korea to create and lead the g-20 financial Inclusion experts 

group. the group worked in two tracks dedicated to expanding 

financial services for consumers and sMes. the first track of 

experts surveyed best practices among national regulators and 

international standards-setting bodies to develop a list of policy 

principles to support expanding innovative approaches to financial service delivery and an action plan for implementing these 

principles around the world. the second track launched the 

sMe finance challenge, in which g-20 leaders called on the 

private sector to provide innovative ideas for public initiatives 

to marshal private financing for sMes, and on international financial institutions (IfIs) to support the winning entries. sMes 

are key to economic growth and job creation, and the sMe 

finance challenge will award effective and innovative ideas for 

financing sMes with the resources to scale up implementation. 

connecting poor households and businesses to resources for savings, credit, and insurance enables them to harness the power of 

entrepreneurship and create more stable, successful livelihoods. 

Conclusion 

In the wake of the financial crisis, the IfIs provided expanded 

lending facilities and economic advice to merger countries, 

which helped foster global recovery. While the work done by 

these institutions has been instrumental in helping to rebuild 

the global economy, the two measures associated with this outcome do not adequately capture that work. going forward, the 

Department will work to create measures that not only capture 

workload but also focus on broader outcomes that allow for the 

effective assessment of u.s. investments in these institutions. 

strategic objective: improved economic opportunity, mobility and security

with robust, real, sustainable economic growth at home and abroad 

part 2: annual performance report
the department of the treasury 

98 

Moving Forward 

restoring normal growth in emerging markets will require 

increased commitments from global governments to provide 

funding that is currently unavailable from private markets. 

having responded to the needs of borrowers in the wake of the 

financial crisis, the next step will be to ensure that the IfIs are 

adequately capitalized to meet the needs of members as their 

economies recover. further, the Department will continue to 

push for reform at these institutions, leveraging u.s. commitments to secure greater performance and results management. 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

99 

strategic objective: 

trust and confidence in u.s. currency Worldwide 

Budget Trend 

Trust and 

Confidence in 

U.S. Currency 

Worldwide 

Fiscal Year 

continued trust and confidence in the integrity of united states 

currency and its acceptance as a secure medium of exchange 

in business transactions enables the free flow of domestic and 

global commerce and contributes to the security and stability 

of the world’s monetary system. Worldwide circulation of u.s. 

currency notes is estimated to exceed $830 billion in value. as 

much as two-thirds of that circulates outside the borders of the 

united states. to instill a high degree of trust and confidence 

in the integrity of u.s. currency, the Department’s currency 

products are designed to achieve the maximum possible levels 

of deterrence against counterfeiting, product quality, user 

acceptance, and cost-effectiveness. to achieve these levels, 

the bureau of engraving and Printing (beP) and the united 

states Mint manufacture and deliver high-quality u.s. currency 

notes and coins to the united states federal reserve. the beP 

also produces security documents for federal agencies, and the 

united states Mint also produces and sells investment-grade 

precious metal bullion coins as well as high-quality numismatic 

coin products to the public. In addition to producing coins, 

the united states Mint also secures the nation’s precious metal 

reserves. 

the bureaus and policy offices responsible for the achievement 

of this objective are: 

•	 the bureau of engraving and Printing (beP) 

•	 the united states Mint 

•	 the office of the treasurer of the united states 

Performance targets associated with this objective did not 

change from 2009 to 2010. 

$4,500,000

$1,459,176$1,506,143$2,012,017$2,370,208$2,706,326$2,686,145$4,301,571 

2004 2005 2006 2007 2008 2009 2010 

$4,000,000

Dollars (in Thousands) Dollars (in Thousands) 

$3,500,000

$3,000,000

$2,500,000

$2,000,000

$1,500,000

$1,000,000

$500,000

$0

Performance 

Cost Trend 

Trust and 

Confidence in 

U.S. Currency 

Worldwide 

$500,000

$0

$4,500,000

$1,579,915$1,541,046$2,099,429$2,139,937$2,552,998$2,929,234$4,134,741 

2004 2005 2006 2007 2008 2009 2010 

$4,000,000

$3,500,000

$3,000,000

$2,500,000

$2,000,000

$1,500,000

$1,000,000

Fiscal Year 

Performance Cost 

by Outcome 

Trust and 

Confidence in 

U.S. Currency 

Worldwide 

100% Commerce 

enabled through

safe secure U.S. 

notes and coins 

strategic objective: trust and confidence in u.s. currency worldwide 

part 2: annual performance report
the department of the treasury 

100 

COmmerCe enableD thrOugh safe, seCure u.s. nOtes anD COins 

the performance measure results for this program were significantly impacted by two global economic trends: the slow economic recovery and increase in commodity costs. large swings in currency note and coin orders increased production costs, metal prices pushed 

down seigniorage rates, and the slow economic recovery led to a smaller customer base for numismatic coins. even with these trends, 

treasury still managed to come within 10 percent of its targets for the majority of measures for which it did not meet its targets. 

Key Performance Measure Table 

the following table contains key performance measures associated with this outcome. actual and target trends represent four years of 

data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/management/ 

dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Currency shipment discrepancies per million notes (%) BEP 0.00 0.01 0.00* 100.0% 0.00% Exceeded 0.01  

Manufacturing costs for currency (dollar costs per thousand 

notes produced) ($) 

BEP $32.77 $37.00 $44.85* 78.8% 36.9% Unmet $44.00  

Percent of currency notes delivered to the Federal Reserve 

that meet customer quality requirements (%) 

BEP 99.9 99.9 97.5* 97.6% -2.4% Unmet 99.9  

Circulating on-time delivery (%) Mint Baseline 99.8 100.0% NA Met 88 B B 

Customer Satisfaction Index - A measure of the satisfaction 

of customers with numismatic products (%) 

Mint 88.3 88 86.1 97.8% -2.5% Unmet 88  

Numismatic Customer Base Mint 1.06 0.9 0.798 88.7% -24.7% Unmet 1  

Safety Incident Recordable Rate Mint Baseline 2.29 100.0% NA Met 3.34 B B 

Seigniorage per Dollar Issued ($) Mint $0.55 $0.53 $0.49 92.5% -10.9% Unmet $0.41  

*Estimated 

Analysis of Performance Results 

In fiscal year 2010, eight measures were reported for this objective, two of which were new measures. of all eight measures, 

one measure (13 percent) exceeded the performance target. 

five measures (62 percent) did not meet targets. a baseline was 

being established for two measures (25 percent), which count 

as having met their target. eleven measures were discontinued 

during fiscal year 2010, and two measures were discontinued in 

fiscal year 2009. the search for new and more informative metrics to drive improved performance is a positive effort. however, 

a more stable way to measure success is needed. 

Bureau of Engraving and Printing 

In fiscal year 2010, beP delivered 6.4 billion currency notes to 

the federal reserve board. this is an increase of 200 million 

units (three percent) over the 6.2 billion notes delivered in 

2009. beP failed to meet the federal reserve’s quality standard 

due to a problem with the redesigned $100 note creasing during 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

production. Productivity decreased in from 2009 to 2010 by 8.8 

percent largely as a result of high spoilage and slower operating 

speeds as production of the newly redesigned $100 currency 

note commenced. beP did not meet its performance target for 

“cost per 1,000 notes Produced” due to complexities encountered as production began on the new $100. beP’s manufacturing costs increased from $32.77 per thousand units in 2009 to 

$44.85 in 2010, a 37 percent increase. the jump in cost was 

largely driven by a marked increase in the cost of counterfeit 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

101 

deterrent features added to the paper beP uses to produce the 

new $100 note and problems encountered during production 

that significantly increased spoilage. another driver of the 

increase was a continued trend in the 2010 federal reserve’s 

currency order toward a proportionally greater amount of higher 

denomination notes, which are more costly to manufacture 

due to their enhanced counterfeit deterrent features. unlike 

the u.s. Mint, beP is fully-funded by the federal reserve, and 

any return made is paid by the federal reserve to the treasury 

general fund rather than by beP. 

the redesigned $100 note made its debut on april 21, 2010 

during a ceremony at the treasury. the redesign of the $100 

note marked the completion of a multi-year initiative to implement the most ambitious currency redesign in united states 

history. the innovative security features in the new note are 

the work of more than a decade of research and development 

to protect u.s. currency from counterfeiting. the new notes 

have enhanced overt counterfeit deterrent features including a 

“3-D security ribbon” with shifting images and a “bell in the 

Inkwell” that disappears and reappears when the note is tilted. 

the redesigned notes remain the same size and use the same 

portraits and historical images, which have been enhanced. the 

redesign includes an enlarged, high-contrast numeral to help 

the public, including persons with visual impairments, distinguish the denominations of notes. the unveiling of the new 

$100 note was the first step in a global public education program 

implemented by the Department of the treasury, the federal 

reserve, and the u.s. secret service to educate those who use 

the $100 note about its changes before it begins circulating. 

rapid improvements in reprographic technologies and computer-driven printing pose increasing challenges to counterfeit 

deterrence. beP continues to collaborate with other members 

of the advanced counterfeit Deterrent (acD) steering 

committee (which includes representatives from beP, the 

Department of the treasury, the u.s. secret service, and the 

federal reserve) to determine the effectiveness of counterfeit 

deterrent features and to evaluate possible future currency 

designs. the acD committee also monitors the reliability of 

the beP manufacturing process, the incorporation of new design 

features, and the effectiveness of those features during the 

course of daily cash transactions. 

beP efforts related to quality continued as measures of shipment 

accuracy met its targets and achieved less than 0.01 percent 

discrepancies in the currency shipment. In 2010, beP reported 

97.5 percent of the currency notes delivered to the federal 

reserve met the product quality requirements. as it has for the 

past eight years, in fiscal year 2010 beP maintained Iso 9001 

certification in its quality management system for currency 

production, indicating ongoing commitment to continuous 

process and quality improvement. In 2010, beP also continued 

efforts to maintain Iso 14001 certification in its commitment 

to high-quality environmental stewardship and management. 

following court decisions in 2007 and 2008, the Department 

was ordered to provide meaningful access to united states 

currency for blind and other visually impaired persons. this 

may require changes to u.s. currency (excluding the one-dollar 

note.) the court ordered such changes to be completed in 

connection with each denomination of currency, not later than 

the date when a redesign is next approved by the secretary of 

the treasury. the cost of implementing these changes will be 

incorporated into future currency redesign costs, and cannot be 

estimated at this time. 

United States Mint 

the economic environment during fiscal year 2010 significantly 

impacted the united states Mint’s financial results. economic 

uncertainty intensified demand for bullion products while 

reducing demand for circulating coinage and numismatic 

products. total revenue reached $3.89 billion in fiscal year 

2010, up 33 percent from total revenue of $2.91 billion in fiscal 

year 2009. record sales of bullion coins drove this revenue 

growth as both circulating and numismatic revenue declined 

from the prior fiscal year. since the united states Mint manages 

the bullion program to a nominal net margin, revenue growth 

did not generate higher earnings in fiscal year 2010. the united 

states Mint returned $388 million to the treasury general fund 

in fiscal year 2010, down from $475 million (18 percent) from 

fiscal year 2009. 

Weak economic conditions that reduced shipments and revenue 

in fiscal year 2009 continued through the first half of fiscal year 

2010. this reversed midway through the fiscal year as retail 

activity recovered and federal reserve coin inventory fell. 

overall, total circulating coins shipped to the federal reserve 

increased 4 percent to 5.4 billion pieces in fiscal year 2010 from 

5.207 billion pieces in fiscal year 2009. While the total volume 

of circulating coins shipped to the federal reserve grew slightly, 

the composition of shipments ordered by the federal reserve 

shifted toward lower denomination coins, reducing the total 

strategic objective: trust and confidence in u.s. currency worldwide 

part 2: annual performance report
the department of the treasury 

102 

dollar value of circulating shipments to the federal reserve 

by 20 percent to $618.2 million from $777.6 million last year. 

at the start of fiscal year 2010, the prospect of continued low 

coin demand prompted the united states Mint to extend 

cost-saving measures begun in 2009. the bureau opted not to 

renew appointments for temporary personnel and instituted an 

organization-wide hiring freeze. the united states Mint also 

suspended all non-essential capital investments in circulating 

operations to cut cash outflow during a time of reduced cash 

inflow. even with these measures, the costs of coin production 

continued to increase because of escalating metal market prices. 

base metal expenses and the mix of circulating coin denominations ordered by the federal reserve negatively affected total 

seigniorage and seigniorage per dollar issued. Market prices of 

copper, nickel, and zinc recovered from fiscal year 2009 lows and 

climbed back to pre-2009 levels. rising metal prices increased 

total and per-unit expenses for fabricated blanks and strip. as a 

result, seigniorage generated from circulating coinage operations 

declined 30 percent to $300.9 million in fiscal year 2010 from 

$427.8 million in fiscal year 2009. seigniorage per dollar issued 

declined to $0.49 in fiscal year 2010 from $0.55 (11 percent) 

in 2009. the per-unit cost for both one-cent and five-cent 

denominations remained above face value for the fifth consecutive fiscal year. 

Demand appeared to ease along with precious metal market 

prices in the second quarter, but as the year went on, rising 

global fears over european sovereign debt caused demand to 

rebound as spot prices for gold and silver soared during the third 

and fourth quarters. the united states Mint sold 35.8 million ounces of bullion coins in fiscal year 2010, up 8.2 million 

ounces (29.7 percent) from the previous total sales record of 

27.6 million in fiscal year 2009. the united states Mint sold 

this record volume to authorized purchasers at higher prices, 

reflecting the increased market value for gold and silver. the 

average spot price of gold and silver increased 29.2 percent 

and 40.1 percent, respectively, in fiscal year 2010 from fiscal 

year 2009. accordingly, total bullion revenue reached a record 

high of nearly $2.9 billion in fiscal year 2010, up by around 70 

percent from $1.7 billion in fiscal year 2009. net income from 

bullion sales increased 69 percent to $55.2 million in fiscal year 

2010 from $32.7 million in fiscal year 2009. the united states 

Mint expects demand for bullion coins to remain strong for 

a sustained period until economic conditions stabilize and investors are drawn toward alternative investments. 

fiscal year 2010 was a challenging year for the united states 

Mint’s numismatic product line. the united states Mint was 

unable to offer some key products because blanks were diverted 

to the bullion program in accordance with statutory mandates 

to fulfill bullion demand. this negatively affected numismatic 

sales and customer acquisition and retention. additionally, 

poor economic conditions may have suppressed some consumer 

spending on collectibles. Despite weakened demand, the 

composition of numismatic sales shifted toward high price and 

high margin products. While numismatic sales revenue fell six 

percent to $413.1 million from $440.1 million in 2009, numismatic net income increased nearly 21 percent to $49.8 million 

in fiscal year 2010 from $41.2 million last year. 

the united states Mint is responsible for protecting over $320 

billion in united states assets stored in its facilities. the Mint’s 

office of Protection (united states Mint Police) safeguards 

both Mint assets and non-Mint assets in its custody, including 

gold and silver bullion reserves, as well as the Mint’s products, 

employees, facilities, and equipment. 

Conclusion 

the beP faced challenges related to the release of the new $100 

note and related spoilage problems. the Mint faced challenges 

related to the price of base metals and the high demand for 

bullion products. the current suite of measures only partially 

gauges the success of the outcome and objective associated with 

coins and currency. Improved measures are needed to determine 

if commerce is effectively enabled for the nation. Proper demand management will minimize costs across the entire supply 

chain, including the costs of obsolescence and disposal. 

beP has engaged in an extensive effort to rapidly introduce 

counterfeit-deterrent currency note redesigns, a necessary step 

to address the increasing frequency of serious counterfeiting 

threats, and to bolster global trust and confidence in the integrity of u.s. currency as a medium of transactional exchange. the 

only indicator of success in this arena is the estimated counterfeiting rate. because it is an indicator, setting a target for this 

would be similar to setting a target for the unemployment rate 

– it is an important outcome, but it is extremely difficult to draw 

a direct correlation between it and the actions of the treasury 

Department. however, other measures could be considered such 

as the average cycle time and marginal costs to introduce note 

redesign. beP will introduce a new suite of performance metrics 

strategic goal: u.s. and world economies perform at full economic potential 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

103 

in fiscal year 2011 that will measure the bureau’s performance 

across a broader spectrum of operations. 

the u.s. Mint faced challenges related to the price of base metals and the high demand for bullion products. the u.s. Mint is 

working to explore options that might help reduce the cost of 

materials used in producing the nation’s coinage. the u.s. Mint 

baselined two new measures, discontinued four measures, and 

did not meet three measures. 

Moving Forward 

Bureau of Engraving and Printing 

to improve efficiency, beP is currently engaged in a multi-year 

project to retool its manufacturing processes to improve beP’s 

capabilities, increase its flexibility, and improve its response to 

product configuration changes. the project will include installation of new state-of-the-art equipment capable of producing 

50-note currency sheets, achieving significantly greater production efficiency than the existing equipment, which produces 

32-note sheets. the new equipment will include intaglio 

presses, electronic inspection systems, and finishing equipment. beP continues to invest in new technologies such as its 

beP enterprise (ben) manufacturing support system program 

(Mss), which will integrate, consolidate, and enable improved 

analysis of data from various disparate information technology 

systems, equipment, and software applications used at beP. 

When completed, this effort will optimize the reliability, integration, and timely collection of online real-time performance 

data. having this data on hand will enable program managers to 

proactively manage manufacturing overhead costs, production 

efficiency, and resource productivity. 

In keeping with the commitment by beP’s management to 

maintain high-quality environmental management, beP is 

investing in capital improvements that will enhance productivity and lessen the environmental impact of beP operations 

on air emissions, wastewater discharge, and solid waste. the 

most significant project will enable waste water recycling to 

reduce water usage by several million gallons per year. the 

project will also reduce the required quantity of chemicals the 

beP must use to make currency note wiping solution, which 

becomes wastewater. this project will both improve resource 

sustainability and reduce the cost and efficiency of currency 

note production. other projects either already underway or 

currently in the planning stages include improvements in 

energy efficiency through replacement or upgrade of older assets 

with more energy efficient and environmentally responsible 

assets; decreased energy usage and cost savings from increased 

data center efficiency and consolidation from increased server 

virtualization and from decreased energy usage and It operation 

costs; and savings from reduced material spoilage during the currency note production process, which should enable reductions 

in the quantity of currency paper and other materials purchased 

for use in manufacturing currency notes. 

other capital assets provide ongoing challenges for the bureau, 

however. the age of beP’s Washington, D.c. facility poses some 

infrastructure challenges. based on an earlier condition assessment, it was estimated that an investment of $250-$500 million 

would be needed to upgrade the main and annex buildings 

over the next 10 years. beP had been delaying infrastructure 

improvements pending the outcome of a feasibility study that 

was completed at the end of July 2010. at the end of fiscal year 

2010, the study was still under executive review but is expected 

to enable the beP and the Department of the treasury to 

strategically address facility issues going forward. 

United States Mint 

although the united states Mint has taken steps to reduce its 

manufacturing costs, base metal expenses continue to make 

up the greatest portion of the cost of circulating coin production. changing the composition of circulating coinage to less 

expensive alternative materials could generate significant cost 

savings and mitigate further reductions in seigniorage if market 

prices for copper, nickel, and zinc increase. base metal prices 

have trended upward during fiscal year 2010. the average daily 

spot price increased 57 percent for copper, 56 percent for nickel, 

and 52 percent for zinc between fiscal year 2009 and fiscal year 

2010. 

In fiscal year 2011, the united states Mint will remain focused 

on meeting demand for products as economic uncertainty 

continues. the united states Mint expects circulating volumes 

to increase from 2010. however, any volume increase will likely 

consist of lower denomination coins as federal reserve inventories of higher denominations remain sufficient to fulfill the 

majority of demand in upcoming years. bullion demand looks to 

remain strong until economic conditions stabilize and investors 

are drawn toward alternative investments. for numismatic 

products, the Mint will focus on improving customers’ experience by releasing core products earlier in the year and increasing 

the availability of precious metal products. 

strategic objective: trust and confidence in u.s. currency worldwide 

part 2: annual performance report
the department of the treasury 

104

strategic goal: 

PreVenteD terrorIsM anD ProMoteD the 

natIon’s securIty through strengtheneD 

InternatIonal fInancIal systeMs 

strategic objective: 

Pre-empted and neutralized threats to the international financial 

system and enhanced u.s. national security 

the office of terrorism and financial Intelligence (tfI) 

marshals the department’s intelligence and enforcement 

functions with the twin aims of safeguarding the financial 

system against illicit use and combating rogue nations, terrorist 

facilitators, weapons of mass destruction (WMD) proliferators, 

money launderers, drug kingpins, and other national security 

threats. the office works to keep u.s. and world financial 

systems accessible to legitimate users and to avoid exploitation 

of these systems by unlawful users. Its unique capabilities leverage intelligence, law enforcement, sanctions, regulatory, and 

diplomatic tools to achieve treasury’s strategic objective. this 

is accomplished through four tfI offices, a division within the 

Irs, and a bureau: 

•	 the office of foreign assets control (ofac) administers 

and enforces economic and trade sanctions 

•	 the office of terrorist financing and financial crimes 

(tffc) is the policy and outreach arm of tfI and provides 

expert analysis on terrorist financing, money laundering, 

financial crime, and sanctions issues 

•	 the office of Intelligence and analysis (oIa) provides 

all-source intelligence analysis, leads the Department’s 

integration into the larger intelligence community, and 

provides support to Department leadership on a full range 

of economic, political, and security issues 

Performance Cost 

by Outcome 

Pre-empted 

and Neutralized 

Threats to the 

International 

Financial 

System and 

Enhanced 

U.S. National 

Security 80.3% Removed or reduced threats to national security from 

terrorism, proliferation of weapons of mass destruction, narcotics 

trafficking and other criminal activity on the part of rogue regimes, 

individuals, and their financial and other support networks 

19.7% Safer and 

more transparent 

U.S. and 

international 

financial systems 

Fiscal Year 

Performance 

Cost Trend 

Pre-empted 

and Neutralized 

Threats to the 

International 

Financial 

System and 

Enhanced 

U.S. National 

Security 

$221,944$270,553$478,764$505,209$555,144$570,087$668,013 

2004 2005 2006 2007 2008 2009 2010 

Dollars (in Thousands)

Fiscal Year 

Budget Trend 

Pre-empted 

and Neutralized 

Threats to the 

International 

Financial 

System and 

Enhanced 

U.S. National 

Security

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$350,001$455,108$602,332$697,774$778,960$987,668$1,041,419 

2004 2005 2006 2007 2008 2009 2010 

$800,000

Dollars (in Thousands) 

$600,000

$400,000

$200,000

$0

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

105 

Performance measures associated with this objective had 35 

percent more aggressive targets compared to 2009. 

•	 the treasury executive office of asset forfeiture 

(teoaf) administers the treasury forfeiture fund, which 

is the receipt account for the deposit of non-tax forfeitures 

•	 the Irs criminal Investigations division (Irs-cI) investigates potential criminal violations of the Internal revenue 

code and related financial crimes 

•	 the financial crimes enforcement network (fincen) 

administers the bank secrecy act (bsa), supports law 

enforcement investigations and prosecutions, shares 

bsa information domestically and with foreign financial 

intelligence units, and enhances anti-money laundering 

and counter-terrorist financing efforts domestically and 

internationally 

the outcomes associated with this objective are: 

•	 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 

systems 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

106 

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 

this outcome is linked to treasury’s impact in policy making, outreach, and diplomacy; the impact of economic sanctions; and the 

impact of intelligence information and analysis. treasury exceeded its targets in these focus areas. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Impact of TFI programs and activities DO 7.81 7.40 8.1 109.5% 3.7% Exceeded 7.6  

Percent of forfeited cash proceeds resulting from highimpact cases (%) Treasury 

Forfeiture Fund 

87.65 75 93.11 124.1% 6.2% Exceeded 80  

Analysis of Performance Results 

tfI uses a qualitative self-assessment of its four major areas 

of operations—policy, sanctions, intelligence, and moneylaundering—to measure its performance. the “Impact of tfI 

programs and activites” measure is a composite score, which is 

the average rating of four performance goals. each performance 

goal is linked to components within tfI and the Department’s 

strategic goals. In fiscal year 2010, this metric achieved a 8.1 

rating out of 10 possible points, exceeding the target and 

improving by 3.7 percent over the previous year. 

two tfI offices, ofac and tffc, share a combined performance goal, focusing on the impact of policy making, outreach 

and diplomacy and the impact of economic sanctions: 

•	 “tfI u.s. government effectively employed tools and authorities to further policy objectives and mitigate national 

security threats.” 

oIa has two separate performance goals that focus upon the 

impact of information, intelligence, and analysis on senior 

leadership and the intelligence community. 

•	 “support the formulation of treasury policy and the execution of departmental authorities through all-source analysis 

of the global financial network” 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

•	 “Provide treasury Department decision makers with timely, 

accurate, and relevant intelligence support on the full 

range of economic, political, and security issues” 

user data surveys are conducted with financial intelligence users 

to gauge the impact and influence oIa has upon those which 

use its information. 

the final performance goal relates to fincen. 

•	 “anti-money laundering and combating financing of terrorism regulations are administered effectively and efficiently.” 

this performance measure performed at 8.1, high impact, in 

fiscal year 2010 and was baselined in fiscal year 2009 with a value 

of 7.8, or medium impact. the fiscal year 2010 target was 7.4 

and will be 7.6 in fiscal year 2011. the treasury forfeiture fund 

achieved 93.11 percent of forfeiture cash proceeds resulting from 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

107 

high-impact cases, performing above both the fiscal year 2010 

target and 2009 actual. 

the following sections describe efforts undertaken by tfI in 

2010. these results are the basis for assessing tfI’s impact and 

are reflected in their performance results. 

Combated Iran’s Efforts to Acquire 

Proliferation-Related Materials 

In June 2010, the united nations (un) adopted united 

nations security council resolution (unscr) 1929, broadening the existing un sanctions framework. shortly thereafter, 

treasury announced new designations under eo 13382 targeting individuals and entities that facilitate Iranian proliferation 

activity. Most prominently, treasury designated Post bank, an 

Iranian state-owned bank for providing support to and acting 

on behalf of un designee bank sepah. When bank sepah, one 

of Iran’s largest state-owned banks, was sanctioned for financing 

proliferation, Iran began to use Post bank to facilitate international trade. treasury also designated five Islamic republic of 

Iran shipping lines (IrIsl) front companies and blocked 27 

vessels due to their connection to IrIsl. In august, treasury 

announced a set of designations targeting the government of 

Iran’s support for terrorism and terrorist organizations, including 

hizballah, hamas, Palestinian Islamic Jihad, the Popular front 

for the liberation of Palestine-general command, and the 

taliban. from June to august, treasury identified 43 entities 

in the banking, investment, mining, engineering, insurance, 

energy, petroleum, and petrochemical industries determined to 

be owned or controlled by the government of Iran pursuant to 

the Iranian transactions regulations (Itr). finally, treasury 

issued an advisory to financial institutions about the financial 

provisions in unscr 1929. 

the Comprehensive Iran Sanctions, Accountability and Divestment 

Act of 2010, signed by President obama in July, dramatically 

expands the tools available to the treasury Department to 

combat Iran’s efforts to acquire proliferation-related materials. 

In august, treasury published the Iranian financial sanctions 

regulations (Ifsr) as a framework for implementing subsections 104(c) and 104(d) of the act. under the Ifsr, the 

secretary of the treasury may prohibit or impose strict conditions on opening or maintaining accounts with foreign financial 

institutions that he finds knowingly engage in certain activities 

related to Iran. the Ifsr also prohibits any person owned 

or controlled by a u.s. financial institution from knowingly 

engaging in transactions with or benefiting Iran’s revolutionary 

guard corps or any of its agents or affiliates whose property is 

blocked under the International emergency economic Powers 

act. 

treasury officials have been actively engaging with our partners 

throughout the world to describe the u.s. government’s Iran 

sanctions programs and to encourage our partners to implement 

similar restrictions on Iran. as a result of this engagement, 

additional states have demonstrated to Iran the consequences 

of its failure to meet its international obligations. the european 

union (eu), australia, canada, norway, Japan, and south 

korea have implemented sanctions. these actions strengthen 

international resolve to prevent proliferation and Iran’s development of nuclear weapons and to press Iran to return to serious 

negotiations. 

the financial measures the u.s. and others are implementing are imposing serious costs and constraints on Iran. Iran is 

effectively unable to access financial services from reputable 

banks and is increasingly unable to conduct major transactions 

in dollars or euros. over the last several months alone, dozens of 

companies have announced publicly that they have curtailed or 

Treasury Outcomes Performance Goals Focus Areas 

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, 

TFI effectively employed tools and authorities to further U.S. Government policy 

objectives and mitigate national security threats 

Impact of policy making, outreach, and 

diplomacy 

Impact of economic sanctions 

individuals, and their support networks Support the formulation of Treasury policy and the execution of departmental 

authorities through all-source analysis of the global financial network 

Impact of information and analysis 

Provide Treasury Department decision makers with timely, accurate, and relevant 

intelligence support on the full range of economic, political, and security issues 

Safer and more transparent U.S. and 

international financial systems 

Anti-money laundering and combating financing of terrorism regulations are 

administered effectively and efficiently 

Impact of activities to create safer and 

more transparent financial systems 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

108 

eliminated their business ties to Iran. Iran is increasingly unable 

to secure needed foreign investment, financing, and technology 

to modernize its aging energy infrastructure, threatening its oil 

and gas production and export capacity. 

reports indicate that the regime is worried about the impact 

of these measures, especially on its banking system and on its 

prospects for economic growth. for instance, in september, 

former Iranian President rafsanjani publicly warned leaders 

in Iran to take the sanctions seriously. he said that, “We have 

never had such intensified sanctions and they are getting more 

intensified every day. Whenever we find a loophole, they [the 

Western powers] block it.” the strategy is creating leverage to 

enhance u.s. government diplomatic options. 

on september 29, 2010, President obama signed an executive 

order that imposes sanctions on Iranian officials determined 

to be responsible for or complicit in serious human rights 

violations. President obama identified eight individuals who 

share responsibility for the sustained and severe violation of 

human rights in Iran since the June 2009 disputed presidential 

election. as a result of this action, u.s. persons are prohibited 

from engaging in transactions with these individuals, and these 

individuals cannot access any property in the u.s. or in the 

possession or control of u.s. persons. 

Finalized Terrorist Finance Tracking 

Program Agreement 

treasury, in conjunction with the Departments of Justice 

and state, successfully led negotiations for a new terrorist 

finance tracking Program agreement (tftP) with the eu. 

the agreement was ratified by the european Parliament in 

July 2010. the new accord entered into force on august 1 and 

allows the treasury Department to subpoena financial payment 

messaging data stored in the eu for use in u.s. counterterrorism 

investigations. With the resumption of the full functioning of 

the tftP, the u.s. and the eu restored this highly valuable 

counterterrorism tool that has aided in the prevention of terrorist attacks and investigations. 

after the terrorist attacks on september 11, 2001, the 

Department of the treasury initiated the tftP to identify, 

track, and pursue terrorists and their networks. the treasury 

Department is uniquely positioned to track terrorist money 

flows and assist in u.s. government efforts to uncover terrorist 

cells and map terrorist networks. since the start of the program, 

the tftP has provided thousands of valuable leads to u.s. 

government agencies and other governments. 

Privacy protections in the program specify that the data in 

the tftP may only be searched in connection with a specific 

counterterrorism investigation and not for any other purpose. 

the tftP data can be searched only if an independent basis 

exists to believe that the subject of a search is connected 

to terrorism or its financing. this independent evidentiary 

predicate must be recorded before any search in the tftP 

data is conducted. to verify the tftP’s robust safeguards, an 

independent auditor reviews the program’s physical security, 

ensures proper procedures are implemented, and confirms that 

no data mining occurs. 

Targeted Threats to the International 

Financial System Through Financial 

Sanctions 

treasury seeks to ensure that the financial networks of terrorists, 

WMD proliferators, and other criminals are degraded in order to 

undermine their illegitimate activities. ofac continues to send 

the message that violations of u.s. economic sanctions will not 

be handled lightly. since January 2010, treasury has imposed 

penalties or entered into settlement agreements totaling 

over $200 million for alleged violations of the united states’ 

economic sanctions targeting Iran, sudan, cuba, burma, and 

designated narcotics traffickers. these penalties and settlements 

are from cases involving, among other things, the export of 

aircraft to Iran, the provision of shipping services to Iran and 

sudan, and the use of vessels owned or managed by the IrIsl. 

the figure also includes ofac’s most recent settlement with a 

major international bank, reached in conjunction with relevant 

state, federal, and international authorities, involving the 

manipulation of payment data which allowed sanctions targets 

to surreptitiously access the u.s. financial system for over two 

decades. the latest bank settlement brings the total amount in 

settlements for similar conduct to nearly $930 million. 

treasury designates foreign adversaries and networks of companies, other entities, and associated individuals pursuant to an 

eo or statute, and u.s. persons are prohibited from conducting 

transactions, providing services, and other associated dealings 

with those designated. the designations made this year varied 

across a range of sanctions programs and areas across the globe, 

including narcotics, WMD proliferation, terrorism, and the 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

109 

Democratic republic of the congo. key activities in fiscal year 

2010 are described below. 

•	 treasury sustained a campaign of sanctions against Iran, 

its agents, and its front companies in response to Iran’s 

continued defiance of various unscr. ofac designated 

23 individuals and entities involved in Iran’s efforts to 

proliferate WMD under eo 13382; identified a subsidiary 

contributing to Iran’s proliferation efforts; identified 27 new 

vessels and updated entries of 71 vessels; designated nine 

entities and individuals involved in Iran’s support for terrorism under eo 13224; and identified 43 targets as acting 

for, acting on behalf of, being owned, or being controlled 

by the government of Iran. 

•	 treasury designated 21 individuals and entities pursuant to 

eo 13224 with respect to terrorism, including the July 16, 

2010 designation of anwar al-awlaki, a key leader for 

al-Qa'ida in the arabian Peninsula; a yemen-based terrorist 

group; and the July 22, 2010 designation of three key leaders and financiers for the taliban and its affiliated group, 

the haqqani network. 

•	 treasury continued to support Mexican counter narcotics 

law enforcement. In august, 2010, ofac Director adam 

szubin met with private and public sector officials in 

Mexico city to strengthen coordination and cooperation 

between treasury and Mexican actions against cartels. 

During the year, treasury has designated 49 individuals and 

25 entities associated with Mexican drug cartels, enhanced 

information exchange with the Mexican financial intelligence unit (fIu), and improved coordination on a variety 

of counter narcotics initiatives targeting the arellano felix 

organization, beltran leyva organization, and the sinaloa 

cartel. 

•	 treasury designated 37 individuals and 37 entities pursuant 

to the foreign narcotics kingpin Designation act, and 42 

individuals and 37 entities pursuant to eo 12978 targeting 

drug traffickers and their networks centered in colombia. 

•	 In april and June of 2010, treasury designated six militia 

leaders involved in atrocities in the Democratic republic of 

the congo. 

•	 In april 2010, the President issued an eo to address the 

conflict in somalia. shortly following the announcement, 

treasury implemented a new sanctions program based 

on that eo and designated 12 persons identified by the 

President as contributing to the somali conflict. 

Charitable Outreach 

outreach to the charitable sector represents a fundamental 

objective for treasury in its broader campaign to combat terrorist financing. treasury’s ongoing engagement with the charitable 

community strives to protect charities from terrorist abuse and 

empower the sector to adopt and implement effective safeguards 

against terrorist exploitation. treasury Department officials have 

continued their active engagement with donor communities 

and other components of the u.s. government to help promote 

safe and transparent charitable giving, while protecting against 

terrorist financing. 

this summer, the treasury Department published a factsheet 

entitled “Protecting charitable giving: frequently asked 

Questions.” this document provides substantial information 

about the treasury Department’s approach to combating terrorist abuse of charities and answers important questions raised by 

the charitable sector and the donor communities concerning 

charitable giving. the factsheet reflects significant dialogue 

with the charitable sector and also serves as a prime example of 

outreach to Muslim communities in the united states. 

Strengthened Intelligence to Counter 

Violent Extremism and Nuclear 

Proliferation 

this year, treasury strengthened its ability to shape intelligence 

analysis and drive collection on the global financial network. 

treasury has provided analysis of terrorist groups including 

al-Qa’ida and its affiliates, the taliban, hamas, and hizballah; 

WMD proliferation networks; violent extremism and corruption 

in afghanistan and Pakistan; Iraqi insurgency support networks; 

and nation-states that challenge u.s. interests, such as Iran and 

north korea. 

Countered Insurgency in Afghanistan 

treasury served a leading role in the establishment of the 

afghanistan threat finance cell (atfc) this year. the atfc 

is a kabul-based task force charged to enhance the collection, 

exploitation, analysis, and dissemination of intelligence to 

combat funding and support for the taliban and other terrorist 

and insurgent networks in afghanistan. the atfc provides 

threat finance expertise to u.s. civilian and military leaders and 

assists afghan authorities in their investigations into insurgent 

finance, narcotics trafficking, and government corruption. 

through this assistance, the atfc has helped to build the 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

110 

capacity of afghan authorities to operate independently, a key 

u.s. policy goal in afghanistan. 

Targeted Organized Crime in Mexico 

over the past year and in close collaboration with Mexican 

counterparts, treasury increased efforts to combat money 

laundering and target the financial underpinnings of criminal 

organizations in Mexico. treasury ramped up its technical 

assistance program in Mexico to address key money laundering 

vulnerabilities through courses on forensic accounting, financial 

investigations, and financial sector supervision. 

Prevented North Korean Proliferation and 

Other Illicit Activities 

the u.s. government has longstanding concerns regarding north korea’s involvement in a range of illicit activities 

conducted through government agencies and associated 

front companies. In august 2010, President obama issued an 

eo freezing the assets of certain persons with respect to the 

Democratic People’s republic of korea (north korea). this 

new eo expands the scope of the national emergency declared 

in eo 13466 of June 26, 2008 and targets north korean arms 

trafficking, luxury goods procurement, and illicit economic 

activities. the eo directs the secretary of the treasury, in 

consultation with the secretary of state, to target for sanctions 

individuals and entities facilitating north korean trafficking 

in arms and related materiel; procurement of luxury goods; 

and engagement in illicit economic activities, such as money 

laundering, the counterfeiting of goods and currency, bulk cash 

smuggling, and narcotics trafficking. 

Major Asset Seizures and Forfeitures 

teoaf’s mission is to affirmatively influence the consistent 

and strategic use of asset forfeiture by law enforcement bureaus 

from the Department of the treasury and Justice to disrupt and 

dismantle criminal enterprises. the treasury forfeiture fund 

had a uniquely robust year with over $1 billion in forfeitures 

and recoveries, including $134 million in the credit suisse case. 

Irs-cI and the federal bureau of Investigations jointly investigated the abn-aMro bank case. In May 2010, the former 

abn-aMro bank n.V., now named royal bank of scotland 

n.V., agreed to forfeit $500 million to the united states in 

connection with a conspiracy to defraud the united states, 

to violate the International emergency economic Powers act 

(IeePa), to violate the trading with the enemy act (tWea), 

and to violate the bsa. of this amount, $250 million will be 

equitably shared with the Department of Justice forfeiture fund. 

Conclusion 

tfI discontinued all of its previously reported performance 

measures and began applying its composite performance metric 

“Impact of tfI programs and activities” during fiscal year 2009. 

tfI met its targets for its two measures. tfI achieved a high 

impact for its measure “Impact of tfI programs and activities.” 

the external review process for this performance metric still 

needs to be developed, but the implementation of this measure 

is a large step in the effort to measure performance for a policy 

office that also has operational responsibilities. tfI and the 

Department will continue to refine how the measure is rated 

and scored. In addition, teoaf achieved 93 percent of forfeited cash proceeds resulted from high-impact cases, exceeding 

its target of 75 percent. 

Moving Forward 

Enforcing the New Iran Legislation 

as part of treasury’s overall strategy with respect to Iran, ofac 

will investigate foreign financial institutions whose dealings 

with Iran may subject them to special measures related to 

legislation passed by congress on July 1. In addition to financial 

institutions, the focus on Iran will include cases involving shipping and the export of sensitive goods to Iran. ofac intends 

to continue announcing major enforcement actions involving 

alleged violations of Iranian sanctions over the coming year. by 

working closely with our colleagues at other agencies, ofac 

will increase the number of entities designated and enforcement 

cases resolved by ofac and the Department of Justice or the 

Department of commerce. 

Strengthening Economic Sanctions Against 

other Targets 

the treasury Department will work to implement a new 

sanctions program established by President obama targeting 

north korean illicit activity and will continue to implement 

pre-existing sanctions targeting north korean proliferation 

activities. the new sanctions program, announced on august 

30, enhances u.s. implementation of united nations security 

council resolutions 1718 and 1874 on north korea, addresses 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

111 

threats to u.s. national security, and protects the international 

financial system from north korea’s abuse. 

consistent with u.s. foreign policy priorities, ofac will 

continue its strengthening of sanctions against targets such as 

sudan, Zimbabwe, and burma. 

Supporting the National Intelligence Strategy 

over the coming year, oIa will further develop analysis and 

collection to support the national Intelligence strategy on 

economic issues such as illicit finance and global cyber threats 

to financial systems. oIa will also increase cooperation across 

the intelligence community on international financial issues 

and threats to global financial stability. oIa will provide expert 

intelligence analysis to support targeted financial measures 

against the networks that fund terrorist and insurgent groups 

and support nuclear weapons proliferation, such as al-Qa’ida 

and its affiliates, the taliban, hamas, and hizballah. 

Combating Illicit Finance 

treasury will continue to work with interagency colleagues 

and international counterparts to promote strong controls and 

best practices for anti-money laundering and combating the 

financing of terrorism. this will guard against illicit finance in 

the formal financial sector. 

Supporting Efforts in Afghanistan 

treasury will deploy personnel to the atfc to enhance the 

collection, analysis, and dissemination of timely and relevant 

financial intelligence to combat funding and support for terrorist 

and insurgent networks in afghanistan. treasury will continue 

to investigate bulk cash movements and illicit financial flows in 

and out of afghanistan. treasury will deploy personnel to the 

attaché office within the u.s. embassy in kabul to augment 

treasury’s efforts to bolster the regulatory and investigative 

capacity of the afghan government to combat illicit finance. 

Supporting Southwest Border Efforts 

In fiscal year 2011, teoaf will focus its resources to enhance 

support of law enforcement’s southwest border strategy, 

national Money laundering strategy, and anti-terrorism financing efforts. teoaf will provide support to enhance criminal 

investigations related to criminal activities on the southwest 

border to deprive criminal enterprises of their profits and 

enabling assets. teoaf will also use its resources to strengthen 

outbound infrastructure at Ports of entry in order to effectively 

target bulk currency that is smuggled across the border to fuel 

drug and human smuggling enterprises. 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

112 

safer anD mOre transparent u.s. anD internatiOnal finanCial systems 

five performance measures are associated with this outcome. treasury exceed or met targets set for four of the five measures, and 

narrowly missed one. overall 81 percent of the measures exceeded their targets, and some targets were exceeded by large margins. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Average time to process enforcement matters (in years) FinCEN 1 1 0.8 120.0% -20.0% Exceeded 1  

Percent of federal and state regulatory agencies with memoranda of 

understanding/information sharing agreements (%) 

FinCEN 43 46 46 100.0% 7.0% Met 50  

Percent of FinCEN's compliance MOU holders finding FinCEN's 

information exchange valuable to improve the BSA consistency and 

compliance of the financial system (%) 

FinCEN 82 68 86 126.5% 4.9% Exceeded 86  

Percentage of bank examinations conducted by the Federal Banking 

Agencies indicating a systemic failure of the anti-money laundering 

program rule (%) 

FinCEN 2.1 5.2 1.6 169.2% -23.8% Exceeded 5.2  

Percentage of customers satisfied with the BSA E-Filing (%) FinCEN 94 90 96 106.7% 2.1% Exceeded 92  

Percentage of customers satisfied with direct access to BSA (%) FinCEN 74 74 74 100.0% 0.0% Met 74  

Percentage of FinCEN's Regulatory Resource Center Customers rating 

the guidance received as understandable (%) 

FinCEN 94 90 92 102.2% -2.1% Exceeded 90  

Share of BSA filings submitted electronically (%) FinCEN 82 71 83 116.9% 1.2% Exceeded 73  

The percentage of domestic law enforcement and foreign financial 

intelligence units finding FinCEN's analytical reports highly valuable (%) 

FinCEN 81 81 80 98.8% -1.2% Unmet 80  

Analysis of Performance Results 

fincen has 16 measures for fiscal year 2010, and 94 percent 

of its targets were achieved. five measures are used to score 

the focus area, “impact of activities to create safer and more 

transparent financial systems” for the overall tfI measure. 

those measures are: 

•	 average time to process enforcement matters 

•	 Percentage of fincen’s regulatory resource center 

customers rating the guidance received as understandable 

•	 Percentage of domestic law enforcement and foreign 

intelligence units finding fincen’s analytic reports highly 

valuable 

•	 Percentage of customers satisfied with the bsa e-filing 

•	 Percentage of customers satisfied with direct access to bsa 

fincen achieved a score of 7.8 out of 10 possible points. 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

In the regulatory area, fincen continues to increase activities to 

monitor financial institutions examined for bsa compliance by 

state and federal regulators through the establishment of Mous 

to exchange compliance information. In 2010, fincen executed 

four additional Mous and met its fiscal year 2010 target of 46 

percent of federal/state regulatory agencies with Mous. these 

Mous help ensure effective application of the bsa regulations 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

113 

across all regulated financial service industries by providing vital 

compliance data. fincen will continue collaborating with state 

insurance commissioners and other regulatory agencies to sign 

additional agreements to meet future targets. 

fincen surveys its compliance Mou holders to determine 

the impact of the information exchange to improve the bsa 

consistency and compliance of the financial system. In fiscal 

year 2010, 86 percent of them rated the information exchange 

as valuable, and fincen exceeded its target. fincen will 

continue to facilitate valuable relationships with Mou holders 

to meet future targets. 

fincen’s goal to provide financial institutions with understandable guidance through the bsa resource center is critical to 

institutions establishing anti-money laundering programs that 

comply with the bsa. fincen met its target in fiscal year 2010 

with 92 percent. to meet future targets, fincen will continue 

to strive for consistently high customer satisfaction levels. 

fincen also works closely with its regulatory partners to take 

enforcement action against financial institutions that systemically and egregiously violate the provisions of the bsa, including through imposition of civil money penalties when appropriate. enforcement action is essential to deter non-compliance 

with the bsa. In fiscal year 2010, fincen’s target was to 

process enforcement matters in 1.0 year, and fincen exceeded 

the target at 0.8 years. fincen will continue to actively manage 

casework to meet future targets. 

In the analytical area, fincen supports domestic law enforcement and international fIu partners by providing analyses 

of bsa and other financial information, and measures the 

percentage of customers finding fincen’s analytic reports highly 

valuable. the measure closely ties to how bsa information is 

used by law enforcement and international fIus to identify, investigate, and prevent abuse of the financial system. In fiscal year 

2010, fincen achieved 80 percent, narrrowly missing its target 

of 81 percent. fincen will continue its efforts to solicit input 

from customers on types of products they would like and possible 

ways to improve the structure of its reports to meet future targets. 

In the efficient management, safeguarding, and use of bsa 

information, fincen conducts a survey of the users of the bsa 

e-filing system to determine overall satisfaction and to identify 

where improvements are needed. fincen achieved 96 percent 

satisfaction level. fincen will continue outreach to e-filers and 

ensure the technology supports the demand. 

the following sections describe efforts undertaken by fincen 

in 2010. these results are the basis for assessing fincen’s 

impact and are reflected in their performance results. 

Leveraged Partnerships with U.S. Law 

Enforcement and Mexican Foreign 

Intelligence Unit 

fincen continued to leverage partnerships with u.s. law 

enforcement and the Mexican fIu to support the detection, 

interdiction, and investigation of the flow of illicit proceeds 

from narcotics and human smuggling into u.s. and Mexican 

financial institutions. In support of these efforts, fincen 

completed a joint study with the Mexican fIu of u.s. dollar 

currency flows between the u.s and Mexico. the study provides 

a more accurate baseline of u.s. dollar currency activity in 

Mexico from which both countries can more effectively measure 

the scope of bulk cash smuggling into Mexico and the effectiveness of future aMl and cash interdiction efforts. fincen 

dedicated a staff member to work with the Mexican fIu and 

undertook the following in support of u.s. and Mexican law 

enforcement efforts: 

•	 Produced a joint intelligence advisory with the national 

Drug Intelligence center (nDIc) on trends in trade based 

Money laundering and black Market Peso exchange 

•	 Initiated support to a newly-created southwest border 

anti-Money laundering alliance through the analysis of 

wire remittance data 

•	 Issued an advisory on a new Mexican regulation that may 

precipitate a significant change in recent cash smuggling 

trends and conducted studies on the impact of the new 

regulation on money from the region 

•	 Developed suspected Mexican cartel money laundering targets and referred them to u.s. and Mexican law 


enforcement
 

fincen continues to coordinate investigative follow-up of 

these targets with u.s. law enforcement and to develop plans 

and processes for future targeting efforts. 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

114 

Collaborated with and Support to 

Foreign Intelligence Units 

fincen completed its sponsorship of the afghan fIu, known 

as fintraca, into the egmont group, the global organization 

of fIus. fintraca became a member of the egmont group in 

June 2010, allowing it to engage with the other 119 fIus that 

form the global network for sharing financial intelligence. fIus 

in the egmont group share information relating to thousands 

of investigations per year. the multi-year sponsorship process 

culminated with fincen’s on-site assessment of fintraca to 

ensure that the unit complied with egmont group standards. 

fintraca’s membership in the egmont group will benefit 

law enforcement agencies in the united states and throughout 

the world by facilitating the exchange of information through 

fIu channels. fincen also placed a staff member to work with 

fintraca to foster tactical information sharing between the 

fIu and u.s. law enforcement. 

fincen continued outreach and liaison activities to improve 

the quality and quantity of financial intelligence exchanged 

between fincen and foreign fIus. fincen continued its 

leadership role in the egmont group to promote effective information sharing. fincen played a key role on egmont group 

projects on enterprise-wide suspicious transaction report (str) 

sharing in the private sector and fIu issues relating to financial 

action task force (fatf) mutual evaluations. on behalf of 

the egmont group, fincen developed and managed the most 

comprehensive database on fIu information in the world. 

fincen created and disseminated tactical financial intelligence 

reports to egmont group fIus and managed case exchange with 

fIus on behalf of u.s. law enforcement and regulatory agencies. 

these intelligence products are integral to domestic and foreign 

investigations of money laundering, financial fraud, and terrorist 

financing around the world. 

President obama established the financial fraud enforcement 

task force (ffetf) in november 2009. With more than 20 

federal agencies, 94 u.s. attorneys’ offices, and state and local 

partners, ffetf is the broadest coalition of law enforcement, 

investigative, and regulatory agencies ever assembled to combat 

financial fraud. fincen also undertook efforts to expand information sharing across the u.s. government in a coordinated 

manner, worked to increase understanding of the value and 

utilization of bsa data for investigative purposes, and supported 

ffetf’s events with analytical packages and demonstrations. 

fincen also participated in committees and other working 

groups of the ffetf, including acting, along with the executive 

office for the u.s. attorneys, as co-chair of the task force’s 

training and Information sharing committee. 

Enhanced Mechanisms to Combat 

Mortgage and Loan Modification Fraud 

fincen continued to combat mortgage fraud, foreclosure 

rescue scams, and loan modification fraud. fincen published 

an advanced notice of proposed rulemaking on the possible 

application of aMl and suspicious activity reporting requirements to non-bank residential mortgage lenders and originators. 

the application of such rules would close a regulatory gap by 

requiring non-bank residential mortgage lenders and originators 

to guard against and report on illicit actors engaging in financial 

transactions. 

In addition, fincen published its latest mortgage fraud-related 

analytic report in July 2010, the eighth in a series of products 

describing filing trends, evolving patterns, emerging typologies, 

as well as analysis of depository institution suspicious activity reports (sars) that report mortgage fraud. the report contained 

information that may be beneficial to law enforcement, regulators, and the financial industries. In June 2010, fincen released 

a report specifically describing trends found in sars reporting 

loan modification and foreclosure rescue scams. the relevant 

sars increased from 28 reports filed by depository institutions 

and money services businesses in 2004, to over 3,000 sars filed 

in 2009. the sars in the sample dataset revealed that in the 

eight months between the issuance of an april 2009 fincen 

advisory, filers increased reporting by over 100 percent during 

the entire five-year period. the april 2009 fincen advisory 

provided indicators of loan modification and foreclosure rescue 

fraud and requested filers to report such activity in sars. 

fincen also continued to support u.s. government efforts to 

combat mortgage fraud and to bring relief to america’s housing 

market and homeowners by increasing its analytical support to 

investigations and prosecutions. fincen published an updated 

advisory to financial institutions on loan modification fraud 

in June 2010 and an advisory to financial institutions on fraud 

related to home equity conversion mortgages (hecMs) in 

april 2010. through its involvement in the ffetf, fincen 

leveraged the relationships and techniques it developed in the 

mortgage fraud context to initiate similar efforts in the areas of 

health care fraud and securities fraud. 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

115 

fincen was recognized by the DoJ for playing an important 

role in operation stolen Dreams, an effort over 3.5 months 

to take down mortgage fraud schemes across the country. the 

operation involved 1,215 criminal defendants nationwide who 

were allegedly responsible for more than $2.3 billion in losses. 

Collaborated to Detect Healthcare Fraud 

fincen proposed to work closely with the Departments of 

health and human services and Justice, and other federal and 

state law enforcement agencies to identify increasingly complex 

health care fraud schemes. fincen developed an initiative 

to use the bsa analytical assessments to identify the most 

egregious individual perpetrators and organized groups in health 

care fraud schemes. fincen is working with the health care 

fraud Prevention and enforcement action team (heat). 

heat brings investigators and prosecutors together in targeted 

geographical areas to target individuals and organizations who 

are defrauding the health care system. through this analytical 

process, fincen will be able to provide the investigators with 

an overall assessment of the targeted jurisdictions, as well as 

the organizations and individuals that are suspected of being 

engaged in health care fraud schemes. fincen already provided 

assistance to the largest federal health care fraud takedown in 

u.s. history: 94 people in four cities were charged for allegedly 

participating in schemes to submit more than $251 million in 

false Medicare claims. 

Outreach to Increase the Use of BSA 

E-filing 

fincen initiated an important outreach campaign to increase 

the use of its bsa e-filing Program and thereby reduce the volume of paper bsa forms being processed. as a part of that effort, 

fincen published an article on bsa e-filing in the october 

2009 sar activity review that outlined recent enhancements 

to the system and explained the benefits of filing electronically. 

fincen also developed and published an informational brochure 

highlighting the benefits of the bsa e-filing Program. using 

that brochure and in coordination with its federal government 

examination partners, fincen contacted the largest filers of 

paper currency transaction reports (ctrs) to explain the benefits of filing electronically. as a result of these efforts, a growing 

number of contacted institutions have adopted the bsa e-filing 

Program and the percentage of bsa filings filed electronically 

has increased from 71 percent in fiscal year 2008 to 83 percent 

in fiscal year 2010. fincen expects to continue and expand this 

promotional campaign into fiscal year 2011. 

Modernize BSA IT system 

In May 2010, fincen launched the design phase of the bsa It 

Modernization program. the modernization effort will enrich 

and standardize bsa data, evaluate and deploy analytical tools, 

establish more effective security technologies to enhance data 

confidentiality and integrity, and improve customer satisfaction 

with bsa systems. During the design phase fincen will begin 

defining the technology to support the business requirements 

for the new bsa system of record, basic and advanced analytic 

capabilities, enhanced e-filing functionality, as well as improved 

customer relations capabilities. fincen has already completed 

the necessary planning efforts and established the foundation to 

guide all future activities. 

Regulatory Efforts 

In the regulatory area, fincen’s policy efforts focus on efficient 

and effective bsa administration. this includes ensuring the 

consistent application of bsa regulations to regulated financial 

institutions, providing guidance on regulatory expectations, and 

initiating enforcement actions when appropriate. 

to enhance bsa compliance, fincen developed analysis criteria to more effectively leverage bsa data to identify potential 

non-compliant institutions. this strategy should enable fincen 

to enhance collaboration with law enforcement to identify 

sources of lead information and become even more proactive 

in identifying and taking action against non-compliant institutions, including targeted examination referrals and enforcement 

measures as warranted. 

fincen issued a final rule enhancing domestic and international information sharing to thwart money laundering and 

terrorist finance. this rule conforms fincen’s successful 314(a) 

program with the treaty agreements between the u.s. and the 

eu. the rule greatly benefits the u.s. by granting federal law 

enforcement agencies reciprocal rights to obtain information 

about suspect accounts in eu member states. the final rule also 

gives u.s. state and local law enforcement agencies access to 

the program and further clarifies that fincen and certain units 

of the treasury Department can access the program to increase 

the quality of analytical support provided to law enforcement. 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

116 

fincen published guidance on obtaining and retaining 

beneficial ownership information. Information on beneficial 

ownership in account relationships provides another tool for 

financial institutions to better understand and address money 

laundering and terrorist financing risks, protect themselves from 

criminal activity, and assist law enforcement with investigations 

and prosecutions. fincen worked closely with its regulatory 

partners to develop the guidance, which was issued jointly with 

the federal banking agencies and the securities and exchange 

commission. 

fincen is close to finalizing rules strengthening the confidentiality of sars and released guidance that permits certain 

affiliates of depository institutions, broker-dealers in securities, 

mutual funds, futures commission merchants, and introducing brokers in commodities to share sars within a corporate 

organizational structure for purposes consistent with title II 

of the bsa. the revised rules will help financial institutions 

better facilitate compliance with the applicable requirements 

of the bsa and more effectively implement enterprise-wide 

risk management, resulting in better risk assessment and better 

reporting quality. 

fincen published an assessment of insurance sar reporting, 

an assessment of the impact of streamlined ctr exemption 

rules, and a simplified, revised regulatory structure in the 

federal register to reorganize bsa regulations under chapter 

X of the code of federal regulations. the assessments provide 

valuable information to the industry, and the reorganization 

would ensure that financial institutions are able to identify 

bsa obligations in a more understandable manner when the 

structure becomes effective in fiscal year 2011. 

In March 2010, fincen announced the assessment of a civil 

money penalty, $110 million, against Wachovia bank. the 

action represents the largest penalty action to date against a 

financial institutions by fincen for violations of the bsa. 

Conclusion 

fincen missed only one target this year compared to two last 

year. the one target not achieved, “the percentage of domestic 

law enforcement and foreign financial intelligence units finding 

fincen’s analytical reports highly valuable,” narrowly missed 

the target by one percentage point. overall 81 percent of the 

measures exceeded their targets, and some targets were exceeded 

by large margins. actual results for 37.5 percent of measures 

showed decreases from last year, while 50 percent saw increases 

and 12.5 percent saw no change. fiscal year 2010 performance 

exceeded targets for 10 measures. 

Moving Forward 

fincen’s future plans in the regulatory area will improve its 

ability to strengthen financial system security and enhance u.s. 

national security. to ensure financial systems are resistant to 

abuse by money launderers, terrorists and other perpetrators of 

financial fraud and crimes, fincen will: 

•	 finalize regulations for non-bank residential mortgage 

lenders and originators that apply aMl program and sar 

requirements. this initiative will support efforts to prevent 

criminal actors from abusing the housing markets and help 

bring other participants in the loan and finance industry 

under the bsa; 

•	 finalize proposed amendments to clarify the scope of the 

money services business (Msb) definitions to the extent 

consistent with appropriately managing money laundering 

risks in this industry; 

•	 finalize proposed regulations to bring providers and certain 

sellers of prepaid access cards into more comprehensive 

bsa requirements, including the aMl program, suspicious 

activity reporting, registration, and customer identification 

requirements; 

•	 continue to conduct analysis in support of regulatory 

initiatives (such as identity theft) and efforts to combat 

mortgage loan fraud. the analysis will identify emerging 

trends (such as commercial real estate fraud); and 

•	 continue to enhance proactive compliance and enforcement efforts, including targeted steps to increase money 

transmitter registration. fincen will also continue to 

strengthen oversight of recently-covered industries under 

the bsa by signing additional information sharing agreements with state insurance regulators and working cooperatively with the Irs and state regulators on consistent, 

risk-based examination procedures. 

fincen’s future plans in the analytical area will improve its 

ability to strengthen financial system security and enhance 

u.s. national security. to detect and deter financial fraud, 

strategic goal: prevented terrorism and promoted the nation’s security 

through strengthened international financial systems 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

117 

money laundering, terrorism financing, and other illicit activity, 

fincen will: 

•	 continue to work with law enforcement and financial and 

international partners to combat Mexican cartel-related 

drug, gun, and human smuggling operations in Mexico and 

along the southwest border by improving the sharing and 

analysis of related financial information; 

•	 continue to work with the southwest border anti-Money 

laundering alliance and other federal or state efforts to 

interdict and investigate illicit money laundering on the 

southwest border through the detection of trends, patterns, 

and significant criminal activity in wire remittance data. 

under a state agreement, fincen will receive an estimated 

100 million records associated with wire transfers to and 

from the Mexican border area from 2005 to 2013; 

•	 support federal law enforcement efforts to combat health 

care fraud by initiating a process to identify potential 

health care fraud perpetrators and by providing analytical 

support to investigations and prosecutions; 

•	 expand the range of analytical products and identify more 

efficiencies in case management of foreign fIu requests. 

fincen intends to dramatically increase the number of 

proactive intelligence reports sent to foreign counterpart 

fIus. Proactive intelligence reports will enable foreign law 

enforcement agencies to develop new cases or enhance 

existing ones; 

•	 Increase joint analytical projects with foreign fIu counterparts through intensified operational engagements with 

key strategic partner fIus. for example, fincen plans to 

replicate with other foreign fIus a current analytical initiative involving fincen, the Mexican fIu, and Irs-cI; and 

•	 enhance international information sharing through 

expanded collaboration with international bodies, including the egmont group, fatf, regional bodies, the World 

bank, and the IMf. 

fincen’s future plans will improve its ability to strengthen 

financial system security and enhance u.s. national security. 

to ensure efficient management, safeguarding and use of bsa 

information, fincen will: 

•	 continue to modernize bsa information management and 

analysis 

•	 Deploy the new advanced analytical tool on the current 

technical environment 

•	 establish disaster recovery infrastructure 

•	 Deploy the registered user Portal, which will provide 

a common user interface and authentication process for 

accessing bsa data 

•	 begin the development efforts to build the bsa new 


system of record and basic query capabilities
 

•	 Implement the ability to electronically enter select forms 

that are currently accepted only via paper filing 

strategic objective: pre-empted and neutralized threats to the 

international financial system and enhanced u.s. national security 

part 2: annual performance report
the department of the treasury 

118
 

strategic goal: 

ManageMent anD organIZatIonal eXcellence 

strategic objective: 

enabled and effective treasury department 

the Department of the treasury strives to maintain public trust 

and confidence through exemplary leadership and creating a 

culture of excellence, integrity, and teamwork. the Department 

is dedicated to serving the public interest and focused on delivering results that align with its strategic objectives. Management 

enables this through a strong institution that is citizen-centered, 

focused on achieving results, and is accountable and transparent 

to the american people. 

strategies to achieve this objective are improved acquisition 

practices, investing in people and technology, implementing 

quarterly performance and budget reviews, and aligning and 

managing resources. the treasury Department is committed 

to planning and assessing performance, reviewing results, and 

working towards continuous improvement. 

the bureaus and offices responsible for achievement of this 

objective are: 

•	 office of the treasury assistant secretary for Management 

and chief financial officer (asM/cfo) which includes 

the Deputy chief financial officer (Dcfo), budget, 

Planning, human capital, Information technology, 

Procurement, Privacy, and operations 

•	 office of the treasury Inspector general (oIg) 

•	 the treasury Inspector general for tax administration 

(tIgta) 

•	 office of the special Inspector general for the troubled 

asset relief Program (sIgtarP) 

the outcomes associated with this objective are: 

•	 a citizen-centered, results oriented and strategically 

aligned organization 

•	 exceptional accountability and transparency 

fifty percent of measures associated with this objective had 

targets that were more aggressive compared to 2009. 

Budget Trend 

Enabled and 

Effective 

Treasury 

Department 

$0

$1,250,000

$866,319

$1,138,100

$935,132$839,007$622,649$425,196$444,153 

2004 2005 2006 2007 2008 2009 2010 

Dollars (in Thousands) $1,000,000

$750,000

$500,000

$250,000

Fiscal Year 

Dollars (in Thousands) 

Fiscal Year 

Performance 

Cost Trend 

Enabled and 

Effective 

Treasury 

Department 

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$858,264$1,032,818$862,578$766,972$507,891$295,769$337,389 

2004 2005 2006 2007 2008 2009 2010 

Performance Cost 

by Outcome 

Enabled and 

Effective 

Treasury 

Department 

79.3% 

20.7% Exceptional A citizen- accountability centered, and transparency results-oriented 

and strategically 

aligned 

organization 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

119 

a Citizen-CentereD, results OrienteD, anD strategiCally aligneD 

OrganizatiOn 

based on performance results, treasury succeeded in achieving this outcome for fiscal year 2010. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Complete Investigations of EEO Complaints Within 180 Days 

(%) 

DO 65 65 86 132.3% 32.3% Exceeded 65  

Percent of complainants informally contacting EEO (for the 

purpose of seeking counseling or filing a complaint) who 

participate in the ADR Process (%) 

DO 35 35 51 145.7% 45.7% Exceeded 40  

Customer Satisfaction Index - Financial Mgmt Admin Support 

Services (%) 

Treasury 

Franchise Fund 

89 80 81 101.3% -9.0% Exceeded 80  

Operating expenses as a percentage of revenue--Financial 

Management Administrative Support (%) 

Treasury 

Franchise Fund 

4.72 12 6 150.0% 27.1% Exceeded DISC  

Analysis of Performance Results 

In 2010, treasury exceeded all of its performance goals for 

this strategic outcome. furthermore, all measures are now 

trending in a desirable direction. treasury’s equal employment 

opportunity (eeo) results are particularly positive suggesting 

strengthening of the program. the data also suggests that while 

the Department successfully achieved goals for priorities related 

to this outcome, targets for these measures may not be sufficiently aggressive. 

Procurement 

the office of the Procurement executive (oPe) is responsible 

for providing department-wide acquisition management, improving guidance for procurement programs and systems, bureau-level 

procurement operation evaluation, and facilitating strategic 

procurement. no performance goals for agency-wide procurement were included in treasury’s 2010 performance budget. 

the Department executed its fiscal year 2010 plan to meet the 

oMb acquisition improvement mandate to deliver 3.5 percent 

in procurement savings in fiscal year 2010 (and fiscal year 2011) 

and to achieve a ten percent reduction in high risk contracting 

in fiscal year 2010. as of september, treasury had exceeded 

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

both goals, documenting in excess of $241.9 million in savings 

vs. the goal of $158.4 million, and $129.4 million in high risk 

contracting reduction versus the goal of $48.8 million. the 

Department has already taken steps to ensure achievement of 

the required savings of 3.5 percent in fiscal year 2011 ($158 

million) and additional reduction in use of high risk contracting 

authorities. While oMb has not mandated a fiscal year 2011 

high risk reduction goal, treasury elected to continue actively 

transitioning to lower risk contracting strategies. treasury will 

achieve its targets through active management of acquisition 

operations and increased examination of high dollar/risk 

contracts. 

strategic objective: enabled and effective treasury department 

part 2: annual performance report
the department of the treasury 

120 

the Department plan includes specific strategic sourcing 

activities that were initiated in both fiscal year 2009 and fiscal 

year 2010. treasury mandated agency-wide use of the general 

services administration (gsa) federal strategic sourcing 

Initiative (fssI) for office supplies 2 (os2) and Domestic 

Delivery services 2 (DDs2). the Department also has initiated several treasury-wide strategic sourcing initiatives, which 

include consolidation of software (adobe/symantec) and 

subscription services. 

to promote collaboration and make the Department more 

efficient, treasury held the first ever Joint bureau chief 

Procurement officer (bcPo)/ chief financial officer (cfo) 

/ chief Information officer (cIo) council meeting focused 

on acquisition reform. later, chief human capital officers 

(chcos) were included in the governance model. this “Quad 

council” identified teams to develop and lead treasury-wide 

acquisition improvement initiatives supporting use of strategic 

sourcing concepts, demand management, commodity councils, 

common technology for visibility and access of data, and 

improved governance. analysis of research is ongoing with 

future actions to be determined based on findings and corporate 

potential. 

as required by the National Defense Authorization Act for fiscal 

year 2009 and the office of federal Procurement Policy (ofPP), 

treasury developed an acquisition human capital Plan to 

be used to guide the growth in capacity and capability of its 

acquisition workforce over the next five years. the Plan was 

submitted to ofPP in March 2010 and will be updated annually. the Plan will serve as a component of the agency’s budget 

preparation beginning with the fiscal year 2012 budget cycle. 

Information Technology (IT) 

the office of the chief Information officer is responsible for 

all areas of information and technology management. With an 

annual It budget of over $3 billion dollars, the Department is 

focused on enabling innovation in support of the Department’s 

expanding financial and economic missions while also increasing the operational efficiency and effectiveness of It assets. 

no performance goals for agency-wide It were included as 

part of treasury’s fiscal year 2010 performance budget. In light 

of the dynamic environment within which treasury operates, 

treasury’s It program is focused on the following areas. 

Using taxpayer funding wisely by leveraging 

IT investments 

treasury is actively using the federal It Dashboard to monitor 

and assess its key It investments. 

While the results for cost and schedule variance in fiscal year 

2009 showed marked improvement from 2008, they were not indicative of treasury’s performance due to the way in which data 

was being captured. going forward ocIo is reviewing options 

on what statistics act as best indicators of performance. these 

metrics are annual snapshots and don’t reflect performance 

throughout the year. Ideally, future measures and benchmarks 

will be consistent with data used by the It Dashboard. the 

project manager qualification measure will be reviewed by 

ocIo for follow-up action. the measure requires a longer term 

personnel development and training solution. 

Measure 

Fiscal 

Year 

2008 

Fiscal 

Year 

2009 

Fiscal 

Year 

2010 Change 

Percent of IT investments reported as 

“red” for cost variance (greater than 

10% variance from target) 

40.33% 1.7% 26% 24.3% 

Percent of IT investments reported as 

“red” for schedule variance (greater 

than 10% variance from target) 

19.4% 0% 9% 9% 

Percent investments reported that 

the Project Manager was validated, 

according to 1) Federal Acquisition 

Certification for Program and Project 

Managers or 2) Defense Acquisition 

Workforce Improvement Act criteria, 

as qualified 

77.42% 83.05 69% -14.05% 

additionally, treasury is actively engaged in data center 

consolidation efforts in support of green It and real Property 

Management. In august 2010, the Department submitted its 

strategy for reducing the number of treasury data centers to 

oMb. In support of this strategy, the treasury cIo council 

approved proposals of specific initiatives to consolidate and 

optimize the Department’s data centers. It is anticipated that 

the Department can increase the efficiency of its data centers in 

support of energy reduction and release of real property. 

one specific initiative is the fiscal It consolidation. fMs and 

bPD initiated a project to consolidate the data centers across 

the two bureaus to help achieve the secretary’s objective of 

increasing the utilization and efficiency of combined It assets, 

while reducing technology costs. the fiscal It effort includes 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

121 

consolidation of five data centers into two shared by both bureaus, creation of a single corporate governing body, in-sourcing 

of select contracted functions, and consolidation of application 

development methodologies and associated infrastructure, all 

leading to a more “green” approach to delivery of It services. 

both fMs and bPD anticipate savings due to reductions in 

energy consumption, equipment, software, and staff. 

Enabling an information centric organization 

treasury investments such as enterprise content Management, 

the Internal revenue service’s customer account Data engine 

II, and fincen’s It Modernization are demonstrably focused 

on improving mission performance. effective use of It will also 

enable treasury to rapidly begin operations as assigned by the 

Dodd–frank act. In addition to business capabilities, treasury 

It will enable greater public access to data by increasing the 

amount of public data that are readily accessible and in machine 

readable formats. 

to provide timely reporting and monitoring of select cyber 

security metrics, treasury developed and deployed a Web-based 

dashboard that provides real time analysis and an indexed cyber 

security posture. this dashboard can be easily updated to reflect 

changes in metrics reported to oMb and to meet evolving cyber 

security status monitoring and trend analysis requirements. 

Controlling and protecting Treasury 

information assets 

Within an enterprise as interconnected as treasury, security 

is not only essential for protecting information assets, but is 

more importantly a key enabler for many elements of treasury’s 

business mission. two of treasury’s strategic security objectives include the Department-wide use of homeland security 

Presidential Directive-12 (hsPD-12) based credentials for 

logical access to business applications, and the enterprise-wide 

use of data loss prevention tools to monitor for and prevent the 

accidental leakage of information. 

to further protect the Department’s sensitive business information, treasury is deploying the capability to monitor the use of 

illegal and unauthorized software in its networks and systems. 

this capability will help prevent software piracy and the introduction of hostile software which would put treasury’s It-based 

business processes and information at risk of theft, compromise, 

and disruption. 

Providing reliable and robust computing, 

information and communication services 

treasury operates one of the largest civilian wide-area networks 

in the united states. With a significant percentage of its 

workforce being mobile, treasury demands a ubiquitous, fullfeatured, and cost effective communications service. treasury 

will continue to provide high performing, elastic services by 

building on fiscal year 2010 successes in migrating to a common, 

more cost effective wide-area network. 

the Department is currently modernizing several web sites 

including treas.gov to increase transparency, accessibility, 

navigability, and usability. to date, treasury has completed an 

assessment of the current treas.gov website and is in the process 

of developing the new design. treasury is moving from an officebased design approach to one which responds to user interests. 

the treas.gov website will be the first federal website rated 

at the Federal Information Security Management Act (fIsMa) 

moderate level to be hosted on the amazon cloud computing 

platform. additionally, treasury deployed MyMoney.gov to provide financial education to the general public one month ahead 

of schedule in fiscal year 2010. finally, treasury also deployed 

web applications that will transform the way the Department 

attracts and retains job candidates by providing the information 

and functionality needed to decide on a career with treasury. 

Management and Budget 

the office of the Deputy assistant secretary for Management 

and budget (DasMb) is responsible for strategic planning and 

performance management, budget formulation and execution, 

program evaluation, and special projects, such as recovery act 

coordination for the Department. no performance goals related 

to DasMb are included in treasury’s 2010 performance budget. 

In fiscal year 2010, the Department’s fiscal year 2012 budget 

submission was meticulously reviewed and prepared to establish 

funding based on key priorities. treasury also worked to realize 

savings during this fiscal year by only funding top priority needs 

and reallocated savings towards programs aligned with treasury’s 

and the President’s priorities. 

strategic objective: enabled and effective treasury department 

part 2: annual performance report
the department of the treasury 

122 

During the fiscal year, the Deputy secretary held quarterly 

performance and budget reviews with bureaus and policy offices. 

these reviews are structured after the “stat” model developed 

by police departments to generate data-driven decisions. During 

these sessions, bureau mission statements and performance 

measures are re-evaluated, and then performance results are 

reviewed. budget discussions were also included in the reviews. 

Operations 

the office of the Deputy assistant secretary for Departmental 

offices operations provides management and administrative 

support for the offices and employees in treasury’s departmental, or headquarters, offices. no performance goals related 

to Departmental operations are included in treasury’s 2010 

performance budget. 

key Departmental operations accomplishments for fiscal year 

2010 are: 

•	 coordination with gsa for the location planning for the 

stand-up of the consumer financial Protection bureau 

•	 establishing and maintaining “all green” on the 


environment and energy scorecard for two reporting 


periods covering six months each
 

•	 complete hsPD-12 Physical access control implementation for all Departmental office owned and leased locations 

Human Capital 

the Deputy assistant secretary for human resources and chief 

human capital officer is responsible for all areas of human 

capital management. 

Effectively managing and utilizing human 

resources 

In fiscal year 2010, treasury implemented several changes to 

the senior executive service (ses) performance management 

process to clarify performance expectations and support more 

meaningful distinctions in ratings and rewards, and assessment 

of those changes will continue in fiscal year 2011. because 

ses ratings reform has been identified as a major priority of 

the President’s Management council, treasury plans to pursue 

additional initiatives in fiscal year 2011 related to performance, 

hiring, and executive development. 

treasury worked to address administration guidance on improving labor management relationships and managing a multisector workforce. It established new labor management forums 

in cooperation with the national treasury employees union 

and benchmarked contractor and federal employee performance 

within a key treasury data-center against 80 similar facilities. 

the Department also began implementation of human capital 

efforts related to the Dodd-frank act, such as new classifications and pay systems for new offices and bureaus. 

Developing and retaining Treasury’s 

workforce 

During fiscal year 2010, treasury implemented action plans 

that focused on areas for improvement as identified in the 2008 

federal human capital survey. these efforts paid off with 

improved scores on the 2010 employee Viewpoint survey (now 

renamed the fedView survey). the Department increased 

positive responses in each area, or index, of the survey by 

at least two percent. treasury efforts to improve scores on 

the survey and across various indices based on the survey 

results will continue into the future. additional detail on the 

survey methodology is available at the office of Personnel 

Management (oPM) website: http://www.opm.gov/surveys/ 

results/Employee/2010Employee SurveyResults.asp 

Broadening and diversifying Treasury’s talent 

pool 

treasury continued to create effective recruitment strategies and 

utilize available flexibilities to attract a diverse pool of highly 

qualified candidates, both external and internal, sufficient to ensure that the Department fulfills its mission requirements. fiscal 

year 2010 marked the second successful year of the hamilton 

fellows program. a total of 42 new fellows were hired treasurywide compared to 16 in fiscal year 2009. the Department 

developed a new hiring strategy for mid-career professionals 

during the fiscal year. finally, treasury also continued to recruit 

finalists from the oPM sponsored Presidential Management 

fellowship program. 

the Department’s fiscal year 2010 progress was consistent with 

government-wide human capital initiatives including hiring 

reform, veterans hiring, hiring persons with disabilities, and 

expanding of benefits to same sex domestic partners. treasury 

made significant progress in addressing the presidential 

memorandum on improving the federal hiring process by 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

123 

strengthening communication with applicants, streamlining 

and standardizing vacancy announcements, providing more 

information to managers, and process mapping departmental 

hiring efforts. treasury retained its multi-year record as the 

cabinet level agency with the highest employment of individuals with targeted disabilities. further, treasury created a steering 

committee which has substantially improved the process for 

hiring veterans. 

High Priority Performance Goal: 

Significantly Increase the Number of 

Paperless Transactions with the Public 

In addition to greatly reducing costs, enhancing customer 

service and minimizing treasury’s environmental impact, the 

move from paper to electronic transactions will increase reliability, safety, and security for benefit recipients and taxpayers. 

the initiative is expected to save more than $400 million and 

12 million pounds of paper in the first five years alone while 

delivering safe and secure payments in an efficient and reliable 

manner. 

In 2010 treasury began implementing paperless initiatives. 

first, treasury expects individuals receiving social security, 

supplemental security Income, Veterans, railroad retirement, 

and oPM benefits to receive payments electronically. Individuals 

will be able to receive benefits either through direct deposit into 

a bank account or treasury’s Direct express debit card. today, 

one million americans are receiving their benefit payments 

through Direct express and they have found the card safe, 

convenient, and easy to use. the requirement will apply to new 

enrollees beginning on March 1, 2011 and to existing check 

recipients beginning on March 1, 2013. currently, 85 percent of 

federal benefit recipients receive their payments electronically. 

Moving all recipients of these benefits to electronic payments is 

expected to save upwards of $300 million in the first five years. 

second, businesses currently permitted to use paper federal tax 

Deposit coupons will have to make those deposits electronically 

beginning in 2011 with a few exceptions, primarily businesses 

with $2,500 or less in quarterly tax liabilities that pay when 

filing their returns. currently, nearly 98 percent of all business tax dollars are paid electronically through treasury’s free 

eftPs. Irs research has shown that businesses using eftPs are 

31 times less likely to make an error. this change will save an 

estimated $65 million in the first five years. 

finally, treasury eliminated the option to purchase paper savings bonds through payroll deductions for federal employees on 

september 30, 2010 and will eliminate it for the private sector 

by January 1, 2011. this policy covers only paper savings bonds 

purchased through payroll sales; individuals will still be able to 

purchase paper savings bonds at financial institutions for themselves and as gifts. Payroll savers will be encouraged to continue 

their purchases through treasuryDirect, a web-based system that 

allows investors to buy and hold electronic treasury securities. 

transitioning employees to electronic payroll purchases saves 

employers administrative costs and allows employees to manage 

their own bond accounts. this is estimated to save nearly $50 

million in the first five years. 

treasury has made substantial progress consistent with this effort. fMs exceeded its target for percentage collected electronically of total Dollar amount of federal government receipts, 

reaching 85 percent. bPD has been conducting a public awareness campaign to inform its customers about the elimination of 

paper payroll savings bonds and the alternative of purchasing 

electronic securities in treasuryDirect. the data demonstrates 

that bPD has been successful in moving its customers to 

electronic securities. In the fourth quarter of fiscal year 2010, 

new treasuryDirect accounts increased 268 percent to 47,508 

compared to 12,902 new accounts in the fourth quarter of fiscal 

year 2009. also, in the fourth quarter of fiscal year 2010 dollar 

sales of electronic savings bonds rose 54 percent to $23,150,292 

compared to $15,031,333 in the fourth quarter 2009. During 

the same period, sales of paper savings bonds decreased from 

$386,179,000 in the fourth quarter of 2009 to $383,115,000 in 

the fourth quarter of 2010. additionally, the office of the fiscal 

assistant secretary (ofas) has led an interagency work group 

to publish proposed regulations to solve the growing problem 

of garnishment of exempt federal benefits which will in turn 

facilitate additional electronic benefits payments rather than 

payment by check. 

Conclusion 

the Department exceeded its targets for its strategic outcome: 

“a citizen centered, results oriented, and strategically 

aligned organization” for fiscal year 2010. the Department’s 

initiatives are moving towards improved management across 

programs. 

strategic objective: enabled and effective treasury department 

part 2: annual performance report
the department of the treasury 

124 

Moving Forward 

•	 During fiscal year 2011, treasury will institutionalize its 

quarterly performance and budget reviews. treasury will 

continue to work to formalize performance metrics in all 

management functions. 

•	 Data for treasury’s greenhouse gas emissions are not 

available annually, however treasury is still committed to 

reducing greenhouse gas emissions by 33 percent by 2020. 

the Department will continue to work towards reducing 

emissions and reporting when possible. 

•	 the Department will continue to implement hiring reform, 

including decreasing the time to hire, improving the 

pipeline of candidates, and supporting veterans and those 

with disabilities. 

•	 the 2011 goals of the Paperless initiative include increasing electronic payment, collections, tax filing, and savings 

bonds transactions by 33 percent by the end of fiscal year 

2011 and increasing the individual e-file rate to 74.7 

percent. 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

exCeptiOnal aCCOuntability anD transparenCy 

achieving and maintaining exemplary accountability and transparency is critical for the treasury Department as the primary financial agency for the u.s. government. the Department follows proper internal controls that serve to deter and eliminate fraud, waste, 

and abuse, while increasing efficiency and effectiveness. 

Key Performance Measure Table 

the following table contains only key performance measures associated with this outcome. actual and target trends represent four 

years of data where available. the full suite of measures with detailed explanations is available at http://www.treasury.gov/offices/ 

management/dcfo/accountability-reports. 

Key Performance Measure Bureau 

2009 

Actual 

2010 

Target 

2010 

Actual 

Percent 

of Target 

Achieved 

Percent 

Change in 

Actual 

Performance 

Rating 

2011 

Target 

4-year 

Target 

Trend 

4-year 

Actual 

Trend 

Percentage of timely completed Planned Corrective Actions 

(PCAs) (%) 

DO 85.6 87.5 88.4 101.0% 3.3% Exceeded 90  

Number of completed audit products SIGTARP 3 12 9 75.0% 200.0% Unmet 12  

Percent of recommendations implemented (%) SIGTARP 100 70 43 61.4% -57.0% Unmet 70  

Congressional requests for testimony completed SIGTARP 9 4 7 175.0% -22.2% Exceeded 4  

Percentage of investigations accepted by prosecutors (%) SIGTARP 95 50 100 200.0% 5.3% Exceeded 55  

Percentage of preliminary investigations that are converted 

into full investigations (%) 

SIGTARP 50 35 80 228.6% 60.0% Exceeded 40  

Percentage of all cases that are joint agency/task force 

investigations (%) 

SIGTARP 60 30 50 166.7% -16.7% Exceeded 35  

Percentage of hotline complaints referred for investigation or 

to OFS within 14 days of receipt (%) 

SIGTARP 77 60 74 123.3% -3.9% Exceeded 65  

Number of completed audit products OIG 68 62 68 109.7% 0.0% Exceeded 62  

Percent of statutory audits completed by the required date (%) OIG 100 100 50 50.0% -50.0% Unmet 100  

Percentage of all cases closed during fiscal year that 

were referred for criminal/civil prosecution or Treasury 

Administrative action (%) 

OIG 100 70 93 132.9% -7.0% Exceeded 70  

Percentage of all cases that were accepted by prosecutors, 

referred for agency action, or closed during fiscal year and 

were completed within 18 months of case initiation (%) 

OIG 92 70 66 94.3% -28.3% Unmet 70  

Percentage of audit products delivered when promised to 

stakeholders (%) 

TIGTA 81 65 76 116.9% -6.2% Exceeded 70  

Percentage of recommendations made that have been 

implemented (%) 

TIGTA 91 83 95 114.5% 4.4% Exceeded 85  

Percentage of results from investigative activities (%) TIGTA 83 79 87 110.1% 4.8% Exceeded 80  

Legend Symbol 

Favorable upward trend 

Favorable downward trend 

Unfavorable upward trend 

Unfavorable downward trend 

No change in trend, no effect 

No change in trend, favorable effect 

No change in trend, unfavorable effect 

Baseline B 

strategic objective: enabled and effective treasury department 125 

part 2: annual performance report
the department of the treasury 

126 

Analysis of Performance Results 

the Department exceeded targets for 73 percent of performance 

measures in this section. of the four measures (27 percent) that 

did not meet the target, the average percent of target achieved 

was 70 percent. treasury discontinued two measures: one in 

fiscal year 2010 and one in fiscal year 2009. results suggest 

that treasury has room for improvement in this area and that 

challenging targets have been set. oIg’s audit completion 

metrics were substantially affected by material loss review work 

for failed banks. oIg’s ability to meet this metric in fiscal year 

2011 will depend largely on the number and sizes of future bank 

failures compared to available oIg audit resources. tIgta 

exceeded targets for all of its measures by at least 11 percent. 

tIgta should consider setting more aggressive targets for 

measures related to audit products delivered and recommendations implemented as both also had undesirable target trends. 

sIgtarP’s completed audit product measure target may have 

been overly aggressive. although sIgtarP did not reach its 

goal of producing 12 audit products in fiscal year 2010, it did exhibit a 200 percent increase in completed audits (from three to 

nine). sIgtarP did not meet its implementation rate measure; 

it anticipated a higher implementation rate by ofs, but it was 

not fully met. ofs is working on implementing the recommendations, and planned corrective action dates extend into fiscal 

2011. sIgtarP will continue to monitor the implementation 

of these recommendations. 

Privacy, Transparency and Records 

the office of the Deputy assistant secretary for Privacy, 

transparency, and records (DasPtr) exists to strengthen privacy and disclosure. civil liberties functions have been included 

to take advantage of existing privacy processes, and the records, 

library, and orders and directives programs are included because 

they are significantly interrelated with the privacy and disclosure programs. DasPtr sets the standard for the protection, 

access, and appropriate disclosure of treasury’s information, and 

provides support for these activities so that program offices may 

concentrate on their core functions. 

In april 2010, the Department of the treasury published its first 

open government Plan, which represents the beginning of the 

Department’s formal implementation of the open government 

Directive. oMb validated that the plan met every directive requirement. an open government steering committee has been 

convened with representatives from each of treasury’s bureaus 

to develop guidance and provide leadership on these activities 

across the Department. the Department released 84 data sets 

to date, completed a number of stakeholder outreach efforts, 

and began a more focused approach to tracking reduction in the 

freedom of Information act (foIa) request backlog. In addition, DasPtr identified cost savings from open government 

initiatives, developing a cost-benefit matrix and tracking the 

impact of proactive information disclosure on FinancialStability. 

gov on the number of foIa requests for ofs. 

the Department of the treasury received a leading Practices 

award for Participation and collaboration for achievement 

above and beyond the requirements of the Directive. this award 

recognized treasury as an agency that outlined the best and 

most innovative strategies for promoting open government over 

the next two years. treasury was only one of eight agencies to 

receive an award. 

the office of Disclosure services submitted the final version 

of the chief foIa officer’s report in March 2010 to meet the 

requirement of submission to the attorney general by March 

15, 2010. the requirement supports the principles of transparency and openness in government. agencies report on the steps 

taken to apply the presumption of disclosure, including proactive disclosure activities, to greater utilization of technology, 

and steps taken to reduce backlogs and improve timeliness in 

responding to foIa requests. 

In January 2010, DasPtr launched a lean six sigma study 

for foIa requests processing. the objective was to analyze 

foIa processes within Departmental offices. the plan was to 

enable the Department of the treasury to promptly respond to 

foIa requests within statutory requirements, increase proactive 

disclosure of information, eliminate the foIa requests backlog, 

and ensure sensitive or complex foIa requests are processed 

properly. this will result in disclosure of information more 

efficiently, accurately, and rapidly to the american public to 

promote public trust and government accountability through 

increased openness and transparency. 

the DasPtr was designated as lead for treasury’s Departmentwide the enterprise content Management (ecM) initiative 

during fiscal year 2010. ecM will enable the Department of 

treasury to create structure for managing information and 

complying with foIa requests. In the long term, treasury 

expects that the project will improve productivity, increase cost 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

127 

savings, provide user satisfaction, and improve response time to 

foIa requests. 

the Department of the treasury has embraced digitization in 

another effort to make information more readily available to the 

public through the internet. treasury’s library maintains several 

unique specialized collections. the Department has began 

digitizing those collections with a goal to digitize 20 percent 

of the collection in fiscal year 2010 and 20 percent within the 

following four years. converting these materials to high quality 

digital format will provide historical preservation of the materials. the materials to be digitized include legislative histories 

of laws relevant to the treasury Department compiled by the 

library staff over the last 50 years, treasury press releases from 

the 1930s forward, the treasury annual reports from 1789, and 

studies conducted by the treasury Department. 

In accordance with sec. 522 of the Consolidated Appropriations 

Act, the Department is required to have a full accounting of its 

Personally Identifiable Information (PII) holdings. the office 

of Privacy and civil liberties (oPcl) met this requirement by 

completing a survey of PII holdings in Departmental offices and 

the bureaus and submitting a report on the results on time. this 

survey captured all systems, paper and electronic, that contain PII. 

Office of the Deputy Chief Financial 

Officer 

Dcfo tracks the closure of Pcas addressing recommendations 

in oIg, gao, tIgta, and sIgtarP audit reports. the 

timeliness of Pca completion goal for fiscal year 2010 was 87.5 

percent. treasury exceeded the goal for fiscal year 2010 and 

closed out the year with a rate of 88.4 percent. the prior two 

fiscal year’s timeliness of Pca completions were 83 percent in 

fiscal year 2008 and 85.6 percent in fiscal year 2009. 

Office of the Inspector General 

the oIg performs audits and investigations of non-Irs and 

non-tarP treasury programs and operations. oIg audits result 

in recommendations to improve the effectiveness, efficiency, and 

integrity of treasury programs and operations. oIg investigators 

conduct a variety of investigations covering financial, corruption, and other crimes, as well as serious employee misconduct. 

the oIg dedicated nearly all audit resources to mandated work 

primarily related to material loss reviews of failed banks during 

the fiscal year. With the unprecedented number of treasuryregulated bank failures requiring a review, the oIg was unable 

to meet the performance goal of completing 100 percent of 

those audits by the statutory deadline. During fiscal year 2010, 

53 treasury-regulated banks failed of which 30 were supervised 

by occ and 23 by ots. by comparison, 27 treasury-regulated 

banks failed during fiscal year 2009. for fiscal year 2010, oIg 

had 18 required material loss reviews in progress at the start 

of the year, initiated 20 new material loss reviews during the 

year; and completed ten material loss reviews. through most 

of the fiscal year, material loss reviews were required when the 

bank failure caused a loss to the Deposit Insurance fund of 

$25 million or more. this threshold was recently increased to 

$200 million. as a new requirement, however, the oIg must 

perform a review of failures with losses under the threshold that 

is limited to determining (1) the grounds identified by occ or 

ots for appointing the fDIc as receiver and (2) whether any 

unusual circumstances exist that might warrant an in-depth 

review of the loss. for fiscal year 2010, the oIg initiated 33 

such reviews and completed six of them. for three of the six 

completed reviews, the oIg determined that there were unusual 

circumstances warranting in-depth reviews; those reviews were 

in progress at fiscal year end. for the other three reviews, the 

oIg determined that there were no unusual circumstances and 

therefore an in-depth review will not be performed. In addition, 

the office of Investigations initiated four criminal investigations 

of failed treasury banks as a result the office of audit’s findings. 

the oIg reported on a number of trends from its failed bank 

reviews. With respect to the causes of the failures, the oIg 

found overly aggressive growth strategies fueled by volatile 

and costly wholesale funding (e.g., brokered deposits, federal 

home loan bank loans, etc.); risky lending products such as 

option adjustable rate mortgages; unsound underwriting; high 

asset concentrations including high concentrations in cre 

loans; and inadequate bank risk management systems. the 

economic recession and the decline in the real estate market 

was also found to be a major factor in most failures. With 

respect to treasury’s supervision of the failed banks, the oIg 

found that regular and timely examinations were conducted and 

operational problems identified, but the regulators were slow 

to take timely and aggressive enforcement action. the oIg 

made numerous recommendations to both occ and ots to 

strengthen their bank supervision and examination programs. 

both occ and ots took timely and responsive actions to 

address the recommendations. 

strategic objective: enabled and effective treasury department 

part 2: annual performance report
the department of the treasury 

128 

although limited due to the oIg’s mandated workload, the 

oIg continued to provide oversight of treasury’s more than $20 

billion of non-Irs programs under the recovery act. these 

recovery act programs provide: (1) cash payments to businesses 

for partial reimbursement of energy projects; (2) funding to states 

for the development of low income housing; and (3) grants and 

tax credits for economic development activities administered 

through the cDfI fund. During fiscal year 2010, the oIg completed two reviews that were part of the recovery accountability 

and transparency board coordinated government-wide reviews. 

In the first review, the oIg identified potential weaknesses in the 

data prepared by the Department on staffing levels, qualifications, 

and training. In the second review, the oIg identified potential 

weaknesses in treasury’s processes for reviewing recipient data. 

for both reviews, the Department took responsive action to the 

oIg recommendations for improvement. 

In fiscal year 2010, the office of Investigations opened 100 new 

investigations and closed 74 investigations. oI also referred 

100 percent of investigations that substantiated administrative violations against a treasury employee to the appropriate 

regulated bureau for appropriate action. In addition, the office 

of Investigations referred 19 investigations for criminal prosecution to the Department of Justice. 

Treasury Inspector General for Tax 

Administration 

During fiscal year 2010, tIgta exceeded all of its performance 

measure targets. tIgta was responsible for successful investigations of entities and individuals who threatened the nation’s tax 

system and issued many high-profile audit reports that received 

considerable coverage by the media and others. cumulatively, 

these efforts resulted in $11.46 billion in potential financial 

benefits from audit recommendations and $230 million in potential savings from investigative recoveries in embezzlements, 

thefts, court order fines, penalties, and restitution. 

tIgta strives to protect the integrity of america’s tax system. 

tIgta’s audits focus on the economy, efficiency, and effectiveness of tax administration. overall, tIgta’s office of audit 

(oa) issued 129 reports (including 16 Defense contract 

audit agency reports), identifying over $11.46 billion in total 

potential financial benefits. these benefits included $2.8 billion 

in cost savings recommendations, $8.6 billion in potential 

increased revenue/revenue protected recommendations, $198 

thousand in taxpayer rights and entitlements recommendations, 

and $36 million in recommendations related to inefficient use of 

resources. these reports also included recommendations impacting over two million taxpayer accounts. 

tIgta office of Investigations (oI) investigates threats to 

america’s tax system, which could impede collection of tax 

revenue and reduce public confidence. overall, tIgta oI 

processed 9,513 complaints, resulting in 3,857 opened investigations. Vigilant work against extortion, bribery, contractor 

fraud and misconduct, theft, taxpayer abuses, false statements 

and financial fraud, and other criminal activity resulted in 

potential savings of over $230 million. eighty-seven percent of 

the 3,675 final closed investigations generated 1,625 cases of 

employee misconduct referred for action and 235 cases accepted 

for criminal prosecution. furthermore, since the april 1, 2009, 

inception of the armed escort Program, tIgta has conducted 

62 armed escorts. 

Recovery Act Audits 

the recovery act provided tIgta with $7 million for 

oversight and audits of Irs activities. tIgta has performed 

audits to ensure that Irs’s systems and programs are operating 

effectively, efficiently, and economically in their activities 

related to this legislation. tIgta’s fiscal year 2010 recovery 

act oversight Plan and final recovery act reports are posted to 

the tIgta area of the Recovery.Gov website. 

Security Clearance Modernization and 

Reporting Act of 2009 

tIgta reviewed the Security Clearance Modernization and 

Reporting Act of 2009, which would make changes to security 

clearance and suitability determination reporting and create a 

security clearance and suitability Performance accountability 

council. the bill specifies that membership of the council 

shall include a senior officer from the office of the Director of 

national Intelligence, the Department of Defense, and oPM, in 

addition to other members. tIgta provided comments on the 

bill, suggesting that the draft bill include a member of the Ig 

community on the council. tIgta will continue to monitor 

this bill for changes that may have an impact on its mission. 

Audit Related Accomplishments 

the mission of tIgta oa is to promote the sound administration of the nation’s tax laws by conducting comprehensive 

audits that advise congress, the secretary of the treasury, and 

Irs management of high-risk issues, problems, and deficiencies 

strategic goal: management and organizational excellence 

part 2: annual performance report
performance and accountability report | fiscal year 2010 

129 

related to the administration of Irs programs and operations. 

fiscal year 2010 audit work resulted in significant recommendations to improve areas such as systems modernization, security 

maintenance, tax compliance, and operations, resulting in 

potential financial benefits. 

Inspections and Evaluations–Related 

Accomplishments 

During fiscal year 2010, tIgta’s office of Inspections and 

evaluations (I&e) provided responsive, timely, and costeffective inspections and evaluations of Irs challenge areas 

including recovery act implementation, pandemic influenza 

preparedness, and implementation of the Restructuring and 

Reform Act. the I&e staff also provided tIgta with additional 

flexibility and capability to provide value-added products and 

services for improving tax administration. 

Special Inspector General for the 

Troubled Asset Relief Program 

sIgtarP advances economic stability by promoting efficiency 

and effectiveness in treasury’s management of tarP through 

transparency, coordinated oversight, and robust enforcement 

against those who waste, steal, or abuse tarP funds. 

the american taxpayers have been asked to provide hundreds 

of billions of dollars to stabilize the financial system and 

promote economic recovery. In this context, they have a right 

to know how their money is being spent. Moreover, this same 

transparency is a powerful tool to ensure that all those managing 

tarP funds act appropriately, consistent with the law, and in 

the best interests of the country. sIgtarP’s primary tools for 

informing taxpayers about tarP are audit and quarterly reports, 

which are available for inspection at www.sigtarp.gov. 

additionally, sIgtarP ensures that members of congress are 

kept adequately and promptly informed of developments in 

tarP initiatives and of sIgtarP’s oversight activities. In that 

regard, the special Inspector general (sIg) and his staff regularly meet with and brief members of congress and their staff. 

sIgtarP also advises tarP managers concerning internal 

controls and the effectiveness of tarP activities, and makes 

recommendations for improvements in tarP management. 

sIgtarP closely coordinates its oversight activities with other 

tarP oversight bodies to ensure maximum coverage while 

avoiding redundancy and undue burden. In coordination with 

other oversight agencies, sIgtarP’s audit Division (aD) 

conducts and supervises performance audits and evaluations with 

respect to treasury’s operation of tarP; recipients’ compliance 

with their obligations under relevant law and contracts; and 

tarP policies and procedures. since its inception, sIgtarP 

has commenced 22 distinct audits and has issued 11 audit reports 

covering such topics as the use of tarP funds, external influence 

of programmatic decision-making, oversight of aIg’s compensation of executives, and treasury’s role in the decision to reduce 

the number of gM and chrysler dealerships. furthermore, among 

the policies and procedures that aD has reviewed and commented upon are tarP agreements and warrants, the Public-Private 

Investment Program, the capital assistance Program, and the 

home affordable Modification Program. 

sIgtarP’s Investigation Division (ID) supervises and conducts 

criminal and civil investigations into those persons and entities, inside or outside of government, who waste, steal, or abuse 

tarP funds. ID is comprised of experienced financial and 

corporate fraud investigators, special agents, forensic analysts 

and attorney advisors. this structure provides sIgtarP with a 

broad array of expertise and perspectives in developing sophisticated investigations. ID leverages its resources by coordinating 

closely with other law enforcement agencies and forming law 

enforcement partnerships and task force relationships across the 

federal government. ID has over 104 ongoing major criminal 

and civil investigations, and to date has prevented over $553 

million of tarP funds from being disbursed on the basis of 

fraudulent representations, and caused indictments of individuals 

for, among other offenses, bribery, embezzlement, bank fraud, 

mail fraud, wire fraud, and money laundering. ID also manages 

the sIgtarP hotline, which abides by all applicable whistleblower protections in processing complaints via telephone, 

e-mail, website, and in-person. ID has received and processed 

more than 14,000 hotline contacts since february 2009. 

Conclusion 

While over half of the measures for this goal were exceeded, 27 

percent of measures for this strategic goal were not met. treasury 

has opportunities for improving accountability and transparency across the organization and will continue to set aggressive 

targets for measures. 

strategic objective: enabled and effective treasury department 

part 2: annual performance report
the department of the treasury 

130 

Moving Forward 

treasury’s three inspectors general will continue to provide 

oversight of the Department’s programs and operations. 

In fiscal year 2011, even with the increase to the threshold 

triggering a mandated review, oIg anticipates that it will 

be necessary to devote substantial resources to its statutory 

obligations related to the failures of treasury-regulated banks. 

oIg will also undertake work on new mandates such as those 

in the Dodd-frank act, such as overseeing the transfer ots’s 

functions to other banking regulators, as well as work required 

by the Improper Payments Elimination and Recovery Act of 2010. 

other high-priority areas where the oIg plans to focus its 

resources are on treasury’s non-Irs recovery act programs, the 

tftP, and significant capital investments like bsa modernization. oIg will also investigate (1) criminal matters involving 

recovery act funds, (2) matters where there was a subversion 

of the bank examination process by an ots or occ regulated 

bank, and (3) claims made against the fMs, check forgery 

Insurance fund. 

tIgta’s audits, investigations, inspections and evaluations 

priorities include: 

•	 overseeing the Irs’s efforts to administer tax provisions of 

the recovery act 

•	 Developing a multi-year oversight plan covering the Irs’s 

efforts to implement the various tax-related and health 

coverage tax credit-related provisions of the aca 

•	 conducting comprehensive audits, inspections, and evaluations that include recommendations for monetary benefits 

and enhancing the Irs’s service to taxpayers 

•	 adapting to the Irs’s continually evolving operations 

and mitigating intensified risks associated with modernization, security, addressing the tax gap, and human capital 

challenges facing the Irs in domestic and international 

operations 

•	 responding to domestic and international threats and 


attacks against Irs employees, property, and sensitive 


information
 

•	 Improving the integrity of Irs operations by detecting 

and deterring fraud, waste, abuse, and misconduct by Irs 

employees 

•	 Informing the public, congress, and the secretary of the 

treasury of problems and progress made to resolve identified issues 

sIgtarP intends to focus on increasing staff for field operations and to address increased workload in audits and investigations. the bureau will continue to promote transparency and 

prevent abuse in the tarP program. 

DasPtr will use leverage treasury’s ecM efforts towards its 

long term goal of improving productivity, increasing cost savings, providing user satisfaction, and improving response time to 

foIa requests. 

strategic goal: management and organizational excellence 

part 2: annual performance report
part 3: 

annual 

financial 

report 

performance and accountability report | fiscal year 2010 

133 

Message froM the assIstant secretary for 

ManageMent anD chIef fInancIal offIcer 

november 15, 2010 

In fiscal year 2010, the Department of the treasury built on the framework established during 

the preceding year to restore confidence in america’s financial system, ease the housing crisis, 

and provide the foundation for sustained economic recovery as treasury’s troubled asset relief 

Program and recovery act programs matured. 

challenges lie ahead as treasury works to implement myriad changes contained in major legislation 

enacted in 2010, including the broad health care reform provisions of the Patient Protection and 

Affordable Care Act; the sweeping financial reforms of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act; and the new loan programs and tax law changes in the Small Business Jobs 

and Credit Act. these programs, once implemented, will have a significant, positive impact in the 

lives of millions of americans. 

In fiscal year 2010, the Department of the treasury demonstrated fiscal prudence and strong management reforms as we: 

•	 launched a new performance management process, led by the treasury Deputy secretary, to review bureau and Departmental 

office missions, goals, performance measures, and budget proposals 

•	 realized $23.1 billion in net income from troubled asset relief Program (tarP) operations, resulting in reducing the 

cumulative net cost of the program from $41.6 billion at the end of fiscal year 2009 to $18.5 billion at the end of fiscal year 2010 

•	 Identified $315 million in efficiency savings, rescissions, and new user fees in the fiscal year 2011 budget submission, to reduce 

the cost of treasury operations 

•	 supported our veterans by achieving the Department’s goal of spending at least 3 percent of its prime contracting dollars to 


support service-disabled, veteran-owned small businesses, while generating over $200 million in procurement savings
 

•	 Improved the effectiveness and efficiency of treasury’s execution of processes and procedures through the ongoing application of 

continuous improvement techniques 

•	 Implemented the President’s open government Directive, releasing approximately 80 data sets to the public 

•	 reformed treasury’s senior executive service performance management system to strengthen the Department’s performance 

culture 

the Department received an unqualified audit opinion on both our office of financial stability/tarP and treasury-wide fiscal 

year 2010 financial statements. treasury closed the material weakness on financial management practices at the Departmental level 

during fiscal year 2010, and made progress toward resolving the four material weaknesses remaining open as of september 30, 2010 

[Irs - Modernization Management (due to close by 2011), computer security (due to close by 2012), and unpaid tax assessments 

(due to close by 2015) and fMs - Preparation of the government-wide financial statements (due to close by 2014)]. 

message from the assistant secretary for management and chief financial officer 

part 3: annual financial report
the department of the treasury 

the complexity of systems enhancements is the major impediment to closing these weaknesses. treasury made significant progress 

in managing programs included in the government accountability office’s high-risk list and in addressing management and 

performance challenges identified by the Department’s Inspectors general. 

We will continue to devote special attention to these programs and challenges as we work to further improve the u.s. economy, help 

create jobs, and restore confidence in our financial system. 

and chief financial officer 

Dan tangherlini 

assistant secretary for Management 

134 message from the assistant secretary for management and chief financial officer 

part 3: annual financial report part 3: annual financial report
135 

performance and accountability report | fiscal year 2010 

November 15, 2010 

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 2010 and 2009 

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, 2010 

and 2009. 

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 2010 and 2009 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 

systems 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 management practices at the 

Departmental level, 2) financial accounting and reporting at the Office of Financial 

Stability, and 3) information system controls at the Financial Management Service 

represent significant deficiencies for the Department as a whole; 

inspector general’s transmittal letter 

part 3: annual financial report
the department of the treasury 

136 

Page 2 

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

Revenue Code Section 6325; 

•	 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 certain 

transactions and activities of the Treasury Inspector General for Tax Administration. 

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, 2010, 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 

inspector general’s transmittal letter 

part 3: annual financial report
137 

performance and accountability report | fiscal year 2010 

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036-3389 

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, 2010 and 2009, and the related consolidated statements 

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

statements of custodial activity (hereinafter referred to as “consolidated financial statements”) for the 

years then ended. The objective of our audits was to express an opinion on the fair presentation of 

these consolidated financial statements. These consolidated financial statements are incorporated in 

the accompanying U.S. Department of the Treasury Fiscal Year 2010 Performance and 

Accountability Report (PAR). 

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 

thereon 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 2010 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, 2010 and 2009, are presented fairly, in all material respects, in 

conformity with U.S. generally accepted accounting principles. 

As discussed in Note 21, the Department implemented Statement of Federal Financial Accounting 

Standards No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: 

Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and 

Valuation Dates, effective October 1, 2009. 

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

whose purpose is to assist in stabilizing the financial markets. 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

138 

U.S. Department of the Treasury 

November 15, 2010 

Page 2 of 14 

Notes 1A, 1V, 8, 9, and 12 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 potential effect of 

proposed transactions, such as the restructuring of American International Group, Inc., 

on 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, 2010, 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 identified 

significant 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 Management Practices at the Departmental Level (Repeat Condition) 

•	 Financial Accounting and Reporting at the Office of Financial Stability
 

(Repeat Condition)
 

•	 Information System 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 

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

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

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

2
 

auditors' report on the department's financial statements 

part 3: annual financial report
139 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 3 of 14 

In other matters, the Department informed us of an instance of a potential Anti-deficiency Act 

violation related to certain transactions and activities of the Treasury Inspector General for Tax 

Administration (TIGTA). This matter is currently under review. 

The following sections discuss our opinion on the 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 compliance with certain provisions of applicable laws, regulations, 

contracts, and grant agreements; and management’s and our responsibilities. 

Opinion on the Financial Statements 

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

as of September 30, 2010 and 2009, and the related consolidated statements of net cost, changes in 

net position, the combined statements of budgetary resources, and the statements of custodial 

activity, for the years then ended. 

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

component entity of the Department, which reflect total assets of $43.2 billion and $36.8 billion, net 

costs of operations of $13.4 billion and $12.5 billion, before applicable eliminating entries, 

budgetary resources of $13.4 billion and $12.8 billion, and custodial revenues of $2.3 trillion each as 

of and for the years ended September 30, 2010 and 2009, respectively. The financial statements of 

IRS as of and for the years ended September 30, 2010 and 2009, were audited by another auditor 

whose report dated November 5, 2010, has been provided to us, and our opinion, insofar as it relates 

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

In addition, we did not audit the amounts included in the consolidated financial statements related to 

the OFS, a component entity of the Department, which reflect total assets of $244.2 billion and 

$337.4 billion, net (income) and net costs of operations of ($23.1) billion and $41.6 billion, before 

applicable eliminating entries, and budgetary resources of $195.3 billion and $699.4 billion, as of 

and for the years ended September 30, 2010 and 2009, respectively. The financial statements of OFS 

as of and for the years ended September 30, 2010 and 2009, were audited by another auditor whose 

report dated November 5, 2010, has been provided to us, and our opinion, insofar as it relates to the 

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

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

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

Department of the Treasury as of September 30, 2010 and 2009, and its net costs, changes in net 

position, budgetary resources, and custodial activity for the years then ended, in conformity with 

U.S. generally accepted accounting principles. 

As discussed in Note 21, the Department implemented Statement of Federal Financial Accounting 

Standards No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: 

Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and 

Valuation Dates, effective October 1, 2009. 

3
 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

U.S. Department of the Treasury 

November 15, 2010 

Page 4 of 14 

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

whose purpose is to assist in stabilizing the financial markets. 

Notes 1A, 1V, 8, 9, and 12, 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 potential effect of 

proposed transactions, such as the restructuring of American International Group, Inc., 

on 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, 2010, 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. 

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

Required Supplemental Information section of Part 3: 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, Part 2: the Annual Performance Report, the Message from the Assistant 

Secretary for Management and Chief Financial Officer, and the Inspector General’s Transmittal 

Letter in Part 3, and Part 4: 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, and the other auditor’s, consideration of the internal control over financial reporting was for a 

limited purpose described in the Responsibilities section of this report, and was not designed to 

identify all deficiencies in the internal control over financial reporting that might be 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 

4
 

140 auditors' report on the department's financial statements 

part 3: annual financial report
141 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 5 of 14 

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 Department’s consolidated 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 2010 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 IRS is considered to be a material weakness. Because of the IRS 

material weakness in internal control discussed below, the other auditor’s opinion on IRS’ internal 

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

September 30, 2010, and thus did not provide reasonable assurance that losses and misstatements 

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 control over financial reporting as of September 30, 2010. 

MATERIAL WEAKNESS 

Financial Systems and Reporting at IRS (Repeat Condition) 

IRS continued to make progress in addressing its internal control deficiencies. However, material 

weaknesses related to unpaid tax assessments, and information security controls continued to exist in 

fiscal year 2010, in addition to a new significant deficiency related to tax refunds disbursements. 

The challenges IRS faces as a result of these deficiencies adversely affect IRS’s ability to 

(1) produce reliable financial statements without significant compensating procedures, and (2) make 

well-informed decisions. As IRS continues to increase the automation of accounting and reporting 

processes, the need for effective security over the data these systems process becomes increasingly 

critical. These weaknesses also significantly increase the risk that sensitive taxpayer information may 

be compromised. 

These deficiencies in internal control over financial reporting identified by the auditors of IRS’s 

financial statements are collectively considered a material weakness for the Department as a whole. 

These deficiencies are summarized as follows: 

•	 Serious internal control issues continue to affect IRS’s management of unpaid tax 

assessments. Specifically, a lack of adequate procedures and systemic limitations in the 

programs used resulted in the following issues: (1) IRS’s reported balances for taxes 

receivable and other unpaid assessments were not traceable from its general ledger 

system for tax administration-related transactions to individual transactions in underlying 

5
 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

142 

U.S. Department of the Treasury 

November 15, 2010 

Page 6 of 14 

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, and (3) IRS experienced errors and delays in recording taxpayer 

information, payments, and other tax assessment-related activities. (Material Weakness) 

•	 Internal control over IRS’s information system’s security continued to be ineffective, 

particularly as it relates to controls over access to mission-critical applications and 

processing sensitive information. As a result, IRS could not rely on the internal controls 

contained in its automated financial management system to provide reasonable assurance 

that (1) its financial statements taken as a whole, were fairly stated, (2) the information 

IRS relied on to make decisions on a daily basis were accurate, complete, and timely, 

and (3) proprietary financial and taxpayer information was appropriately safeguarded. 

(Material Weakness) 

•	 Weaknesses in IRS’s controls over manual tax refunds as well as processing of claims 

for the First-Time Home Buyer Credit that resulted in duplicate or otherwise erroneous 

tax refund disbursements. (Significant Deficiency) 

The other auditor noted that the material weaknesses and significant deficiency 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 material weakness identified above have been provided to IRS 

management by the auditors of IRS’s financial statements in their report dated November 5, 2010. 

Recommendations 

Recommendations to address the material weakness discussed above have been provided to IRS 

management by the auditors of IRS’s financial statements. We recommend that the Assistant 

Secretary for Management and Chief Financial Officer (ASM/CFO) provide effective oversight to 

ensure that corrective actions are taken by IRS to resolve this material weakness. 

SIGNIFICANT DEFICIENCIES 

Financial Management Practices at the Departmental Level (Repeat Condition) 

We identified the following two deficiencies that we collectively consider to be a significant 

deficiency at the Departmental level. Both are repeat deficiencies related to Department-wide control 

environment weaknesses. 

Department-wide Entity Level Controls Affecting Financial Reporting 

Due to expanded accounting and reporting requirements and related responsibilities, further 

improvements are needed in the current staffing structure and staff skills at the Departmental level. 

6
 

auditors' report on the department's financial statements 

part 3: annual financial report
143 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 7 of 14 

The Office of Accounting and Internal Control (AIC), within the Office of the Deputy Chief 

Financial Officer (ODCFO) is responsible for establishing and maintaining financial policies that 

guide financial and budgetary reporting throughout the Department, and ensure the overall integrity 

of financial data reported at the Departmental level. In fiscal year 2010, the Department took several 

steps to improve its current staffing structure and staff skills, including outlining a human capital 

needs assessment, hiring new staff, and providing training to existing staff. However, we continue to 

note weaknesses in the internal control environment, as described below, that negatively impact 

financial management at the Departmental level. 

In fiscal year 2010, AIC supplemented its existing staff and realigned duties and responsibilities 

within AIC. Although these steps helped with AIC’s staffing structure and needs, delays in hiring 

these additional personnel limited the opportunity to fully train them on the Department’s unique 

accounting and reporting needs. As a result, key accounting functions and duties, as well as 

accounting decisions continue to be performed by a few key senior staff members, until the new staff 

members are fully trained on Treasury’s unique accounting transactions. With regard to budgetary 

accounting and issues identified Department-wide, there is limited senior staff within AIC who have 

the knowledge and experience to adequately respond to and address issues. The lack of accounting 

staff possessing the knowledge and experience necessary to address accounting and reporting issues 

and questions at the Departmental level increases the risk that a misstatement in the consolidated 

financial statements and related note disclosures will not be detected. 

Financial Accounting and Reporting 

The Department’s financial accounting and reporting policies, procedures, the related internal 

controls, and testing for effectiveness of internal control over financial reporting, need improvement 

in the following areas. 

•	 Management’s review procedures over the consolidated financial statements are not sufficient to 

ensure the accuracy and validity of reported amounts. We continued to identify incorrect 

amounts and disclosures in the draft consolidated financial statements that were significant, but 

not material, and that were not detected by AIC. While improvements were noted in the review 

and approval process for preparing its consolidated financial statements and related note 

disclosures, additional supervision and review is needed. Further, the documentation supporting 

the consolidated financial statements amounts were in certain instances inadequate or incomplete 

in areas such as the President’s Budget Reconciliation. For example, certain key documentation 

that supported reconciling items was not provided until requested or had to be prepared 

subsequently. 

•	 While the Department took steps in fiscal year 2010 to develop policies and procedures over 14 

accounting and reporting areas, policies and procedures related to certain other significant 

accounting areas need to be addressed. Written policies and procedures to account for and report 

various non-routine, complex, and unique transactions, such as accounting and reporting of 

custodial transactions, U.S. Mint’s Seigniorage, transfers to the General Fund, and non-entity 

transactions have not been documented. Further, AIC did not have written procedures for 

performing certain key financial statements analyses such as that for proprietary and budgetary 

relationships, and cumulative results of operations. In addition, while the policies and procedures 

developed in fiscal year 2010 identify management controls in the workflow diagrams, 

descriptions of the controls need to be included in the policies and procedures. Proper 

7
 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

144 

U.S. Department of the Treasury 

November 15, 2010 

Page 8 of 14 

documentation depicting processes and controls is a critical component of internal control 

because it presents management’s overall processes to gather, process, and report financial 

information and ensure their compliance with applicable laws and regulations. 

•	 The Department’s actions to ensure that the Secretary’s assurance statement on the effectiveness 

of internal control over financial reporting is supported by verifiable results continue to require 

further improvement. Specifically, components are not consistently complying with the 

Department’s guidance for conducting management’s assessment of the effectiveness of internal 

control over financial reporting. Several steps were taken in the current year to improve 

implementation. AIC provided additional guidance to components by publishing fiscal year 2010 

OMB Circular No. A-123, Management’s Responsibility for Internal Control (A-123) Guidance 

(FY 10 Guidance), which clarified and enhanced previous guidance in various key areas. AIC 

provided sample documentation to components to follow during their test work. While the FY 

2010 Guidance appeared to be clear in terms of instructions, our review revealed several 

instances where the components did not completely adhere to the requirements of the Guidance. 

Four of six components that we tested conducted some, but not all, test work as required by the 

FY 2010 Guidance. These issues may ultimately result in the Secretary’s assurance statement on 

the effectiveness of internal control over financial reporting not being supported. 

The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires that agencies establish 

internal controls according to standards prescribed by the Comptroller General and specified in the 

Government Accountability Office’s (GAO) Standards for Internal Control in the Federal 

Government (Standards). The GAO Standards require that internal controls be documented in 

management directives, administrative policies or operating manuals; transactions and other 

significant events be clearly documented; and information be recorded and communicated timely 

with those who need it within a timeframe that enables them to carry out their internal control 

procedures and other responsibilities. The GAO defines “internal control” as an integral component 

of an organization’s management that provides reasonable assurance that the following objectives are 

achieved: effectiveness and efficiency of operations, reliability of financial reporting, and 

compliance with applicable laws and regulations. The GAO Standards also identify the control 

environment as one of the five key elements of control, which emphasizes the importance of 

conscientiousness in management’s operating philosophy and commitment to internal control. These 

standards cover controls such as human capital practices, supervisory reviews, policies, procedures, 

monitoring, and segregation of duties. 

A-123 states that monitoring the effectiveness of internal control should occur in the normal course 

of business. In addition, periodic reviews, reconciliations or comparisons of data should be included 

as part of the regular assigned duties of personnel. Periodic assessments should be integrated as part 

of management’s continuous monitoring of internal control, which should be ingrained in the 

agency’s operations. An effective, continuous monitoring program can level the resources needed to 

maintain effective internal controls throughout the year. 

8
 

auditors' report on the department's financial statements 

part 3: annual financial report
145 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 9 of 14 

Recommendations 

We recommend that the ASM/CFO: 

Department-wide Entity Level Controls Affecting Financial Reporting 

1.	 Provide AIC staff the appropriate training and on-the job experience to ensure that they possess 

the necessary knowledge and skills needed for their respective positions. 

Financial Accounting and Reporting 

2.	 Develop a plan to enhance the quality of supervisory reviews performed on the consolidated 

financial statements and supporting documentation by responsible officials including those with 

programmatic oversight, to ensure that errors and inconsistencies are identified and corrected in 

a timely manner. 

3.	 Require that policies and procedures are developed in sufficient detail to support all of the 

significant accounting and reporting requirements at the Departmental level, and include nonroutine or complex accounting and reporting matters. These policies should be periodically 

updated (at least annually). 

4.	 Improve the monitoring process of the A-123 work conducted by components to ensure that the 

Department’s Guidance is fully implemented and complied with, and supports the Secretary’s 

assurance statement on the effectiveness of internal control over financial reporting. 

Financial Accounting and Reporting at the OFS (Repeat Condition) 

During fiscal year 2010, OFS resolved one significant deficiency and made progress in addressing their 

other significant deficiency. 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 OFS deficiencies also 

collectively constitute a significant deficiency for the Department and are summarized as follows: 

•	 While improvements were noted in OFS’s review and approval process for preparing its financial 

statements, notes, and MD&A, the other auditor identified incorrect amounts and inconsistent 

disclosures in OFS’s draft financial statements, notes, and MD&A that were significant, but not 

material, and were not detected by OFS. 

•	 The other auditor identified instances where OFS’s procedures related to its process for accounting 

for certain program transactions, preparing its financial statements, and its oversight and monitoring 

of financial-related services provided to OFS by asset managers and certain financial agents were 

not always followed or effectively implemented. 

•	 OFS’s documentation was incomplete for certain areas of its asset valuation process. Specifically, 

some valuation methodology changes and the basis for certain assumptions derived from informed 

opinion that were used in valuing assets were not included in its written documentation. After the 

other auditor notified OFS that the documentation was incomplete, OFS was able to provide 

adequate additional information about its asset valuation process. 

9
 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

146 

U.S. Department of the Treasury 

November 15, 2010 

Page 10 of 14 

•	 OFS did not have adequate procedures to determine whether the tool and related guidance it used 

properly calculated valuations for certain assets with projected future disbursements. OFS’s use of 

the tool and related guidance resulted in errors in the valuation of such assets. 

OFS had other controls that reduced the risk of misstatements resulting from these deficiencies. 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 because of this significant deficiency. 

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

to OFS management by the auditors of the OFS’s financial statements. 

Recommendations 

Recommendations to address the significant deficiency discussed above will be provided to OFS 

management by the auditors of OFS’s financial statements. We recommend that the ASM/CFO 

provide effective oversight to ensure that corrective actions are taken by OFS to resolve this 

significant deficiency. 

Information System Controls at the FMS (Repeat Condition) 

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; and (4) segregation of duties. 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 

The detailed findings and related recommendations have been provided to FMS management in 

separate reports. We recommend that the ASM/CFO provide effective oversight and the resources 

necessary to ensure that information security requirements over financial systems are implemented at 

FMS. 

Compliance 

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

described in the Responsibilities section of this report, exclusive of those referred to in FFMIA, 

disclosed the following instance of noncompliance that is required to be reported herein under 

Government Auditing Standards and OMB Bulletin No. 07-04. 

10
 

auditors' report on the department's financial statements 

part 3: annual financial report
147 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 11 of 14 

•	 Noncompliance with IRC Section 6325 - The IRC grants IRS the power to file a 

lien against the property of any taxpayer who neglects or refuses to pay all 

assessed Federal taxes. Under IRC Section 6325, IRS is required to release a 

Federal tax lien within 30 days after the date the tax liability is satisfied, or has 

become legally unenforceable, or the Secretary of the Treasury has accepted a 

bond for the assessed tax. Despite actions IRS has taken to date to improve its 

lien release process, instances continued to be identified where IRS did not 

timely release the applicable Federal tax lien 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 system requirements (FFMSR), and (2) applicable Federal accounting standards. Our, 

and the other auditor’s audit disclosed no instances in which the Treasury’s financial 

management systems did not substantially comply with the U.S. Standard General Ledger at 

the transaction level. 

Instances of noncompliance with FFMSR are summarized below: 

•	 Persistent deficiencies in IRS’s internal control over information security remain 

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

controls to provide reasonable assurance that its financial statements are fairly stated in 

the absence of effective compensating procedures, (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. 

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

•	 IRS’s automated systems for tax related transactions did not support the net taxes 

receivable amount on IRS’s balance sheet and other required supplemental information 

related to uncollected taxes - compliance assessments and tax write-offs - in accordance 

with Statement of Federal Financial Accounting Standards No. 7, Accounting for 

Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and 

Financial Accounting. 

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

Management’s Discussion and Analysis, of the accompanying PAR that the Department cannot 

provide assurance that its financial management systems are in substantial compliance with FFMIA. 

IRS has established a remediation plan to address the conditions that led to its systems’ substantial 

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

these issues, and defines related resources and responsible organizational units. Many of the actions 

11
 

auditors' report on the department's financial statements 

part 3: annual financial report
the department of the treasury 

148 

U.S. Department of the Treasury 

November 15, 2010 

Page 12 of 14 

detailed in the plan are long-term in nature and are tied to IRS’s systems modernization efforts. The 

Department’s remedial actions and related timeframes are presented in Appendix D: Material 

Weaknesses, Audit Follow-up, Financial Systems, and Recovery Act Risk Management, of the PAR. 

Recommendation 

We recommend that the ASM/CFO provide effective oversight to ensure that (1) IRS implements 

appropriate controls so that Federal tax liens are released in accordance with Section 6325 of the 

IRC; and (2) IRS implements its plan of action to solve financial management problems so as to 

enable resolving the identified instances of financial management systems’ noncompliance with the 

requirements of FFMIA. Detailed recommendations to address the noncompliance findings discussed 

above have been provided to IRS management by the auditors of the IRS’s financial statements. 

Other Matter 

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

certain transactions and activities of the TIGTA. Specifically, budgetary control weaknesses existing 

within the TIGTA may have allowed a potential violation of the Anti-deficiency Act. This matter is 

currently under review. 

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, it has responded that it will take 

corrective action, as necessary, to ensure the matters presented are addressed by the respective 

component management within the Department. We did not audit the Department’s response and, 

accordingly, we express no opinion on it. 

* * * * * 

We noted certain additional matters involving internal control over financial reporting and its 

operation that we will report to the 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 2010 and 

2009 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 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 

12
 

auditors' report on the department's financial statements 

part 3: annual financial report
149 

performance and accountability report | fiscal year 2010 

U.S. Department of the Treasury 

November 15, 2010 

Page 13 of 14 

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. 

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 2010 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 5, 2010, have been 

provided to us. We, and the other auditor, did not test all internal controls relevant to operating 

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

objective of our audit was not to express an opinion on the effectiveness of the 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. The objective of the other auditor’s audits 

was to express an opinion on the effectiveness of the IRS’s and the OFS’s internal control over 

financial reporting. Because of the IRS material weakness in internal control, the other auditor’s 

opinion on the IRS’ internal control stated that IRS did not maintain effective internal control over 

financial reporting as of September 30, 2010. The other auditor’s opinion on OFS’s internal control 

stated that OFS maintained, in all material respects, effective internal control over financial reporting 

as of September 30, 2010. 

As part of obtaining reasonable assurance about whether the Department’s fiscal year 2010 

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, 

13
 

auditors' report on the department's financial statements 

part 3: annual financial report
______________________________ 

the department of the treasury 

150 

U.S. Department of the Treasury 

November 15, 2010 

Page 14 of 14 

providing an opinion on compliance with laws, regulations, contracts, and grant agreements was not 

an objective of our audits and, accordingly, we, and the other auditor, do not express such an 

opinion. 

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

of Inspector General, OMB, the GAO, and the U.S. Congress and is not intended to be and should 

not be used by anyone other than these specified parties. 

November 15, 2010 

14
 

auditors' report on the department's financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

151 

DEPARTMENT OF THE TREASURY
 

WASHINGTON, D.C.
 

ASSISTANT SECRETARY 

november 15, 2010 

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 2010 

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 eleventh consecutive year. We are also proud of the second 

unqualified opinion from the government accountability office (gao) on the office of financial stability’s financial statements. 

these successful results also are due in large part to the high level of professionalism, technical expertise, and partnership 

demonstrated by kPMg in conducting the audit. treasury appreciates your efforts during the audit process to provide timely, 

constructive advice on how to improve our financial reporting. treasury is equally appreciative of the expertise and commitment 

demonstrated by the other organizations involved in the audit process – the office of Inspector general, gao, and the firms that 

audited several of our bureaus. 

kPMg recognized treasury’s intensive efforts in fiscal year 2010 to resolve the material weakness on financial management practices 

at the departmental level by downgrading the weakness to a significant deficiency. the Department continued to make significant 

progress during the year to address previously identified financial and information management deficiencies. as reported by gao, 

the Internal revenue service made strides in improving its financial management by bringing its financial management systems into 

compliance with the United States Standard General Ledger and correcting several longstanding information security weaknesses.

 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 quickly and aggressively. 

Dan tangherlini 

assistant secretary for Management 

and chief financial officer 

management's response to auditors' report 

part 3: annual financial report
the department of the treasury 

CONSOLIDATED BALANCE ShEETS 

As of September 30, 2010 and 2009 

(In Millions) 

ASSETS 2010 2009 

Intra-governmental Assets 

Fund Balance (Note 2) $ 437,026 $ 504,582 

Loans and Interest Receivable (Note 3) 552,853 410,591 

Troubled Asset Relief Program Asset Guarantee Program (Note 8) 815 0 

Advances to the Unemployment Trust Fund (Note 4) 34,111 7,981 

Due from the General Fund (Note 4) 13,655,637 11,992,719 

Accounts Receivable and Related Interest (Note 5) 361 298 

Other Intra-governmental Assets 3 5 

Total Intra-governmental Assets 14,680,806 12,916,176 

Cash, Foreign Currency, and Other Monetary Assets (Note 6) 375,282 341,308 

Gold and Silver Reserves (Note 7) 11,062 11,062 

Troubled Asset Relief Program Direct Loans and Equity Investments, Net and Asset Guarantee Program (Note 8) 144,692 239,657 

Investments in Government Sponsored Enterprises (Notes 4 and 9) 109,216 64,679 

Investments in International Financial Institutions (Note 10) 5,580 5,575 

Other Investments and Related Interest (Note 11) 12,639 13,565 

Credit Program Receivables and Direct Loans, Net (Note 12) 186,396 184,460 

Loans and Interest Receivable (Notes 4 and13) 124 127 

Reserve Position in the International Monetary Fund (Note 14) 12,938 13,469 

Tax, Other, and Related Interest Receivables, Net (Note 15) 36,976 30,408 

Inventory and Related Property, Net (Note 16) 697 598 

Property, Plant, and Equipment, Net (Note 17) 2,031 2,036 

Beneficial Interest in Trust (Notes 4 and 29) 20,805 23,472 

Other Assets 13 9 

Total Assets $ 15,599,257 $ 13,846,601 

Heritage Assets (Note 17) 

The accompanying notes are an integral part of these financial statements. 

152 financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

153 

CONSOLIDATED BALANCE ShEETS
 

As of September 30, 2010 and 2009
 

(In Millions) 

LIABILITIES 2010 2009 

Intra-governmental Liabilities 

Federal Debt and Interest Payable (Notes 4 and 19) $ 4,587,802 $ 4,403,080 

Other Debt and Interest Payable (Note 20) 10,358 12,060 

Due to the General Fund (Notes 4, 6, and 27) 1,414,252 1,263,128 

Other Intra-governmental Liabilities (Note 22) 366 425 

Total Intra-governmental Liabilities 6,012,778 5,678,693 

Federal Debt and Interest Payable (Notes 4 and 19) 9,035,929 7,559,305 

Certificates Issued to the Federal Reserve (Note 6) 5,200 5,200 

Allocation of Special Drawing Rights (Note 6) 54,958 55,953 

Gold Certificates Issued to the Federal Reserve (Note 7) 11,037 11,037 

Refunds Payable (Notes 4 and 26) 4,146 4,040 

D.C. Pensions and Judicial Retirement Actuarial Liability (Note 21) 9,743 9,049 

Liabilities to Government Sponsored Enterprises (Note 9) 359,900 91,937 

Other Liabilities (Note 22) 4,470 3,331 

Total Liabilities 15,498,161 13,418,545 

Commitments and Contingencies (Note 31) 

NET POSITION 

Unexpended Appropriations: 

Earmarked Funds (Note 27) 200 200 

Other Funds 400,357 454,944 

Subtotal 400,557 455,144 

Cumulative Results of Operations: 

Earmarked Funds (Note 27) 41,426 41,653 

Other Funds (340,887) (68,741) 

Subtotal (299,461) (27,088) 

Total Net Position (Note 23) 101,096 428,056 

Total Liabilities and Net Position $ 15,599,257 $ 13,846,601 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 3: annual financial report
the department of the treasury 

154 

CONSOLIDATED STATEMENTS OF NET COST 

For the Years Ended September 30, 2010 and 2009 

(In Millions) 

COST OF TREASURY OPERATIONS: (Note 24) 

Financial Program: 

Gross Cost 

Less Earned Revenue 

Net Program Cost 

$ 

2010 

15,854 

(2,611) 

13,243 

$ 

2009 

15,313 

(2,258) 

13,055 

Economic Program: 

Gross Cost 

Less Earned Revenue 

Net Program Cost 

314,138 

(16,904) 

297,234 

210,490 

(14,785) 

195,705 

Security Program: 

Gross Cost 

Less Earned Revenue 

Net Program Cost 

344 

(4) 

340 

325 

(3) 

322 

Management Program: 

Gross Cost 

Less Earned Revenue 

Net Program Cost 

582 

(56) 

526 

569 

(60) 

509 

Total Program Gross Costs 

Total Program Gross Earned Revenues 

Total Program Cost before Changes in Actuarial Assumptions 

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

Total Net Cost of Treasury Operations (Note 24) 

330,918 

(19,575) 

311,343 

820 

312,163 

226,697 

(17,106) 

209,591 

0 

209,591 

Federal Costs: 

Federal Debt Interest 

Less Interest Revenue from Loans 

Net Federal Debt Interest Costs 

Other Federal Interest 

Net GSEs Non-Entity Revenue (Note 9) 

Other Federal Costs (Note 24) 

Total Net Federal Costs

412,855 

(22,258) 

390,597 

6 

(56,678) 

12,753 

346,678 

380,519 

(17,326) 

363,193 

0 

(61,983) 

12,131 

313,341 

Net Cost of Treasury Operations, Federal Debt Interest, Net GSEs Non-Entity Cost, and Other Federal Costs $ 658,841 $ 522,932 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

CONSOLIDATED STATEMENT OF ChANGES IN NET POSITION
 

For the Year Ended September 30, 2010
 

(In Millions) 

Combined Combined 

Earmarked All Other Consolidated 

CUMULATIvE RESULTS OF OPERATIONS Funds Funds Elimination Total 

Beginning Balances $ 41,653 $ ($68,741) $ 0 $ (27,088) 

Budgetary Financing Sources: 

Appropriations Used 527 501,912 0 502,439 

Non-exchange Revenue 56 229 (4) 281 

Donations and Forfeitures of Cash/Equivalent 324 0 0 324 

Transfers In/Out Without Reimbursement (27) 13 0 (14) 

Other 0 12 0 12 

Other Financing Sources (non-exchange): 

Donation/Forfeiture of Property 319 0 0 319 

Accrued Interest and Discount on Debt 0 11,086 0 11,086 

Transfers In/Out Without Reimbursement (79) 37 0 (42) 

Imputed Financing Sources 74 1,486 (552) 1,008 

Transfers to the General Fund and Other (Note 23) (65) (128,880) 0 (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) 0 (272,373) 

Cumulative Results of Operations $ 41,426 $ (340,887) $ 0 $ (299,461) 

UNEXPENDED APPROPRIATIONS 

Beginning Balances $ 200 $ 454,944 $ 0 $ 455,144 

Budgetary Financing Sources: 

Appropriations Received (Note 23) 527 456,443 0 456,970 

Appropriations Transferred In/Out 0 92 0 92 

Other Adjustments 0 (9,210) 0 (9,210) 

Appropriations Used (527) (501,912) (502,439) 

Total Budgetary Financing Sources 0 (54,587) 0 (54,587) 

Total Unexpended Appropriations 200 400,357 0 400,557 

Net Position $ 41,626 $ 59,470 $ 0 $ 101,096 

The accompanying notes are an integral part of these financial statements. 

financial statements 155 

part 3: annual financial report
the department of the treasury 

156 

CONSOLIDATED STATEMENT OF ChANGES IN NET POSITION 

For the Year Ended September 30, 2009 

(In Millions) 

Combined Combined 

Earmarked All Other Consolidated 

CUMULATIvE RESULTS OF OPERATIONS Funds Funds Elimination Total 

Beginning Balances $ 37,586 $ 157 $ 0 $ 37,743 

Budgetary Financing Sources: 

Appropriations Used 408 667,745 0 668,153 

Non-exchange Revenue 263 234 (4) 493 

Donations and Forfeitures of Cash/Equivalent 257 0 0 257 

Transfers In/Out Without Reimbursement (16) (7) 2 (21) 

Other 10 2 0 12 

Other Financing Sources (non-exchange): 

Donation/Forfeiture of Property 127 0 0 127 

Accrued Interest and Discount on Debt 0 6,027 0 6,027 

Transfers In/Out Without Reimbursement (63) 29 (2) (36) 

Imputed Financing Sources 61 1,206 (474) 793 

Transfers to the General Fund and Other (Note 23) (31) (217,673) 0 (217,704) 

Total Financing Sources 1,016 457,563 (478) 458,101 

Net Cost of Operations 3,051 (526,461) 478 (522,932) 

Net Change 4,067 (68,898) 0 (64,831) 

Cumulative Results of Operations $ 41,653 $ (68,741) $ 0 $ (27,088) 

UNEXPENDED APPROPRIATIONS 

Beginning Balances $ 200 $ 271,768 $ 0 $ 271,968 

Budgetary Financing Sources: 

Appropriations Received (Note 23) 408 855,354 0 855,762 

Appropriations Transferred In/Out 0 11 0 11 

Other Adjustments 0 (4,444) 0 (4,444) 

Appropriations Used (408) (667,745) 0 (668,153) 

Total Budgetary Financing Sources 0 183,176 0 183,176 

Total Unexpended Appropriations 200 454,944 0 455,144 

Net Position $ 41,853 $ 386,203 $ 0 $ 428,056 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

157 

COMBINED STATEMENT OF BUDGETARY RESOURCES 

For the Year Ended September 30, 2010 

(In Millions) 

Non-Budgetary 

Budgetary Financing Total 

Budgetary Resources 

Unobligated balance, brought forward, Oct. 1 $ 401,626 $ 41,827 $ 443,453 

ESF Adjustment for Change in Accounting Policy (Notes 1 and 25) 14,135 0 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 23) 569,010 0 569,010 

Borrowing authority (Note 25) 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 0 22 

Change in unfilled customer orders: 

Advance received (56) 0 (56) 

Without advance from Federal sources 2 (5,111) (5,109) 

Subtotal 578,380 351,307 929,687 

Non-expenditure transfers, net 361 0 361 

Temporarily not available pursuant to Public Law (142) 0 (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 25): 

Direct $ 581,303 $ 219,264 $ 800,567 

ESF Adjustment for Change in Accounting Policy 14,135 0 14,135 

Direct, Adjusted 595,438 219,264 814,702 

Reimbursable 6,136 0 6,136 

Subtotal 601,574 219,264 820,838 

Unobligated Balance: 

Apportioned 267,581 20,961 288,542 

Exempt from apportionment 13,269 0 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 

Change 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 & 25) 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. 

financial statements 

part 3: annual financial report
the department of the treasury 

COMBINED STATEMENT OF BUDGETARY RESOURCES 

For the Year Ended September 30, 2009 

(In Millions) 

Non-Budgetary 

Budgetary Financing Total 

Budgetary Resources 

Unobligated balance, brought forward $ 260,173 $ 24,457 $ 284,630 

Recoveries of prior year unpaid obligations 8,097 (1) 8,096 

Budget authority: 

Appropriations (Note 23) 952,185 0 952,185 

Borrowing authority 493 548,242 548,735 

Spending Authority from Offsetting Collections 

Earned: Collected 11,681 272,768 284,449 

Change in receivables from Federal sources (44) 0 (44) 

Change in unfilled customer orders: 

Advance received (31) 0 (31) 

Without advance from Federal sources (134) 28,926 28,792 

Subtotal 964,150 849,936 1,814,086 

Non-expenditure transfers, net (43) 0 (43) 

Temporarily not available pursuant to Public Law 2 0 2 

Permanently not available (92,001) (179,736) (271,737) 

Total Budgetary Resources $ 1,140,378 $ 694,656 $ 1,835,034 

Status of Budgetary Resources 

Obligations incurred (Note 25): Direct $ 729,697 $ 652,829 $ 1,382,526 

Reimbursable 4,669 0 4,669 

Subtotal 734,366 652,829 1,387,195 

Unobligated Balance: Apportioned 349,889 19,612 369,501 

Exempt from apportionment 44,497 0 44,497 

Subtotal 394,386 19,612 413,998 

Unobligated balance not available 11,626 22,215 33,841 

Total Status of Budgetary Resources $ 1,140,378 $ 694,656 $ 1,835,034 

Change in Obligated Balance 

Obligated balance, net: 

Unpaid obligations, brought forward, Oct. 1 $ 57,314 $ 10 $ 57,324 

Uncollected customer payments from Federal sources, brought forward, Oct. 1 (346) (1) (347) 

Total unpaid obligated balance, net 56,968 9 56,977 

Obligations incurred, net 734,366 652,829 1,387,195 

Gross outlays (675,286) (573,630) (1,248,916) 

Recoveries of prior year unpaid obligations, actual (8,097) 1 (8,096) 

Change In uncollected customer payments from Federal source 178 (28,926) (28,748) 

Obligated balance, net, end of period: 

Unpaid obligations 108,297 79,209 187,506 

Uncollected customer payments from Federal sources (168) (28,926) (29,094) 

Total unpaid obligated balance, net, end of period 108,129 50,283 158,412 

Net Outlays 

Gross outlays 675,286 573,630 1,248,916 

Offsetting collections (9,369) (272,768) (282,137) 

Distributed offsetting receipts (40,114) (4,500) (44,614) 

Net Outlays $ 625,803 $ 296,362 $ 922,165 

The accompanying notes are an integral part of these financial statements. 

158 financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

159 

STATEMENTS OF CUSTODIAL ACTIVITY 

For the Years Ended September 30, 2010 and 2009 

(In Millions) 

Sources of Custodial Revenue (Note 26): 

Revenue Received 

2010 2009 

Individual Income and FICA Taxes 

Corporate Income Taxes 

Estate and Gift Taxes 

Excise Taxes 

Railroad Retirement Taxes 

Unemployment Taxes 

Deposit of Earnings, Federal Reserve System 

Fines, Penalties, Interest and Other Revenue 

Total Cash Revenue Received 

Less Refunds 

Net Cash Revenue Received 

$ 1,988,760 

277,937 

19,751 

70,946 

4,648 

6,543 

75,845 

1,880 

2,446,310 

(469,937) 

1,976,373 

$ 2,036,557 

225,482 

24,677 

67,248 

4,711 

6,765 

34,318 

1,929 

2,401,687 

(437,972) 

1,963,715 

Non-Cash Custodial Transactions 

Beneficial Interest in Trust – Market Adjustment (Note 29) 

Accrual Adjustment 

Total Custodial Revenue 

(2,666) 

6,539 

1,980,246 

23,472 

(1,097) 

1,986,090 

Disposition of Custodial Revenue: 

Amounts Provided to Fund Non-Federal Entities 

Amounts Provided to Fund the Federal Government (Notes 26 ) 

Total Disposition of Cash Revenue 

387 

1,975,986 

1,976,373 

487 

1,963,228 

1,963,715 

Non-cash Revenue – Beneficial Interest in Trust – Market Adjustment 

Accrual Adjustment 

Total Disposition of Custodial Revenue 

Net Custodial Revenue $ 

(2,666) 

6,539 

1,980,246 

0 $ 

23,472 

(1,097) 

1,986,090 

0 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 3: annual financial report
the department of the treasury 

notes to the fInancIal stateMents 

table Of COntents 

1. Summary of Significant Accounting Policies ............................................... Page 161
 

2. Fund Balance ......................................................................... Page 176
 

3. Loans and Interest Receivable – Intra-governmental ........................................ Page 178
 

4. Due from the General Fund and Due to the General Fund .................................... Page 180
 

5. Accounts Receivable and Related Interest – Intra-governmental .............................. Page 182
 

6. Cash, Foreign Currency, and Other Monetary Assets ........................................ Page 183
 

7. Gold and Silver Reserves, and Gold Certificates Issued to the Federal Reserve Banks ............ Page 186
 

8. TARP Direct Loans and Equity Investments, Net and Asset Guarantee Program (GSEs) ........... Page 187
 

9. Investments in Government Sponsored Enterprises ........................................ Page 211
 

10. Investments in International Financial Institutions .......................................... Page 216
 

11. Other Investments and Related Interest................................................... Page 217
 

12. Credit Program Receivables and Direct Loans, Net ......................................... Page 218
 

13. Loans and Interest Receivable ........................................................... Page 222
 

14. Reserve Position in the International Monetary Fund........................................ Page 223
 

15. Tax, Other, and Related Interest Receivables, Net........................................... Page 225
 

16. Inventory and Related Property, Net...................................................... Page 226
 

17. Property, Plant, and Equipment, Net...................................................... Page 227
 

18. Non-Entity Assets ..................................................................... Page 228
 

19. Federal Debt and Interest Payable ........................................................ Page 229
 

20. Other Debt and Interest Payable ......................................................... Page 232
 

21. D.C. Pensions and Judicial Retirement Actuarial Liability .................................... Page 233
 

22. Liabilities............................................................................. Page 235
 

23. Net Position .......................................................................... Page 237
 

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations .............. Page 238
 

25. Additional Information Related to the Combined Statements of Budgetary Resources ........... Page 245
 

26. Collection and Disposition of Custodial Revenue ........................................... Page 249
 

27. Earmarked Funds ...................................................................... Page 251
 

28. Reconciliation of Net Cost of Operations to Budget ......................................... Page 255
 

29. Financial Stability and Stimulus Activities................................................. Page 256
 

30. Schedule of Fiduciary Activity ........................................................... Page 260
 

31. Commitments and Contingencies ........................................................ Page 262
 

Required Supplemental Information (Unaudited) ........................................... Page 266
 

160 notes to the financial statements 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

161 

1. Summary of Significant Accounting Policies 

A. Reporting Entity 

the accompanying financial statements include the operations of the 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 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 has primary responsibility for formulating and managing the 

domestic and international tax and financial policies of the u.s. government. 

further, the secretary is responsible for recommending and implementing united states domestic and international economic and fiscal 

policy; governing the fiscal operations of the government; maintaining foreign assets control; managing the federal debt; collecting income 

and excise taxes; representing the united states on international monetary, trade, and investment issues; overseeing Departmental 

overseas operations; and directing the manufacturing of coins, currency, and other products for customer agencies and the public. 

the Department includes the Departmental offices (Do) and nine operating bureaus. for financial reporting purposes, Do 

is composed of: International assistance Programs (IaP), office of Inspector general (oIg), the special office of Inspector 

general for the troubled asset relief Program (sIgtarP), treasury forfeiture fund (tff), exchange stabilization fund (esf), 

community Development financial Institutions fund (cDfI), office of D.c. Pensions (DcP), treasury Inspector general for tax 

administration (tIgta), federal financing bank (ffb), office of financial stability (ofs), government sponsored enterprise 

Program (gses) and the Do policy offices. 

the nine 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); office of thrift supervision1

 (ots); and the alcohol and tobacco tax and trade bureau (ttb). 

the Department’s financial statements reflect the reporting of its own entity activities, which include appropriations it receives to 

conduct its operations and revenue generated from those operations. they also reflect the reporting of certain non-entity (custodial) 

functions it performs on behalf of the u.s. government and others. non-entity activities include collecting federal revenue, 

servicing the federal debt, disbursing certain federal funds, and maintaining certain assets and liabilities for the u.s. government, as 

well as for other federal entities. the Department’s reporting entity does not include the “general fund” of the u.s. government, 

which maintains receipt, disbursement, and appropriation accounts for all federal agencies. 

transactions and balances among the 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, which directs that such “bailout” investments should not be consolidated into the financial reports of the federal 

government, either in part or as a whole. 

on July 21, 2010, the President signed into law the Dodd-frank Wall street reform and consumer Protection act, which includes the enhancing 

financial Institution safety and soundness act of 2010 (the “act”). under the act, ots will be abolished and some of its functions will be transferred to 

the occ on July 21, 2011 (the “transfer date”). 

note 1. summary of significant accounting policies 

1 

part 3: annual financial report
the department of the treasury 

162 

In addition, the Department has made loans and investments in certain special Purpose Vehicles2 (sPV). 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 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 8, see 

automotive Industry financing Program, term asset-backed loan facility and the Public-Private Investment Program. 

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 

a-136, Financial Reporting Requirements, as amended. accounting principles generally accepted for federal entities are the standards 

prescribed by the federal accounting standards advisory board (fasab). fasab is recognized by the american Institute of 

certified Public accountants as the official accounting standards-setting body of the u.s. government. 

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 2010 and fiscal year 2009 information. 

While these financial statements have been prepared from the books and 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 books and 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. 

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 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 non-contractual activities. 

C. Investments 

Investments in Troubled Asset Relief Program (TARP) 

troubled asset relief Program (tarP) equity investments, including investments in preferred and common stock and warrants of public 

companies, are accounted for pursuant to the provisions of the federal credit reform act (fcra) and the associated fasab accounting 

2 the Department invested in sPV’s under the consumer and business lending Initiative, the automotive Industry financing Program and the PublicPrivate Investment Program. 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

163 

standard sffas no. 2, Accounting for Direct Loans and Loan Guarantees, as amended. as additional consideration for investments made, 

the Department received common stock warrants, additional preferred shares (referred to as warrant preferred shares) or additional 

notes. the Department considered market risk in its calculation and determination of the estimated net present value of its direct loans, 

equity investments and asset guarantee program for budgetary purposes. similarly, market risk is considered in the valuations for financial 

reporting purposes (see note 8 for further discussion). the Department concluded that gaaP accounting for such investments using 

the concepts embedded in sffas no. 2 was appropriate analogous accounting guidance based on the similarity between the equity 

investments made by the Department and direct loans. consequently, tarP equity investments, including investments in preferred and 

common stock and warrants of public companies, are accounted for by the Department using credit reform accounting in accordance with 

sffas no. 2, and reported in accordance with fcra in these financial statements. In addition, the inclusion of market risk required by 

the emergency economic stabilization act (eesa) in the valuation calculation results in accounting for these investments at estimated 

fair value, which is consistent with the accounting for other equity investments held by the Department (i.e. investments in gses). 

the Department recognizes dividend revenue associated with equity investments when declared by the entity in which the 

Department has invested and when received in relation to any repurchases and restructuring. the Department reflects changes in 

the fair value of direct loans, equity investments, and asset guarantees in the subsidy cost on the statement of net cost annually, as 

required by fcra. the estimated values associated with these additional instruments are disclosed in note 8. 

Investments in Government Sponsored Enterprises (GSEs) 

the senior preferred stock liquidity preference (preferred stock) and associated common stock warrant (warrant(s)) in gses are presented 

at their fair value as permitted by oMb circular no. a-136. this circular includes language that generally requires agencies to value 

non-federal investments at acquisition cost, but permits the use of other measurement basis, such as fair value, in certain situations. 

Increases in the non-entity preferred stock liquidity preference occur when quarterly payments to the gses are made pursuant to 

the preferred stock purchase agreements (i.e., when a gse’s liabilities exceed its assets at the end of any quarter). as funds for these 

payments are appropriated directly to the Department, these payments are treated as entity expenses and reflected as such on the 

statement of net cost (snc) and cumulative results of operations. these payments also result in an increase to the non-entity 

investment in gses preferred stock, with a corresponding increase in Due to the general fund, as the Department holds the 

investment on behalf of the u.s. government general fund. 

Investments in International Financial Institutions 

the Department invests in Multilateral Development banks (MDb) to support poverty reduction, private sector development, and 

transition to market economies and sustainable economic growth and development, thereby advancing the united states’ economic, 

political, and commercial interests abroad. these investments are non-marketable equity investments valued at cost. 

Other Investments and Related Interest 

the esf holds most of the Department’s other investments. “other foreign currency Denominated assets” and “Investment 

securities” are considered “available for sale” securities and recorded at fair value as permitted by oMb circular no. a-136 

beginning in fiscal year 2009. these holdings are normally invested in interest bearing securities issued or held through foreign 

governments or monetary authorities. 

D. Tax and Other Non-Entity Receivables 

federal taxes receivable, net, and the corresponding liability, due to 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. 

note 1. summary of significant accounting policies 

part 3: annual financial report
the department of the treasury 

164 

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 federal 

government. examples include assessments resulting from an Irs audit or examination in which the taxpayer does not agree with 

the results. Write-offs consist of unpaid assessments for which the Irs does not expect further collections due to factors such as 

taxpayers’ bankruptcy, insolvency, or death. compliance assessments and write-offs are not reported on the balance sheet. statutory 

provisions require the accounts to be maintained until the statute for collection expires. 

E. Inventory and Related Property 

Inventory and related property include inventory, operating materials and supplies, and forfeited property. the treasury values 

inventories at either standard cost, or lower of cost or latest acquisition cost, except for finished goods inventories, which are valued 

at weighted-average unit cost. these inventories were categorized based on the Department’s major activities and the services the 

Department provides to the federal government and the public. all operating materials and supplies are recorded as an expense 

when consumed in operations. 

forfeited property is recorded at estimated fair market value as deferred revenue, and may be adjusted to reflect the current fair 

market value at the end of the fiscal year. Property forfeited in satisfaction of a taxpayer’s assessed liability is recorded when title to 

the property passes to the u.s. government and a corresponding credit is made to the related taxes receivable. Direct and indirect 

holding costs are not capitalized for individual forfeited assets. 

Mortgages and claims on forfeited assets are recognized as a valuation allowance and a reduction of deferred revenue from forfeited assets 

when the asset is forfeited. the allowance includes mortgages and claims on forfeited property held for sale and a minimal amount of 

claims on forfeited property previously sold. revenue from the forfeiture of property is deferred until the property is sold or transferred to 

a state, local, or federal agency. revenue is not recognized if the forfeited property is ultimately destroyed or cannot be legally sold. 

F. Loans and Interest Receivable, 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 federal 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 unemployment trust fund from the general fund of the u.s. government to 

states for unemployment benefits. the bureau of the Public Debt accounts for the advances on behalf of the general fund. as outlined in 

42 usc §1323, these repayable advances bear an interest rate 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 then forming the public debt, 

to the nearest lower one-eighth of one percent. Interest on the repayable advances is due on september 30th of each year. advances will 

be repaid by transfers from the unemployment trust fund to the general fund when the secretary of the treasury, in consultation with 

the secretary of labor, has determined that the balance in the unemployment trust fund is adequate to allow repayment. 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

165 

H. Receivable on Deposit of Earnings, Federal Reserve System 

reserve banks are required by the board of governors of the federal reserve system to transfer to the u.s. treasury excess earnings, 

after providing for the cost of operations, payment of dividends, and reservation of an amount necessary to equate surplus with capital 

paid in. In the event of losses, or a substantial increase in capital, a reserve bank will suspend its payments to the u.s. treasury 

until such losses or increases in capital are recovered through subsequent earnings. Weekly payments to the u.s. treasury may vary 

significantly. the receivable on Deposit of earnings, federal reserve system, represents the earnings due 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 

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 longterm benefits. costs for developing internal use software are accumulated in work in development until a project is placed into service, 

and testing and final acceptance are successfully completed. once completed, the costs are transferred to depreciable property. 

costs for construction projects are recorded as construction-in-progress until completed, and are valued at actual (direct) cost, plus 

applied overhead and other indirect costs. 

the Department leases land and buildings from the general services administration (gsa) to conduct most of its operations. 

gsa charges a standard level users fee which approximates commercial rental rates for similar properties. therefore, gsa-owned 

properties are not included in the Department’s PP&e. 

the Department’s bureaus are diverse both in size and in operating environment. accordingly, the Department’s capitalization 

policy provides minimum capitalization thresholds which range from $25,000 to $50,000. the 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 (2-50 years) are high due to the Department’s diversity of PP&e. 

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 united states Mint facilities in Denver, san francisco, 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. 

note 1. summary of significant accounting policies 

part 3: annual financial report
the department of the treasury 

166 

J. Non-Entity Government-Wide Cash 

non-entity government-wide cash is held in depositary institutions and federal reserve accounts. agencies can deposit funds that 

are submitted to them directly into either a federal reserve treasury general account (tga) or a local tga depositary. the 

balances in these tga accounts are transferred to the 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 federal reserve banks, 

foreign and domestic financial institutions, and in u.s. treasury tax and loan accounts. outstanding checks are netted against 

operating cash until they are cleared by the federal reserve system. 

the tga is maintained at the frbny and functions as the government’s checking account for deposits and disbursements of public 

funds. the treasury tax and loan (tt&l) program includes about 9,000 depositories that accept tax payments and remit them the 

day after receipt to frbny’s tga. certain tt&l 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. 

u.s. treasury tax and loan accounts include funds invested through the term Investment option program and the repo program. 

under the term Investment option program treasury auctions funds for a set term, usually in the range of one day to three weeks. 

under the repo program, the Department invests funds through overnight reverse repurchase agreements. however, under both 

programs, the Department reserves the right to call the funds prior to maturity under special circumstances. these investments 

programs where suspended in fiscal year 2010. 

the supplementary financing Program (sfP) account is maintained at frbny. sfP is a temporary program announced by the 

Department and the federal reserve on september 17, 2008, to provide emergency cash for federal reserve initiatives aimed at 

addressing the ongoing crisis in financial markets. the program consists of a series of treasury bills, apart from the Department’s 

current borrowing program. 

K. Federal Debt 

Debt and associated interest are reported on the accrual basis of accounting. Interest costs are recorded as expenses when incurred, 

instead of when paid. certain treasury securities are issued at a discount or premium. these discounts and premiums are amortized 

over the term of the security using an interest method for all long- term securities and the straight-line method for short-term 

securities. the 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 ffb recognizes loan commitments when the ffb and the other parties fully execute the promissory notes and reduces loan 

commitments when the ffb issues loans or when the commitments expire. Most obligations of the ffb give a borrower the 

contractual right to a loan or loans immediately or at some point in the future. the ffb limits the time available for a loan under an 

obligation, where applicable. 

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 treasury. 

Most employees of the Department hired prior to January 1, 1984, participate in the civil service retirement system (csrs), to 

which the Department contributes a fixed percentage of pay. 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

167 

on January 1, 1987, the federal employees’ retirement system (fers) went into effect pursuant to Public law 99-335. employees 

hired after December 31, 1983, are automatically covered by fers and social security. a primary feature of fers is that it offers 

a savings plan to which the 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 treasury, 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 liability for other post-employment benefits (oPeb), which includes all types of benefits provided to former or inactive 

(but not retired) employees, their beneficiaries, and covered dependents. additionally, the Department’s bureaus, occ and ots, 

separately sponsor certain benefit plans for their employees. occ sponsors a defined life insurance benefit plan for current and retired 

employees. additionally, ots provides the financial Institution retirement fund (fIrf) private defined retirement benefit plan 

to certain employees as well as certain health and life insurance benefits for all retired employees that meet eligibility requirements. 

effective January 1, 1993, ots adopted sfas no. 106 to account for its share of the cost of life insurance. 

N. Special Drawing Rights (SDRs) 

the esf was established for use by the secretary of the treasury to account for the purchase or sale of foreign currencies, to hold 

special Drawing rights (sDrs) holdings, and to provide financing to foreign governments. sDrs transactions of the esf require the 

explicit authorization of the secretary of the treasury. 

the International Monetary fund (IMf) has authority to cancel, in part or in whole, sDrs created under previous allocations. 

Decisions of the IMf to cancel sDrs are adopted by the IMf’s board of governors on a basis of proposal by the IMf Managing 

Director, with concurrence by the IMf executive board. the same majority requirements as those for allocations apply to the 

executive board’s concurrence and to the board of governor’s decision on an sDrs cancellation proposal. 

Allocations and Holdings 

allocations of sDrs are recorded as assets and liabilities. the liabilities represent the amount that is payable in the event of 

liquidation of, or u.s. withdrawal from, the sDrs department of the IMf, or cancellation of the sDrs. 

sDrs holdings represent transactions resulting from esf sDrs activities. these activities are primarily the result of IMf allocations. 

other transactions reported in this account are recorded as incurred. they include sDrs acquisitions and sales, interest received on 

sDrs holdings, interest charges on sDrs allocations, and valuation adjustments. the u.s. government receives remuneration in 

sDrs from the IMf. this is based on claims on the IMf, represented by the u.s. reserve Position. the allocations and holdings are 

revalued monthly based on the sDrs valuation rate calculated by the IMf. 

Certificates 

the SDRs Act of 1968 authorized the secretary of the treasury to issue certificates, not to exceed the value of sDrs holdings, to the 

federal reserve banks in return for interest-free dollar amounts equal to the face value of certificates issued. the certificates may be 

issued to finance the acquisition of sDrs from other countries or to provide resources for financing other esf operations. certificates 

issued are to be redeemed by the treasury at such times and in such amounts as the secretary may determine. certificates issued to 

federal reserve banks are reported at their face value. It is not practical to estimate the fair value of certificates issued to federal 

reserve banks, since these certificates contain no specific terms of repayment. 

note 1. summary of significant accounting policies 

part 3: annual financial report
the department of the treasury 

168 

O. Federal Employee Benefits Payable—FECA Actuarial Liability 

the Federal Employees’ Compensation Act (feca) provides income and medical cost protection to covered federal civilian 

employees injured on the job, and employees who have incurred a work-related injury or occupational disease. the feca program 

is administered by the u.s. Department of labor (Dol), which pays valid claims and subsequently seeks reimbursements from the 

treasury 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 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 non-exchange revenue 

and financing sources (such as appropriations provided by the congress and penalties, fines, and certain user fees collected). user fees 

primarily include Irs reimbursable costs to process installment agreements and accompanying photocopy and reproduction charges. 

exchange revenues are recognized when earned; i.e., goods have been delivered or services have been rendered. non-exchange 

revenues are recognized when received by the respective treasury collecting bureau. appropriations used are recognized as financing 

sources when related expenses are incurred or assets are purchased. revenue from reimbursable agreements is recognized when the 

services are provided. the Department also incurs certain costs that are paid in total or in part by other federal entities, such as 

pension costs. these subsidized costs are recognized on the consolidated statement of net cost, and the imputed financing for these 

costs is recognized on the consolidated statement of changes in net Position. as a result, there is no effect on net position. other 

non-exchange financing sources such as donations and transfers of assets without reimbursements also are recognized for the period in 

which they occurred on the consolidated statement of changes in net Position. 

the Department recognizes revenue it receives from disposition of forfeited property as non-exchange revenue on the consolidated 

statement of changes in net Position. the costs related to the forfeiture fund program are reported on the consolidated statement 

of net cost. 

In accordance with sffas no. 30, Inter-Entity Cost Implementation Amending SFFAS 4, Managerial Cost Accounting Standards and 

Concepts, the material imputed inter-departmental financing sources currently recognized by the Department include the actual cost 

of future benefits for the federal pension plans that are paid by other federal entities, the federal employees health benefits Program 

(fehbP), and any un-reimbursed payments made from the treasury Judgment fund on behalf of the Department. 

R. Custodial Revenues and Collections 

non-entity revenue reported on the Department’s statement 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 statement of custodial 

activity is presented on the “modified accrual basis.” revenues are recognized as cash is collected. the “accrual adjustment” is 

the net increase or decrease, during the reporting period, in net revenue related-assets and liabilities, mainly taxes receivable. the 

balance sheets include an estimated amount for taxes receivable and payable to the general fund of the u.s. government at 

september 30, 2010 and september 30, 2009. 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

169 

S. Tax Assessments, Abatements, and Refunds Payable 

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. 

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 

(refunds Payable on the balance sheet), with a corresponding receivable from the general fund. this receivable is included on the 

balance sheet in the line entitled “Due from the general fund.” 

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 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 reestimation process required by the fcra. 

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 federal reserve banks 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 federal 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 these financial statements. actual results could differ from these estimates. 

significant transactions subject to estimates include loan receivables; investments in non-federal securities and related impairment; 

note 1. summary of significant accounting policies 

part 3: annual financial report
the department of the treasury 

170 

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 loan receivables mentioned above include mortgage-backed securities (Mbs) issued by the gses and gse obligations obtained 

under the programs of the housing finance agency (hfa) Initiative, which include securities issued under the new Issue bond 

Program (nIbP), and participation interests in liquidity facilities obtained under the temporary credit and liquidity Program 

(tclP). other loan receivables exist as part of tarP. Investments in non-federal securities have been made in the gses and other 

domestic public entities. 

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 re-estimates to reflect the most accurate cost of the credit programs to 

the u.s. government. the Department currently accounts for the gse Mbs purchase program and the two programs of the hfa 

Initiative (the nIbP and tclP) under the provisions of credit reform and the use of estimates is dictated by the federal credit 

reform act (note 12). additionally, all tarP credit activity, including investments in common and preferred stock and warrants 

of public companies, loans, and loan guarantees or guaranty-like insurance activities, are also subject to credit reform subsidy cost 

estimates. (notes 8 and 12) 

the forecasted cash flows used to determine these amounts as of september 30, 2010, 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 Direct loans and equity Investments, net, and asset guarantee Program line items as of september 30, 2010, are 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 

Performance and accountability report. 

the gse Preferred stock Purchase agreements (PsPas) 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. based on u.s. gaaP, these contingent liquidity 

commitments, predicated on the future occurrence of any shareholders’ deficits of the gses at the end of any reporting quarter, are 

potential liabilities of the Department. the Department performs annual valuations, as of september 30th, of the preferred stock 

and warrants to 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 5. 

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. accordingly, since the costs of preferred stock and warrants are exchange transactions, any changes in 

valuation are recorded as a non-entity exchange transaction that is either an expense or revenue. Dividends are also recorded as nonentity exchange transactions and are accrued when declared; therefore, no accrual is made for future dividends. 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 9 discusses the results of 

the valuation and the liability recorded as of september 30, 2010. 

estimation of such complex and long duration contingencies is subject to uncertainty, and it is possible that new developments 

adversely impact ultimate amounts required to be funded by treasury under the senior Preferred stock Purchase agreements. 

specifically, the occurrence of future shareholder deficits, which ultimately determines our gse contingent liability, are most 

sensitive to future changes in the housing price index. 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

It is possible that the results of operations, cash flows or financial position of treasury, could be materially affected in future periods by 

adverse changes in the outlook for the key assumptions underlying management’s estimates. 

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 11). 

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 expectation of credit losses is nominal. 

the Department also takes on credit risk related to 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 asset 

guarantees of the tarP, 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 8, 9 & 12). 

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. thus, for all 

tarP direct loan, asset guarantee, and equity purchase 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 providing the fair value of the assets. 

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, defines the following three criteria for determining an earmarked 

fund: (1) a statute committing the federal government to use specifically identified revenues and other financing sources not used 

in the current period for future use to finance the designated activities, benefits, or purposes; (2) explicit authority for the earmarked 

fund to retain revenues and other financing sources not used in the current period for future use to finance the designated activities, 

benefits, or purposes; and (3) a requirement to account for and report on the receipt, use, and retention of the revenues and other 

financing sources that distinguished the earmarked fund from the federal government’s general revenues. 

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. beginning in fiscal year 2007, parent federal agencies report both the proprietary and budgetary activity and the 

child agency does not report any financial activity related to budget authority allocated from the parent federal agency to the child 

federal agency. 

note 1. summary of significant accounting policies 171 

part 3: annual financial report
the department of the treasury 

172 

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 (a-136, III.4.2, section 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. the 

Department had no significant allocation transfers to report in fiscal years 2010 and 2009. 

Z. Credit Reform Accounting 

the authoritative guidance for the credit reform portion of these statements is contained primarily in sffas no. 2, Accounting for 

Direct Loans and Loan Guarantees, as amended by sffas no. 18, Amendments to Accounting Standards for Direct Loans and Loan 

Guarantees, and sffas no. 19, Technical Amendments to Accounting Standards for Direct Loans and Loan Guarantees. this guidance 

was promulgated as a result of the Federal Credit Reform Act of 1990 (fcra). 

the fcra requires that the ultimate costs of a credit program be calculated, and the budgetary resources obtained, before the direct 

loan obligations are incurred. the cost of loan guarantee programs is the net present value of the estimated future cash flows from 

payments (for claims and interest rate subsidies). the primary purpose of the fcra, which became effective on october 1, 1991, is 

to more accurately measure the cost of federal credit programs and to place the cost of such credit programs on a basis equivalent with 

other federal spending. 

sffas no. 2, which generally mirrors the requirements of the fcra, established guidance for estimating the cost of direct and 

guaranteed loan programs, asset guarantees, as well as for recording direct loans and liabilities for loan guarantees for financial 

reporting purposes. sffas no. 2 states that the actual and expected costs of federal credit programs should be fully recognized in 

both budgetary and financial reporting. to accomplish this, agencies first predict or estimate the future performance of direct and 

guaranteed loans when preparing their annual budgets. the data used for these budgetary estimates are reestimated after the fiscal 

year-end to reflect changes in actual loan performance and actual interest rates in effect when the loans were issued. the data used 

for these estimates were reestimated at the fiscal year-end to reflect adjustments for market 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 agencies’ statement of net cost. 

the fcra establishes budgetary and financing control for each credit program through the use of the program, financing and subsidy 

receipt accounts for direct loans obligated after september 30, 1991. these accounts are classified as either budgetary or nonbudgetary in the combined statements of budgetary resources. the budgetary accounts include the program accounts and receipt 

accounts. the non-budgetary accounts consist of the credit reform financing accounts. 

the program account is a budget account that receives and obligates appropriations to cover the subsidy cost of a direct loan 

or guarantee and disburses the subsidy cost to the financing account. the program account also receives appropriations for 

administrative expenses. the financing account is a non-budgetary account that records all of the cash flows resulting from credit 

reform direct loans, loan guarantees, or asset guarantees. It disburses loans, collects repayments and fees, makes claim payments, 

holds balances, borrows from bPD, earns or pays interest, and receives the subsidy cost payment from the program account. 

the general fund receipt account is a budget account used for the receipt of amounts paid from the financing account when 

there is a negative subsidy or negative modification from the original estimate or a downward reestimate. they are available for 

appropriations only in the sense that all general fund receipts are available for appropriations. any assets in this account are nonentity assets and are offset by Intra-governmental liabilities. at the end of the fiscal year, the fund balance transferred to the u.s. 

treasury through the general fund receipt account is no longer included in the Department’s fund balance reporting. 

the Department accounts for the following programs in accordance with fcra and the provisions under the fasab accounting 

standard sffas no. 2, as amended: 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

173 

TARP Direct Loans, Equity Investments and Asset Guarantee Program 

the fcra provided for the use of program, financing, and general fund receipt accounts to separately account for activity related to 

loans and guarantees. these accounts are classified as either budgetary or non-budgetary in the statement of budgetary resources. 

the budgetary accounts include the program and general fund receipt accounts, and the non-budgetary accounts consist of the credit 

reform financing accounts. 

as discussed previously, the Department accounts for the cost of purchases of troubled assets and guarantees of troubled assets, and 

any cash flows associated with authorized activities in accordance with section 123(a) of the eesa and the fcra for budgetary 

accounting and sffas no. 2 for financial reporting, except for the treasury housing Programs under tarP (see note 8). 

the authoritative guidance for financial reporting is primarily contained in the sffas no. 2, as amended by the sffas no. 

18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, and the sffas no. 19, Technical Amendments to 

Accounting Standards for Direct Loans and Loan Guarantees. 

In accordance with sffas no. 2, the Department maintains program accounts which receive appropriations and obligate funds 

to cover the subsidy cost of direct loans, equity investments and asset guarantees, and disburses the subsidy cost to the Department 

financing accounts. the financing accounts are non-budgetary accounts that are used to record all of the cash flows resulting from 

the Department direct loans, equity investments and asset guarantees.3 cash flows include disbursements, repayments, repurchases, 

fees, recoveries, interest, dividends, proceeds from the sale of stock and warrants, borrowings from treasury, negative subsidy and the 

subsidy cost received from the program accounts. 

the financing arrangements specifically for the tarP activities are provided for in the eesa as follows: (1) borrowing for program 

funds under section 118 that constitute appropriations when obligated or spent, which are reported as “appropriations” in these 

financial statements; (2) borrowing by financing accounts for non-subsidy cost under the fcra and section 123; and (3) the 

troubled assets Insurance financing fund (taIff) under section 102(d). 

the Department uses general fund receipt accounts to record the receipt of amounts paid from the financing accounts when 

there is a negative subsidy or negative modification (a reduction in subsidy cost due to changes in program policy or terms that 

change estimated future cash flows) from the original estimate or a downward reestimate. amounts in the general fund receipt 

accounts are available for appropriations only in the sense that all general fund receipts are available for appropriations. any 

assets in these accounts are non-entity assets and are offset by intra-governmental liabilities. at the end of the fiscal year, the fund 

balance transferred to the u.s. treasury through the general fund receipt account is closed and therefore no longer included in the 

Department’s fund balance reporting. 

the sffas no. 2 requires that the actual and expected costs of federal credit programs be fully recognized in financial reporting. 

the Department calculated and recorded an initial estimate of the future performance of direct loans, equity investments, and asset 

guarantees. the data used for these estimates were reestimated at the fiscal year-end to reflect adjustments for market risk, asset 

performance, and other key variables and economic factors. the reestimate data was then used to estimate and report the “subsidy 

cost” in the statement of net cost. a detailed discussion of the Department subsidy calculation and reestimate assumptions, process 

and results is provided in note 8. 

GSE MBS Purchase Program 

the Department purchases mortgage-backed pass-through securities through the government sponsored enterprise Mortgagebacked securities (gse Mbs) Purchase Program. the purchase authority under this Program expired December 31, 2009. consistent 

with the fcra, these securities are treated as direct loans, and the value of the Department’s position and the associated credit 

for the asset guarantee Program, the Department has established the troubled assets Insurance financing fund, which is the program’s financing 

account under the fcra, as required by section 102(d) of the eesa. 

note 1. summary of significant accounting policies 

3 

part 3: annual financial report
the department of the treasury 

174 

subsidy requirements are determined based on the net present value of the securities’ forecasted future cash flows. the Department 

estimates nominal future cash flows using a financial model that incorporates each security’s payment characteristics together with 

assumptions about the future prepayment, default, and loss severity performance of underlying loan collateral and the gses’ ability to 

uphold their guarantee. nominal cash flow forecasts are discounted at interest rates of treasury securities with comparable maturities 

using the office of Management and budget’s credit subsidy calculator. cash flows are estimated under the assumption that all 

securities will be held to maturity. 

security-level data used as the basis for cash flow model forecasts are obtained directly from treasury’s program custodian. 

assumptions about security and program performance are drawn from widely available market sources as well as information published by the gses. key inputs to the cash flow forecast include: 

•	 security characteristics such as unpaid principal balance, pass-through coupon rate, weighted-average loan age, and weightedaverage maturity 

•	 forecast prepayment rates and default rates 

State and Local Housing Finance Agency Initiative 

under the housing and economic recovery act of 2008 (hera), the Department, together with the federal housing finance 

agency (fhfa), fannie Mae, freddie Mac, and the Department of housing and urban Development announced in october 2009 

an initiative to provide support to state and local housing finance agencies (hfas). hfas have historically played a central role 

in providing a safe, sustainable path to homeownership for working families in all 50 states and many localities across the country. 

this initiative is 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 closed as part of the hfa 

Initiative’s two separate hfa programs: (1) the new Issue bond Program (nIbP) and (2) the temporary credit and liquidity 

Program (tclP). 

security-level data used as the basis for the nIbP cash flow model forecasts are obtained directly from the Department’s program 

custodian. assumptions about security and program performance are drawn from information published in the fiscal year 2009 fha 

actuarial review of the Mutual Mortgage Insurance fund and default and recovery reports published by Moody’s and s&P. key 

inputs to the nIbP cash flow forecast include: 

•	 security characteristics such as issued bond balance, coupon rate, credit rating, maturity date, and principal and interest payment 

schedules 

•	 forecast prepayment, and loss rates 

•	 expected escrow conversion & return rates 

no tclP disbursements have occurred as of september 30, 2010. In accordance with oMb circular a-11, the Department did not 

perform a fiscal year 2010 subsidy reestimate for tclP since there was no disbursement as of september 30, 2010. 

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 federal government of cash or other assets in which nonfederal individuals or entities have an ownership interest that the federal government must uphold. fiduciary cash and other assets 

are not assets of the federal government. While these activities are no longer reported in the proprietary financial statements, they 

are required to be reported on schedules in the notes to financial statements (note 30). 

note 1. summary of significant accounting policies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

175 

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 federal financing bank. these activities are disclosed in these financial statements. the 

Department utilizes the services of the federal reserve to execute a variety of transactions on behalf of the bPD and the exchange 

stabilization fund. the federal reserve is serving as the Department’s fiscal agent in executing these transactions and receives fees 

for its services. the Department also consults with the federal reserve on matters affecting the economy, such as the structuring of 

bailout financing for american International group and other companies affected by the current economic situation. however, these 

actions do not involve transactions between the Department and the federal reserve. 

finally, the secretary of the treasury serves on the fhfa oversight board, and consults with the Director of fhfa in 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, and thus some influence over major decisions involving fannie Mae and freddie Mac. the Department has no 

transactions with fhfa; transactions and balances arising from transactions with fannie Mae and freddie Mac are accounted for and 

disclosed in these financial statements. 

AC. Reclassifications 

certain fiscal year 2009 balances on the balance sheet and notes to the financial statements have been reclassified to conform to 

fiscal year 2010 presentations. In fiscal year 2010, certain balance sheet amounts were aggregated and reclassified, whereas in fiscal 

year 2009 they were reported disaggregated. amounts related to the tarP program were disaggregated in fiscal year 2009. the 

changes to aggregate and reclassify amounts were made to conform to how tarP is presented on the ofs stand-alone and financial 

report of the u.s. government levels. In fiscal year 2010, the cDfI direct loans began to be disclosed in the credit reform footnote. 

the change impacted the reclassification of the balance sheet, and disclosures in notes 12 and 13. 

AD. Accounting Policy Change 

effective fiscal year 2010, as a result of a new united states standard general ledger (ussgl), the Department changed its 

budgetary accounting and reporting policy related to esf foreign currency investments. the change in accounting policy permits 

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. esf investments includes cash and cash equivalents, 

foreign currency Denominated assets (fcDa) (representing long-term investments in interest bearing securities issued by or 

held through foreign governments) and special Drawing rights (sDr) allocations (international reserve assets) and Monetization 

(sDr certificates) (collectively “esf Investments” henceforth). the new ussgl 4295, Revaluation of Foreign Currency in the 

Exchange Stabilization Fund permits the Department to report those assets that are not readily convertible to cash (such as fcDas, 

sDr revaluations (gains/losses) and other sDr additions including sDr allocations and sDr Monetizations) as part of budgetary 

resources in the statement of budgetary resources (sbr) Permanently Not Available and report these as a component of status of 

budgetary resources in the sbr Unobligated Balance Not Available line, respectively. 

In order to facilitate this change, the Department’s current year sbr unobligated balance, brought forward, as well as unpaid 

obligations, brought forward, beginning balances, have been adjusted for changes in esf investments balances accumulated 

through september 30, 2009, to allow fiscal year 2010 to reflect only current year activity. using guidance provided in sffas no. 

21 – Reporting Corrections of Errors and Changes in Accounting Principles, the Department considers this to represent a change from 

one generally accepted accounting principle to another more preferable. note 25 - additional Information related to the combined 

statements of budgetary resources, explains the effect of the policy change on the sbr beginning balances. this change in 

accounting policy and resulting budgetary beginning balance adjustments does not impact the Department’s proprietary accounts. 

note 1. summary of significant accounting policies 

part 3: annual financial report
the department of the treasury 

176 

2. funD balanCe 

fund balance with treasury 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. 

appropriated funds consist of amounts appropriated annually by congress to fund the operations of the Department. appropriated 

funds include clearing funds, which represent reconciling differences with the Department balances. 

revolving funds are used for continuing cycles of business-like activity, in which the fund charges for the sale of products or services 

and uses the proceeds to finance its spending, usually without requirement for annual appropriations. a public enterprise revolving 

fund is an account that is authorized by law to be credited with offsetting collections from the public and those monies are used to 

finance operations. the Working capital fund is a fee-for-service fund established to support operations of Department components. 

also included are the financing funds for credit reform. 

Deposit funds represent amounts received as an advance that are not accompanied by an order and include non-entity collections 

that do not belong to the federal government. 

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. 

Fund Balance With Treasury 

as of september 30, 2010 and september 30, 2009, fund balances consisted of the following (in millions): 

2010	 2009 

Appropriated Funds $ 402,036 $ 455,983 

Revolving Funds 34,096 47,897 

Clearing Funds 21 93 

Deposit Funds 132 146 

Trust Funds 84 5 

Special Funds 656 455 

Other Funds (Receipt Fund and Suspense Funds) 1 3 

Total Fund Balances	 $ 437,026 $ 504,582 

Status Of Fund Balance With Treasury 

Portions of the unobligated balance unavailable include amounts appropriated in prior fiscal years that are not available to fund new 

obligations. however, it can be used for upward and downward adjustments for existing obligations in future years. the obligated 

balance not yet Disbursed represents amounts designated for payment of goods and services ordered but not received or goods and 

services received but for which payment has not yet been made. 

since the following line items do not post to budgetary status accounts, the following adjustments are required to reconcile the 

budgetary status to non-budgetary fund balance with treasury as reported in the accompanying balance sheets: 

•	 adjustments for non-budgetary funds are receipt, clearing, and deposit funds that represent amounts on deposit with treasury 

that have no budget status 

note 2. fund balance 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

177

•	 adjustments for borrowing authority – borrowing authority is in budgetary status but not in fund balance with treasury 

•	 adjustments for Intra-treasury Investments – budgetary resources have investments included; however, the money has been 

moved from the fund balance with treasury asset account to Investments 

•	 adjustments for Imprest funds – Imprest funds represent monies moved from fund balance with treasury to cash and other 

Monetary assets with no change in the budgetary status 

•	 adjustments for IMf – Monies moved from fund balance with treasury to other Monetary assets related to IMf accounts that 

have no budgetary resources and are with the federal reserve bank of new york. they also include the IMf reserve Position 

based on sDrs 

•	 adjustments for esf – esf investments and related balances that meet criteria for reporting as part of budgetary resources are 

reported on the sbr, however, they are not a component of fund balance with treasury as they represent invested funds and 

thus have to be excluded from total status of fund balance reported in this note. Prior to fiscal year 2010, the esf budgetary 

resources balances were adjusted in note 2 to show resources net of the esf investments and related balances that are not 

components of fund balance. the change in presentation for fiscal year 2010 was facilitated by the change in accounting policy 

discussed further in note 1aD, and note 25 

•	 adjustment for unavailable for obligations reduced the budgetary resources; however, did not impact the fund balance with 

treasury 

as of september 30, 2010 and september 30, 2009, the status of fund balances consisted of the following (in millions): 

2010	 2009 

Unobligated Balance – Available $ 301,811 $ 382,047 

Unobligated Balance – Unavailable 70,432 33,841 

Obligated Balance not yet Disbursed 208,189 158,324 

Subtotal $ 580,432 $ 574,212 

Adjustment for Non-Budgetary Funds 161 241 

Adjustment for Borrowing Authority (23,477) (51,510) 

Adjustment for Intra-Treasury Investments (7,026) (8,554) 

Adjustment for Imprest Funds (4) (4) 

Adjustment for IMF (13,081) (13,513) 

Adjustment for ESF (103,788) 0 

Adjustments for Temporary Reduction 90 30 

Authority Unavailable for Obligation 3,727 3,680 

Adjustment for Indian Trust Funds (8) 0 

Total Status of Fund Balances $ 437,026 $ 504,582 

for fiscal year 2009, the above balances only include unobligated balances related to the esf insurance program that began in fiscal 

year 2008, and expired on september 18, 2009. otherwise, esf does not have fund balance with treasury. accordingly, while other 

esf balances are included on the statement of budgetary resources (sbr), they are not a component of fund balance with treasury. 

the esf balances displayed on the sbr include components of cash, foreign currency, and other monetary assets. 

as of september 30, 2010 and september 30, 2009, the Department did not have any budgetary authority in fund balance with 

treasury that was specifically withheld from apportionment by oMb. the balances in non-entity funds, such as certain deposit funds 

(e.g. seized cash), are being held by the Department for the public or for another federal entity, such as the general fund of the u.s. 

government. such funds have an offsetting liability equal to fund balance. see note 14 regarding restrictions related to the line of 

credit held on the u.s. Quota in the International Monetary fund. 

unused funds in expired appropriations returned to the u.s. treasury were $166 million and $126 million for the fiscal years ending 

september 30, 2010 and september 30, 2009, respectively. 

note 2. fund balance 

part 3: annual financial report
the department of the treasury 

178 

3. lOans anD interest reCeivable – intra-gOvernmental 

Entity Intra-Governmental 

the ffb issues the below loans to federal agencies for their own use or to private sector borrowers, whose loans are guaranteed by 

the federal agencies. When a federal agency has to honor its guarantee because a private sector borrower defaults, the federal agency 

that guaranteed the loan must obtain an appropriation or use other resources to repay the ffb. loan principal and interest are backed 

by the full faith and credit of the u.s. government, except for loans to the u.s. Postal service. the ffb has not incurred and does 

not expect to incur any credit-related losses on its loans and accordingly, has not recorded an allowance for uncollectible intragovernmental loans. 

as of september 30, 2010 and september 30, 2009, intra-governmental loans (issued by the ffb) and interest receivable consisted of 

the following (in millions): 

Loans Interest 2010 Loans Interest 2009 

Receivable Receivable Total Receivable Receivable Total 

Department of Agriculture $ 31,264 $ 53 $ 31,317 $ 28,438 $ 52 $ 28,490 

National Credit Union Administration 10,101 15 10,116 18,384 22 18,406 

United States Postal Service 12,000 41 12,041 10,200 37 10,237 

General Services Administration 1,973 35 2,008 2,037 36 2,073 

Department of Energy 2,931 4 2,935 908 0 908 

Department of Housing and Urban Development 0 0 0 587 71 658 

Department of Defense 417 4 421 546 6 552 

Department of Education 614 4 618 453 2 455 

Other Agencies 8 0 8 12 0 12 

Subtotal-Entity $ 59,308 $ 156 $ 59,464 $ 61,565 $ 226 $ 61,791 

note 3. loans and interest receivable - intra-governmental 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

Non-Entity Intra-Governmental 

bPD accounts for and reports on the principal borrowings from and repayments to the general fund of the u.s. government for 

approximately 87 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. 

Loans Interest 2010 Loans Interest 2009 

Receivable Receivable Total Receivable Receivable Total 

Department of Education 

Department of Agriculture 

Department of Homeland Security 

Small Business Administration 

Department of Labor 

Department of Housing and Urban Development 

Export Import Bank of the U.S. 

Railroad Retirement Board 

Department of Energy 

Department of Veterans Affairs 

Department of Transportation 

Overseas Private Investment Corporation 

Department of Defense 

Agency for International Development 

Department of the Interior 

Federal Communications Commission 

$ 373,717 

56,598 

18,504 

11,752 

6,290 

4,775 

7,254 

3,481 

2,601 

1,650 

3,076 

1,403 

518 

478 

308 

88 

$ 0 

0 

0 

0 

0 

0 

0 

54 

21 

0 

0 

0 

0 

0 

183 

0 

$ 373,717 

56,598 

18,504 

11,752 

6,290 

4,775 

7,254 

3,535 

2,622 

1,650 

3,076 

1,403 

518 

478 

491 

88 

$ 234,918 

55,627 

19,004 

10,873 

6,371 

4,425 

3,805 

3,359 

2,131 

1,545 

2,477 

1,006 

391 

477 

316 

46 

$ 12 

2 

0 

0 

0 

0 

0 

58 

18 

0 

0 

0 

0 

0 

328 

0 

$ 234,930 

55,629 

19,004 

10,873 

6,371 

4,425 

3,805 

3,417 

2,149 

1,545 

2,477 

1,006 

391 

477 

644 

46 

Other Agencies 638 0 638 1,610 1 1,611 

Subtotal Non-Entity $ 493,131 $ 258 $ 493,389 $ 348,381 $ 419 $ 348,800 

Total Intra-governmental Loans and Interest 

Receivable Entity and Non-Entity $ 552,853 $ 410,591 

note 3. loans and interest receivable - intra-governmental 179

part 3: annual financial report
the department of the treasury 

180 

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 of the u.s. government. 

as of september 30, 2010 and september 30, 2009, 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 2010 2009 

Federal Debt and Interest Payable (Note 19) $ 9,035,929 $ 7,559,305 

Federal Debt and Interest Payable - Intra-governmental (Note 19) 4,587,802 4,403,080 

Refunds Payable (Note 26) 4,146 4,040 

Adjustment for Eliminated Liabilities 27,760 26,294 

Total Due from the General Fund $ 13,655,637 $ 11,992,719 

Assets to be Distributed to the General Fund 2010 2009 

Fund Balance $ 249 $ 202 

Advances to the Unemployment Trust Fund 34,111 7,981 

Cash Held by the Treasury Department (Note 6) 303,797 269,311 

Foreign Currency 3 26 

Custodial Gold without certificates and Silver held by the U.S. Mint 25 25 

Loans and Interest Receivable - Intra-governmental (Note 3) 493,389 348,800 

Loans and Interest Receivable (Note 13) 124 127 

Investments in Government Sponsored Enterprises (Note 9) 109,216 64,679 

Credit Reform Downward Subsidy Reestimate 25,579 118,139 

Accounts Receivable - Intra-governmental 350 285 

Tax and Other Non-Entity Receivables 36,927 30,353 

Beneficial Interest in Trust (Note 29) 20,805 23,472 

Miscellaneous Assets 5 3 

Adjustment for Eliminated Assets 389,672 399,725 

Total Due to the General Fund $ 1,414,252 $ 1,263,128 

note 4. due from the general fund and due to the general fund 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

181 

the adjustment for eliminated liabilities mainly 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 mainly represents loans and interest payable owed by reporting entities that are consolidated with the Department, 

which were eliminated against loans and Interest receivable Intra-governmental held by the bPD. 

advances have been issued to the Department of labor’s unemployment trust fund from the general fund of the u.s. government 

to states for unemployment benefits. 

the non-entity credit reform Downward subsidy reestimates represents amounts for the downward subsidy reestimates for the 

Department’s credit programs including tarP equity Investments and Direct loan. 

Downward subsidy reestimates indicates that too much subsidy will be or has been paid to the credit reform financing account. the 

downward reestimates are not available to the Department and they are returned to the u.s. government general fund receipt 

account (gfra) in the fiscal year following the accrual of the reestimates. generally, during the year, these gfras contain prior 

year reestimates. at year-end, the prior year funds are “swept” by the general fund. also at year-end, the Department accrues the 

current year’s reestimates, including downward reestimates, as applicable. for the downward reestimates, in the loan financing funds, 

the Department records an intra-governmental accrual adjustment that records a transfer out to the non-entity fund, a reduction 

of subsidy allowance or loan guarantee liability, and an account payable to the gfra non-entity fund. In the loan program funds, 

the Department records a reduction of loan subsidy expense and the associated impact on the net cost. the non-entity gfras 

contain a corresponding intra-governmental account receivable in anticipation of the receipt of the downward reestimates in the 

following year and a Downward reestimate liability for non-entity asset due to the general fund. for consolidated financial 

statement presentation, the Department is required to eliminate the financing fund’s intra-governmental payable due to the gfra 

and the gfra’s intra-governmental receivable due from the financing funds; since both are included in the Department’s reporting 

entity. the Downward reestimate liability for non-entity asset Due to the general fund is reflected on the balance sheet’s intragovernmental liability Due to the general fund line (see notes 8 and 12 for disclosure of credit program’s reestimates). 

on the balance sheet, the Department reported $437,026 million in fund balance as of september 30, 2010 ($504,582 million as 

of september 30, 2009). however, only $249 million is reported as Due to the general fund of the u.s. government ($202 million 

as of september 30, 2009). the balance represents non-entity funds held by the Department on behalf of the general fund of the 

u.s. government, and are administered for programs such as the Presidential election campaign and Payments for legal service 

corporation. the fund balance is not available for general use of the Department. 

on the balance sheet, the Department reported $36,976 million in tax, other, and related Interest receivables as of september 30, 

2010 ($30,408 million as of september 30, 2009). however, only $36,927 million is reported as Due to the general fund of the u.s. 

government ($30,353 million as of september 30, 2009). the difference is attributable to the exclusion of amounts which will be 

paid to others outside the u.s. government, and miscellaneous entity receivables (see notes 5 and 15). 

note 4. due from the general fund and due to the general fund 

part 3: annual financial report
the department of the treasury 

182 

5.	 aCCOunts reCeivable anD relateD interest— 

intra-gOvernmental 

Intra-governmental accounts receivable and interest mainly represents non-entity payments made by the Department under the 

Contract Disputes Act ($350 million of the $361 million and $285 million of the $298 million displayed on the balance sheet for 2010 

and 2009, respectively). other federal agencies are required to reimburse the Department for payments made on their behalf, related 

to the Contract Disputes Act and the No Fear Act. these amounts are a receivable on the Department’s balance sheet, specifically 

the financial Management service, and a payable on the other federal agencies’ balance sheet until reimbursement is made. the 

remaining amount displayed as intra-governmental accounts receivable and interest is related to miscellaneous intra-governmental 

transactions. 

note 5. accounts receivable and related interest—intra-governmental 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

183 

6. Cash, fOreign CurrenCy, anD Other mOnetary assets 

cash, foreign currency, and other monetary assets held as of september 30, 2010 and september 30, 2009 were as follows (in 

millions): 

Entity: 2010 2009 

Cash $ 16 $ 23 

Foreign Currency and Foreign Currency Denominated Assets 13,439 13,701 

Other Monetary Assets: 

Special Drawing Right Holdings 57,439 57,961 

Other 144 44 

Subtotal – Entity 71,038 71,729 

Non-Entity: 

Operating Cash of the U.S. Government 303,576 269,052 

Foreign Currency 3 26 

Miscellaneous Cash held by all Treasury sub-components 665 501 

Subtotal - Non-Entity 304,244 269,579 

Total Cash, Foreign Currency, and Other Monetary Assets $ 375,282 $ 341,308 

non-entity operating cash and other cash of the u.s. government held by the Department disclosed above consisted of the 

following (in millions): 

2010 2009 

Operating Cash of the U.S. Government $ 2,032 $ 2,063
 

Operating Cash - Federal Reserve Bank Account 307,850 273,269 


Subtotal 309,882 275,332 

Outstanding Checks (6,306) (6,280) 

Total Operating Cash of the U.S. Government 303,576 269,052 

Other Cash 297 366 

Subtotal 303,873 269,418 

Amounts Due to the Public (76) (107) 

Total Cash Due to the General Fund (See Note 4) $ 303,797 $ 269,311 

Entity 

Cash, Foreign Currency, and Other Monetary Assets 

entity cash, foreign currency, and other monetary assets primarily include foreign currency Denominated assets (fcDa), special 

Drawing rights (sDrs), securities Purchased under agreement to resell, and forfeited cash. sDrs and fcDa are valued as of 

september 30, 2010 and september 30, 2009, using current exchange rates plus accrued interest. “other” includes u.s. dollars 

restricted for use by the International Monetary fund (IMf), which are maintained in two accounts at the federal reserve bank of 

new york (frbny). 

the foreign currency holdings are normally invested in interest bearing securities issued by or held through foreign governments or 

monetary authorities. fcDa with original maturities of three months or less, classified as cash equivalents, were valued at $10,588 

million as of september 30, 2010 ($11,311 million as of september 30, 2009). other fcDas having terms of less than or equal to a 

year but greater than three months are classified as available for sale. as of september 30, 2010, fcDa with maturities greater than 

three months were valued at $2,849 million ($2,379 million as of september 30, 2009). 

note 6. cash, foreign currency, and other monetary assets 

part 3: annual financial report
the department of the treasury 

184 

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. 

the special Drawing rights act of 1968 authorizes the secretary of the treasury to issue certificates, not to exceed the value of 

sDr holdings, to the federal reserve banks in return for interest free dollar amounts equal to the face value of certificates issued. 

the certificates may be issued for the purpose of financing the acquisition of sDrs from other countries or for financing exchange 

stabilization activities. certificates issued are to be redeemed by the Department at such times and in such amounts as the secretary 

of the treasury may determine. as of september 30, 2010, the value of the certificates issued to the federal reserve amounted to 

$5,200 million ($5,200 million as of september 30, 2009). 

on a daily basis, the IMf calculates the value of the sDr using the market value, in terms of the u.s. dollar, from the amounts of 

each of four freely usable weighted currencies, as defined by the IMf. these currencies are the u.s. dollar, the european euro, the 

Japanese yen, and the british pound sterling. 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 14) and allocations from the IMf 

(liabilities of the u.s. coming due only in the event of a liquidation of, or u.s. withdrawal from the sDr Department of the IMf, or 

cancellation of sDrs) are revalued monthly based on the sDr valuation rate calculated by the IMf. 

Pursuant to the IMf articles of agreement, sDrs allocated to or otherwise acquired by the united states are permanent resources 

unless: 

a. cancelled by the board of governors based on an 85 percent majority decision of the total voting power of the executive board 

of the IMf, 

b. the sDr Department of the IMf is liquidated, 

c. the IMf is liquidated, or 

d. the united states chooses to withdraw from the IMf or terminate its participation in the sDr Department. 

except for the payment of interest and charges on sDr allocations to the united states, the payment of the 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 1970, 1971, 1972, 1979, 1980, 1981, and 2009. 

at the g-20 leaders’ summit in london in april 2009, President obama and his g-20 counterparts called for a general sDr 

allocation equivalent to $250,000 million to provide supplemental liquidity to address the consequences of the global economic and 

financial crisis and to support global recovery. IMf members endorsed this proposal and the allocation was made on august 28, 2009 

to all IMf members in proportion to their IMf quotas. In august 2009, IMf members also adopted the fourth amendment to the 

IMf articles of agreement providing for a one-time sDr allocation that was made on september 9, 2009 in proportionally greater 

amounts to members that joined the fund after 1981 and never received an sDr allocation. as a result of the general and special 

sDr allocations, the united states received sDr 30,416 million, which was the equivalent of $47,283 million as of september 30, 

2009. 

note 6. cash, foreign currency, and other monetary assets 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

as of september 30, 2010, the total amount of sDr holdings of the united states was the equivalent of $57,410 million, and the 

amount of cumulative sDr allocations to the united states was the equivalent of $54,958 million. as of september 30, 2009, 

the total amount of sDr holdings of the united states was the equivalent of $57,945 million and the amount of cumulative sDr 

allocations to the united states was the equivalent of $55,953 million. 

During fiscal year 2010, the united states received remuneration on its reserve position in the IMf, at the prevailing rates, in the 

amount of $23 million equivalent of sDrs ($40 million equivalent of sDrs during fiscal year 2009). the sDr amount was credited 

to the exchange stabilization fund, which transferred to the treasury general account a counterpart amount of dollars plus $0.0029 

million ($0.0038 million in fiscal year 2009) in interest. 

Securities Purchased Under Agreement to Resell 

the frbny 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 euro, and issued or guaranteed in full by belgium, 

france, germany, Italy, the netherlands, and spain. Maturities of the securities will not exceed 10.5 years. the duration of 

individual repo transactions will not exceed 90 days. esf’s investment in reverse repurchase agreements involves a pledge of 

securities account with euroclear, the custodian/tri-party agent for such operations, to facilitate intra-day clearance of transactions. 

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 federal reserve banks, foreign and domestic financial 

institutions, and in u.s. treasury tax and loan accounts at commercial banks. 

operating cash of the u.s. government is either insured (for balances up to $0.25 million), as of september 30, 2010, by the fDIc 

or collateralized by securities pledged by the depository institutions and held by the federal reserve banks, or through securities held 

under reverse repurchase agreements. 

Supplementary Financing Program 

the supplementary financing Program (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, 2010, there were a total of 8 outstanding cash management bills earmarked for sfP that totaled $199,962 

million (a total of 5 outstanding cash management bills earmarked for sfP that totaled $164,945 million as of september 30, 2009). 

note 6. cash, foreign currency, and other monetary assets 185 

part 3: annual financial report
the department of the treasury 

186 

7.	 gOlD anD silver reserves, anD gOlD CertifiCates issueD tO the 

feDeral reserve banks 

the Department is responsible for safeguarding most of the u.s. government’s gold and silver reserves in accordance with 31 usc 

§5117. the gold and silver reserves are in the custody of the u.s. Mint and frbny. 

the majority of gold reserves being held by the Department are offset by a liability for gold certificates issued by the secretary of 

the treasury to the federal reserve banks as provided in 31 usc §5117. since 1934, gold certificates have been issued in nondefinitive or book-entry form to the federal reserve banks. the Department’s liability incurred by issuing the gold certificates, as 

reported on the balance sheet, is limited to the gold being held by the Department at the legal standard value established by law. 

upon issuance of gold certificates to the federal reserve banks, the proceeds from the certificates are deposited into the operating 

cash of the u.s. government. all of the Department’s certificates issued are payable to the federal reserve banks. the u.s. Mint 

also holds 100,000 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 u s c §§ 5116 - 

5117 (statutory rates) which are $42.2222 per fine troy ounce (fto) of gold and no less than $1.292929292 per fto of silver. 

accordingly, the silver is valued at $1.292929292 per fto. as of september 30, 2010 and september 30, 2009, the gold and silver 

reserves consisted of the following (in millions): 

9/30/10 9/30/10 

FTOs Statutory Rate Statutory value Market Rate 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 

Subtotal - Gold 261,498,900 11,041 341,779 

Silver 16,000,000 $ 1.292929292 21 $ 22.07 353 

Total Gold and Silver Reserves $ 11,062 $ 342,132 

9/30/09 9/30/09 

FTOs Statutory Rate Statutory value Market Rate Market value 

Gold 248,046,116 $ 42.2222 $ 10,473 $ 995.75 $ 246,992 

Gold Held by Federal Reserve Banks 13,452,784 $ 42.2222 568 $ 995.75 13,396 

Subtotal - Gold 261,498,900 11,041 260,388 

Silver 16,000,000 $ 1.292929292 21 $ 16.45 263 

Total Gold and Silver Reserves $ 11,062 $ 260,651 

note 7. gold and silver reserves, and gold certificates issued to the federal reserve banks 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

187 

8.	 trOubleD asset relief prOgram (tarp) DireCt lOans anD 

equity investments, net anD asset guarantee prOgram 

Direct Loan, Equity Investments and Asset Guarantee Program 

the Department administers a number of programs designed to help stabilize the financial system and restore the flow of credit to 

consumers and businesses. the Department has made direct loans, equity investments, and entered into asset guarantees. the table 

below recaps tarP programs by title and type: 

Program Program Type 

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 

Public-Private Investment Program Equity Investment and Direct Loan 

Asset Guarantee Program Asset Guarantee 

the Department applies the provisions of sffas no. 2 to account for direct loans, equity investments, and the asset guarantee 

program. 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. 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. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

188 

the table below displays the assets held by the observability of inputs significant to the measurement of each value (in millions): 

As of September 30, 2010 

Investment

 Quoted Prices for 

Identical Assets 

Significant 

Observable Inputs 

Significant 

Unobservable Inputs 

2010 

Total 

Capital Purchase Program $ 14,899 $ 0 $ 33,334 $ 48,233 

American International Group Investment Program* 0 0 26,138 26,138 

Targeted Investment Program 0 0 1 1 

Automotive Industry Financing Program 0 0 52,709 52,709 

Consumer and Business Lending Initiative, which includes TALF, SBA 7(a) 

securities and CDCI 0 0 966 966 

Public-Private Investment Program 0 0 14,405 14,405 

Asset Guarantee Program 2,240 815 0 3,055 

Total TARP Program $ 17,139 $ 815 $ 127,553 $ 145,507 

As of September 30, 2009 

Quoted Prices for Significant Significant 2009 

Investment Identical Assets Observable Inputs Unobservable Inputs Total 

Capital Purchase Program $ 37,231 $ 0 $ 104,440 141,671 

American International Group Investment Program 0 0 13,152 13,152 

Targeted Investment Program 0 40,341 0 40,341 

Automotive Industry Financing Program 0 0 42,284 42,284 

Consumer and Business Lending Initiative, which includes TALF 0 0 444 444 

Asset Guarantee Program 0 0 1,765 1,765 

Total TARP Program $ 37,231 $ 40,341 $ 162,085 239,657 

* Does not give effect to the proposed restructuring as discussed under American International Group, Inc. Investment Program in this note.
 

Note: Reported on the balance sheet as of September 30, 2010, $815 million is intra-governmental and $144,692 million is with the public for a combined total of $145,507 million.
 

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 assets. 

Financial Institution Equity Investments4 

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 assets-to-liabilities 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 1990-2009. 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 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. 

4 this consists of equity investments made under cPP, cDcI, and tIP. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

189 

AIG Investment 

the method used to measure aIg preferred shares is broadly analogous to the approach used to measure financial institution 

preferred shares. however, greater uncertainty exists for the valuation of preferred shares for aIg. first, the size of the Departments’ 

holding of preferred shares relative to aIg’s total balance sheet makes the valuation extremely sensitive to assumptions about the 

recovery ratio for preferred shares should aIg enter default. second, no comparable traded preferred shares exist. therefore, the 

Department based the aIg valuation on the observed market values of publicly traded junior subordinated debt, adjusted for the 

Departments’ position in the capital structure. further, based on certain publicly available third party sources, assumptions about 

payouts in different outcomes and the probability of some outcomes were made. finally, an external asset manager provided estimated 

fair value amounts, premised on public information, which also assisted the Department in its measurement. these different factors 

were all used in determining the best estimate for the aIg assets. the adjustment for market risk is incorporated in the data points 

the Department uses to determine the measurement for aIg as all points rely on market data. 

Asset Guarantees Program 

for fiscal year 2009, the value of the asset guarantee program reflects the net present value of estimated default-claim payments by the 

Department, net of income from recoveries on defaults, fees (including equity received), or other income. Default-claim payments 

were based on estimated losses on the guaranteed assets. key inputs into these estimates are forecasted gross domestic product, 

unemployment rates, and home price depreciation, in a base scenario and a stress scenario. During fiscal year 2010, an agreement 

was entered into to terminate the guarantee of the Department to pay for any defaults. after the termination, the Department still 

holds some of the trust preferred securities (initially received as the guarantee fee) issued by citigroup and the potential to receive 

$800 million (liquidation preference) of additional citigroup trust preferred securities from the fDIc, see further discussion below 

under the heading of asset guarantee Program. as such, as of september 30, 2010, the value of the instruments within the agP is 

the value of the trust preferred securities held and the estimated cash flows associated with the contingent right to receive additional 

trust preferred securities. on september 30, 2010, the Department entered into an agreement to sell5

 the trust preferred securities 

held within agP, and the value of the trust preferred securities is approximately the sales price and the contingent right is valued in 

a similar manner as the financial institutions preferred equity investments noted above. 

Investments in Special Purpose Vehicles 

the Department has made certain investments in financial instruments issued by special purpose vehicles (sPVs). generally, the 

Department estimates the cash flows of the sPV 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, 

requiring additional funding by the Department. 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 cash flows to the sPV by simulating the performance of the collateral supporting the residential mortgagebacked securities (rMbs) and commercial mortgage backed securities (cMbs) held by the PPIf (i.e. performance of the residential 

and commercial mortgages). the simulated cash flows are then run through the waterfall of the rMbs/cMbs to determine the cash 

flows to the sPV. once determined, the cash flows are run through the waterfall of the PPIf to determine the expected cash flows to 

see further discussion of sale under asset guarantee Program below. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

5 

part 3: annual financial report
the department of the treasury 

190 

the Department through both the equity investments and loans. Inputs used to simulate the cash flows are unemployment forecast, 

home price appreciation/depreciation forecast, the current term structure of interest rates, historical pool performance as well as 

estimates of net income and value of commercial real estate supporting the cMbs. 

SBA 7(a) Securities 

the valuation of sba 7(a) securities is based the discounted estimated cash-flows of the securities. 

Auto Industry Financing Program (AIFP) Investments and Loans 

the valuation of equity investments was performed in a manner that is broadly analogous to the methodology used for financial 

institution equity investments, with reliance on publicly traded securities to benchmark the assumptions of the valuation exercise. 

aIfP loans with potential value is valued using rating agency default probabilities. 

as part of the general Motors (gM) bankruptcy proceedings, the Department received a 60.8 percent stake in the common equity of 

general Motors company (new gM). because the unsecured bond holders in general Motors corporation (old gM) received 10 

percent of the common equity ownership and warrants in new gM, the expected recovery rate implied by the current trading prices 

of the old gM bonds provides the implied value of the new gM equity. the Department used this implied equity value to account 

for its equity stake in new gM. the adjustment for market risk is incorporated in the data points the Department uses to determine 

the measurement for gM as all points rely on market data. 

for gMac, Inc. (gMac – currently known as ally financial) trust preferred equity instruments, the Department estimates the 

value based on comparable publicly traded securities adjusted for factors specific to gMac, such as credit rating. for investments in 

gMac’s common equity and mandatorily convertible preferred stock, which is valued on an “if-converted” basis, the Department 

uses certain valuation multiples such as price-to-earnings and price-to-tangible book value to estimate the value of the shares. the 

multiples are based on those of comparable publicly-traded entities. the adjustment for market risk is incorporated in the data points 

the Department uses to determine the measurement for gMac as all points rely on market data. 

the Department values direct loans 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. 

Subsidy Cost 

the recorded subsidy cost of a direct loan, equity investment, or asset guarantee is based on the estimated future cash flows calculated 

as discussed above. the Department actions, as well as changes in legislation, that change these estimated future cash flows change 

subsidy costs and are recorded as modifications. the cost of a modification is recognized as a modification expense, included in 

subsidy cost, when the direct loan, equity investment, or asset guarantee is modified. During fiscal year 2010, modifications occurred 

within the capital Purchase Program, the asset guarantee Program, and the automotive Industry financing Program. During the 

fiscal year ended september 30, 2009, modifications occurred within the capital Purchase Program; consumer and business lending 

Initiative; the american International group, Inc. Investment Program; and the automotive Industry financing Program. see 

detailed discussion related to each program and related modifications below. total net modification cost for the fiscal year ended 

september 30, 2010 was $47.9 million. for the fiscal year ended september 30, 2009, net modification costs were $412.1 million. 

the following table recaps gross loan or equity investment, subsidy allowance, and net loan or equity investment by tarP program. 

Detailed tables providing the net composition, subsidy cost, modifications and reestimates, along with a reconciliation of subsidy cost 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

191 

allowances as of and for the fiscal year ended september 30, 2010 and september 30,2009, are provided at the end of this note for 

Direct loans and equity Investments, detailed by program, and for the asset guarantee Program separately. 

Descriptions and chronology of significant events by program are after the summary table. 

(in millions) As of September 30, 2010 

Gross Direct Loans Subsidy Net Direct Loans 

TARP Program or Equity Investment Allowance or Equity Investment 

Capital Purchase Program (CPP) $ 49,779 $ (1,546) $ 48,233 

American International Group, Inc. Investment Program (AIG)* 47,543 (21,405) 26,138 

Targeted Investment Program (TIP) 0 1 1 

Automotive Industry Financing Program (AIFP) 67,238 (14,529) 52,709 

Consumer and Business Lending Initiative (CBLI), which includes TALF, SBA 7(a) 

securities and CDCI 908 58 966 

Public-Private Investment Program (PPIP) 13,729 676 14,405 

Total TARP Program $ 179,197 $ (36,745) $ 142,452 

(in millions) As of September 30, 2009 

Gross Direct Loans Subsidy Net Direct Loans 

TARP Program or Equity Investment Allowance or Equity Investment 

Capital Purchase Program (CPP) $ 133,901 $ 7,770 $ 141,671 

American International Group, Inc. Investment Program (AIG) 43,206 (30,054) 13,152 

Targeted Investment Program (TIP) 40,000 341 40,341 

Automotive Industry Financing Program (AIFP) 73,762 (31,478) 42,284 

Consumer and Business Lending Initiative (CBLI), which includes TALF 100 344 444 

Public-Private Investment Program (PPIP) 0 0 0 

Total TARP Program $ 290,969 $ (53,077) $ 237,892 

* Does not give effect to the proposed restructuring as discussed under American International Group, Inc. Investment Program in this note. 

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. under the original terms of the senior preferred stock the QfI may not redeem the shares within the first three 

years of the date of the investment, unless it had received the proceeds of one or more Qualified equity offerings (Qeo)6

 which 

results in aggregate gross proceeds to the QfI of not less than 25.0 percent of the issue price of the senior preferred stock. 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. 

a Qualified equity offering is defined as the sale by the QfI after the date of the senior preferred stock investment of tier 1 perpetual preferred stock or 

common stock for cash. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

6 

part 3: annual financial report
the department of the treasury 

192 

In february 2009 and May 2009, the united states congress passed the american recovery and reinvestment act of 2009 and the 

helping families save their homes act of 2009, respectively. these acts contained amendments to the eesa (eesa amendments) 

which require the secretary to allow QfIs to repay at any time, subject to regulatory approval, regardless of whether the 25.0 percent 

or greater Qeo was accomplished. the ability of a QfI to repay the Department investment prior to year three or a 25.0 percent 

Qeo was not considered in the original subsidy cost estimate. therefore, a modification cost of $77.7 million was recorded for the 

fiscal year ended september 30, 2009 as a result of these amendments. 

In addition to the senior preferred stock, the Department received warrants, as required by section 113(d) of eesa, from public QfIs 

to purchase a number of shares of common stock. the warrants have an aggregate exercise price equal to 15.0 percent of the total 

senior preferred stock investment. the exercise price per share used to determine the number of shares of common stock subject to 

the warrant was calculated based on the average closing prices of the common stock on the 20 trading days ending on the last day 

prior to the date the QfIs application was preliminarily approved for participation in the program. the warrants include customary 

anti-dilution provisions. Prior to December 31, 2009, in the event a public QfI completed one or more Qeos with aggregate gross 

proceeds of not less than 100.0 percent (100.0 percent Qeo) of the senior perpetual preferred stock investment, the number of 

shares subject to the warrants 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. as of september 30, 2009, 19 QfIs had reduced shares pursuant to the 

provision. the warrants have a 10 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 non-public QfIs. the Department did not receive warrants 

from financial institutions considered community Development financial Institutions (cDfIs). a total of 35 and 20 institutions 

considered cDfIs were in the cPP portfolio as of september 30, 2010 and 2009, respectively. 

the eesa amendments previously discussed also allow the secretary to liquidate warrants associated with repurchased senior 

preferred stock at the market price. In addition, a QfI, upon the repurchase of its senior preferred stock, also has the contractual right 

to repurchase the common stock warrants at the market price. 

the following table provides key data points related to the cPP. In addition, 106 and 38 QfIs have not declared and paid one or 

more dividends to the Department under cPP as of september 30, 2010 and 2009, respectively (dollars in millions): 

2010 2009 

Number of Institutions Participating 707 685 

Outstanding Beginning Balance, Investment in CPP Institutions $ 133,901 $ 0 

Purchase Price, current year Investments 278 204,619 

Repayments and Sales of Investments (81,462) (70,718) 

Write-offs and Losses (2,575) 0 

Transfers to CDCI (363) 0 

Outstanding Ending Balance, Investment in CPP Institutions $ 49,779 $ 133,901 

Interest and Dividend Collections $ 3,100 $ 6,800 

Net Proceeds from Sales and Repurchases of Assets in Excess of Cost $ 6,700 $ 2,900 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

193

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 the fiscal year ended september 30, 

2009, the Department entered into an exchange agreement with citigroup under which the Department exchanged $25,000 million, 

at $3.25 per share, of its investment in senior preferred stock for 7,700 million common shares of citigroup. this exchange 

transaction was not considered in the original subsidy cost estimate for cPP. as a result, the Department recorded a modification 

cost of $1,800 million for the fiscal year ended september 30, 2009. In april 2010, the Department began a process of selling the 

citigroup common stock. as of september 30, 2010, the Department had sold approximately 4,000 million shares for total proceeds 

of $16,100 million resulting in proceeds from sales in excess of cost of approximately $3,000 million. as of september 30, 2010, the 

Department continues to hold approximately 3,700 million shares of citigroup common stock with an estimated fair value of $14,300 

million, based on the september 30, 2010 closing price of $3.91 per share. Included in shares held as of september 30, 2010, is 

approximately 77.2 million shares which were sold prior to or on september 30, 2010, but did not settle until october 2010. Proceeds 

from these sales were $302.7 million resulting in proceeds from sales in excess of cost of $51.9 million. 

In addition to the above transaction 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, shares of mandatorily 

convertible preferred securities and selling preferred shares to acquiring financial institutions. 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 2010, certain financial institutions participating in cPP which are in good standing became eligible to exchange 

their Department-held stock investments to preferred stock under the community Development capital Initiative (cDcI) of the 

consumer and business lending Initiative Program (cblI). the exchange of stock is treated as a repayment of cPP investments 

from the participating financial institution and a distribution for the cDcI. see further discussion of the cblI and cDcI below. 

this was not considered in the formulation estimate for the cPP program. as a result, the Department recorded a modification cost 

savings of $31.9 million in the cPP program for this option during fiscal year 2010. 

Failed institutions 

In november 2009, a cPP participant, cIt group, filed for chapter 11 bankruptcy. the Department had invested $2,300 million in 

senior preferred stock of cIt group and received a warrant for the purchase of common stock. In fiscal year 2010, as a result of the 

bankruptcy proceedings, the Department wrote off the $2,300 million investment in cIt group and will not recover any amounts 

associated with it. In addition, during fiscal year 2010, four other financial institutions within the cPP portfolio either filed for 

bankruptcy or were closed by their regulators. the Department had invested approximately $396.3 million into these institutions. 

the Department does not anticipate recovery on these investments and therefore the value of these shares are reflected at zero as 

of september 30, 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 the receivership. 

American International Group, Inc. Investment Program (AIG) 

the Department provides assistance to certain systemically significant financial institutions on a case-by-case basis in order to 

provide stability to institutions that are critical to a functioning financial system and are at substantial risk of failure as well as to 

prevent broader disruption to financial markets. 

In november 2008, the Department invested $40,000 million 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 53.8 million shares (adjusted to 2.7 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 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

194 

$40,000 million of cumulative series D preferred stock for $41,600 million of non-cumulative 10.0 percent series e preferred stock. 

the amount of series e preferred stock is equal to the original $40,000 million, plus approximately $733.0 million in undeclared 

dividends as of the february 1, 2009, scheduled quarterly dividend payment date, $15.0 million in dividends compounded on the 

undeclared dividends, and an additional $855.0 million in dividends from february 1, 2009, but not paid as of april 17, 2009. aIg’s 

restructured agreement kept the quarterly dividend payment dates of May 1, august 1, november 1, and february 1, as established 

by the original november 2008 agreement. the original subsidy cost estimate did not consider this restructuring which resulted in a 

modification cost of $127.2 million being recorded. the Department requested and received an appropriation for this additional cost 

in the fiscal year ended september 30, 2009. 

In addition to the exchange, the Department agreed to make available an additional $29,800 million capital facility to allow aIg 

to draw additional funds if needed to assist in aIg’s restructuring. the Department investment related to the capital facility consists 

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 increases with any 

draw down by aIg on the facility. the dividend rate applicable to these shares is 10.0 percent and is payable quarterly, if declared, 

on the outstanding liquidation preference. for the fiscal year ended september 30, 2010 and september 30, 2009, $4,300 million 

and $3,200 million, respectively, has been funded by the Department to aIg under this additional capital facility. consistent with 

sffas no.2, the unused portion of the aIg capital facility is not recognized as an asset as of september 30, 2010 and 2009. 

according to the terms of the preferred stock, if aIg misses four dividend payments, the Department may appoint to the aIg board 

of directors, the greater of two members or 20.0 percent of the total number of directors of the company. the ability to appoint 

such directors shall remain in place until dividends payable on all outstanding shares of the series e Preferred stock have been 

declared and paid in full for four consecutive quarterly dividend periods, subject to revesting for each and every subsequent missed 

dividend payment. 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. 

on september 30, 2010, the Department, federal reserve bank of new york and aIg announced plans for a restructuring of the 

federal government’s investments in aIg. the restructuring plan provides for, among other items, the conversion of currently 

outstanding series e & f preferred stock to 1,092 million shares of aIg common stock. under the plan the current undrawn portion 

of series f will be available to aIg for the repayment of certain amounts owed to the federal reserve bank of new york and for 

general corporate liquidity. the plan is still subject to a number of conditions which must be met in order to close. the Department’s 

management believes that implementation of this plan would not result in additional losses on the aIg investment. see additional 

discussion regarding the proposed restructuring plan within the Management’s Discussion and analysis section of the Performance 

and accountability report. 

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 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. 

In fiscal year 2009, the Department invested $20,000 million in each of bank of america and citigroup under tIP. under each 

agreement, the Department purchased $20,000 million of perpetual preferred stock with an annual cumulative dividend rate of 8 

percent and received a warrant for the purchase of common stock. In December 2009, bank of america and citigroup repaid the 

amounts invested by the Department along with dividends through the date of repayment. the amounts remaining within the tIP 

subsidy cost allowance represent the estimated value of the citigroup warrant still held by the program. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

195 

During fiscal year 2010, the Department received $1,100 million in dividends under the tIP and proceeds of $1,200 million from 

the auction of the bank of america warrants. In fiscal year 2009, the Department received $1,900 million in dividends under this 

program. 

Automotive Industry Financing Program 

the automotive Industry financing Program (aIfP) was designed to 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 (GM) 

In fiscal year 2009, the Department provided $49,500 million to 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 gM was in bankruptcy. the 

Department assigned its rights in these loans (with the exception of $986.0 million which remained in gM for wind down purposes 

and $7,100 million that would be assumed) and previously received common stock warrants to a newly created entity (general 

Motors company). general Motors company used the assigned loans and warrants to credit bid for substantially all of the assets 

of gM in a sale pursuant to section 363 of the bankruptcy code. upon closing of the section 363 sale, the credit bid loans and 

warrants were extinguished and the Department received $2,100 million in 9.0 percent cumulative perpetual preferred stock and 60.8 

percent of the common equity interest in general Motors company. In addition, general Motors company assumed $7,100 million 

of the DIP loan, simultaneously paying $400 million (return of warranty program funds), resulting in a balance of $6,700 million. the 

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. recovery of the $986.0 million remaining in gM is subject to the final outcome of the bankruptcy 

proceedings. During fiscal year 2010, the Department had received the remaining $6,700 million as full repayment of the DIP loan 

assumed. In addition as of september 30, 2010 the Department had received $188.8 million in dividends and $343.1 million in 

interest on general Motors company preferred stock and the loan prior to repayment, respectively. the Department received $34.1 

million in dividends on the preferred stock and no interest on the loan during the fiscal year ended september 30, 2009. on october 

27, 2010, the Department signed a letter agreement with gM agreeing to sell the preferred stock to gM. gM will repurchase the 

preferred stock for 102 percent of the liquidation amount. 

the Department has not yet determined whether to sell any of its shares of general Motors company common stock in connection 

with the company’s proposed initial public offering. Due to the uncertainty as to the market price that would result from the initial 

public offering, the potential effect on the value of the Department’s investment in general Motors company is unknown and could 

be significantly different from the september 30, 2010 financial statement value. 

GMAC LLC Rights Offering 

In December 2008, the Department agreed, in principal, to lend up to $1,000 million to gM for participation in a rights offering by 

gMac (now known as ally financial, Inc.) in support of gMac’s reorganization as a bank holding company. the loan was secured 

by the gMac common interest acquired in the rights offering. the loan agreement specified that at any time, at the option of the 

lender (the Department), the unpaid principal and accrued interest was exchangeable for the membership interest purchased by gM 

during the rights offering. the loan was funded for $884.0 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 the time, in 

gMac in full satisfaction of the loan. In addition, during the fiscal year ended september 30, 2009, the Department received $9.1 

million in interest while the loan was outstanding. the conversion to gMac shares was not considered in the original subsidy cost. 

as a result, a modification was recorded reducing the estimated subsidy cost by approximately $1,600 million for the fiscal year ended 

september 30, 2009. as of september 30, 2010 the Department continues to hold the gMac shares obtained in this transaction 

(see further discussion of Department’s gMac holdings under gMac, Inc. in this note). 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

196 

Chrysler Holding LLC (Chrysler) 

In fiscal year 2009, the Department invested approximately $5,900 million in chrysler. specifically, $4,000 million was for general 

and working capital purposes (general Purpose loan) and $1,900 million was for DIP financing while chrysler was in bankruptcy 

(DIP loan). upon entering bankruptcy, a portion of chrysler was sold to a newly created entity (new chrysler). under the 

terms of the bankruptcy agreement, $500.0 million of the general purpose loan was assumed by the new chrysler (see discussion 

under chrysler exit for discussion of note terms). In fiscal year 2010, the Department received approximately $1,900 million 

and subsequently wrote-off the remaining $1,600 million of the general Purpose loan. recovery of the DIP loan is subject to 

the bankruptcy process associated with the chrysler assets remaining after the sale to new chrysler. During fiscal year 2010 the 

Department received $40.2 million in recoveries on the DIP loan. the Department did not receive any interest on these loans during 

the fiscal year 2010. During fiscal year 2009, the Department had received $52.1 million in interest payments from these loans. 

Chrysler Exit 

In May 2009, the Department committed to make a loan to new carco acquisition llc (chrysler group llc), the company that 

purchased certain assets of chrysler. the final terms of the credit agreement resulted in a loan to new chrysler for approximately 

$7,100 million. this amount consists of a commitment to fund up to $6,600 million of new funding and $500 million of assumed 

debt7

 from the Department January 2, 2009 general Purpose loan with chrysler, described above. the loan was secured by a first 

priority lien on the assets of chrysler group llc. funding of the loan was available in two installments or tranches (b and c), each 

with varying availability and terms. the following describes the terms of tranches b and c. 

the maximum funding under tranche b was $2,000 million and was funded on the closing date of the agreement. Interest on 

tranche b is generally8

 3-Month eurodollar plus 5.0 percent margin. tranche b is due and payable on December 10, 2011, provided 

that the chrysler group llc may elect to extend the maturity of up to $400.0 million of tranche b to the tranche c maturity date. 

If so elected, the applicable margin will increase from 5.0 percent to 6.5 percent. 

the maximum funding under tranche c is approximately $4,640 million, of which approximately $2,580 million was funded on 

the closing date. Interest on tranche c is 3-Month eurodollar plus 7.91 percent margin. on June 10, 2016, the tranche c loan 

is due to be prepaid to the extent the funded amount is greater than 50.0 percent of the closing date commitment amount, taking 

into consideration amounts previously prepaid as a voluntary prepayment. the remaining balance of the tranche c loan is due and 

payable on June 10, 2017. 

Interest on both the tranche b and tranche c was payable in-kind through December 2009 and added to the principal balance of 

the respective tranche. subsequently, interest is paid quarterly beginning on March 31, 2010. In addition, additional in-kind interest 

is being accrued in the amount of $17.0 million per quarter. such amount will be added to the tranche c loan balance subject to 

interest at the appropriate rate. 

the Department also obtained other consideration, including a 9.85 percent equity interest in chrysler group llc and additional 

notes9

 with principal balances of $288.0 million and $100.0 million.10 as of september 30, 2009, the Department had funded 

approximately $4,600 million under this facility, which was outstanding as of september 30, 2010 and 2009. During fiscal year 2010, 

the Department received $381.8 million in interest payments. no interest was due for payment in the fiscal year ended september 30, 

2009. for the fiscal year ended september 30, 2010, the Department has recognized $344.4 million of in-kind interest that has been 

capitalized. no in-kind interest was recognized in the fiscal year ended september 30, 2009. 

7 the assumed debt contains the same terms as the tranche c loan with respect to mandatory prepayment, interest and maturity. 

8 for both tranche b and c, an alternative base rate (defined in agreement) is available at the option of the Department in certain situations defined in 

the agreement. 

9 the additional notes bear the same interest rate and maturity as the tranche c loan. 

10 Interest begins to accrue on this note after certain events, defined in the credit agreement, have taken place. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

197 

Chrysler Financial 

In January, 2009, the Department loaned $1,500 million to chrysler lb receivables trust (chrysler trust), a special purpose entity 

created by chrysler financial, to finance the extension of new consumer auto loans. on July 14, 2009, the loan and additional note 

of $15.0 million were paid in full. In fiscal year 2009, the Department received $7.4 million in interest payments while this loan was 

outstanding. 

Auto Supplier Support Program 

In april 2009, under the auto supplier support Program, the Department committed $5,000 million in financing for the auto 

supplier Program as follows: $3,500 million for gM suppliers and $1,500 million for chrysler suppliers. these commitments were 

subsequently reduced to $2,500 million for gM suppliers and $1,000 million for chrysler suppliers per the loan agreement. under 

the program, suppliers were able to sell their receivable to a sPV, created by the respective automaker, at a discount. the Department 

provided approximately $413.1 million of funding to this program during fiscal year 2009. the bankruptcy of chrysler and gM 

did not impact this program, as both companies were allowed to continue paying suppliers while in bankruptcy. the Department 

received $5.9 million in interest during fiscal year 2009.the $413.1 million was repaid in fiscal year 2010 along with approximately 

$9.0 million in interest and $101.1 million in fees and other income. 

Auto Warranty Program 

In april 2009 and May 2009, the Department loaned approximately $280.0 million to chrysler and $360.6 million to gM, 

respectively, to capitalize sPVs created by chrysler and gM to finance participation in the Warranty commitment Program 

(warranty program). the Department also received additional notes as consideration for its loans in an amount equal to 6.67 percent 

of the funded amounts. the warranty program covered all warranties on new vehicles purchased from chrysler and gM during the 

period in which chrysler and gM were restructuring. In fiscal year 2009, the Department received all principal amounts due on the 

auto Warranty Program loans from both gM and chrysler and terminated the warranty program. Interest in the amount of $3.1 

million was received by the Department from chrysler during the fiscal year ended september 30, 2009. no interest was received 

in connection with the gM repayment. the gM additional note was assigned to the general Motors company as part of the 

bankruptcy proceedings and extinguished as part of the credit bid for the assets of old gM. In fiscal year 2010, the chrysler additional 

note was written off with the remaining portion of the chrysler general Purpose loan. 

GMAC Inc. (GMAC-currently known as Ally Financial) 

In December 2008, the Department purchased preferred membership interests for $5,000 million that were converted to senior 

preferred stock with an 8.0 percent annual distribution right (dividends) from gMac. under the agreement, gMac issued warrants 

to the Department to purchase, for a nominal price, additional preferred equity in an amount equal to 5.0 percent of the preferred 

equity purchased. these warrants were exercised at closing of the investment transaction. the additional preferred stock provided for 

a 9.0 percent annual distribution right. During fiscal year 2009, the Department received $265.2 million in dividends associated with 

these preferred and warrant preferred shares. on December 30, 2009, this preferred stock (including the warrant preferred shares) was 

exchanged for 105.0 million shares of gMac’s series f-2 fixed rate cumulative Mandatorily convertible Preferred stock (series 

f-2) shares (described below). this exchange was not considered in the original subsidy estimate for gMac; therefore the Department 

recorded a modification cost of $1,500 million in fiscal year 2010. 

In May 2009, the Department published a non-binding term sheet to invest $13,100 million to support gMac, subject to definitive 

documentation and gMac’s capital needs. In fiscal year 2009, the Department invested $7,500 million (150.0 million shares) in 

9.0 percent Mandatorily convertible Preferred stock in gMac to support its ability to originate new loans to chrysler dealers 

and consumers, and help address gMac’s capital needs. the preferred stock have a liquidation preference of $50 per share and are 

convertible in whole or in part, at any time, at the option of gMac, subject to the approval of the federal reserve. In addition, the 

Department received warrants to purchase an additional 7.5 million shares of Mandatorily convertible Preferred stock, which were 

exercised upon closing of the transaction. In December 2009, 97.5 million shares (which include the warrant preferred shares) were 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

198 

exchanged for gMac’s series f-2 shares (discussed below) and the remaining 60 million were converted to 259,200 shares of gMac 

common stock. 

In addition to the exchanges and conversions discussed above, on December 30, 2009, the Department entered into the following transactions with gMac to assist it in complying with the requirements of the federal reserve board’s supervisory capital 

assessment Program: 

1.	 Purchased $2,540 million (2.54 million shares with a face value of $1,000) of 8.0 percent trust Preferred securities and 

received a warrant for an additional $127 million of the trust Preferred securities, which was immediately exercised. gMac 

issued $2,747 million of subordinate debentures to a trust, established by gMac, which in turn issued the trust preferred 

securities. the trust preferred securities pay cumulative cash distributions of 8 percent. gMac may defer payments on the 

debentures (and the trust may defer distributions on the trust preferred securities) for a period of up to 20 consecutive quarters, 

but such distributions will continue to accrue through any such deferral period. gMac has not elected to defer payments. 

the trust Preferred securities have no stated maturity date, but must be redeemed upon the redemption or maturity of the 

debentures (february 15, 2040). 

2.	 Purchased $1,250 million (25 million shares) of gMac’s series f-2, $50 liquidation preference per share. the series f-2 is 

convertible into gMac common stock at the option of gMac subject to the approval of the federal reserve and consent by 

the Department or pursuant to an order by the federal reserve compelling such conversion. the series f-2 is also convertible 

at the option of the Department upon certain specified corporate events. absent an optional conversion, the series f-2 will 

automatically convert to common stock after seven years from the issuance date. the initial conversion rate is .00432 and 

is subject to a “reset” such that the conversion price will be adjusted in 2011, if beneficial to the Department, based on the 

market price of private capital transactions occurring in 2010 and certain anti-dilution provisions. the series f-2 have a stated 

dividend rate of 9 percent, payable when and if declared by the board of directors. the series f-2 may be redeemed by gMac, 

subject to certain limitations and restrictions. the Department also received a warrant to purchase $62.5 million (1.25 million 

shares) of additional series f-2, which was immediately exercised. 

as a result after the December 30, 2009 transaction, the Department has the following investments in gMac, as of september 30, 

2010: 

Investment Amount / 


Percent Ownership
 

Number of Shares (dollars in millions)
 

8% Trust Preferred Securities 

Purchased 

Received from warrant exercise 

Total Trust Preferred Securities 

2,540,000 

127,000 

2,667,000 

$

$ 

2,540 

127 

2,667 

Series F-2 Mandatorily Convertible Securities 

Purchased/exchanged for 

Received from warrant exercise 

Total Series F-21 

227,500,000 

1,250,000 

228,750,000 

$

$ 

11,375 

63 

11,438 

Common Stock2 450,121 56.3% 

1 / These shares are convertible into 988,200 shares of GMAC common stock, which if combined with common stock currently held by the Department would represent approximately 80.5% 

ownership of GMAC. 

2 / Includes shares received upon conversion of GMAC Rights Loan discussed above. 

the Department received $1,200 million and $430.6 million in dividends from gMac in fiscal year 2010 and 2009, respectively. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

199

Consumer and Business Lending Initiative (CBLI) 

the consumer and business lending Initiative is 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 was created to help jump start 

the market for securitized consumer and small business loans. the sba 7(a) securities Purchase Program was created to provide 

additional liquidity to the sba 7(a) market so that banks are able to make more small business loans. the community Development 

capital Initiative was created to provide additional low cost capital to small banks to encourage more lending to small businesses. 

each program is discussed in more detail below. 

Term Asset-Backed Securities Loan Facility 

the term asset-backed securities loan facility (talf) was created 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 federal reserve board. 

under the talf, the federal reserve bank of new york (frbny), as implementer of the talf program, originated loans on a nonrecourse basis to purchasers of certain aaa rated abs secured by consumer and commercial loans and commercial mortgage backed 

securities. generally abs issued after January 1, 2009 are eligible collateral under the talf program. In addition, sba securities 

issued after January 1, 2008 and cMbs issued prior to January 2009 and originally aaa rated are eligible collateral. talf loans 

have a term of three or five years and are secured solely by eligible collateral. haircuts (a percentage reduction used for collateral 

valuation) are determined based on the riskiness of each type of eligible collateral and the maturity of the eligible collateral pledged 

to the frbny. the “haircuts” provide additional protection to the Department by exposing the talf borrowers to some risk of loss. 

Interest rates charged on the talf loans depend on the weighted average maturity of the pledged collateral, the collateral type and 

whether the collateral pays fixed or variable interest. the program ceased issuing new loans on June 30, 2010. as of september 30, 

2010, approximately $29,700 million of loans due to the frbny remained outstanding. 

as part of the program, the frbny has entered into a put agreement with the talf, llc, a special purpose vehicle created by 

the frbny. In the event of a talf borrower default, the frbny will seize the collateral and sell it to the talf, llc under this 

agreement. the talf, llc receives a monthly fee equal to the difference between the talf loan rate and the frbny’s fee (spread) 

as compensation for entering into the put agreement. the accumulation of this fee will be used to fund purchases. In the event there 

are insufficient funds to purchase the collateral, the Department originally committed to invest up to $20,000 million in non-recourse 

subordinated notes issued by the talf, llc. on July 19, 2010, the Department’s commitment was reduced to $4,300 million. the 

subordinated notes bear interest at 1-Month lIbor plus 3.0 percent and mature 10 years from the closing date, subject to extension. 

the Department disbursed $100.0 million upon creation of the talf, llc and the remainder can be drawn to purchase collateral in 

the event the spread is not sufficient to cover purchases. any amounts needed in excess of the Department commitment and the fee 

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 cash balance will be disbursed according to the following payment priority: 

1. frbny principal balance 

2. the Department principal balance 

3. frbny interest 

4. the Department interest 

5. remaining cash balance – 90.0 percent to the Department, 10.0 percent to the frbny 

During fiscal year 2009, subsequent to the initial cost estimates prepared for the talf, certain changes were made to the terms of 

the program, including increasing the term to five years and the addition of different types of acceptable collateral. these program 

changes resulted in a modification, for fiscal year 2009, increasing the original cost estimate by $8.0 million. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

200 

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 would not constitute control. as such, talf, 

llc is not a federal entity and the assets, liabilities, revenue and cost of talf, llc are not included in the Department’s financial 

statements. 

as of september 30, 2010 and 2009, 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 the purchase of securities backed by small business administration 7(a) loans (7(a) 

securities) as part of the unlocking credit for small business Initiative. under this program the Department purchases 7(a) 

securities collateralized with 7(a) loans (these loans are guaranteed by the full faith and credit of the united states government) 

packaged on or after July 1, 2008. generally, the Department entered into a trade to purchase 7(a) securities with actual settlement 

and delivery to occur one to three months in the future. as of september 30, 2010, the Department has entered into trades to 

purchase $356.3 million (excluding purchased accrued interest) of these securities. of this amount, $240.7 million has settled with 

the remaining trades to be settled by December 30, 2010. During fiscal year 2010, the Department received $3.5 million in interest 

and principal payments on these securities. 

Community Development Capital Initiative 

In february 2010, the Department announced the community Development capital Initiative (cDcI) to invest lower cost capital 

in community Development financial Institutions (cDfIs). under the terms of the program, the Department purchases senior 

preferred stock (or subordinated debt) from eligible cDfI financial institutions. the senior preferred stock has an initial dividend rate 

of 2 percent. cDfIs may apply to receive capital up to 5 percent of risk-weighted assets. to encourage repayment while recognizing 

the unique circumstances facing cDfIs, the dividend rate will increase to 9 percent after eight years. 

for cDfI credit unions, the Department purchased subordinated debt at rates equivalent to those offered to cDfI financial 

institutions and with similar terms. these institutions may apply for up to 3.5 percent of total assets — an amount approximately 

equivalent to the 5 percent of risk-weighted assets available to banks and thrifts. 

cDfIs participating in the cPP, subject to certain criteria, were eligible to exchange, through september 30, 2010, their current cPP 

preferred shares (subordinated debt) for cDcI preferred shares (subordinated debt). these exchanges were treated as a disbursement 

from cDcI and a repayment to cPP. 

as of september 30, 2010, the Department has invested $570.1 million ($363.3 million was a result of exchanges from cPP) in 84 

institutions under the cDcI. 

Public-Private Investment Program 

the PPIP is part of the Department’s efforts to help restart the market and provide liquidity for legacy assets. under this program, the 

Department made equity investment in and loans to investment vehicles (referred to as Public Private Investment funds or “PPIfs”) 

established by private investment managers. the equity investment was used to match private capital and equaled approximately 

50.0 percent of the total equity invested. the loan is, at the option of the investment manager, equal to 50.0 percent or 100.0 percent 

of the total equity (including private equity). as of september 30, 2010, all PPIfs have elected to receive loans up to 100 percent of 

total equity. the loans bear interest at 1-Month libor, plus 1.0 percent, which accrues monthly and is payable on the 10th business 

day of the month following the accrual period. the maturity date of the loan is the earlier of 10 years or the termination of the PPIf. 

the loan can be prepaid, subject to compliance with the priority of payments discussed below, without penalty. the PPIf will terminate in eight years from the commencement of the fund. the governing documents of the funds allow for two one-year extensions, 

subject to approval of the Department. the loan agreements also require purchased security cash flows from securities received by the 

PPIfs to be distributed in accordance with a priority of payments schedule (waterfall) designed to help ensure secured parties are paid 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

201 

before equity holders. specifically, security cash flows collected are disbursed as follows (steps 7 through 10 are at the discretion of the 

PPIf), 

1.	 to pay administrative expenses, excluding certain tax expenses of the Partnership; 

2.	 to pay interest or margin due on permitted interest rate hedges; 

3.	 to pay current period interest due to the lender; 11 

4.	 to pay amounts due to an interest reserve account if the total deposit in the interest reserve account is less than the required 

interest reserve account; 

5.	 to pay principal on the loan required when the minimum asset coverage ratio test is not satisfied as of the prior month end; 

6.	 to pay other amounts due on permitted interest rate hedges not paid in accordance with step 2 above; 

7.	 for investment in temporary Investments, prepayments of the loan and/or investment in eligible assets during the investment 

period, which is three years from the Initial closing Date (the “Investment Period”); 

8.	 for distribution to partners after step 1 through 7 not to exceed the lesser of: (a) cumulative consolidated net interest income 

for the preceding twelve months or (b) 8 percent on the funded capital commitments, so long as no event of default is then 

continuing and the appropriate asset coverage ratio requirement is satisfied; 

9.	 to pay the loan not to exceed the lesser of (a) prepayment on the loan as scheduled or (b) an amount which reduces the 

loan to zero, provided that dollar for dollar credit is given for any optional prepayments of the loan made during the related 

collection period on any date prior to the applicable determination date; and 

10. remaining amounts to be used or distributed in accordance with the limited partnership agreement after repayment of the 


loan.
 

the loan is subject to certain affirmative and negative covenants as well as a financial covenant, the asset coverage test. the asset 

coverage test generally requires that the asset coverage ratio be equal to or greater than 150 percent. the asset coverage ratio is 

a percentage obtained by dividing total assets of the PPIf by the principal amount of the loan and accrued and unpaid interest on the 

loan. failure to comply with the test could require accelerated repayment of loan principal (see step 7 above) and prohibit the PPIf 

from borrowing additional funds under the loan agreement. 

as a condition of its 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. the 

warrant payment will be distributed by the PPIf to the Department following the return of 100 percent of the non-Department 

partner’s capital contributions to the PPIf. 

the PPIfs pay a management fee to the fund manager from the Department’s share of investment proceeds. During the Investment 

Period, the management fee is equal to 0.20 percent per annum of the Department’s capital commitment as of the last day of the 

applicable quarter. thereafter, the management fee will be equal to 0.20 percent per annum of the lesser of (a) the Department’s 

capital commitment as of the last day of the applicable quarter and (b) the Department Interest Value as of the last day of the quarter. 

the PPIfs are allowed to purchase commercial mortgage-backed securities (cMbs) and non-agency residential mortgage-backed 

securities (rMbs) issued prior to January 1, 2009 that were originally rated aaa or an equivalent rating by two or more nationally 

recognized statistical rating organizations without external credit enhancement and that are secured directly by the actual mortgage 

loans, leases or other assets (eligible assets) and not other securities. 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 percent of the assets underlying any eligible 

asset must be situated in the united states. 

11	 the lender is the Department 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

202 

as of september 30, 2010 the total market value of the eligible assets held by all PPIfs was approximately $19,300 million. the 

approximate split between rMbs and cMbs was 82 percent rMbs and 18 percent cMbs. 

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 $356.3 million ($156.3 million equity investment and $200.0 million loan) 

in the fund. upon final liquidation, the Department received $377.4 million representing return of the original investment, interest 

on the loan and return on the equity investment and warrant. 

as of september 30, 2010, the Department had signed definitive limited partnership and loan agreements with eight investment 

managers, committing to disburse up to $22,100 million. During fiscal year 2010, the Department disbursed $4,900 million as equity 

investment and $9,200 million as loans to PPIfs. as of september 30, 2009, no investment managers had made any investments 

under PPIP and the Department had not disbursed any funds. During fiscal year 2010, the Department received (excluding amounts 

repaid in liquidation discussed above) $56.0 million in interest on loans and $151.8 million (net of management fees of $7.2 million) 

of income on the equity investments. In addition, the Department received $72.0 million in loan principal repayments. 

Asset Guarantee Program 

the asset guarantee Program (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. the agP was applied with extreme 

discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly. 

section 102 of the eesa 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. 

the Department completed its first transaction under the agP in January 2009, when it finalized the terms of a guarantee agreement 

with citigroup. under the agreement, the Department, the federal Deposit Insurance corporation (fDIc), and the federal reserve 

bank of new york (frbny) (collectively the usg Parties) provided protection against the possibility of large losses on an asset pool 

of approximately $301,000 million of loans and securities backed by residential and commercial real estate and other such assets, 

which remained on citigroup’s balance sheet. the Department’s guarantee was limited to $5,000 million. 

as a premium for the guarantee, citigroup issued $7,000 million 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; $4,000 million and the warrant were issued to the Department, and $3,000 million was issued to the fDIc. the Department 

received $265.2 million and $174.8 million during the fiscal years ending september 30, 2010 and september 30, 2009, 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. 

as of september 30, 2009, the net present value of the estimated cash inflows from the preferred stock and warrant received by the 

Department from citigroup as a premium was greater than the estimated net present value of future claims payments, resulting in an 

asset of $1,765 million, after reestimates. 

In December 2009, the usg Parties and citigroup agreed to terminate the guarantee agreement. under the terms of the termination 

agreement the Department cancelled $1,800 million of the preferred stock previously issued to the Department. In addition, the 

fDIc agreed to transfer to the Department $800 million of their trust preferred stock holding plus dividends thereon contingent on 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

203 

citigroup repaying its previously issued fDIc guaranteed debt. the contingent receipt of additional preferred shares from the fDIc 

is included in the subsidy calculation for agP, based on the expected value. termination of the agreement was not considered in the 

formulation estimates of the guarantee and therefore the termination resulted in a negative modification cost (reduction of cost) of 

$1,400 million 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 it held for $2,246 million. the trust Preferred securities are valued at approximately the sales price in the financial 

statements. the sale settled on october 5, 2010. 

In January 2009, the usg Parties and bank of america signed a summary of terms (term sheet) pursuant to which the usg 

Parties agreed to guarantee or lend against a pool of up to $118,000 million of financial instruments consisting of securities backed by 

residential and commercial real estate loans and corporate debt and related derivatives. In May 2009, prior to completing definitive 

documentation, bank of america notified the usg Parties of its desire to terminate negotiations with respect to the guarantee 

contemplated in the term sheet. all parties agreed that bank of america received value for entering into the term sheet with the 

usg Parties and that the usg Parties should be compensated for out-of-pocket expenses and a fee equal to the amount bank of 

america would have paid for the guarantee from the date of the signing of the term sheet through the termination date. under the 

terms of the settlement, the u.s. treasury received $276.0 million for its role in the guarantee agreement. all the Department funds 

received for the settlement were deposited in the taIff and subsequently paid to the treasury general fund. the $276 million 

received by the Department pursuant to the settlement is reflected in the Department statement of net cost as a reduction of the 

agP subsidy cost in the fiscal year ended september 30, 2009. 

Subsidy Reestimates 

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. financial statement 

reestimates for all programs were performed using actual financial transaction data through september 30, 2010 and 2009. Market 

and security specific data publicly available as of september 30, 2010, was used for the cPP, agP, tIP, aIg, cDcI, aIfP, and sba 

programs in the reestimate calculations for fiscal year 2010. security specific data through June 30, 2010, with market prices through 

september 30, 2010, was used for the PPIP and talf programs in the reestimate calculations for fiscal year 2010. Market and 

security specific data publicly available as of september 30, 2009, was used for the cPP, agP, tIP, and aIfP direct loans and data 

through august 31, 2009, was used for the equity portion of aIfP, aIg, and talf programs in the reestimate calculations for the 

fiscal year ending september 30, 2009. 

the Department using security specific data available as of september 30, 2010 and, in its determination, there were no significant 

changes to the portfolio characteristics or performance of the PPIP and talf programs that would require a revision to the 

reestimates for fiscal year 2010. for fiscal year 2009, the Department assessed the key inputs of the reestimates using data publicly 

available as of september 30, 2009, and in its determination, there were no significant changes to the key inputs for the three 

programs for which august 31, 2009, data was used that required a revision to the reestimates. 

net downward reestimates for the fiscal years ended september 30, 2010 and september 30, 2009 totaled $30,318 million and 

$109,748 million, respectively. Descriptions of the reestimates with approximate amounts, by the Department Program, are as follows: 

CPP 

the net upward reestimate for the cPP of $3,900 million for the fiscal year ending september 30, 2010 is the net result of a decrease 

in the price of citigroup common stock that was partially offset by an increase in the estimated value of the other investments within 

the cPP, due to improved market conditions during the year. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

204 

the $70,700 million in repurchases during the fiscal year ending september 30, 2009 accounted for $9,700 million of the $72,400 

million in downward reestimates in the cPP for the fiscal year ending september 30, 2009. Projected repurchases of $30,000 million 

for fiscal year 2010 accounted for approximately $5,400 million, with the $57,300 million balance in downward reestimates in the 

cPP for the fiscal year ending september 30, 2009 primarily due to improved market conditions from when the original estimate was 

made in December 2008. 

AIG 

the $12,000 million in downward reestimates for the aIg Investment Program for the fiscal year ending september 30, 2010 are due 

to an increase in the estimated value of aIg assets and subordinated debt and improvements in market conditions over the fiscal year. 

the $1,100 million in downward reestimates for the aIg Investment Program in the fiscal year ending september 30, 2009 was 

primarily due to improvements in market conditions from when the equities were purchased resulting in a reduction in the projected 

costs of the programs. 

TIP 

the $1,900 million in net downward reestimates in the tIP in fiscal year 2010 included $2,200 million in downward reestimates due 

to the repurchase of the program’s investments by the two institutions participating in the program. that downward reestimate amount 

was partially offset by a $300 million upward reestimate from a slight reduction in the estimated value of outstanding warrants. 

the $21,500 million in downward reestimates in the tIP in the fiscal year ending september 30, 2009 was primarily due to improved 

market conditions from when the original estimates were made in December 2008 and January 2009. approximately $2,300 million 

was due to a $20,000 million repurchase forecast for fiscal year 2010. 

AIFP 

the $19,300 million in downward reestimates for the aIfP direct loan and equity investments for the fiscal year ending september 

30, 2010 was due to $1,800 million in payments exceeding projections, a reduction in estimated defaults due to improvements in the 

domestic automotive industry, and an increase in the bond prices and valuations used to estimate the cost of the remaining aIfP 

investments. 

the approximately $10,600 million in downward reestimates for the direct loans-aIfP in the fiscal year ending september 30, 

2009 was primarily the result of the post bankruptcy improved financial position of one of the major companies participating in the 

program. the $2,700 million in downward reestimates for the aIfP equity programs in the fiscal year ending september 30, 2009 

were primarily due to improvements in market conditions from when the equities were purchased resulting in a reduction in the 

projected costs of the programs. 

CBLI 

the talf and sba programs within the cblI had a total upward reestimate of less than $100 million for the fiscal year ending 

september 30, 2010. the talf program had a $24 million upward reestimate mostly due to a projected reduction in the size of the 

portfolio and higher than projected repayments. the sba program had a downward reestimate of less than $1 million due to an 

increase in projected interest rates and a reduction in market risks. the cDcI program had $7.3 million in upward reestimates for 

the fiscal year. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

205 

the $200 million in downward reestimates for the talf in the fiscal year ending september 30, 2009 was due to projected improved 

performance of the securities within the program versus the original estimate. 

PPIP 

the $1,000 million in downward reestimates for the PPIP debt and equity programs for the fiscal year ending september 30, 2010 

was the net of a $1,200 million upward reestimate in the PPIP debt program and $2,200 million in downward reestimates for the 

PPIP equity programs mostly due to the use of actual portfolio data for reestimates rather than the proxy data used in developing the 

baseline estimates and changes in market risks. 

AGP 

the agP had a net $100 million downward reestimate for the fiscal year ended september 30, 2010. the reestimate amounts 

exclude an estimated cost savings of $1,400 million that resulted from the cancellation of the $5,000 million guarantee because this 

transaction was reflected in the subsidy modifications during fiscal year 2010. 

the $1,200 million in downward reestimates for the agP in the fiscal year ending september 30, 2009 was primarily due to 

improvements in market conditions from when the guarantee was committed in January 2009. the improved market conditions 

resulted in an increase in the projected agP asset due to the net present value of the estimated cash inflows from the preferred 

stock and warrants received by the Department from citigroup as a premium being greater than the estimated value of future claim 

payments associated with the $5,000 million asset guarantee. 

the following detailed 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 the asset guarantee 

program for the fiscal years ended september 30, 2010 and 2009: 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

206 

TROUBLED ASSET RELIEF PROGRAM DIRECT LOANS AND EQUITY INvESTMENTS (dollars in millions): 

2010 

As of September 30, 2010 TOTAL CPP AIG TIP AIFP CBLI PPIP 

Direct Loans and Equity Investment Programs: 

Direct Loans and Equity Investments Outstanding, Gross $ 179,197 $ 49,779 $ 47,543 $ 0 $ 67,238 $ 908 $ 13,729 

Subsidy Cost Allowance (36,745) (1,546) (21,405) 1 (14,529) 58 676 

Direct Loans and Equity Investments Outstanding, Net $ 142,452 $ 48,233 $ 26,138 $ 1 $ 52,709 $ 966 $ 14,405 

New Loans or Investments Disbursed 23,373 277 4,338 0 3,790 811 14,157 

Obligations for Loans and Investments not yet Disbursed 36,947 0 22,292 0 2,066 4,339 8,250 

Reconciliation of Subsidy Cost Allowance: 

Balance, Beginning of Period $ 53,077 $ (7,770) $ 30,054 $ (341) $ 31,478 $ (344) $ 0 

Subsidy Cost for Disbursements and Modifications 7,533 (16) 4,293 0 2,644 275 337 

Interest and Dividend Revenue 6,977 3,131 0 1,143 2,475 0 228 

Net Proceeds from Sales and Repurchases of Assets in 

Excess of Cost 8,013 6,676 0 1,237 99 0 1 

Net Interest Expense on Borrowings (4,690) (2,018) (981) (161) (1,309) (20) (201) 

Write-offs (3,934) (2,334) 0 0 (1,600) 0 0 

Balance, End of Period, Before Reestimates 66,976 (2,331) 33,366 1,878 33,787 (89) 365 

Subsidy Reestimates (30,231) 3,877 (11,961) (1,879) (19,258) 31 (1,041) 

Balance, End of Period $ 36,745 $ 1,546 $ 21,405 $ (1) $ 14,529 $ (58) $ (676) 

Reconciliation of Subsidy Cost: 

Subsidy Cost for Disbursements $ 6,067 $ 16 $ 4,293 $ 0 $ 1,146 $ 275 $ 337 

Subsidy Cost for Modifications 1,466 (32) 0 0 1,498 0 0 

Subsidy Reestimates (30,231) 3,877 (11,961) (1,879) (19,258) 31 (1,041) 

Total Direct Loans and Equity Investment Programs 

Subsidy Cost (Income) $ (22,698) $ 3,861 $ (7,668) $ (1,879) $ (16,614) $ 306 $ (704) 

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 (See Note below): 

Interest Differential (25.62%) 37.70% 30.39% 11.72% 

Defaults 16.36% 13.78% 3.93% 0.00% 

Fees and Other Collections (3.00%) (0.38%) 0.00% (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 0 

Fees and Other Collections (8) 0 (15) 0 (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 

Note: The rates reflected in the “Budget Subsidy Rate” table above are fiscal year 2010 budget execution rates by program. The subsidy rates disclosed pertain only to the 

current year’s cohorts. These rates cannot be applied to the direct loans disbursed during the current reporting year to yield the subsidy cost (income). The subsidy cost 

(income) for new loans reported in the current year could result from disbursements of loans from both current year cohorts and prior year cohorts. The subsidy cost (income) 

reported in the current year also includes modifications and re-estimates. Therefore, the Total Subsidy Cost, Excluding Modifications and Reestimates will not equal the 

New Loans or Investments Disbursed multiplied by the Budget Subsidy Rate. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

207 

Troubled AsseT relief ProgrAm loAns And equiTy invesTmenTs (dollars in millions): 

2009 

As of september 30, 2009 ToTAl CPP Aig TiP AifP Cbli PPiP 

direct loans and equity investment Programs: 

Direct Loans and Equity Investments Outstanding, Gross $ 290,969 $ 133,901 $ 43,206 $ 40,000 $ 73,762 $ 100 $ 0 

Subsidy Cost Allowance (53,077) 7,770 (30,054) 341 (31,478) 344 0 

direct loans and equity investments outstanding, net $ 237,892 $ 141,671 $ 13,152 $ 40,341 $ 42,284 $ 444 $ 0 

new loans or investments disbursed $ 363,826 $ 204,618 $ 43,206 $ 40,000 $ 75,902 $ 100 $ 0 

obligations for loans and investments not yet 

disbursed $ 51,681 $ 0 $ 26,629 $ 0 $ 5,152 $ 19,900 $ 0 

reconciliation of subsidy Cost Allowance: 

Balance, Beginning of Period $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 

Subsidy Cost for Disbursements and Modifications 152,179 57,386 31,552 19,540 43,797 (96) 0 

Interest and Dividend Collections 9,329 6,790 0 1,862 677 0 0 

Net Proceeds from Sales and Repurchases of Assets in 

Excess of Cost 2,916 2,901 0 0 15 0 0 

Net Interest Income (Expense) on Borrowings (2,773) (2,428) (373) (276) 309 (5) 0 

Balance, End of Period, Before Reestimates 161,651 64,649 31,179 21,126 44,798 (101) 0 

Subsidy Reestimates (108,574) (72,419) (1,125) (21,467) (13,320) (243) 0 

balance, end of Period $ 53,077 $ (7,770) $ 30,054 $ (341) $ 31,478 $ (344) $ 0 

reconciliation of subsidy Cost: 

Subsidy Cost (Income) for Disbursements $ 151,767 $ 55,520 $ 31,425 $ 19,540 $ 45,386 $ (104) $ 0 

Subsidy Cost (Income) for Modifications 412 1,866 127 0 (1,589) 8 0 

Subsidy Reestimates (108,574) (72,419) (1,125) (21,467) (13,320) (243) 0 

Total direct loans and equity investment Programs 

subsidy Cost (income) $ 43,605 $ (15,033) $ 30,427 $ (1,927) $ 30,477 $ (339) $ 0 

Troubled AsseT relief ProgrAm loAns, equiTy invesTmenTs And AsseT guArAnTee ProgrAm budgeT subsidy rATes: 

As of september 30, 2009 AgP CPP Aig TiP AifP Cbli PPiP 

Budget Subsidy Rates, Excluding Modifications and Reestimates (See Note below): 

Interest Differential 0.00% 5.97% (45.52%) 9.31% 6.97% 5.87% 

Defaults 43.62% 25.60% 123.56% 48.38% 54.21% 0.00% 

Fees and Other Collections (53.23%) 0.00% 0.00% 0.00% 0.00% 0.00% 

Other (5.37%) (4.58%) 4.74% (8.84%) (3.13%) (110.10%) 

Total budget subsidy rate (14.98%) 26.99% 82.78% 48.85% 58.05% (104.23%) n/A 

subsidy Cost (income) by Component (in millions): 

Interest Differential $ 0 $ 12,279 $ (17,280) $ 3,724 $ 5,446 $ 6 

Defaults 2,181 52,655 46,906 19,352 42,384 0 

Fees and Other Collections (2,662) 0 0 0 0 0 

Other (270) (9,414) 1,799 (3,536) (2,444) (110) 

Total subsidy Cost (income), excluding modifications 

and reestimates $ (751) $ 55,520 $ 31,425 $ 19,540 $ 45,386 $ (104) n/A 

Note: The rates reflected in the “Budget Subsidy Rate” table above are weighted rates for the program. To compensate for the weighting of the various risk category subsidy 


rates, the “by component” dollar amounts reflected were computed as a ratio of the component rate to the total weighted subsidy rate multiplied by the subsidy cost 


(income) for the program. Therefore, the Total Subsidy Cost (Income), Excluding Modifications and Reestimates will not equal the New Loans or Investments Disbursed
 

multiplied by the Budget Subsidy Rate. 


note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
208 

TROUBLED ASSET RELIEF PROGRAM ASSET GUARANTEE PROGRAM (in millions): 

2009 

the department of the treasury 

As of September 30, 2010 

Asset Guarantees Outstanding: 

Outstanding Principal Amount of Guaranteed Loans, Face Value 

Amount of Outstanding Principal Guaranteed 

$ 

$ 

0 

0 

$ 301,000 

$ 5,000 

Asset Guarantee Program: 

Intra-governmental Portion (See Note below) 

Portion held by the Department, net 

Total Asset Guarantee Program 

$ 

$ 

815 

2,240 

3,055 

$ 0 

1,765 

$ 1,765 

Reconciliation of Asset Guarantee Program 

Balance, Beginning of Period 

Subsidy Income for Disbursements and Modifications 

Dividend Revenue 

$ (1,765) 

(1,418) 

265 

$ 0 

(751) 

175 

Net Interest Income on Borrowings 

Balance, End of Period, Before Reestimates 

Subsidy Reestimates 

Balance, End of Period $ 

(50) 

(2,968) 

(87) 

(3,055) $ 

(15) 

(591) 

(1,174) 

(1,765) 

Reconciliation of Subsidy Cost (Income): 

Subsidy Income for Disbursements 

Subsidy Income for modifications 

Subsidy Reestimates 

Cancellation Fees Collected 

Total Asset Guarantee Program Subsidy Income 

$ 

$ 

0 

(1,418) 

(87) 

0 

(1,505) 

$ 

$ 

(751) 

0 

(1,174) 

(276) 

(2,201) 

Note: The net present value of the future cash flows for the Asset Guarantee Program consists of (i) $800 million of Citigroup trust preferred securities, plus dividends 

thereon, that the FDIC agreed to transfer to the Department 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. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

209 

The Department Housing Programs Under TARP 

fiscal year 2010 has seen an expansion of programs designed to provide stability for both the housing market and homeowners. these 

programs assist homeowners who are experiencing financial hardships to remain in their homes while they get back on their feet or 

relocate to a more sustainable living situation. these programs fall into three initiatives: 

1) Making home affordable Program (Mha); 

2) housing finance agency (hfa) hardest-hit fund, and 

3) federal housing administration (fha)-refinance Program. 

under Mha, the initial programs rolled out in the fiscal year 2009 were the home affordable Modification Program (haMP) 

including the home Price Decline Protection Program (hPDP). 

Mha includes haMP, fha-haMP, second lien Program (2MP), Department/fha second lien Program (fha 2lP) 

(extinguishment of 2nd lien portion of the program), and rural Development (rD-haMP). the haMP includes first lien 

modifications, the hPDP, the Principal reduction alternative Waterfall Program (Pra), the unemployment Program (uP), and 

the home affordable foreclosure alternatives Program (hafa). the haMP first lien modification program provides for one-time, 

monthly and annual incentives to servicers, borrowers, and investors who participate in the program, whereby the investor and the 

Department share the costs of modifying qualified first liens. the hPDP provides incentives to investors to partially offset losses 

from home price declines. In fiscal year 2010, additional programs have been 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 deed in lieu of foreclosure processes and 

providing incentives to borrowers, servicers and investors to pursue short sales and deeds in lieu. 

fiscal year 2010 has also seen the introduction of additional programs under Mha. these programs include the fha-haMP which 

provides the same incentives as haMP for federal housing administration (fha) guaranteed loans. the 2MP provides additional 

incentives to servicers to extinguish second liens on first lien loans modified under haMP. the fha 2lP provides for incentives 

to servicers for extinguishment of second liens for borrowers who refinance their fha-insured first lien mortgages under the fharefinance Program. the rD-haMP Program provides haMP incentives for usDa guaranteed mortgages. 

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 the Department housing Program cost 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 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. 

the housing finance agency (hfa) hardest-hit fund was implemented in 2010 and provides targeted aid to families in the states 

hit hardest by the housing market downturn and unemployment. states that meet the criteria for this program consist of alabama, 

arizona, california, florida, georgia, Illinois, Indiana, kentucky, Michigan, Mississippi, nevada, new Jersey, north carolina, ohio, 

oregon, rhode Island, south carolina, tennessee, and Washington D.c. approved states 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. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
the department of the treasury 

210 

the fha-refinance Program is a joint initiative with the Department of housing and urban Development (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 to fund the Department portion of any claims associated with the fha-insured mortgages. 

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. 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. however, in fiscal year 2010, the Department paid $3 million to establish the 

letter of credit. 

the table below recaps payments and accruals (included in other liabilities) as of september 30, 2010 and september 30, 2009. as 

noted above, the uP is structured so that there is no financial impact on the Department. although in operation on september 

30, 2010 the Pra, fha-haMP, 2lP and rD-haMP had not been in operation for a period long enough to have fiscal year 2010 

financial activity. 

Commitments Payments Accruals 

(in millions) 9/30/2010 9/30/2010 9/30/2009 9/30/2010 9/30/2009 

MHA $ 29,900 $ 0 $ 0 $ 0 $ 0 

HAMP (1st Lien) 0 473.592 0.946 175.415 1.361 

HPDP 0 8.755 0 107.914 0 

PRA* 0 0 0 0 0 

UP** 0 N/A N/A N/A N/A 

HAFA*** 0 1.627 0 N/A 0 

FHA HAMP 0 0 0 0.024 0 

2MP 0 0.011 0 0.005 0 

2LP* 0 0 0 0 0 

RD-HAMP* 0 0 0 0 0 

HFA Hardest Hit Fund 7,600 56.120 0 0 0 

FHA - Refinance 8,100 3.015 0 0 0 

Totals $ 45,600 $ 543.120 $ 0. 946 $ 283.358 $ 1.361 

* No fiscal year 2010 activity with financial impact
 

** No fiscal financial impact
 

*** HAFA payments are made in the month earned and not accrued
 

for fiscal year 2010 and 2009, cost for the Department housing Programs under tarP totaled $825 million and $2 million, 

respectively. 

note 8. tarp direct loans and equity investments, net and asset guarantee program 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

211 

9. investments in gOvernment spOnsOreD enterprises (gses) 

the federal national Mortgage association (fannie Mae) and the federal home loan Mortgage corporation (freddie Mac) are 

stockholder-owned gses. congress established these gses to support the supply of mortgage loans. a key function is to package 

purchased mortgages into securities. these securities are subsequently sold to investors. 

Increasingly difficult conditions in the housing market challenged the soundness and profitability of gses, thereby undermining the 

entire housing market. this led congress to pass the housing and economic recovery act of 2008 on July 30, 2008 (hera). this 

act created the new federal housing finance agency (fhfa), with enhanced regulatory authority over the gses, and provided the 

secretary of the treasury with certain authorities intended to ensure the financial stability of the 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 until fannie Mae and freddie Mac can return to normal operations or until the administration and congress 

address how they should be structured going forward. as of september 30, 2010, there are no plans to bring these organizations into 

the government; rather, the purpose of these financial arrangements is to maintain the solvency of the gses so they can continue 

to fulfill their vital roles in the home mortgage market while the administration and congress deliberate what, if any, structural 

changes should be made. the fhfa director may terminate the conservatorship if safe and solvent conditions can be established. 

Per sffas no. 2, Entity and Display, these entities meet the criteria of “bailed out” entities under paragraph 50. accordingly, the 

Department has not consolidated them into the financial statements, but includes “disclosure of the relationship(s) with the bailed 

out entities and any actual or potential material costs or liabilities” in the consolidated financial statements. 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 construction 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 investments made on behalf of the 

taxpayers were fully and fairly accounted for. 

under the sPsPas, the Department initially received from each gse: (1) 1,000,000 shares of non-voting variable liquidation 

preference senior preferred stock with a liquidation preference value of $1,000 per share and (2) a non-transferrable warrant for the 

purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. the warrants expire on september 7, 2028. 

the senior preferred stock accrues dividends at 10 percent per year, payable quarterly. this rate will increase to 12 percent if, in any 

quarter, the dividends are not paid in cash, until all accrued dividends have been paid. Dividends of $12,142 million and $4,336 

million were received for the fiscal years ended september 30, 2010 and september 30, 2009. In addition, beginning on March 31, 

2011, the gses are scheduled to begin paying the Department a periodic commitment fee on a quarterly basis unless the payment is 

waived. this fee is to be initially set by December 31, 2010, based on mutual agreement between the Department and each gse, in 

consultation with the chairman of the federal reserve board. the fee is to be established for five-year periods, and may be waived by 

the Department for one year at a time, if warranted by adverse mortgage market conditions. It may be paid in cash or may be added to 

the liquidation preference. 

the initial agreements, which had no expiration date, provided that the Department would 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 $100,000 million and in May 2009 was raised to $200,000 million. In December 2009, the 

Department amended the sPsPas to replace the $200,000 million 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 $200,000 million, 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 

note 9. investments in government sponsored enterprises (gses) 

part 3: annual financial report
the department of the treasury 

212 

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, 2010 and september 30, 2009 were $52,600 million and $95,600 

million, respectively. additionally, $359,900 million has been accrued as a contingent liability as of september 30, 2010 ($91,937 

million as of september 30, 2009). the amount accrued is the total estimated contingent liability under the sPsPas. 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 will be funded through the 

Department’s direct appropriations. therefore, they are reflected at their gross amount as “entity” costs on the Department’s 

statements of net cost and cumulative results of operations, without considering the increase in senior Preferred stock 

liquidity preference/fair value adjustments, future dividend receipts from the gses, or any future commitment fees. 

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 

statement of net cost as “gse non-entity revenue.” the associated valuation losses and dividends are likewise general fund 

costs and revenues. 

over time, the Department’s entity expense for the accrued contingent liability under the sPsPas will be offset in part by the 

general fund’s exchange revenues recognized when actual draw payments are made to the gses. 

Investments in GSEs 

as of september 30, 2010 and september 30, 2009, the Department’s investments in the gses consisted of the following 

(in millions): 

Gross Investment Cumulative valuation 9/30/10 

GSEs Investment as of 9/30/10 Gain/(Loss) 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 Investment $ 155,233 $ (46,017) $ 109,216 

Gross Investment Cumulative valuation 9/30/09 

GSEs Investment as of 9/30/09 Gain/(Loss) Fair value 

Fannie Mae Senior Preferred Stock $ 45,740 $ (20,658) $ 25,082 

Freddie Mac Senior Preferred Stock 51,524 (23,273) 28,251 

Fannie Mae Warrants Common Stock 3,104 3,603 6,707 

Freddie Mac Warrants Common Stock 2,264 2,375 4,639 

Total GSEs Investment $ 102,632 $ (37,953) $ 64,679 

note 9. investments in government sponsored enterprises (gses) 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

213 

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, monthly summaries, quarterly credit supplements, 

independent research regarding high yield bond and preferred stock trading, independent research regarding the gses’ common 

stock trading, and other information pertinent to the valuations. 

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 the commitment fee payment that if agreed upon by the Department and fhfa could begin on March 31, 

2011. 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 exercise 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 2031 to determine what the 

implied amount of the contingent liability to the gses under the sPsPas would be and as a result has estimated the contingent 

liability to be $359,900 million as of september 30, 2010 as a result of their projected equity deficits stemming from near term losses 

and contractual dividend requirements. the valuation analysis resulted in total sPsPa estimates ranging from a “baseline” scenario 

of $508,100 million to an “extreme case” scenario of $610,000 million, as of september 30, 2010 ($91,937 million to $206,700 as of 

september 30, 2009 of which $76,937 million was recorded as contingent). as future payments under the sPsPa are deemed to be 

probable, the baseline scenario was used to record the contingent liability as of september 30, 2010. sffas 5 provides that when a 

probable contingent liability is a range of amounts and no amount within the range is a better estimate than any other amount, the 

estimated contingent liability should be based on the minimum value in the range, as was done for fy 2009. 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 2010 forecast for the years 2010 through 2013 (as released by fhfa on october 21, 2010), and interviews with the gses’ 

management. the gse managers were not able to provide the Department with a forecast of needed draws under the sPsPas after 

December 31, 2013; however, they did provide the Department with general guidance as to the key assumptions that were used for 

subsequent periods. the forecasts after 2013 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 2022, as directed under the provisions 

of the sPsPas for the gses to reduce the investment portfolios by 10 percent per annum. 

note 9. investments in government sponsored enterprises (gses) 

part 3: annual financial report
the department of the treasury 

214 

as of september 30, 2010 the summarized aggregated financial condition of the gses was as follows:

 (in millions) Combined 

As of September 30, 2010 

Combined total assets 

of which are: 

- investment securities 

- mortgage loans 

$ 5,518,352 

474,437 

4,782,405 

Combined total liabilities 

of which is: 

- long term debt 

$ 5,520,857 

5,248,221 

Combined net deficit $ (2,505) 

For the nine months ended September 30, 2010 

Combined net interest income 

Combined provision for loan losses 

Net interest income (loss) after provision for loan losses 

$ 

$ 

24,312 

(35,082) 

(10,770) 

Financial Guarantees not consolidated on GSE balance sheets September 30, 2010 $ 116,091 

Regulatory Capital - minimum capital surplus (deficit) as of September 30, 2010 $ (198,999) 

the above information was taken directly from the quarterly reports filed with the securities and exchange commission (sec), 

which are publicly available on the sec’s website (www.sec.gov) and also the gse investor relations websites. 

the Department also relied upon economic and demographic data from the 2010 annual report of the board of trustees of the 

federal old-age and survivors Insurance and federal Disability Insurance trust funds, the standard and Poor’s (s&P)/case-shiller 

June 2010 housing Price Index, and the federal housing finance agency’s house Price Index. the following paragraph summarizes 

information obtained from these sources. 

In the near term, the price of u.s single-family homes is the predominant variable affecting the value of the sPsPas in determining 

delinquencies, default rates, and severity rates. the prices of u.s. homes depend on numerous factors, including tax incentives, 

interest rates, vacant homes, new construction, and unemployment rates. although housing prices have risen recently, they are still 

significantly down from the peak experienced in prior years. 

both gses reported very low early delinquencies on additions to their credit books in 2009 and the first half of 2010. 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 

payments required under the sPsPas exceed the net income of the gses and incremental draws under the sPsPas are needed to 

meet dividend payment requirements. the gses expect their net worth will also be impacted negatively by dividend payments on 

the sPsPas. 

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 cap. adverse changes in home prices would have a material and adverse impact on the sPsPas. 

note 9. investments in government sponsored enterprises (gses) 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

215 

GSEs Non-Entity Revenue 

as of september 30, 2010 and september 30, 2009, gses non-entity revenue consisted of the following (in millions): 

Summary of GSEs Non-Entity Revenue 2010 2009 

General Fund Revenue from Increase in Liquidity Preference of GSEs Preferred Stock $ (52,600) $ (95,600) 

Current Valuation Loss on GSEs Warrants/Preferred Stock 8,064 37,953 

GSEs Preferred Stock Dividends (12,142) (4,336) 

Total GSEs Non-Entity Revenue $ (56,678) $ (61,983) 

Changing Regulatory Environment 

on July 9, 2010, fhfa published, in the federal register, a proposed rule to clarify certain terms of 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 Wall street reform and consumer Protection act, or the Dodd-frank act, 

into law. the Dodd-frank act will significantly change 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. the Dodd-frank act may result in the gses being subjected to new and additional regulatory 

oversight and standards, which would lead to increased restrictions on their day-to-day business and operations. also, it contains a 

provision requiring the secretary of the treasury to conduct a study and develop recommendations regarding the options for ending 

the conservatorship. the secretary’s report and recommendations are required to be submitted to congress by January 31, 2011. 

note 9. investments in government sponsored enterprises (gses) 

part 3: annual financial report
the department of the treasury 

216 

10. investments in internatiOnal finanCial institutiOns 

the Multilateral Development banks (MDb) consist of the World bank group (International bank for reconstruction and 

Development, International finance corporation, and Multilateral Investment guarantee agency), and five regional development 

banks (the african, asian, european, Inter-american, and north american institutions), as enumerated in the table below. 

as of september 30, 2010 and september 30, 2009, investments in international financial institutions consisted of the following (in 

millions): 

2010 2009 

African Development Bank $ 175 $ 175 

Asian Development Bank 458 458 

European Bank for Reconstruction and Development 636 636 

Inter-American Development Bank 1,487 1,482 

International Bank for Reconstruction and Development 1,985 1,985 

International Finance Corporation 569 569 

Multilateral Investment Guarantee Agency 45 45 

North American Development Bank 225 225 

Total $ 5,580 $ 5,575 

refer to note 31 for a description of the additional commitments related to these institutions. 

note 10. investments in international financial institutions 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

11. 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 6). the $1,100 million of other Investments in gses 

securities held by the esf at september 30, 2009 matured in november 2009. 

as of september 30, 2010 and september 30, 2009, entity investments in foreign investment holdings and other investments 

consisted of the following (in millions): 

Unamortized 

Cost/Acquisition (Premium)/ Interest Net Investment 9/30/10 

Type of Investment value Discount Receivable at 9/30/10 Gain/(Loss) 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 Investments 32 (2) 0 30 (8) 22 

Total Non-Federal $ 12,239 $ 84 $ 111 $ 12,434 $ 205 $ 12,639 

Unamortized 9/30/09 

Cost/Acquisition (Premium)/ Interest Investment Unrealized 9/30/09 

Type of Investment value Discount Receivable Balance Gain/ (Loss) Fair value 

Foreign Investments: 

Euro Bonds & Notes $ 4,827 $ 52 $ 116 $ 4,995 $ 184 $ 5,179 

Japanese Government Bonds 7,192 9 12 7,213 43 7,256 

Other Investments 1,137 (7) 0 1,130 0 1,130 

Total Non-Federal $ 13,156 $ 54 $ 128 $ 13,338 $ 227 $ 13,565 

note 11. other investments and related interest 217 

part 3: annual financial report
the department of the treasury 

218 

12. CreDit prOgram reCeivables anD DireCt lOans, net 

as of september 30, 2010 and september 30, 2009, credit Program receivables and Direct loans consisted of the following (in 

millions): 

2010 2009 

GSEs MBS Purchase Program Receivables $ 172,234 $ 184,419 

CDFI Direct Loans 41 41 

State and Local Housing Finance Agency Initiative Program Receivables 14,121 0 

Total $ 186,396 $ 184,460 

Government Sponsored Enterprise (GSE) Mortgage-Backed Securities (MBS) Purchase 

Program: 

the Housing and Economic Recovery Act (hera) (Public law no. 110-289), authorized the Department to enter into the gse 

Mbs Purchase Program. under this program, the Department, using private sector asset managers, purchased on the open market a 

portfolio of mortgage-backed securities issued by the gses. 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 

asset managers were also authorized to enter into other trade/sell transactions such as pair offs, turns, assignments, and dollar rolls 

to further support the market under the hera provisions/mandate. the authority granted by congress to purchase Mbs expired 

on December 31, 2009 at which point the purchase of new securities ended, though the Department still retains its portfolio of 

previously purchased securities. 

the Department’s gse Mbs Purchase Program portfolio consists of mortgage pass-through securities issued by freddie Mac and 

fannie Mae. as of september 30, 2010, the Department held $164,340 million ($173,326 million as of september 30, 2009) in 

outstanding Mbs principal and estimated the net present value of future cash flows on these holdings to be $172,234 million 

($184,419 million as of september 30, 2009). the difference between the Department’s cost of purchasing the Mbs Portfolio and the 

expected value of repayments to the Department is the negative subsidy allowance. 

Community Development Financial Institution (CDFI) Direct Loans: 

the community Development financial Institutions fund (the fund) was created as a bipartisan initiative in the riegle community 

Development and regulatory Improvement act of 1994 (Public law no. 103-325). the 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 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 Program provides financial and technical assistance awards to certified 

community development financial institutions (cDfIs) which in turn provide services to create community development impact in 

underserved markets. some of the financial assistance awards take the form of direct loans. 

note 12. credit program receivables and direct loans, net 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

State and Local Housing Finance Agency (HFA) Initiative (Accounted for Under the 

FCRA): 

under hera, the Department, together with the federal housing finance agency, fannie Mae, freddie Mac, and the Department 

of housing and urban Development announced in october 2009 an initiative to provide support to state and local housing finance 

agencies (hfas). hfas have historically played a central role in providing a safe, sustainable path to homeownership for working 

families in all 50 states and many localities across the country. this initiative is 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 closed as part of the hfa Initiative’s two separate programs: (1) the temporary credit and 

liquidity Program (tclP) and (2) the new Issue bond Program (nIbP). as part of the tclP, the Department has entered into 

participation interests with fannie Mae and freddie Mac, supporting credit and liquidity facilities that the gses are providing to 

11 states as part of the program. as of september 30, 2010, the liquidity facilities cover $7,572 million of single-family and multifamily variable-rate demand obligations. as of september 30, 2010, none of these bonds have been tendered to the gses, and the 

Department accordingly has not disbursed any funds. as part of the nIbP, as of september 30, 2010, the Department held $15,307 

million of gross gses obligations backed by a combination of mortgage revenue bonds and escrowed funds from over 92 hfas in 49 

states plus the District of columbia. 

note 12. credit program receivables and direct loans, net 219 

part 3: annual financial report
the department of the treasury 

220 

2010 

(in millions) GSE MBS CDFI HFA TOTAL 

Net Credit Program Receivables: 

Credit Program Receivables, Gross $ 164,340 $ 56 $ 15,307 $ 179,703 

Subsidy Cost Allowance 7,894 (15) (1,186) 6,693 

Net Credit Program Receivables $ 172,234 $ 41 $ 14,121 $ 186,396 

New Credit Program and Loan Disbursed $ 29,878 $ 0 $ 15,308 $ 45,186 

Budget Subsidy Rate, excluding Modifications and Reestimates: 

Interest Differential -3.73% 0.00% -0.52% 

Defaults 0.00% 0.00% 0.00% 

Other 0.00% 0.00% 0.00% 

Total Budget Subsidy Rate -3.73% 0.00% -0.52% 

Subsidy Cost by Component: 

Interest Differential $ (1,115) $ 0 $ (79) $ (1,194) 

Total Subsidy Cost, Excluding Modifications and Reestimates $ (1,115) $ 0 $ (79) $ (1,194) 

Reconciliation of Subsidy Cost Allowance: 

Balance, 10/1/2009 $ (11,093) $ 20 $ 0 $ (11,073) 

Subsidy Cost for Disbursements (1,115) 0 (79) (1,194) 

Subsidy Cost for Modifications 0 0 (20) (20) 

Subsidy Allowance Amortized 3,831 (1) (537) 3,293 

Balance, 9/30/2010, Before Reestimates (8,377) 19 (636) (8,994) 

Subsidy Reestimates 483 (4) 1,822 2,301 

Balance, 9/30/2010 $ (7,894) $ 15 $ 1,186 $ (6,693) 

Reestimates: 

Interest Rate Reestimate $ (157) $ 0 $ 847 $ 690 

Technical/Default Reestimate 640 (4) 975 1611 

Total Reestimates – (Decrease) in Subsidy Cost $ 483 $ (4) $ 1,822 $ 2,301 

GSE MBS CDFI HFA TOTAL 

Reconciliation of Subsidy Costs: 

Subsidy Cost for Disbursements 

Subsidy Cost for Modifications 

Subsidy Reestimates 

Total Credit Program Receivables Subsidy Costs 

$

$

 (1,115) 

0 

483 

(632) 

$

$ 

0 

0 

(4) 

(4) 

$

$

 (79) 

(20) 

1,822 

1,723 

$

$

 (1,194) 

(20) 

2,301 

1,087 

Administrative Expense $ 6 $ 0 $ 0 $ 6 

note 12. credit program receivables and direct loans, net

part 3: annual financial report
performance and accountability report | fiscal year 2010 

221

2009 

(in millions) 

Credit Program Receivables, Gross 

Subsidy Cost Allowance 

Net Credit Program Receivables 

$ 

$ 

GSE MBS 

173,326 

11,093 

184,419 

$ 

$ 

CDFI 

61 

(20) 

41 

$ 

$ 

HFA 

0 

0 

0 

$ 

$ 

TOTAL 

173,387 

11,073 

184,460 

New Credit Program and Loan Disbursed $ 192,263 $ 0 $ 0 $ 192,263 

Budget Subsidy Rate, Excluding Modifications and Reestimates: 

Interest Differential -2.61% 0.00% 0.00% 

Defaults 0.25% 0.00% 0.00% 

Other 0.00% 0.00% 0.00% 

Total Budget Subsidy Rate -2.36% 0.00% 0.00% 

Subsidy Cost by Component: 

Interest Differential $ (4,977) $ 0 $ 0 $ (4,977) 

Defaults 477 0 0 477 

Other 0 0 0 0 

Total Subsidy Cost, Excluding Modifications and Reestimates $ (4,500) $ 0 $ 0 $ (4,500) 

Reconciliation of Subsidy Cost Allowance: 

Balance, 10/1/2008 $ (74) $ 20 $ 0 $ (54) 

Subsidy Cost for Disbursements (4,500) 0 0 (4,500) 

Subsidy Cost for Modifications 0 0 0 0 

Subsidy Allowance Amortization 1,873 0 0 1,873 

Balance, 9/30/2009, Before Reestimates (2,701) 20 0 (2,681) 

Subsidy Reestimates (8,392) 0 0 (8,392) 

Balance, 9/30/2009 $ (11,093) $ 20 $ 0 $ (11,073) 

GSE MBS CDFI HFA TOTAL 

Reestimates 

Interest Rate Reestimate $ 0 $ 0 $ 0 $ 0 

Technical/Default Reestimate (8,392) 0 0 (8,392) 

Total Reestimates – (Decreased) in Subsidy Cost $ (8,392) $ 0 $ 0 $ (8,392) 

Reconciliation of Subsidy Costs: 

Subsidy Cost for Disbursements $ (4,500) $ 0 $ 0 $ (4,500) 

Subsidy Cost for Modifications 0 0 0 0 

Subsidy Reestimates (8,392) 0 0 (8,392) 

Total Credit Program Receivables Subsidy Costs $ (12,892) $ 0 $ 0 $ (12,892) 

Administrative Expense $ 12 $ 0 $ 0 $ 12 

note 12. credit program receivables and direct loans, net

part 3: annual financial report
the department of the treasury 

222 

13. lOans anD interest reCeivable 

Non-Entity Non-Federal 

as of september 30, 2010 and september 30, 2009, loans and interest receivable from non-federal entities consisted of the following 

(in millions): 

2010 Total 2009 Total 

Direct Loans $ 123 $ 125 

Interest Receivable 1 2 

Total Non-Federal Loans and Related Interest Receivable $ 124 $ 127 

loans and Interest receivable amounts include certain loans and credits issued by the united states to various foreign governments 

and other entities. the agreements with each debtor government vary as to dates, interest rates, method of payment, and billing 

procedures. all such loans and credits represent legally valid and outstanding obligations of foreign governments, other entities, and 

the u.s. government has not waived or renounced its rights with respect to any of them. the loans are due and payable in u.s. 

denominations. 

note 13. loans and interest receivable 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

223

14. reserve pOsitiOn in the internatiOnal mOnetary funD 

the united states participates in the IMf through a quota subscription. Quota subscriptions are paid partly through the transfer 

of reserve assets, such as foreign currencies or sDrs, which are international reserve currency 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 one quarter of 1 percent of the u.s. quota is held in cash in an IMf account at frbny. 

While resources for transactions between the IMf and the united states are appropriated, they do not result in net budgetary outlays. 

this is because u.s./IMf quota transactions constitute an exchange of monetary assets in which the united states receives an equal 

offsetting claim on the IMf in the form of an increase in the u.s. reserve position in the IMf, which is interest-bearing and can 

be drawn at any time for balance of payments needs. When the IMf draws dollars from the letter of credit to finance its operations 

and expenses, the drawing does not represent a net budget outlay on the part of the united states because there is a commensurate 

increase in the u.s. reserve position. When the IMf repays dollars to the united states, no net budget receipt results because the 

u.s. reserve position declines concurrently in an equal amount. 

as of september 30, 2010, the u.s. quota in the IMf was 37,149 million sDrs, valued at approximately $58,327 million. (the quota 

as of september 30, 2009, was 37,149 million sDrs, valued at approximately $66,569 million.) the quota consisted of the following 

(in millions): 

2010 2009 

Letter of Credit /1 $ 45,245 $ 53,056 

U.S. Dollars Held in Cash by the IMF /1 144 44 

Reserve Position /2 12,938 13,469 

U.S. Quota in the IMF $ 58,327 $ 66,569 

1/ This amount is included in entity appropriated funds under Note 2, Fund Balance with Treasury, and unexpended appropriations – Obligations/ Undelivered orders.
 

2/ This amount is included in the Cumulative Results of Operations. 


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. such adjustments do not involve a flow of funds. at april 30, 

2010, the annual settlement with the IMf resulting from 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 on the 

statement of changes in net Position. at april 30, 2009, the appreciation of the dollar against the sDr since april 30, 2008, called 

for a downward adjustment of the u.s. quota by $4,308 million and a corresponding increase to unexpended appropriations. the 

dollar balances shown above for the u.s. quota includes accrued valuation adjustments. on september 30, 2010, the Department 

recorded a net deferred valuation loss in the amount of $168 million for deferred maintenance of value adjustments needed at year 

end ($498 million gain at september 30, 2009). 

note 14. reserve position in the international monetary fund 

part 3: annual financial report
224 

the department of the treasury 

the united states earns “remuneration” (interest) on its reserve position in the IMf except for the portion of the reserve position 

originally paid in gold. remuneration is paid quarterly and is calculated on the basis of the sDr interest rate. the sDr interest 

rate is a market-based interest rate determined on the basis of a weighted average of interest rates on short-term instruments in the 

markets of the currencies included in the sDr valuation basket. Payment of a portion of this remuneration is deferred as part of a 

mechanism for creditors and debtors to share the financial consequences of overdue obligations to the IMf, such as unpaid overdue 

interest, and to similarly share the burden of establishing any contingency accounts deemed necessary to reflect the possibility of 

non-repayment of relevant principal amounts. as overdue interest is paid, previously deferred remuneration corresponding to the 

creditors’ share of the burden of earlier nonpayment is included in the next payment of remuneration. the deferred remuneration 

corresponding to the creditors’ share of establishing the contingency accounts is usually paid when there are no longer any relevant 

overdue obligations or when the IMf executive board determines to pay the remuneration. there was no deduction in the 

remuneration paid by the IMf as a result of burden-sharing during fiscal years 2010 or 2009. for fiscal years 2010 and 2009, the 

Department received $23 million and $40 million as remuneration, respectively. (see note 6). 

In addition to quota subscriptions, the IMf maintains borrowing arrangements to supplement its resources in times of crisis when IMf 

liquidity is low. the united states currently participates in two such arrangements – the general arrangements to borrow (gab) 

and the new arrangements to borrow (nab). there were no u.s. loans outstanding under these arrangements in fiscal year 2010 

and fiscal year 2009. the dollar equivalent of sDr $6,712 million has been appropriated to finance u.s. participation in the gab 

and nab; as of september 30, 2010 and september 30, 2009, this amounted to $10,445 million and $10,634 million, respectively, 

in standing appropriations available for lending through the gab or nab, as needed. as is the case for the u.s. quota in the IMf, 

budgetary treatment of u.s. participation in the gab and nab does not result in net budgetary outlays, since transactions under the 

gab or nab result in concurrent adjustments to the u.s. reserve position in the IMf. 

refer to note 31 for a description of nab commitment related to IMf for a description of the new portion of quota shares and nab 

subject to fcra. 

note 14. reserve position in the international monetary fund 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

225 

15. tax, Other, anD relateD interest reCeivables, net 

tax, other, and related interest receivables include receivables from tax assessments, excise taxes, fees, penalties, and interest assessed 

and accrued that were not paid or abated, reduced by an estimate for uncollectible amounts. In addition to amounts attributed to 

taxes, interest income due on monies deposited in federal reserve banks is also included in this line item. 

as of september 30, 2010 and september 30, 2009, tax, other, and related Interest receivables, and net, consisted of the following 

(in millions): 

NON-ENTITY: 

2010 2009 

IRS Federal Tax Receivable, Gross $ 138,111 $ 128,115 

Less: Allowance on Taxes Receivable (103,091) (99,027) 

Receivable, Deposit of Earnings, Federal Reserve Banks 1,910 1,254 

Other Receivables and Interest 25 33 

Less: Allowance on Other and Related Interest Receivable (24) (15) 

Total Tax, and Other Non-Entity Receivables, Net 36,931 30,360 

ENTITY: 

Miscellaneous Entity Receivables and Related Interest 45 48 

Total Tax, Other, and Related Interest Receivables, Net $ 36,976 $ 30,408 

Irs federal taxes receivable constitute the largest portion of the receivables. Irs federal taxes receivable consists of tax assessments, 

penalties, and interest which were not paid or abated, and which were agreed to by either the taxpayer and Irs, or the courts. an 

allowance for doubtful accounts is established for the difference between the gross receivables and the portion deemed collectible. 

the portion of tax receivables estimated to be collectible and the allowance for doubtful accounts are based on projections of 

collectability from a statistical sample of taxes receivable. the Department does not establish an allowance for the receivable on 

deposits of federal reserve bank earnings. 

note 15. tax, other, and related interest receivables, net 

part 3: annual financial report
the department of the treasury 

226
 

16. inventOry anD relateD prOperty, net 

the Department’s operating materials and supplies are maintained for the production of bureau products. the Department maintains 


inventory accounts or balances (e.g., paper, metals, etc.) for use in manufacturing currency and coin. the cost of these items is 


included in inventory costs, and is recorded as cost of goods sold upon delivery to customers. Inventory for check processing activities 


is also maintained. as of september 30, 2010 and september 30, 2009, inventory and related property consisted of the following (in 


millions): 


2010 2009
 

Operating materials and supplies held for use $ 17 $ 17
 

Operating materials and supplies held in reserve for future use 25 24
 

Forfeited property 69 62
 

Inventory – raw materials 299 239
 

Inventory – work in process 158 128
 

Inventory – finished goods 139 142
 

Allowance for inventories and related property (10) (14)
 

Total Inventories and Related Property, Net $ 697 $ 598
 

note 16. inventory and related property, net 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

227 

17. prOperty, plant, anD equipment, net 

as of september 30, 2010 and september 30, 2009, property, plant, and equipment consisted of the following (in millions): 

Depreciation Service Accumulated 2010 

Method Life Cost Depreciation Net Book 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 0 15 

Land and land improvements N/A N/A 13 0 13 

Internal use software S/L 2 -10 years 1,510 (1,003) 507 

Internal use software in development N/A N/A 102 0 102 

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 

Depreciation 

Method 

Service 

Life Cost 

Accumulated 

Depreciation 

2009 

Net Book value 

Buildings, structures, and facilities S/L 3 - 50 years $ 676 $ (308) $ 368 

Furniture, fixtures, and equipment S/L 2 - 20 years 3,048 (2,268) 780 

Construction in progress N/A N/A 38 0 38 

Land and land improvements N/A N/A 12 0 12 

Internal use software S/L 2-10 years 1,352 (807) 545 

Internal use software in development N/A N/A 112 0 112 

Assets under capital lease S/L 2 - 25 years 25 (23) 2 

Leasehold improvements S/L 2 - 25 years 482 (303) 179 

Total $ 5,745 $ (3,709) $ 2,036 

the service life ranges vary significantly due to the diverse nature of PP&e held by the Department. 

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 housing the united states 

Mint in Denver, san francisco, and West Point are also considered multi-use heritage assets. Multi-use heritage assets are recognized 

and presented with general property, plant and, equipment in the balance sheet. 

note 17. property, plant, and equipment, net 

part 3: annual financial report
the department of the treasury 

228 

18. nOn-entity assets 

non-entity assets are those that are held by the Department but are not available for use by the Department. for example non-entity 

fund balance with treasury represents unused balances of appropriations received by various treasury’s entities to conduct custodial 

operations such as the payment of interest on the federal debt and refunds of taxes and fees. non-entity loans and interest receivable 

represents loans managed by the Department on behalf of the u.s. government. these loans are provided to federal agencies, and 

the Department is responsible for collecting these loans and transferring the proceeds to the general fund of the u.s. government. 

non-entity cash, foreign currency, and other monetary assets include the operating cash of the u.s. government, managed by the 

Department. It also includes foreign currency maintained by various u.s. and military disbursing offices, as well as seized monetary 

instruments. non-entity Investments in gses include the 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. 

as of september 30, 2010 and september 30, 2009, non-entity assets consisted of the following (in millions): 

2010 2009 

Intra-governmental Assets: 

Fund Balance (Note 2) $ 542 $ 513 

Loans and Interest Receivable (Note 3) 493,389 348,800 

Accounts Receivable and Related Interest (Note 5) 350 285 

Advances to the Unemployment Trust Fund (Note 1) 34,111 7,981 

Due from the General Fund (Note 4) 13,655,637 11,992,719 

Total Non-Entity Intra-governmental Assets 14,184,029 12,350,298 

Cash, Foreign Currency, and Other Monetary Assets (Note 6) 304,244 269,579 

Gold and Silver Reserves (Note 7) 11,062 11,062 

Loans and Interest Receivable (Note 13) 124 127 

Investments in GSEs (Note 9) 109,216 64,679 

Tax, Other, and Related Interest Receivable, Net (Note 15) 36,931 30,360 

Beneficial Interest in AIG Trust 20,805 23,472 

Miscellaneous Assets 5 3 

Total Non-Entity Assets 14,666,416 12,749,580 

Total Entity Assets 932,841 1,097,021 

Total Assets $ 15,599,257 $ 13,846,601 

note 18. non-entity assets 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

229

19. 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 managed by the Department does not 

include debt issued by other governmental agencies such as the tennessee Valley authority or the Department of housing and urban 

Development. 

the federal debt as of september 30, 2010 and september 30, 2009 was as follows (in millions): 

Intra-governmental 2010 2009 

Beginning Balance $ 4,319,892 $ 4,179,570 

New Borrowings/Repayments 181,136 140,322 

Subtotal at Par value 4,501,028 4,319,892 

Premium/(Discount) 38,228 33,779 

Interest Payable Covered by Budgetary Resources 48,546 49,409 

Total $ 4,587,802 $ 4,403,080 

Owed to the Public 2010 2009 

Beginning Balance $ 7,551,862 $ 5,808,691 

New Borrowings/Repayments 1,470,946 1,743,171 

Subtotal at Par value 9,022,808 7,551,862 

Premium/(Discount) (33,870) (33,906) 

Interest Payable Covered by Budgetary Resources 46,991 41,349 

Total $ 9,035,929 $ 7,559,305 

Debt held by the public approximates the u.s. government’s competition with other sectors in the credit markets. In contrast, debt 

held by federal entities, primarily trust funds, represents the cumulative annual surpluses of these funds (i.e., excess of receipts over 

disbursements plus accrued interest) that have been used to finance general government operations. 

Federal Debt held by Other Federal Agencies 

certain federal agencies are allowed to invest excess funds in debt securities issued by the Department on behalf of the u.s. 

government. the terms and the conditions of debt securities issued are designed to meet the cash needs of the u.s. government. 

the vast majority is non-marketable securities issued at par value, but some are issued at market prices and interest rates that reflect 

market terms. the average interest rate for debt held by the federal entities, excluding tIPs, for fiscal year 2010 was 4.3 percent (4.6 

percent in fiscal year 2009). the average interest rate on tIPs for fiscal year 2010 was 1.9 percent (2.0 percent in fiscal year 2009). 

the average interest rate represents the original issue weighted effective yield on securities outstanding at year end. 

the federal debt also includes intra-governmental marketable debt securities that certain agencies are permitted to buy and sell on 

the open market. the debt, at par value (not including interest receivable), owed to federal agencies as of september 30, 2010 and 

september 30, 2009 was as follows (in millions): 

2010 2009 

Social Security Administration 

Office of Personnel Management 

Department of Defense Agencies 

Department of Health and Human Services 

All Other Federal Agencies - Consolidated 

Total Federal Debt Held by Other Federal Agencies

 $ 

$ 

2,586,333 

866,090 

433,203 

355,554 

259,848 

4,501,028 

$ 

$ 

2,504,248 

828,952 

375,519 

376,512 

234,661 

4,319,892 

the above balances do not include premium/discount and interest payable. 

note 19. federal debt and interest payable 

part 3: annual financial report
the department of the treasury 

230 

Federal Debt Held by the Public 

as of september 30, 2010 and september 30, 2009, federal Debt held by the Public consisted of the following (in millions): 

Average 

(at par value) Term Interest 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 Securities (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 

(at par value) Term 

Average 

Interest Rates 2009 

Marketable: 

Treasury Bills 1 Year or Less 0.3% $ 1,986,174 

Treasury Notes 2 - 10 Years 3.0% 3,772,964 

Treasury Bonds Over 10 Years 6.5% 677,491 

Treasury Inflation-Protected Securities (TIPS) 5 Years or More 2.1% 551,308 

Total Marketable 6,987,937 

Non-Marketable On Demand to Over 10 Years 3.7% 563,925 

Total Federal Debt Held by the Public $ 7,551,862 

the above balances do not include premium/discount and interest payable. 

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 2 to 10 years and treasury bonds are issued with a term of 

more than 10 years. the Department also issues treasury Inflation-Protected securities (tIPs) that have interest and redemption 

payments, which are 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 inflation, adjusted by any discount or premium on securities 

outstanding as of september 30, 2010 and september 30, 2009. the tIPs federal Debt held by the Public inflation-adjusted 

principal balance includes inflation of $57,481 million and $57,552 million as of september 30, 2010 and 2009, respectively. 

note 19. federal debt and interest payable 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

231

Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits. 

During fiscal year 2010, the Department implemented several important components as a debt management strategy, which affected 

the mix of outstanding treasury securities. treasury bills decreased by $202,000 million; whereas, treasury notes and bonds increased 

by $1,480,000 million and $169,000 million, respectively, in fiscal year 2010. as of september 30, 2010 and 2009, gross debt held 

by the public totaled $9,023,000 million and $7,552,000 million, respectively an increase of $1,471,000 million. this increase was 

primarily the result of borrowings needed to finance the government’s fiscal year 2010 deficit. however, as a result of most of the 

increase in outstanding gross debt held by the public being in the form of longer term securities, the total dollar amount of activity for 

both borrowings and repayments of debt held by the public decreased for fiscal year 2010. 

federal Debt held by the Public includes federal debt held outside of the u. s. government by individuals, corporations, federal 

reserve banks (frb), state and local governments, foreign governments, and central banks. as of september 30, 2010, the frb had 

total holdings of $813,550 million, including a net of $1,880 million in treasury securities held by the frb as collateral for securities 

lending activities. as of september 30, 2009, the frb had total holdings of $769,144 million, excluding a very small net amount in 

treasury securities lent by the frb to dealers. these securities are held in the frb system open Market account (soMa) for the 

purpose of conducting monetary policy. 

note 19. federal debt and interest payable 

part 3: annual financial report
the department of the treasury 

232 

20. Other Debt anD interest payable 

borrowings outstanding and related accrued interest are with the civil service retirement and Disability fund (csr&Df), which is 

administered by the office of Personnel Management (oPM). at september 30, 2010 and september 30, 2009, ffb had borrowings 

and related accrued interest of $10,358 millions and $12,060 million, respectively. these borrowings have stated interest rates 

ranging from 4.63 percent to 5.25 percent, an effective interest rate of 4.13 percent, and with maturity dates range from June 30, 

2011 to June 30, 2019. 

note 20. other debt and interest payable 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

233

21. 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 retirement plans. the act was intended to relieve the District of columbia government 

of the burden of unfunded pension liabilities transferred to the District by the u.s. government in 1979. to fulfill its responsibility, 

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 of the u.s. government 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 Department is also responsible for other smaller pension plans administered by the 

office of thrift supervision and office of the comptroller of the currency. the pension benefit costs incurred by the plans are 

included on the consolidated statements of net cost. 

effective in fiscal year 2010 fasab issued sffas 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: 

Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, which requires disclosure 

of the components of the expense associated with federal employee pension, orb, and oPeb liabilities in the notes to the financial 

statement. sffas 33 also provides a standard for selecting the discount rate assumption for present value estimates of federal 

employee pension, orb, and oPeb liabilities. 

as of september 30, 2010, pension expense actuarial liabilities consisted of the following (in millions): 

PENSION ExPENSE ACTUARIAL LIABILITIES - BY FUND 

For the Year Ended September 30, 2010

D.C. Federal Judicial 

Pension Fund Retirement Fund 2010 Total 

Beginning Liability Balance $ 8,892 $ 157 $ 9,049 

Pension Expense: 

Normal Cost 0 4 4 

Interest on Pension Liability During the Year 391 8 399 

Actuarial (Gains) Losses During the Year: 

From Experience (60) (2) (62) 

From Discount Rate Assumption Change 1,845 34 1,879 

From Other Assumption Changes (991) (8) (999) 

Prior Service Costs 0 0 0 

Total Pension Expense 1,185 36 1,221 

Less Amounts Paid (519) (8) (527) 

Ending Liability Balance $ 9,558 $ 185 $ 9,743 

note 21. pensions and other actuarial liability 

part 3: annual financial report
the department of the treasury 

234 

ADDITIONAL INFORMATION 

DC Federal Judicial 

Pension Fund Retirement Fund 2010 Total 

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-of-Living Adjustment 2.56% 2.78% 

Future Annual Rate of Salary Increases: 

Police Officers & Firefighters 

Teachers 

Judicial 

4.20% 

4.20% 

N/A 

N/A 

N/A 

2.11% 

Actuarial Liability 

Unobligated Budgetary Resources 

Unfunded Liability 

DC Federal 

Pension Fund 

$ 8,893 

(3,558) 

$ 5,335 

Judicial 

Retirement Fund 

$ 156 

(122) 

$ 34 

$ 

$ 

2009 Total 

9,049 

(3,680) 

5,369 

Amount Received from the General Fund $ 400 $ 7 $ 407 

Annual Rate of Investment Return Assumption 4.5% - 6.0% 5.2% - 6.0% 

Future Annual Rate of Inflation and Cost-of-Living Adjustment 3.5% 3.5% 

Future Annual Rate of Salary Increases: 

Police Officers & Firefighters 

Teachers 

Judicial 

3.5% - 6.5% 

3.5% - 5.5% 

N/A 

N/A 

N/A 

3.5% 

note 21. pensions and other actuarial liability 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

22. liabilities 

liabilities not covered by budgetary and other resources 

as of september 30, 2010 and september 30, 2009, liabilities not covered by budgetary and other resources consisted of the following 

(in millions): 

2010 2009 

Intra-governmental Liabilities Not Covered by Budgetary and Other Resources: 

Federal Debt Principal, Premium/Discount (Note 19) $ 4,539,256 $ 4,353,671 

Other Intra-governmental Liabilities 123 105 

Total Intra-governmental Liabilities Not Covered by Budgetary and Other Resources 4,539,379 4,353,776 

Federal Debt Principal, Premium/Discount (Note 19) 8,988,938 7,517,956 

Gold and Silver Reserves held by the U.S. Mint 10,494 10,494 

Pensions and Other Actuarial Liability (Note 21) 6,016 5,369 

Liabilities to GSEs (Note 9) 359,900 91,937 

Other Liabilities 1,990 1,057 

Total Liabilities Not Covered by Budgetary and Other Resources 13,906,717 11,980,589 

Total Liabilities Covered by Budgetary and Other Resources 1,591,444 1,437,956 

Total Liabilities $ 15,498,161 $ 13,418,545 

Other Liabilities 

total “other liabilities” displayed on the balance sheets consists of both liabilities that are covered and not covered by budgetary 

resources. 

other liabilities at september 30, 2010 and september 30, 2009 consisted of the following (in millions): 

2010 

Current Non-Current Total 

Intra-governmental 

Unfunded Federal Workers Compensation Program Liability (FECA) 

Accounts Payable 

Accrued Interest Payable 

Other Accrued Liabilities 

$ 46 

59 

0 

203 

$ 57 

0 

0 

1 

$ 103 

59 

0 

204 

Total Intra-governmental $ 308 $ 58 $ 366 

With the Public 

Actuarial Federal Workers Compensation Program Liability (FECA) $ 0 $ 553 $ 553 

Liability for Deposit Funds (Held by the Federal Government for Others) and Suspense Accounts 724 0 724 

Accrued Funded Payroll and Benefits 533 0 533 

Capital Lease Liabilities 0 0 0 

Accounts Payable and Other Accrued Liabilities 2,607 53 2,660 

Total with the Public $ 3,864 $ 606 $ 4,470 

note 22. liabilities 235

part 3: annual financial report
the department of the treasury 

2009 

Current Non-Current Total 

Intra-governmental 

Unfunded Federal Workers Compensation Program Liability (FECA) $ 46 $ 57 $ 103 

Accounts Payable 61 0 61 

Accrued Interest Payable (3) 0 (3) 

Other Accrued Liabilities 263 1 264 

Total Intra-governmental 367 58 425 

With the Public 

Actuarial Federal Workers Compensation Program Liability (FECA) $ 0 $ 533 $ 533 

Liability for Deposit Funds (Held by the Federal Government for Others) and Suspense Accounts 71 0 71 

Accrued Funded Payroll and Benefits 488 0 488 

Capital Lease Liabilities 1 0 1 

Accounts Payable and Other Accrued Liabilities 2,194 44 2,238 

Total with the Public $ 2,754 $ 577 $ 3,331 

236 note 22. liabilities 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

237

23. net pOsitiOn 

unexpended appropriations represents the amount of spending authorized as of year-end that is unliquidated or unobligated and 

has not lapsed, been rescinded, or withdrawn. no-year appropriations remain available for obligation until expended. annual 

appropriations remain available for upward or downward adjustment of obligations until expired. 

cumulative results of operations represents the net results of operations since inception, and includes cumulative amounts related 

to investments in capitalized assets and donations and transfers of assets in and out without reimbursement. also included as a 

reduction in cumulative results of operations are accruals for which the related expenses require funding from future appropriations 

and assessments. these future funding requirements include, among others (a) accumulated annual leave earned but not taken, (b) 

accrued workers compensation, (c) credit reform cost reestimates, and (d) expenses for contingent liabilities. 

the amount reported as “appropriations received” are appropriated from the treasury general fund of the u.s. government 

receipts, such as income taxes, that are not earmarked by law for a specific purpose. this amount will not necessarily agree with the 

“appropriation received” amount reported on the statement of budgetary resources (sbr) because of differences between proprietary 

and budgetary accounting concepts and reporting requirements. for example, certain dedicated and earmarked receipts are recorded 

as “appropriations received” on the sbr, but are recognized as exchange or non-exchange revenue (i.e., typically in special and nonrevolving trust funds) and reported on the statement of changes in net Position in accordance with statement of federal financial 

accounting standards (sffas no. 7). 

Transfers to the General Fund and Other 

the amount reported as “transfers to the general fund and other” on the consolidated statements of changes in net Position 

under “other financing sources” includes the following as of september 30, 2010 and september 30, 2009 (in millions): 

Categories of Transfers to the General Fund and Other: 2010 2009 

Downward Reestimates of Credit Reform Subsidies $ 35,906 $ 125,359 

Increase in Liquidity Preference of GSEs Preferred Stock, GSEs PS Dividends and Valuation Changes (Note 9) 56,678 61,983 

Interest Revenue/Distribution of Income 35,993 30,124 

Other 368 238 

TOTAL $ 128,945 $ 217,704 

the credit reform downward reestimate subsidies are transferred to the general fund due to a change in forecasts of future cash flows 

(see notes 8 and 12). also included in “transfers to the general fund and other” are the gses senior Preferred stock investments 

and related dividends as well as the annual valuation adjustment to those investments (see note 9). In addition, these transfers also 

include distribution of interest revenue to the general fund of the u.s. government the interest revenue is accrued on interagency loans held by the Department on behalf of the u.s. government. a corresponding balance is reported on the consolidated 

statement of net cost under “federal costs: less Interest revenue from loans.” the amount reported on the consolidated 

statement of net cost is reduced by eliminations with treasury bureaus. 

the Department also includes seigniorage in “transfers to the general fund and other.” seigniorage is the face value of newly 

minted circulating coins less the cost of production. the united states Mint is required to distribute the seigniorage that it recognizes 

to the general fund of the u.s. government. the distribution is also included in “transfers to the general fund and other.” In 

any given year, the amount recognized as seigniorage may differ for the amount distributed to the general fund by an insignificant 

amount due to timing differences. 

note 23. net position 

part 3: annual financial report
the department of the treasury 

238 

24. COnsOliDateD statement Of net COst anD net COsts Of treasury 

sub-OrganizatiOns 

the Department’s consolidated statement of net cost displays 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 (Departmental offices and each operating bureau). In addition, a separate supporting schedule for fiscal year 2010 

provides net cost information for the significant programs within the Departmental offices. 

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 treasury-wide programs is the result of 

using the following cost assignment methods: (1) direct costs, (2) cause and effect, and (3) cost allocation. 

Intra-departmental costs/revenues 

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 sub-organizations. accordingly, 

such costs/revenues are eliminated in the consolidation process. 

Intra-governmental cost 

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 4, Managerial Cost Accounting Standards and Concepts, 

the Department recognizes identified cost paid for the Department by other agencies as 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. cost paid by other agencies on behalf of the Department 

were $1,008 million and $793 million for the years ended september 30, 2010 and september 30, 2009, respectively. 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

Statement of Net Cost 

oMb circular no. a-136, Financial Reporting Requirements, as amended, requires that the presentation of the 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 2008 - 2013 strategic Plan. the majority of treasury bureaus’ 

and reporting entities’ net cost information falls within one strategic goal in the statement 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 earned revenue can reasonably be attributed to programs. the 

attribution of earned revenues requires the exercise of managerial judgment. 

fasab issued sffas 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses from 

Changes in Assumptions and Selecting Discount Rates and Valuation Dates, which requires gains and losses from changes in long-term 

assumptions used to estimate federal employee pensions, orb and oPeb liabilities to be displayed on the statement of net cost 

separately from other costs. 

the Department’s snc also presents interest expense on the federal Debt and other federal costs incurred as a result of assets and 

liabilities managed on behalf of the u.s. government. these costs are not reflected as program costs related to the 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 for the years ended september 30, 2010 and september 30, 2009 consisted of the following (in millions): 

2010 2009 

Credit Reform Interest on Uninvested Funds (Intra-governmental) $ 8,192 $ 6,534 

Resolution Funding Corporation 2,276 2,120 

Judgment Claims and Contract Disputes 1,119 2,305 

Corporation for Public Broadcasting 506 461 

Legal Services Corporation 418 388 

All Other Payments 242 323 

Total $ 12,753 $ 12,131 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 239

part 3: annual financial report
the department of the treasury 

240 

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations (in millions): 

FOR YEAR ENDED SEPTEMBER 30, 2010 Fin. 

Bureau of Bureau of Crimes Financial Internal 

Engraving the Public Departmental Enforcement Management Revenue 

Program Costs: & Printing Debt Offices* Network Service Service U.S. Mint 

FINANCIAL PROGRAM: 

Intra-governmental Gross Costs $ 0 $ 120 $ 1,712 $ 0 $ 189 $ 4,577 $ 0 

Less: Earned Revenue 0 (21) (2,234) 0 (168) (68) 0 

Intra-governmental Net Costs 0 99 (522) 0 21 4,509 0 

Gross Costs with the public 0 221 459 0 1,185 9,323 0 

Less: Earned Revenue 0 (6) (1) 0 0 (386) 0 

Net Costs with the public 0 215 458 0 1,185 8,937 0 

Net Cost: Financial Program 0 314 (64) 0 1,206 13,446 0 

ECONOMIC PROGRAM: 

Intra-governmental Gross Costs 90 0 12,727 0 0 0 75 

Less: Earned Revenue (4) 0 (2,260) 0 0 0 (11) 

Intra-governmental Net Costs 86 0 10,467 0 0 0 64 

Gross Costs with the public 515 0 308,859 0 0 0 3,451 

Less: Earned Revenue (627) 0 (11,698) 0 0 0 (3,566) 

Net Costs with the public (112) 0 297,161 0 0 0 (115) 

Net Cost: Economic Program (26) 0 307,628 0 0 0 (51) 

SECURITY PROGRAM: 

Intra-governmental Gross Costs 0 0 141 71 0 0 0 

Less: Earned Revenue 0 0 (19) (3) 0 0 0 

Intra-governmental Net Costs 0 0 122 68 0 0 0 

Gross Costs with the public 0 0 156 57 0 0 0 

Less: Earned Revenue 0 0 0 0 0 0 0 

Net Costs with the public 0 0 156 57 0 0 0 

Net Cost: Security Program 0 0 278 125 0 0 0 

MANAGEMENT PROGRAM: 

Intra-governmental Gross Costs 0 65 160 0 0 0 0 

Less: Earned Revenue 0 (180) (206) 0 0 0 0 

Intra-governmental Net Costs 0 (115) (46) 0 0 0 0 

Gross Costs with the public 0 102 337 0 0 0 0 

Less: Earned Revenue 0 0 0 0 0 0 0 

Net Costs with the public 0 102 337 0 0 0 0 

Net Cost: Management Program 0 (13) 291 0 0 0 0 

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 0 0 818 0 0 0 0 

Net Cost of Operations $ (26) $ 301 $ 308,951 $ 125 $ 1,206 $ 13,446 $ (51) 

* Additional information by DO components are provided on subsequent page 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

241 

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations (in millions): 

FOR YEAR ENDED SEPTEMBER 30, 2010 Alcohol, 

Office of the Office of Tobacco Eliminations 

Comptroller of the Thrift Tax and Combined & 9/30/2010 

Program Costs: the Currency Supervision Trade Bureau Total Adjustments Consolidated 

FINANCIAL PROGRAM: 

Intra-governmental Gross Costs $ 0 $ 0 $ 15 $ 6,613 $ (1,985) $ 4,628 

Less: Earned Revenue 0 0 0 (2,491) 276 

Intra-governmental Net Costs 0 0 15 4,122 (1,709) 2,413 

Gross Costs with the public 0 0 38 11,226 0 

Less: Earned Revenue 0 0 (3) (396) 0 (396) 

Net Costs with the public 0 0 35 10,830 0 

Net Cost: Financial Program 0 0 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) 0 (2,306) 2,279 

Intra-governmental Net Costs 90 29 15 10,751 (10,382) 369 

Gross Costs with the public 676 202 39 313,742 0 

Less: Earned Revenue (766) (220) 0 (16,877) 0 (16,877) 

Net Costs with the public (90) (18) 39 296,865 0 

Net Cost: Economic Program 0 11 54 307,616 (10,382) 297,234 

SECURITY PROGRAM: 

Intra-governmental Gross Costs 0 0 0 212 (81) 131 

Less: Earned Revenue 0 0 0 (22) 18 

Intra-governmental Net Costs 0 0 0 190 (63) 127 

Gross Costs with the public 0 0 0 213 0 

Less: Earned Revenue 0 0 0 0 0 0 

Net Costs with the public 0 0 0 213 0 

Net Cost: Security Program 0 0 0 403 (63) 340 

MANAGEMENT PROGRAM: 

Intra-governmental Gross Costs 0 0 0 225 (82) 143 

Less: Earned Revenue 0 0 0 (386) 330 

Intra-governmental Net Costs 0 0 0 (161) 248 87 

Gross Costs with the public 0 0 0 439 0 

Less: Earned Revenue 0 0 0 0 0 0 

Net Costs with the public 0 0 0 439 0 

Net Cost: Management Program 0 0 0 278 248 526 

Total Program Cost Before Assumption Changes 0 11 104 323,249 (11,906) 

(2,215) 

11,226 

10,830 

(27) 

313,742 

296,865 

(4) 

213 

213 

(56) 

439 

439 

311,343 

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes 2 0 0 820 0 820 

Net Cost of Operations $ 2 $ 11 $ 104 $ 324,069 $ (11,906) $ 312,163 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
the department of the treasury 

242 

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations (in millions): 

FOR YEAR ENDED SEPTEMBER 30, 2009 Fin. 

Bureau of Bureau of Crimes Financial Internal 

Engraving the Public Departmental Enforcement Management Revenue 

Program Costs: & Printing Debt Offices Network Service Service U.S. Mint 

FINANCIAL PROGRAM: 

Intra-governmental Gross Costs $ 0 $ 111 $ 1,440 $ 0 $ 184 $ 4,145 $ 0 

Less: Earned Revenue 0 (22) (1,948) 0 (167) (55) 0 

Intra-governmental Net Costs 0 89 (508) 0 17 4,090 0 

Gross Costs with the public 0 221 829 0 1,153 8,725 0 

Less: Earned Revenue 0 (8) (1) 0 0 (313) 0 

Net Costs with the public 0 213 828 0 1,153 8,412 0 

Net Cost: Financial Program 0 302 320 0 1,170 12,502 0 

ECONOMIC PROGRAM: 

Intra-governmental Gross Costs 83 0 12,151 0 0 0 73 

Less: Earned Revenue (3) 0 (6,146) 0 0 0 (10) 

Intra-governmental Net Costs 80 0 6,005 0 0 0 63 

Gross Costs with the public 392 0 206,456 0 0 0 2,380 

Less: Earned Revenue (481) 0 (10,824) 0 0 0 (2,456) 

Net Costs with the public (89) 0 195,632 0 0 0 (76) 

Net Cost: Economic Program (9) 0 201,637 0 0 0 (13) 

SECURITY PROGRAM: 

Intra-governmental Gross Costs 0 0 121 68 0 0 0 

Less: Earned Revenue 0 0 (16) (1) 0 0 0 

Intra-governmental Net Costs 0 0 105 67 0 0 0 

Gross Costs with the public 0 0 147 55 0 0 0 

Less: Earned Revenue 0 0 0 0 0 0 0 

Net Costs with the public 0 0 147 55 0 0 0 

Net Cost: Security Program 0 0 252 122 0 0 0 

MANAGEMENT PROGRAM: 

Intra-governmental Gross Costs 0 56 145 0 0 0 0 

Less: Earned Revenue 0 (159) (222) 0 0 0 0 

Intra-governmental Net Costs 0 (103) (77) 0 0 0 0 

Gross Costs with the public 0 104 329 0 0 0 0 

Less: Earned Revenue 0 0 0 0 0 0 0 

Net Costs with the public 0 104 329 0 0 0 0 

Net Cost: Management Program 0 1 252 0 0 0 0 

Total Program Cost Before Assumption Changes (9) 303 202,461 122 1,170 12,502 (13) 

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes 0 0 0 0 0 0 0 

Net Cost of Operations $ (9) $ 303 $ 202,461 $ 122 $ 1,170 $ 12,502 $ (13) 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

243 

24. Consolidated Statement of Net Cost and Net Costs of Treasury Sub-organizations (in millions): 

FOR YEAR ENDED SEPTEMBER 30, 2009 Alcohol, 

Office of the Office of Tobacco Eliminations 

Comptroller of the Thrift Tax and Combined & 9/30/2009 

Program Costs: the Currency Supervision Trade Bureau Total Adjustments Consolidated 

FINANCIAL PROGRAM: 

Intra-governmental Gross Costs $ 0 $ 0 $ 14 $ 5,894 $ (1,548) $ 4,346 

Less: Earned Revenue 0 0 0 (2,192) 258 

Intra-governmental Net Costs 0 0 14 3,702 (1,290) 2,412 

Gross Costs with the public 0 0 39 10,967 0 

Less: Earned Revenue 0 0 (2) (324) 0 (324) 

Net Costs with the public 0 0 37 10,643 0 

Net Cost: Financial Program 0 0 51 14,345 (1,290) 13,055 

ECONOMIC PROGRAM: 

Intra-governmental Gross Costs 100 37 13 12,457 (12,066) 391 

Less: Earned Revenue (22) (11) 0 (6,192) 6,166 

Intra-governmental Net Costs 78 26 13 6,265 (5,900) 365 

Gross Costs with the public 632 202 37 210,099 0 

Less: Earned Revenue (752) (245) (0) (14,758) (1) (14,759) 

Net Costs with the public (120) (43) 37 195,341 (1) 

Net Cost: Economic Program (42) (17) 50 201,606 (5,901) 195,705 

SECURITY PROGRAM: 

Intra-governmental Gross Costs 0 0 0 189 (66) 123 

Less: Earned Revenue 0 0 0 (17) 14 

Intra-governmental Net Costs 0 0 0 172 (52) 120 

Gross Costs with the public 0 0 0 202 0 

Less: Earned Revenue 0 0 0 0 0 0 

Net Costs with the public 0 0 0 202 0 

Net Cost: Security Program 0 0 0 374 (52) 322 

MANAGEMENT PROGRAM: 

Intra-governmental Gross Costs 0 0 0 201 (65) 136 

Less: Earned Revenue 0 0 0 (381) 321 

Intra-governmental Net Costs 0 0 0 (180) 256 76 

Gross Costs with the public 0 0 0 433 0 

Less: Earned Revenue 0 0 0 0 0 0 

Net Costs with the public 0 0 0 433 0 433 

Total Program Cost Before Assumption Changes (42) (17) 101 216,578 (6,987) 209,591 

(1,934) 

10,967 

10,643 

(26) 

210,099 

195,340 

(3) 

202 

202 

(60) 

433 

Net Cost: Management Program 0 0 0 253 256 509 

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption Changes 0 0 0 0 0 0 

Net Cost of Operations $ (42) $ (17) $ 101 $ 216,578 $ (6,987) $ 209,591 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
the department of the treasury 

244 

24. Consolidated Statement of Net Cost and Net Costs of Departmental Offices Accounts (in millions): 

FOR YEAR ENDED SEPTEMBER 30, 2010 Exchange Government Office of Office of DO 

Stabilization Sponsored International Financial Combined 

Program Costs: Fund Enterprises Affairs Stability All Others Total 

FINANCIAL PROGRAM: 

Intra-governmental Gross Costs $ - $ - $ - $ - $ 1,712 $ 1,712 

Less: Earned Revenue 0 0 (2,234) (2,234) 

Gross Costs with the public 0 0 459 459 

Net Costs with the public 0 0 0 0 458 458 

Less: Earned Revenue (19) (1,035) (1,173) (33) (2,260) 

Gross Costs with the public 1,476 321,679 2,348 (23,176) 6,532 308,859 

Net Costs with the public 103 316,048 2,348 (27,867) 6,529 297,161 

Less: Earned Revenue 0 0 0 0 (19) (19) 

Gross Costs with the public 0 0 0 0 156 156 

Net Costs with the public 0 0 0 0 156 156 

Less: Earned Revenue 0 0 0 0 (206) (206) 

Gross Costs with the public 0 0 0 0 337 337 

Net Costs with the public 0 0 0 0 337 337 

Total Program Cost Before Assumption Changes 84 321,679 2,395 (23,083) 7,058 308,133 

Net Cost of Operations $ 84 $ 321,679 $ 2,395 $ (23,083) $ 7,876 $ 308,951 

Intra-governmental Net Costs 0 0 0 0 (522) (522) 

Less: Earned Revenue 0 0 (1) (1) 

Net Cost: Financial Program 0 0 0 0 (64) (64) 

ECONOMIC PROGRAM: 0 

Intra-governmental Gross Costs 0 6,666 47 5,957 57 12,727 

Intra-governmental Net Costs (19) 5,631 47 4,784 24 10,467 

Less: Earned Revenue (1,373) (5,631) (4,691) (3) (11,698) 

Net Cost: Economic Program 84 321,679 2,395 (23,083) 6,553 307,628 

SECURITY PROGRAM: 

Intra-governmental Gross Costs 0 0 0 0 141 141 

Intra-governmental Net Costs 0 0 0 0 122 122 

Less: Earned Revenue 0 0 0 0 0 0 

Net Cost: Security Program 0 0 0 0 278 278 

MANAGEMENT PROGRAM: 

Intra-governmental Gross Costs 0 0 0 0 160 160 

Intra-governmental Net Costs 0 0 0 0 (46) (46) 

Less: Earned Revenue 0 0 0 0 0 0 

Net Cost: Management Program 0 0 0 0 291 291 

(Gains)/Losses on Pension, ORB, or OPEB 

Assumption 0 0 0 0 818 818 

note 24. consolidated statement of net cost and net costs of treasury sub-organizations 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

25.	 aDDitiOnal infOrmatiOn relateD tO the COmbineD statements 

Of buDgetary resOurCes 

federal agencies are required to disclose additional information related to the combined statements of budgetary resources (per 

oMb circular no. a-136). In accordance with sffas no. 7, the Department must report the value of goods and services ordered 

and obligated which have not been received. this amount includes any orders for which advance payment has been made but for 

which delivery or performance has not yet occurred. the information for the fiscal years ended september 30, 2010 and september 

30, 2009 is as follows (in millions): 

Undelivered Orders 

2010	 2009 

Undelivered orders: 

Paid $ 126 $ 171 

Unpaid 169,305 185,641 

Undelivered orders at the end of the year $ 169,431 $ 185,812 

Contributed Capital	 $ 20 $ 40 

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. category a represents resources apportioned for calendar quarters. 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:	 2010 2009 

Direct - Category A $ 2,849 $ 14,715 

Direct - Category B 330,068 977,506 

Direct - Exempt from Apportionment 481,785 390,305 

Total Direct 814,702 1,382,526 

Reimbursable - Category A 11 1 

Reimbursable - Category B 4,883 3,386 

Reimbursable - Exempt from Apportionment 1,242 1,282 

Total Reimbursable 6,136 4,669 

Total Direct and Reimbursable Obligations Incurred $ 820,838 $ 1,387,195 

note 25. additional information related to the combined statements of budgetary resources 245

part 3: annual financial report
the department of the treasury 

246 

Terms of Borrowing Authority Used 

several Department’s programs have authority to borrow under the Federal Credit Reform Act of 1990 (fcra), as amended. the 

ffb and IaP also have borrowing authority. the fcra provides indefinite borrowing authority to financing accounts to fund 

the unsubsidized portion of direct loans and to satisfy obligations in the event the financing account’s resources are insufficient. 

repayment requirements are defined by oMb circular a-11. Interest expense due is calculated based on the beginning balance of 

borrowings outstanding and the borrowings/repayments activity that occurred during the fiscal year. undisbursed treasury 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 the last day of the fiscal year, on 

september 30, 2010. Interest rates on fcra borrowings range from 0.08 percent to 9.38 percent. 

Available Borrowing, End of Year: 

2010 2009 

Beginning Balance $ 51,510 $ 29,810 

Current Authority 151,473 548,734 

Decreases (19,274) (107,475) 

Borrowing Authority Withdrawn (37,982) 0 

Borrowing Authority Converted to Cash (122,250) (419,559) 

Ending Balance $ 23,477 $ 51,510 

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 2010, was not published 

at the time that these financial statements were issued. the President’s budget is expected to be published in february 2011, and 

can be located at the oMb website http://www.whitehouse.gov/omb. It 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 2009 

Agency Financial Report and the actual fiscal year 2009 balances included in the fiscal year 2011 President’s budget (Pb). 

note 25. additional information related to the combined statements of budgetary resources 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

247

RECONCILIATION OF FISCAL YEAR 2009 COMBINED STATEMENT OF BUDGETARY RESOURCES 

TO ThE FISCAL YEAR 2011 PRESIDENT’S BUDGET (IN MILLIONS) 

Outlays (net 

Budgetary of offsetting Offsetting Obligations 

Resources collections) Receipts Net Outlays Incurred 

Statement of Budgetary Resources Amounts $ 1,835,034 $ 966,779 $ (44,614) $ 922,165 $ 1,387,195 

Included in the Treasury Department Chapter of the President’s Budget 

(PB) but not in the Statement of Budgetary Resources (SBR): 

IRS non-entity tax credit payments (1) 82,378 82,378 (5) 82,373 82,378 

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico 473 473 0 473 473 

Non-Treasury offsetting receipts included in Treasury chapter of PB 0 0 (40) (40) 0 

Treasury offsetting receipts considered to be “General Fund” transactions 

for reporting purposes (2) 0 0 128 128 0 

Continued dumping subsidy – CBP 217 226 0 226 226 

SIG for TARP Appropriations not recorded 35 0 0 0 0 

Other 21 0 3 3 1 

Subtotal 83,124 83,077 86 83,163 83,078 

Included in the SBR but not in the Treasury Department chapter of the PB: 

Treasury resources shown in non-Treasury chapters of the PB, included in 

SBR (3) (38,760) (3,281) 0 (3,281) (4,423) 

Offsetting collections net of collections shown in PB (8,013) 0 59 59 (1) 

Treasury offsetting receipts shown in other chapters of PB, part of which is 

in SBR 0 0 531 531 0 

Unobligated balance carried forward, recoveries of prior year funds and 

expired accounts (201,406) 0 0 0 (73) 

Exchange Stabilization Fund resources not shown in PB (4) (34,317) 0 0 0 (64) 

Treasury Financing Accounts (CDFI, OFS and GSEs) (694,656) (300,862) 0 (300,862) (652,828) 

Enacted reduction, 50% Transfer Accounts, and Capital Transfers to 

General Fund not included in PB (17) 0 0 0 0 

Other (5) 0 0 0 0 

Subtotal (977,174) (304,143) 590 (303,553) (657,389) 

Trust Fund – Comptroller of the Currency (OCC) (5) (71) 71 0 71 0 

President’s Budget Amounts* $ 940,913 $ 745,784 $ (43,938) $ 701,846 $ 812,884 

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. 	Exchange Stabilization Fund (ESF) is a self-sustaining component that finances its operations with the buying and selling of foreign currencies to regulate the fluctuations of 

the dollar. Because of the nature of the activities of the component, it does not receive appropriations, and therefore is excluded from the PB. 

5. The OCC negative outlay also appears in the offsetting receipts section of the Analytical Perspectives, and hence shown as a reconciling item.

 * 	Per the President’s Budget for fiscal year 2011 – Budgetary Resources and Outlays are from the Analytical Perspective. 

Offsetting Receipts and Obligations Incurred are from the Appendix. 

note 25. additional information related to the combined statements of budgetary resources 

part 3: annual financial report
the department of the treasury 

248 

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. 

Change in Accounting Policy Effect on Unobligated and Unpaid Obligations 

beginning 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 allows 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 (see note1 aD for change in accounting Policy). 

In order to facilitate this change in accounting, an adjustment for $14,135 million to the sbr line, Unobligated balances, brought 

forward, October 1, 2009 was required. this adjustment primarily included additions of prior year accumulated fcDa investment 

balances now permitted by office of Management and budget to be reported on the sbr through the use of the new ussgl. these 

budgetary adjustments have no impact on esf proprietary account balances in fiscal year 2010 or previous years. 

In order to maintain appropriate budgetary relationships on the sbr between budgetary resources, status of budgetary resources, 

and relationship of obligations to outlays, an adjustment corresponding to the fcDa investment balance of net $14,135 million 

was made to Obligations Incurred, Unpaid Obligations Brought Forward, and Obligations Incurred, net. 

note 25. additional information related to the combined statements of budgetary resources 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

249 

26. 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, 2010 and september 30, 2009 (in millions): 

Tax Year 2010

2010 2009 2008 Pre-2008 Collections 

Individual Income and FICA Taxes $ 1,315,876 $ 635,920 $ 20,182 $ 16,782 $ 1,988,760 

Corporate Income Taxes 55,035 221,235 716 951 277,937 

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 0 0 245 

Tax Related Cash Revenue Received 1,431,515 886,405 21,915 28,995 2,368,830 

Federal Reserve Earnings 56,582 19,263 0 0 75,845 

Fines, Penalties, Interest & Other Revenue - Non-Tax Related 1,613 22 0 0 1,635 

Non-Tax Related Cash Revenue Received 58,195 19,285 0 0 77,480 

Total Cash Revenue Received 1,489,710 905,690 21,915 28,995 2,446,310 

Less Amounts Collected for Non-Federal Entities (387) 

Total $ 2,445,923 

Tax Year 2009 

2009 2008 2007 Pre-2007 Collections 

Individual Income and FICA Taxes $ 1,296,427 $ 702,557 $22,250 $15,323 $ 2,036,557 

Corporate Income Taxes 138,144 69,016 1,692 16,630 225,482 

Estate and Gift Taxes 92 3,979 796 19,810 24,677 

Excise Taxes 54,502 12,512 102 132 67,248 

Railroad Retirement Taxes 3,559 1,148 3 1 4,711 

Unemployment Taxes 4,772 1,859 36 98 6,765 

Fines, Penalties, Interest & Other Revenue - Tax Related 516 0 0 0 516 

Tax Related Cash Revenue Received 1,498,012 791,071 24,879 51,994 2,365,956 

Federal Reserve Earnings 24,552 9,766 0 34,318 

Fines, Penalties, Interest & Other Revenue - Non-Tax Related 1,376 37 0 0 1,413 

Non-Tax Related Cash Revenue Received 25,928 9,803 0 0 35,731 

Total Cash Revenue Received 1,523,940 800,874 24,879 51,994 2,401,687 

Less Amounts Collected for Non-Federal Entities (487) 

Total $ 2,401,200 

amounts reported for corporate Income taxes collected in fiscal year 2010 include corporate taxes of $13,179 million for tax year 

2011 (similarly, amounts reported for corporate Income taxes collected in fiscal year 2009 include corporate taxes of $9,000 million 

for tax year 2010). 

note 26. collection and disposition of custodial revenue 

part 3: annual financial report
the department of the treasury 

Amounts Provided to Fund the Federal Government 

for the years ended september 30, 2010 and september 30, 2009, collections of custodial revenue transferred to other entities were 

as follows (in millions): 

2010 2009 

Department of the Interior $ 361 $ 453 

General Fund 1,975,625 1,962,775 

Total $ 1,975,986 $ 1,963,228 

Federal Tax Refunds Paid 

refund activity, broken out by revenue type and by tax year, was as follows for the years ended september 30, 2010 and september 

30, 2009 (in millions): 

Tax Year 

2010 2009 2008 Pre-2008 2010 Refunds 

Individual Income and FICA Taxes 

Corporate Income Taxes 

Estate and Gift Taxes 

Excise Taxes 

Railroad Retirement Taxes 

Unemployment Taxes 

Total 

$ 

$

113,577 

2,630 

0 

429 

0 

1 

116,637 

$

$

 179,159 

15,913 

209 

611 

1 

56 

195,949 

$

$

 48,846 

16,414 

439 

171 

0 

13 

65,883 

$ 29,724 

61,229 

277 

215 

0 

23 

$ 91,468 

$ 371,306 

96,186 

925 

1,426 

1 

93 

$ 469,937 

Tax Year 

2009 2008 2007 Pre-2007 2009 Refunds 

Individual Income and FICA Taxes $ 1,075 $ 293,971 $ 30,361 $ 14,222 $ 339,629 

Corporate Income Taxes 6,626 32,646 17,370 38,558 95,200 

Estate and Gift Taxes 0 324 566 358 1,248 

Excise Taxes 535 541 81 626 1,783 

Railroad Retirement Taxes 0 2 0 1 3 

Unemployment Taxes 1 66 13 29 109 

Total $ 8,237 $ 327,550 $ 48,391 $ 53,794 $ 437,972 

Federal Tax Refunds Payable 

as of september 30, 2010 and september 30, 2009, refunds payable to taxpayers consisted of the following (in millions): 

2010 2009 

Alcohol, Tobacco Tax and Trade Bureau $ 13 $ 9
 

Internal Revenue Service 4,133 4,031
 

Total $ 4,146 $ 4,040 

250 note 26. collection and disposition of custodial revenue 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

251

27. 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 DcP. In addition, several Department bureaus operate with “public enterprise revolving funds” and receive no 

appropriations from the congress. these bureaus are beP, u.s. Mint, occ, and ots. other miscellaneous earmarked funds are 

managed by bPD, Do, fMs, Irs, and tff. 

the following is a list of earmarked funds and a brief description of the purpose, accounting, and uses of these funds. 

Exchange Stabilization Fund (ESF) 

ESF 20X4274 ESF Money Market Guaranty Facility 

ESF 20X4444 Exchange Stabilization Fund 

D.C. Pensions 

DCP 20X1713 Federal payment – D.C. Judicial Retirement 

DCP 20X1714 Federal payment – D.C. Federal Pension Fund 

DCP 20X5511 D.C. Federal Pension Fund 

DCP 20X8212 D.C. Judicial Retirement and Survivor’s Annuity Fund 

Public Enterprise Revolving Funds 

BEP 20X4502 Bureau of Engraving and Printing Fund 

MNT 20X4159 Public Enterprise Revolving Fund 

OCC 20X8413 Assessment Funds 

OTS 20X4108 Public Enterprise Revolving Fund 

IRS 20X4413 Federal Tax Lien Revolving Fund 

Other Earmarked Funds 

BPD 20X5080 Gifts to Reduce Public Debt 

DO 20X5407 Sallie Mae Assessments 

DO 20X5590 Financial Research Fund 

DO 20X5816 Confiscated and Vested Iraqi Property and Assets 

DO 20X8790 Gifts and Bequests Trust Fund 

FMD 205445 Debt Collection 

FMD 20X5081 Presidential Election Campaign 

FMD 20X8902 Esther Cattell Schmitt Gift Fund 

FMS 204/55445 Debt Collection Special Fund 

FMS 205/65445 Debt Collection Special Fund 

FMS 206/75445 Debt Collection Special Fund 

FMS 207/85445 Debt Collection Special Fund 

FMS 208/95445 Debt Collection Special Fund 

FMS 209/05445 Debt Collection Special Fund 

FMS 200/15445 Debt Collection Special Fund 

IRS 20X5510 Private Collection Agency Program 

IRR 20X5433 Informant Reimbursement 

TFF 20X5697 Treasury Forfeiture Fund 

the esf uses funds to purchase or sell foreign currencies, to hold u.s. foreign exchange and sDr assets, and to provide financing 

to foreign governments. esf accounts and reports its holdings to fMs on the sf224, “statement of transactions,” as well as to the 

congress and the Department’s policy office. the gold reserve act of 1934, bretton Woods agreement act of 1945, P.l. 95-147 

and P.l. 94-564 established and authorized the use of the fund. sDrs in the IMf, Investments in u.s. securities (bPD), and 

note 27. earmarked funds 

part 3: annual financial report
the department of the treasury 

Investments in foreign currency assets are the sources of revenues or other financing sources. esf’s earnings and realized gains on 

foreign currency assets represent inflows of resources to the government, and the revenues earned are the result of intra-governmental 

inflows. 

D.c. Pension funds provide annuity payments for retired D.c. teachers, police officers, judges, and firefighters. the sources of 

revenues are through annual appropriations, employees’ contributions, and interest earnings from investments. all proceeds are 

earmarked. note 21 provides detailed information on various funds managed by the office of DcP. 

the Department’s four non-appropriated bureaus, Mint, beP, occ, and ots, operate “public enterprise funds” that account for 

the revenue and expenses related to the production and sale of numismatic products and circulating coinage (Mint), the currency 

printing activities (beP), and support of oversight functions of banking (occ) and thrift operations (ots). 31 usc § 5142 

established the revolving fund for beP to account for revenue and expenses related to the currency printing activities. Public law 

104-52 (31 usc §5136) established the Public enterprise fund for the Mint to account for all revenue and expenses related to the 

production and sale of numismatic products and circulating coinage. revenues and other financing sources at the Mint are mainly 

from the sale of numismatic and bullion coins, and the sale of circulating coins to the federal reserve bank system. 12 usc § 481 

established the assessment funds for occ, and 12 u.s.c. § 1467 governs the collection and use of assessments and other funds by 

ots. revenue and financing sources are from the bank examination and assessments for the oversight of the national banks, savings 

associations, and savings and loan holding companies. these 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, statutory 

laws, 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 federal 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. the funds are 

invested in securities issued by the Department’s bureau of the Public Debt (bPD). the cash collected by bPD is deposited in the 

general fund of the u.s. government, which uses the cash for general government purposes. 

the investments provide Department bureaus and other federal agencies with authority to draw upon the general fund of the u.s. 

government to make future benefit payments or other expenditures. When the Department bureaus or other federal agencies require 

redemption of these securities to make expenditures, the government finances those expenditures out of accumulated cash balances, 

by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. this is the 

same way that the government finances all other expenditures. 

the securities are an asset to the Department bureaus and other federal agencies and a liability of the bPD. the general fund of the 

u.s. government is liable to bPD. because the 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 of the u.s. government remains liable to 

bPD for the invested balances and bPD remains liable to the investing Department bureaus (see note 4). 

252 note 27. earmarked funds 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

253 

Summary Information for Earmarked Funds as of and for the Year ended September 30, 2010 

(in millions): 

Public 

Exchange Enterprise Other Combined 

Stabilization D.C. Revolving Earmarked Earmarked 9/30/2010 

Fund Pensions Funds Funds Funds Eliminations Total 

ASSETS 

Fund Balance $ 0 $ 7 $ 490 $ 362 $ 859 $ 0 $ 859 

Investments and Related Interest - Intragovernmental 20,436 3,980 1,398 1,385 27,199 27,199 0 

Cash, Foreign Currency and Other 

Monetary Assets 70,878 0 0 12 70,890 0 70,890 

Investments and Related Interest 12,616 0 0 0 12,616 0 12,616 

Other Assets 0 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 

Certificates Issued to Federal Reserve 

Banks 

Allocation of Special Drawing Rights 

0 

5,200 

54,958 

0 

0 

0 

38 

0 

0 

260 

0 

0 

298 

5,200 

54,958 

55 

0 

0 

243 

5,200 

54,958 

Total Liabilities 60,185 9,797 666 715 71,363 55 71,308 

Net Position 

Unexpended Appropriations-Earmarked 

Funds 

Cumulative Results of OperationsEarmarked Funds 

200 

43,545 

0 

(5,805) 

0 

2,528 

0 

1,158 

200 

41,426 

0 

0 

200 

41,426 

Other Liabilities 27 9,797 628 455 10,907 0 10,907 

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) $ 0 $ (6,745) $ (177) $ (6,568) 

Gains/Losses on Pension, ORB, or OPEB 

Assumption Changes $ 0 $ 818 $ 2 $ 0 $ 820 $ 0 $ 820 

Total Net Cost of Operations $ 84 $ 1,107 $ (64) $ 229 $ 1,356 $ (97) $ 1,453 

Statement of Changes in Net Position 

Cumulative Results of Operations: 

Beginning Balance, as Adjusted $ 43,647 $ (5,225) $ 2,465 $ 766 $ 41,653 $ 0 $ 41,653 

Budgetary Financing Sources (18) 527 (13) 384 880 (12) 892 

Other Financing Sources 0 0 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) 

Change in Net Position (102) (580) 63 392 (227) 47 (274) 

Ending Balance $ 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.
 

note 27. earmarked funds 

part 3: annual financial report
the department of the treasury 

254 

Summary Information for Earmarked Funds as of and for the Year ended September 30, 2009 

(in millions): 

Public 

Exchange Enterprise Other Combined 

Stabilization D.C. Revolving Earmarked Earmarked 9/30/2009 

Fund Pensions Funds Funds Funds Eliminations* Total 

ASSETS 

Fund Balance $ 0 $ 0 $ 573 $ 312 $ 885 $ 0 $ 885 

Investments and Related Interest - Intragovernmental 19,816 3,866 1,346 707 25,735 25,735 0 

Cash, Foreign Currency and Other 

Monetary Assets 71,662 0 0 18 71,680 0 71,680 

Investments and Related Interest 13,537 0 0 0 13,537 0 13,537 

Other Assets 0 13 1,207 104 1,324 10 1,314 

Total Assets $ 105,015 $ 3,879 $ 3,126 $ 1,141 $ 113,161 $ 25,745 $ 87,416 

LIABILITIES 

Intra-governmental Liabilities 

Certificates Issued to Federal Reserve 

Banks 

Allocation of Special Drawing Rights 

$ 0 

5,200 

55,953 

$ 0 

0 

0 

$ 37 

0 

0 

$ 194 

0 

0 

$ 231 

5,200 

55,953 

$ 28 

0 

0 

$ 203 

5,200 

55,953 

Total Liabilities 61,169 9,104 660 375 71,308 28 71,280 

Net Position 

Unexpended Appropriations-Earmarked 

Funds 

Cumulative Results of OperationsEarmarked Funds 

200 

43,646 

0 

(5,225) 

0 

2,466 

0 

766 

200 

41,653 

0 

0 

200 

41,653 

Other Liabilities 16 9,104 623 181 9,924 0 9,924 

Total Liabilities and Net Position $ 105,015 $ 3,879 $ 3,126 $ 1,141 $ 113,161 $ 28 $ 113,133 

Statement of Net Cost 

Gross Cost $ 1,117 $ 785 $ 3,899 $ 214 $ 6,015 $ 60 $ 5,955 

Less: Earned Revenue (4,951) (134) (3,981) 0 (9,066) (187) (8,879) 

Gains/Losses on Pension, ORB, or OPEB 

Assumption Changes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 

Total Net Cost of Operations $ (3,834) $ 651 $ (82) $ 214 $ (3,051) $ (127) $ (2,924) 

Cumulative Results of Operations: 

Beginning Balance, as Adjusted 

Budgetary Financing Sources 

Other Financing Sources 

$ 39,618 

194 

0 

$ (4,982) 

408 

0 

$ 2,350 

0 

34 

$ 575 

345 

60 

$ 37,561 

947 

94 

$ 0 

1 

(27) 

$ 37,561 

946 

121 

Net Cost of Operations 3,834 (651) 82 (214) 3,051 127 2,924 

Total Cumulative Results of 

Operations $ 43,646 $ (5,225) $ 2,466 $ 766 $ 41,653 $ 101 $ 41,552 

Total Financing Sources 194 408 34 405 1,041 (26) 1,067 

Net Changes 4,028 (243) 116 191 4,092 101 3,991 

* 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. 

note 27. earmarked funds 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

255 

28. reCOnCiliatiOn Of net COst Of OperatiOns tO buDget 

the reconciliation of net cost of operations to budget explains the difference between the budgetary net obligations and the 

proprietary net cost of operations. for fiscal years 2010 and 2009, oMb did not prescribe a format for this reconciliation in oMb 

circular no. a-136, Financial Reporting Requirements, as amended, so that preparers might develop a more robust presentation 

tailored to their agency. as of september 30, 2010 and september 30, 2009, the reconciliation of net cost of operations to budget 

consisted of the following (in millions): 

2010 2009 

RESOURCES USED TO FINANCE ACTIvITIES: 

Budgetary Resources Obligated: 

Obligations Incurred $ 820,838 $ 1,387,195 

Less: Spending Authority from Offsetting Collections and Recoveries (251,553) (321,262) 

Obligations Net of Offsetting Collections and Recoveries 569,285 1,065,933 

Less: Offsetting Receipts (178,909) (44,614) 

Net Obligations 390,376 1,021,319 

Other Resources: 

Donations and Forfeiture of Property 319 127 

Financing Sources for Accrued Interest and Discount on the Debt 11,086 6,027 

Transfers In/Out Without Reimbursement (42) (36) 

Imputed Financing from Cost Absorbed by Others 1,008 793 

Transfers to the General Fund and Other (Note 23) (128,945) (217,704) 

Net Other Resources Used to Finance Activities (116,574) (210,793) 

Total Resources Used to Finance Activities 273,802 810,526 

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 20,955 49,063 

Credit Program Collections that Increase Liabilities for Loans Guarantees or Allowances for Subsidy (40,146) (6) 

Adjustment to Accrued Interest and Discount on the Debt 12,011 8,687 

Other (Primarily offset to offsetting receipts) (98,559) 320,755 

Total Resources Used to Finance Items Not Part of the Net Cost of Operations (105,739) 378,499 

Total Resources Used to Finance the Net Cost of Operations 379,541 432,027 

Total Components of Net Cost of Operations that will Require or Generate Resources in Future Periods 307,422 87,673 

Total Components of Net Cost of Operations that will not Require or Generate Resources (28,122) 3,232 

Total Components of Net Cost of Operations that will not Require or 

Generate Resources in the Current Period 279,300 90,905 

Net Cost of Operations $ 658,841 $ 522,932 

note 28. reconciliation of net cost of operations to budget 

part 3: annual financial report
the department of the treasury 

256 

29. finanCial stability anD stimulus aCtivities 

Government Sponsored Enterprises (GSEs) 

the federal national Mortgage association (fannie Mae) and the federal home loan Mortgage corporation (freddie Mac) are 

stockholder-owned gses. congress established these gses to increase the supply of mortgage loans and to reduce the accompanying 

costs. starting in early fiscal year 2008, increasingly difficult conditions in the housing market challenged the soundness and 

profitability of gses, thereby undermining the entire housing market. several actions have been taken by the Department that are 

intended to provide financial stability to the gses (note 9 and 12 disclosures further describes these actions). 

Temporary Guarantee Program Money Market Funds 

In september 2008, the Department established a temporary guarantee Program for Money Market funds. under this Program, 

the Department guaranteed to investors that they would receive the stable share price (ssP) for shares held in participating money 

market funds up to the number of shares held as of the close of business on september 19, 2008. to participate in the Program, 

eligible money market funds had to submit an application and pay a premium of 1 basis point if the fund’s net asset value (naV) is 

greater than or equal to 99.75 percent of the ssP, or 1.5 basis points of the ssP if the fund’s naV is less than 99.75 percent of the 

ssP but greater than or equal to 99.50 percent of the ssP. 

under this program, any outlays would have been paid out initially from the esf, and then under the provisions of section 131 of 

the emergency economic stabilization act of 2008. such outlays would then be reimbursed from funds available under the troubled 

asset relief Program. the temporary guarantee program was extended and continued to provide coverage through september 19, 

2009 to shareholders up to amounts that they held in participating money market funds as of the close of business on september 19, 

2008. as of september 30, 2009, the program had expired. the Department did not receive any claims for payment. as of september 

30, 2009, the Department had collected a total of approximately $1,200 million in program participation payments. all participant 

payments are invested into u.s. government securities. 

Home Ownership Preservation Entity (HOPE Bond) 

the home ownership Preservation entity (hoPe) fund for homeowners act of 2008, of the housing and recovery act of 2008, 

authorizes the secretary of the treasury to issue hoPe bonds without any limitations as to the purchaser of the issuance. Due to the 

cost of issuing special purpose bonds to the public, the secretary of the treasury has decided to issue the hoPe bonds to the federal 

financing bank (ffb). the total outstanding hoPe bonds may not exceed $300,000 million. the ffb’s purchase of hoPe bonds 

issued by the secretary is consistent with the core mission of the ffb. ffb purchased $0.577 million and $462.5 million in bonds at 

par value in fiscal year 2010 and 2009, respectively, with a floating interest rate to be reset quarterly. the interest rate is 0.153 percent 

and 0.183 percent as of september 30, 2010 and september 30, 2009, respectively. the bonds have 30 year maturity dates starting on 

august 27, 2038 and ending on July 16, 2040. the hoPe bonds are reported as investments held-to-maturity and the related interest 

receivable is reported as accrued interest receivable in ffb’s stand-alone financial statements. the hoPe bond transactions are 

subsequently eliminated at the Departmental level. 

Troubled Asset Relief Program (TARP) 

the emergency economic stabilization act of 2008 (eesa) established the troubled asset relief Program (tarP) on october 

3, 2008 to be administered by the Department and established the office of financial stability within the Department’s office of 

Domestic finance. the act gave the treasury secretary broad and flexible authority to purchase and insure mortgages and other 

troubled assets, as well as to inject capital into banks and other commercial companies by taking equity positions in those entities, if 

needed, to stabilize the financial markets. the actions taken by tarP are intended to promote market stability and protect the u.s. 

economy and are disclosed further in note 8. 

note 29. financial stability and stimulus activities 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

257 

Small Business Lending Initiatives 

on september 27, 2010, the small business Jobs and credit act of 2010 (Public law 111-240) was enacted to create the small 

business lending fund Program to direct the secretary of the treasury to make capital investments in eligible institutions in order 

to increase the availability of credit for small businesses, to amend the Internal revenue code of 1986 to provide tax incentives for 

small business job creation, and for other purposes. 

two small business lending initiatives were created: 

Small Business Lending Fund (SBLF) 

the primary purposes of the $30,000 million sblf is to support lending among small and medium sized banks (with assets under 

$10,000 million). the new lending fund is an initiative to invest in smaller banks under terms that provide strong incentives to 

increase lending to small businesses. as participating banks increase lending to small firms compared to 2009 levels, the dividend 

paid to treasury on that capital investment would be reduced. 

as of september 30, 2010, no disbursements were made under the sblf program. 

State Small Business Credit Initiative (SSBCI) 

a $1,500 million initiative that allocates funds to participating states to establish or maintain approved state small business programs 

that include capital access programs. the initiative provides portfolio insurance for business loans and provides for contributions to 

be made by the state to the reserve fund in amounts at least equal to the sum of the amount of the insurance premium charges paid by 

the borrower and the financial institution to the reserve fund for any newly enrolled loan. 

as of september 30, 2010 no disbursements were made under the ssbcI program. 

Establishment of the Consumer Financial Protection Bureau 

the Dodd-frank Wall street reform and consumer Protection act of 2010, which was signed into law on July 21, 2010, established 

the consumer financial Protection bureau (cfPb) within the federal reserve system. the cfPb is charged with protecting 

consumers against deceptive and unscrupulous practices and ensuring that consumers have the information they need to choose 

consumer financial products and services that best meet their needs. the cfPb will implement rules for consumer financial products 

and services, develop supervision programs to regularly examine the most critical bank and nonbank financial services providers, 

and develop programs to promote greater financial literacy of consumers. funding for the cfPb is to be provided by the board of 

governors of the federal reserve system. 

the Department is working to start up the cfPb by defining the organizational structure, establishing program and administrative 

support offices, and recruiting staff. In 2010, cfPb entered into a reimbursable agreement with the Department to provide services 

before the designated transfer date of July 21, 2011. 

American International Group (AIG) 

as described in note 8, in fiscal year 2009 the Department ultimately invested $41,600 million in series e perpetual, non-cumulative 

10 percent preferred shares of aIg through the aIg Investment Program. the Department also received warrants for the purchase of 

approximately 2.7 million shares of aIg common stock. and, to further assist the stability and restructuring of aIg, the Department 

agreed to make an additional $29,800 million available to aIg under the Department’s credit facility. In return, the Department 

received $29,800 million of aIg series f perpetual, non-cumulative 10 percent preferred stock (300,000 shares). the initial 

liquidation preference of the series f preferred shares was zero and increases pro rata by the amount of each drawdown by aIg. as 

of september 30, 2010 and september 30, 2009, aIg had drawn a cumulative $7,544 million and $3,206 million through the credit 

facility, leaving an outstanding commitment to aIg of $22,256 million and $26,594 million, respectively. 

note 29. financial stability and stimulus activities 

part 3: annual financial report
the department of the treasury 

258 

under the initial terms of the credit facility agreement with aIg and the federal reserve bank of new york (frbny), 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 common stock) was issued to a trust established by the frbny. 

subsequent to the initial agreement, a reverse stock split of aIg’s common stock increased this to 79.8 percent. the u.s. 

government is the sole beneficiary of that trust, so that when the stock is ultimately liquidated the proceeds will be deposited into 

the general fund of the u.s. government. the u.s. government will be the ultimate recipient of any dividends on the stock and 

any proceeds from the liquidation of the stock. the accounting and reporting for any activities related to the government’s beneficial 

interest in the stock held by the trust is done by the Department. the trustees of the trust are independent of both the Department 

and the frbny, and are not involved in day-to-day management of aIg. 

as the u.s. government is the sole beneficiary of the trust, and as it is anticipated that the u.s. government will ultimately realize 

an economic benefit from its beneficial interest in the trust, the Department recorded a non-entity asset of $23,472 million as of 

september 30, 2009, and corresponding custodial revenue for the same amount. the value recorded was based on the market value 

of the trust’s aIg holdings at september 30, 2009; as the underlying aIg common stock is actively traded on the new york stock 

exchange, this represents the best independent valuation available for the government’s beneficial interest. as of september 30, 

2010, the underlying market value of the trust’s aIg holdings had declined by approximately $2,666 million. the carrying value of 

the beneficial interest in the trust was reduced by this amount, and a corresponding expense recorded on the statement of custodial 

activity. 

under the terms of the existing trust agreement, the u.s. government’s proceeds will be received when aIg’s credit line with the 

frbny is terminated, aIg has redeemed the preferred stock owned by the Department through tarP, and the trustees sell the 

stock held by the trust. the Department will re-value its beneficial interest in the trust each year until the trust is liquidated. like any 

asset, future events may increase or decrease the value of the u.s. government’s interest in the trust. 

the Department’s participation in enhancing aIg’s capital and liquidity in order to facilitate an orderly restructuring of the company 

are in addition to the frbny activities in this regard. 

as noted in note 8, on september 30, 2010, the Department, the frbny, and aIg announced plans for a restructuring of the 

federal government’s investments in aIg. the aIg recapitalization agreement is intended to convert the trust’s preferred stock 

into common stock that will be transferred to the Department, as custodian for the u.s. government, in the second quarter of fiscal 

year 2011. under this agreement, it is anticipated that the Department would sell its shares in the open market over time. this 

planned conversion of the trust’s preferred stock into common stock, in conjunction with the conversion of tarP’s aIg preferred 

stock into aIg common stock, would reduce the trust’s common stock ownership percentage from 79.8 percent to approximately 

31 percent, with the tarP holding approximately 61 percent of aIg’s common stock. actual execution of the recapitalization 

agreement is contingent on numerous material conditions being satisfied prior to the closing of the agreement. If the closing does not 

occur on or prior to March 15, 2011, any of aIg, the frbny, or the Department may terminate the agreement. 

The American Recovery and Reinvestment Act of 2009 (Recovery Act) 

the President of the united states signed the recovery act into law on february 17, 2009. the recovery act is an extraordinary 

response to a crisis unlike any since the great Depression, and includes measures to modernize the nation’s infrastructure, enhance 

energy independence, expand educational opportunities, preserve and improve affordable health care, provide tax relief, and protect 

those in greatest need. by providing targeted investments and implementing tax provisions to benefit both businesses and individuals, 

the Department of the treasury continued to stimulate the u.s. economy, create and sustain jobs, and build the foundation for longterm economic growth. 

note 29. financial stability and stimulus activities 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

the Department has various responsibilities related to recovery act programs, including the implementation of some 60 tax 

incentives for households and businesses; local and state government support; and investments in renewable energy, low-income 

housing, and health care. the Department’s work on these programs continued in fiscal year 2010. from the beginning, the 

Department has taken a risk-based approach and focused on balancing the requirements of speed, quality, and accountability to 

ensure the timely, accurate, and transparent distribution of recovery act funds. to achieve these objectives, treasury established 

a recovery act implementation team housed within the purview of the assistance secretary for Management and chief financial 

officer responsible for working with the program offices across the Department. the recovery act team facilitates all recovery act 

implementation department-wide and interfaces with the broader recovery act community. as part of this broad responsibility, the 

team establishes internal processes; addresses external data requirements; manages risk inherent in recovery act implementation, in 

conjunction with the Dcfo’s treasury recovery act risk Management council; and coordinates the Department’s recovery act 

audits. 

the Department administers nine recovery act programs: 

•	 community Development financial Institutions (cDfI) Program 

•	 native american cDfI assistance Program 

•	 new Markets tax credit Program 

•	 economic recovery act Payments 

•	 tax Provision Implementation Program 

•	 cash assistance in lieu of tax credits to states for low-Income housing Projects 

•	 cash assistance in lieu of tax credits for specified energy Property 

•	 health Insurance tax credit administration Program 

•	 tax Provision oversight Program 

The Qualified Therapeutic Discovery Project (QTDP) Program 

the Qualified therapeutic Discovery Project (QtDP) program, created in section 9023 of the Affordable Care Act (aca), provides 

tax credits, or grants in lieu of credits, to small firms that demonstrate potential to produce new and cost-saving therapies, support 

job creation, and increase u.s. competitiveness in the healthcare field. the credit covers up to 50 percent of the cost of qualifying 

biomedical research, with a maximum of $5 million per firm and $1 billion overall. It is available only to firms with no more than 250 

employees and only for investments made in 2009 and 2010. Qualifying firms must have current taxable income. additionally, firms 

may opt to receive a grant in lieu of the tax credit. 

note 29. financial stability and stimulus activities 259 

part 3: annual financial report
the department of the treasury 

260 

30. sCheDule Of fiDuCiary aCtivity 

the following funds have been identified by the Department as meeting the criteria for fiduciary activity. Details of the funds, as well 

as fiduciary relationships, is provided below. 

Bureau Fund Code Authority Fund Title 

BEP 20X6513.013 31 USC 5119 Mutilated Currency Claims Funds 

BPD 20X6008 31 USC 3513 Payment Prin. & Interest Govt. Agencies 

FMD 20X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks 

FMD 20X6048 31 USC 3329, 3330 Proceeds of Withheld Foreign Check 

FMD 2015X6078 50 APP. USC 2012 War Claims FD, FCSC 

FMD 20X6092 31 USC 1321 Debt Management Operations 

FMD 20X6104 22 USC 1627 Albanian Claims Fund, Treasury 

FMD 20X6133 31 USC 1322 Payment of Unclaimed Moneys 

FMD 20X6309 22 USC 1627(a) Libyan Claims Settlement Fund 

FMD 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 

IRR 20X6737 90 Stat. 269-270 Internal Revenue Collections for Northern Mariana Island 

IRR 20X6738 31 USC 3513 Coverover Withholdings-U.S. Virgin Islands 

IRR 20X6740 31 USC 3515 Coverover Withholdings-Guam 

IRR 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 

OTS 20X6501.76 31 USC 3513 Small Escrow Amounts 

unclaimed monies were authorized by 31 u.s.c. 5119, which authorized financial Management service, Department of the 

treasury, to collect unclaimed monies on behalf of the public. other fiduciary activities by the Department as listed above are 

included in all other fiduciary funds. 

note 30. schedule of fiduciary activity 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

261

SCHEDULE OF FIDUCIARY ACTIvITY (in millions) 

2010 2009 

Unclaimed All Other Total Unclaimed All Other Total 

Monies- Fiduciary Fiduciary Monies- Fiduciary Fiduciary 

FMD Funds Funds FMD Funds Funds 

Fiduciary Net Assets, 

Beginning of the Year $ 390 $ 208 $ 598 $ 366 $ 43 $ 409 

Increases 

Contributions to Fiduciary Net Assets 103 1,004 1,107 28 1,063 1,091 

Investment earnings 0 1 1 0 1 1 

Total Increases 103 1,005 1,108 28 1,064 1,092 

Decreases 

Disbursements to and on behalf of beneficiaries (73) (1,057) (1,130) (4) (899) (903) 

Total Decreases (73) (1,057) (1,130) (4) (899) (903) 

Net Increase (Decrease) in fiduciary assets 30 (52) (22) 24 165 189 

Fiduciary Net Assets, End of Year $ 420 $ 156 $ 576 $ 390 $ 208 $ 598 

SCHEDULE OF FIDUCIARY NET ASSETS (in millions) 

Unclaimed All Other 2010 Total Unclaimed All Other 2009 Total 

Monies- Fiduciary Fiduciary Monies- Fiduciary Fiduciary 

FMD Funds Funds FMD Funds Funds 

Fiduciary Assets 

Cash and cash equivalents $ 420 $ 57 $ 477 $ 390 $ 193 $ 583 

Investments 0 99 99 0 15 15 

Total Fiduciary Assets $ 420 $ 156 $ 576 $ 390 $ 208 $ 598 

note 30. schedule of fiduciary activity 

part 3: annual financial report
the department of the treasury 

262 

31. 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 antidiscrimination and whistle-blower protection acts, the Department must reimburse the Judgment fund from future appropriations. 

the Department has one contingent liability in fiscal year 2010 related to legal action taken in the case American Council of the Blind 

and Others where losses are determined to be probable and amount of loss cannot be estimated. 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 financial statements, except for the pending legal 

actions described below which may have a materially adverse impact on the financial statements depending on the outcomes of the 

cases. 

Pending Legal Actions 

• American Council of the Blind and Others, et. al. v. Paulson: Plaintiffs have filed suit against the Department under section 504 

of the rehabilitation act seeking the redesign of u.s. currency. In 2007, a u.s. District court judge ruled that the current 

u.s. currency design violates this act; this ruling was subsequently appealed. In 2008, the united states court of appeals for 

the District of columbia circuit affirmed the District court’s ruling. no monetary damages were awarded by the court but the 

Department was ordered to provide meaningful access to united states currency for blind and other visually impaired persons. 

this may require changes to u.s. currency (excluding the one-dollar note.) the court ordered such changes to be completed 

in connection with each denomination of currency, not later than the date when a redesign is next approved by the secretary 

of the treasury. because the cost of implementing these changes will be incorporated into future currency redesign costs, and 

cannot be estimated at this time, no redesign costs have been accrued in the accompanying financial statements as of september 

30, 2010 and september 30, 2009. 

the court of appeals in the above mentioned case ordered the parties to confer and attempt to negotiate attorney fees and 

costs to be awarded the plaintiffs. In December 2008, the parties filed a joint stipulation agreeing to the payment of $672,675 in 

attorney fees and costs that was paid from the Judgment fund in february 2009. 

on May 20, 2010, the bureau of engraving and Printing 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. the beP is currently 

evaluating the comments received and is considering various options to comply with the court’s order. 

note 31. commitments and contingencies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

263

• 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 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. the transaction confirmation received by the complainant from Pay.gov 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. 

•	 Cobell et al. v. Salazar et al. (formerly Cobell v. Kempthorne): native americans allege that the Department of Interior and the 

Department of the treasury have breached trust obligations with respect to the management of the plaintiffs’ individual Indian 

monies. on august 7, 2008, the federal District court issued an opinion awarding $455 million to the plaintiffs. this decision 

was overturned on appeal in July 2009. the appellate court found that the government owes a cost-effective accounting, in 

scale with available funds. 

on December 8, 2009, a settlement was announced between the parties related to the claims raised in this lawsuit, as well 

as other claims for the mismanagement of assets and land. the settlement is contingent on the passage of new legislation to 

authorize the settlement terms and court approval. If the court approves the settlement after notice to the class, the government 

will pay $1.4 billion from the Judgment fund to settle the claims for an historical accounting and for mismanagement of assets 

and land. the government will also make available an additional sum of $2.0 billion from the Judgment fund to purchase 

numerous small interests in land from native americans, as well as for other purposes. It has not been determined which federal 

agency will be assigned responsibility for the payment through the Judgment fund. the Department is unable to determine the 

likelihood of an unfavorable outcome or an estimate of potential loss at this time. the case was appealed to the u.s. supreme 

court however, the appeal was denied in June 2010. legislation authorizing settlement is pending in congress. 

tribal trust fund cases: numerous cases have been filed in u.s. District courts in which native american tribes seek a 

declaration that the u.s. has not provided the tribes with a full and complete accounting of their trust funds, and seek an order 

requiring the government to provide such an accounting. In addition, there are a number of other related cases seeking damages 

in the united states court of federal claims which do not name the Department as a defendant. the government is currently 

in the early stages of a 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. 

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. 

note 31. commitments and contingencies 

part 3: annual financial report
the department of the treasury 

264 

there are other legal actions pending for which the possibility of loss could not be determined, and where the ultimate 

resolution of the legal action may materially affect the Department’s financial position or results. as of september 30, 2010, one 

legal claim existed for which the possibility of loss could not be determined. 

Other Commitments and Contingencies 

Treaties and International Agreements 

the Department does not have any treaties or international agreements to report for fiscal year 2010. 

Multilateral Development Banks (MDB) 

the Department has subscribed to capital for certain MDb, portions of which are callable under certain limited circumstances to 

meet the obligations of the respective MDb. there has never been, nor is there anticipated, a call on the Department’s commitment 

for these subscriptions. as of september 30, 2010 and september 30, 2009, u.s. callable capital in MDb was as follows (in millions): 

2010 2009 

African Development Bank $ 1,634 $ 1,634 

Asian Development Bank 5,911 5,911 

European Bank for Reconstruction and Development 1,805 1,805 

Inter-American Development Bank 28,687 28,687 

International Bank for Reconstruction and Development 24,251 22,641 

Multilateral Investment Guarantee Agency 301 301 

North American Development Bank 1,275 1,275 

Total $ 63,864 $ 62,254 

Terrorism Risk Insurance Program 

the Terrorism Risk Insurance Act (trIa or the act) was signed into law on november 26, 2002. this law was enacted to address 

market disruptions resulting from terrorist attacks on september 11, 2001. the act helps to ensure available and affordable 

commercial property and casualty insurance for terrorism risk, and simultaneously allows private markets to stabilize. the terrorism 

risk Insurance Program is activated upon the certification of an “act of terrorism” by the secretary of the Department in concurrence 

with the secretary of state and the attorney general. If a certified act of terrorism occurs, insurers may be eligible to receive 

reimbursement from the u.s. government for insured losses above a designated deductible amount. Insured losses above this amount 

will be shared between insurance companies and the u.s. government. the act also gives the treasury Department authority 

to recoup federal payments made under the Program through policyholder surcharges under certain circumstances and contains 

provisions designed to manage litigation arising from or relating to a certified act of terrorism. 

the original trIa program was to expire on December 31, 2005, but the Program was extended through December 31, 2007 by the 

Terrorism Risk Insurance Extension Act of 2005 (extension act). this law included the following significant changes: it reduced the 

federal role in terrorism risk insurance markets by increasing insurer deductibles and excluding certain types of previously covered 

insurance. the extension act also reduced the u.s. government’s share of insured losses and added a “Program trigger” provision 

which precludes federal payments unless insured losses from a certified act of terrorism exceed $ 100 million. 

on December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (reauthorization act) was enacted 

extending the Program through December 31, 2014. the reauthorization act, among other Program changes, revised the definition 

of “act of terrorism” to remove the certification requirement that the act be committed by an individual acting on behalf of a foreign 

note 31. commitments and contingencies 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

265

person or foreign interest; revised the provisions of the act with regard to the cap on annual liability for insured losses of $100 

billion; and established deadlines by which recoupment of federal payments made under the Program would have to be accomplished. 

In september 2008, the Department issued two notices of proposed rulemaking with requests for comment. one proposed rule 

incorporated and clarified statutory requirements of the reauthorization act for capping the annual liability for insured losses at $100 

billion. the proposed rule described how the Department will determine the pro rata share of insured losses to be paid by each insurer 

that incurs losses under the Program when insured losses would otherwise exceed the cap and how the federal share of compensation 

will be calculated. the Department issued a final rule on December 14, 2009. 

the other proposed rule set forth the requirements for recoupment of the federal share of compensation for insured losses. the rule 

described how the Department will determine the amounts to be recouped and the requirements for insurers to collect, report, and 

remit surcharges to the Department. the Department issued a final rule on December 14, 2009. there were no claims under trIa as 

of september 30, 2010, or september 30, 2009. 

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 Program year. the 

Department expects to issue a final rule incorporating public comments early in fiscal year 2011. 

Exchange Stabilization Agreement (ESA) 

In april 1994, treasury signed the north american framework agreement (nafa), which includes the esa with Mexico. the 

Department has a standing swap line for $3 billion with Mexico under the nafa and its implementing esa. the amounts and 

terms (including the assured source of repayment) of any borrowing under nafa and esa will have to be negotiated and agreed to 

before any actual drawing can occur. the esa does provide sample clauses that state that transactions shall be exchange rate neutral 

for the esf and shall bear interest based on a then current rate tied to u.s. treasury bills. there were no drawings outstanding on the 

esf swap line as of september 30, 2010 and september 30, 2009. on December 10, 2008, the Department renewed its participation 

in the agreement until December 2010. 

New Arrangements to Borrow (NAB) 

Public law 111-32 also provided the authorization and appropriations for an increase in the united states participation in the 

nab by the dollar equivalent of sDr 75,000 million which at the sDr/dollar exchange rate applicable on september 30, 2010 

is equivalent to $116,714 million. however, this increase in the united states participation in the nab is not effective as of 

september 30, 2010 and will not come into effect until all IMf member countries participating in the nab submit notification 

of their consent to modifications to the decision governing the nab and to their new sDr commitments to the nab. although 

$119,000 million was appropriated under Public law 111-32, the united states publicly stated that it would limit its commitment 

to $100,000 million and agreed to a final commitment – which has not yet come into effect - of sDr 69,074.27 million (from sDr 

6,639.83 million) on May 10, 2010 pursuant to IMf executive board Decision no. 14577-(10/35) adopted april 12, 2010. as with 

the quota increase, the new portion of the nab will be subject to the fcra and treated as a direct loan. similarly, this will not 

affect the treatment of the reserve position in the IMf, only the budget presentation. 

Contingent Liability to Government Sponsored Enterprises 

the Department has recorded a contingent liability at september 30, 2010 of $359,900 million ($76,937 million at september 30, 

2009) to the government sponsored enterprises, fannie Mae and freddie Mac, based on probable future liability under the senior 

Preferred stock Purchase agreement between the Department and the gses. refer to note 9 for a full description of the agreements 

and related contingent liability. 

note 31. commitments and contingencies 

part 3: annual financial report
the department of the treasury 

266 

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 $27,587 million may be payable as other claims for tax refunds. this estimate represents amounts 

(principal and interest) that may be paid for claims pending judicial review by the federal courts or internally. the total estimated 

payout (including principal and interest) for claims pending judicial review by the federal courts is $19,603 million and by appeals is 

$7,984 million. 

Federal Taxes Receivable, Net 

In accordance with sffas no. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and 

Financial Accounting, some unpaid tax assessments do not meet the criteria for financial statement recognition as discussed in note 1 

to the financial statements. although compliance assessments and write-offs are not considered receivables under federal accounting 

standards, they represent legally enforceable claims of the u.s. government. there is, however, a significant difference in the 

collection potential between compliance assessments and receivables. 

the components of the total unpaid assessments at september 30, 2010 and september 30, 2009, were as follows (in millions): 

2010 2009 

Total Unpaid Assessments $ 330,000 $ 308,000 

Less: Compliance Assessments (93,000) (75,000)

 Write Offs (99,000) (105,000) 

Gross Federal Taxes Receivable 138,000 128,000 

Less: Allowance for Doubtful Accounts (103,091) (99,000) 

Federal Taxes Receivables, Net $ 34,909 $ 29,000 

to eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties, totaling $2,850 

million, 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. 

Internal Revenue Service (IRS) 

the unpaid assessments balance represents assessments resulting from taxpayers filing returns without sufficient payment, as well 

as from the Irs’s enforcement programs such as examination, under-reporter, substitute for return, and combined annual wage 

reporting. a significant portion of this balance is not considered a receivable. also, a substantial portion of the amounts considered 

receivables is largely uncollectible. 

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. 

required supplemental information (unaudited) 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

267

assessments with little or no future collection potential are called write-offs. Write-offs principally consist of amounts owed by 

deceased, bankrupt, or defunct taxpayers, including many failed financial institutions liquidated by the federal Deposit Insurance 

corporation (fDIc) and the former resolution trust corporation (rtc). as noted above, write-offs have little or no future 

collection potential, but statutory provisions require that these assessments be maintained until the statute for collection expires. 

Alcohol and Tobacco Tax and Trade Bureau (TTB) 

as an agent of the federal government and as authorized by 26 u.s.c., the alcohol and tobacco tax and trade bureau (ttb) 

collects excise taxes from alcohol, tobacco, firearms, and ammunition industries. In addition, special occupational taxes are collected 

from certain tobacco businesses. During fiscal year 2010, ttb collected nearly $23,800 million in taxes, interest, and other revenues. 

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 u.s.c. 7652, such taxes collected 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 of the u.s. 

government. 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 year 2010 and 2009, 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. 

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 2010. In 

addition, a new table provides the fiscal year 2010 sbr by significant programs within the Departmental offices. 

required supplemental information (unaudited) 

part 3: annual financial report
the department of the treasury 

268 

Fiscal Year 2010 Statement of Budgetary Resources Disaggregated by Sub-organization Accounts 

(in millions) 

Bureau of Bureau Fin. Crimes Financial Internal 

Engraving of the Departmental Enforcement Management Revenue 

& Printing Public Debt Offices Network Service Service 

BUDGETARY RESOURCES 

Unobligated balance, brought forward, Oct. 1 $ 46 $ 91 $ 454,924 $ 25 $ 274 $ 876 

Recoveries of prior year unpaid obligations 0 9 42,191 1 24 90 

Budget authority: 

Appropriations (Note 23) 0 512,067 19,468 111 24,818 12,443 

Borrowing authority: 0 0 151,473 0 0 0 

Spending Authority from Offsetting Collections: 

Earned: 

Collected 632 213 208,575 4 236 136 

Change in receivables from Federal sources 0 (5) 4 3 (3) 23 

Change in unfilled customer orders: 

Advance received (3) 0 (45) 0 0 0 

Without advance from Federal sources 0 (4) (5,105) 3 (5) 1 

Anticipated for rest of year, w/o advances 0 0 0 0 0 0 

Subtotal 629 512,271 374,370 121 25,046 12,603 

Non-expenditure transfers, net 0 (4) 394 0 (29) 0 

Temporarily not available pursuant to Public Law 0 (5) (137) 0 0 0 

Permanently not available 0 (97,800) (130,177) 0 (8,620) (152) 

Total Budgetary Resources $ 675 $ 414,562 $ 741,565 $ 147 $ 16,695 $ 13,417 

STATUS OF BUDGETARY RESOURCES 

Obligations incurred (Note 25): 

Direct 0 414,266 371,565 109 16,185 12,475 

Reimbursable 616 201 299 10 223 136 

Subtotal 616 414,467 371,864 119 16,408 12,611 

Unobligated Balance: 

Apportionment 59 80 287,754 26 273 236 

Exempt from apportionment 0 0 12,116 0 2 0 

Subtotal 59 80 299,870 26 275 236 

Unobligated balance not available 0 15 69,831 2 12 570 

Total Status of Budgetary Resources $ 675 $ 414,562 $ 741,565 $ 147 $ 16,695 $ 13,417 

CHANGE IN OBLIGATED BALANCE 

Obligated balance, net: 

Unpaid obligations brought forward, Oct. 1 115 75 184,825 15 339 1,620 

Uncollected customer payments from Federal sources brought 

forward (29) (23) (28,958) (5) (37) (32) 

Total unpaid obligated balance, net 86 52 155,867 10 302 1,588 

Obligations incurred, net 616 414,467 371,864 119 16,408 12,611 

Gross outlays (614) (414,457) (285,223) (102) (16,310) (12,335) 

Recoveries of prior year unpaid obligations, actual 0 (9) (42,191) (1) (24) (90) 

Change In uncollected customer payments from Federal source 0 9 5,101 (6) 8 (24) 

Obligated balance, net, end of period: 

Unpaid obligations 117 76 229,275 30 413 1,807 

Uncollected customer payments Federal sources (29) (14) (23,857) (10) (29) (57) 

Total unpaid obligated balance, net, end of period $ 88 $ 62 $ 205,418 $ 20 $ 384 $ 1,750 

NET OUTLAYS 

Net Outlays: 

Gross outlays 614 414,457 285,223 102 16,310 12,335 

Offsetting collections (629) (213) (208,530) (4) (236) (136) 

Distributed offsetting receipts 0 (36,615) (141,300) 0 (279) (715) 

Net Outlays $ (15) $ 377,629 $ (64,607) $ 98 $ 15,795 $ 11,484 

required supplemental information (unaudited) 

part 3: annual financial report
performance and accountability report | fiscal year 2010 

269 

Office of the Office Alcohol and 

Comptroller of of Thrift Tobacco Tax and NonU. S. Mint the Currency Supervision Trade Bureau Budgetary Budgetary 

BUDGETARY RESOURCES 

Unobligated balance, brought forward, Oct. 1 $ 246 $ 793 $ 310 $ 3 $ 415,761 $ 41,827 

Recoveries of prior year unpaid obligations 29 0 4 1 2,979 39,370 

Budget authority: 

Appropriations (Note 23) 0 0 0 103 569,010 0 

Borrowing authority: 0 0 0 0 1 151,472 

Spending Authority from Offsetting Collections: 

Earned: 

Collected 3,519 794 234 4 9,401 204,946 

Change in receivables from Federal sources 0 0 0 0 22 0 

Change in unfilled customer orders: 

Advance received 0 0 (8) 0 (56) 0 

Without advance from Federal sources 1 0 0 0 2 (5,111) 

Anticipated for rest of year, w/o advances 0 0 0 0 0 0 

Subtotal 3,520 794 226 107 578,380 351,307 

Non-expenditure transfers, net 0 0 0 0 361 0 

Temporarily not available pursuant to Public Law 0 0 0 0 (142) 0 

Permanently not available (13) 0 0 0 (47,341) (189,421) 

Total Budgetary Resources $ 3,782 $ 1,587 $ 540 $ 111 $ 949,998 $ 243,083 

STATUS OF BUDGETARY RESOURCES 

Obligations incurred (Note 25): 

Direct 0 0 0 102 595,438 219,264 

Reimbursable 3,671 740 236 4 6,136 0 

Subtotal 3,671 740 236 106 601,574 219,264 

Unobligated Balance: 

Apportionment 111 0 0 3 267,581 20,961 

Exempt from apportionment 0 847 304 0 13,269 0 

Subtotal 111 847 304 3 280,850 20,961 

Unobligated balance not available 0 0 0 2 67,574 2,858 

Total Status of Budgetary Resources 

CHANGE IN OBLIGATED BALANCE 

Obligated balance, net: 

$ 3,782 $ 1,587 $ 540 $ 111 $ 949,998 $ 243,083 

Unpaid obligations brought forward, Oct. 1 191 177 41 21 108,210 79,209 

Uncollected customer payments from Federal sources brought 

forward (7) (3) 0 (2) (168) (28,928) 

Total unpaid obligated balance, net 184 174 41 19 108,042 50,281 

Obligations incurred, net 3,671 740 236 106 601,574 219,264 

Gross outlays (3,604) (733) (229) (103) (524,098) (209,612) 

Recoveries of prior year unpaid obligations, actual (29) 0 (4) (1) (2,979) (39,370) 

Change In uncollected customer payments from Federal source (1) 0 0 0 (24) 5,111 

Obligated balance, net, end of period: 

Unpaid obligations 229 185 44 22 182,707 49,491 

Uncollected customer payments Federal sources (8) (4) 0 (1) (192) (23,817) 

Total unpaid obligated balance, net, end of period $ 221 $ 181 $ 44 $ 21 $ 182,515 $ 25,674 

NET OUTLAYS 

Net Outlays: 

Gross outlays 3,604 733 229 103 524,098 209,612 

Offsetting collections (3,519) (794) (226) (4) (9,345) (204,946) 

Distributed offsetting receipts 0 0 0 0 (169,303) (9,606) 

Net Outlays $ 85 $ (61) $ 3 $ 99 $ 345,450 $ (4,940) 

required supplemental information (unaudited) 

part 3: annual financial report
the department of the treasury 

270 

Fiscal Year 2010 Statement of Budgetary Resources Disaggregated by Departmental Offices Accounts 

(in millions) 

Exchange Government Internal Office of 

Stabilization Sponsored Assistance Financial All Combined 

Fund Enterprises Programs Stability Others Total 

BUDGETARY RESOURCES 

Unobligated balance, brought forward 

Recoveries of prior year unpaid obligations 

Budget authority: 

Appropriations (Note 23) 

Borrowing authority: 

Spending Authority from Offsetting Collections: 

Earned: 

Collected 

Change in receivables from Federal sources 

Change in unfilled customer orders: 

Advance received 

Without advance from Federal sources 

Anticipated for rest of year, w/o advances 

$ 44,001 

983 

0 

0 

276 

0 

0 

0 

$ 337,290 

6 

0 

82,026 

48,826 

0 

0 

0 

0 

$ 34,303 

516 

2,475 

0 

911 

0 

0 

0 

$ 37,101 

40,537 

5,151 

69,440 

156,112 

0 

0 

(5,111) 

0 

$ 2,229 

149 

11,842 

7 

2,450 

4 

(45) 

6 

0 

$ 454,924 

42,191 

19,468 

151,473 

208,575 

4 

(45) 

(5,105) 

0 

Non-expenditure transfers, net 

Temporarily not available pursuant to Public Law 

Permanently not available 

0 

0 

59,510 

29 

0 

(81,440) 

67 

0 

0 

0 

0 

(107,976) 

298 

(137) 

(271) 

394 

(137) 

(130,177) 

Direct $ 61,169 $ 121,658 $ 3,414 $ 173,631 $ 11,693 $ 371,565 

Subtotal 

Unobligated Balance: 

Apportionment 

61,169 

0 

121,658 

265,077 

3,414 

12,343 

173,631 

7,834 

11,992 

2,500 

371,864 

287,754 

Subtotal 0 265,077 23,967 7,834 2,992 299,870 

Total Status of Budgetary Resources $ 104,770 $ 386,737 $ 38,272 $ 195,254 $ 16,532 $ 741,565 

Subtotal 276 130,852 3,386 225,592 14,264 374,370 

Total Budgetary Resources $ 104,770 $ 386,737 $ 38,272 $ 195,254 $ 16,532 $ 741,565 

STATUS OF BUDGETARY RESOURCES 

Obligations incurred (Note 25): 

Reimbursable 0 0 0 0 299 299 

Exempt from apportionment 0 0 11,624 0 492 12,116 

Unobligated balance not available 43,601 2 10,891 13,789 1,548 69,831 

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS 

Obligated balance, net: 

Unpaid obligations brought forward, Oct. 1 

Uncollected customer payments from Federal sources 

brought forward 

$ 0 

0 

$ 6 

0 

$ 46,206 

0 

$ 135,353 

(28,927) 

$ 3,260 

(31) 

$ 184,825 

(28,958) 

Obligations incurred, net 

Gross outlays 

Recoveries of prior year unpaid obligations, actual 

Change In uncollected customer payments from Federal 

source 

Obligated balance, net, end of period: 

Unpaid obligations 

Uncollected customer payments Federal sources 

61,169 

0 

(983) 

0 

60,186 

0 

121,658 

(114,083) 

(6) 

0 

7,575 

0 

3,414 

(3,478) 

(516) 

0 

45,626 

0 

173,631 

(157,401) 

(40,537) 

5,111 

111,046 

(23,816) 

11,992 

(10,261) 

(149) 

(10) 

4,842 

(41) 

371,864 

(285,223) 

(42,191) 

5,101 

229,275 

(23,857) 

Net Outlays: 

Gross outlays 

Offsetting collections 

$ 0 

(276) 

$ 114,083 

(48,826) 

$ 3,478 

(911) 

$ 157,401 

(156,112) 

$ 10,261 

(2,405) 

$ 285,223 

(208,530) 

Net Outlays $ (276) $ 43,509 $ 2,543 $ (117,571) $ 7,188 $ (64,607) 

required supplemental information (unaudited) 

Total unpaid obligated balance, net 0 6 46,206 106,426 3,229 155,867 

Total unpaid obligated balance, net, end of period 60,186 7,575 45,626 87,230 4,801 205,418 

Distributed offsetting receipts 0 (21,748) (24) (118,860) (668) (141,300) 

part 3: annual financial report
part 4: 

other 

accompanying 

information 

APPendiceS 

appenDix a: Other aCCOmpanying infOrmatiOn (unauDiteD) 

appenDix b: imprOper payments infOrmatiOn aCt anD 

reCOvery auDiting aCt 

appenDix C: management anD perfOrmanCe Challenges 

anD respOnses 

appenDix D: material Weaknesses, auDit fOllOW-up, 

finanCial systems, anD reCOvery aCt risk 

management 

appenDix e: glOssary Of aCrOnyms 

performance and accountability report | fiscal year 2010 

273 

appendix a:
 

otHer accoMPanyinG inforMation (unaudited)
 

this section provides other accompanying Information as prescribed by oMb circular no. a-136, Financial Reporting 

Requirements. 

prOmpt payment 

the Prompt Payment Act requires federal agencies to make timely payments to vendors for supplies and services, to pay interest 

penalties when payments are made after the due date, and to 

take cash discounts only when they are economically justified. 0.80%

0.60%

0.40%

treasury bureaus report Prompt Payment data on a monthly 

basis to the Department, and periodic quality control reviews 

0.20% are conducted by the bureaus to identify potential problems. 

0.00%

Total Dollar 

Amount of 

Invoices Paid 

Total Number of 

Invoices Paid 

Percentage of 

Number of 

Invoices 

Paid Late 

1.40%

1.39%1.05%0.84%0.52%0.25%

2006 2007 2008 2009 2010 

1.20%

1.00%

Fiscal Year 

0.002%

Number (in Thousands) Dollars (in Millions) 

$4,227$4,384$4,704$4,773$6,250 

0.010%

$3,000

$2,000

Percentage of 

Dollar Amount 

of Interest 

Penalties Paid 

0.005%

$7,000

$6,000

$5,000

$4,000

0.002%0.001%0.001%0.001%0.001%

2006 2007 2008 2009 2010 

0.015%

$1,000

$0 0.000% 2006 2007 2008 2009 2010 

Fiscal Year Fiscal Year 

400

160166191338541

0.3%

300

Percentage 

of Number 

of Interest 

Penalties Paid 

0.2%

200

0.1% 100

600 0.5%

500

0.38%0.42%0.28%0.17%0.08%

2006 2007 2008 2009 2010 

0.4%

0 0.0% 2006 2007 2008 2009 2010 

Fiscal Year Fiscal Year 

part 4: other accompanying information 

appendix a: other accompanying information (unaudited) 
part 4: other accompanying information 

the department of the treasury 

274 

tax gap 

reducing the tax gap is at the heart of Irs’ enforcement programs. the tax gap is the difference between what taxpayers should 

pay and what they actually pay due to not filing tax returns, not paying their reported tax liability on time, or failing to report their 

correct tax liability. the tax gap, about $345 billion based on updated fiscal year 2001 estimates, represents the amount of noncompliance with the tax laws. underreporting tax liability accounts for 82 percent of the gap, with the remainder almost evenly divided 

between non-filing (8 percent) and underpaying (10 percent). the Irs remains committed to finding ways to increase compliance 

and reduce the tax gap, while minimizing the burden on the vast majority of taxpayers who pay their taxes accurately and on time. 

the tax gap is the aggregate amount of tax (i.e., excluding interest and penalties) that is imposed by the tax laws for any given tax 

year but is not paid voluntarily and timely. the tax gap arises from the three types of noncompliance: not filing required tax returns 

on time or at all (the non-filing gap), underreporting the correct amount of tax on timely filed returns (the underreporting gap), and 

not paying on time the full amount reported on timely filed returns (the underpayment gap). of these three components, only the 

underpayment gap is observed; the non-filing gap and the underreporting gap must be estimated. each instance of noncompliance 

by a taxpayer contributes to the tax gap, whether or not the Irs detects it, and whether or not the taxpayer is even aware of the 

noncompliance. obviously, some of the tax gap arises from intentional (willful) noncompliance, and some of it arises from unintentional mistakes. 

the collection gap is the cumulative amount of tax, penalties, and interest that has been assessed over many years, but has not been 

paid by a certain point in time, and which the Irs expects to remain uncollectible. In essence, it represents the difference between 

the total balance of unpaid assessments and the net taxes receivable reported on the Irs’ balance sheet. the tax gap and the collection gap are related and overlapping concepts, but they have significant differences. the collection gap is a cumulative balance sheet 

concept for a particular point in time, while the tax gap is like an income statement item for a single year. Moreover, the tax gap 

estimates include all noncompliance, while the collection gap includes only amounts that have been assessed (a small portion of all 

noncompliance). 

appendix a: other accompanying information (unaudited) 
performance and accountability report | fiscal year 2010 

275 

tax burDen 

the Internal revenue code 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) office. 

Average 

Adjusted Gross 

Income (AGI) 

and Average 

Individual Income 

Tax Liability 

Tax Year 2008 

Dollars 

$1,600,000 

$1,400,000 

$1,200,000 

$1,000,000 

$800,000 

$600,000 

$400,000 

$200,000 

$0 $200,000 

under 

$500,000 

$500,000 

or more 

$100,000 

under 

$200,000 

$50,000 

under 

$100,000 

$30,000 

under 

$50,000 

$15,000 

under 

$30,000 

Under 

$15,000 

Individual 

Income Tax 

Liability as a 

Percentage 

of AGI 

Tax Year 2008 

Average AGI 

3,572 

Average income tax 

$1,63

14 

$381,

11

85,7

445

$133,2

$2

,065

,117

0,934

769

5,709

$2,740

$22

$39

$7

$59

$639

$2,221

$5,968

$16,

$5

25%

20%

15%

$200,000 

under 

$500,000 

$500,000 

or more 

$100,000 

under 

$200,000 

$50,000 

under 

$100,000 

$30,000 

under 

$50,000 

$15,000 

under 

$30,000 

Under 

$15,000 2.1%

2.9%5.7%8.4%12.6%19.5%23.4% 

Percent 

10%

5%

0%

INDIvIDUAL INCOME TAX LIABILITY 

Tax Year 2008 

Number of Average AGI Average income

Adjusted gross income (AGI) 

taxable returns 

(in thousands) 

AGI 

(in millions) 

Total income tax 

(in millions) 

per return 

(in whole dollars) 

tax per return 

(in whole dollars) 

Income tax as a 

percentage of AGI 

Under $15,000 37,970 $ 104,025 $ 2,227 $ 2,740 $ 59 2.1% 

$15,000 under $30,000 29,687 655,035 18,958 22,065 639 2.9% 

$30,000 under $50,000 25,641 1,002,998 56,953 39,117 2,221 5.7% 

$50,000 under $100,000 30,926 2,193,691 184,554 70,934 5,968 8.4% 

$100,000 under $200,000 13,851 1,845,103 232,270 133,211 16,769 12.6% 

$200,000 under $500,000 3,477 993,427 193,700 285,714 55,709 19.5% 

$500,000 or more 899 1,468,581 342,919 1,633,572 381,445 23.4% 

Totals 142,451 $ 8,262,860 $ 1,031,581 

part 4: other accompanying information 

appendix a: other accompanying information (unaudited) 
the department of the treasury 

part 4: other accompanying information 

276 

Corporation 

Tax Liability as 

a Percentage 

of Taxable 

Income 

Tax Year 2007 

Data 

Percent 

40%

35%

20%

10%

0%

32.7%19.3%23.7%29.7%33.0%33.3% 33.1%32.4%32.5%31.0%30.6%25.0% 

Zero

assets

$1 under

$500

$500 under

$1,000

$1,000 under

$5,000

$5,000 under

$10,000

$10,000 under

$25,000

$25,000 under

$50,000

$50,000 under

$100,000

$100,000 under

$250,000

$250,000 under

$500,000

$500,000 under

$2,500,000

$2,500,000

or more 

CORPORATION TAX LIABILITY 

Tax Year 2007 

Income subject to tax Total income tax after credits Percentage of income tax after 

Total Assets (in thousands) (in millions) (in millions) credits to taxable income 

Zero Assets $ 26,280 $ 8,593 32.7% 

$1 under $500 8,205 1,582 19.3% 

$500 under $1,000 4,292 1,017 23.7% 

$1,000 under $5,000 15,577 4,628 29.7% 

$5,000 under $10,000 10,008 3,299 33.0% 

$10,000 under $25,000 16,650 5,547 33.3% 

$25,000 under $50,000 13,139 4,347 33.1% 

$50,000 under $100,000 16,621 5,392 32.4% 

$100,000 under $250,000 27,977 9,100 32.5% 

$250,000 under $500,000 35,046 10,876 31.0% 

$500,000 under $2,500,000 145,944 44,586 30.6% 

$2,500,000 or more 928,546 232,408 25.0% 

Total $ 1,248,285 $ 331,375 26.5% 

appendix a: other accompanying information (unaudited) 
performance and accountability report | fiscal year 2010 

277 

appendix b: 

iMProPer PayMents inforMation act and 

recoVery auditinG act 

the Improper Payments Information Act of 2002 (IPIa) requires agencies to review their programs and activities annually to identify 

those susceptible to significant improper payments. according to the office of Management and budget (oMb) circular a-123, 

Management’s Responsibility for Internal Control, appendix c, Requirements for Effective Measurement and Remediation of Improper 

Payments (a-123, appendix c), “significant” means that an estimated error rate and a dollar amount exceed the threshold of 2.5 

percent and $10 million of total program funding. a-123, appendix c also requires the agency to implement a corrective action plan 

that includes improper payment reduction targets. 

the government-wide chief financial officers council developed an alternative for meeting IPIa requirements for federal programs 

that are so complex that developing an annual error rate is not feasible. agencies may establish an annual estimate for a high-risk 

component of a complex program (e.g., a specific program population) with oMb approval. agencies must also perform trend 

analyses to update the program’s baseline error rate in the interim years between detailed program studies. When development of a 

statistically valid error rate is possible, the reduction targets are revised and become the basis for future trend analyses. 

I.	 Description of the Department’s risk assessment(s) performed subsequent to compiling its full 

program inventory and risk-susceptible programs 

each year, the Department develops a comprehensive inventory of the funding sources for all programs and activities and distributes it to the treasury bureaus and offices. If program or activity funding is at least $10 million, risk assessments are required at 

the payment type level (e.g., payroll, contracts, vendors, travel, etc.). 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 

•	 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 

part 4: other accompanying information 

appendix b: improper payments information act and recovery auditing act 
the department of the treasury 

part 4: other accompanying information 

278 

•	 Complexity of Program – length of time program has been operating; complexity and variability of interpreting and 

applying laws, regulations, and standards required of the program 

for those payment types resulting in high-risk assessments that comprise at least 2.5 percent and $10 million of a total funding 

source, (1) statistical sampling must be performed to determine the actual improper payment rate, and (2) a corrective action 

plan must be developed and submitted to the Department and oMb for approval. 

responses to the risk assessments produce a score that falls into pre-determined categories of risk. the following table describes 

the actions required at each risk level: 

Risk Level Required Action(s) 

High Risk > 2.5% Error Rate & > $10 Million Corrective Action Plan 

Medium Risk Review Payment Controls for Improvement 

Low Risk No Further Action Required 

the risk assessments performed across the Department in fiscal year 2010 resulted in all programs and activities as low and 

medium risk susceptibility for improper payments except for the Internal revenue service’s (Irs) earned Income tax credit 

(eItc) program. the eItc’s high-risk status is well-documented, having been previously identified in the former section 57 

of oMb circular a-11, Preparation, Submission, and Execution of the Budget, and has been deemed a complex program for the 

purposes of the IPIa. 

In addition to the risk assessments monitored under IPIa, the Department continued its review of initial risk assessments related 

to the American Recovery and Reinvestment Act of 2009 (recovery act) and required reassessments of high-risk recovery act 

programs. 

II.	 Describe the statistical sampling process conducted to estimate the improper payment rate for 

each program identified 

Earned Income Tax Credit 

the eItc is a refundable federal tax credit that offsets income taxes owed by low-income workers and, if the credit 

exceeds the amount of taxes owed, provides a lump-sum payment to those who qualify. 

the section below describes how the Irs currently develops its erroneous payment projections. the most recent projection is based on a tax year 2006 reporting compliance study that estimated the level of improper overclaims for fiscal year 

2010 to range between $15.3 to $18.4 billion and 23.9 percent (lower bound) to 28.7 percent (upper bound) of approximately $64.2 billion in total program payments. 

National Research Program (NRP) Analysis 

the complexity of the eItc program, the nature of tax processing, and the expense of compliance studies preclude statistical 

sampling on an annual basis to develop error rates for comparison to reduction targets. the estimates are based primarily on 

information from the national research Program (nrP) reporting compliance study of individual income tax returns for tax 

year 2006—the most recent year for which compliance information from a statistically valid, random sample of individual tax 

returns is available. the approach is nearly identical to that used for earlier years. 

under the tax year 2006 nrP reporting compliance study, individual income tax returns filed during calendar year 2007 for tax 

year 2006 were randomly selected for examination.1 this selection method allows the measures for the individual income tax 

1 the nrP used a stratified, random sample design. returns are grouped into predefined categories or “strata” and selected randomly within each 

stratum. 

appendix b: improper payments information act and recovery auditing act 
performance and accountability report | fiscal year 2010 

279 

return filing population to be estimated from the results of the nrP sample returns. because one of the objectives of the nrP 

is to provide data for compliance measurement, nrP procedures and data collection differed from those followed in standard 

examination programs. nrP classification and examination procedures were more comprehensive in scope and depth than those 

for standard examination programs. these expanded procedures were designed to provide a more thorough determination of 

what taxpayers should have reported on their returns. 

the tax year 2006 nrP individual income tax return study covered filers of all types of individual income tax returns. about 

2,200 of the returns in the regular nrP sample were eItc claimants. the nrP study results for this eItc claimant subset of 

nrP returns were the primary source of data for the improper payments estimates. other data and information sources used for 

the estimates included the Irs enforcement revenue Information system (erIs), which tracks assessments and collections 

from Irs enforcement-related activities; treasury Department estimates of the effect of the eItc provisions in the Economic 

Growth and Tax Relief Reconciliation Act of 2001 on erroneous eItc claims; and treasury Department fiscal year 2010 eItc 

budget estimates. 

III. Describe the Corrective Action Plans for reducing the estimated rate of improper payments for 

the EITC program 

Base Program 

In 2010, 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. congressional approval is required for math error use 

• Document Matching – Involves comparing income information provided by the taxpayer with matching information (e.g., 

W-2s, 1099s) from employers to identify discrepancies 

the chart below shows significant results from fiscal year 2005 through an estimate of fiscal year 2011. In fiscal year 2010 alone, 

the Irs conducted over 474,000 examinations, issued 300,000 math error notices, and closed over 900,000 document matching 

reviews. 

Compliance Activities 

(thousands) 

FY05* FY06* FY07* FY08* FY09* FY10** FY11*** FY05-FY11 Total 

Examination Closures 527,969 517,617 503,267 503,755 508,180 474,092 475,000 3,509,880 

Math Error Notices** 515,890 460,316 393,263 432,797 355,416 300,000 250,000 2,707,682 

Document Matching**** 324,419 364,020 734,603 727,916 688,087 904,920 900,000 4,643,965 

Amended Returns1 32,473 25,395 19,400 20,000 97,268 

* Restated actual 

** Preliminary estimates 

*** Estimate based on fiscal year 2011 preliminary data. 

**** Fiscal year 2007 and fiscal year 2008 restated to include enterprise data. In prior years, data included Wage and Investment data only. Small Business and SelfEmployed data have been added. 

1

 Amended returns are a subset of Examination Closures. 

these activities had a significant effect. treasury projects that continued enforcement efforts will protect over $23 billion in 

revenue through fiscal year 2011. 

appendix b: improper payments information act and recovery auditing act 

part 4: other accompanying information 
the department of the treasury 

part 4: other accompanying information 

280 

Enforcement Revenue Protected 

($ billions) 

FY05* FY06* FY07* FY08* FY09* FY10** FY11*** FY05-FY11 Total 

Examination Closures 1.35 1.50 1.49 2.00 2.15 1.96 1.96 12.41 

Math Error Notices** 0.52 0.46 0.41 0.44 0.40 0.34 0.28 2.85 

Document Matching**** 0.53 0.60 1.29 1.23 1.17 1.43 1.43 7.68 

Amended Returns 0.07 0.07 0.06 0.06 0.26 

TOTAL 2.40 2.56 3.19 3.74 3.79 3.79 3.73 23.20 

* Restated actual 

** Preliminary estimates 

*** Estimate based on fiscal year 2011 preliminary data 

**** Fiscal year 2007 and fiscal year 2008 restated to include enterprise data 

Testing New Business Processes 

the Irs continues to build new solutions for existing business processes and to use other activities to combat program 

error including: 

Pilot Concept – Assessing State Data for Validating EITC Eligibility 

treasury proposes a Partnership fund pilot to assess the availability, quality, completeness, and overall usefulness of stateadministered benefits data, as well as state benefits screening processes, to help validate eItc eligibility. the pilot would 

address whether state data could identify both ineligible individuals who receive improper eItc payments and eligible 

individuals who are not claiming the eItc. the assessment will be conducted separate from, but parallel to, normal federal 

eItc operations. the Irs’s actual eligibility results based on eItc claims in a pilot state will be compared to simulated 

eligibility results based on analysis of existing state data and potential state data that could be collected from new benefits 

enrollment questions. the results of the pilot will be used to develop administrative changes and statutory proposals to 

improve eItc payments nationally. 

Maximize Current Business Processes 

•	 Increase the activities associated with a suite of eItc paid preparer treatments, based on risk-based selections, including 

due diligence audits, visits by revenue and criminal investigation agents, streamlined injunctions, and educational and 

compliance notices to first-time and experienced preparers to influence the accuracy of eItc returns filed. analyze shortterm outcomes, including penalties and accuracy of returns 

•	 continuing the partnership with members from two key tax software associations to identify software enhancements and 

collaborative efforts that can help reduce eItc errors and assist preparers in meeting their eItc due diligence requirements 

•	 assess the 2010 eItc marketing/awareness campaigns that target eItc eligible and non-compliant populations to refine/ 

focus efforts and to incorporate recent tax law changes on eligibility and benefits to increase overall participation and 

improve compliance 

appendix b: improper payments information act and recovery auditing act 
performance and accountability report | fiscal year 2010 

281 

IV. EITC Improper Payment Reduction Outlook 

the reduction outlook for eItc improper payments is as follows: 

Improper Payment (IP) Reduction Outlook 

($ in billions) 

Program PYOutlaysPY %PY $CYOutlaysCY IP%CY IP$CY+1 EstOutlaysCY+1IP%CY+1 IP$CY+2 EstOutlaysCY+2IP%CY+2 IP$CY+3 EstOutlaysCY+3IP%CY+3 IP$ 

EITC Upper Bound 

Estimate 

$48.1 28.0% $13.3 $64.2 28.7% $18.4 $64.1 28.7% $18.4 $58.2 28.7% $16.7 $58.3 28.7% $16.7 

EITC Lower Bound 

Estimate 

$48.1 23.0% $11.2 $64.2 23.9% $15.3 $64.1 23.9% $15.3 $58.2 23.9% $13.9 $58.3 23.9% $13.9 

Outlays: The amounts shown are projections of total payments for the EITC, estimated by the Office of Tax Analysis within the Department of the Treasury. 

Following prior methodology, the amount shown is the total EITC claimed. 

IP % and IP $: These estimates follow the prior approach which provided a range for improper payments. 

Note: The Improper Payment percentage and Estimated Outlay columns reflect a constant error rate pending the development of an annual error rate measurement. 

CY and CY+1 estimates include Recovery Act EITC provisions which expand the EITC for families with three children and increase the beginning of the phaseout range 

for couples filing a joint return. 

CY: Current year; PY: Prior year 

V. Management 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 review process. under treasury Directive 40-04, Treasury Internal (Management) Control 

Program, executives and other managers are required to have management control responsibilities as part of their annual performance plans. With oversight mechanisms such as the treasury cfo council and the Irs’s financial and Management controls 

executive steering committee, managerial responsibility and accountability in all management and internal control areas are 

visible and well-documented. 

Improper payments also have been monitored for improvement as a significant deficiency under the Federal Managers’ Financial 

Integrity Act. executives who are responsible and accountable for reducing the level of eItc overclaims have been identified, 

while other senior and mid-level officials have responsibility for monitoring progress in this area as bureau and program internal 

control officers. 

VI. Resources Requested in the Fiscal Year 2011 Budget Submission to Congress 

the fiscal year 2011 President’s budget submission included no new initiatives related directly to the eItc program. 

VII. Limiting Statutory and Regulatory Barriers 

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 earned Income tax credit 

•	 confusion among eligible claimants 

•	 high turnover of eligible claimants 

•	 unscrupulous return preparers 

•	 fraud 

part 4: other accompanying information 

appendix b: improper payments information act and recovery auditing act 
the department of the treasury 

part 4: other accompanying information 

282 

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. 

VIII. Executive Order 13520 - Reducing Improper Payments and Eliminating Waste in Federal 

Programs 

on november 20, 2009, President barack obama issued executive order 13520 - Reducing Improper Payments and Eliminating 

Waste in Federal Programs (eo 13520). according to eo 13520, the purpose of the order is to “reduce improper payments by intensifying efforts to eliminate payment error, waste, fraud, and abuse in the major programs administered by the Federal Government, 

while continuing to ensure that Federal programs serve and provide access to their intended beneficiaries.” 

the eItc has been identified as a “high-priority program” under eo 13520. Due to the “high-priority program” status, certain 

requirements must be met. oMb developed these requirements to promote accountability and transparency by the agency 

program and federal government to the public for its use of public funds. requirements include but are not limited to: 

•	 Designation of a senate-confirmed accountable official 

•	 establishment of annual or semi-annual targets for reducing improper payments 

•	 report on agency methodology for identifying and measuring improper payments by the agency’s high-priority program(s) 

•	 agency plan for meeting the reduction targets for improper payments in the high-priority program(s) 

•	 agency plan for ensuring that initiatives undertaken do not unduly burden program access and participation by eligible 


beneficiaries
 

Periodic reviews and analysis of the progress of remediation plans will be addressed with the accountable program officials, 

Inspector general, chief financial officer, and oMb. treasury submitted the required plan and informational documents as 

required by 13520. 

appendix b: improper payments information act and recovery auditing act 
performance and accountability report | fiscal year 2010 

283 

Recovery Auditing Act 

IX. Treasury’s Recovery Auditing Program 

section 831 of the Defense Authorization Act for fiscal year 2002 added a new subchapter to u.s. code (31 u.s.c 3561-3567), 

also known as the recovery auditing act, that requires agencies that enter into contracts with a total value in excess of $500 

million in a fiscal year to carry out a cost-effective program for identifying errors made in paying contractors and for recovering 

amounts erroneously paid to the contractors. a required element of such a program is the use of recovery audits and recovery 

activities. In accordance with oMb circular a-123, appendix c, reporting on recovery auditing is required annually. 

In fiscal year 2010, treasury issued contracts totaling $6.4 billion. treasury’s annual IPIa risk assessment process includes a 

review of pre-payment controls that minimize the likelihood and occurrence of improper payments. for recovery auditing act 

compliance, treasury requires each bureau and office to review their post-payment controls and report on recovery auditing 

activities, contracts issued, improper payments made, and recoveries achieved. bureaus and offices may use recovery auditing 

firms to perform many of the steps in their recovery auditing program and identify candidates for recovery action. 

treasury considers both pre-payment and post-payment reviews to identify payment errors a sound management practice that 

should be included among basic payment controls. all of treasury’s bureaus use some form of recovery auditing techniques to 

identify improper payments during post-payment reviews. at times, bureaus may use the services of recovery auditors to help 

them identify payment anomalies and target areas for improvement. however, treasury has extensive contract payment controls 

that are applied at the time each payment is processed, making recovery activity minimal. the low level of improper payments 

in 2010 did not require any treasury bureau to develop a management improvement program under recovery auditing act 

guidance. 

Recovery Auditing Information Fiscal Year 2004 - Fiscal Year 2010 

Agency AmountSubjectto Reviewfor CYReportingActualAmountReviewedandReportedCYAmountIdentifiedforRecoveryCYAmountRecoveredCY*AmountIdentifiedforRecoveryPYAmountRecoveredPYCumulativeAmts.IdentifiedforRecovery(CY+PYs)CumulativeAmts.Recovered(CY+PYs) 

Treasury $6,388,181,812 $5,825,819,856 $466,792 $518,000 $1,475,232 $1,357,672 $7,200,597 $6,018,579 

Note: CY: Current year; PY: Prior year 

* Includes amounts identified for recovery in prior years. 

for fiscal year 2010, the total number of contracts subject to review was 33,069; the total number reviewed was 25,479, for 

a total recovery auditing program cost of approximately $1.2 million dollars. 

part 4: other accompanying information 

appendix b: improper payments information act and recovery auditing act 
the department of the treasury 

part 4: other accompanying information 

284
 

This page left intentionally blank 

appendix b: improper payments information act and recovery auditing act 
performance and accountability report | fiscal year 2010 

285 

appendix c: 

ManaGeMent and PerforMance 

cHallenGes and resPonses 

In accordance with the Reports Consolidation Act of 2000, the Inspectors general issue semiannual reports to congress that identify 

specific management and performance challenges facing the Department. at the end of each fiscal year, the treasury office of 

Inspector general (oIg) and the treasury Inspector general for tax administration (tIgta) send an update of these management 

challenges to the secretary and cite any new challenges for the upcoming fiscal year. 

under the Emergency Economic Stabilization Act of 2008 (Pub. law no. 110-343), the special Inspector general for the troubled 

asset relief Program (sIgtarP) is not required to provide the secretary with a semi-annual report or annual update on management and performance challenges. 

the appendix contains the incoming management and performance challenges letters from oIg and tIgta and the secretary’s 

responses describing actions taken and planned to address the challenges. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

part 4: other accompanying information 

286
 

This page left intentionally blank 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

287 

DEPARTMENT OF THE TREASURY
 

WASHINGTON
 

INSPECTOR GENERAL	 October 22, 2010 

INFORMATION MEMORANDUM FOR SECRETARY GEITHNER 

FROM:	 Eric M. Thorson 

Inspector General 

SUBJECT:	 Management and Performance Challenges Facing 

the Department of the Treasury (OIG-CA-11-001) 

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. 

This year we have combined three challenges reported last year into two, renamed those two and 

expanded them to reflect significant economic events and new responsibilities given to 

Treasury. Specifically, we have: 

•	 renamed the challenge previously reported as “Regulation of National Banks and Thrifts” to 

“Transformation of Financial Regulation.” We have also expanded this challenge to 

incorporate significant events and changes that have taken place since last year, most notably 

those related to Treasury’s new responsibilities under the recently enacted Dodd-Frank Wall 

Street Reform and Consumer Protection Act. 

•	 renamed the challenge previously reported as “Management of Treasury’s New Authorities 

Related to Distressed Financial Markets” to “Management of Treasury’s Authorities Intended 

to Support and Improve the Economy.” This challenge encompasses the previously reported 

challenge entitled “Management of Recovery Act Programs” and has been expanded to 

recognize Treasury’s new responsibilities and authorities related to the recently enacted 

Small Business Jobs Act of 2010. 

We also continue to report two challenges from last year. 

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

•	 Management of Capital Investments 

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. 

A critical challenge in the near term is Treasury’s role in standing up the Bureau of Consumer 

Financial Protection (BCFP). Established by Dodd-Frank, the purpose of BCFP is to implement 

and, where applicable, enforce federal consumer financial law consistently to ensure that all 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

part 4: other accompanying information 

Page 2 

consumers have access to markets for consumer financial products and services and that those 

markets are fair, transparent, and competitive. Eventually, BCFP will be an independent bureau 

of the Board of Governors of the Federal Reserve System (the Board of Governors). However, 

the Treasury Secretary is charged with supporting the creation and management of BCFP until a 

Director is confirmed. On September 17, 2010, the President appointed Elizabeth Warren to 

serve as Assistant to the President and Special Advisor to the Secretary of the Treasury on 

BCFP. At this time, it is uncertain when a BCFP Director will be confirmed. In the mean time, 

much needs to be done to set up the BCFP. While BCFP remains in Treasury, it will be under the 

audit and investigative oversight of my office. We are, however, coordinating those oversight 

efforts with the Office of Inspector General of the Board of Governors. 

Dodd-Frank also established the Financial Stability Oversight Council (FSOC), which is chaired 

by the Treasury Secretary. FSOC held its inaugural meeting on October 1, 2010. 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. The Council of Inspectors General on Financial Oversight (CIGFO), 

which I chair, facilitates the sharing of information among 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. In the future, CIGFO may also vote to convene a working group to evaluate 

the effectiveness and internal operations of the FSOC. We held our inaugural meeting on 

October 21, 2010. 

Dodd-Frank also established two new offices within Treasury: the Office of Financial Research 

(OFR) and the Federal Insurance Office (FIO). OFR is to be a data collection, research and 

analysis arm of FSOC. OFR will operate under a confirmed Director while the Director of FIO 

will be appointed by the Treasury Secretary. Among other things, the Director of OFR is to 

report to Congress annually on the office’s activities and its assessments of systemic risk. FIO is 

to monitor 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 Director of FIO will advise FSOC on insurance matters. 

Intended to streamline the supervision of depository institutions and holding companies, DoddFrank transfers 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) no later than July 21, 2011. Dodd-Frank requires OCC, OTS, the 

Board of Governors, and FDIC to jointly submit a plan within 180 days of the enactment of 

Dodd-Frank to their respective Inspectors General and Congress detailing the steps they will take 

to implement the transfer. The respective Inspectors General will evaluate that plan and jointly 

provide a written report to OCC, OTS, the Board of Governors, and FDIC, with a copy to 

Congress, on whether it conforms to the provisions of Dodd-Frank. Our joint report will be 

issued within 60 days of receiving the plan. In addition, we will jointly report on the status of the 

implementation of the plan every 6 months thereafter until all aspects of the plan are 

implemented. 

288 appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

289 

Page 3 

Clearly, 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 on the Treasury Secretary. The 

management challenge from our perspective is to implement 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 likely to be unpopular. Our future work plans will include reviews to look 

at how well Treasury establishes the new offices and undertakes its other critical roles. 

The other regulatory challenges that we discussed last year still remain. Specifically, since 

September 2007, 90 Treasury-regulated financial institutions have failed, with estimated losses 

to the Deposit Insurance Fund of approximately $36 billion. This is an increase of 51 financial 

institutions and $9 billion in losses since my last challenges letter. More financial institutions are 

expected to fail over the next 2 years. 

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 institutions under their respective supervision. The irresponsible lending practices 

of many institutions are now well-recognized—including reliance on risky products, such as 

option adjustable rate mortgages, and degradation of underwriting standards. At the same time, 

financial institutions engaged in other high-risk activities, including high asset concentrations in 

commercial real estate and overreliance on unpredictable brokered deposits to fund rapid growth. 

Recently, the unprecedented speed at which servicers were foreclosing on defaulted mortgages 

has revealed flaws in the processing of those foreclosures. A number of the largest banks with 

servicing functions have voluntarily placed moratoriums on foreclosures either in certain states 

or nationwide until these matters are resolved. While the depth and extent of these problems are 

not fully known at the time of this writing, this is yet another troubling development in the 

manner in which financial institutions have been operating. I am also concerned about the impact 

this could have on an already stressed housing market. Addressing this issue could be the first 

major challenge for the FSOC. 

The banking industry will continue to be stressed over the next several years. In the 2010 

interagency Shared National Credits (SNC) review, OCC, OTS, and the other federal banking 

regulators found that credit quality improved from 2009 but remained weak with respect to the 

$2.5 trillion in large ($20 million or more) loans and loan commitments held by domestic bank 

organizations, foreign bank organizations, and nonbank entities such as securitization pools, 

hedge funds, insurance companies, and pension funds. The review, which covered $1 trillion of 

the $2.5 trillion SNC portfolio, identified total losses of $15 billion, down from total losses of 

$53 billion in 2009. Criticized assets declined to $448 billion from $642 billion and represented 

nearly 18 percent of the SNC portfolio, compared with 22 percent in 2009. The volume of poorly 

underwritten credits originated in 2006 and 2007 continued to adversely affect the overall credit 

quality of the portfolio. Refinancing risk within the portfolio is also significant, with nearly 67 

percent of criticized assets maturing between 2012 and 2014. 

appendix c: management and performance challenges and responses 

part 4: other accompanying information 
the department of the treasury 

part 4: other accompanying information 

290 

Page 4 

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 21 such 

reviews and are engaged in 31 others. These reviews identify the causes of the failures and assess 

supervision exercised over failed institutions. Both OCC and OTS have been responsive to our 

recommendations for improving supervision. Dodd-Frank now mandates that our office also 

review failures that result in non-material losses to the Deposit Insurance Fund. To that end, we 

have completed 28 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 and OTS continue to 

take a critical look at their supervisory processes to identify why those processes did not prevent 

or mitigate the practices that led to the current crisis and what can be done to better protect the 

financial health of the banking industry and consumers going forward. 

Since implementation of Dodd-Frank is in its early stages, Treasury and its two federal bank 

regulators, OCC and OTS, will need to work in concert with the other affected federal bank 

regulators to ensure a smooth and effective transition to the new regulatory structure and 

requirements.
 

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 still remain in managing Treasury’s outstanding investments. To an 

extent, Treasury’s program administration under these two Acts has matured. In contrast, 

program administration for the Recovery Act is still evolving, and the Small Business Jobs Act 

programs must be stood up. Our discussion of this challenge will begin with the most recent Act 

passed to support and improve the economy and then discuss the other new programs Treasury is 

responsible for. 

Management of the Small Business Lending Fund and State Small Business Credit Initiative 

In late September 2010, Congress enacted the Small Business Jobs Act of 2010 creating within 

Treasury a $30 billion Small Business Lending Fund (SBLF) and providing $1.5 billion to be 

allocated by Treasury to approved states for 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 business and thereby support job creation. The challenge for Treasury 

will be to get these two programs up and running quickly while maintaining proper control to 

ensure transparency, equitable treatment of all participants, and program results. Our office is 

specifically directed in the Act to exercise vigorous oversight. To that end, I am establishing an 

Office of Small Business Lending Fund Oversight to be headed by a Special Deputy Inspector 

General. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

291 

Page 5 

SBLF Under SBLF, Treasury will make capital investments in eligible financial institutions 

(e.g., banks with total assets of $10 billion or less and not on FDIC’s problem bank list) after 

consultation with the institution’s regulator. Eligible institutions are permitted to refinance 

securities issued to Treasury under the Troubled Asset Relief Program (TARP) Capital 

Purchase Program (CPP) as long as they are current on their CPP obligations. Treasury’s 

capital investment may be up to 5 percent of the institution’s risk-weighted assets depending 

on the institution’s size. During the first 41⁄2 years of Treasury’s investment, participating 

institutions initially pay dividends to Treasury of 5 percent but that rate may be reduced to as 

low as 1 percent based on their demonstrated increase in small business lending (after 4 1⁄2

years, the dividend rate increases to 9 percent and Treasury’s investment is expected to be 

repaid within 10 years although there are provisions for extending repayment beyond that 

time). 

As of this writing, Treasury has not published specific policies and guidance for program 

administration. It is critically important that a strong control structure along with 

commensurate staffing be established on the front-end of this effort. It is also critical in 

setting up this program that Treasury build on its experience with CPP. For example, in a 

recent (October 2010) report on TARP, GAO observed that applicants that withdrew from 

consideration for CPP in response to a request from their regulator received no review by 

Treasury or other regulators. GAO recommended that if Treasury administers programs 

containing elements similar to those of CPP, such as SBLF, that Treasury should implement 

a process for monitoring all applicants that regulators recommend for withdrawal to ensure 

that similar applicants are treated equitably. Treasury agreed to consider the GAO 

recommendation, and we believe that this should be a component of the control structure that 

Treasury establishes for SBLF. Another key provision of the Act is that banking regulators 

publish guidance by the end of November 2010 regarding prudent underwriting standards 

that must be used for loans made by participating institutions; these standards will need to be 

in place so that participating institutions have a clear understanding on how the funds are to 

be used. Furthermore, it is important that Treasury and regulators coordinate to ensure that 

participating institutions comply with the terms and conditions of the investments, to include 

validation of increased small business lending in return for reduced dividend rates on 

Treasury investments. 

SSBCI On October 8, 2010, Treasury announced individual SSBCI funding allocations 

totaling $1.46 billion for the 50 States, the District of Columbia, and the U.S. territories, 

intended to support new small business lending through local programs. Under the SSBCI, 

states may apply for federal funds for programs that partner with private lenders to extend 

greater credit to small businesses. SSBCI allows states to build upon existing state-level 

small business lending programs. If a State does not have an existing small business lending 

program, the state can establish one in order to access SSBCI funding. States must provide 

plans for utilizing their funding allocations to Treasury for review and approval and report 

quarterly and annually on results. Another key feature is that participating states receive their 

allocations in 1/3 increments. Treasury may withhold a successive increment to a State 

pending the results of an audit by our office. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

part 4: other accompanying information 

292 

Page 6 

The Act also details specific expectations of Treasury for program administration to include 

consulting with the Small Business Administration and federal banking agencies; 

establishing minimum national standards for approved State programs; providing technical 

assistance and disseminating best practices; managing, administering, and performing 

necessary program integrity functions; and ensuring adequate oversight of approved State 

programs, including oversight of the cash flows, performance, and compliance of each 

approved State program. As with SBLF, Treasury will be challenged to stand this program up 

quickly with an adequate control structure and commensurate staffing to meet these 

expectations and make the federal funds available to the states. 

A common theme we have seen in recent years, most notably with TARP and Recovery Act 

programs, is that Treasury first attempts to administer new and complex programs with minimal 

staffing only to find that more resources need to be devoted to program administration after 

problems start to surface. We cannot stress enough that a similar approach be avoided with SBLF 

and SSBCI. 

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 grants for specified energy property in 

lieu of tax credits, grants to states for low-income housing projects in lieu of tax credits, 

increased Community Development Financial Institutions Fund grants and tax credits, economic 

recovery payments to social security beneficiaries and others, and payments to U.S. territories for 

distribution to their citizens. 

Many of these programs were new to Treasury in 2009 and 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 more than $6 billion under these 

programs and has yet to implement comprehensive monitoring procedures. In 2009, we reported 

that Treasury had dedicated only a small number of staff to award and monitor these funds. That 

has not changed and we continue to have concerns that the current staffing level is not 

commensurate with the size of these programs. Payments made to recipients under the specified 

energy property program alone comprise more than $5 billion of the funds awarded to date and 

the number of applicants continues to grow. We initiated and plan 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. Our audits of these recipients, 

however, should not be viewed as a substitute for appropriate and comprehensive management 

oversight and monitoring of the program. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

293 

Page 7 

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, and as of June 30, 2010, had 

purchased $145 billion. Treasury also purchased and is still holding $184 billion of mortgagebacked securities issued by two entities under a temporary purchase program that expired in 

December 2009. 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 assistance, both entities remain in a weakened financial condition and 

may require prolonged assistance. Dodd-Frank requires the Secretary of the Treasury to conduct 

a study on ending the conservatorship of Fannie Mae and Freddie Mac and minimizing the cost 

to taxpayers. The report on this study is to be presented to Congress no later than January 31, 

2011. 

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 large financial institutions and 

other businesses, as well as guaranteed other troubled mortgage-related and financial assets. On 

October 3, 2010, the authority to make new investments under the TARP program expired. 

Treasury will, however, continue making payments for programs which have existing contracts 

and commitments. TARP is expected to be less costly than first thought. Treasury has recently 

estimated that the total cost of TARP will be about $50 billion. As the life-cycle of TARP is 

maturing, Treasury’s challenge in this area is morphing from standing-up and running TARP 

programs to winding them down. That means Treasury must now focus on managing and exiting 

from its current TARP investments. These investments include, but are not limited to, AIG and 

General Motors. In this regard, at the time of this writing, it has been reported that AIG 

announced a restructuring plan that will accelerate the timeline for repaying the government, and 

General Motors is planning an initial public offering for later this year. 

EESA also established a special inspector general for TARP and imposed oversight and periodic 

reporting requirements on both the special inspector general and GAO. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

part 4: other accompanying information 

294 

Page 8 

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. 

Challenge 3: Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement 

Treasury faces unique challenges in carrying out its responsibilities under the Bank Secrecy Act 

(BSA) and USA Patriot Act to prevent and detect money laundering and terrorist financing. The 

Financial Crimes Enforcement Network (FinCEN) is the Treasury bureau responsible for 

administering BSA. However, a large number of other federal and state entities participate in 

efforts to ensure compliance with BSA, including the five federal banking regulators, the Internal 

Revenue Service, the Securities and Exchange Commission, the Department of Justice, and 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). 

Treasury must coordinate the efforts of these multiple entities. To this end, FinCEN and OFAC 

have entered into memoranda of understanding with many federal and state regulators in an 

attempt to build a consistent and effective process. In 2009, FinCEN had memoranda of 

understanding with 43 percent of federal and state regulators. While important to promote 

coordination and cooperation, it should be noted that these instruments are nonbinding and carry 

no penalties for violations, and their overall effectiveness has not been independently assessed. 

Furthermore, the USA Patriot Act has increased the types of financial institutions required to file 

BSA reports. In fiscal year 2009, financial institutions filed approximately 15 million BSA 

reports. The number is lower than 2008, which Treasury has attributed primarily due to a change 

in law that increased currency transaction report exemptions. FinCEN needs to work with 

regulators to ensure that financial institutions establish effective BSA compliance programs and 

file BSA reports, as required. 

Adding to this risk in the current environment is that financial institutions and their regulators 

may have decreased their attention to BSA and OFAC program compliance as they address 

safety and soundness concerns during the current economic crisis. FinCEN’s analysis of 

suspicious activity report data also found non-bank lenders and originators initiated many of the 

mortgages associated with suspicious activity reports filed for possible mortgage fraud. 

Furthermore, evidence suggests a link between mortgage fraud and money laundering. In that 

regard, FinCEN is considering applying anti-money laundering and suspicious activity report 

regulations to these non-bank institutions. 

FinCEN also has a particularly difficult challenge in dealing with money services businesses 

(MSB). FinCEN has to balance the needs of certain consumers who depend on access to MSBs 

(particularly the unbanked), with potentially unfettered access to the financial system that nontransparent MSBs create for those engaged in money laundering and terrorist financing. FinCEN 

has been working with the IRS to ensure MSBs comply with BSA registration and report filing 

requirements. IRS serves as the examining agency for MSBs but does not have the resources to 

annually inspect all MSBs or even identify unregistered MSBs, estimated to be in the tens of 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

295 

Page 9 

thousands. Within this framework, FinCEN has been concerned with MSBs that use informal 

value transfer systems and with MSBs that issue, redeem, or sell prepaid (or stored value) cards. 

MSBs using informal transfers have been identified in several attempts to launder proceeds of 

criminal activity or finance terrorism. Similarly, prepaid cards 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 transfers, when they use financial institutions to store currency, 

clear checks, remit and receive funds, and obtain other financial services. Also this year, FinCEN 

proposed revising definitions and other regulations pertaining to prepaid access to close 

regulatory gaps. 

In September 2010, to add transparency to possible illicit wire transfer use of the financial 

system, FinCEN proposed a regulatory requirement for certain depository institutions and MSBs 

to report cross-border electronic transmittals of funds (CBETF). 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. If implemented, ensuring financial institutions, particularly MSBs, 

comply with the CBETF reporting requirements, as well as managing this new database, will be 

a significant challenge for FinCEN. 

To ensure efficient management, safeguarding, and use of BSA information, FinCEN also plans 

to modernize BSA information management. BSA data is currently maintained by IRS and 

access to the database is generally handled through an IRS system known as WebCBRS. 

FinCEN believes modernization will provide increased data integrity and analytical tools, and 

maximize value for state and federal partners. BSA Information Technology (IT) Modernization 

is also discussed in challenge 4. 

Given the criticality of this management challenge to the Department’s mission, we continue to 

consider anti-money laundering and combating terrorist financing programs as inherently highrisk. Mandatory work, particularly material loss reviews of failed banks and thrifts, prevented us 

from performing any audits in this area in Fiscal Year 2009 and in 2010 we were limited to 

completing audits started years earlier. With legislated changes to the financial loss threshold for 

performing material loss reviews, we expect to be able to increase audit coverage of anti-money 

laundering and terrorist financing programs in Fiscal Year 2011. 

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. In prior years, we reported on 

a number of capital investment projects that either failed or had serious problems. This year, we 

identified challenges in 4 on-going investments, 2 of which were identified by the Office of 

Management and Budget (OMB) as high-risk projects. 

Replacement telecommunications platform The Information Technology Infrastructure 

Telecommunications investment with an overall value of $3.7 billion was rated as poorly 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

part 4: other accompanying information 

296 

Page 10 

performing by the Acting Chief Information Officer (CIO) and a high-risk project by OMB. 

This investment includes the Treasury’s replacement telecommunications platform, TNet, as 

a major component. Treasury was originally to have begun implementation of TNet in 

November 2007 but was delayed until August 2009 and is still in transition. Additionally, 

TNet does not currently incorporate all OMB security requirements, and many Treasury 

components have reported performance concerns with the network. 

Treasury implementation of a common identity management system OMB also recognized 

Treasury’s Consolidated Enterprise Identity Management system as a high-risk project. This 

system is a $147 million effort to implement the requirements of the Homeland Security 

Presidential Directive 12. This directive requires deployment of a common identity standard. 

This initiative was identified as being more than $40 million over budget and significantly 

behind schedule. 

Data Center Consolidation OMB initiated the Federal Data Center Consolidation Initiative to 

consolidate the number of federal data centers. Treasury has over 60 data centers around the 

country. Treasury is currently in the planning phase of a significant effort to reduce the 

number of data centers by 2015. This effort would require restructuring of Treasury’s IT 

infrastructure over a relatively short time. Relocating and consolidating data centers is a 

major investment that requires careful planning to address security concerns, disaster 

recovery, and infrastructure support. 

FinCEN’s 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. This project requires coordination between 

FinCEN and IRS, which has historically maintained the BSA database, and effective 

oversight by the Treasury Office of the CIO. 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. 

Treasury’s decentralized management of IT investments presents a significant hurdle to the 

successful implementation of major department-wide and government-wide initiatives. Large 

initiatives are often tasked to individual bureaus for overall management with some direction 

provided by the Treasury Office of the CIO. Coordination issues between bureaus can delay and 

disrupt implementation of department-wide policies and systems or prevent necessary changes 

from proceeding. Accordingly, Treasury should exercise continuous vigilance in managing the 

investments described above and others due to previously reported problems with large capital 

investments, and billons of procurement dollars at risk. 

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
 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

297 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 

SECRETARY OF THE TREASURY 

november 15, 2010 

MEMORANDUM FOR ERIC M. THORSON
 

INSPECTOR GENERAL
 

FROM: 	 timothy f. geithner 

SUBJECT:	 Management and Performance challenges facing the 

Department of the treasury 

I am responding to your october 22, 2010, memorandum describing the most serious management and performance challenges facing the Department of the treasury. this memorandum provides information on the actions 

completed in fiscal year (fy) 2010 and the actions planned for fy 2011 to address these challenges. 

treasury has established effective control structures to monitor the implementation of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-frank act) and the Small Business Jobs Act of 2010, to ensure the 

acts achieve their intended purposes, as well as provide unprecedented accountability and transparency. the 

Department is committed to staying vigilant about the risks associated with all of our programs and to adjust our 

strategies based on changing circumstances to achieve financial stability, economic security, and protection of the 

taxpayer. We look forward to working with you to further address these challenges. 

Challenge 1 – Transformation of Financial Regulation 

on July 21, 2010, the President signed into law the historic Dodd-frank act. the comprehensive financial regulatory reforms enacted under the Dodd-frank act include new requirements for enhanced prudential supervision 

of financial firms that could threaten financial stability; the creation of a financial stability oversight council 

(fsoc) to monitor emerging threats to the stability of the financial system; the establishment of a new consumer 

financial Protection bureau (cfPb) to protect consumers against unfair, deceptive, or abusive financial practices 

and ensure consumers have the information they need to choose financial products that best meet their needs. the 

act also includes reforms that bring transparency and regulation to the over-the-counter derivatives markets for 

the first time; and the creation of a resolution regime for large, highly interconnected financial firms to allow these 

firms to fail while protecting taxpayers and the economy. these reforms will help guard against many of the gaps, 

lapses, and inconsistencies in supervision of financial firms that clearly contributed to the recent financial crisis. 

More broadly, these reforms will help set a new foundation for a pro-investment and pro-growth financial system. 

In implementing the Dodd-frank act, treasury is working hard to ensure that the new rules provide necessary 

protections against financial excess while preserving the benefits of financial innovation. to that end, treasury 

has adopted the following guiding principles for implementation: 

•	 reforms are implemented as quickly as possible to provide clarity to the public and the markets , recognizing 

that implementation will be complex in some cases 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

Page 2 

•	 full transparency and disclosure are provided in the implementation process through publication of draft 

rules, available opportunities for public comment, and consultation with a broad range of groups and 

individuals 

•	 regulations are streamlined and simplified where possible to minimize duplication and eliminate rules that 

do not work 

•	 Implementation is coordinated with other federal agencies to ensure new rules across government work 

together, not against, each other 

•	 every effort is made to create a more level playing field, both between banks and non-banks in the u.s., as 

well as between major financial institutions globally 

•	 freedom of innovation is protected to ensure economic growth 

treasury has been working to implement the reforms of the Dodd-frank act since enactment. Immediately after 

passage, treasury put in place a governance structure to oversee the Department’s implementation of the reforms. 

generally, treasury developed implementation teams dedicated to each of its core responsibilities, such as helping 

to establish the fsoc, laying the groundwork for the office of financial research (ofr), launching the cfPb, 

and creating a federal Insurance office (fIo). these teams update a steering committee of senior treasury officials who meet daily to consider options, make decisions, move implementation forward, and, where appropriate, 

make recommendations. 

Consumer Financial Protection Bureau 

title X of the Dodd-frank act establishes the cfPb within the federal reserve system to protect consumers 

against unfair, deceptive, or abusive financial practices and ensure consumers have the information necessary to 

choose consumer financial products and services that best meet their needs. the Dodd-frank act consolidates 

core authorities currently fragmented across seven federal agencies into a single, dedicated, and independent 

federal consumer protection watchdog. the cfPb will implement rules for consumer financial products and 

services and develop supervision programs to regularly examine the most critical bank and nonbank financial 

services providers. In addition, the cfPb will develop programs to promote greater financial literacy and establish 

a nationwide consumer complaint response unit, which will include a dedicated website and hotline for receiving 

consumer complaints about financial services. 

under the Dodd-frank act, the Department is responsible for standing up the new agency until the first cfPb 

Director is confirmed by the senate. the Department has designated July 21, 2011, as the “designated transfer 

date,” which is the date on which the cfPb will assume existing authorities of seven federal agencies. treasury 

has made substantial progress preparing the cfPb to incorporate staff and assume authorities from those agencies. 

Financial Stability Oversight Council 

on october 1, 2010, the fsoc held its first meeting at which it took a number of important steps to fulfill its 

mandate under the Dodd-frank act. as established under the act, the fsoc will provide, for the first time, 

298 appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

299 

Page 3 

comprehensive monitoring to ensure the stability of our nation’s financial system. the fsoc is charged with 

identifying threats to the financial stability of the u.s., promoting market discipline, and responding to emerging 

risks to the stability of the u.s. financial system. 

at its inaugural meeting, in addition to adopting organizational documents, the fsoc approved resolutions to 

seek public comment on the criteria for designating nonbank financial companies for heightened supervision, as 

well as to inform recommendations the fsoc will make on how to implement statutory restrictions on banking 

institutions’ proprietary trading and investments in private funds (the “Volcker rule”). In addition, the fsoc 

must also study and make recommendations for implementing the concentration limit, the macroeconomic effects 

of risk retention requirements, and the economic implications of financial regulation. Work on those studies is 

underway. 

Office of Financial Research 

the ofr is housed within the treasury Department and will ultimately support the fsoc and its member 

agencies by providing them with better financial data, information, and analysis so policymakers and market 

participants have a more complete understanding of risk in the financial system. the ofr will be headed by a 

director nominated by the President and confirmed by the senate. a treasury staff team has begun to plan the 

ofr’s functions and gather input from regulators and private stakeholders. 

In fy 2011, treasury will conduct a census of existing data standardization initiatives and existing sources of 

reference data. once completed, the ofr team will move quickly to draw up detailed plans for ofr to facilitate 

and advance these initiatives without duplication or unnecessary burden. treasury is also developing an organizational structure, hiring procedures and pay structures, information technology, and other requirements. 

Federal Insurance Office 

the Dodd-frank act established the fIo to monitor important domestic and international insurance matters and 

coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters. as 

part of the Department, fIo will monitor all aspects of the insurance industry, including identifying issues and 

gaps in the regulation of insurance that could contribute to a systemic crisis in the insurance industry or within 

the broader u.s. financial system. the fIo will also use its authority to negotiate, together with the u.s. trade 

representative, international insurance agreements on prudential measures. the fIo director will serve on the 

fsoc as a nonvoting member in an advisory capacity. 

treasury officials and staff are engaging frequently with interested parties and developing a framework within which 

fIo and the states, which would remain as the functional regulators, can work together. In fy 2011, treasury will 

stand up the office, appoint a director, and hire key staff. treasury will also begin to engage with representatives of 

other countries on insurance prudential issues as well as working closely with the u.s. trade representative. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

Page 4 

Transfer and Abolishment of OTS 

the Dodd-frank act abolishes the office of thrift supervision (ots), transferring its duties to the office of 

the comptroller of the currency (occ), federal reserve, and federal Deposit Insurance corporation. these 

reforms streamline the regulatory system and reduce potential for regulatory arbitrage. occ’s and ots’s current on-site supervisory assessments, which focus 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, will continue in the new regulatory structure to prevent a repeat of the current crisis. 

In addition, in the new regulatory structure, occ will 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. In fy 2011, treasury will work closely with the occ, ots, and 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. 

Challenge 2 – Management of Treasury’s Authorities Intended to Support and Improve 

the Economy 

Small Business Lending Fund 

treasury’s office of financial Institutions is working expeditiously to finalize and promulgate policy guidance for 

the small business lending fund (sblf). More specifically, treasury’s stand-up team has drafted term sheets and 

applications, which soon will be posted to a newly created treasury website for the sblf. additionally, treasury 

is working with the federal banking agencies (fbas) to come to agreement on a process for the intake and review 

of applications and lending plans (which are required pursuant to the Small Business Jobs Act of 2010). once 

treasury and the fbas have agreed on the process, treasury will post the term sheets and applications publicly. 

as the treasury team works to stand up the sblf, careful consideration is being given to suggestions from the 

government accountability office (gao) and other oversight bodies. 

State Small Business Credit Initiative 

treasury is also implementing the state small business credit Initiative (ssbcI). staffing and hiring are 

integral components of this process. accordingly, treasury has formulated a detailed hiring plan with full-time 

equivalent estimates, as well as the functional competencies that will be needed to support this initiative, including legal, analytical, and programmatic oversight support. treasury is in the process of posting position descriptions for new hires and will likely engage contract support in the near term while hiring continues. this will 

provide the ssbcI with an adequate control structure and sufficient staff to meet the needs of the program. 

Management of Recovery Act Programs 

the Department of the treasury played a pivotal role in implementing the American Recovery and Reinvestment 

Act of 2009 (recovery act). by providing targeted investments and implementing tax provisions to benefit both 

300 appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

301 

Page 5 

businesses and individuals, the Department continued to stimulate the u.s. economy, create and sustain jobs, and 

build the foundation for long-term economic growth. of the $787 billion provided by the recovery act, treasury 

is managing programs that will contribute nearly $300 billion in benefits to the american people through 2019. 

these programs, once implemented, will have a significant, positive impact on the lives of millions of americans. 

treasury’s recovery act programs include investments in renewable energy and low income housing, local 

and state government support, and the implementation of approximately 60 tax incentives for households and 

businesses. the tax incentive programs include the Making Work Pay credit, which by the end of calendar year 

2010, will provide an estimated $49 billion in refundable tax credits to working individuals and married taxpayers filing joint returns; and build america bonds, which in fy 2010 provided over $107 billion in financing to 

state and local governments throughout the country to help finance schools, utilities, public safety programs, and 

transportation. 

treasury has managed the low income housing and specified energy property programs by supplementing a small, 

core staff in the Departmental offices with support from treasury bureaus, including Irs. for the energy program, 

treasury entered into an interagency agreement with the Department of energy to assist with the technical 

aspects of that program. as a result, treasury successfully implemented both of these programs in five months and 

has made awards to date in excess of $10 billion. 

In fy 2010, the Department implemented compliance monitoring programs for both the low-income housing and 

specified energy property programs. for the housing program, treasury staff conducted reviews of state housing 

agencies, either by conducting in-person site visits or desk reviews. these reviews will continue in fy 2011. for 

the energy program, treasury implemented an annual reporting process through an automated system, which 

provides information and supporting documentation necessary for treasury to evaluate compliance with the program’s terms and conditions. this process will be ongoing throughout the program’s five year compliance period. 

additionally, the Irs has plans to initiate a compliance initiative project relative to the energy property program 

in fy 2011. this project is being designed to ensure that recipients do not also claim a tax credit with respect 

to the same property and that recipients have properly stated their basis. further, treasury has and will continue 

to inform Irs of particular areas of concern related to energy property compliance for their consideration as Irs 

designs the project. 

treasury expanded the recovery act implementation team in fy 2010 with the addition of two senior managers. the recovery act team facilitates all recovery act implementation efforts department-wide and interfaces 

with the broader recovery act community. as part of this broad responsibility, the team establishes internal 

processes, addresses external data requirements, manages risk inherent in recovery act implementation, and 

coordinates treasury recovery act audits. 

Management of the Housing and Economic Recovery Act and the Emergency Economic Stabilization Act 

treasury used the authority provided by the Emergency Economic Stabilization Act (eesa) to implement the 

troubled asset relief Program (tarP) and strengthen the u.s. financial system, restore credit markets for 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

302 

Page 6 

businesses and consumers, and address foreclosures in the housing market. During fy 2010, as the financial 

system stabilized and the Department began to wind down its activities, treasury closed five programs to new 

investments: the cPP, the targeted Investment Program, the asset guarantee Program, the term assetbacked securities loan facility (part of the consumer and business lending Initiative), and the Public-Private 

Investment Program. In fy 2010, treasury implemented two new programs: the small business administration 

(sba) 7a Purchases Program and the community Development capital Initiative, both part of the consumer 

and business lending Initiative. 

treasury also introduced several initiatives in fy 2010, which together comprise the treasury housing Programs 

under tarP. these include the hardest-hit fund, the federal housing administration (fha) refinance 

Program, and subprograms under the home affordable Mortgage Program (haMP). subprograms under haMP, 

the first lien loan modification program, include the Principal reduction alternative Waterfall Program, the 

unemployment Program, and the home affordable foreclosure alternatives Program, as well as programs under 

the Making home affordable Program including the fha-haMP Program, the second lien Program, the 

fha-refinance Program, and the u.s. Department of agriculture-haMP Program. as additional focus turns to 

winding down the tarP investments, other dispositions will occur in fy 2011, including the possible conversion 

of capital Purchase senior Preferred loans to those offered through the sblf. 

as of september 30, 2010, $475 billion of eesa had been designated for particular tarP programs. of that 

amount, over $474 billion had been obligated to specific institutions under signed agreements, over $387 billion 

of those funds had been disbursed, and $204 billion of tarP investments were repaid with income received on 

tarP investments totaling over $28 billion. 

treasury Departmental offices played a critical role in contributing to a well-functioning office of financial stability 

(ofs), which oversees all eesa investments. since its inception, ofs has aggressively implemented the programs 

listed above and has grown into an organization of 215 full-time employees. for each program, ofs designed, 

planned, and implemented sound controls and oversight. the assistant secretary for Management has provided 

support services such as accounting, information technology, administration, and human resources on a reimbursable 

basis. ofs has prepared separate financial statements on its programs for which gao gave an unqualified opinion. 

gao also provided an unqualified opinion on ofs’s internal controls and identified no material weaknesses. 

under the additional purchase authorities granted by the Housing and Economic Recovery Act of 2008, treasury’s 

office of Debt Management purchased mortgage-backed securities (Mbs) guaranteed by fannie Mae and freddie 

Mac from september 2008, until the authority’s expiration on December 31, 2009. treasury purchased over $220 

billion face value of agency Mbs through two expert asset managers, barclays global Investors (now blackrock) 

and state street global advisors. through august 2010, treasury received $69.8 billion in principal and interest 

payments with $164 billion of unpaid principal balance remaining. for increased transparency, the Department 

publishes aggregate information on its holdings of agency Mbs monthly on financialstability.gov. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

303 

Page 7 

Challenge 3 - Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement 

the Department faces unique challenges in carrying out its responsibilities under the Bank Secrecy Act (bsa) and 

the USA PATRIOT Act to prevent and detect money laundering and terrorist financing. the financial crimes 

enforcement network (fincen) has overall authority for bsa enforcement and compliance, and delegates 

examination authority to the Internal revenue service (Irs), occ, ots, and other federal banking agencies. 

the following paragraphs highlight actions taken by fincen, Irs, occ, and ots, in coordination with other 

federal and state authorities, in fy 2010, and actions planned in fy 2011 related to this challenge. 

In the last several years, fincen has focused on effective and efficient administration, outreach, and engagement 

of existing industries covered by the bsa. however, new payment systems and industries vulnerable to money 

laundering continually evolve, such as prepaid access products, non-bank mortgage lenders and originators, and 

hedge funds. In fy 2011 and beyond, fincen will expand bsa regulations to new industry sectors, consistent 

with the administration’s priorities. Increasingly, fincen’s regulations focus on risks involving transactions and 

institutions for which there is no federal regulator or, in some cases not even a state regulator, and for which any 

existing regulators or delegated supervisory functions will require significant guidance and support from fincen. 

In fy 2009, fincen published a proposal simplifying the organizational structure of bsa requirements, and 

expects to implement it fully in fy 2011. fincen worked with the Irs and state regulators to develop a Money 

services business (Msb) examination manual. fincen initially released the manual in fy 2009, and translated 

it into spanish in fy 2010. fincen facilitated the development of training materials on this manual, and 

fostered training for Irs and state examiners in fy 2010. additionally, fincen issued an assessment in fy 2010 

showing that regulatory changes in fy 2009 simplifying the appropriate exemption of customers from currency 

transaction reporting requirements resulted in higher value for law enforcement and efficiency for financial 

institutions. fincen also continued to promote electronic filing of bsa reports in fy 2010, issuing a brochure 

highlighting the benefits of e-filing and initiating a phased outreach approach to financial institutions that 

continue to file bsa reports on paper that has met with positive industry response. 

to enhance the efficiency and effectiveness of the bsa regulatory framework, fincen also issued final rules in fy 

2010 to accomplish the following: 

•	 expand the suc cessful “314(a) program” to certain foreign law enforcement agencies, u.s. state and local 

law enforcement agencies, and certain other components within the Department of the treasury 

•	 Move to streamline mutual fund bsa requirements by allowing mutual funds to file currency transaction 

reports 

fincen, in close cooperation with law enforcement and regulatory authorities, developed and issued a proposed 

rule in fy 2010 that proposes to establish a more comprehensive regulatory framework for non-bank prepaid 

access. the proposed rule focuses on prepaid programs that pose the greatest potential risks of money laundering 

and terrorist financing. also in fy 2010, fincen issued a proposed rule that would require certain depository 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

304 

Page 8 

institutions and Msbs to affirmatively provide records to fincen of certain cross-border electronic transmittals of funds (cbeft). fincen issued this proposal to meet the requirements of the Intelligence Reform and 

Terrorism Prevention Act of 2004. In addition, fincen reviewed comments received on a wide range of questions 

pertaining to the possible application of anti-money laundering (aMl) program and suspicious activity reporting 

rules to non-bank residential mortgage lenders and originators in response to an advance notice of Proposed 

rulemaking. In fy 2011, fincen will continue working toward finalizing these proposals, as well as proposed 

and/or final regulations related to: 

•	 clarifying the confidentiality of suspicious activity reports (sars) and accompanying guidance to financial institutions on sharing sar information within their organizational structure 

•	 clarifying foreign bank account reporting requirements 

•	 Implementing regulations related to due diligence in correspondent banking pursuant to the Comprehensive 

Iran Sanction, Accountability, and Divestment Act of 2010 

outreach plays an important role in effectively administering the bsa. the bank secrecy act advisory group 

(bsaag) serves as the principal forum to discuss bsa issues among regulators, law enforcement, and industry. 

occ, ots, and other federal banking agencies actively participate on various bsaag subcommittees. In fy 

2010, fincen continued outreach to specific financial institutions, visiting several small depository institutions 

and insurance companies, and plans to conduct further outreach to additional industry segments in fy 2011. 

active engagement with other regulators is also critical to meeting this challenge. by the end of fy 2010, 

fincen had established 59 memoranda of understanding (Mou) with federal and state regulators to enhance 

the sharing of information derived from compliance examinations. fincen shared analytic reports in the form of 

bsa data profiles with these federal and state regulators, and surveyed its Mou partners to determine the impact 

of the information exchanged. eighty-six percent of respondents indicated the information shared with them 

was valuable. as these Mous mature, the information exchanged will help fincen improve bsa examination 

consistency and compliance. In fy 2011, fincen will pursue Mous with additional state regulators, focusing 

specifically on state insurance regulators. 

to enhance regulated financial industry understanding of and compliance with bsa requirements, in fy 2010, 

fincen, with input from occ, ots and other agencies, published a range of financial institution advisories 

and regulatory guidance, including an advisory for financial institutions on key terms to use when filing sars 

regarding loan modification and foreclosure rescue scams, an updated advisory on informal value transfer systems, 

a distillation of existing guidance on obtaining and retaining beneficial ownership information, guidance to 

casinos on compliance program risk indicators, and advisories to financial institutions on several international 

issues including statements from the financial action task force and changes to Mexican currency regulations. 

In fy 2010, occ and ots collaborated with fincen and other federal banking agencies to issue guidance on 

the impact of new, more transparent messaging standards being adopted by industry via measures undertaken by 

the society for Worldwide Interbank financial telecommunication. In fy 2011, fincen, occ and ots will 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

305 

Page 9 

continue to work with other federal banking agencies to issue guidance to institutions as needed and additional 

financial institution advisories as risks emerge. 

In fy 2010, fincen conducted strategic analytical studies and published reports promoting greater awareness of 

emerging money laundering trends and vulnerabilities. those analytic products included an assessment of suspicious activity reporting by insurance companies and casinos/card clubs, and several reports analyzing sars related 

to mortgage loan and loan modification fraud. In fy 2011, fincen will continue to publish analytic products, 

which assess trends and patterns in mortgage fraud. other analytic studies planned for fy 2011 include strategic 

assessments of suspicious activities which involve title and escrow companies, prepaid access devices, remote 

deposit capture, debt settlement and debt relief fraud, commercial real estate fraud, and identify theft. 

a primary strategy for meeting the goal of a safer, more transparent financial system includes effective examination for any potential money laundering, terrorist financing, and bsa issues in supervised institutions. occ 

and ots continue to examine compliance with bsa, USA PATRIOT Act, and other aMl provisions through a 

process which consists of on-site examinations conducted every 12-18 months, supplemented by off-site monitoring and follow-up to address identified supervisory issues. additionally, in fy 2010 fincen and the Irs finalized 

a referral process to implement a more effective bsa examination regime for non-bank financial institutions 

that the Irs examines. Implementation of this process is part of a broader strategy implemented in fy 2010 to 

better enable fincen to develop cases and pursue enforcement actions based, in part, on its own analytical efforts 

and information from law enforcement. fincen will build upon current initiatives through fy 2011; work will 

include coordinating with the Irs to develop stronger relationships with state regulatory agencies, particularly 

with regard to non-bank financial institution examinations. 

throughout fy 2010, fincen, occ, and ots continued to work with the federal financial Institution 

examination council (ffIec) agencies to ensure examination consistency, and to provide guidance and training 

to financial institutions and examiners regarding aMl and bsa requirements. this collaboration helps achieve 

a consistent examination approach that is risk focused and provides uniform guidance to financial institutions on 

regulatory expectations. In april 2010, occ, ots, and the other federal banking agencies, in consultation with 

fincen, issued an updated ffIec bsa/aMl examination Manual. the 2010 version was the fourth revision 

of the manual. occ and ots joined the other federal banking agencies in a webinar hosted by the american 

bankers association to provide an overview of significant revisions to the manual for the banking industry. In 

august 2010, the ffIec, with participation from occ, ots and fincen, continued to enhance advanced bsa/ 

aMl training for banking examiners through the fourth ffIec advanced bsa/aMl specialists conference in 

august 2010. also, in fy 2010, the ffIec agencies, in consultation with fincen, completed the development 

of a software application used by examiners to analyze bsa data for purposes of improving the scoping of bsa 

examinations. 

ensuring financial institutions comply with the bsa, aMl, USA PATRIOT Act, and related regulations is critical to protecting the integrity of the u.s. financial system and combating money laundering and terrorist financing. In fy 2010, fincen, occ, ots, and Irs worked collectively and with other federal banking agencies to 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

306 

Page 10 

review examination results and take enforcement actions, as appropriate, against institutions that egregiously 

violated regulatory requirements. In March 2010, fincen and occ, in conjunction with the Department of 

Justice, reached settlement on the largest civil penalty action to date under the bsa. these bureaus and agencies 

will continue to work together in fy 2011 to ensure financial institutions comply with aMl and bsa requirements and protect the integrity of the financial system. 

Challenge 4 - Management of Capital Investments 

the Department takes its investment management role very seriously and remains committed to improving the 

management of information technology (It). In support of this commitment, the office of the chief Information 

officer (ocIo) is actively engaged in the following activities: 

Infrastructure Optimization/Data Center Consolidation and Shared Services 

In august 2010, the Department submitted its strategy for reducing the number of treasury data centers to the 

office of Management and budget (oMb). In support of this strategy, the treasury cIo council approved 

proposals of specific initiatives to consolidate and optimize the Department’s data centers. Data center consolidation efforts will focus on coordinating planning among those bureaus (e.g., bureau of the Public Debt, financial 

Management service, occ, ots, and Irs) that have begun to work together to consolidate their operations. 

the Department expects to increase the efficiency of its data centers in support of energy reduction and release 

of real property. enterprise content Management will be a key shared service that will foster collaboration across 

the Department for a variety of administrative activities such as records management and correspondence tracking. In fy 2011, the Department will continue to focus on data center consolidation and shared services as key 

strategies to better manage costs of It investments. 

Monthly Evaluation of IT Investments 

the treasury ocIo continues to evaluate, on a monthly basis, the degree to which major It investments achieve 

cost control, schedule, and other performance goals. the ocIo inputs and monitors progress made on these 

goals via an oMb website. the public transparency and the increased frequency of assessments have resulted in 

increased executive attention to It investment management, which in turn results in more consistent management of the treasury It budget. 

taking advantage of the potential cost savings and/or cost avoidance from these efforts is not only good management, but is necessary if the Department is to effectively field the new capabilities required to support the 

Department’s expanding financial and economic missions. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

307
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

308 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

309
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

310 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

311
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

312 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

313
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

314 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

315
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

316 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

317
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

318 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

319
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

320 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

321
 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
the department of the treasury 

322 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

323 

DEPARTMENT OF THE TREASURY
 

WASHINGTON, D.C.
 

SECRETARY OF THE TREASURY 

november 15, 2010 

MEMORANDUM FOR J. RUSSELL GEORGE 

TREASURY INSPECTOR GENERAL FOR 

TAX ADMINISTRATION 

FROM: 	 timothy f. geithner 

SUBJECT:	 response to Management and Performance challenges facing the 

Internal revenue service 

I am responding to your october 15, 2010, memorandum describing the Internal revenue service’s (Irs) most 

serious management and performance challenges. this memorandum provides information on the actions 

completed in fiscal year (fy) 2010 and the actions planned for fy 2011 to address these challenges. 

Challenge 1 – Security 

In fy 2010, Irs implemented a number of security enhancements at Irs buildings nationwide as a result of the 

february incident in austin in which an Irs employee perished and several others were injured. the Irs placed 

guards on a 24/7 basis in 11 of the austin offices, and security guards at all of the 401 taxpayer assistance centers 

(tacs). the Irs also established a more vigilant security posture at all buildings through increased canine 

patrols, random searches, and guard vigilance. In addition, Irs is conducting in-depth risk assessments at all 669 

facilities that house Irs employees to identify any security countermeasures that would enhance security. 

the Irs’s criminal Investigation Division (cI) enhanced its partnerships with the treasury Inspector general for 

tax administration and federal Protective service to share information on potential threats so Irs can institute 

appropriate countermeasures. the Irs included physical security briefings for all employees in mandatory annual 

security awareness briefings. 

During fy 2010, Irs expanded efforts to detect and prevent security threats and to protect access to taxpayer 

information, identifying and mitigating over 5,200 individual cyber incidents which could have compromised 

the integrity of the Irs to address computer security. the Irs combated online fraud schemes by monitoring, 

identifying, and mitigating fraudulent sites and phishing scams, shutting down 4,109 phishing sites (899 domestic 

and 3,210 international) in fy 2010, up from 3,444 sites shut down in 2009. the Irs has a team of capable “first 

responders” who are organized, trained, and equipped to identify, contain, and eradicate cyber threats targeting 

Irs computing assets. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

324 

Page 2 

the Irs continues to take the issue of identity theft very seriously. In fy 2010, Irs flagged more than 284,000 

accounts of identity theft victims with “markers” that indicated to an employee that they were dealing with a 

substantiated case of identity theft. In addition, Irs ensured that identity theft indicators and business rules 

isolated returns for additional screening to validate whether the true taxpayer filed the return. More than 82,000 

returns were selected for additional screening and closed, and more than $245 million was protected from being 

refunded to perpetrators on thousands of fraudulent returns. 

In fy 2011, Irs will deploy additional account “markers” that will improve the processing of taxpayer accounts 

impacted by identity theft. the Irs will also complete the development of a cI Disaster recovery site in 

Martinsburg, WV which will be used to prepare for, respond to, and recover from a disaster or emergency incident. 

Challenge 2 – Modernization 

In fy 2010, Irs modernization efforts continued to focus on core tax administration systems designed to provide 

more sophisticated tools to taxpayers and to Irs employees. the customer account Data engine (caDe), 

Modernized e-file (Mef), and account Management services (aMs) modernization projects delivered the 

changes necessary for a successful filing season, and continued to support implementation of the tax provisions of 

the American Recovery and Reinvestment Act of 2009 (recovery act). 

In fy 2010, Irs revised its caDe strategy (caDe 2) to implement a new taxpayer account database for the 

2012 filing season that provides for daily updating of individual taxpayer accounts to improve taxpayer service and 

accuracy, reduce interest paid on late refunds, improve data security, and allow the development of new tools to 

combat fraud and improve enforcement activities. completion of the taxpayer account database is the prerequisite for other major initiatives, including significant expansion of online services and transactions and the next 

generation of enforcement technologies. 

the Irs deployed an additional release of Mef that enabled acceptance of additional forms and schedules to 

reach 61 percent of the e-file population, and with enhanced disaster recovery capabilities to manage operational 

risk. In addition, Irs deployed the final release of aMs, enabling users to view correspondence images online, 

eliminating manual processing, and reducing case cycle time from 10-14 days to zero days. aMs also facilitated 

the identification of unallowable or fraudulent claims for first-time home buyer credits claimed by taxpayers 

filing amended returns. 

In fy 2011, Irs will continue to focus on modernization of the tax administration systems to provide additional 

benefits to taxpayers. the Irs will further develop caDe 2 to accommodate tax law changes in the 2012 filing 

season. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

325 

Page 3 

Challenge 3 – Tax Compliance Initiatives 

During fy 2010, Irs continued to focus on improving voluntary compliance in support of treasury’s goal of reducing the tax gap, ensuring businesses and individuals pay the correct amount of tax and overseeing tax-exempt 

and government entities. the Irs research community strategic Plan, released in fy 2010, focuses on research 

efforts aimed at effectively determining ways to address taxpayer compliance. specifically, Irs will develop several 

new estimates of taxpayer compliance, undertake research to support efficient methods to enhance compliance, 

and use analytically based technologies to provide tools for detecting and reducing noncompliance. 

Businesses and Individuals 

In fy 2010, Irs continued to make closing the tax gap, especially the portion attributable to underreporting of 

individual and business income tax, a major priority. While enforcement efforts are crucial, Irs also recognized 

the need to better identify noncompliant taxpayers, conduct exams more efficiently and with less taxpayer 

burden, and to engage and monitor tax return preparers, who are uniquely situated to impact taxpayer behavior 

and compliance. 

the Irs requested increases in its fy 2011 treasury budget submission to support the Presidential priority of addressing international tax evasion. the Irs’s planned initiatives build on the work started in fy 2010, allowing 

Irs to continue the multi-year investment in international tax compliance activities. Increases in the coverage 

of the most strategically important international issues, including complex enterprise structures and transactions, 

promote greater compliance in high net-worth individuals and large enterprises, including those with international components, operated by businesses and investors through multiple interrelated financial and tax entities. the 

Irs will also be able to continue directing significant resources to examining returns from the offshore Voluntary 

Disclosure Initiative and to the development of cases built upon data received from ubs for taxpayers who did 

not voluntarily disclose ownership of offshore accounts. 

the Irs is continuing the individual national research Program in order to update case scoring models to better 

identify noncompliant taxpayers. In fy 2011, Irs plans to use the improved case scoring models to identify a 

sample population on which to conduct examinations beginning in fy 2012. 

During fy 2010, while Irs continued to take enforcement actions crucial to closing the tax gap, it also took 

steps to conduct exams more efficiently and with less taxpayer burden. In fy 2010, Irs began using new software 

that reduces the taxpayer burden of printing records stored electronically in response to business owners and tax 

professionals who have been advocating for the acceptance of taxpayer records in electronic format. the new 

software will allow Irs to retain a complete set of the taxpayer’s accounting records. as a result, Irs anticipates a 

decrease in the size and complexity of initial document requests during an examination and in follow-up requests 

to taxpayers. the new software also has the potential to allow Irs to resolve audits more quickly due to increased 

efficiency in the analysis and testing of the books and records in electronic format. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

326 

Page 4 

for the first time since the early 1980s, Irs embarked on a three-year employment tax compliance study to determine the employment tax gap and employment tax compliance rates. the Irs developed new forms designed 

to provide a clearer procedure for workers who are being incorrectly classified as contractors by their employers. 

In fy 2011, systemic changes will identify returns that have incomplete forms attached, reducing the number 

of forms filed with incorrect social security and Medicare taxes reported. the Irs will report the results of the 

employment tax compliance study once three years of data are available to develop robust compliance estimates, 

and will use the results to develop processes to correct the problem of misclassification of employees. 

Tax-Exempt Entities 

During fy 2010, Irs continued to recognize the importance of maintaining a strong enforcement presence in the 

tax-exempt sector and ensured that tax-exempt organizations met their requirements under federal tax law. In fy 

2010, Irs improved the filing of required forms 8871, Political Organization Notice of Section 527 Status, and 8872, 

Political Organization Report of Contributions and Expenditures, to better identify non-compliance by section 527 

political organizations. In fy 2011, Irs will continue to focus on these organizations by revising form instructions to improve the guidance provided to filers, developing procedures to both periodically sample forms submitted for compliance and to conduct reviews of responses received to compliance notices, and seeking to correct 

systemic issues related to the issuance of form 8872 notices. 

In fy 2010, Irs assisted the Department of Justice (DoJ) in fraud and conspiracy investigations related to 

municipal bond contracts and initiated examination projects in identified areas of noncompliance. one notable 

accomplishment is that compliance contacts for tax-exempt and government entities increased 19.7 percent in fy 

2010 when compared to the previous year. 

During fy 2010, international tax compliance continued to challenge Irs. In fy 2010, Irs addressed international compliance issues, including internationally sponsored pension plans, the movement of in-kind charitable 

gifts offshore, and cross-border commerce using Indian reservations and casinos. In fy 2011, Irs will continue 

to ensure tax-exempt organizations comply with applicable laws and regulations, as well as continue to address 

international compliance issues. 

In fy 2010, Irs released an interim report on the compliance of colleges and universities for unrelated business 

taxable income and compensation. the colleges and universities project is part of an ongoing effort by Irs to 

review the largest, most complex organizations in the tax-exempt sector to identify issues that warrant additional 

guidance or scrutiny. based on responses to compliance questionnaires sent to 400 public and private colleges and 

universities, Irs has opened several dozen examinations focusing on unrelated business income and executive 

compensation and will issue a final report in fy 2011. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

327 

Page 5 

Tax Return Preparers 

the Irs recognizes that return preparers are a critical component of tax administration and are uniquely situated 

to impact taxpayer behavior and improve compliance with tax laws. In fy 2010, Irs emphasized compliance 

among return preparers through a variety of methods, including due diligence and “knock and talk” visits, as well 

as examinations of cases where potential preparer violations were identified. as discussed further below, in 2010 

Irs also began to lay a foundation for ensuring the quality and integrity of professional tax return preparation 

through a program of registration, competency testing, and continuing professional education. 

Challenge 4 – Implementing Health Care and Other Tax Law Changes 

Health Care 

the Affordable Care Act (aca) was signed into law on March 23, 2010, and later amended by the Health Care 

and Education Reconciliation Bill of 2010 on March 30, 2010. aca represents the largest set of tax law changes 

in more than 20 years, with more than 40 provisions that amend the tax laws. although the new law goes into 

effect gradually over many years, numerous provisions required Irs to take immediate action, including the small 

business health care tax credit, the Qualifying therapeutic Discovery credit, the expanded adoption credit, 

and numerous tri-departmental aca market reform regulations and subregulatory guidance issued jointly by the 

Department of health and human services (hhs), Department of labor, and treasury (with Irs). 

to implement various aca provisions that are effective in 2010 and 2011, Irs established teams, organized by 

affected taxpayer groups: individual taxpayers, small businesses, large industry, and tax-exempt and government 

entities. During fy 2010, Irs focused on: 

•	 Developing new systems and business processes for near-term provisions 

•	 conducting initial planning for longer-term provisions, and 

•	 Defining appropriate outreach activities for each affected group 

the Irs and hhs partnered to form a coordinating committee to assess cross-cutting policy considerations. 

also, interagency working teams have formed to assess operational needs such as data infrastructure, eligibility, 

enrollment, customer service, communications, and payment of premium tax credits. 

Provisions taking effect in later years (including the individual responsibility requirement and premium tax 

credit), when new options for buying health insurance through state-sponsored exchanges go into effect, place 

significant new administrative responsibilities on Irs. In preparation for these provisions, in fy 2010, Irs began 

to design and develop the requisite complex new systems and business processes and coordinate with other federal 

and state entities. 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

328 

Page 6 

Recovery Act 

the Irs is faced with implementing tax law changes each filing season, and in fy 2010 Irs successfully implemented the fy 2010 provisions of the recovery act. In response to the fraud that sometimes accompanies major 

tax law changes, Irs identified erroneous and fraudulent first-time homebuyer credit claims through new 

system programming and pre-refund filters that rejected returns where claims in excess of the maximum allowable 

credit were made or claims in excess of allowable amounts for taxpayers with adjusted gross income exceeded 

income limitations. the Irs continues to take a strategic approach to this credit which includes both aggressive 

compliance and outreach components. from october to December 2010, Irs plans to send a series of notices to 

the millions of taxpayers who benefited from the program to remind them of the requirements on repayment and 

recapture of the credit. the Irs will also send notices to taxpayers who may have disposed of their home within 

the three years, reminding them of the requirement to report the disposition for the year it occurred. the Irs is 

also moving forward with its plans to use third party data to identify non-compliance and to address the areas of 

non-compliance already identified. 

In fy 2010, Irs provided detailed recovery act training to employees responsible for developing recovery actfunded requirements to ensure the necessary controls were in place to comply with procurement requirements. 

the Irs also increased staff to ensure full coverage of required procurement activities. In fy 2011, Irs will 

continue to assess staffing throughout the procurement lifecycle to maintain adequate internal control functions. 

Other Tax Law Changes 

In fy 2010, taxpayers continued to use Irs.gov in record numbers to get real-time, updated information on available tax credits as they filed their returns. taxpayers used the site to find answers to tax law questions through 

an Interactive tax assistant and updated phone tools to obtain information on the one-time $250 economic 

recovery payment. 

In fy 2011, Irs will continue to monitor proposed changes to the tax laws and prepare accordingly to ensure 

taxpayers have the necessary forms and information for the filing season. based on preliminary analysis of the 

affordable care act, Irs will prepare to implement the act, including the revision of more than 17 tax forms 

and the creation of three new forms. 

Challenge 5 – Providing Quality Taxpayer Service Operations 

During the 2010 filing season, Irs.gov remained the preferred source of information for taxpayers seeking answers 

to their questions on preparing and filing their tax returns accurately and timely and on new legislation. the 

Irs added more automated self-help web tools and services; e.g., an application for taxpayers to obtain a personal 

identification number to satisfy e-filing signature requirements and a multilingual website to facilitate participation in the tax system by individuals who do not speak english. these improvements are a part of Irs’s continued implementation of the taxpayer assistance blueprint (tab) service improvements. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

329 

Page 7 

the Irs and its partners provided free tax assistance to the elderly, disabled, and limited english proficient 

individuals and families at Volunteer Income tax assistance (VIta) and tax counseling for the elderly (tce) 

sites during the filing season. Volunteers at over 12,000 VIta and tce sites throughout the nation prepared 

more than 3.1 million tax returns, including 360,500 returns for individuals with disabilities and/or families with 

disabled dependents. 

During fy 2010, Irs and its partners hosted five open house events at 200 tacs and partner sites, including at 

least one in every state, in an effort to assist taxpayers during the economic downturn. the goal of these events 

was to improve the taxpayer’s experience by creating seamless case resolution on a variety of tax issues and to 

assist taxpayers in preparing their tax returns. as a result, they served more than 31,400 taxpayers and prepared 

over 7,700 returns. Included in the 2010 events were assistors trained to help taxpayers who owed delinquent 

taxes, especially those who were having difficulties meeting their tax obligations because of unemployment or 

other financial problems. services offered to taxpayers included added flexibility for missed installment agreement 

payments and streamlined processing for offers in compromise. 

In fy 2011, Irs will continue to implement its tab service improvements and provide greater access to service 

on non-workdays through events such as open houses. the Irs will also use Irs.gov to disseminate information to taxpayers quickly, continue to simplify forms to comply with the Plain Writing Act of 2010, and look for 

additional ways to improve the tax filing process. 

Challenge 6 – Human Capital 

In fy 2010, Irs completed its human capital business Plan for 2010-2014, which describes how Irs will work 

toward further improving its ranking as a “best place to work in government.” 

to attract the best and most qualified applicants, Irs enhanced its recruitment programs and introduced a new 

recruitment brand – “count on Me!” – on print materials, usajobs.gov, the Irs careers website, Internet 

advertisements, and social media. a job search tool on youtube helped provide the public with information on 

employment opportunities. the Irs also took steps to streamline its hiring process to make it faster and more 

efficient, while reducing applicant burden. 

In fy 2010, Irs had noteworthy hiring accomplishments, including meeting its goal of hiring 1,000 military 

veterans for the third year in a row, with veterans comprising 11 percent of total hires, up from 9 percent in fy 

2009, and 7 percent in fy 2008. the Irs achieved this goal by working with veterans’ organizations and other 

government agencies to hold targeted job fairs. 

also, Irs developed an overall strategy for improving coaching and mentoring skills at all leadership levels, 

including implementation of an internal coaching certification program and core workshops for all leaders to develop, promote, and retain Irs leaders. the Irs also completed 41 of 58 recommendations outlined in its 2009 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

330 

Page 8 

Workforce of tomorrow (Wot) report, helping to resolve some of the most significant recruitment and retention 

workforce challenges facing current employees and managers. 

In fy 2011, Irs will implement additional Wot recommendations, as well as an accelerated leadership 

Program pilot to test a “fast track” training program for identified high-potential candidates. the Irs will also 

continue to use cutting edge technologies and communication tools to increase the breadth of recruitment in an 

effort to attract the best and brightest applicants and will continue efforts to streamline the hiring process. 

Challenge 7 – Erroneous and Improper Payments and Credits 

Refundable Credits 

During fy 2010, Irs continued to focus on refundable credits and the earned Income tax credit (eItc) as 

areas for reducing erroneous payments. the Irs protected over $3.7 billion in revenue through eItc enforcement efforts, which included the examination of over 474,000 original and amended returns claiming the eItc, 

900,000 document matching reviews, and 300,000 math error process corrections. the Irs also identified more 

than 405,555 fraudulent returns claiming over $3.0 billion in refunds, and stopped over $2.6 billion in fraudulent 

claims using the electronic fraud Detection system, with an average refund of $8,230. 

In fy 2011, Irs will continue to address eItc noncompliance through its aggressive compliance program which 

includes examinations, reviews of income misreporting, systemic corrections during return processing, and focus 

on paid return preparers, who prepare 66 percent of eItc returns. the Irs believes the implementation of new 

preparer requirements for registration, competency testing, continuing education, and compliance checks will 

improve eItc compliance, decrease fraud, and reduce overall program noncompliance. 

Contracts and Other Payments 

In fy 2010, Irs emphasized the importance of the role of the contracting officer’s technical representative 

(cotr) in contract administration and contract monitoring by providing on-line reference resources and 

developing more comprehensive training. the training is a mandatory requirement for all managers and employees involved in contract administration. It includes courses that separate the receipt and acceptance processes 

to clarify the requirements. the Irs has also established an automated system to ensure only properly certified 

employees serve as cotrs. to further assist cotrs in the contractor invoice review and approval process, 

detailed procedures include a requirement to verify contractor employee qualifications against the contract labor 

categories and descriptions prior to approval of any voucher for payment. 

Challenge 8 – Globalization 

During fy 2010, Irs continued to focus on taxpayers who shift income abroad and engage in offshore tax evasion 

schemes to hide their wealth and avoid paying taxes. With cross-border transactions on the rise, Irs more than 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

331 

Page 9 

doubled its offshore presence by opening new offices in asia and central america, placing additional personnel 

at its existing offices throughout the world, and expanding its interaction with key international organizations 

involved in tax and financial law compliance. 

In fy 2010, Irs used audit results and intelligence from ongoing offshore initiatives to refine case identification 

and selection methods and to identify promoters, facilitators, and participants in abusive offshore arrangements. 

the Irs also began mining the information from participants of its offshore voluntary disclosure program, started 

in 2009, to identify financial institutions, advisors, and others who promoted or otherwise helped u.s. taxpayers 

hide assets and income offshore. this mined data will be used in fy 2011 to develop additional strategies to 

prohibit promoters and facilitators from soliciting new clients. 

as part of a continuing effort to ensure the issues with erroneous and fraudulent refund claims on forms 1040nr, 

U.S. Nonresident Alien Income Tax Return, are not widespread, Irs has developed new procedures for reviewing 

and processing the refund claims, assisted by recently passed legislation that extends the timeframe allowed for 

review. In fy 2011, a new database will be developed to provide for better tracking and validity reviews, and 

new criteria will be established to assist in the validation of claims. the Irs also plans to take steps to recover 

erroneous refunds through enforcement. the Irs continued to address emerging compliance issues with internationally sponsored pension plans, the movement of in-kind charitable gifts offshore, and adherence by charities to 

requirements for foreign bank accounts. 

Challenge 9 – Taxpayer Protection and Rights 

taxpayer protection is a top priority for Irs. In fy 2010, Irs continued to monitor compliance with the taxpayer rights provisions of the IRS Restructuring and Reform Act of 1998 (rra 98), including quarterly managerial 

certifications and annual independent reviews of the rra 98 section 1204 provisions. the certification process 

serves to ensure management does not use enforcement statistics to evaluate employees and drive behavior in 

conflict with taxpayer rights. the Irs issued new policy guidance and developed an improved briefing on the 

retention standard to ensure that the fair and equitable treatment of taxpayers remains a critical factor in evaluating employees. 

During fy 2010, Irs began laying the groundwork to ensure the quality and integrity of professional tax return 

preparation, which most taxpayers rely on in one form or another. the Irs successfully implemented an application process to comply with the mandate that all paid tax return preparers obtain a preparer tax identification 

number. In fy 2011, Irs will proceed with additional requirements related to competency testing and continuing 

professional education. 

the notice of federal tax lien process is an important component of the Irs recovery strategy to protect the government’s interest on unpaid tax liabilities. the Irs has taken several steps to address systemic and procedural 

part 4: other accompanying information 

appendix c: management and performance challenges and responses 
part 4: other accompanying information 

the department of the treasury 

332 

Page 10 

concerns identified with the notice of federal tax lien process, including system enhancements, Internal revenue 

Manual procedural updates, and operational reviews. the Irs continually examined and improved processes 

to ensure the protection of taxpayer rights. In fy 2011, Irs will implement automation tools to address notice 

requirements. 

Challenge 10 – Leveraging Data to Improve Program Effectiveness and Reduce Costs 

In fy 2010, Irs continued to make progress in financial management, particularly with use of its managerial 

cost accounting system that provides timely, accurate, and useful data across multiple business units. currently, 

the system has five years of data that provide managers with useful cost information for decision making related 

to their programs and activities. the Irs has used its Integrated financial system cost module to determine the 

full cost of a number of compliance activities at the program level, including the eItc program, and to develop 

cost-benefit analyses on other enforcement programs. 

the Irs implemented the redesign revenue accounting control system (rracs) in January 2010, bringing 

the revenue financial system substantially compliant with the united states standard general ledger. the 

requirement that rracs provide transaction traceability for unpaid tax assessments to the sub-ledger prevents 

closure of the unpaid assessment material weakness at this time. closure of this material weakness depends on 

implementation of caDe 2 (transition state 2) to provide the capability to properly categorize unpaid assessment data and provide an audit trail to the detailed transactions residing in modernized and legacy operating 

systems. 

appendix c: management and performance challenges and responses 
performance and accountability report | fiscal year 2010 

333 

appendix d:
 

Material WeaKnesses, audit folloW-uP, 


financial systeMs, and recoVery act
 

risK ManaGeMent
 

this section consists of detailed descriptions of treasury’s material weakness inventory, including a summary of actions taken and 

planned to resolve the weaknesses; tracking and follow-up activities related to treasury’s gao, oIg, tIgta, and the special 

Inspector general for the troubled asset relief Program audit inventory; an analysis of potential monetary benefits arising from 

audits performed by treasury’s Inspectors general; an update on treasury’s financial systems framework; and an overview of 

treasury’s risk management activities related to the American Recovery and Reinvestment Act of 2009 (recovery act). 

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. reporting on material weaknesses is required in these instances by the Federal 

Managers’ Financial Integrity Act of 1982 (fMfIa) and the Federal Financial Management Improvement Act of 1996 (ffMIa). 

Federal Managers’ Financial Integrity Act of 1982 (FMFIA) 

the fMfIa requires agencies to establish and maintain internal controls. the secretary must annually evaluate and report on the 

controls (fMfIa section 2) and financial systems (fMfIa section 4 and ffMIa) that protect the integrity of federal programs. 

the requirements of the fMfIa serve as an umbrella under which other reviews, evaluations, and audits should be coordinated and 

considered to support management’s assertion about the effectiveness of internal control over operations, financial reporting, and 

compliance with laws and regulations. 

as of september 30, 2010, treasury has four 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 2010 5 0 5 

Closures/Downgrades during FY 2010 1 0 1 

Reassessed during FY 2010 0 0 0 

New MW declared during FY 2010 0 0 0 

Balance at the End of FY 2010 4 0 4 

part 4: other accompanying information 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
part 4: other accompanying information 

the department of the treasury 

below are detailed descriptions of treasury’s four material weaknesses: 

Material Weakness Description 

INTERNAL REvENUE SERvICE - Improve Modernization Management Controls and Processes 

The IRS needs to improve its management of the Business Systems Modernization program. Key elements: 

•	 Assess the recommendations from the Special Studies and Reviews of the Business Modernization program and projects 

•	 Implement and institutionalize procedures for validating contractor-developed costs and schedules 

•	 Establish effective contract management practices 

•	 Complete a human capital strategy 

•	 Improve configuration management practices 

Actions Completed What Remains to be Done 

55Deployed release 5.2 of the Customer Account Data Engine (CADE) in 5Allow assessment time to observe long-term effect of actions completed and

January 2010, delivering the tax year 2009 filing season tax law changes demonstrate sustained improved performance 

affecting individual taxpayers, and providing technical improvements to the 5Targeted Downgrade/Closure: Fiscal year 2011 infrastructure and availability of current CADE 

55Deployed Modernized e-File (MeF) release 6.1 in January 2010, delivering all

functionality and tax law changes for corporate, partnership, and non-profit/ 

tax exempt returns; and the build-out of the infrastructure to include a more 

robust disaster recovery capability to support 1040 processing 

55Deployed Account Management Services (AMS) release 2.1 in September

2009, providing all AMS users the ability to view correspondence images 

online and on demand, eliminating users’ reliance on manual processes to 

obtain copies of images. 

55Exited CADE 2 Transition State 1 milestone 0-2 in February 2010; implemented 

CADE 2 Acquisition Strategy and Plan which provides oversight for all CADE 2 

acquisition tasks 

Material Weakness Description 

INTERNAL REvENUE SERvICE - Computer Security 

The IRS has various computer security controls that need improvement. Key elements: 

•	 Adequately restrict electronic access to and within computer network operational components 

•	 Adequately ensure that access to key computer application and systems is limited to authorized persons for authorized purposes 

•	 Adequately configure system software to ensure the security and integrity of system programs, files, and data 

•	 Appropriately delineate security roles and responsibilities within functional business operating and program units, as required by the Federal Information Security 

Management Act 

•	 Appropriately segregate system administration and security administration responsibilities 

•	 Sufficiently plan or test the activities required to restore certain critical business systems where unexpected events occur 

•	 Effectively monitor key networks and systems to identify unauthorized activities and inappropriate system configurations 

•	 Provide sufficient technical, security-related training to key personnel 

•	 Certify and accredit 90 percent of all systems 

Actions Completed What Remains to be Done 

55Security roles and responsibilities 5Systems/Application access controls

55Security/System Administration segregation of duties 5Systems software configuration access controls

55Security training 5Contingency planning

55Certification and Accreditation 5Audit trails

55Network access controls 5Targeted Downgrade/Closure: Fiscal year 2012 

appendix d: material weaknesses, audit follow-up, 

334 financial systems, and recovery act risk management 
performance and accountability report | fiscal year 2010 

335 

Material Weakness Description 

INTERNAL REvENUE SERvICE – Unpaid Assessments (remaining portions of Financial Accounting of Revenue – Custodial) 

The IRS needs to improve its internal control over Unpaid Assessments. 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 

55Implemented the Redesign Revenue Accounting Control System (RRACS) in

January 2010, which enabled the custodial financial management system to 

substantially comply with the United States Standard General Ledger (USSGL) 

chart of accounts to address noncompliance with FFMIA. 

55RRACS now records all tax revenue and refunds using the USSGL format

and for the first time records the taxes receivable and allowance for doubtful 

accounts addressing this component of the material weakness 

5Achievement of CADE 2 Transition State 2 target of a single, data-centric 

solution system which provides for daily processing of taxpayer accounts 

5Targeted Downgrade/Closure: Fiscal year 2015 

Material Weakness Description 

FINANCIAL MANAGEMENT SERvICE - Consolidated Government-wide Financial Statements 

The government does not have adequate systems, controls, and procedures to properly prepare the Consolidated Government-wide Financial Statements. Key elements: 

•	 The government lacks a process to obtain information to effectively reconcile the reported excess of net costs over revenue with the budget deficit, and when 

applicable, a reported excess of revenue over net costs with 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 

55Partially reconciled fiscal year 2009 operating revenues with budget receipts 5Complete reconciliation of operating revenues to budget receipts

55Developed a model to provide analysis of unreconciled transactions that 5Complete reciprocal category for the Treasury General Fund 

affect the change in net position 5Implement changes identified by the Office of the Fiscal Assistant Secretary

55Accounted for intra-governmental differences through formal consolidating as a result of its review of the Reporting Entity definitions per the Financial 

and elimination accounting entries using all reciprocal fund categories Accounting Standards Advisory Board criteria 

including the General Fund 5Include all disclosures as appropriate

55Federal agencies submit complete closing packages to GAO 5Include all loss contingencies as appropriate

55Establish traceability from agency footnotes to the Consolidated Financial 5Targeted Downgrade/Closure: Fiscal year 2014 Statements (CFS) for completeness 

part 4: other accompanying information 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
part 4: other accompanying information 

the department of the treasury 

336 

ii. auDit fOllOW-up aCtivities 

During fiscal year 2010, treasury placed renewed emphasis on both the general administration of internal control issues throughout the Department and the timely resolution of findings and recommendations identified by the office of the Inspector general 

(oIg), the treasury Inspector general for tax administration (tIgta), the special Inspector general for the troubled asset 

relief Program (sIgtarP), the government accountability office, and external auditors. During the year, treasury continued 

to implement enhancements to the tracking system called the “Joint audit Management enterprise system” (JaMes). JaMes is 

a Department-wide, interactive, web-based system accessible to the oIg, tIgta, sIgtarP, bureau management, Departmental 

management, and others. the system tracks information on audit reports from issuance through completion of all corrective actions 

required to address findings and recommendations contained in an audit report. JaMes is the official system of record for treasury’s 

internal control program. 

Potential Monetary Benefits 

the Inspector General Act of 1978, as amended, Public law 95-452, require the Inspectors general and the secretaries of executive 

agencies and Departments to submit semiannual reports to the congress on actions taken on audit reports issued that identify potential monetary benefits. the Department consolidates and analyzes all relevant information for inclusion in this report. the information contained in this section represents a consolidation of information provided separately by the oIg, tIgta, and Department 

management. 

In the course of their audits, the Inspectors general periodically identify questioned costs, make recommendations that funds be put 

to better use, and identify measures that demonstrate the value of audit recommendations to tax administration and business operations. “Questioned costs” include a: 

•	 cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds 

•	 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 in realizing potential monetary benefits identified in audit reports, 

and coordinates with the auditors as necessary to ensure the consistency and integrity of information on monetary benefit recommendations being tracked. 

the statistical data in the following summary table and charts represent audit report activity for the period from october 1, 2009 

through september 30, 2010. the data reflect information on reports that identified potential monetary benefits issued by the oIg 

and tIgta. 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
performance and accountability report | fiscal year 2010 

337 

Audit Report Activity With Potential Monetary Benefits for Which Management has Identified Corrective Actions (OIG and TIGTA) 

October 1, 2009 through September 30, 2010 

(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 10 $36.9 6 $159.1 11 $2,536.3 27 $2,732.3 

New Reports 2 .4 11 2,818.7 11 3,929.0 23 6,748.1 

Total 12 37.3 17 2,977.8 22 6,465.3 50 9,480.4 

Reports Closed 8 4.3 4 155.2 5 906.4 16 1,065.9 

a. Realized or Actual 6 1.1 2 29.2 3 16.1 10 46.4

 b. Unrealized - Written off 7 3.2 3 126.01 5 890.32 15 1,019.5 

Ending Balance 4 $33.0 13 $2,822.6 17 $5,558.9 34 $8,414.5 

1 This category includes one report, with $125.66 million written off, for which IRS management did not concur with TIGTA’s projected benefits. 

2 This category includes one report, with $209 million written off, for which IRS management did not concur with TIGTA’s projected benefits; and one report, with $539.6 million written off, for which 

TIGTA does not agree with the IRS that the benefits have not been realized. 

the following table presents a summary of oIg and tIgta audit reports with potential monetary benefits that were open for more 

than one year as of the end of fiscal years 2008, 2009, and 2010. 

Number of Reports with Potential Monetary Benefits Open for More than One Year 

PAR Report Year 9/30/2008 9/30/2009 9/30/2010 

OIG No. of Reports 1 0 1 

$ Projected Benefits $29.4 million $0 million $10.5 million 

TIGTA No. of Reports 12 10 12 

$ Projected Benefits $661.5 million $673.8 million $1,783.7 million 

the following table presents a summary of tIgta and oIg audit reports, broken out by year of report issuance, on which management decisions were made on or before september 30, 2009, but the final actions had not been taken as of september 30, 2010. 

Details of the Audit Recommendations with Potential Monetary Benefits on Which Management Decisions Were Made On or Before September 30, 2009, 

But Final Actions have Not Been Taken as of September 30, 2010 

(Dollars In Thousands) 

Bureau 

Report 

Number 

Report 

Issue Date Brief Description 

Disallowed 

Costs 

Funds Put to 

Better Use 

Revenue 

Enhancement Total Due Date 

IRS 2004-20-142 8/26/2004 The IRS should ensure the Storage Strategy 

Study addresses the data storage capacity 

deficiency and recommends a cost-effective 

virtual tape system solution to reduce 

maintenance and tape shipping costs. 

$ 200.0 $ 200.0 Due 

12/31/2010 

FY 2004 1 $ 200.0 $ 200.0 

IRS 2006-1c-142 9/25/2006 The IRS Contracting Officer (CO) should use 

the results of the Defense Contract Auditing 

Agency (DCAA) report to fulfill his/her duties 

in awarding and administering contracts. 

$ 32,373.8 $ 32,373.8 Delayed to 

10/15/2011 

FY 2006 1 $ 32,373.8 $ 32,373.8 

IRS 2007-1c-149 9/24/2007 The IRS will work with DCAA and the 

contractor to resolve the questioned costs 

applicable to IRS contracts. 

$ 62.2 $ 62.2 Delayed to 

8/31/2011 

FY 2007 1 $ 62.2 $ 62.2 

table continued on next page 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 

part 4: other accompanying information 
the department of the treasury 

part 4: other accompanying information 

338
 

Details of the Audit Recommendations with Potential Monetary Benefits on Which Management Decisions Were Made On or Before September 30, 2009, 

But Final Actions have Not Been Taken as of September 30, 2010 

(Dollars In Thousands) 

Bureau 

Report 

Number 

Report 

Issue Date Brief Description 

Disallowed 

Costs 

Funds Put to 

Better Use 

Revenue 

Enhancement Total Due Date 

FY 2008 N/A N/A — — — — N/A 

DO OIG-09-024 1/7/2009 Treasury should reactivate the state-held 

federal unclaimed assets recovery program 

with appropriate policies, procedures, and 

controls. 

$ 10,500.0 $ 10,500.0 Due 

6/30/2012 

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 the IRS 

should adjust its space needs to reflect 

workstation sharing and take action to 

release any unneeded space identified, 

where appropriate. 

$ 30,000.0 30,000.0 Due 

1/15/2011 

IRS 2009-30-068 5/28/2009 As resources become available, the 

IRS should initiate actions to develop 

compliance strategies for ensuring more 

Commodity Credit Corporation income 

payments are properly reported. 

92,200.0 92,200.0 Due 

3/15/2011 

IRS 2009-30-106 8/18/2009 IRS should coordinate with the respective 

functional areas to ensure employees 

receive periodic computer alerts to review 

large dollar frozen taxpayer accounts for 

credits that can be reelased and the freeze 

on accounts is systematically released when 

credits fall below the $10 million threshold 

by implementing agreed-upon computer 

programming modifications. 

92,600.0 92,600.0 Due 

1/15/2011 

IRS 2009-40-112 8/6/2009 IRS should explore the feasibility of 

making greater use of mortgage interest 

data to pursue additional nonfilers and 

underrerporters for audit. 

1,426,735.7 1,426,735.7 Due 

12/15/2011 

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. 

9,000.0 9,000.0 Due 

1/15/2011 

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. 

1,100.7 1,100.7 Due 

1/15/2012 

IRS 2009-1c-134 9/28/2009 IRS should use the DCAA results in fulfilling 

the awarding and administration of IRS 

contracts. 

$ 145.6 145.6 Due 

10/15/2012 

FY 2009 8 $ 145.6 $ 131,600.0 $ 1,530,536.4 $ 1,662,282.0 

TOTAL 11 $ 32,581.6 $ 131,800.0 $ 1,530,536.4 $ 1,694,918.0 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
performance and accountability report | fiscal year 2010 

339 

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, 2009 and september 30, 2010, 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 

9/30/2009 9/30/2010 

OIG TIGTA OIG TIGTA 

No. of Reports 8 26 6 24 

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 Performance 

and accountability report (Par). 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) that consolidates bureau financial data 

•	 cfo Vision that produces monthly financial statements and performs financial analysis 

•	 Joint audit Management enterprise system (JaMes) that 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 2010, 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. 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. 

part 4: other accompanying information 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
the department of the treasury 

part 4: other accompanying information 

340 

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 2010, treasury established a tIer focus group to improve communication with the bureaus and to 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 the tax administration systems, improving the speed in which the Irs processes tax returns. In 

fiscal year 2010, the customer account Data engine (caDe) posted more than 41.2 million tax returns and more than 35.8 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 recognizing real-time submissions; and Irs upgraded the servers which host 

the financial management system that accounts for $11.5 billion in Irs funding. 

bPD/arc continued to improve the effectiveness of providing efficient financial management systems and financial operations 

services to 14 treasury bureaus and offices by implementing best practices in financial management. In fiscal year 2010, bPD/arc 

upgraded the core financial management systems platform to increase its responsiveness in producing financial management reports 

and to adhere to financial reporting governance standards. 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. 

the bureau of engraving and Printing (beP) enhanced its manufacturing system to be fully integrated into its existing financial 

management system to support capturing performance data into the managerial cost accounting process. beP also participated in a 

pilot program with the bureau of the Public Debt (bPD) for intra-governmental transactions, utilizing a secure, web-based electronic 

invoicing and payment information system provided by the treasury’s financial Management service. 

Federal Financial Management Improvement Act (FFMIA) of 1996 Compliance 

With the exception of the Irs, all treasury bureaus are in compliance with ffMIa. as required by ffMIa, the Irs has a remediation plan in place to correct the deficiencies. for each ffMIa recommendation, the remediation plan identifies specific remedies, 

target dates, responsible officials, and resource estimates required for completion. this plan is reviewed and updated quarterly. 

the Irs made significant progress in fiscal year 2010 toward achieving ffMIa compliance by implementing the redesign revenue 

accounting control system (rracs), which enabled the custodial financial management system to substantially comply with the 

united states standard general ledger (ussgl) chart of accounts. rracs now records all tax revenue and refunds using the 

ussgl format and, for the first time, records the taxes receivable and allowance for doubtful accounts. the Irs also implemented 

automated interfaces which enabled traceability for 98.6 percent of the over $2.3 trillion in revenue collections. 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
performance and accountability report | fiscal year 2010 

iv. reCOvery aCt risk management aCtivities 

upon the enactment of the recovery act in february 2009, just weeks after the new administration took office, treasury quickly 

designed and implemented a robust risk management program to support the Department’s implementation of the act. following 

oMb’s recovery act implementation guidance, treasury required the programs’ senior accountable officials in the bureaus to certify 

that they had taken the following actions for each recovery act program: 

•	 Identified and documented program-specific risks 

•	 Identified and documented applicable current process internal controls 

•	 Determined the risk level (high, medium, or low) by using treasury’s recovery act risk and impact assessment questionnaire 

•	 Determined additional controls needed, if any 

•	 Developed (or updated existing) and implemented a risk mitigation plan for each program with a risk level of medium or high 

•	 Performed ongoing monitoring and testing 

treasury created a recovery act risk Management council that continued to meet regularly during fiscal year 2010 to discuss the 

progress and status of each bureau’s recovery act risk management activities. 

part 4: other accompanying information 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 341 
the department of the treasury 

part 4: other accompanying information 

342 

This page left intentionally blank 

appendix d: material weaknesses, audit follow-up, 

financial systems, and recovery act risk management 
performance and accountability report | fiscal year 2010 

343 

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 

AGP Asset Guarantee Program 

AIFP Automotive Industry Financing Program 

AIG American International Group 

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 

BEA Bank Enterprise Award 

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 

CAMELS Capital adequacy, Asset quality, Management, Earnings, 

Liquidity and Sensitivity to market risk 

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 

CDE Community Development Entities 

CDFI Community Development Financial Institutions 

CDS Credit Default Swaps 

CFPB Consumer Financial Protection Bureau 

CFO Chief Financial Officer 

CFS Consolidated Financial Statements 

CFT Counter-terrorist financing 

CFTC Commodity Futures Trading Commission 

Glossary of Acronyms 

CHCO Chief Human Capital Officer 

CHIPRA Children’s Health Insurance Program Reauthorization Act 

of 2009 

CI Criminal Investigators 

CIF Climate Investment Funds 

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 

COLA Certificate of Label Approval 

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 Privacy, Transparency, and 

Records 

DCAA Defense Contract Auditing 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 

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 

part 4: other accompanying information 

appendix e: glossary of acronyms 
the department of the treasury 

part 4: other accompanying information 

344 

Glossary of Acronyms 

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 

ERP Economic Recovery Payment 

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 

FATF Financial Action Task Force 

FCDA Foreign Currency Denominated Assets 

FCRA Federal Credit Reform Act 

FDIC Federal Deposit Insurance Corporation 

FEC Financial Education and Counseling 

FECA Federal Employees’ Compensation Act 

FERS Federal Employees’ Retirement System 

FEGLI Federal Employees Group Life Insurance 

FEHBP Federal Employees Health Benefits Program 

FFB Federal Financing Bank 

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 

FIT Office of Financial Innovation and Transformation 

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 United States Government 

FRB Federal Reserve Bank 

FRBNY Federal Reserve Bank of New York 

Glossary of Acronyms 

Freddie Mac Federal Home Loan Mortgage Corporation 

FSB Financial Stability Board 

FSOB Financial Stability Oversight Board 

FST Floor Stocks Tax 

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 

GMAC General Motors Acceptance Corporation 

GSA General Services Administration 

GSE Government Sponsored Enterprises 

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 

ID Investigation Division 

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 

IPIA Improper Payments Information Act 

IRIS Integrated Revenue Information System 

IRISL Islamic Republic of Iran Shipping Lines 

appendix e: glossary of acronyms 
performance and accountability report | fiscal year 2010 

345 

Glossary of Acronyms 

IRS Internal Revenue Service 

IRS-CI Internal Revenue Service - Criminal Investigations 

ISO International Organization for Standardization 

IT Information Technology 

ITR Iranian Transactions Regulations 

JAMES Joint Audit Management Enterprise System 

LMSB Large and Mid Sized Businesses 

MBS Mortgage-Backed Securities 

MDB Multilateral Development Banks 

MeF Modernized Electronic File 

MHA Making Home Affordable Program 

MINT U.S. Mint 

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 

NACA Native American CDFI Assistance 

NDIC National Drug Intelligence Center 

NEI National Export Initiative 

NIBP New Issue Bond Program 

NMTC New Markets Tax Credit 

NOL Net Operating Loss 

NPRM Notice of Proposed Rulemaking 

NRC National Revenue Center 

NRP National Research Program 

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 

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 Actions 

PCC OTC Paper Check Conversion Over-the-Counter 

PII Personal Identifiable Information 

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 

SOMA System Open Market Account 

SPSPA Senior Preferred Stock Purchase Agreements 

SPV Special Purpose Vehicle 

SSBCI State Small Business Credit Initiative 

part 4: other accompanying information 

appendix e: glossary of acronyms 
the department of the treasury 

part 4: other accompanying information 

346 

Glossary of Acronyms 

SSG Senior Supervisors’ Group 

SSP Shared Service Provider 

SSP Stable Share Price 

STR Suspicious Transaction Report 

TAC Taxpayer Assistance Center 

TAIFF Troubled Assets Insurance Financing 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 

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 

USPS United States Postal Service 

USSGL United States Standard General Ledger 

VA Department of Veteran’s Affairs 

VITA Volunteer Income Tax Assistance 

WHBAA Worker, Homeownership, and Business Assistance Act of 

2009 

WMD Weapons of Mass Destruction 

WTO World Trade Organization 

appendix e: glossary of acronyms 
Treasury On-line www.treas.gov 

Treasury Performance and Accountability Reports www.treasury.gov/offices/management/dcfo/accountability-reports 

Alcohol and Tobacco Tax and Trade Bureau www.ttb.gov 

Community Development Financial Institutions Fund www.cdfifund.gov 

Comptroller of the Currency www.occ.treas.gov 

Bureau of Engraving & Printing www.bep.treas.gov 

Financial Crimes Enforcement Network www.fincen.gov 

Financial Management Service www.fms.treas.gov 

Internal Revenue Service www.irs.gov 

U.S. Mint www.usmint.gov 

Bureau of the Public Debt www.publicdebt.treas.gov 

Office of Thrift Supervision www.ots.treas.gov 

The Financial Stability Plan www.financialstability.gov 

Help for America’s Homeowners www.makinghomeaffordable.gov 

Recovery Act Spending www.recovery.gov 

website information
www.Treas.gov