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