U.S. Department of the Treasury | Fiscal Year 2013

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U.S. Department of the Treasury | Fiscal Year 2013

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TABLE OF CONTENTS

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

Part 1: Management’s Discussion and Analysis (Unaudited)

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

Organization........................................................................................................................................................................ 3

Treasury's Fiscal Year 2012-2015 Strategic Framework and Key Performance Indicators.............................................. 6 

Fiscal Year 2013 Performance by Strategic Goal............................................................................................................... 8 

Performance by Agency Priority Goal............................................................................................................................... 22 

Highlights of Management and Performance Challenges ............................................................................................... 24 

Financial Highlights.......................................................................................................................................................... 25 

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

Part 2: Annual Financial Report

Message from the Assistant Secretary for Management and Deputy Chief Financial Officer ....................................... 38

Inspector General’s Transmittal Letter ........................................................................................................................... 39

Independent Auditors’ Report on the Department’s Financial Statements.................................................................. 41 

Management’s Response to Independent Auditors’ Report............................................................................................ 48

Financial Statements......................................................................................................................................................... 49

Notes to the Financial Statements.................................................................................................................................... 56

Required Supplemental Information (Unaudited) ........................................................................................................ 135

Part 3: Other Information (Unaudited)

Section A: Schedule of Spending ................................................................................................................................... 143

Section B: Tax Gap and Tax Burden............................................................................................................................... 144

Section C: Management and Performance Challenges Identified by the Inspectors General and the Secretary’s 

Responses........................................................................................................................................................................ 146

Section D: Summary of Financial Statement Audit and Management Assurances ..................................................... 203 

Section E: IPIA (as amended by IPERA) Reporting Details ......................................................................................... 204 

Section F: Material Weaknesses and Audit Follow up .................................................................................................. 215

Appendix: Glossary of Acronyms ................................................................................................................................... 223
U.S. Department of the Treasury | Fiscal Year 2013

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MESSAGE FROM THE SECRETARY OF THE TREASURY

Five years ago, our economy faced challenges on a scale not seen since the Great Depression. In 

the span of a few weeks, many of our nation’s largest financial institutions failed or were forced to 

merge to avoid insolvency. Capital markets – essential for helping families and businesses meet 

their everyday financing needs – were freezing up, dramatically reducing the availability of credit, 

such as student, auto, and small business loans. Market participants, consumers, and investors 

were rapidly losing trust in the stability of America’s financial system. Our economy was 

shedding hundreds of thousands of jobs each month. 

Since then, thanks to the tenacity of the American people and the bold, decisive, and bipartisan actions taken across 

the U.S. government, the U.S. economy has returned to a path of stability and steady growth. We have added more 

than 2 million jobs in the past year alone and our deficits are half of what they were when President Obama took 

office in 2009. And the end of this year and beginning of next year show signs of further progress. 

As we continue on this path to recovery, I am proud of what the Treasury Department has achieved during the past 

fiscal year. Treasury made significant progress toward achieving its five strategic goals. As demonstrated in this 

report and by the following highlights, we have effectively pursued policies that will build a strong foundation for 

future growth and prepare for the challenges ahead – both at home and abroad. 

• To meet our goal of repairing and reforming the financial system, we have worked diligently with 

federal regulators, as chair of the Financial Stability Oversight Council, to implement historic reforms 

designed to make the financial system safe, stronger, and more resilient; 

• To pursue our goal of enhancing U.S. competitiveness and promoting international financial 

stability, we have successfully promoted free trade and open markets. Negotiating with the European 

Union to successfully launch a Transatlantic Trade and Investment Partnership, committing China to 

undertake future bi-lateral negotiations, and supporting development programs in the Middle East and 

Northern Africa;

• To protect our national security, we have helped to combat and prevent financial crimes and terrorist 

financing by conducting evaluations of various countries’ compliance with international standards and 

providing training to international counterparts and we have made great strides to bolster cyber security in 

the public and private sectors alike; 

• To pursue comprehensive tax and fiscal reform, we have worked tirelessly to increase international 

cooperation in implementing the Foreign Account Tax Compliance Act by signing intergovernmental 

agreements with eight countries, which will bolster our efforts to combat offshore tax evasion; and 

• To manage the government’s finances in a fiscally responsible manner, in fiscal year 2013, the 

Fiscal Service collected over $7.02 billion of delinquent debt, an increase of more than 13 percent over fiscal 

year 2012 and its highest annual collection to date. 

While these accomplishments are worth noting, we cannot afford to be complacent. In fiscal year 2014, Treasury staff 

will continue to implement reforms and lay the foundation for stable economic growth both at home and abroad. 

Within the Department, we will continue to focus on a comprehensive set of management priorities, including 

recruiting and retaining outstanding employees, increasing shared services, using data to make better decisions, and 
U.S. Department of the Treasury | Fiscal Year 2013

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improving customer service, which will better enable us to lead and support government-wide financial management 

efforts to increase productivity, reduce waste and non-essential expenses, and modernize processes and systems. 

As evidenced in this report, and for the fourteenth consecutive year, the Treasury Department received an unmodified 

opinion on its consolidated financial statements and, for the fifth consecutive year, on the financial statements of the 

Office of Financial Stability/Troubled Asset Relief Program. Treasury also made progress in reducing management 

control weaknesses and in achieving U.S. financial systems and control objectives. The financial and performance 

data in this report have been validated as accurate, complete, and reliable. To streamline the Department’s reporting 

efforts, we are not providing a single Performance and Accountability Report for Fiscal Year 2013. The Annual 

Performance Report will be included in the Congressional Budget Justification in February 2014. 

I look forward to building on the accomplishments contained in this year’s Agency Financial Report, and leading the 

Treasury Department as it pursues policies to fuel our economy into the future and chart a course to expand 

opportunities for the next generation.

Jacob J. Lew

Secretary of the Treasury

December 16, 2013
U.S. Department of the Treasury | Fiscal Year 2013

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(UNAUDITED)
U.S. Department of the Treasury | Fiscal Year 2013

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U.S. Department of the Treasury | Fiscal Year 2013

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INTRODUCTION 

In fiscal year 2013, the Department of the Treasury (Treasury) took a number of actions to strengthen the United 

States (U.S.) economy and job creation, help struggling homeowners, monitor risks to the financial system, encourage 

small business lending, protect taxpayers, fight financial crimes, reinforce the international competitiveness of the 

U.S., and responsibly manage the U.S. government’s financial resources, among other duties. Treasury performed 

these functions in pursuit of achieving its vital mission: maintaining a strong economy and promoting conditions that 

enable economic growth and stability at home and abroad, strengthening national security by combating threats and 

protecting the integrity of the financial system, and managing the U.S. government’s finances and resources 

effectively.

This Agency Financial Report documents Treasury’s operational and financial performance during fiscal year 2013. 

This report also demonstrates Treasury’s steady progress on the five Strategic Goals and two Agency Priority Goals

outlined in the Department’s Fiscal Year 2012 - 2015 Strategic Plan1. 

ORGANIZATION 

Treasury is organized into the Departmental Offices, seven 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 works to preserve confidence in the U.S. Treasury market, effectively manage federal fiscal 

operations, strengthen financial institutions and markets, promote access to credit, and improve financial access and 

education in service of America’s long-term economic strength and stability. 

International Affairs protects and supports U.S. economic prosperity and national security by working to help 

ensure the most favorable external environment for sustained jobs and economic growth in the U.S Through bilateral 

and multilateral engagement, the office promotes global economic and financial stability, encourages marketdetermined foreign exchange rates, leverages leadership positions in the international financial institutions to 

advance U.S. policy priorities, and pursues free trade, open markets, and level playing fields for U.S. financial 

institutions doing business abroad.

Terrorism and Financial Intelligence (TFI) marshals the Department's intelligence and enforcement functions 

with the twin aims of safeguarding the financial system against illicit use and combating rogue nations, terrorist 

facilitators, weapons of mass destruction (WMD) proliferators, money launderers, drug kingpins, and other national 

security threats.

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.

 

1 Treasury 2012-2015 Strategic Plan: http://www.treasury.gov/about/budget-performance/strategicplan/Documents/strategic-plan2012-2015.pdf
U.S. Department of the Treasury | Fiscal Year 2013

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Treasurer of the United States has direct oversight over the U.S. Mint and the Bureau of Engraving and Printing. 

The Treasurer also chairs the Advanced Counterfeit Deterrence Steering Committee and is a key liaison with the 

Federal Reserve. In addition, the Treasurer serves as a senior advisor to the Secretary in the areas of community 

development and public engagement. 

Other Offices

Internally, the Departmental Offices are responsible for overall management of Treasury. The Office of Management 

and the Chief Financial Officer are responsible for managing the Department’s financial resources and oversees 

Treasury-wide programs, including human capital, information and technology, acquisition, and diversity issues. 

Other offices include General Counsel, Legislative Affairs, and Public Affairs. Three inspectors general—the Office of 

the Inspector General (OIG), the Treasury Inspector General for Tax Administration (TIGTA), and the Special 

Inspector General for the Troubled Asset Relief Program (SIGTARP) — provide independent audits, investigations, 

and oversight of the Department of the Treasury and its programs. 

BUREAUS

Bureaus employ approximately 96 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 is responsible for enforcing and administering laws covering the production, use, and 

distribution of alcohol and tobacco products. 

The Bureau of Engraving and Printing (BEP) develops and produces U.S. currency notes trusted worldwide.

The Financial Crimes Enforcement Network (FinCEN) safeguards the financial system from illicit use and 

combats money laundering and promotes national security through the collection, analysis, and dissemination of 

financial intelligence and strategic use of financial authorities.

The Bureau of the Fiscal Service (Fiscal Service) provides central payment services to federal program 

agencies, operates the U.S. 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. In addition, Fiscal

Service borrows the money needed to operate the U.S. government through the sale of marketable, savings, and 

special purpose U.S. Treasury securities and accounts for and services the public debt.

The Internal Revenue Service (IRS) is the largest of the Department’s bureaus and determines, assesses, and 

collects the tax revenue in the United States. 

The United States Mint (U.S. Mint) designs, mints, and issues U.S. circulating and bullion coins; prepares and 

distributes numismatic coins and other items; and strikes Congressional Gold Medals and other medals of national 

significance. The Mint maintains physical custody and protection of most of the Nation’s gold and all of its silver 

assets. 

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises national banks and 

federal savings associations to ensure a safe, sound, and competitive banking system that supports the citizens, 

communities, and economy of the United States. The OCC also supervises federal branches and agencies of foreign 

banks. Effective July 21, 2011, Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 

transferred to the OCC responsibility for the supervision of federal savings associations (thrifts) and rule making 

authority for all savings associations. 
5

THE DEPARTMENT OF THE TREASURY ORGANIZATIONAL CHART

Office of the Chief of Staff

Bureau of the Fiscal 

Service

United States Mint

Treasury Inspector General 

for Tax Administration

Treasurer

General Counsel

Assistant Secretary 

Management

Assistant Secretary 

Fiscal

Assistant Secretary 

Tax Policy

Alcohol and Tobacco 

Tax and Trade Bureau

Assistant Secretary

Public Affairs

Assistant Secretary 

Terrorist Financing

Assistant Secretary 

Intelligence and Analysis

Financial Crimes 

Enforcement Network

Assistant Secretary 

Financial Institutions

Office of the 

Comptroller of the 

Currency

Assistant Secretary 

Financial Stability

Assistant Secretary 

Financial Markets

Internal Revenue 

Service

Under Secretary 

Domestic Finance

Under Secretary Terrorism 

and Financial Intelligence

Under Secretary 

International Affairs

Inspector General

Secretary

Deputy Secretary Special Inspector General 

for the Troubled Asset

Relief Program

Community Development 

Financial Institutions Fund

Assistant Secretary 

International Markets 

and Development

Assistant Secretary 

International Finance

Assistant Secretary 

Economic Policy

Assistant Secretary 

Legislative Affairs

Bureau of Engraving 

and Printing

Office of Financial 

Research

Office of

Financial Stability 

Oversight Council 

Office of Foreign 

Assets Control

The Executive Office of 

Asset Forfeiture

Office of Technical 

Assistance

Departmental Office

Bureau

Inspector General
U.S. Department of the Treasury | Fiscal Year 2013

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TREASURY FISCAL YEAR 2012-2015 STRATEGIC FRAMEWORK

AND KEY PERFORMANCE INDICATORS

The strategic framework comprises the Department’s goals and objectives and forms the basis for performance 

management within the agency.

Strategic Goals Strategic Objectives

Select 

Performance 

Indicators2

Financial

Goal 1

Repair and Reform the 

Financial System and 

Support the Recovery of 

the Housing Market

• Lead the Administration’s efforts to continue to implement 

comprehensive regulatory reform to increase stability and 

strengthen accountability in the financial system

• Effectively manage and exit emergency programs

• Reform and strengthen the housing finance system

• Help prevent avoidable foreclosures and support the 

availability of affordable mortgage credit

• Clean audit opinion on 

TARP financial statements 

(OFS)

• Percentage of SIGTARP 

and GAO oversight 

recommendations 

responded to on time (OFS)

Economic

Goal 2

Enhance U.S. 

Competitiveness and 

Promote International 

Financial Stability and 

Balanced Global Growth

• Protect global economic and financial stability and 

encourage market-determined exchange rates

• Promote strong international financial standards and a 

level playing field for U.S. financial institutions

• Pursue free trade and open markets

• Encourage foreign investment in the U.S. economy while 

ensuring national security

• Enter into bilateral and multilateral tax agreements that 

encourage cross-border trade and investment, and promote 

the exchange of tax information to combat offshore tax 

evasion

• Use leadership positions in the multilateral development 

banks and the International Monetary Fund to advance 

U.S. national security and economic interests

• Provide direct assistance to developing countries working 

to improve public financial management, and strengthen 

their financial systems

• Percentage of Multilateral 

Development Bank grant 

and loan proposals 

containing satisfactory 

framework for results 

measurement (IA)

• Average number of days to 

process an original permit 

application for a new 

alcohol or tobacco business

(TTB)

 

2Example performance measures are provided in this table to illustrate how performance against these goals can be quantified. A 

full discussion of all performance measures that are reported under each goal will be provided in the “Performance by Goal” sections 

of this report. 
U.S. Department of the Treasury | Fiscal Year 2013

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Strategic Goals Strategic Objectives

Select 

Performance 

Indicators

Security

Goal 3

Protect our National 

Security through 

Targeted Financial 

Actions

• Collect, analyze, and disseminate financial and other 

information concerning illicit financing and national 

security threats 

• Disrupt and dismantle the financial networks of those who 

threaten national security or engage in illicit financing

• Shape policy, laws, and regulations to safeguard the U.S. 

and international financial systems

• Coordinate with partners, both at home and abroad, 

including the foreign policy, law enforcement, and 

intelligence communities, to combat illicit finance 

• Assist partner countries in developing and implementing 

anti-money laundering and counter terrorist financing 

regimes compliant with international standards

• Impact of TFI programs 

and activities (TFI)

• Percentage of domestic law 

enforcement finding 

FinCEN’s analytic reports 

contribute to the detection 

and deterrence of financial 

crime (FinCEN)

Management

Goal 4

Pursue Comprehensive 

Tax and Fiscal Reform

• Develop comprehensive proposals to reform and simplify 

the tax code

• Increase voluntary tax compliance

• Promote policies to ensure a sound fiscal footing over the 

medium term

• Customer service 

representative level of 

service (%, IRS)

• Percent of individual 

returns processed 

electronically (IRS)

Goal 5

Manage the 

Government’s Finances 

in a Fiscally 

Responsible Manner

• Optimize the cash and debt portfolio to manage the 

Government’s borrowing costs effectively 

• Expand the use of electronic transactions

• Modernize financial systems and standardize accounting 

practices

• Continuously improve our operations and processes to 

generate efficiency savings

• Attract and retain an exceptional workforce

• Percentage collected 

electronically of total dollar 

amount of U.S. government 

receipts (Fiscal Service)

• Amount of delinquent debt 

collected through all 

available tools ($ billions, 

Fiscal Service)
U.S. Department of the Treasury | Fiscal Year 2013

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FISCAL YEAR 2013 PERFORMANCE BY STRATEGIC GOAL

GOAL #1: REPAIR AND REFORM THE FINANCIAL SYSTEM AND SUPPORT THE 

RECOVERY OF THE HOUSING MARKET 

In late 2008 and early 2009, the Department of the Treasury put in place a set of emergency programs to help recover from a 

historic financial crisis, restore confidence, and restart economic growth. 

In 2010, Congress passed and the President signed into law comprehensive financial regulatory reform: the Dodd-Frank Wall 

Street Reform and Consumer Protection Act. Treasury has worked with the financial regulatory agencies to implement these 

reforms, which are helping to protect the economy and financial system by addressing key gaps and weaknesses in the pre-crisis 

regulatory system. These reforms will also help to protect consumers against fraud and abuse that in part contributed to the 

financial crisis. 

Treasury has also worked to support efforts to reform the housing market. Treasury has taken leadership roles in the development 

of loan modification and refinancing programs designed to help prevent avoidable foreclosures and reduce mortgage costs for 

homeowners. At the same time, Treasury has been involved in an ongoing conversation about a path forward for the nation’s 

housing finance system and has responsibly managed the government’s investments in Fannie Mae and Freddie Mac.

SIGNIFICANT ACHIEVEMENTS

Treasury’s Office of Financial Stability (OFS) has continued to make progress in winding down the Troubled Asset Relief Program 

(TARP)3 and the emergency assistance for the financial system has primarily been replaced with private capital. OFS, on behalf of 

taxpayers, has now recovered far more of its TARP investments than most people expected when the program began. As of 

September 30, 2013, OFS had collected 96.2 percent of the $421.6 billion in program funds that were disbursed under TARP.

As OFS carefully winds down the investment programs under TARP, it continues to implement programs to help struggling 

homeowners avoid foreclosure, primarily through mortgage modifications under the Treasury housing programs. In addition to 

providing assistance to 1.8 million homeowners directly, these programs have set new standards and encouraged positive changes 

throughout the mortgage servicing industry. On May 30, 2013, the Obama Administration extended the application deadline for 

the Making Home Affordable Program through December 2015 in part to provide struggling homeowners additional time to access 

sustainable mortgage relief.

PERFORMANCE AND FACTORS AFFECTING RESULTS

For a full discussion of Treasury’s efforts to repair and reform the financial system and support the recovery of the housing market, 

please view the Agency Financial Report for OFS available at: 

http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Annual-Agency-Financial-Reports.aspx

EMERGING ISSUES

For a full discussion of the emerging issues facing Treasury’s efforts to repair and reform the financial system and support the 

recovery of the housing market, please view the Agency Financial Report for OFS available at the URL referenced above. 

 

3 Troubled Asset Relief Program: http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx
U.S. Department of the Treasury | Fiscal Year 2013

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GOAL #2: ENHANCE U.S. COMPETITIVENESS AND PROMOTE INTERNATIONAL

FINANCIAL STABILITY AND BALANCED GLOBAL GROWTH

Treasury works bilaterally and multilaterally to foster strong and balanced global growth, promote stable international financial 

markets, encourage foreign investment in the United States while protecting national security, promote a level playing field for U.S. 

financial institutions internationally, and enhance U.S. competitiveness. This goal is supported through the operations of the 

Office of International Affairs, the Office of Tax Policy, and the TTB. Promoting international growth and stability also includes 

Treasury’s efforts to enable domestic growth and U.S. financial stability, which is supported through the efforts of the CDFI Fund, 

the U.S. Mint, and the BEP. 

SIGNIFICANT ACHIEVEMENTS

This year Treasury’s Office of International Affairs made significant progress promoting free trade, open markets, and global 

financial stability: 

• As co-lead on financial services negotiations, Treasury continued to support the Administration in negotiating the

Transatlantic Trade and Investment Partnership agreement with the European Union and a Trade in Services Agreement 

with 23 other like-minded countries to liberalize services trade; 

• At the U.S.-China Strategic and Economic Dialogue, China committed to undertake negotiations for a high-standard U.S.-

China Bilateral Investment Treaty that would aim to cover all phases of investment and all sectors. China also reaffirmed 

its commitment to move to a more market-determined exchange rate and; between June 2010 and October 2013, the 

Chinese currency appreciated by over 17 percent against the dollar on a real, inflation-adjusted basis; 

• As part of its efforts to prevent financial instability in the Eurozone from spreading to the U.S. economy, Treasury 

encouraged European countries to implement a robust policy framework to promote economic growth and restore 

confidence in the European banking system. Over the period, Treasury saw a significant reduction in interest rates facing 

Europe’s most vulnerable economies; 

• As chair of the G-8 Deauville Partnership, Treasury helped lead an effort to launch a transition fund to support projects 

contributing to economic growth and stability, trade and investment integration, and inclusive development and job 

creation in the Middle East and North Africa. In fiscal year 2013, the fund approved $100 million for 28 projects in 

Jordan, Egypt, Libya, Morocco, Tunisia and Yemen, helping to directly support U.S. development and national security 

priorities in the region; and

• In fiscal year 2013, TTB worked with the Office of the U.S. Trade Representative to promote U.S. exports by working with 

foreign regulators to address barriers that block market access for U.S. products. For example, many major markets 

abroad require export certifications to accompany shipments of alcohol beverages before a product may enter foreign 

commerce. In fiscal year 2013, TTB issued more than 12,000 export certificates for beer, wine, and distilled spirits. TTB 

also continued its work to open burgeoning markets to U.S. producers, including member economies of the Asia-Pacific 

Economic Cooperation forum, by educating their regulators about the U.S. system to help prevent those countries from 

issuing technical barriers to U.S. exports. 

Also in 2013, Treasury made progress in implementing the Foreign Account Tax Compliance Act (FATCA)4 and tax treaty 

negotiations:

 

4 Foreign Account Tax Compliance Act: http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-

(FATCA)
U.S. Department of the Treasury | Fiscal Year 2013

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• The Office of Tax Policy signed eight intergovernmental agreements under FATCA, concluded negotiations with another 

15 countries, and began discussions with at numerous other countries; and

• In fiscal year 2013, Treasury signed three significant tax treaties: a protocol to the U.S.-Japan tax treaty, a protocol to the 

U.S.-Spain tax treaty, and a new tax treaty with Poland. Treasury also concluded negotiations on a new tax treaty with 

Romania and continued negotiations with Austria and Vietnam. 

Treasury‘s achievements in supporting economic growth within the U.S. include:

• The Community Development Financial Institutions (CDFI) Fund’s core program (the CDFI Program) awarded $146.7 

million in funding to 148 CDFIs to provide loans, investments, financial services, and technical assistance to underserved 

populations and low-income communities. The CDFI Program awardees helped provide funds for projects that created or 

maintained 35,000 jobs; and

• The CDFI Fund completed the first round of the Bond Guarantee Program for $325 million in bonds with maturities up 

to 29.5 years that, when issued, are guaranteed by Treasury for community and economic development financing through. 

The CDFI Bond Guarantee Program was enacted through the Small Business Jobs Act of 2010, in order to provide eligible 

CDFIs with access to long-term capital by providing guarantees of bonds. As the administrator of the CDFI Bond 

Guarantee Program, the Fund completed final bond closings and issuance of guarantees during the final quarter of fiscal 

year 2013. 

Treasury also achieved progress in managing the demand for U.S. currency, thus helping to improve financial stability through: 

• The BEP produced sufficient quantities of the next generation $100 note needed to support the note’s initial release into 

worldwide circulation; 

• The U.S. Mint met an 18 percent increase in demand for circulating coinage in fiscal year 2013 over an initial forecast of 

9.0 billion coins; and 

• In fiscal year 2013, the U.S. Mint returned $350 million to the General Fund.
U.S. Department of the Treasury | Fiscal Year 2013

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PERFORMANCE AND FACTORS AFFECTING RESULTS

International Affairs Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13 

Results

Timely review of CFIUS5 cases N/A N/A N/A 100.00 100.00 Met

Monitor quality and enhance effectiveness of 

International Monetary Fund (IMF) lending 

through review of IMF country programs 

97.00 100.00 100.00 100.00 100.00 Met

Percentage of Multilateral Development Bank 

grant and loan proposals containing satisfactory 

framework for results measurement 

92.50 94.00 94.00 92.00 92.00 Met

Changes that result from project engagement 

(Impact) (Office of Technical Assistance 

Programs)6

3.00 3.20 3.10 3.00 3.10 Unmet

Scope and intensity of engagement (Traction) 

(Office of Technical Assistance Programs)7 3.50 3.70 3.90 3.8 3.60 Met

For both CFIUS (Treasury is the statutory Chair of the interagency committee) and IMF measures, the prioritize engagement and 

support of Treasury leadership contributed positively to the results. Several factors contributed to the Office of Technical 

Assistance Programs not realizing their fiscal year 2013 performance target for changes that result from project engagement, 

including: increased instability overseas; increased cost of overseas operations; increased cost of domestic operations; and funding 

reductions.

Alcohol Tobacco Tax and Trade Bureau (TTB) 

Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13 

Results

Average number of days to process an original 

permit application for a new alcohol or tobacco 

business

65.00 74.00 67.00 81.00 65.00 Unmet

Percentage of electronically filed Certificate of Label 

Approval applications 79.00 88.00 91.00 92.00 92.00 Met

TTB monitors its timeliness in processing permit applications through its measure of the average number of days to process an 

original permit application for a new alcohol or tobacco business. Undue delays in permit application processing impede economic 

growth, primarily in the small business sector, since taxable commodities, such as finished wine, beer, or spirits products, cannot 

 

5 Committee for Foreign Investment in the United States (CFIUS) 6 Office of Technical Assistance measures are scored on a five-point scale and are averaged across all projects to provide one overall 

measure of OTA’s performance in the categories of traction and impact.

7 Ibid
U.S. Department of the Treasury | Fiscal Year 2013

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be lawfully produced without a federal permit from TTB. In fiscal year 2013, TTB targeted a 65-day turnaround time for original 

permit applications; however, given increased demand for service from a growing industry and reduced resources, TTB averaged 81 

days to process these applications. Even with greater than anticipated adoption rates for the Permits Online system, TTB does not 

anticipate achieving sustained reductions to its permit application turnaround time until the latter quarters of fiscal year 2015. 

TTB protects U.S. consumers by ensuring that the alcohol beverage products offered at retail outlets are properly labeled and 

comply with federal production standards. In furtherance of Treasury’s Agency Priority Goal of increasing paperless transactions, 

TTB met its performance level of 92 percent electronic filing for Certificates of Label Approval (COLA) applications. The ongoing 

rise in electronic filing is due to system improvements that track with customer feedback and which simplify the filing process for 

industry members. 

CDFI Fund Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13

Results

Awardees’ portfolio amount of CDFI 

loans/investments originated ($ millions) 

NA 1,228 1,298 1,978 1,200 Met

Number of jobs created/maintained by all CDFI 

fund programs (as reported by CDFIs)

NA 55,274 57,023 50,353 50,000 Met

Percentage of New Markets Tax Credit (NMTC) 

loans and investments that went to severely 

distressed communities

73.40 72.40 70.40 78.50 70.00 Met

A key factor that contributed to an increase in the number and amount of loans reported by CDFI awardees’ portfolios was that 

reporting awardees had a significantly larger asset base (30 percent larger) than the prior year awardees, leading to increased 

lending over the projected target. Total jobs associated with lending and investing activities as reported by both CDFI and NMTC 

Program awardees (not including construction jobs) met the performance target, largely reflecting improved data quality for 

reporting project-level job outcomes for NMTC investments (due to improvement in linking multiple investments in the same 

project). The percentage of NMTC investments made in severely distressed communities exceeded the target largely as a result of 

better targeting by Community Development Entities (and it may also reflect improved targeting using new census data). 

BEP and U.S. Mint Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13

Results

Manufacturing costs for currency (Dollar costs per 

thousand notes produced) (BEP) 44.90 34.60 43.30 50.45 55.00 Met

Customer satisfaction index (MINT) 86.1 91.7 90.0 92.6 90.0 Met

Numismatic sales units (Million Units) (MINT) NA 7.3 5.6 5.5 5.2 Met

Seigniorage per dollar issued (MINT) 0.49 0.45 0.21 0.24 0.17 Met

Manufacturing costs for currency notes (dollar costs per 1,000 notes) is an indicator of currency manufacturing efficiency and the 

effectiveness of program management. This standard is developed annually based on the past year’s performance, contracted price 

factors, and anticipated productivity improvements. Actual performance against the standard depends on BEP’s ability to meet 
U.S. Department of the Treasury | Fiscal Year 2013

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annual spoilage, efficiency, and capacity utilization goals established for a particular product line. In fiscal year 2013, the favorable 

results for this metric were driven primarily by more efficient use of currency inks in the manufacturing process and improved 

productivity in the Bureau’s currency overprinting function. 

Mint sold more than 5.5 million numismatic (or collectors’) units, a 5.8 percent increase above the fiscal year 2013 target of 5.2 

million units. The increase mainly resulted from strong Presidential $1 Coin product sales (above forecast by 23 percent); silver 

coin product sales (above forecast by 26 percent); and gold and platinum coin product sales (78 percent above forecast). 

In fiscal year 2013, seigniorage per dollar coin issued was $0.24, which is above the fiscal year 2013 performance target of $0.17. 

Performance results exceeded the target mainly due to increased Federal Reserve Bank demand for quarter dollars and dimes; 

lower input costs than forecast for copper, nickel, and zinc; and reduced general and administrative expenses. 

EMERGING ISSUES

As Treasury strives to achieve its goals of enhanced U.S. competitiveness, balanced global growth, and international financial 

stability, its policy offices and bureaus face a variety of emerging issues that are environmental, operational, and managerial in 

nature.

Security conditions complicated ongoing work in North Africa and the increasing cost of overseas operations and budget 

uncertainty has the potential to reduce the effectiveness of Treasury personnel who are assigned overseas and hamper Treasury’s 

ability to undertake international travel for critical activities like trade negotiations. 

The Office of Tax Policy spends a significant amount of time and resources implementing FATCA. From a technical perspective, 

the U.S. government cannot offer full reciprocity under the FATCA agreements, which complicates the law’s implementation. 

The TTB has seen sharp increases in turnaround times for permit, label, and formula applications. Even as electronic filing rates 

for applications increase, TTB cannot meet the increasing demand for TTB service given the dramatic rise in small, craft alcohol 

producers in recent years. 

The BEP faces significant manufacturing challenges caused by the complex new design of the $100 note (next generation), which 

have led to increased spoilage and quality issues. This has prompted BEP to partner with the Federal Reserve Board to develop a 

more robust quality assurance program based on best industry practices.

Finally, the U.S. Mint is facing increasing demand for circulating coinage, which required bringing on temporary workers and 

finding raw materials and supplies to meet delivery requirements. In circulating coinage, higher metal costs of one-cent and fivecent coins have raised production costs above the coins’ face value for the eighth consecutive fiscal year. Also, the decision to cease 

minting and issuing $1 coins for circulation in December 2011 created challenges to circulating financial results because of 

reduced overall seigniorage generated by circulating coinage. Despite these challenges in circulating coinage operations, the 

seigniorage increased in fiscal year 2013 compared to last year, mainly due to increased demand for quarter-dollar coins and 

reduced general and administrative expenses. 

Numismatic operations have faced a trend of declining sales for some products, such as recurring annual coin sets. The Mint’s 

order management system is outdated, which creates challenges to the Mint’s ability to meet numismatic customers’ expectations 

for ordering Mint products online.
U.S. Department of the Treasury | Fiscal Year 2013

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GOAL #3: PROTECT OUR NATIONAL SECURITY THROUGH TARGETED 

FINANCIAL ACTIONS

Treasury is devoted to using financial measures to track, degrade, and disrupt threats to national security from state and non-state 

actors, including terrorists, WMD proliferators, drug traffickers, rogue regimes, and transnational criminal organizations. 

As the Department works to enhance the accessibility of the financial system to legitimate users, it also works to prevent its 

exploitation by illicit actors. Financial intelligence information can help identify the infrastructure of terrorist and other illicit 

organizations that threaten U.S. national security. It is uniquely reliable and allows Treasury to track, deter, and disrupt threats. 

SIGNIFICANT ACHIEVEMENTS

The Office of Terrorism and Financial Intelligence (TFI), through its various components, supported Treasury’s strategic and 

priority goals by implementing sanctions (via Executive Order and legislation) and by conducting other enforcement, analytic, and 

capacity-building work vital to protecting our national security. 

In fiscal year 2013, TFI’s Office of Foreign Assets Control (OFAC) tallied over 500 designations under its sanctions authorities in its 

efforts against weapons of mass destruction proliferators, terrorists, narcotics traffickers, transnational organized crime, persons 

contributing to regional violence in Africa and those who support these individuals and groups. In particular, OFAC conducted a 

sustained sanctions campaign against Iran, its agents, and its front companies in response to Iran’s continued defiance of various 

United Nations Security Council resolutions. As a result, banks around the world have continued cutting off Iran from the 

international financial sector; this isolation has played an essential role in bringing Iran to the negotiating table. 

Since fiscal year 2010, OFAC has undertaken the task of implementing 16 new executive orders and a number of new laws, while 

continuing the ongoing work of administering existing programs. OFAC puts great effort into working to ensure that the public has 

clear and accurate information on its evolving sanctions programs through a robust website, telephone, and e-hotlines, and regular

public outreach conferences and events with various sectors. 

In fiscal year 2013, OFAC also implemented a new online application system made available to the public for all licensing situations 

(this application has been very well received by the regulated public), settled several significant enforcement cases, and published 

an unprecedented number of guidance documents on OFAC sanctions, including implementation guidance, fact sheets, FAQs, and 

website brochures. The office also released a public search tool for its Specially Designated Nationals and Blocked Persons List that 

allows the public faster and more simplified access to this list. This tool has become one of the most popular applications on the 

Treasury.gov domain. 

TFI’s Office of Terrorist Financing and Financial Crimes (TFFC) worked to strengthen global standards to combat and prevent 

financial crimes and terrorist financing. TFFC participated in or reviewed 18 mutual evaluations of various countries’ compliance 

with international anti-money laundering (AML), terrorist financing, and counter-terrorist financing (AML/CFT) standards. TFFC 

also worked with its counterparts abroad, focusing on creating effective AML/CFT frameworks and financial regulations capable of 

combating terrorist financing. 

Finally, the Financial Criminal Enforcement Network (FinCEN) issued interpretive guidance to clarify applicability of the Bank 

Secrecy Act (BSA) to administrators and exchangers of convertible currency and provided reference information to partners on 

emerging payment systems; implemented new processes to identify and deter money laundering through targeted enforcement 

actions; joined other federal and state agencies in imposing a $1.9 billion enforcement action against HSBC, the largest combined 

BSA and AML penalty ever imposed against any financial institution; and continued support of high priority health and tax fraud 

investigations, including identification of key links to third-party money launderers. 
U.S. Department of the Treasury | Fiscal Year 2013

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PERFORMANCE AND FACTORS AFFECTING RESULTS

TFI and FinCEN Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13

Results

Impact of TFI programs and activities (TFI)8

7.4 7.6 8.1 8.39 8.3 Met

Percentage of domestic law enforcement finding that 

FinCEN’s analytic reports contribute to the detection and 

deterrence of financial crime (FinCEN)

80 86 83 81 83 Unmet

Percentage of regulatory helpline customers 

understanding BSA guidance (FinCEN) 92 92 89 92 90 Met

During fiscal year 2013, TFI estimates that it has met its performance target of 8.3 (on a scale of 10) on its composite measure, 

“Impact of TFI Programs and Activities.” TFI will continue to achieve future performance level goals by continuing customer 

outreach, increasing production of intelligence products, and implementing IT modernization projects. 

In fiscal year 2013, TFI continued to conduct effective AML/CFT actions to protect the integrity of markets and of the global 

financial framework as they help mitigate the factors that facilitate financial abuse. TFI provided AML/CFT policy development, 

coordination, and coalition-building and worked to ensure unique access to valuable financial information and conducted allsource analysis on financial and other illicit support. 

Each of these actions was supported by critical analysis of intelligence by Treasury’s Office of Intelligence and Analysis (OIA). In 

fiscal year 2013, OIA provided intelligence analysis of regional and specific country economies, the impact of U.S. and multilateral 

sanctions, and targeted organizations and individuals that would threaten the U.S. Further, OIA focused upon enhancing 

Intelligence Community (IC) efforts to address the impact of targeted financial measures, threats to the international financial 

system, and efforts to diminish the potential to be a target for internal and external threats to national security. 

In the customer liaison area, FinCEN measures the percentage of regulatory helpline customers who understand Bank Secrecy Act 

(BSA) guidance. In fiscal year 2013, FinCEN exceeded its target by 2 percent with a 92 percent satisfaction level, continuing to 

provide timely and valuable guidance to the financial industry. Also, modernized information technology brought opportunities to 

generate efficiencies and improve effectiveness through increased use of the FinCEN website and delivery channels such as 

webinars that also positively impacted performance. 

In the intelligence area, FinCEN supports domestic law enforcement by providing analyses of BSA information. In fiscal year 2013, 

81 percent of domestic law enforcement, when surveyed, indicated that FinCEN’s analytic reports contribute to the detection and 

deterrence of financial crime, narrowly missing the 83 percent target. FinCEN attributes this missed target to decline in 

satisfaction with proactive products, likely resulting from its focus on other mission related priorities and types of products. 

FinCEN created an analyst working group to review its customers and product types and make recommendations for 

 

8 This composite measure consists of three program office focus areas related to its mission and strategic goals. The composite 

measure consists of customer surveys, the impact of designations and identifications, compliance with and implementation of 

sanctions, evaluation of demonstrated action in key regions against threats and vulnerabilities to the financial system, evaluation of 

the development of timely and relevant US financial and economic initiatives to advance efforts to combat national security threats, 

and review of the private sector response in taking voluntary action to identify and safeguard against terrorist financing and money 

laundering threats. 

9 Value for this measure is estimated. Actual data will be available and reported in the Citizen’s Report in February.
U.S. Department of the Treasury | Fiscal Year 2013

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enhancements and broader dissemination for greater impact. FinCEN has also increased its emphasis on production of proactive 

products and believes it will be able to increase the percentage of customers who find its analytical products valuable with more 

focused products and targeted dissemination in the future. 

EMERGING ISSUES

TFI has been increasingly tasked with addressing the most pressing and emerging national security issues. These up-and-coming 

issues have levied many additional tasks and requirements upon Treasury. To meet these challenges, TFI has worked towards 

recruiting and retaining a flexible, multi-skill set workforce capable of meeting and addressing the quickly changing nature of 

threats in the national security arena. This effort has resulted in a workforce with the ability to quickly change focus and positively 

address new and rising key issues and the ever shifting complexities of combating illicit finance, disrupting and dismantling the 

financial infrastructure of terrorists, and isolating their support networks. 

A more tactical emerging issue related to this goal involves FinCEN’s efforts to modernize technology to better support its mission. 

In the first quarter of fiscal year 2013, FinCEN incrementally rolled out new technology to nearly 8,000 users to include a new 

portal to access BSA tools, including the new FinCEN Query system. The new Query tool has much more powerful capabilities than 

the legacy system. As such, it introduced a significant change and learning curve for users, especially those who do not use it 

regularly. Users currently have access to web-based training, along with other support materials. FinCEN is also developing a 

comprehensive, sustainable training plan that targets external users.

GOAL #4: PURSUE COMPREHENSIVE TAX AND FISCAL REFORM

The Treasury Department leads the Administration’s efforts to create and implement a tax system that is simple, fair, and fiscally 

responsible. Treasury is committed to comprehensive reform of the tax laws, which lowers tax rates while broadening the tax base, 

makes the system fairer, improves incentives for investment and production in the U.S., and helps contribute to a balanced deficit 

reduction plan over the medium-term.

Addressing the Nation’s fiscal challenges requires reforms and fiscal policies that go beyond streamlining the corporate tax code. 

The Obama Administration has committed to pursuing a balanced approach to deficit reduction that strengthens our fiscal position 

and helps ensure that America has room to invest in education, infrastructure, and other areas critical to long term economic 

growth.

SIGNIFICANT ACHIEVEMENTS

Treasury’s Office of Tax Policy (OTP) continued implementation of the Foreign Account Tax Compliance Act (FATCA), which aims 

to combat offshore tax evasion. In fiscal year 2013, OTP worked to achieve the signing of eight intergovernmental agreements, 

concluded negotiations on another 15, and began discussions with at least 70 other countries. 

In fiscal year 2013, the Internal Revenue Service (IRS) processed more than 240 million individual and business tax returns. In 

addition, after 18 years, in February 2013, the Government Accountability Office (GAO) removed the IRS Business Systems 

Modernization program from its High-Risk List. GAO concluded that the IRS had made substantial progress in addressing security 

material weaknesses over the past several years and demonstrated a commitment to sustained progress. 

Additionally, the IRS has made progress in the implementation of the Affordable Care Act by proposing regulations on insurance 

provider fees, additional Medicare tax, net investment income tax, employer responsibility provision, small business health care tax 

credit (2014 phase), and information reporting regulations for Marketplaces, insurers and employers. The IRS also issued final 

regulations on disclosure of tax data to Marketplaces, the individual responsibility provision, the patient centered outcome excise 

tax, and the medical device excise tax. 
U.S. Department of the Treasury | Fiscal Year 2013

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TTB collected more than $22 billion in excise taxes and other revenues from over 9,000 taxpayers in the alcohol, tobacco, firearms, 

and ammunition industries. The return on investment for TTB’s Collect the Revenue program consistently exceeds 400:1 and, in

fiscal year 2013, reached 457:1. Additionally, TTB has developed an effective criminal enforcement program that draws on forensic 

auditing and advanced investigative techniques to be responsive to diversion schemes, which vary widely and change in response to 

targeted enforcement efforts. In less than three years, TTB’s criminal enforcement program has initiated 63 cases and identified 

approximately $378 million in excise tax liabilities on diverted tobacco products, as well as $116 million in seizures. TTB has 

successfully referred each of these cases for prosecution to the U.S. Attorney’s Office. 

PERFORMANCE AND FACTORS AFFECTING RESULTS

Internal Revenue Service Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13

Result

Customer service representative level of service (IRS) 74.0 70.1 67.6 60.5 70.0 Unmet

Percentage of individual returns processed electronically 

(IRS) 69.3 76.9 80.5 82.5 80.0 Met

The customer service representative level of service target for fiscal year 2013 (70 percent) was established prior to sequestration. 

When sequestration took effect, the required funding adjustment severely hampered the IRS’s ability to meet the original target. In 

addition, demand for toll-free service increased over the prior year by 7 percent, further straining reduced resources. 

IRS met its fiscal year 2013 target for processing individual returns electronically; 82.5 percent of returns were processed 

electronically (2 percent above the target). This is in large part due to IRS’s efforts to achieve Treasury’s Agency Priority Goal of 

Increasing Voluntary Tax Compliance, which is discussed in detail later in this report.

EMERGING ISSUES

Since fiscal year 2010, IRS’s appropriated funding has been reduced by almost $1 billion. In fiscal year 2011 and fiscal year 2012, 

the IRS budget allocation decreased by 0.2 percent and 2.5 percent, respectively. During fiscal year 2012, the IRS collected $2.9 

trillion, using a budget of $11.2 billion, accounting for 91 percent of the total revenue that the U.S. government received that year. 

This substantial return on investment provides the funds that allow the U.S. government to operate. In fiscal year 2013, 

sequestration and an across the board rescission combined to further reduce the IRS budget by $618 million. This resulted in the 

IRS re-evaluating its operating levels to ensure critical programs continued to be delivered. The effects of sequestration have 

created significant impediments to the ability of the IRS to achieve all taxpayer service goals. The challenges created by the current 

budget climate will continue to impact the IRS’s ability to meet performance targets, including level of service.. 

For the TTB, a new law introducing large federal excise tax disparities among tobacco products, combined with higher prices on 

tobacco products, could result in decreased consumption of tobacco increased illicit trade, and tax avoidance schemes by 

manufacturers. This could indicate declining TTB tax revenues in the out years and GAO has recommended that Congress, in 

consultation with the Department of the Treasury, consider options for reducing tax avoidance due to tax differentials between 

small and large cigars. 
U.S. Department of the Treasury | Fiscal Year 2013

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GOAL #5: MANAGE THE GOVERNMENT’S FINANCES IN A FISCALLY 

RESPONSIBLE MANNER

The Treasury Department is responsible for managing the finances of the U.S. government and maintaining public trust and 

confidence in U.S. and international economic and financial systems. Ensuring the Department is efficient, effective, accountable, 

and transparent enables the smooth, continuous operation of essential government services and enables the government to meet 

its financial obligations. To that end—and while supporting and maintaining governmental operations—during fiscal year 2013, 

Treasury focused on achieving greater cost savings for the American public, modernizing operations, and increasing productivity, 

effectiveness, and efficiency. Treasury has done this by developing systems, tools, and a culture of governing strategically, working 

smarter, and leveraging technologies. 

SIGNIFICANT ACHIEVEMENTS

The Collections and Cash Management Modernization Initiative has allowed Treasury to meet its target of receiving 97 percent of 

its collections electronically. This initiative, which involved reengineering the processes that have been built over decades, allows 

the Fiscal Service to be more efficient and cost-effective in processing collections for hundreds of agency cash flows with over 400 

million transactions per year worth over $3 trillion. 

A significant management achievement includes Treasury’s Quarterly Performance Review process, which entails quarterly review 

sessions conducted with bureaus and policy offices by the Deputy Secretary, serving as the Chief Operating Officer, and the 

Assistant Secretary for Management, serving as the Performance Improvement Officer. These sessions bring key leaders together 

for regular discussions focused on management challenges and priority projects, driving accountability to make and sustain 

improvements, align expectations and priorities across the agency, and encourage data-driven decision-making. These quarterly 

reviews have been recognized by OMB and GAO as a best practice. 

In addition to the quarterly performance reviews, Treasury’s “shared services first” approach to managing across organizational 

boundaries has helped improve operation effectiveness and coordination across Treasury. The Treasury Shared Services Council 

provides a portfolio-wide approach to shared services, providing additional transparency and accountability for cost and 

performance issues and a common governance structure for Treasury’s multiple shared services programs.

Finally, the Department continued multiple initiatives to broaden efficiency within its procurement operations to include 

acquisition-related savings and high risk reduction. In fiscal year 2013, the Department exceeded its internal savings goal of $97 

million by achieving more than $340 million in acquisition-related savings. Treasury also exceeded its goal of reducing high-risk 

contracting obligations by five percent. 
U.S. Department of the Treasury | Fiscal Year 2013

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PERFORMANCE AND FACTORS AFFECTING RESULTS

Bureau of the Fiscal Service Measures

FY10 FY11 FY12 FY13

FY13 

Target

FY 13 

Result

Percentage collected electronically of total dollar 

amount of U.S. government receipts 85.0 96.0 97.0 97.0 97.0 Met

Amount ($ billions) of delinquent debt collected 

through all available tools 5.45 6.17 6.17 7.02 6.67 Met

Percentage of Treasury payments and associated 

information made electronically 

82.2 84.3 88.3 92.5 91.0 Met

Percentage of respondents selecting the highest 

rating of customer satisfaction with Government 

Agency Investment Services 

5.5 60.0 60.0 61.0 61.0 Met

In fiscal year 2013, the Fiscal Service met its target for the percentage collected electronically of total dollar amount of U.S.

government receipts. On December 7, 2010, Treasury published a regulation that required businesses with an annual tax liability of 

at least $10,000 to pay their taxes electronically. The new requirement, combined with the Fiscal Service’s efforts to transition 

taxpayers to electronic payments, resulted in the Fiscal Service processing approximately 138.5 million Electronic Federal Tax 

Payment System transactions during fiscal year 2013, sustaining the improved performance first reported three years ago, when 

the percentage of receipts collected electronically increased more than ten percent. With continued emphasis on the All Electronic 

Treasury initiative, the Fiscal Service has undertaken the Non-Tax Paperless Initiative, which is aimed at electronically processing 

collections and associated remittances. By processing these transactions electronically, the Fiscal Service and its agency partners 

will achieve greater efficiencies and afford the public more convenient methods for making their payments. 

The Fiscal Service collects delinquent debt owed to the U.S. government and states, including child support debt, by providing 

centralized debt collection, oversight, and operational services pursuant to the Debt Collection Improvement Act of 1996 and 

related legislation10. The Fiscal Service uses two debt collection programs: Treasury Offset Program and Cross Servicing. In fiscal 

year 2013, the Fiscal Service collected over $7.02 billion of delinquent debt, an increase of more than 13 percent over fiscal year

2012, its highest annual collection to date. Since 1997, the Fiscal Service has collected over $62 billion in delinquent debt. 

Following are some accomplishments that supported the increase in delinquent debt collections: 

• In 2013, the Fiscal Service continued to expand participation in state programs: 37 states including the District of 

Columbia now participate in the Unemployment Insurance Compensation (UIC) program, 19 more states than fiscal 

year 2012. UIC collected over $326 million (an increase of more than $194 million compared to fiscal year 2012). 

The Fiscal Service’s goal is to serve all 50 states and territories participating in the state programs. To realize this 

goal requires states to pass legislation and prioritize funding; 

• In fiscal year 2013, the Fiscal Service increased the number of administrative wage garnishments, with initiated 

garnishment orders up 73 percent compared to fiscal year 2012; 

• In 2013, through improved partial matching, the Fiscal Service collected over $220 million. Since the program began 

in 2010, the Fiscal Service has collected over $267 million; and

 

10 Debt Collection Improvement Act of 1996: http://www.fms.treas.gov/debt/dmdcia.txt
U.S. Department of the Treasury | Fiscal Year 2013

20

• In 2013, the Fiscal Service improved call center operations – all collector agents went through a training/certification 

program and became certified collectors

In fiscal year 2013, the Fiscal Service implemented a Centralized Receivables Service (CRS) pilot – six agency programs 

implemented CRS with additional agency programs expected. In fiscal year 2013, CRS invoiced over $11.2 million in receivables

and collected over $9.8 million in current receivables. 

In support of the All Electronic Treasury initiative, the Fiscal Service continued to expand and market the use of electronic funds 

transfer to deliver federal payments, improve service to payment recipients, and reduce government program costs. In fiscal year

2013, the Fiscal Service made over 92 percent of its payments electronically, exceeding its performance goal of 91 percent. The

Fiscal Service attributes the performance outcome to considerable success in implementing its nationwide Go Direct® campaign to 

encourage current check recipients to switch to direct deposit. As a result, paper checks have declined from 10.3 million per month 

in January 2011 to 1.97 million as of September 2013, saving millions of taxpayer dollars in the years to come.

The GAIS Program strives to provide high-quality customer service, reliable transaction processing, and accurate and timely 

payment distribution. In fiscal year 2013, GAIS distributed 99 percent of its principal and interest payments accurately and timely. 

The basis for the consistent results achieved by GAIS is the commitment to maintaining strong internal controls, effective 

procedures, and a well-trained staff. These effective business practices are exhibited by routinely receiving clean audit opinions 

with no findings or material weaknesses. In fiscal year 2013, the targeted program initiatives to support the effective management 

of investments and borrowings activity consisted of enhancing case management functionality for federal investments customers, 

presenting at federal and state conferences, and conducting customer outreach through visits to various agencies and the 

distribution of a customer satisfaction survey.

Office of Management (ASM) Measures

FY 10 FY 11 FY 12 FY 13

FY 13 

Target

FY 13 

Result

Treasury-wide footprint (Square 

Footage/Thousands) 37,088 37,596 37,998 37,320 n/a n/a

Treasury-wide percentage of procurement dollars 

spent on small business 29.62 34.51 38.52 38.5411 32.00 TBD12

The Treasury-wide footprint is a measure of the total square footage occupied by Treasury’s owned and leased buildings. 

Management’s goal is to generally reduce total square footage over the course of several years, using space more efficiently and 

consuming fewer resources. Key strategies to reduce Treasury’s footprint include an increased adoption of telework, hoteling, and 

work-space sharing in addition to improved work-station standards and office design. 

The Treasury-wide percentage of procurement dollars spent on small businesses measures the percentage of total dollars obligated 

to small businesses and highlights Treasury’s strong efforts to ensure that small businesses have the maximum practicable 

opportunity to provide goods and services to the U.S. government. In fiscal year 2013, according to preliminary results, Treasury 

spent 38.54 percent of its procurement dollars on small businesses, exceeding its target by more than six percentage 

 

11 Final data will not be available until early 2014. However, current numbers indicate that Treasury will meet the established

target.

12 The result for this measure is TBD; since final data will not be available until early 2014, the final result of this measure is 

unknown at the time this report was published.
U.S. Department of the Treasury | Fiscal Year 2013

21

points. Treasury will continue to employ proven past strategies in fiscal year 2014, including targeted small business outreach, 

enhanced leadership accountability, and increased intra-agency communication. 

EMERGING ISSUES

Fiscal year 2013 was a challenging year from a management and planning perspective. The uncertainty stemming from the yearlong continuing resolution, implementation of sequestration, and continuity planning for the lapse in appropriations disrupted 

normal operations and hampered performance across the Department. 

Sequestration was particularly difficult. The across-the-board spending cuts forced reductions across nearly all Treasury programs, 

harming both taxpayers and federal employees. The IRS was especially affected, with sequestration reducing the agency’s ability to 

provide core taxpayer services and resulting in billions of dollars in lost revenue due to fewer tax return reviews and diminished 

fraud detection. For example, the IRS’s customer level of service (i.e. the number of taxpayers receiving assistance at assistance 

centers and response letters) for fiscal year 2013 was 60.5 percent, down from the 67.6 percent in fiscal year 2012 and the fiscal 

year 2013 planned level of 70 percent prior to sequestration. Sequestration also forced Treasury to reduce direct payments to state 

and municipal bond issuers, decrease assistance for development of renewable energy, and grant fewer and smaller grants to lowincome and disadvantaged communities. 

Sequestration had a considerable impact on Treasury employees as well, compelling Treasury bureaus to institute hiring freezes 

and reduce training and travel budgets. The IRS furloughed all employees for three days in fiscal year 2013. These personnel 

impacts can be seen through the year over year decline in Treasury employee satisfaction and engagement scores as measured by 

OPM’s Federal Employee Viewpoint Survey. 

As the Department continues to work towards increasing the percentage of collections received electronically, Treasury will 

continue to pursue progress despite resource and budget constraints at federal agencies; and competing priorities that reduce the 

abilities of our federal agencies partners to focus on moving to an all-electronic Treasury.
U.S. Department of the Treasury | Fiscal Year 2013

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PERFORMANCE BY AGENCY PRIORITY GOAL

Treasury is pursuing two Agency Priority Goals for fiscal years 2012 and 2013. Performance data are available at the end of the 

calendar year in the Annual Performance Report, and reported quarterly on Performance.gov. A synopsis of these goals is provided 

below. 

INCREASE VOLUNTARY TAX COMPLIANCE

Helping taxpayers understand their obligations under the tax law is critical to improving compliance and addressing the tax gap. 

Therefore, the IRS is committed to making tax law easier to access and understand. The IRS remains committed to improving 

voluntary compliance and reducing the tax gap through both taxpayer service and enforcement programs. In fiscal year 2013, the 

IRS processed 147.6 million individual tax returns, of which more than 121 million were filed electronically. However, while 

improvements were made, sequestration limited the IRS’s ability to provide service and enforcement to the level desired.

The IRS continued to increase the amount of tax information and services available to taxpayers through online and social media. 

IRS.gov provides alternative online and self-help service options. In fiscal year 2013, taxpayers viewed IRS.gov web pages 

approximately 1.9 billion times as they used the website to: 

• Get forms and publications. More than 217.5 million tax products were downloaded; 

• Link to the Electronic Federal Tax Payment System (EFTPS). EFTPS processed more than 145 million electronic tax 

payments totaling more than $2.3 trillion during fiscal year 2013; 

• Get answers. More than 2.4 million visits to the Interactive Tax Assistant introduction page occurred where taxpayers can 

receive answers to tax law questions; and

• Check on Refunds. Taxpayers used “Where’s My Refund?” more than 192.3 million times to check on the status of their tax 

refunds, an increase of 51.6 percent from 2012. 

In addition, the IRS continued efforts in fiscal year 2013 to increase voluntary compliance in a variety of ways which include: 

• Announced the release of an updated smartphone application “IRS2Go 3.0”; 

• Continued to expand the Virtual Service Delivery project, allowing assistors to interact with taxpayers virtually; 

• Expanded its social media presence by adding Tumblr to its list of social media platforms; 

• Deployed a web-based tool (“Where’s my Amended Return?”) to expand self-service features on the IRS website; 

• Expanded the Law Enforcement Assistance Program, piloted in Florida in April 2012, to all 50 states and the District of 

Columbia to help law enforcement pursue identity thieves; and 

• Announced a joint plan with the tax administrations from Australia and the United Kingdom to share tax information to 

pursue international tax evasion. 
U.S. Department of the Treasury | Fiscal Year 2013

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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, including payments to benefits recipients, savings bonds purchases, and tax collections, are executed by Treasury 

each year. The paper processes associated with these transactions can be slow, insecure, inaccurate, and wasteful. In an effort to 

improve customer service, decrease the public’s vulnerability to fraud, and efficiently manage resources, Treasury approved several 

initiatives to move towards electronic transactions including electronic savings bonds, electronic benefit payments, and electronic 

tax collection. Treasury has already discontinued the issuance of paper savings bonds. Treasury has achieved its goal for benefit 

payments as more than 97 percent are made electronically. Treasury will continue to have more businesses pay taxes electronically 

rather than by paper coupon. This priority goal is related to the strategic goal of “Manage the Government’s Finances in a Fiscally 

Responsible Manner.”

PAYMENTS

In fiscal year 2013, 95.7 percent of benefit recipients were receiving their payments electronically. In support of the goal to 

increase electronic federal benefit payments, the Go Direct public education campaign conducted qualitative research with 

beneficiaries still receiving paper checks. The research was conducted to track awareness of the rule (31 CFR Part 208), which has 

helped to determine the likelihood that the remaining federal benefit check recipients would switch to an electronic payment

method before the rule deadline of March 1, 2013. 

COLLECTIONS

To achieve Treasury’s goal of increasing electronic non-tax collections and remittances, the Fiscal Service embarked on the NonTax Paperless Initiative. The goal is to raise the electronic initiated revenue collection volume rate from the current 55-60 percent 

to 70 percent by 2017. This approach will involve efforts to increase awareness of available electronic options and their value, 

inform agencies about the need to transition their customers from paper to electronic, drive agency adoption of electronic 

collection processes and technologies, educate end users about the specific benefits of electronic transactions, and increase 

conversions from paper to electronic.
U.S. Department of the Treasury | Fiscal Year 2013

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HIGHLIGHTS OF MANAGEMENT AND PERFORMANCE CHALLENGES

Annually, in accordance with the Reports Consolidation Act of 2000, OIG and TIGTA identify the most significant 

management and performance challenges facing the Department. These challenges do not necessarily indicate 

deficiencies in performance; rather, some represent inherent risks that require continuous monitoring. Treasury 

made progress on these issues in fiscal year 2013, and will continue to focus on resolving them during fiscal year 2014 

and beyond. Refer to Section C of Part 3, Other Accompanying Information, for a detailed discussion of these 

challenges, listed below.

Note: SIGTARP does not provide the Secretary with an annual report on management and performance 

challenges. SIGTARP provides oversight of the Troubled Asset Relief Program, a program that spans several federal 

agencies, only as a special inspector general while the OIG and TIGTA provide oversight of the Department and IRS, 

respectively, and report on its management and performance challenges under the Reports Consolidation Act of 

2000. 

TREASURY-WIDE MANAGEMENT CHALLENGES – AS IDENTIFIED BY OIG

• Continued Implementation of Dodd-Frank

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

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

• Gulf Coast Restoration Trust Fund Administration

IRS MANAGEMENT CHALLENGES – AS IDENTIFIED BY TIGTA

• Security for Taxpayer Data and IRS Employees 

• Implementing the Affordable Care Act and Other Tax Law Changes 

• Tax Compliance Initiatives 

• Modernization 

• Fraudulent Claims and Improper Payments

• Providing Quality Taxpayer Service Operations 

• Human Capital

• Globalization 

• Taxpayer Protection and Rights

• Achieving Program Efficiencies and Cost Savings 
U.S. Department of the Treasury | Fiscal Year 2013

25

FINANCIAL HIGHLIGHTS

Figure 1 Figure 2

Figure 3 Figure 4

Figure 5 Figure 6

Figure 7 Figure 8
U.S. Department of the Treasury | Fiscal Year 2013

26

The financial highlights below are an analysis of the information included in the Department’s consolidated financial statements 

that appear within the “Annual Financial Report” section of this report. The Department’s principal financial statements have been 

prepared to report the agency’s financial position and results of operations, pursuant to the requirements of 31 USC 3515(b). These 

consolidated financial statements have been prepared from the books and records of the Department in accordance with generally 

accepted accounting principles (GAAP) for federal entities and the formats prescribed by OMB. The consolidated financial 

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

same books and records. The financial statements should be read with the realization that they are for a component of the U.S. 

government, a sovereign entity.

The chart below presents changes in key financial statement line items as of and for the fiscal year ended September 30, 2013 

compared to September 30, 2012. 

Summary Financial Information (dollars in billions)

2013 2012 $ Change % Change

Total Assets $ 19,040.6 $ 17,921.9 $ 1,118.7 6.2%

Total Liabilities $ 18,599.5 $ 17,532.5 $ 1,067.0 6.1%

Total Net Position $ 441.1 $ 389.4 $ 51.7 13.3%

Total Net Cost of (Revenue From) Treasury 

Operations

$ 3.3 $ (275.2) $ 278.5 (101.2)%

Net Federal Debt Interest Costs $ 390.0 $ 399.3 $ (9.3) (2.3)%

GSEs Non-Entity Costs (Revenue) $ (126.6) $ 5.3 $ (131.9) (2488.7)%

Total Budgetary Resources $ 857.8 $ 816.1 $ 41.7 5.1%

Agency Outlays, Net $ 286.9 $ 241.3 $ 45.6 18.9%

Net Revenue Received (Custodial) $ 2,591.6 $ 2,256.2 $ 335.4 14.9%

Financial Overview. The Department’s financial performance as of and for the fiscal year ended September 30, 2013, reflects 

several major trends. Most significantly, the outstanding federal debt, including interest, rose by $671.9 billion to finance the U.S. 

government’s operations. The Department also incurred a liability at September 30, 2013, totaling $248.6 billion in connection 

with extraordinary debt management measures undertaken by the Department during a debt issuance suspension period (DISP) to 

prevent outstanding Treasury debt from exceeding the statutory debt limit. Specifically, these measures included, among other 

things: (i) suspending investments in Treasury debt securities by the Government Securities Investment Fund of the Federal 

Employees’ Retirement System Thrift Savings Plan (TSP), Civil Service Retirement and Disability Trust Fund (Civil Service Fund), 

and the Postal Service Retiree Health Benefits Fund (Postal Benefits Fund); and (ii) redeeming early a certain amount of Treasury 

debt securities held by the Civil Service Fund. The $248.6 billion liability reflects the Department’s obligation by statute as of 

September 30, 2013, to restore to the three funds the accumulated principal balance of Treasury debt securities bearing the same 

interest rates and maturity dates that would have been invested by these funds had the DISP not occurred (uninvested principal), 

as well as pay these funds the related lost interest on the uninvested principal. 

Additionally, the Department amended its Senior Preferred Stock Purchase Agreements (SPSPAs) with Fannie Mae and Freddie 

Mac - two Government-Sponsored Enterprises (GSEs) - in 2012, which changed, among other things, the basis for determining 

quarterly dividends that are paid by the GSEs to the U.S. government commencing with the quarter ending March 31, 2013. As a 

result of the amended SPSPAs, coupled with the GSEs’ long-term financial forecasts within a specific time horizon, the Department 

reduced its contingent liability associated with the GSE program by $9.0 billion and $288.7 billion at the end of fiscal year 2013 

and 2012, respectively, via a reduction in expense. 
U.S. Department of the Treasury | Fiscal Year 2013

27

The Department’s 2013 financial performance also reflects the ongoing wind-down of the TARP programs, principally through 

sales of securities and principal repayments of loans made under these programs. TARP’s wind-down activity included, among 

other things, sales of its remaining equity investments in the AIG Investment Program, Public-Private Investment Program, and 

Capital Purchase Program. In December 2013, the Department completed the disposition of the remaining shares of General 

Motors common stock held under the Automotive Industry Financing Program. The continued wind-down of the TARP programs 

in fiscal year 2013 drove significant fluctuations in the subsidy costs associated with these programs. Subsidy costs recorded in 

connection with each credit program represent the difference between the projected costs of the program and the future cash flows 

anticipated to be generated by the program.

Figure 9

Total Assets of $19.0 trillion at September 30, 2013 consist of a receivable due from the General Fund of the U.S. government of 

$17.1 trillion, intra-governmental loans and interest receivable of $1.1 trillion, and fund balance and various other assets which 

totaled $823.7 billion (Figure 9). The $1.1 trillion (or 6.2 percent) increase in total assets at the end of fiscal year 2013 over the 

prior year is primarily due to an increase in the “Due from the General Fund of the U.S. Government” account, corresponding to 

increases in the following liabilities: (i) a $671.9 billion increase in federal debt and related interest payable and (ii) a $248.6 billion 

additional liability for the restoration of federal debt principal and interest in connection with the DISP. These additions to 

Treasury liabilities at the end of 2013 caused a corresponding rise in the “Due from the General Fund of the U.S. Government” 

asset account which represents future funds required from the General Fund of the U.S. Government to pay borrowings from the 

public and other federal agencies. 

Intra-governmental loans and interest receivable represent loans issued primarily by the Fiscal Service to other federal agencies for 

their own use or for the agencies to loan to private sector borrowers whose loans are guaranteed by the federal agencies. This 

receivable grew by $179.3 billion (or 19.6 percent) to $1.1 trillion at the end of fiscal year 2013 due to increased borrowings by 

various federal agencies – such as the Departments of Education, Agriculture, and Housing and Urban Development – to fund 

their existing programs. 

Other assets include, among other things, TARP and non-TARP credit program receivables due from, and other investments in 

certain financial institutions for which the Department provides financial assistance in an effort to stabilize financial markets. 

Other assets decreased by almost $5.1 billion primarily due to, among other things, the ongoing wind-down of the TARP programs 

through sales of securities or principal repayments of loans made under these programs. Offsetting this decrease was an increase 

in the fair value of the GSE investments, which primarily reflects the improved financial performance of the GSEs.
U.S. Department of the Treasury | Fiscal Year 2013

28

Figure 10 

Total Liabilities of $18.6 trillion at September 30, 2013 principally consist of the federal debt held by the public, including 

interest, of $12.0 trillion, which were mainly issued as Treasury Notes and Bills (Figure 10). Liabilities also include intragovernmental liabilities totaling $6.4 trillion (of which $4.8 trillion represent principal and interest of federal debt in the form of 

Treasury securities held by federal agencies), and various other liabilities totaling $0.2 trillion. The $1.1 trillion (or 6.1 percent) 

increase in total liabilities at the end of fiscal year 2013 over the prior year is attributable to a $671.9 billion increase in federal debt, 

including interest, held by the public and federal agencies that was needed to finance the U.S. government’s budget deficits. An 

additional $248.6 billion of the increase is attributable to a liability for restoration of federal debt principal and interest as of 

September 30, 2013. This liability relates to uninvested principal and interest owed to funds due to extraordinary measures taken 

by the Department during the DISP. The increase in total liabilities is also attributable to a $159.7 billion increase in the “Due to 

the General Fund of the U.S. Government” account, primarily as a result of an increase in intra-governmental loans and interest 

receivable. The Department, through the Fiscal Service, accounts for and reports on the principal borrowings from and 

repayments to the General Fund, as well as the related interest due to the General Fund.

Total Net Position of $441.1 billion at September 30, 2013 represents the combined total of the Department’s cumulative results 

of operations and unexpended appropriations at the end of the fiscal year. The $51.7 billion (13.3 percent) increase in the net 

position at the end of fiscal year 2013 was principally attributable to a $69.3 billion increase in budgetary financing sources driven 

by increased appropriations primarily to fund the Department’s Economic programs. 

Figure 11
U.S. Department of the Treasury | Fiscal Year 2013

29

Net Cost of (Revenue From) Treasury Operations, as presented on the Department’s Consolidated Statements of Net Cost,

presents the Department’s gross and net costs by strategic program. There are three main categories of strategic 

programs: financial, economic, and security. The Department’s net cost of operations totaled $3.3 billion for 2013 compared to 

total net revenue from its operations of $275.2 billion for 2012. The year-over-year combined change of $278.5 billion in cost of 

operations is primarily driven by net revenue in fiscal 2012 associated with the Department’s economic programs, as described 

below. 

Economic programs generated net revenue of $8.2 billion in 2013 compared to $288.8 billion in 2012 (Figure 11). The $288.8 

billion in economic programs net revenue in fiscal year 2012 was driven by a $288.7 billion reduction in the Department’s 

estimated future liability to the GSEs in 2012, via a reduction in expense, down to $9.0 billion at the end of 2012. As a result of the 

new dividend payment requirement under the amended SPSPAs that commenced with the quarter ended March 31, 2013, coupled 

with GSEs’ long-term financial forecasts within a specific time horizon, the Department reduced by $9.0 billion its estimated future 

liability to the GSEs in 2013, via a reduction in expense. 

Net Federal Debt Interest Costs primarily reflect interest expense on the federal debt. Federal interest costs declined by $9.3

billion (or 2.3 percent) in fiscal year 2013 (Figure 5) despite the rise in the overall federal debt. The decrease in cost is primarily 

attributable to a decline in the intra-governmental federal debt outstanding balance, coupled with a decline in the average interest 

rate on intra-governmental federal debt. This decrease was slightly offset by increased expense associated with the growth in the 

outstanding balance of federal debt held by the public. 

GSE Non-Entity Revenue totaled $126.6 billion for 2013 compared to net cost of $5.3 billion for 2012. The revenue in 2013 was 

primarily driven by a $77.3 billion increase in preferred stock dividends, coupled with a $30.9 billion valuation gain on GSE

investments in 2013 compared to a $42.3 billion loss in 2012. These increases primarily stemmed from federal income tax benefits 

and other improvements in the GSEs’ financial performance in 2013. 

Total Budgetary Resources of $857.8 billion were higher in fiscal year 2013 (Figure 6) by $41.7 billion (or 5.1 percent)

primarily due to an increase in appropriations, offset by decreases in other changes in unobligated balances, borrowing authority, 

and spending authority from offsetting collections. Appropriations increased $75.2 billion primarily due to increased funding 

needed in fiscal year 2013 to service the federal debt. Partially offsetting the increase in appropriations were reduced borrowing 

authority, spending authority from offsetting collections, and other changes in unobligated balances by a combined total of $34.7 

billion principally due to the ongoing wind-down of the TARP programs. 

Agency Outlays, Net of $286.9 billion were higher in fiscal year 2013 (Figure 7) by $45.6 billion (or 18.9 percent) primarily due 

to fewer collections in fiscal year 2013 from the wind-down of the TARP programs, partially offset by increased receipts of 

preferred stock dividends from the GSE SPSPA program. 

Net Revenue Received (Custodial), representing net revenue collected by Treasury on behalf of the U.S. government, includes 

various taxes, primarily income taxes, as well as user fees, fines and penalties, and other revenue. Over 90 percent of these 

revenues are related to income and social security taxes. Net revenue received was $2.6 trillion for fiscal year 2013, an increase of 

$335.4 billion (or 14.9 percent) over the prior fiscal year. This increase is attributed mainly to an increase in ordinary, capital 

gains, and dividend income tax rates for individuals, coupled with an increase in corporate income tax collections and a reduction 

in tax refunds.
U.S. Department of the Treasury | Fiscal Year 2013

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MANAGEMENT ASSURANCES

The Secretary’s Assurance Statement

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

financial management systems that meet the objectives of the Federal Managers’ Financial Integrity Act (FMFIA). Treasury has 

evaluated its management controls, internal controls over financial reporting, and compliance with federal financial systems 

standards. As part of the evaluation process, Treasury considered results of extensive testing and assessment across the 

Department and independent audits.

Treasury provides assurance that the objectives of Section 2 of the FMFIA (Financial Reporting and Operations) have been 

achieved, except for the material weaknesses noted below. Treasury is in substantial conformance with Section 4 (Financial 

Management Systems) of the FMFIA. Also, in accordance with Office of Management and Budget Circular No. A-123, 

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

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

of June 30, 2013. Treasury’s financial management systems are not in substantial compliance with the Federal Financial 

Management Improvement Act (FFMIA) due to the Internal Revenue Service’s (IRS’s) material weakness related to unpaid tax 

assessments.

During fiscal year 2013 Treasury closed one material weakness: IRS – Computer Security. As of September 30, 2013, Treasury had 

two remaining FMFIA material weaknesses as follows (with origination/planned resolution timeframes indicated):

Operations: 

• Bureau of the Fiscal Service (formerly Financial Management Service) – Systems, Controls, and Procedures to Prepare 

the Government-wide Financial Statements (Fiscal Year 2001/2015)

Financial Reporting:

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

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

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

Jacob J. Lew

Secretary of the Treasury

December 16, 2013 
U.S. Department of the Treasury | Fiscal Year 2013

31

FMFIA

The management control objectives under FMFIA are to reasonably ensure that:

• Obligations and costs are in compliance with applicable law

• Funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or misappropriation

• Revenues and expenditures applicable to agency operations are properly recorded and accounted for to permit 

the preparation of accounts and reliable financial and statistical reports and to maintain accountability over the 

assets

FMFIA requires agencies to evaluate and report on the effectiveness of controls over operations and financial 

reporting (FMFIA Section 2), and conformance with financial management systems requirements (FMFIA Section 4 

and FFMIA) that protect the integrity of federal programs. Deficiencies that seriously affect an agency’s ability to 

meet these objectives are deemed “material weaknesses.”

In fiscal year 2013, Treasury continued to make progress on closing its three material weaknesses, as listed in the 

Secretary’s assurance statement. Treasury includes resolution of material weaknesses as a performance requirement 

for every executive, manager, and supervisor. Treasury closed the IRS Computer Security material weakness during 

fiscal year 2013. Additional information on Treasury’s material weaknesses and progress can be found in Section F of 

Part 3, Other Accompanying Information.

FFMIA AND FINANCIAL MANAGEMENT SYSTEMS 

FFMIA

FFMIA mandates that agencies “... implement and maintain financial management systems that comply substantially 

with federal financial management systems requirements, applicable federal accounting standards, and the United 

States Government Standard General Ledger (USSGL) at the transaction level.” FFMIA also requires the 

development of remediation plans by any entity unable to report substantial compliance with these requirements.

During fiscal year 2013, Treasury bureaus and offices used a risk-based approach to assess their financial 

management systems’ compliance with FFMIA, as required by OMB. The bureaus and offices conducted selfassessments to determine their risk levels. All Treasury bureau and office financial management systems are in 

compliance with FFMIA, with the exception of IRS that did not comply with federal financial management systems 

requirements or applicable federal accounting standards. As required, the IRS has a remediation plan in place to 

correct the identified deficiencies. IRS management updates this plan quarterly and Treasury management reviews it. 

In addition, TIGTA audits IRS’s remediation progress annually.
U.S. Department of the Treasury | Fiscal Year 2013

32

To address the Unpaid Tax Assessments material weakness, the IRS implemented programming changes in the 

Custodial Detail Data Base to improve the financial classification in situations where: 

• There are unpaid tax assessments requiring amounts to be accurately reported on single Business Master 

File modules with a partial collection statute-expired assessment

• A taxpayer is ordered to make restitution on criminal activity 

• A taxpayer has become a victim of identity theft and his/her account has been compromised; the taxpayer’s 

account will be restored to its accurate balance

In addition, the IRS continues to update the Automated Trust Fund Recovery system to increase the number of Trust 

Fund Recovery Penalty (TFRP) cases that can be worked without user intervention and to eliminate errors. The IRS 

will continue to perform internal control testing to ensure the accuracy of these accounts. 

FINANCIAL MANAGEMENT SYSTEMS FRAMEWORK

The Department of the Treasury’s financial management systems framework consists of two fundamental 

components: (1) core financial and mixed systems maintained by the Treasury bureaus, and (2) the Department-wide 

Financial Analysis and Reporting System (FARS). The bureau systems process and record detailed financial 

transactions and submit summary-level data to FARS, which maintains the key financial data necessary for Treasurywide consolidated financial reporting. This framework satisfies the bureaus’ diverse financial operational and 

reporting needs as well as the Department’s internal and external reporting requirements. The FARS framework 

provides essential support each year to Treasury’s efforts to obtain an unqualified audit opinion. 

The FARS includes the following component applications: 

• Treasury Information Executive Repository (TIER) – a financial data warehouse used to consolidate and 

validate bureau financial data

• CFO Vision (CFOV) – a tool used to produce monthly financial statements, notes, and other supporting 

reports, and also to perform financial analysis

• Joint Audit Management Enterprise System (JAMES) – tracks information on open audits and audit report 

findings, recommendations, and planned corrective actions

Bureaus submit summary-level financial data to TIER monthly. The CFOV application uses these data to produce 

financial statements and reports on both a Department-wide and bureau-level basis, including Treasury’s audited 

annual financial statements and monthly management reports.

Fourteen Treasury bureaus and offices use centralized financial operations, budget execution services, or IT support

provided by the Fiscal Service’s Administrative Resource Center (ARC). This shared services approach enables these 

bureaus to have access to core financial systems without having to maintain the necessary technical and systems 

architectures. Fiscal Service/ARC also provides administrative services in the areas of accounting, travel, payroll, 

human resources, and procurement to Treasury bureaus and offices and to other federal entities to support core 

business activities. Using these services reduces the need for Treasury to maintain duplicative financial management 

systems; enhances the quality, timeliness, and accuracy of financial management processes; and provides a more 

efficient and cost-effective business model. In fiscal year 2013, Fiscal Service/ARC upgraded its core financial 

management system to adopt the Common Government-wide Accounting Classification (CGAC) structure and offer 

additional functionality to its customers. In fiscal years 2013 and 2014, the Department and Fiscal Service/ARC plan 
U.S. Department of the Treasury | Fiscal Year 2013

33

to upgrade to the second instance of the core financial management system to meet compliance expectations. In 

addition, Fiscal Service/ARC will continue to expand its use of the Invoice Processing Platform (IPP), a secure, webbased service implemented in fiscal year 2012 that more efficiently manages government invoicing.

GOALS AND THE SUPPORTING FINANCIAL SYSTEM STRATEGIES

Treasury’s financial system goals and supporting strategies focus on improving and streamlining the current bureau 

core and mixed financial systems as well as the current FARS applications in order to support new financial 

requirements and continue to provide management with accurate and timely financial information.

Throughout fiscal year 2013, Treasury updated TIER and CFOV to meet new and evolving reporting requirements. 

These include updates to TIER to comply with the data standard reflected in Fiscal Service’s planned Governmentwide Treasury Account Symbol Adjusted Trial Balance System (GTAS). The TIER Focus Group, which serves as a 

forum for bureau feedback on TIER enhancements and issues, continued to meet to improve communication with the 

bureaus and coordinate changes impacting financial management systems and financial operations.

In fiscal year 2014, Treasury will replace two component FARS applications in order to reduce operating costs and 

increase the efficiency of Treasury staff through increased automation. 

• The current CFOV application will be replaced as part of Treasury's effort to bring the FARS into compliance 

with Fiscal Service's new GTAS data standard. CFOV will be replaced by the TIER Financial Statements 

(TFS) application, which is expected to have lower operating costs. 

• The current JAMES application will be replaced by a commercial off-the-shelf (COTS) governance, risk, and 

compliance (GRC) software product for managing audit follow-up and internal self-assessment activities. By 

automating certain operational functions, the new product will allow Treasury staff more time for analysis 

and oversight. The GRC product will improve the ability to document, track, and mitigate key risks across 

Treasury; facilitate collaboration with and across Treasury bureaus, third-party service providers, and 

oversight bodies; and enable users to manage issues centrally and leverage data over multiple years in the 

development of corrective action plans. 

Customer Account Data Engine (CADE) 2 Transition State 1 daily processing is enhancing IRS tax administration and 

improving service to taxpayers by enabling faster refunds for taxpayers, more timely account updates, and faster 

issuance of taxpayer notices. In addition, Transition State 1 changes the underlying Information Technology 

infrastructure by allowing the IRS to store taxpayer data in a state-of-the-art database, which will position the IRS to

implement new applications to access and analyze all of a taxpayer’s data from one authoritative source.

In calendar year 2013, intense focus has been placed on optimizing performance of the CADE 2 database, ensuring 

the data are clean and ready for next filing season production deployment in 2014 and for the longer term. This effort 

includes database performance optimization, building and testing data validation and data recovery tools, addressing 

security and privacy requirements, changes to code base to reflect tax law changes, infrastructure upgrades, systems 

and integration testing, and organizational readiness activities to ensure support processes and monitoring are in 

place so the database can run successfully in production.

In fiscal year 2013, the IRS also began the next phase of CADE 2 Transition State 2, modernizing its 50-year old 

legacy core taxpayer account processing systems, which includes re-writing IRS’s legacy core tax processing 

applications in modern programming language, resulting in increased flexibility, scalability, reliability and security; 
U.S. Department of the Treasury | Fiscal Year 2013

34

and enhancing IRS’s ability to leverage the new CADE 2 database, ensuring compliance with federal financial system 

requirements and addressing IRS’s Financial Material Weakness for individual taxpayer accounts. The Penalty and 

Interest 2013 Mid-Year Release, part of the Transition State 2 score to insure that Penalty and Interest calculations 

are consistent across IRS, was successfully deployed on July 29, 2013. The Primary Penalty and Interest Project is on 

track for its scheduled Filing Season 2014 implementation.

In fiscal year 2013, BEP enhanced and refined its cloud-based, fully integrated enterprise resource planning system. 

This included the conversion of supply chain management, manufacturing management, project accounting, and 

contract lifecycle management modules. BEP plans to continually focus on improving automation and streamlining 

in a cost-efficient manner in fiscal year 2014.

The OCC upgraded its Management and Accountability Reporting Tools ($MART) financial system in order to retain 

access to vendor support for the underlying software in fiscal year 2013. The OCC plans to continue to integrate its 

applications with its customers and to provide innovative solutions for efficient reporting. 
2s 

THE U.S. DEPARTMENT OF THE TREASURY

[Pick the date]
U.S. Department of the Treasury | Fiscal Year 2012

36 
U.S. Department of the Treasury | Fiscal Year 2013

37

PART II - TABLE OF CONTENTS

Message From The Assistant Secretary for Management and Deputy Chief Financial Officer .............................................38

Inspector General’s Transmittal Letter...................................................................................................................39

Independent Auditors' Report on the Departments' Financial Statements ...................................................................................... 41

Management’s Response to Independent Auditors’ Report.........................................................................................48

Financial Statements

Consolidated Balance Sheets................................................................................................................................49

Consolidated Statements of Net Cost ..................................................................................................................... 51

Consolidated Statements of Changes in Net Position................................................................................................. 52

Combined Statement of Budgetary Resources.......................................................................................................... 53

Statements of Custodial Activity ........................................................................................................................... 55

Notes to the Financial Statements

1. Summary of Significant Accounting Policies ........................................................................................................ 56

2. Fund Balance................................................................................................................................................7 2

3. Loans and Interest Receivable – Intra-Governmental............................................................................................7 4

4. Due From the General Fund and Due To the General Fund.....................................................................................7 6

5. Cash, Foreign Currency, and Other Monetary Assets.............................................................................................7 8

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

7. Troubled Asset Relief Program – Credit Program Receivables, Net........................................................................... 81

8. Investments in Government Sponsored Enterprises..............................................................................................90

9. Investments in International Financial Institutions .............................................................................................. 95

10. Other Investments and Related Interest............................................................................................................ 95

11. Other Credit Program Receivables, Net .............................................................................................................96

12. Reserve Position in the International Monetary Fund and Related Loans and Interest Receivable ............................... 101

13. Taxes, Interest, and Other Receivables, Net...................................................................................................... 102

14. Property, Plant, and Equipment, Net.............................................................................................................. 103

15. Non-Entity vs. Entity Assets ......................................................................................................................... 104

16. Federal Debt and Interest Payable and Related Liabilities................................................................................... 105

17. Other Debt and Interest Payable.................................................................................................................... 109

18. D.C. Pensions and Judicial Retirement Actuarial Liability................................................................................... 110

19. Liabilities ..................................................................................................................................................112

20. Net Position...............................................................................................................................................113

21. Consolidated Statements of Net Cost and Net Costs of Treasury Sub-Organizations...................................................114

22. Additional Information Related to the Combined Statements of Budgetary Resources.............................................. 120

23. Collection and Disposition of Custodial Revenue .............................................................................................. 1 23

24. Funds From Dedicated Collections ................................................................................................................ 125

25. Reconciliation of Net Cost of Treasury Operations and Non-Entity Costs to Budget.................................................. 1 29

26. Schedule of Fiduciary Activity....................................................................................................................... 130

27. Commitments and Contingencies ...................................................................................................................1 31

Required Supplemental Information (Unaudited – See accompanying auditors’ report)................................................. 135
U.S. Department of the Treasury | Fiscal Year 2013

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MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT 

AND DEPUTY CHIEF FINANCIAL OFFICER 

Nani A. Coloretti

Assistant Secretary 

for Management

Dorrice C. Roth

Deputy Chief Financial 

Officer

In fiscal year 2013, Treasury pursued an aggressive set of management 

programs and initiatives designed to manage the U.S. government’s finances

efficiently and responsibly. By focusing on a comprehensive set of 

management priorities, Treasury has led and supported government-wide 

financial management efforts to increase productivity, reduce waste and nonessential expenses, and modernize processes and systems. These priorities 

included the Department’s two Agency Priority Goals “Increase Voluntary Tax 

Compliance” and “Significantly Increase the Number of Electronic 

Transactions with the Public.”

In efforts to make doing business with the U.S. government as easy as possible, 

the Department is leading in implementing the use of electronic transactions with the public. In fiscal year 2013, 93 

percent of Treasury payments and associated information was made electronically. As the number of Social Security 

recipients increases, the savings from electronic payments will also increase while providing beneficiaries a safer, more 

reliable, and convenient way to receive their payments.

In fiscal year 2013, Treasury demonstrated leadership in fiscal prudence and management excellence by:

• Advancing engagement of small businesses by exceeding all small business contracting goals for the third year in 

a row (based on preliminary results) to jump-start job creation and stimulate local economies; 

• Further reducing administrative expenses as directed by the President’s Executive Order to cut waste, in which 

we exceeded this year’s goal by $153.5 million (saving a total of $394.5 million in fiscal year 2013); 

• Advancing the Administration’s goal of reducing the federal footprint by working to align space expenses with 

organizations that use the space, creating cost accountability and, consequently, incentives to use less space; and 

• Enhancing technological modernization efforts, supporting federal data center consolidation, and increasing 

shared services through initiatives such as onboarding new customers to Treasury’s Administrative Resource 

Center and HR Connect (Treasury’s HR line of business). 

The Department again received an unmodified audit opinion on both the Treasury-wide and Office of Financial 

Stability/TARP fiscal year 2013 financial statements. Treasury closed the material weakness on IRS – Computer Security 

and continued to make steady progress toward resolving the two Federal Managers’ Financial Integrity Act material 

weaknesses remaining open as of September 30, 2013 (IRS – Unpaid Tax Assessments, and Bureau of the Fiscal Service

– Systems, Controls, and Procedures to Prepare the Government-wide Financial Statements). Despite the complexity of 

Treasury’s financial systems contributing to these material weaknesses, we have made considerable progress toward 

resolving the issues.

Nani A. Coloretti Dorrice C. Roth

Assistant Secretary for Management Deputy Chief Financial Officer

December 16, 2013 December 16, 2013
U.S. Department of the Treasury | Fiscal Year 2013

39

OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERAL’S TRANSMITTAL LETTER

December 16, 2013

INFORMATION MEMORANDUM FOR SECRETARY LEW

FROM: Eric M. Thorson 

Inspector General

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

Years 2013 and 2012

INTRODUCTION

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

financial statements as of and for the fiscal years (FY) ending September 30, 2013 and 2012.

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

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

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

independent certified public accounting firm, performed an audit of the Department’s FY 2013 and 

2012 financial statements. The contract required that the audit be performed in accordance with 

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

States and Office of Management and Budget Bulletin No. 14-02, Audit Requirements for Federal 

Financial Statements.

RESULTS OF INDEPENDENT AUDIT 

In its audit of the Department, KPMG LLP reported the following:

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

U.S. generally accepted accounting principles; 

• a material weakness related to unpaid tax assessments and a significant deficiency related to 

financial reporting systems identified by the auditor of the Internal Revenue Service

collectively represent a material weakness for the Department as a whole;

• weaknesses related to information systems controls at the Bureau of the Fiscal Service

represent a significant deficiency for the Department as a whole;

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

requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA) 
U.S. Department of the Treasury | Fiscal Year 2013

40

related to Federal financial management systems requirements and applicable Federal 

accounting standards;

• no instances of reportable noncompliance with laws and regulations , exclusive of FFMIA, 

that are required to be reported under government auditing standards or Office of 

Management and Budget Bulletin No. 14-02; and

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

provided to the Departmental Offices.

EVALUATION OF AUDITORS’ PERFORMANCE

To ensure the quality of the audit work performed, we evaluated KPMG LLP’s qualifications and 

independence, reviewed the approach and planning of the audit, monitored the progress of the audit 

at key points, reviewed and accepted KPMG LLP’s audit report, and performed other procedures 

that we deemed necessary. Additionally, we provide oversight of the audits of financial statements 

and certain accounts and activities conducted at 10 component entities of the Department. Our 

review, as differentiated from an audit performed in accordance with generally accepted 

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

opinion on the financial statements or conclusions about the effectiveness of internal control or on 

whether the Department’s financial management systems substantially complied with FFMIA or 

conclusions on compliance with laws and regulations. KPMG LLP is responsible for the attached 

auditors’ report dated December 16, 2013, and the conclusions expressed in that report. However, 

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

generally accepted government auditing standards.

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

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

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

Attachment

cc: Nani A. Coloretti

Assistant Secretary for Management

Dorrice C. Roth

Deputy Chief Financial Officer
KPMG LLP

Suite 12000

1801 K Street, NW 

Washington, DC 20006

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.

Independent Auditors’ Report

Inspector General 

U.S. Department of the Treasury:

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of the U.S. Department of the 

Treasury (Department), which comprise the consolidated balance sheets as of September 30, 2013 and 

2012, and the related consolidated statements of net cost, consolidated statements of changes in net 

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

then ended, and the related notes to the consolidated financial statements (hereinafter referred to as 

“consolidated financial statements”). 

Management’s Responsibility for the Financial Statements

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

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

implementation, and maintenance of internal control relevant to the preparation and fair presentation of

the consolidated financial statements that are free from material misstatement, whether due to fraud or 

error.

Auditors’ Responsibility

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

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

entity of the Department, which statements reflect total assets of $42.2 and $46.8 billion, net cost of 

operations of $12.3 and $12.8 billion before applicable eliminating entries, budgetary resources of 

$12.7 and $13.2 billion, and custodial activity of $2,851 and $2,528 billion, as of and for the years 

ended September 30, 2013 and September 30, 2012, respectively. Those statements were audited by 

another auditor, whose report has been furnished to us, and our opinion, insofar as it relates to the 

amounts included for IRS, is based solely on the report of the other auditor. 

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

of the Department, which statements reflect total assets of $71.2 and $116.7 billion, net income from 

operations of $7.7 and $7.7 billion before applicable eliminating entries, and budgetary resources of 

$37.9 and $67.8 billion, as of and for the years ended September 30, 2013 and September 30, 2012, 

respectively. Those statements were audited by another auditor, whose report has been furnished to us, 

and our opinion, insofar as it relates to the amounts included for OFS, is based solely on the report of 

the other auditor. 

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

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

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

Bulletin No. 14-02, Audit Requirements for Federal Financial Statements. Those standards and OMB 

41
Bulletin No. 14-02 require that we plan and perform the audit to obtain reasonable assurance about 

whether the consolidated financial statements are free from material misstatement. 

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

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

including the assessment of the risks of material misstatement of the consolidated financial statements, 

whether due to fraud or error. In making those risk assessments, the auditor considers internal control 

relevant to the entity’s preparation and fair presentation of the consolidated financial statements in 

order to design audit procedures that are appropriate in the circumstances, but not for the purpose of 

expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no 

such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the 

reasonableness of significant accounting estimates made by management, as well as evaluating the 

overall presentation of the consolidated financial statements. 

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

our audit opinion. 

Opinion on the Financial Statements

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

statements referred to above present fairly, in all material respects, the financial position of the U.S. 

Department of the Treasury as of September 30, 2013 and 2012, and its net costs, changes in net 

position, budgetary resources, and custodial activity for the years then ended in accordance with U.S. 

generally accepted accounting principles.

Emphasis of Matter 

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

transactions whose purpose is to assist in stabilizing the financial markets. Also as discussed in note 

1A, the consolidated financial statements do not include the assets, liabilities, or results of operations 

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

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

included in the consolidated financial statements. Furthermore, as discussed in notes 1V, 7, 8, and 11, 

the value of certain investments, loans, commitments, and asset guarantees is based on estimates. 

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

changes in general economic, regulatory, and market conditions. In addition, there are significant 

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

there will likely be differences between the estimated value of these investments, loans, commitments, 

and asset guarantees as of September 30, 2013 and 2012, and the amounts that may ultimately be 

realized from these assets or may be required to settle these commitments and asset guarantees. Such 

differences may be material and will also affect the ultimate cost of these programs. Our opinion is not 

modified with respect to these matters.

As discussed in Note 24 to the consolidated financial statements, in 2013 the Department adopted 

Statement of Federal Financial Accounting Standards No. 43, Funds from Dedicated Collections: 

Amending Statement of Federal Financial Accounting Standards No. 27, Identifying and Reporting 

Earmarked Funds. The 2012 consolidated financial statements have been adjusted for the retrospective 

application of the new accounting guidance. Our opinion is not modified with respect to this matter. 

42
Other Matters

Required Supplementary Information

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

Discussion and Analysis and Required Supplemental Information sections be presented to supplement 

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

consolidated financial statements, is required by the Federal Accounting Standards Advisory Board 

who considers it to be an essential part of financial reporting for placing the basic consolidated 

financial statements in an appropriate operational, economic, or historical context. We have applied 

certain limited procedures to the required supplementary information in accordance with auditing 

standards generally accepted in the United States of America, which consisted of inquiries of 

management about the methods of preparing the information and comparing the information for 

consistency with management’s responses to our inquiries, the basic consolidated financial statements, 

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

do not express an opinion or provide any assurance on the information because the limited procedures 

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

Other Information

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

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

Assistant Secretary for Management and the Deputy Chief Financial Officer, and the Other 

Information section are presented for purposes of additional analysis and are not a required part of the 

basic consolidated financial statements. Such information has not been subjected to the auditing 

procedures applied in the audits of the basic consolidated financial statements, and accordingly, we do 

not express an opinion or provide any assurance on it. 

Other Reporting Required by Government Auditing Standards

Internal Control Over Financial Reporting

In planning and performing our audit of the consolidated financial statements, we considered the 

Department’s internal control over financial reporting (internal control) to determine the audit 

procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the 

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

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

the Department’s internal control. We did not test all internal controls relevant to operating objectives 

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

Our consideration of internal control was for the limited purpose described in the preceding paragraph 

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

or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that 

have not been identified. However, as described below, the other auditor identified certain deficiencies 

in internal control that we consider to be a material weakness, and we identified certain deficiencies in 

internal control that we consider to be a significant deficiency. 

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

management or employees, in the normal course of performing their assigned functions, to prevent, or 

detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a 

43
combination of deficiencies, in internal control such that there is a reasonable possibility that a material 

misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a 

timely basis. We consider the deficiency described below to be a material weakness.

A. Material Weakness in Internal Control Over Financial Reporting at the IRS (Repeat Condition)

IRS needs to establish internal control over financial reporting and systems in accordance with OMB 

Circular A-123, Management’s Responsibility for Internal Control to ensure reliable and timely 

financial information is obtained, maintained, and reported. IRS continued to make progress in 

addressing its deficiencies in internal control over financial reporting. However, a material weakness in 

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

financial reporting systems continued to exist in fiscal year 2013 and are collectively considered a 

material weakness at the Department level. The other auditor performed an audit of IRS’s internal 

control over financial reporting for the purpose of providing an opinion on the effectiveness of internal 

controls. Because of the material weakness, the other auditor’s opinion on IRS’s internal control over 

financial reporting stated that IRS did not maintain, in all material respects, effective internal control 

over financial reporting as of September 30, 2013, and thus did not provide reasonable assurance that 

losses and misstatements that were material in relation to the IRS’s financial statements would be 

prevented or detected and corrected on a timely basis. The deficiencies are summarized as follows: 

• Internal control deficiencies that affected IRS’s management and reporting of unpaid tax 

assessments continued to exist. Specifically, the IRS was unable to: (1) use its general ledger 

system and underlying subsidiary records to classify and report federal taxes receivable, 

compliance assessments, and write-offs for tax transactions, in accordance with federal accounting 

standards without a labor-intensive manual compensating estimation process; (2) use its subsidiary 

ledger for unpaid tax assessments to prepare reliable, useful, and timely information to manage and 

report externally because IRS’s classification program does not effectively sort through, identify, 

and analyze all the relevant transaction information required for proper classification, recording 

and reporting; and (3) effectively prevent or timely detect and correct errors in recording taxpayer 

information. 

• Internal control deficiencies over financial reporting systems continued to exist that increase the 

risk that IRS financial and taxpayer data will remain vulnerable to inappropriate and undetected 

use, modification or disclosure. Specifically, the IRS did not: (1) install appropriate security 

updates on certain databases and servers, which increased the risk that known vulnerabilities could 

be exploited; (2) sufficiently monitor internal and external system control activities supporting 

financial reporting; (3) monitor internal controls of its service organizations; (4) prevent

individuals from making changes to mainframe processing without following its established 

change control procedures to ensure changes were authorized; (5) include sufficient detail in its 

authorization process to ensure that access to systems was appropriate and configure certain 

applications to use strong encryption for authentication; and (6) fully implement its information 

security program and update key mainframe policies and procedures related to access. 

Additional details related to the material weakness identified above have been provided separately to 

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

44
Recommendation

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

material weakness. We recommend that the Assistant Secretary for Management (ASM) and Deputy 

Chief Financial Officer (DCFO) ensure that the IRS takes corrective action to improve controls over 

financial reporting.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less 

severe than a material weakness, yet important enough to merit attention by those charged with 

governance. We consider the deficiency described below to be a significant deficiency. 

B. Significant Deficiency in Internal Control in Information Systems Controls at the Bureau of the 

Fiscal Service (Repeat Condition)

The Bureau of the Fiscal Service (Fiscal Service) relies on an extensive array of information 

technology systems to perform its primary mission. Effective information system controls and security 

programs over financial systems are essential to protecting information resources in accordance with 

OMB Circular No. A-130, Management of Federal Information Resources. Fiscal Service made 

progress in several areas in its efforts to address prior year deficiencies in its information systems 

controls. Despite these improvements, our tests revealed that the necessary policies and procedures to 

detect and correct control and functionality weaknesses have not been consistently documented, 

implemented, or enforced. Specifically, deficiencies continue to exist in the areas of: (1) security 

management; (2) access to computer resources, including data, equipment, and facilities; (3) changes to 

information system resources and system configurations; and (4) segregation of responsibilities. These 

deficiencies could compromise the Fiscal Service’s ability to ensure security over sensitive financial 

data and reliability of the financial systems. 

Recommendation

Recommendations to address the above significant deficiency have been provided to Fiscal Service 

management. We recommend that the ASM and DCFO ensure that the Fiscal Service takes corrective 

action to improve controls over its information systems.

Compliance and Other Matter 

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

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

Department’s compliance with certain provisions of laws, regulations, contracts, and grant agreements, 

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

statement amounts, and certain provisions of other laws and regulations specified in OMB Bulletin No.

14-02. However, providing an opinion on compliance with those provisions was not an objective of our 

audit, and accordingly, we do not express such an opinion. The results of our, and the other auditor’s,

tests disclosed no instances of noncompliance that are required to be reported under Government 

Auditing Standards or OMB Bulletin No. 14-02. The results of our tests disclosed an other matter this 

is required to be reported under Government Auditing Standards or OMB Bulletin No. 14-02, and is

described below. 

45
C. Other Matter of Potential Violation of the Anti-Deficiency Act (Repeat Condition)

As stated in our prior year auditors’ report, the Department informed us of an instance of a potential 

violation of the Anti-Deficiency Act related to voluntary services provided to the Departmental Offices. 

This matter has been referred to the Government Accountability Office to determine whether the 

matter is a violation of the Anti-Deficiency Act. 

We, and the other auditor, also performed tests of the Department’s compliance with certain provisions 

referred to in Section 803(a) of the Federal Financial Management Improvement Act of 1996

(FFMIA). Providing an opinion on compliance with FFMIA was not an objective of our audit, and 

accordingly, we do not express such an opinion. The results of our tests of FFMIA disclosed instances, 

described below, in which the Department’s financial management systems did not substantially 

comply with the (1) Federal financial management systems requirements, and (2) applicable Federal 

accounting standards. The results of our tests of FFMIA disclosed no instances in which the 

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

Government Standard General Ledger at the transaction level.

D. Noncompliance with Federal Financial Management Improvement Act of 1996 (Repeat 

Condition)

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

FFMIA requirements: 

1. Federal Financial Management Systems Requirements 

As discussed in finding A. Material Weakness in Internal Control Over Financial Reporting at the IRS

(Repeat Condition), the Department continues to have deficiencies in the IRS’s financial management

systems. 

2. Federal Accounting Standards 

As discussed in finding A. Material Weakness in Internal Control Over Financial Reporting at the IRS

(Repeat Condition), the Department has a material weakness related to the IRS that affected the 

Department’s ability to prepare its financial statements in accordance with the federal accounting 

standards. Specifically, IRS financial management systems were unable to support the taxes receivable 

amount on the consolidated balance sheet, and the compliance assessments and write-offs in the 

required supplementary information disclosures, in accordance with accounting standards. 

Recommendation

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

noncompliance with FFMIA. We recommend that the ASM and DCFO ensure that the IRS implements 

its remediation plan outlining actions to be taken to resolve noncompliance with the FFMIA 

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

the IRS’s planned actions are long term in nature and are tied to IRS’s systems modernization efforts.

46
Department’s Response to Findings

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

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

take necessary corrective actions to address each of the matters presented. The Department’s response 

was not subjected to the auditing procedures applied in the audit of the consolidated financial 

statements and, accordingly, we express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards

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

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

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

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

December 16, 2013

47
U.S. Department of the Treasury | Fiscal Year 2013

48

MANAGEMENT’S RESPONSE TO INDEPENDENT AUDITORS’

REPORT

 

December 16, 2013 

KPMG LLP

1801 K Street, NW 

Washington, DC 20006 

Ladies and Gentlemen:

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

Treasury’s fiscal year 2013 consolidated financial statements. Our bureaus and program offices are 

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

financial statements for the fourteenth consecutive year. 

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

conducting this year’s audit contributed greatly to Treasury’s successful fiscal year 2013 results. 

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

in the audit process – the Office of the Inspector General, Government Accountability Office 

(GAO), and the firms that audited several of our bureaus. 

We acknowledge the one material weakness and one significant deficiency at the Department level, 

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

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

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

very proud of our progress, and remain committed to ensuring high standards of integrity and 

transparency in reporting our financial performance. 

Nani A. Coloretti Dorrice C. Roth 

Assistant Secretary for Management Deputy Chief Financial Officer

 
U.S. Department of the Treasury | Fiscal Year 2013

49

Consolidated Balance Sheets

As of September 30, 2013 and 2012

(In Millions)

2013 2012

ASSETS

Intra-governmental Assets

Fund Balance (Note 2) $ 367,820 $ 344,346

Loans and Interest Receivable (Note 3) 1,093,559 914,304

Advances to the Unemployment Trust Fund (Note 4) 29,696 32,932

Due From the General Fund (Note 4) 17,123,357 16,202,179

Other Intra-governmental Assets 435 1,495

Total Intra-governmental Assets 18,614,867 17,495,256

Cash, Foreign Currency, and Other Monetary Assets (Note 5) 148,506 145,551

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

Troubled Asset Relief Program (TARP) - Credit Program Receivables, Net (Note 7) 17,869 40,231

Investments in Government Sponsored Enterprises (GSE) (Notes 4 and 8) 140,221 109,342

Investments in International Financial Institutions (Note 9) 6,396 6,043

Non-TARP Investments in American International Group, Inc. (Note 7) - 2,611

Other Investments and Related Interest (Note 10) 14,114 15,436

Other Credit Program Receivables, Net (Note 11) 17,628 19,888

Loans and Interest Receivable (Note 12) 10,042 10,334

Reserve Position in the International Monetary Fund (Note 12) 17,915 21,573

Taxes, Interest and Other Receivables, Net (Note 13) 38,602 41,463

Property, Plant, and Equipment, Net (Note 14) 2,646 2,435

Other Assets 756 637

Total Assets (Note 15) $ 19,040,624 $ 17,921,862

Heritage Assets (Note 14)

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

50

Consolidated Balance Sheets

As of September 30, 2013 and 2012

(In Millions)

2013 2012

LIABILITIES

Intra-governmental Liabilities

Federal Debt and Interest Payable (Notes 4 and 16) $ 4,837,436 $ 4,861,005

Liability for Restoration of Federal Debt Principal and Interest (Notes 4 and 

16) 128,272 -

Other Debt and Interest Payable (Note 17) 5,761 7,194

Due To the General Fund (Note 4) 1,417,423 1,257,752

Other Intra-governmental Liabilities (Note 19) 477 541

Total Intra-governmental Liabilities 6,389,369 6,126,492

Federal Debt and Interest Payable (Notes 4 and 16) 12,003,030 11,307,583

Liability for Restoration of Federal Debt Principal and Interest (Notes 4 and 

16) 120,356 -

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

Allocation of Special Drawing Rights (Note 5) 54,177 54,463

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

Refunds Payable (Notes 4 and 23) 2,914 3,255

D.C. Pensions and Judicial Retirement Actuarial Liability (Note 18) 9,164 10,059

Liability to Government Sponsored Enterprises (Note 8) - 9,003

Other Liabilities (Note 19) 4,234 5,374

Total Liabilities (Note 19) 18,599,481 17,532,466

Commitments and Contingencies (Note 27)

NET POSITION

Unexpended Appropriations:

Funds from Dedicated Collections (Note 24) 200 200

Other Funds 361,095 317,309

Subtotal 361,295 317,509

Cumulative Results of Operations: 

Funds from Dedicated Collections (Note 24) 48,477 49,047

Other Funds 31,371 22,840

Subtotal 79,848 71,887

Total Net Position – Funds from Dedicated Collections (Note 24) 48,677 49,247

Total Net Position – Other Funds 392,466 340,149

Total Net Position (Note 20) 441,143 389,396

Total Liabilities and Net Position $ 19,040,624 $ 17,921,862

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

51

Consolidated Statements of Net Cost

For the Fiscal Years Ended September 30, 2013 and 2012

(In Millions)

Cost of Treasury Operations: (Note 21) 2013 2012

Financial Program

Gross Cost $ 14,293 $ 14,883

Less Earned Revenue (3,127) (3,100)

Net Program Cost 11,166 11,783

Economic Program

Gross Cost (Revenue) (Note 8) (834) (280,045)

Less Earned Revenue (7,389) (8,735)

Net Program Cost (Revenue) (8,223) (288,780)

Security Program

Gross Cost 1,030 1,059

Less Earned Revenue (7) (4)

Net Program Cost 1,023 1,055

Total Program Gross Costs (Revenue) 14,489 (264,103)

Total Program Gross Earned Revenues (10,523) (11,839)

Total Net Program Cost (Revenue) before Changes in Actuarial

Assumptions

3,966 (275,942)

(Gain)/Loss on Pension, ORB, or OPEB Assumption Changes (684) 695

Total Net Cost of (Revenue From) Treasury Operations (Note 21) 3,282 (275,247)

Non-Entity Costs

Federal Debt Interest 425,081 432,265

Restoration of Foregone Federal Debt Interest (Note 16) 20 59

Less Interest Revenue from Loans (35,132) (33,073)

Net Federal Debt Interest Costs 389,969 399,251

Accrued Restoration of Foregone Federal Debt Interest (Note 16) 801 -

Other Federal Costs (Note 21) 17,006 16,290

GSEs Non-Entity Cost (Revenue) (Note 8) (126,606) 5,322

Other, net (828) (435)

Total Net Non-Entity Costs 280,342 420,428

Total Net Cost of Treasury Operations and Non-Entity Costs $ 283,624 $ 145,181

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

52

Consolidated Statements of Changes in Net Position

For the Fiscal Years Ended September 30, 2013 and 2012

(In Millions)

2013 2012

CUMULATIVE RESULTS OF OPERATIONS (Note 20)

Beginning Balance $ 71,887 $ (262,840)

Budgetary Financing Sources

Appropriations Used 455,216 428,479

Non-Exchange Revenue 695 620

Donations and Forfeitures of Cash/Equivalent 1,093 186

Transfers In/Out Without Reimbursement (30) -

Other 12 148

Other Financing Sources (Non-Exchange)

Donation/Forfeiture of Property 135 174

Accrued Interest and Discount on Debt 10,905 95,877

Accrued Interest on Restoration of Federal Debt Principal (Note 16) 801 -

Transfers In/Out Without Reimbursement (42) (47)

Imputed Financing Sources (Note 21) 776 812

Transfers to the General Fund and Other (Note 20) (177,976) (46,341)

Total Financing Sources 291,585 479,908

Net Cost of Treasury Operations and Non-Entity Costs (283,624) (145,181)

Net Change 7,961 334,727

Cumulative Results of Operations 79,848 71,887

UNEXPENDED APPROPRIATIONS (Note 20)

Beginning Balance 317,509 342,978

Budgetary Financing Sources

Appropriations Received (Note 20) 508,448 419,130

Appropriations Transferred In/Out 25 142

Other Adjustments (9,471) (16,262)

Appropriations Used (455,216) (428,479)

Total Budgetary Financing Sources 43,786 (25,469)

Total Unexpended Appropriations 361,295 317,509

Net Position $ 441,143 $ 389,396

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

53

Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2013

(In Millions)

BUDGETARY RESOURCES Budgetary

NonBudgetary

Financing 

2013

Total

Unobligated balance brought forward, October 1 $ 320,785 $ 18,813 $ 339,598

Recoveries of prior year unpaid obligations 7,876 7,608 15,484

Other changes in unobligated balance (3,366) (23,430) (26,796)

Unobligated balance from prior year budget authority, net 325,295 2,991 328,286

Appropriations (discretionary and mandatory) (Notes 20) 504,687 - 504,687

Borrowing authority (discretionary and mandatory) (Note 22) - 576 576

Spending authority from offsetting collections (discretionary and 

mandatory) 10,091 14,141 24,232

Total Budgetary Resources $ 840,073 $ 17,708 $ 857,781

STATUS OF BUDGETARY RESOURCES

Obligations incurred (Note 22) $ 471,734 $ 15,697 $ 487,431

Unobligated balance, end of year:

Apportioned 274,291 735 275,026

Exempt from apportionment 18,983 - 18,983

Unapportioned 75,065 1,276 76,341

Total unobligated balance brought forward, end of year 368,339 2,011 370,350

Total Status of Budgetary Resources $ 840,073 $ 17,708 $ 857,781

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 142,307 $ 110,866 $ 253,173

Obligations incurred (Note 22) 471,734 15,697 487,431

Outlays, gross (473,187) (17,521) (490,708)

Recoveries of prior year unpaid obligations (7,876) (7,608) (15,484)

Unpaid obligations, gross, end of year 132,978 101,434 234,412

Uncollected Payments:

Uncollected payments from federal sources, brought forward, 

October 1 (186) (818) (1,004)

Change in uncollected customer payments from federal sources (59) 88 29

Uncollected customer payments from federal sources, end of year (245) (730) (975)

Obligated Balance, End of Year (Net) $ 132,733 $ 100,704 $ 233,437

Obligated balance, net, Start of Year $ 142,121 $ 110,048 $ 252,169

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 514,778 $ 14,717 $ 529,495

Actual offsetting collections (discretionary and mandatory) (10,088) (42,358) (52,446)

Change in uncollected customer payments from federal sources 

(discretionary and mandatory) (59) 88 29

Budget Authority, Net (Discretionary and Mandatory) $ 504,631 $ (27,553) $ 477,078

Outlays, gross (discretionary and mandatory) $ 473,187 $ 17,521 $ 490,708

Actual offsetting collections (discretionary and mandatory) (10,088) (42,358) (52,446)

Outlays, net (discretionary and mandatory) 463,099 (24,837) 438,262

Distributed offsetting receipts (151,404) - (151,404)

Agency Outlays, Net (Discretionary and Mandatory) $ 311,695 $ (24,837) $ 286,858

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

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Combined Statement of Budgetary Resources

For the Fiscal Year Ended September 30, 2012

(In Millions)

BUDGETARY RESOURCES Budgetary

NonBudgetary

Financing 

2012

Total

Unobligated balance brought forward, October 1 $ 340,384 $ 28,570 $ 368,954

Recoveries of prior year unpaid obligations 2,818 10,531 13,349

Other changes in unobligated balance (3,542) (37,484) (41,026)

Unobligated balance from prior year budget authority, net 339,660 1,617 341,277

Appropriations (discretionary and mandatory) (Note 20) 429,535 - 429,535

Borrowing authority (discretionary and mandatory) (Note 22) - 11,019 11,019

Spending authority from offsetting collections (discretionary and 

mandatory) 9,727 24,503 34,230

Total Budgetary Resources $ 778,922 $ 37,139 $ 816,061

STATUS OF BUDGETARY RESOURCES

Obligations incurred (Note 22) $ 458,137 $ 18,326 $ 476,463

Unobligated balance, end of year:

Apportioned 227,587 3,948 231,535

Exempt from apportionment 23,692 - 23,692

Unapportioned 69,506 14,865 84,371

Total unobligated balance brought forward, end of year 320,785 18,813 339,598

Total Status of Budgetary Resources $ 778,922 $ 37,139 $ 816,061

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 148,351 $ 123,802 $ 272,153

Obligations incurred (Note 22) 458,137 18,326 476,463

Outlays, gross (461,363) (20,731) (482,094)

Recoveries of prior year unpaid obligations (2,818) (10,531) (13,349)

Unpaid obligations, gross, end of year 142,307 110,866 253,173

Uncollected Payments:

Uncollected payments from federal sources, brought forward, 

October 1 (201) (969) (1,170)

Change in uncollected customer payments from federal sources 15 151 166

Uncollected customer payments from federal sources, end of year (186) (818) (1,004)

Obligated balance, End of Year (Net) $ 142,121 $ 110,048 $ 252,169

Obligated balance, net, Start of Year $ 148,150 $ 122,833 $ 270,983

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 439,262 $ 35,522 $ 474,784

Actual offsetting collections (discretionary and mandatory) (9,743) (157,152) (166,895)

Change in uncollected customer payments from federal sources 

(discretionary and mandatory) 15 151 166

Budget Authority, Net (Discretionary and Mandatory) $ 429,534 $ (121,479) $ 308,055

Outlays, gross (discretionary and mandatory) $ 461,363 $ 20,731 $ 482,094

Actual offsetting collections (discretionary and mandatory) (9,743) (157,152) (166,895)

Outlays, net (discretionary and mandatory) 451,620 (136,421) 315,199

Distributed offsetting receipts (73,881) - (73,881)

Agency Outlays, Net (Discretionary and Mandatory) $ 377,739 $ (136,421) $ 241,318

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

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Statements of Custodial Activity

For the Fiscal Years Ended September 30, 2013 and 2012

(In Millions)

2013 2012

Sources of Custodial Revenue (Note 23)

Individual Income and FICA Taxes $ 2,448,546 $ 2,159,990

Corporate Income Taxes 311,994 281,462

Estate and Gift Taxes 19,830 14,450

Excise Taxes 83,970 79,554

Railroad Retirement Taxes 5,511 4,773

Unemployment Taxes 7,896 7,159

Deposit of Earnings, Federal Reserve System 75,767 81,957

Fines, Penalties, Interest, and Other Revenue 2,886 623

Total Revenue Received 2,956,400 2,629,968

Less Refunds (364,788) (373,752)

Net Revenue Received 2,591,612 2,256,216

Non-Cash Accrual Adjustment (959) 5,543

Non-TARP Investments in American International Group, Inc. (Note 7):

Cash Proceeds from Sale of Stock 2,588 12,992

Non-Cash Market Adjustments (2,611) (8,251)

Total Custodial Revenue 2,590,630 2,266,500

Disposition of Custodial Revenue (Note 23)

Amounts Provided to Fund Non-Federal Entities 358 386

Amounts Provided to Fund the Federal Government 2,591,254 2,255,830

Non-Cash Accrual Adjustment:

Amounts to be Provided to the General Fund and Others (618) 4,000

Accrual Adjustment (341) 1,543

Non-TARP Investments in American International Group, Inc. (Note 7):

Cash Proceeds from Stock Sales Provided to Fund the Federal Government 2,588 12,992

Non-Cash Market Adjustment (2,611) (8,251)

Total Disposition of Custodial Revenue 2,590,630 2,266,500

Net Custodial Revenue $ - $ -

The accompanying notes are an integral part of these financial statements.
U.S. Department of the Treasury | Fiscal Year 2013

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NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. REPORTING ENTITY

The accompanying financial statements include the operations of the U.S. Department of the Treasury (Department), one 

of 24 CFO Act agencies of the Executive Branch of the U.S. government, and certain custodial activities the Department 

manages on behalf of the entire U.S. government. The following paragraphs describe the activities of the reporting entity. 

The Department was established by an Act of Congress approved on September 2, 1789. Many subsequent acts affected 

the development of the Department, delegating new duties to its charge and establishing the numerous bureaus and 

divisions that now comprise the Department. As a major policy advisor to the President, the Secretary of the Treasury 

(Secretary) has primary responsibility for formulating and managing the domestic and international tax and financial 

policies of the U.S. government. 

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

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

federal debt; collecting income and excise taxes; representing the United States on international monetary, trade, and 

investment issues; overseeing Departmental overseas operations; and directing the manufacture of coins, currency, and 

other products for customer agencies and the public. 

The Department’s reporting entities include Departmental Offices (DO) and seven operating bureaus. For financial 

reporting purposes, DO is composed of: Community Development Financial Institutions (CDFI) Fund, Office of D.C. 

Pensions (ODCP), Exchange Stabilization Fund (ESF), Federal Financing Bank (FFB), Government Sponsored 

Enterprises (GSE) Program, International Assistance Programs (IAP), Office of Financial Research (OFR), Office of 

Financial Stability (OFS), Office of Inspector General (OIG), Small Business Lending Fund (SBLF), Special Office of 

Inspector General for the Troubled Asset Relief Program (SIGTARP), Treasury Forfeiture Fund (TFF), Treasury 

Inspector General for Tax Administration (TIGTA), and the DO policy offices. 

As of September 30, 2013, the Department’s seven operating bureaus were: Bureau of Engraving and Printing (BEP); 

Bureau of the Fiscal Service (Fiscal Service); Financial Crimes Enforcement Network (FinCEN); Internal Revenue Service 

(IRS); United States Mint (Mint); Office of the Comptroller of the Currency (OCC); and Alcohol and Tobacco Tax and 

Trade Bureau (TTB). Effective in October 2012, the Bureau of the Public Debt (BPD) and Financial Management Service 

(FMS) operating bureaus merged to form the new Fiscal Service operating bureau. Financial information of the legacy 

BPD and FMS operating bureaus were combined for purposes of disclosure within the notes to the financial statements. 

The administrative accounts of the legacy BPD and FMS bureaus will continue to be managed separately until Congress 

enacts legislation for a single appropriation to fund the newly consolidated Fiscal Service. The Department’s financial 

statements reflect the reporting of its own entity activities comprising both the Department’s operating bureaus and DO 

that are consolidated with the Department, which include appropriations received to conduct its operations and revenue 

generated from those operations. They also reflect the reporting of certain non-entity (custodial) functions it performs on 

behalf of the U.S. government and others. Non-entity activities include collecting certain federal revenue, servicing the 

federal debt, disbursing certain federal funds, and maintaining certain assets and liabilities for the U.S. government, as 

well as for other federal entities. The Department’s reporting entity does not include the General Fund of the U.S. 

government (General Fund), which maintains receipt, disbursement, and appropriation accounts for all federal agencies. 

Following generally accepted accounting principles (GAAP) for federal entities, the Department does not consolidate into 

its financial statements the assets, liabilities, or results of operations of any financial organization or commercial entity in 
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which it holds either a direct, indirect, or beneficial majority equity investment, unless they constitute a part of the 

reporting entity per GAAP. Even though some of the equity investments are significant, these entities meet the criteria of 

“bailed out” entities under paragraph 50 of Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, Entity 

and Display, which directs that such “bailout” investments should not be consolidated into the Financial Report of the 

U.S. government, either in part or as a whole. 

In addition, the Department made loans and investments in certain special purpose vehicles (SPV) under the American 

International Group, Inc. Investment Program, Public-Private Investment Program, and the Term Asset-Backed 

Securities Loan Facility. SFFAC No. 2, paragraphs 43 and 44, reference indicative criteria such as ownership and control 

over an SPV to carry out government powers and missions as criteria in the determination about whether the SPV should 

be classified as a federal entity. The Department has concluded that the lack of control over the SPVs is the primary basis 

for determining that none of the SPVs meet the criteria to be classified as a federal entity. As a result, the assets, 

liabilities, and results of operations of the SPVs are not included in the Department’s financial statements. The 

Department has recorded the loans and investments in private entities and investments in SPVs in accordance with credit 

reform accounting, as discussed below. Additional disclosures regarding these SPV investments are included in Note 7.

B. BASIS OF ACCOUNTING AND PRESENTATION

The financial statements have been prepared from the accounting records of the Department in conformity with 

accounting principles generally accepted in the United States for federal entities, and the Office of Management and 

Budget (OMB) Circular No. A-136, Financial Reporting Requirements, as revised. Accounting principles generally 

accepted for federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB). 

FASAB is recognized by the American Institute of Certified Public Accountants as the official accounting standardssetting body for the U.S. government. 

These financial statements consist of the Consolidated Balance Sheets, the Consolidated Statements of Net Cost, the 

Consolidated Statements of Changes in Net Position, the Combined Statements of Budgetary Resources, and the 

Statements of Custodial Activity. The statements and the related notes are prepared in a comparative form to present 

both fiscal years 2013 and 2012 information. 

To provide additional clarity to its financial statements, the Department has presented more line items on the 

Consolidated Balance Sheets than are required by the guidance in OMB Circular No. A-136. The following summarizes 

what the Department's additional balance sheet line items represent in accordance with the financial statement 

guidelines of the OMB Circular No. A-136: (i) Advances to the Unemployment Trust Fund and Due From the General 

Fund represent other intra-governmental assets; (ii) Gold and Silver Reserves and the Reserve Position in the 

International Monetary Fund (IMF) represent other monetary assets; (iii) Loans and Interest Receivable represents other 

assets; (iv) Liability for Restoration of Federal Debt Principal and Interest and Due To the General Fund represent other 

intra-governmental liabilities; (v) Liability for Restoration of Federal Debt Principal and Interest, Certificates issued to 

the Federal Reserve, Allocation of Special Drawing Rights, Gold Certificates Issued to the Federal Reserve, Refunds 

Payable, Liability to Government Sponsored Enterprises, and the D.C. Pensions and Judicial Retirement Actuarial 

Liability represent other liabilities. For the Statement of Changes in Net Position, the following line items -- Accrued 

Interest and Discount on Debt, Accrued Interest on Restoration of Federal Debt Principal, and Transfers to the General 

Fund and Other -- represent other non-exchange financing sources per OMB Circular No. A-136 guidance.

Transactions and balances among the Department’s entities have been eliminated from the Consolidated Balance Sheets, 

the Consolidated Statements of Net Cost, and the Consolidated Statements of Changes in Net Position. The Statements of 

Budgetary Resources are presented on a combined basis; therefore, intra-departmental transactions and balances have 

not been eliminated from these statements. 
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While these financial statements have been prepared from the accounting records of the Department in accordance with 

the formats prescribed by OMB, these financial statements are in addition to the financial reports used to monitor and 

control budgetary resources which are prepared from the same accounting records. 

Intra-governmental assets and liabilities are those due from or to other federal entities. Intra-governmental earned 

revenues are collections or accruals of revenue from other federal entities, and intra-governmental costs are payments or 

accruals of expenditures to other federal entities. 

The financial statements should be read with the realization that the Department is a component of the U.S. government, 

a sovereign entity and, accordingly, its liabilities not covered by budgetary resources cannot be liquidated without the

legislative enactment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated 

by the sovereign entity. Liabilities represent the probable and measurable future outflow or other sacrifice of resources 

as a result of past transactions or events. Liabilities covered by budgetary resources are those liabilities for which 

Congress has appropriated funds or funding is otherwise available to pay amounts due. Liabilities not covered by 

budgetary or other resources represent amounts owed in excess of available, congressionally appropriated funds or other 

amounts, and there is no certainty that the appropriations will be enacted. 

Certain fiscal year 2012 activity and balances presented on the financial statements have been reclassified to conform to 

the presentation in the current year, the effects of which are immaterial. 

There are numerous acronyms used throughout the notes herein as well as other sections of this Agency Financial Report 

(AFR). Refer to the “Glossary of Acronyms” located in the Appendix of this report for a complete listing of these 

acronyms and their definitions. 

C. FUND BALANCE

The Fund Balance is the aggregate amount of the Department’s accounts with the U.S. government’s central accounts 

from which the Department is authorized to make expenditures and pay liabilities. It is an asset because it represents the 

Department’s claim to the U.S. government’s resources. Fund balance is not equivalent to unexpended appropriations 

because it also includes non-appropriated revolving and enterprise funds, suspense accounts, and custodial funds such as 

deposit funds, special funds, and trust funds. 

D. LOANS AND INTEREST RECEIVABLE, INTRA-GOVERNMENTAL 

Intra-governmental entity loans and interest receivable from other federal agencies represent the principal and related 

interest receivable on loans issued by the Department, through FFB. No loan loss allowance or credit reform subsidy 

costs are recorded for loans purchased from federal agencies or for guaranteed loans made to non-federal borrowers 

because the outstanding balances (interest and principal) are guaranteed by those agencies. 

Intra-governmental non-entity loans and interest receivable from other federal agencies represent the principal and 

related interest receivable on loans issued by the Department, through the Fiscal Service. The Department acts as an 

intermediary issuing these loans because the agencies receiving these loans lend these funds to third parties to carry out 

various programs of the U.S. government. Because of the Department’s intermediary role in issuing these loans, the 

Department does not record a loan loss allowance related to these non-entity intra-governmental loans. Instead, loan 

loss allowances and subsidy costs are recognized by the ultimate lender, the federal agency that issued the loans to the 

public.

E. ADVANCES TO THE UNEMPLOYMENT TRUST FUND

Advances are issued to the Department of Labor’s (DOL) Unemployment Trust Fund from the General Fund for states to 

pay unemployment benefits. The Fiscal Service accounts for the advances issued on behalf of the General Fund. As 
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outlined in the United States Code (USC) 42 USC §1323, these advances bear an interest rate that is computed as the 

average interest rate as of the end of the calendar month preceding the issuance date of the advance for all interestbearing obligations of the United States that form the public debt, to the nearest lower 1/8 of 1.0 percent. Interest on the 

advances is due on September 30th of each year. Advances are repaid by transfers from the Unemployment Trust Fund 

to the General Fund when the Secretary, in consultation with the Secretary of the DOL, determines that the balance in the 

Unemployment Trust Fund is adequate to allow repayment.

F. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Substantially all of the Department’s operating cash is non-entity government-wide cash held in depository institutions 

and Federal Reserve Bank (FRB) accounts. Agencies can deposit funds that are submitted to them directly into either a 

Federal Reserve Treasury General Account (TGA) or a local TGA depositary. The balances in these TGA accounts are 

transferred into the Federal Reserve Bank of New York’s (FRBNY) TGA at the end of each day. 

Operating cash of the U.S. government represents balances from tax collections, customs duties, other revenue, federal 

debt receipts, and other various receipts, net of cash outflows for budget outlays and other payments held in the FRBs 

and in foreign and domestic financial institutions. Outstanding checks net against operating cash until they clear the 

Federal Reserve System. 

The FRBNY maintains the TGA which functions as the U.S. government’s checking account for deposits and 

disbursements of public funds. Cash in the TGA is restricted for government-wide operations. 

The Department’s foreign currency investments having original maturities of three months or less are classified as cash 

equivalents. Special Drawing Rights (SDRs) holdings comprise most of the other monetary assets (refer to the 

accounting policy below entitled “Special Drawing Rights”).

G. INVESTMENTS

Investments in GSEs

The Department holds senior preferred stock and warrants for the purchase of common stock of two GSEs, the Federal 

National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These 

non-federal investment holdings are presented at their fair value. Changes in the valuation of these investments are 

recorded as non-entity exchange transactions on the Consolidated Statements of Net Cost. Dividends related to these 

investments are also recorded as non-entity exchange transactions, and accrued when declared.

The GSE Senior Preferred Stock Purchase Agreements (SPSPAs), entered into by the Department with each GSE when 

the GSEs were placed under conservatorship, require the Department to increase its investment in the GSEs’ senior 

preferred stock if, at the end of any quarter, the Federal Housing Finance Agency (FHFA), acting as the conservator, 

determines that the liabilities of either GSE exceed its respective assets. As funding to the GSEs to pay their excess 

liabilities is appropriated directly to the Department, such payments are reported as entity expenses within the Economic 

Program on the Consolidated Statements of Net Cost and in the line item “Cumulative Results of Operations” on the 

Consolidated Balance Sheets. These payments also result in an increase to the non-entity investment in the GSEs’ senior 

preferred stock, with a corresponding increase in Due To the General Fund, as the Department holds the investment on 

behalf of the General Fund. 

Investments in International Financial Institutions

The Department, on behalf of the United States, invests in Multilateral Development Banks (MDBs) to support poverty 

reduction, private sector development, transitions to market economies, and sustainable economic growth and 

development, thereby advancing U.S. economic, political, and commercial interests abroad. As a participating member 
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country, the Department, on behalf of the United States, provides a portion of the capital base of the MDBs, through 

subscriptions to capital, which allows the MDBs to issue loans at market-based rates to middle-income developing 

countries. These paid-in capital investments are non-marketable equity investments valued at cost on the Department’s 

Consolidated Balance Sheets.

In addition, the Department, on behalf of the United States, contributes funding to MDBs to finance grants and extend 

credit to poor countries at below market-based interest rates. These U.S. contributions, also referred to as “concessional 

window” contributions, are reported as an expense on the Department’s Consolidated Statements of Net Cost. 

Non-TARP Investment in American International Group, Inc. 

The Department held American International Group, Inc. (AIG) common stock, a non-federal investment, on behalf of 

the General Fund until December 2012 when the remaining common stock held was sold. The AIG common stock was 

recorded at fair value. Changes in the valuation of these investments held represented non-entity, non-exchange 

transactions reported on the Statements of Custodial Activity. The increase or decrease in previously recognized revenue

that resulted from gains or losses on sales of these investments represented non-entity, exchange transactions reported 

on the Statements of Custodial Activity rather than on the Consolidated Statements of Net Cost as the Department did

not incur any costs related to these investments. 

Other Investments and Related Interest

ESF holds most of the Department’s foreign currency investments. Other foreign currency denominated assets and 

investment securities are available-for-sale securities recorded at fair value. These holdings are normally invested in 

interest-bearing securities issued or held through foreign governments or monetary authorities. Interest on investments, 

amortization of premiums, and accretion of discounts are recognized on an accrual basis. Premiums and discounts are 

amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest 

method. 

H. CREDIT PROGRAM RECEIVABLES

The Department accounts for all of its TARP credit program receivables, including investments in common and preferred 

stock and warrants of public companies, loans, and loan guarantees or guaranty-like insurance activities, under the 

provisions of credit reform accounting pursuant to the Federal Credit Reform Act (FCRA) (Note 7). In addition to its 

TARP programs, the Department accounts for all other of its credit program receivables under the provisions of credit 

reform accounting, including the loans or equity securities associated with the Department’s state and local Housing 

Finance Agency (HFA) initiative programs, SBLF program, CDFI program, and certain portions of the Department’s 

participation in the IMF (Note 11). 

To account for the Department’s TARP and other credit program receivables, the Department applies the accounting 

provisions of SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, as amended by SFFAS No. 18, 

Amendments to Accounting Standards for Direct Loans and Loan Guarantees, and SFFAS No. 19, Technical 

Amendments to Accounting Standards for Direct Loans and Loan Guarantees. SFFAS No. 2, as amended, which was 

promulgated as a result of FCRA, requires measurement of the asset or liability at the net present value of the estimated 

future cash flows. The cash flow estimates for each credit program transaction reflect the actual structure of the 

instruments. For each of these instruments, the Department estimates cash inflows and outflows related to the program 

over the estimated term of the instrument. Further, each cash-flow estimate reflects the specific terms and conditions of 

the program, technical assumptions regarding the underlying assets, risk of default or other losses, and other factors as 

appropriate. The measurement of assets within these programs is primarily derived from inputs which generally 
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represent market data and, when such data is not available, management’s best estimate of how a market participant 

would assess the risk inherent in the asset.

The primary purpose of the FCRA is to measure the cost of federal credit programs, and to place the cost of such credit 

programs on a basis equivalent with other federal spending. FCRA requires that the ultimate costs of a credit program be 

calculated and the budgetary resources be obtained before incurring the direct loan obligations. To accomplish this, the 

Department first predicts or estimates the future performance of direct and guaranteed loans when preparing its annual 

budget. The data used for these budgetary estimates are re-estimated at the fiscal year-end to reflect changes in actual 

loan performance and actual interest rates in effect when the loans were issued. The re-estimated data reflect 

adjustments for market risks, asset performance, and other key variables and economic factors. The re-estimated data is

then used to report the cost of the loans disbursed under the direct or guaranteed loan program as a “Program Cost” in 

the Department’s Consolidated Statements of Net Cost. 

Cash flows associated with the Department’s credit programs generally include disbursements, repayments, repurchases, 

fees, recoveries, interest, dividends, proceeds from sales of instruments, borrowings from Treasury, negative subsidy, and 

the subsidy cost received from the program accounts. Security-level data and assumptions used as the basis for cash flow 

model forecasts and program performance are drawn from widely available market sources, as well as information 

published by investees. Key inputs to the cash flow forecasts include:

• Security characteristics such as unpaid principal balance, coupon rate, weighted-average loan age, issued bond 

balance, credit rating, maturity date, principal and interest payment schedules, priority of payments, and 

performance of underlying collateral

• Department actions as well as changes in legislation

• Forecast prepayment rates and default rates

• Forecast dividend payments

• Expected escrow conversion and return rates

• Default and recovery reports published by Moody’s and Standard and Poor’s 

• Other third-party market sources

The recorded subsidy cost associated with each of the Department’s credit programs represents the difference between 

the Department’s projected costs of the program and the future cash flows anticipated to be received by the Department. 

The subsidy allowance specifically takes into consideration projected repayments and defaults and the projected cost of 

borrowings. The allowance is amortized to reflect the difference between projected and actual financing costs. 

The Department’s actions, as well as changes in legislation, may impact estimated future cash flows and related subsidy 

costs. The cost or cost savings of a modification is recognized in subsidy costs when the terms of a program are modified. 

Workouts are actions taken to maximize repayments of existing credit programs, and the expected effects on cash flows 

are included in the original estimate and re-estimates of the subsidy cost. Subsidy costs are also impacted by re-estimates 

which may occur as a result of updates to the original program subsidy cost estimates to reflect actual cash flows 

experience, as well as changes in forecasts of estimated future cash flows associated with the credit program.

I. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

Federal taxes receivable, net, and the corresponding liability due to the General Fund, are not accrued until related tax 

returns are filed or assessments are made by the IRS and agreed to by either the taxpayer or the court. Additionally, the 

prepayments are netted against liabilities. Accruals are made to reflect penalties and interest on taxes receivable through 

the balance sheet date. 
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Taxes receivable consist of unpaid assessments (taxes and associated penalties and interest) due from taxpayers. The 

existence of a receivable is supported by a taxpayer agreement, such as filing of a tax return without sufficient payment, 

or a court ruling in favor of the IRS. An allowance for doubtful accounts is recorded to reflect an estimate of the portion 

of total taxes receivable deemed to be uncollectible. 

Compliance assessments are unpaid assessments which neither the taxpayer nor a court has affirmed the taxpayer owes 

to the U.S. government. Examples include assessments resulting from an IRS audit or examination in which the taxpayer 

does not agree with the results. Compliance assessment write-offs consist of unpaid assessments for which the IRS does 

not expect further collections due to factors such as taxpayers’ bankruptcy, insolvency, or death. Compliance 

assessments and related write-offs are not reported on the balance sheet. Statutory provisions require the accounts to be 

maintained until the statute for collection expires. 

J. PROPERTY, PLANT, AND EQUIPMENT, NET

General

Property, plant, and equipment (PP&E) is composed of capital assets used in providing goods or services. It also includes 

assets acquired through capital leases, which are initially recorded at the amount recognized as a liability for the capital 

lease at its inception. PP&E is stated at full cost, including costs related to acquisition, delivery, and installation, less 

accumulated depreciation. Major alterations and renovations, including leasehold and land improvements, are 

capitalized, while maintenance and repair costs are charged to expense as incurred. Costs for construction projects are 

recorded as construction-in-progress until completed, and are valued at actual (direct) cost plus applied overhead and 

other indirect costs.

Internal-use software encompasses software design, development, and testing of projects adding significant new 

functionality and long-term benefits. Costs for developing internal-use software are accumulated in work-indevelopment until a project is placed into service, and testing and final acceptance are successfully completed. Once

completed, the costs are transferred to depreciable property. 

The Department leases land and buildings from the General Services Administration (GSA) to conduct most of its 

operations. Such leases do not meet capital lease requirements for financial reporting purposes. GSA charges a standard 

level user fee which approximates commercial rental rates for similar properties. 

The Department’s bureaus are diverse both in size and in operating environment. Accordingly, the Department’s 

capitalization policy provides minimum capitalization thresholds which generally range from $25,000 to $50,000 for all 

property categories except for internal-use software thresholds which generally range from $50,000 to $250,000. The 

Department also uses a capitalization threshold for bulk purchases which generally ranges from $250,000 to $500,000 

for non-manufacturing bureaus and $25,000 to $50,000 for manufacturing bureaus. Bureaus determine the individual 

items that comprise bulk purchases based on Departmental guidance. In addition, the Department’s bureaus may 

expense individual and/or bulk purchases if they conclude that total period costs would not be materially distorted and 

the cost of capitalization is not economically feasible. 

Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of leasehold 

improvements and capital leases. Leasehold improvements are depreciated over the term of the lease or the useful life of 

the improvement, whichever is shorter. Capital leases are depreciated over the estimated life of the asset or term of the 

lease, whichever is shorter. Service life ranges (2 to 50 years) are wide due to the Department’s diversity of PP&E. Land

and land improvements, construction-in-progress, and internal-use software in development are not depreciated. 
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Heritage Assets

Heritage assets are assets of historical significance. Multi-use heritage assets are those heritage assets for which the 

predominant use is general government operations. All acquisition, reconstruction, and betterment costs for the 

Treasury multi-use heritage asset buildings are capitalized as general PP&E and depreciated over their service life. 

K. FEDERAL DEBT AND INTEREST PAYABLE

Debt and associated interest are reported on the accrual basis of accounting. Interest costs are recorded as expenses 

when incurred, instead of when paid. Certain Treasury securities are issued at a discount or premium. These discounts 

and premiums are amortized over the term of the security using an interest method for all long-term securities and the 

straight-line method for short-term securities.

L. COMMITMENTS AND CONTINGENCIES

The Department, through FFB, makes loan commitments with federal agencies, or private sector borrowers whose loans 

are guaranteed by federal agencies, to extend credit for their own use (refer to the accounting policy above entitled 

“Loans and Interest Receivable, Intra-Governmental”). The Department establishes loan commitments when the 

Department and other parties fully execute promissory notes in which the Department becomes obligated to issue such 

loans immediately or at some future date. The Department reduces loan commitments when it issues the loans or when 

the commitments expire. Most obligations of the Department give a borrower the contractual right to a loan or loans 

immediately or at some point in the future within an agreed upon timeframe. 

In accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, the Department recognizes 

material contingent liabilities when the following criteria are met:

• A past event or exchange transaction has occurred

• A future cash outflow is probable

• A future cash outflow is measurable

The estimated liability recorded by the Department is either a specific amount or within a range of amounts. If some 

amount within the range is a better estimate than any other amount within the range, that amount is recognized. If no 

amount within the range is a better estimate than any other amount, the minimum amount in the range is recognized,

and the range and a description of the nature of the contingency are disclosed. The Department follows this policy in 

recording a contingent liability, if any, related to the GSE SPSPA program (Note 8), and loss contingencies that may arise 

from claims, assessments, litigations, fines, penalties, and other sources (Note 27).

If one or more, but not all, of the above criteria for recognition are met, and there is a reasonable possibility of loss, the 

Department will disclose, if material, the nature of the contingent liability, along with a range of possible loss, if 

estimable, and a description of the nature of the contingency. 

M. SPECIAL DRAWING RIGHTS

The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves. 

Under its Articles of Agreement, the IMF may allocate SDRs to member countries in proportion to their IMF quotas. 

Pursuant to the Special Drawing Rights Act of 1968, as amended, the ESF holds all SDRs allocated to or otherwise 

acquired by the United States. 

Allocations and Holdings

The Department records the SDR holdings as part of “Cash, Foreign Currency, and Other Monetary Assets,” and the SDR 

allocations as the “Allocation of Special Drawing Rights” liability when the IMF allocates SDRs to the Department. The 
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liabilities represent the amount that is payable in the event of liquidation of, or withdrawal by the United States from, the 

SDR department of the IMF or cancellation of the SDRs.

SDR holdings increase primarily as a result of IMF SDR allocations. SDR transactions are recorded as incurred. They 

include acquisitions and sales of SDRs, interest received on SDR holdings, interest charges on SDRs allocations, and 

valuation adjustments. The U.S. government receives remuneration in SDRs from the IMF based on claims on the IMF

as represented by the U.S. Reserve Position. The remuneration is credited to the ESF which transfers to either the TGA 

account or a specified financing account an equivalent amount of dollars plus nominal interest. The allocations and 

holdings are revalued monthly based on the SDR valuation rate as calculated by the IMF, resulting in the recognition of 

unrealized gains or losses on revaluation that are reported on the Consolidated Statements of Net Cost. 

Certificates Issued to the Federal Reserve

The Special Drawing Rights Act of 1968 authorizes the Secretary to issue certificates, not to exceed the value of SDR 

holdings, to the FRB in return for dollar amounts equal to the face value of certificates issued. The certificates may be 

issued to finance the acquisition of SDRs from other countries or to provide U.S. dollar resources to finance other ESF 

operations. Certificates issued are redeemed by the Department at such times and in such amounts as the Secretary may 

determine, and do not bear interest. Certificates issued to the FRB are reported at their face value which approximates 

their carrying value since, under the terms of the agreement, there is no set repayment date and no interest accrued while 

certificates remain outstanding.

N. REFUNDS PAYABLE

Refunds payable arise in the normal course of tax administration when it is determined that taxpayers have paid more 

than the actual taxes they owe. Amounts that the Department has concluded to be valid refunds owed to taxpayers are 

recorded as a liability entitled “Refunds Payable” on the Consolidated Balance Sheets, with a corresponding receivable 

from the General Fund included in the line entitled “Due From the General Fund.”

O. FEDERAL EMPLOYEE BENEFITS PAYABLE – FECA ACTUARIAL LIABILITY

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered federal 

civilian employees injured on the job, and employees who have incurred a work-related injury or occupational disease. 

The FECA program is administered by the DOL which pays valid claims and subsequently seeks reimbursements from 

the Department for these paid claims. Generally, the Department reimburses the DOL within two to three years once 

funds are appropriated. The FECA liability consists of two components. The first component is based on actual claims 

paid by the DOL but not yet reimbursed by the Department. The second component is the estimated liability for future 

workers compensation as a result of past events. Both components are reported in “Other Liabilities” on the 

Consolidated Balance Sheets. These future workers’ compensation estimates are generated by applying actuarial 

procedures developed to estimate the liability for FECA benefits. The actuarial liability estimates for FECA benefits 

include the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases. 

P. ANNUAL, SICK, AND OTHER LEAVE

Annual and compensatory leave earned by the Department’s employees, but not yet used, is reported as an accrued 

liability. The accrued balance is adjusted annually to reflect current pay rates. Any portion of the accrued leave for which 

funding is not available is recorded as an unfunded liability as reported in “Other Liabilities” on the Consolidated Balance 

Sheets. Sick and other leave are expensed as taken, and the Department does not record a liability for such amounts 

because employees do not vest in sick and other leave benefits. 
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Q. PENSION COSTS, OTHER RETIREMENT BENEFITS, AND OTHER POST-EMPLOYMENT BENEFITS

Federal Pension Costs, Other Retirement Benefits, and Other Post-Employment Benefits

The Department recognizes the full costs of its employees’ pension benefits, including recognizing imputed costs for the

difference between the estimated service cost and the contributions made by the Department. However, the assets and 

liabilities associated with these benefits are recognized by the Office of Personnel Management (OPM) rather than the 

Department. 

Most employees of the Department hired prior to January 1, 1984, participate in the Civil Service Retirement System 

(CSRS), to which the Department contributes between 7.0 percent and 7.5 percent of pay. On January 1, 1987, the 

Federal Employees’ Retirement System (FERS) went into effect pursuant to Public Law (P.L.) 99-335. Employees hired 

after December 31, 1983 are automatically covered by FERS and Social Security. A primary feature of FERS is that it 

offers a savings plan to which the Department automatically contributes one percent of base pay and matches any 

employee contributions up to an additional four percent of base pay. For most employees hired after December 31, 1983, 

the Department also contributes the employer’s matching share for Social Security. For the FERS basic benefit, the 

Department contributes 11.9 percent for regular FERS employees.

Similar to federal retirement plans, OPM, rather than the Department, reports the assets and liability for future payments 

to retired employees who participate in the Federal Employees Health Benefits Program (FEHBP) and Federal 

Employees Group Life Insurance (FEGLI) Program. The Department reports the full cost of providing other retirement 

benefits (ORB). The Department also recognizes an expense and a liability for other post-employment benefits (OPEB), 

which includes all types of benefits, provided to former or inactive (but not retired) employees, their beneficiaries, and 

covered dependents. Additionally, one of the Department’s bureaus, OCC, separately sponsors a defined life insurance 

benefit plan for current and retired employees, and is the administrator for a private defined benefit retirement plan, the 

Pentegra Defined Benefit Plan (PDBP), that provides certain health and life insurance benefits for certain of its retired

employees who meet eligibility requirements. 

District of Columbia Pensions and Judicial Retirement Plans

Pursuant to Title XI of the Balanced Budget Act of 1997, as amended, the Department became responsible for certain 

District of Columbia (D.C.) retirement plans (Note 18). The actuarial cost method used to determine costs for the 

retirement plans is the Individual Entry Age Normal Funding Method, which approximates the methodology specified by 

the Aggregate Entry Age Normal Actuarial Cost Method. The actuarial liability is based upon long-term economic 

assumptions. The pension benefit costs incurred by the plans are included on the Consolidated Statements of Net Cost.

The economic assumptions used for the D.C. retirement plans differ from those used by the OPM for the following 

reasons: (i) the annual rate of salary increase assumptions are based on different plan member experience; (ii) the annual 

rate of inflation and cost-of-living adjustment assumptions are based on different statutory requirements (applicable 

Consumer Price Index and period of calculation); and (iii) for the annual rate of investment return assumption, OPM and 

the D.C. retirement plans use the same underlying yield curve but, unlike the D.C. Federal Pension Funds, OPM converts 

to a single equivalent rate.

R. REVENUE AND FINANCING SOURCES

The Department’s activities are financed either through exchange revenue it receives from others or through nonexchange revenue and financing sources (such as appropriations provided by the Congress and penalties, fines, and 

certain user fees collected). User fees primarily include collections from the public for the IRS costs to process 

installment agreements and accompanying photocopy and reproduction charges. Exchange revenues are recognized 
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when earned; i.e., goods are delivered or services are rendered. Revenue from reimbursable agreements is recognized 

when the services are provided. Non-exchange revenues are recorded when received or accrued when the Department 

has a legal claim through the respective collecting bureau. Appropriations used are recognized as financing sources when 

related expenses are incurred or assets are purchased. 

The Department also incurs certain costs that are paid in total or in part by other federal entities, such as pension costs, 

the FEHBP, and any un-reimbursed payments made from the Treasury Judgment Fund on behalf of the Department. 

These subsidized costs are recognized on the Consolidated Statements of Net Cost, and the imputed financing for these 

costs is recognized on the Consolidated Statements of Changes in Net Position. As a result, there is no effect on net 

position. Other non-exchange financing sources, such as donations and transfers of assets without reimbursements, are 

also recognized for the period in which they occurred on the Consolidated Statements of Changes in Net Position. 

The Department recognizes revenue it receives from disposition of forfeited property as non-exchange revenue on the 

Consolidated Statements of Changes in Net Position. The costs related to the Forfeiture Fund program are reported on 

the Consolidated Statements of Net Cost. The Treasury Forfeiture Fund is the special fund account for depositing nontax forfeiture proceeds received pursuant to laws enforced or administered by law enforcement bureaus that participate 

in the Treasury Forfeiture Fund. Forfeited property balances are reported in “Other Assets” on the Consolidated Balance 

Sheets. 

S. CUSTODIAL REVENUES AND COLLECTIONS

Non-entity revenue reported on the Department’s Statements of Custodial Activity includes cash collected by the 

Department, primarily from taxes. It does not include revenue collected by other federal agencies, such as user fees and 

other receipts, which are remitted for general operating purposes of the U.S. government or are dedicated for certain 

trust funds. The Statements of Custodial Activity are presented on the “modified accrual basis.” The Department 

recognizes revenues as cash is collected, and records a “non-cash accrual adjustment” representing the net increase or 

decrease during the reporting period in net revenue-related assets and liabilities, mainly taxes receivable. The 

Department also records as custodial revenue cash proceeds from the sale of stock and non-cash market valuation 

changes related to the U.S. government’s holdings in AIG (Note 7).

T. PERMANENT AND INDEFINITE APPROPRIATIONS

Permanent and indefinite appropriations are used to disburse tax refunds, income tax credits, and child tax credits. 

Refund payment funding is recognized as appropriations are used. Permanent indefinite authority for refund activity is 

available for an indefinite period of time in the amount necessary to cover the refund and/or credit. Tax refunds and 

credits are reported as a custodial activity of the Department, since they are, in substance, a custodial revenue-related 

activity resulting from taxpayer overpayments of their tax liabilities. 

The Department also has two permanent and indefinite appropriations related to debt activity. One is used to pay 

interest on the public debt securities; the other is used to redeem securities that are matured, called, or eligible for early 

redemption. These accounts are not annual appropriations and do not have refunds. Debt activity appropriations are 

related to the Department’s liability and are reported on the Department’s Consolidated Balance Sheet. Permanent 

indefinite authority for debt activity is available for an indefinite period of time. 

The Department also has permanent and indefinite appropriations to fund increases in the projected subsidy costs of 

credit programs as determined by the re-estimation process required by the FCRA. The Department’s renewable energy 

project is also covered by permanent indefinite appropriations.
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Additionally, the Department has other permanent and indefinite appropriations to make certain payments on behalf of 

the U.S. government. These appropriations are provided to make payments to the FRB for fiscal services provided, and 

to the financial institutions for services provided as financial agents of the U.S. government. They also include 

appropriations provided to make other disbursements on behalf of the U.S. government, including payments made to 

various parties as a result of certain claims and judgments rendered against the United States. 

U. INCOME TAXES

As an agency of the U.S. government, the Department is exempt from all income taxes imposed by any governing body, 

whether it is a federal, state, commonwealth, local, or foreign government. 

V. USE OF ESTIMATES

The Department has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, 

expenses, and the disclosure of contingent liabilities to prepare its financial statements. Actual results may differ from 

these estimates. It is possible that the results of operations, cash flows or the financial position of the Department may be 

materially affected in future periods by adverse changes in the outlook for the key assumptions underlying management’s 

estimates. Significant transactions subject to estimates include loan and credit program receivables, credit reform 

subsidy costs, investments in GSEs and other non-federal securities and related impairment, tax receivables, loan 

guarantees, depreciation, imputed costs, actuarial liabilities, cost and earned revenue allocations, as well as contingencies 

and any related recognized liabilities. 

The Department accounts for all of its TARP and non-TARP credit program receivables in accordance with credit reform 

accounting (refer to the accounting policy above entitled “Credit Program Receivables,” and Notes 7 and 11). These 

receivables are derived using credit reform modeling which is subject to the use of estimates and forecasts that have 

inherent uncertainty. The Department recognizes the sensitivity of credit reform modeling to slight changes in certain

model assumptions such as general economic conditions, specific stock price volatility of the entities in which the 

Department has an equity interest, estimates of expected default, and prepayment rates. The “TARP Credit Program 

Receivables, Net” line item on the Consolidated Balance Sheets is reflective of relatively illiquid, troubled assets whose 

values are particularly sensitive to future economic conditions and other assumptions. 

The Department uses regular review of model factors, statistical modeling, and annual re-estimates to reflect the most 

accurate cost of the credit programs to the U.S. government. The purpose of re-estimates is to update original program 

subsidy cost estimates to reflect actual cash flow experience as well as changes in forecasts of future cash flows. Forecasts 

of future cash flows are updated based on actual program performance to date, additional information about the 

portfolio, additional publicly available relevant historical market data on securities performance, revised expectations for 

future economic conditions, and enhancements to cash flow projection methods. 

The “Liability to Government Sponsored Enterprises” line item on the Consolidated Balance Sheets related to the SPSPAs

represents the recognized contingency, if any, related to the funding commitment. It is predicated on the probable future 

occurrence of an excess of liabilities and minimum capital reserve amounts, as defined, over the assets of either GSE at 

the end of any reporting quarter. The Department performs annual valuations, as of September 30, on the preferred 

stock and warrants in an attempt to provide a “sufficiently reliable” estimate of the outstanding commitments in order for 

the Department to record the remaining liability in accordance with SFFAS No. 5. The occurrence of future deficits, 

which ultimately determines the Department’s liability to the GSEs, is most sensitive to future changes in the housing 

price index.

The valuation of the “Investments in Government Sponsored Enterprises” line item on the Consolidated Balance Sheets 

incorporates various forecasts, projections and cash flow analyses to develop an estimate of the asset’s fair value. Any 
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changes in valuation, including impairment, are recorded and disclosed in accordance with SFFAS No. 7, Accounting for 

Revenue and Other Financing Sources. Since the valuation is an annual process, the change in valuation of the preferred 

stock and warrants are deemed usual and recurring. The GSEs contingent liability, if any, is assessed annually and 

recorded at the gross estimated amount, without considering the increase in senior preferred stock liquidation

preference, or future dividend payments, or future commitment fees, due to the uncertainties involved. Note 8 includes a 

detailed discussion of the results of the asset valuation and any liability recorded. 

Estimation of such complex and long-duration receivables, investments, and contingencies is subject to uncertainty. It is 

possible that new developments will adversely impact the value of receivables, investments, and contingencies, as well as 

ultimate amounts required to be funded by the Department. 

W. OTHER-THAN-TEMPORARY IMPAIRMENTS

A decline in the market value (either due to credit, price or currency) of any investment below cost that is deemed to be 

other-than-temporary is accounted for as an impairment, and the carrying value is reduced to fair value for financial 

reporting purposes. To determine whether an impairment is other-than-temporary, the Department considers whether it 

has the ability and intent to hold the investment until a market price recovery, and considers whether evidence indicating 

the cost of the investment is recoverable outweighs evidence to the contrary.

X. CREDIT, MARKET AND FOREIGN CURRENCY RISK

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to 

perform in accordance with underlying contractual obligations. The Department takes on possible credit risk when it 

makes direct loans or credits to foreign entities or becomes exposed to institutions which engage in financial transactions 

with foreign countries (Note 10). The following programs of the Department entail credit risk: monetary assets held; 

committed but undisbursed direct loans; funding commitment to the GSEs; GSE obligations obtained under the HFA 

initiative (the New Issue Bond Program and Temporary Credit Liquidity Program); investments, loans, and other credit 

programs of the TARP; non-TARP credit programs including the CDFI Fund, SBLF, and certain portions of the 

Department’s participation in the IMF; and the Terrorism Risk Insurance Program. 

Except for the Terrorism Risk Insurance Program, the Department’s activities focus on the underlying problems in the 

credit markets, and the ongoing instability in those markets exposes the Department to potential costs and losses. The 

extent of the risk assumed by the Department is described in more detail in the notes to the financial statements and, 

where applicable, is factored into credit reform models and reflected in fair value measurements (Notes 7, 8, and 11). 

For Emergency Economic Stabilization Act (EESA) programs, the statute requires that budgetary costs of the troubled 

assets and guarantees of troubled assets be calculated by adjusting the discount rate for market risks. Within the TARP 

programs, the Department invested in many assets that would traditionally be held by private investors, and their 

valuation would inherently include market risk. Accordingly, for all TARP direct loans, equity investments, and other 

credit programs, the Department calculates a Market Risk Adjusted Discount Rate (MRADR). The Department’s cost 

estimates for the TARP programs are adjusted to reflect the additional return required by the market to compensate for 

variability around the expected losses reflected in the cash flows. Under SFFAS No. 2, including market risk in the cash 

flow estimates is consistent with the type of assets being valued. The inclusion of the MRADR is the mechanism for 

deriving a fair value of the assets. As directed by Congress, a MRADR is also used in the credit reform model for certain 

portions of the Department’s participation in the IMF. 

The Department faces certain risks and uncertainties as a result of holding securities denominated in foreign currency. 

The price of holdings of such securities may widely fluctuate as a result of volatility in foreign currency markets and 

changes in real and perceived credit of the Department’s counterparties.
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Y. FUNDS FROM DEDICATED COLLECTIONS

The Department accounts for revenues and other financing sources for funds from dedicated collections (FDC) separately 

from other funds. Such funds are financed by specifically identified revenues provided to the U.S. government by nonfederal sources, often supplemented by federal and other financing sources, which remain available over time. These 

specifically identified revenues and other financing sources are required by statute to be used for designated activities, 

benefits, or purposes. In fiscal year 2013, the Department adopted SFFAS No. 43, Funds from Dedicated Collections: 

Amending SFFAS No. 27, Identifying and Reporting Earmarked Funds. Specifically, SFFAS No. 43 specifies the 

following criteria for purposes of designating funds as dedicated collections: (i) a statute committing the U.S. 

government to use specifically identified revenues and/or other financing sources that are originally provided to the U.S. 

government by a non-federal source only for designated activities, benefits, or purposes; (ii) explicit authority for the 

fund to retain revenues and/or other financing sources not used in the current period for future use to finance the 

designated activities, benefits, or purposes; (iii) a requirement to account for and report on the receipt, use, and retention 

of the revenues and/or other financing sources that distinguishes the fund from the U.S. government’s general revenues; 

and (iv) for funds comprised of both federal and non-federal sources, such funding is predominantly non-federal, or the

non-federal funding is material to the Department’s financial statements. See Note 24, Funds from Dedicated 

Collections, for further discussion of this change in accounting principle. 

Z. ALLOCATION TRANSFERS

The Department is a party to allocation transfers with other federal agencies as both a transferring (parent) entity and/or 

a receiving (child) entity. Allocation transfers are legal delegations by one department of its authority to obligate budget 

authority and outlay funds to another department. A separate fund account (allocation account) is created in the U.S. 

Treasury as a subset of the parent fund account for tracking and reporting purposes. All allocation transfers of balances 

are credited to this account, and subsequent obligations and outlays incurred by the child entity are charged to this 

allocation account as they execute the delegated activity on behalf of the parent. Parent federal agencies report both the 

proprietary and budgetary activity and the child agency does not report any financial activity related to budget authority 

allocated from the parent federal agency to the child federal agency. However, OMB guidance (Circular No. A-136, II.4.2, 

question 5, for three exceptions) requires the child to report the activity in certain situations.

The Department allocates funds, as the parent, to the Department of Energy. Also, the Department receives allocation 

transfers, as the child, from the Agency for International Development, Department of Health and Human Services,

Department of Transportation, Executive Office of the President, and General Services Administration. 

AA. FIDUCIARY ACTIVITIES

Fiduciary activities are the collection or receipt, and the management, protection, accounting, investment, and 

disposition by the U.S. government of cash or other assets in which non-Federal individuals or entities have an ownership 

interest that the U.S. government must uphold. Fiduciary cash and other assets are not assets of the U.S. government. 

These activities are not reported in the Department’s consolidated financial statements, but instead are reported in Note 

26. 

AB. RELATED PARTIES AND OTHER ENTITIES

The primary “related parties” with whom the Department conducts business are other federal agencies, mainly through 

the normal lending activities of the Fiscal Service and the FFB. These activities are disclosed in the consolidated financial 

statements. Additionally, the Secretary serves on the FHFA Oversight Board, and consults with the Director of FHFA on 

matters involving Fannie Mae and Freddie Mac. This provides the Department an advisory role in the FHFA’s actions as 

the conservator for Fannie Mae and Freddie Mac. The Department has no transactions with FHFA, but rather transacts 
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directly with the GSEs. The Department also utilizes the services of the FRBs to execute a variety of transactions on 

behalf of the Fiscal Service and the ESF. Due to the magnitude and variety of services provided, the following provides an 

overview of the FRBs’ purpose, governance, and the various services provided on behalf of the Department. 

Federal Reserve System

The Federal Reserve System (FR System) was created by Congress under the Federal Reserve Act of 1913. The FR System 

consists of the Federal Reserve Board of Governors (Board), the Federal Open Market Committee (FOMC), and the FRBs. 

Collectively, the FR System serves as the nation’s central bank and is responsible for formulating and conducting 

monetary policy, issuing and distributing currency (Federal Reserve Notes), supervising and regulating financial 

institutions, providing nationwide payments systems (including large-dollar transfers of funds, automated clearinghouse 

(ACH) operations, and check collection), providing certain financial services to federal agencies and fiscal principals, and 

serving as the U.S. government’s bank. Monetary policy includes actions undertaken by the FR System that influence the 

availability and cost of money and credit as a means of helping to promote national economic goals. The FR System also 

conducts operations in foreign markets in order to counter disorderly conditions in exchange markets or to meet other 

needs specified by the FOMC to carry out its central bank responsibilities. The FR System is not included in the federal

budget. It is considered an independent central bank, and its decisions are not ratified by the executive branch of the 

U.S. government. 

The Department interacts with the FRBs in a variety of ways, including the following:

• The FRBs serve as the Department’s fiscal agent and depositary, executing banking and other financial transactions

on the Department’s behalf. The Department reimburses the FRBs for these services, the cost of which is included 

on the Consolidated Statements of Net Costs

• The FRBs hold Treasury and other federal securities in the FRBs’ System Open Market Account (SOMA) for the 

purpose of conducting monetary policy (Note 16)

• The FRBs hold gold certificates issued by the Department in which the certificates are collateralized by gold (Note 6)

• The FRBs hold SDR certificates issued by the Department which are collateralized by SDRs (Notes 5 and 12)

• The FRBs are required by Board policy to transfer their excess earnings to the Department on behalf of the U.S. 

government (Notes 13 and 23) 

The Department also consults with the FR System on matters affecting the economy and certain financial stability 

activities (Notes 7). The above financial activities involving the Department are accounted for and disclosed in the 

Department’s consolidated financial statements. In accordance with SFFAC No. 2, Entity and Display, the FR Systems’ 

assets, liabilities, and operations are not consolidated into the Department’s financial statements. 

Federal Reserve System Structure 

The Board is an independent organization governed by seven members who are appointed by the President and 

confirmed by the Senate. The full term of a Board member is 14 years, and the appointments are staggered so that one 

term expires on January 31 of each even-numbered year. The Board has a number of supervisory and regulatory 

responsibilities for institutions including, among others, state-chartered banks that are members of the FR System, bank 

holding companies, and savings and loan holding companies. In addition, the Board has general supervisory 

responsibilities for the 12 FRBs, and issues currency (Federal Reserve Notes) to the FRBs for distribution. 

The FOMC is comprised of the seven Board members and five of the 12 FRB presidents, and is charged with formulating 

and conducting monetary policy primarily through open market operations (the purchase and sale of certain securities in 

the open market), the principal tool of national monetary policy. These operations affect the amount of reserve balances 

available to depository institutions, thereby influencing overall monetary and credit conditions. The 12 FRBs are 
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chartered under the Federal Reserve Act, which requires each member bank to own the capital stock of its FRB. 

Supervision and control of each FRB is exercised by a board of directors, of which three are appointed by the Board of 

Governors of the FR System, and six are elected by their member banks. 

The FRBs participate in formulating and conducting monetary policy, distribute currency and coin, and serve as fiscal

agents for the Department, other federal agencies and fiscal principals. Additionally, the FRBs provide short-term loans 

to depository institutions and loans to participants in programs or facilities with broad-based eligibility in unusual and 

crucial circumstances when approved by the Board. 

Federal Reserve System Assets and Liabilities

The FRBs hold Treasury and other securities in the SOMA for the purpose of conducting monetary policy. Treasury 

securities held by the FRBs totaled $1.9 trillion and $1.6 trillion at September 30, 2013 and 2012, respectively (Note 16). 

These assets are generally subject to the same market (principally interest-rate) and credit risks as other financial 

instruments. In the open market, the FR System purchases and sells Treasury securities as a mechanism for controlling 

the money supply. 

The FRBs have deposit liabilities with Treasury and depository institutions. The FRBs issue Federal Reserve Notes, the 

circulating currency of the United States, which are collateralized by the Treasury securities and other assets held by the 

FRBs. 

Financial and other information concerning the FR System, including financial statements for the Board and the FRBs, 

may be obtained at http://www.federalreserve.gov.

FRB Residual Earnings Transferred to the Department

FRBs generate income from interest earned on securities, reimbursable services provided to federal agencies, and the 

provision of priced services to depository institutions as specified by the Monetary Control Act of 1980. Although the 

FRBs generate earnings from carrying out open market operations, via the earnings on securities held in the SOMA 

account, their execution of these operations is for the purpose of accomplishing monetary policy rather than generating 

earnings. Each FRB is required by Board policy to transfer to the Department its residual (or excess) earnings after 

providing for the cost of operations, payment of dividends, and reservation of an amount necessary to equate surplus 

with paid-in capital. These residual earnings may vary due to, among other things, changes in the SOMA balance levels 

that may occur in conducting monetary policy. In the event of losses, or a substantial increase in capital, an FRB will 

suspend its payments to the U.S. Treasury until such losses or increases in capital are recovered through subsequent 

earnings. The FRB residual earnings of $75.8 billion and $82.0 billion for fiscal years ended September 30, 2013 and 

2012, respectively, are reported as custodial revenues on the Department’s Statements of Custodial Activity. They 

constituted 2.6 percent and 3.1 percent of the Department’s total custodial revenues collected in fiscal years 2013 and 

2012, respectively. “Taxes, Interest and Other Receivables, Net” includes a receivable for FRB’s residual earnings which 

represents the earnings due to the U.S. Treasury as of September 30, but not collected by the U.S. Treasury until after the 

end of the month (Note 13).
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2. FUND BALANCE

As of September 30, 2013 and 2012, Fund Balance consisted of the following (in millions):

2013 2012

Appropriated Funds $ 358,611 $ 315,690

Revolving Funds 7,016 26,698

Special Funds 1,403 976

Clearing Funds 503 681

Deposit Funds 115 163

Other Funds (principally Receipt, Suspense, and Trust Funds) 172 138

Total Fund Balance $ 367,820 $ 344,346

Appropriated funds consist of amounts appropriated annually by Congress to fund the operations of the Department. 

Revolving funds are used for continuing cycles of business-like activity in which the fund charges for the sale of products 

or services and uses the proceeds to finance its spending, usually without requirement for annual appropriations. A 

public enterprise revolving fund is an account that is authorized by law to be credited with offsetting collections from the 

public, and those monies are used to finance operations. Also included in revolving funds are the working capital fund 

and financing funds. The working capital fund is a fee-for-service fund established to support operations of components

within the Department. The financing funds relate to credit reform activities.

Special funds include funds designated for specific purposes, including the disbursement of non-entity monies received 

in connection with the Presidential Election Campaign. Clearing funds represent reconciling differences with the 

Department’s balances as reported in the U.S. government’s central accounts. These fund accounts temporarily hold 

unidentifiable general, special, or trust fund collections that belong to the U.S. government until they are classified to the 

proper receipt or expenditure account by the federal entity. Deposit funds are accounts that record amounts held 

temporarily by the U.S. government until ownership is determined, and include seized cash and other amounts received 

as an advance that are not accompanied by an order. 

STATUS OF FUND BALANCE

As of September 30, 2013 and 2012, the status of the fund balance consisted of the following (in millions):

2013 2012

Unobligated Balance – Available $ 294,009 $ 255,227

Unobligated Balance - Not Available 76,341 84,371

Unpaid Obligations 233,437 252,169

Subtotal 603,787 591,767

Adjustment for Borrowing Authority (103,333) (109,930)

Adjustment for ESF (101,777) (103,763)

Adjustment for IMF (28,197) (32,093)

Adjustment for Intra-Treasury Investments (8,334) (7,251)

Adjustment for Authority Unavailable for Obligations 3,790 3,706

Other Adjustments 1,884 1,910

Total Status of Fund Balance $ 367,820 $ 344,346

Portions of the Unobligated Balance Not Available, as shown on the Combined Statement of Budgetary Resources,

include amounts appropriated in prior fiscal years that are not available to fund new obligations. However, such amounts

may be used for upward and downward adjustments for existing obligations in future years. The Unpaid Obligations 

represent amounts designated for payment of goods and services ordered but not received, or goods and services received 

but for which payment has not yet been made. 
U.S. Department of the Treasury | Fiscal Year 2013

73

Since the following line items do not post to budgetary status accounts, the following adjustments are required to 

reconcile the budgetary status to the non-budgetary Fund Balance as reported on the Consolidated Balance Sheets:

• Adjustments for Borrowing Authority – Borrowing authority is in budgetary status but not in the Fund Balance

• Adjustments for ESF – ESF investments in Treasury securities (which are eliminated on the consolidated balance 

sheets), foreign investments, SDR holdings, and related balances that meet the criteria for reporting as part of 

budgetary resources are reported on the Statement of Budgetary Resources; however, they are not a component of 

the Fund Balance as they represent invested funds 

• Adjustments for IMF – The reserve position in the IMF, loans and interest receivable, and related balances that meet 

the criteria for reporting as part of budgetary resources are reported on the Combined Statement of Budgetary 

Resources; however, they are not a component of the Fund Balance as they represent other monetary assets

• Adjustments for Intra-Treasury Investments – Budgetary resources include Treasury security investments; however,

the money has been moved from the Fund Balance asset account to Investments, which is eliminated on the 

consolidated balance sheets

• Adjustment for Authority Unavailable for Obligations – Resources unavailable for obligations reduced the budgetary 

resources, however, they do not impact the Fund Balance

As of September 30, 2013 and 2012, the Department had no budgetary authority in the Fund Balance that was specifically 

withheld from apportionment by the OMB. The balances in non-entity funds, such as certain deposit funds (e.g., seized 

cash), are being held by the Department for the public or for another federal entity, such as the General Fund. Such 

funds have an offsetting liability equal to the Fund Balance. See Note 12 regarding restrictions related to the line of credit 

held on the U.S. quota in the IMF.
U.S. Department of the Treasury | Fiscal Year 2013

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3. LOANS AND INTEREST RECEIVABLE – INTRA-GOVERNMENTAL 

ENTITY INTRA-GOVERNMENTAL

The Department, through FFB, issues loans to federal agencies for the agencies’ own use or for the agencies to loan to 

private sector borrowers whose loans are guaranteed by the federal agencies. FFB is a wholly-owned Government 

corporation that operates under the general supervision of the Secretary, and has its own broad statutory authority to 

finance any obligations that are issued, sold, or guaranteed by federal agencies. For agencies that have the statutory 

authority to borrow in the market, but not from Treasury through the Fiscal Service (refer to the Non-Entity IntraGovernmental section below), FFB uses its statutory authority to make these loans directly to federal agencies. 

FFB also uses its statutory authority to finance direct or indirect federally guaranteed obligations which, as a matter of 

long-standing Federal credit policy, is the least expensive and most efficient method of financing these credit-risk 

obligations when compared to private sector lendor financing. When a federal agency has to honor its guarantee because 

a private sector borrower defaults, the federal agency that guaranteed the loan must obtain an appropriation or use other 

resources to repay the FFB. 

All principal and interest on FFB loans to federal agencies and private sector borrowers are, or have a commitment to be, 

backed by the full faith and credit of the U.S. government. The Department has not recognized any credit-related losses 

on its loans, nor has the Department recorded an allowance for uncollectible intra-governmental loans. 

As of September 30, 2013 and 2012, entity intra-governmental loans (issued by the FFB) and interest receivable consisted 

of the following (in millions):

Loans

Receivable

Interest

Receivable

2013

Total

Loans

Receivable

Interest

Receivable

2012

Total

Department of Agriculture $ 40,638 $ 22 $ 40,660 $ 37,750 $ 343 $ 38,093

United States Postal Service(1) 15,000 49 15,049 15,000 48 15,048

Department of Energy 14,034 52 14,086 12,171 35 12,206

General Services Administration 1,733 31 1,764 1,819 32 1,851

Department of Education 1,133 8 1,141 929 6 935

Other Agencies 86 - 86 194 1 195

Total Entity Intra-governmental $ 72,624 $ 162 $ 72,786 $ 67,863 $ 465 $ 68,328

(1) The United States Postal Service (USPS) experienced an operating deficit in both fiscal years 2013 and 2012. The Department, Congress, and 

other stakeholders are aware of the current and long-term financial issues of the USPS. Congress is considering legislative solutions for 

returning the USPS to financial stability. 
U.S. Department of the Treasury | Fiscal Year 2013

75

NON-ENTITY INTRA-GOVERNMENTAL 

The Department, through the Fiscal Service, accounts for and reports on the principal borrowings from and repayments 

to the General Fund for various funds managed by other federal agencies, as well as the related interest due to the 

General Fund. These federal agencies are statutorily authorized to borrow from the General Fund, through the Fiscal 

Service, to make loans for a broad range of purposes, such as education, housing, farming, and small business support. 

As of September 30, 2013 and 2012, non-entity intra-governmental loans (issued by the Fiscal Service) and interest 

receivable due to the General Fund consisted of the following (in millions):

Loans

Receivable

Interest

Receivable

2013

Total

Loans

Receivable

Interest 

Receivable

2012

Total

Department of Education $ 851,295 $ - $ 851,295 $ 714,368 $ - $ 714,368

Department of Agriculture 61,777 1 61,778 55,787 - 55,787

Department of Housing and Urban 

Development 26,079 - 26,079 11,567 - 11,567

Department of Homeland Security 24,076 - 24,076 18,073 - 18,073

Export-Import Bank of the U.S. 18,102 - 18,102 11,301 - 11,301

Small Business Administration 8,088 - 8,088 7,920 - 7,920

Department of Transportation 6,958 - 6,958 5,193 - 5,193

Department of Labor 6,027 - 6,027 6,065 - 6,065

National Credit Union Administration 4,725 2 4,727 3,200 2 3,202

Department of Energy 3,967 26 3,993 3,616 20 3,636

Railroad Retirement Board 3,587 42 3,629 3,402 44 3,446

Overseas Private Investment Corporation 2,293 - 2,293 2,241 - 2,241

Department of Defense 1,175 - 1,175 953 - 953

Other Agencies 2,553 - 2,553 2,224 - 2,224

Total Non-Entity Intra-

 governmental $ 1,020,702 $ 71 $ 1,020,773 $ 845,910 $ 66 $ 845,976

Total Intra-governmental Loans 

and Interest Receivable (Entity 

and Non-Entity) $ 1,093,326 $ 233 $ 1,093,559 $ 913,773 $ 531 $ 914,304
U.S. Department of the Treasury | Fiscal Year 2013

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

FUND

The General Fund consists of assets and liabilities used to finance the daily and long-term operations of the U.S 

Government, as a whole. It also includes accounts used in the management of the Budget of the U.S. government. 

General Fund assets, such as loans and interest receivable, cash, and investments in the GSEs, are held and managed by 

the Department on behalf of the U.S. government, and constitute resources available to meet the operating needs of the 

U.S. government. These Department-managed assets are separately reported on the Consolidated Balance Sheets, with a 

corresponding amount reported as Due To the General Fund that represents a liability to reflect assets owed by the 

Department to the General Fund. 

General Fund liabilities, primarily federal debt and liability for restoration of Federal Debt Principal and Interest, are 

obligations of the U.S. government. These Department-managed liabilities are separately reported on the Consolidated 

Balance Sheets, with a corresponding amount reported as Due From the General Fund that represents a receivable, or 

future funds required of the General Fund to repay borrowings from the public and other federal agencies. 

As of September 30, 2013 and 2012, the General Fund assets and liabilities had a negative net position of $15.7 trillion 

and $14.9 trillion, respectively. This negative net position represents the amount needed by the U.S. government, 

through a combination of future tax collections and/or continued borrowing from the public and federal agencies to meet 

its obligations.

As of September 30, 2013 and 2012, Due From the General Fund included the following non-entity assets (in millions):

Liabilities Requiring Funding from the General Fund 2013 2012

Federal Debt and Interest Payable – Held by the Public (Note 16) $ 12,003,030 $ 11,307,583

Federal Debt and Interest Payable - Intra-governmental (Note 16) 4,837,436 4,861,005

Liability for Restoration of Federal Debt Principal and Interest – Due to the Public 

 (Note 16) 120,356 -

Liability for Restoration of Federal Debt Principal and Interest - Intra- 

 governmental (Note 16) 128,272 -

Refunds Payable (Note 23) 2,914 3,255

Adjustment for Eliminated Liabilities 31,349 30,336

Total Due From the General Fund $ 17,123,357 $ 16,202,179

The Adjustment for Eliminated Liabilities principally represents investments in U.S. government securities held by the 

Department’s reporting entities that were eliminated against Federal Debt and Interest Payable Intra-governmental.
U.S. Department of the Treasury | Fiscal Year 2013

77

As of September 30, 2013 and 2012, Due To the General Fund included the following non-entity liabilities (in millions):

Assets to be Distributed to the General Fund 2013 2012

Fund Balance $ 434 $ 406

Loans and Interest Receivable - Intra-governmental (Note 3) 1,020,773 845,976

Advances to the Unemployment Trust Fund 29,696 32,932

Cash Due to the General Fund (Held by the Department) (Note 5) 82,865 79,245

Accounts Receivable - Intra-governmental 362 455

Foreign Currency 60 64

Custodial Gold without certificates and Silver held by the U.S. Mint 25 25

Investments in Government Sponsored Enterprises (Note 8) 140,221 109,342

Non-TARP Investments in American International Group, Inc. (Note 7) - 2,611

Credit Reform Downward Subsidy Re-estimates 8,213 10,444

Loans and Interest Receivable 88 94

Taxes and Other Non-Entity Receivables Due to General Fund 38,519 41,421

Adjustment for Eliminated Assets 96,167 134,737

Total Due To the General Fund $ 1,417,423 $ 1,257,752

The assets to be distributed to the General Fund do not represent all of the non-entity assets managed by the Department. See Note 15 

for all non-entity assets held by the Department. 

The Fund Balance reported above represents the non-entity funds held by the Department on behalf of the General Fund. 

It is used to administer programs such as the Presidential Election Campaign and payments for Legal Services 

Corporation and thus not available for general use by the Department. 

Advances have been issued from the General Fund to the DOL’s Unemployment Trust Fund to disburse to states for 

unemployment benefits. The Department transfers repayment of these advances to the General Fund.

The non-entity Credit Reform Downward Subsidy Re-estimates result from changes in forecasted future cash flows of the 

equity investments and direct loans under the Department’s TARP and non-TARP credit programs (See Note 1H and 1V). 

Taxes and Other Non-Entity Receivables Due to General Fund primarily represents IRS-related federal taxes receivable

(Note 13).

The Adjustment for Eliminated Assets principally represents loans and interest payable owed by the Treasury reporting 

entities, which were eliminated against Loans and Interest Receivable Intra-governmental held by the Fiscal Service.
U.S. Department of the Treasury | Fiscal Year 2013

78

5. CASH, FOREIGN CURRENCY, AND OTHER MONETARY ASSETS

Cash, Foreign Currency, and Other Monetary Assets held as of September 30, 2013 and 2012 were as follows (in 

millions):

2013 2012

Entity:

Cash $ 69 $ 75

Foreign Currency and Foreign Currency Denominated Assets 10,125 10,524

Other Monetary Assets:

 Special Drawing Right Holdings 54,972 55,240

 U.S. Dollars Held in Cash by the IMF 132 137

Total Entity 65,298 65,976

Non-Entity:

Operating Cash of the U.S. government 82,742 79,195

Foreign Currency 60 64

Miscellaneous Cash Held by All Treasury Reporting Entities 406 316

Total Non-Entity 83,208 79,575

Total Cash, Foreign Currency, and Other Monetary Assets $ 148,506 $ 145,551

Non-entity operating and other miscellaneous cash due to the General Fund which was held by the Department consisted 

of the following as of September 30, 2013 and 2012 (in millions):

2013 2012

Operating Cash - FRB Account $ 88,386 $ 85,446

Outstanding Checks (5,644) (6,251)

Total Operating Cash of the U.S. government 82,742 79,195

Miscellaneous Cash 192 128

Subtotal 82,934 79,323

Amounts Due to the Public (69) (78)

Total Cash Due to the General Fund (Note 4) $ 82,865 $ 79,245

ENTITY

Entity cash, foreign currency, and other monetary assets principally include foreign currency, foreign currency 

denominated assets (FCDAs), and SDRs. These assets are valued as of September 30, 2013 and 2012 using current 

exchange rates plus accrued interest. 

Foreign Currency Denominated Assets 

FCDA holdings are normally invested in interest-bearing securities issued by or held through foreign governments or 

monetary authorities. FCDA holdings include securities whereby the FRBNY, on behalf of the ESF, enters into 

transactions to purchase foreign-currency-denominated government-debt securities. These government-debt securities

are under agreements to resell for which the accepted collateral is the debt instruments, denominated in euros, and is 

issued or guaranteed in full by European governments. These agreements are subject to daily margining requirements. 

FCDAs with original maturities of three months or less, including securities purchased under agreement to resell, were 

valued at $10.1 billion and $10.5 billion as of September 30, 2013 and 2012, respectively. 

Special Drawing Rights

The SDR is an international reserve asset created by the IMF to supplement existing reserve assets. The IMF has 

allocated new SDRs on several occasions to members participating in the IMF’s SDR department. The SDR derives its 

value as a reserve asset essentially from the commitments of participants to hold and accept SDRs and to honor various 

obligations connected with their proper functioning as a reserve asset. Pursuant to the Special Drawing Rights Act of 
U.S. Department of the Treasury | Fiscal Year 2013

79

1968, as amended, the Department issued certificates to the Federal Reserve, valued at $5.2 billion which were reported 

as a liability on the Consolidated Balance Sheets as of September 30, 2013 and 2012. The certificates were issued to 

finance the ESF’s acquisition of SDRs from other countries or to provide U.S. dollar resources for financing other ESF 

operations. 

On a daily basis, the IMF calculates the value of the SDR using the market value in terms of the U.S. dollar from weighted 

amounts of each of four freely usable currencies, as defined by the IMF. These currencies are the U.S. dollar, the 

European euro, the Japanese yen, and the British pound sterling. The U.S. SDR holdings (assets resulting from various 

SDR-related activities including remuneration on the U.S. reserve position) and allocations from the IMF (liabilities of 

the United States coming due only in the event of a liquidation of, or United States withdrawal from, the SDR department 

of the IMF, or cancellation of SDRs) are revalued monthly based on the SDR valuation rate calculated by the IMF.

Pursuant to the IMF Articles of Agreement, SDR holdings and allocations acquired by the United States are permanent 

resources or liabilities unless:

• cancelled by the Board of Governors pursuant to an 85.0 percent majority decision of the total voting power of 

IMF members;

• the SDR department of the IMF is liquidated;

• the IMF is liquidated; or

• the United States chooses to withdraw from the IMF or terminate its participation in the SDR department

Except for the payment of interest and charges on SDR allocations to the United States, the payment of the U.S.

commitment related to SDR allocations is conditional on events listed above, in which the United States has a substantial 

or controlling voice. The United States has received no SDR allocations since 2009.

As of September 30, 2013 and 2012, the total amount of SDR holdings of the United States was the equivalent of $55.0

billion and $55.2 billion, respectively. As of September 30, 2013 and 2012, the total value of SDR allocations to the 

United States was the equivalent of $54.2 billion and $54.5 billion, respectively. 

NON-ENTITY

Non-entity cash, foreign currency, and other monetary assets principally include the Operating Cash of the U.S. 

government which is managed by the Department. Also included is foreign currency maintained by various U.S. 

disbursing offices, miscellaneous cash such as seized monetary instruments, undistributed cash, and offers in 

compromises which are maintained as a result of the Department’s tax collecting responsibilities. 

The Operating Cash of the U.S. government represents balances from tax collections, other revenues, federal debt 

receipts, and other receipts, net of checks outstanding, which are held in the FRBNY. Operating Cash of the U.S. 

government is either insured by the Federal Deposit Insurance Corporation (for balances up to $250,000 as of 

September 30, 2013 and 2012), or collateralized by securities pledged by the depository institutions and held by the FRB. 
U.S. Department of the Treasury | Fiscal Year 2013

80

6. GOLD AND SILVER RESERVES, AND GOLD CERTIFICATES 

ISSUED TO THE FEDERAL RESERVE BANKS

The Department, through the Mint, is responsible for safeguarding most of the U.S. government’s gold and all of the 

silver reserves in accordance with 31 USC §5117; a smaller portion of the gold is in the custody of the FRBs. 

The gold reserves being held by the Department are partially offset by a liability for gold certificates issued by the 

Secretary to the FRBNY at the statutory rate, as provided in 31 USC §5117. Since 1934, Gold Certificates have been issued 

in non-definitive or book-entry form to the FRBNY. The Department’s liability incurred by issuing the Gold Certificates, 

as reported on the Consolidated Balance Sheets, is limited to the gold being held by the Department at the statutory 

value. Upon issuance of Gold Certificates to the FRBNY, the proceeds from the certificates are deposited into the 

operating cash of the U.S. government. All of the Department’s certificates issued are payable to the FRBNY. The Mint 

also holds 100,000 fine troy ounces (FTO) ($4 million at the statutory carrying value) of gold reserves without 

certificates. 

The gold and silver bullion reserve (deep storage and working stock) are reported on the consolidated financial 

statements at the values stated in 31 USC § 5116 – 5117 (statutory rates) which are $42.2222 per FTO of gold and no less 

than $1.292929292 per FTO of silver. Accordingly, the silver is valued at $1.292929292 per FTO. The market values of 

the gold and silver reserves disclosed below are based on the London Gold Fixing. As of September 30, 2013 and 2012, 

the values of gold and silver reserves consisted of the following:

FTOs

Statutory 

Rate

2013

Statutory

Carrying

Value

(in millions)

Market

Rate Per

FTO

2013

Market 

Value

(in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,326.50 $ 329,033

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,326.50 17,845

Total Gold 261,498,927 11,041 346,878

Silver 16,000,000 $ 1.2929 21 $ 21.68 347

Total Gold and Silver Reserves $ 11,062 $ 347,225

FTOs

Statutory 

Rate

2012

Statutory

Carrying

Value

(in millions)

Market

Rate Per

FTO

2012

Market 

Value

(in millions)

Gold 248,046,116 $ 42.2222 $ 10,473 $ 1,776.00 $ 440,530

Gold Held by Federal Reserve Banks 13,452,811 $ 42.2222 568 $ 1,776.00 23,892

Total Gold 261,498,927 11,041 464,422

Silver 16,000,000 $ 1.2929 21 $ 34.65 554

Total Gold and Silver Reserves $ 11,062 $ 464,976
U.S. Department of the Treasury | Fiscal Year 2013

81

7. TROUBLED ASSET RELIEF PROGRAM – CREDIT PROGRAM 

RECEIVABLES, NET

The Department administers a number of programs designed to help stabilize the financial system and restore the flow of 

credit to consumers and businesses. Through TARP, the Department made direct loans, equity investments, and entered 

into other credit programs. TARP’s authority to make new commitments to purchase or guarantee troubled assets 

expired in October 2010. The table below displays the assets held as of September 30, 2013 and 2012, by the 

observability of inputs significant to the measurement of each value (in millions):

Program

Quoted 

Prices for 

Identical 

Assets(1)

Significant 

Observable 

Inputs(2)

Significant 

Unobservable 

Inputs(3)

2013

Total

Capital Purchase Program $ 125 $ - $ 1,668 $ 1,793

Automotive Industry Financing Program 3,647 11,950 - 15,597

Public-Private Investment Program - - 10 10

Other Programs (TALF and CDCI) 18 - 451 469

Total TARP Programs $ 3,790 $ 11,950 $ 2,129 $ 17,869

(1) Measurement is based on direct market quotes for the specific asset, e.g. quoted prices of common stock.

(2) Measurement is primarily derived from market observable data, other than a direct market quote, for the asset. This data could be market

 quotes for similar assets for the same entity.

(3) Measurement is primarily derived from inputs which generally represent management’s best estimate of how a market participant would 

 assess the risk inherent in the asset. These unobservable inputs are used because there is little to no direct market activity.

Program

Quoted 

Prices for 

Identical 

Assets(1)

Significant 

Observable 

Inputs(2)

Significant 

Unobservable 

Inputs(3)

2012

Total

Capital Purchase Program $ 327 $ - $ 5,407 $ 5,734

American International Group, Inc. Investment Program(4) 5,067 - 2 5,069

Automotive Industry Financing Program 11,376 - 6,170 17,546

Public-Private Investment Program - - 10,778 10,778

Other Programs (TALF and CDCI) 9 - 1,095 1,104

Asset Guarantee Program(5) - 967 - 967

Total TARP Programs $ 16,779 $ 967 $ 23,452 $ 41,198

See table above for explanations to (1), (2), and (3).

(4) Non-TARP investments in AIG totaling $2.6 billion as of September 30, 2012 are not included in this amount and reported separately on the 

 Consolidated Balance Sheets as Non-TARP Investments in American International Group, Inc. These investments were sold in fiscal year 2013.

(5) Of the combined TARP Program totaling $41.2 billion as of September 30, 2012, $967 million represented other intra-governmental assets and 

 $40.2 billion represented assets with the public as reported on the Consolidated Balance Sheets.

DIRECT LOAN AND EQUITY INVESTMENT PROGRAMS

Capital Purchase Program

TARP implemented the Capital Purchase Program (CPP) in fiscal year 2009 which was designed to help stabilize the 

financial system by assisting in building the capital base of certain viable U.S. financial institutions to increase the 

capacity of those institutions to lend to businesses and consumers and support the economy. Under this program, the 

Department invested a total of $204.9 billion and purchased senior perpetual preferred stock and subordinate 

debentures from qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding 

companies (Qualified Financial Institution or QFI). The senior preferred stock has a stated dividend rate ranging from 

5.0 percent to 9.0 percent. The dividends are cumulative for bank holding companies and non-cumulative for others; 

they are payable when and if declared by the institution’s board of directors. QFIs that are Sub-chapter S corporations

(public and non-public) issued subordinated debentures that have a maturity of generally 30 years, and interest rates 

ranging from 7.7 percent to 13.8 percent. 

In addition to the senior preferred stock, the Department received warrants, with a ten-year term, from public QFIs to 

purchase a number of shares of common stock. Additionally, the Department exercised warrants received from non-
U.S. Department of the Treasury | Fiscal Year 2013

82

public QFIs resulting in additional holdings of senior preferred stock (or subordinated debentures as appropriate) of nonpublic QFIs. 

In fiscal years 2013 and 2012, repayments and sales of CPP investments totaled $4.8 billion and $8.2 billion, respectively. 

Of these CPP investment repayments and sales in fiscal years 2013 and 2012, net proceeds of $1.5 billion and $1.3 billion, 

respectively, resulted from auction sales from the Department’s decision in fiscal year 2012 to sell certain CPP 

investments to the public in auction sales. Total CPP repayments and sales resulted in net proceeds less than cost of 

$493 million and $285 million in fiscal year 2013 and 2012, respectively. The initial auction sales were not considered in 

the formulation estimate for the CPP program and, as such, a modification was recorded, increasing the cost of the 

program by $973 million in fiscal year 2012. 

The estimated value of the CPP preferred equity investments is based on the net present values of the expected dividend 

payments and proceeds from repurchases and sales. The model assumes a probabilistic evolution of each institution’s 

asset-to-liability ratio (based on the estimated fair value of the institution’s assets against its liabilities). Historical 

volatility is used to scale the likely evolution of each institution’s asset-to-liability ratio. Inputs to the model include 

institution specific accounting data obtained from regulatory filings, an institution’s stock price volatility, historical bank 

failure information, as well as market prices of comparable securities trading in the market. The market risk adjustment 

is obtained through a calibration process to the market value of certain trading securities of financial institutions within 

the TARP programs or other comparable financial institutions. The Department estimates the values and projects the 

cash flows of warrants using an option-pricing approach based on the current stock price and its volatility. Investments 

in common stock which are exchange traded are valued at the quoted market price as of fiscal year end.

American International Group, Inc. Investment Program

The Department provided assistance to systemically significant financial institutions on a case by case basis to provide 

stability to those institutions and protect the economy from being adversely affected by the failure of these firms. In fiscal 

year 2009, the Department invested $40.0 billion in AIG in the form of AIG’s cumulative 10.0 percent Series D preferred 

stock. Additionally, the Department made available to AIG an equity capital facility under which AIG drew $27.8 billion, 

and the Department received additional AIG preferred stock. By January 2011, the Department (in combination with 

AIG and the FRBNY) had restructured the AIG investments into a $20.3 billion interest in AIG SPVs, and 1.1 billion 

shares of AIG common stock. Additionally, the credit facility between FRBNY and AIG was terminated, and the 

Department on behalf of the General Fund separately received 563 million shares of AIG common stock at no cost, 

reported separately on the Consolidated Balance Sheets as Non-TARP Investments in AIG. Upon completion of the 

restructuring, the Department (including TARP) held a combined total of 1.7 billion shares of AIG common stock, or 92.1 

percent of AIG’s common stock equity. 

During fiscal years 2011 and 2012, the Department received a total of $21.1 billion in distributions from the AIG SPVs,

fully repaying the $20.3 billion original investment balance and $204 million of capitalized dividend income, of which 

$9.6 billion and $11.5 billion were received in fiscal years 2012 and 2011, respectively. The Department recorded 

proceeds in excess of cost of $127 million in fiscal year 2012 (none in 2011), along with investment income of $191 million 

and $246 million in fiscal years 2012 and 2011, respectively.

Between fiscal years 2011 and 2013, the Department sold all of its 1.7 billion AIG common shares held by the General 

Fund and TARP together, on a pro-rata basis, in the open market. In fiscal year 2011, the Department sold in the open 

market 200 million shares of AIG common stock held by the General Fund and TARP (68 million and 132 million shares, 

respectively) for total gross cash proceeds of $5.8 billion, of which the General Fund and TARP received $2.0 billion and 

$3.8 billion, respectively. Sales continued in fiscal year 2012 in which the Department sold an additional 1.2 billion 
U.S. Department of the Treasury | Fiscal Year 2013

83

shares of AIG common stock held by the General Fund and TARP (415 million and 806 million shares, respectively) for

total gross cash proceeds of $38.2 billion, of which the General Fund and TARP received $13.0 billion and $25.2 billion, 

respectively. During fiscal year 2013, the Department sold the remaining 234 million shares of AIG common stock held 

by the General Fund and TARP (80 million and 154 million shares, respectively) for total gross cash proceeds of $7.6

billion, of which the General Fund and TARP received $2.6 billion and $5.0 billion, respectively. For the TARP shares 

sold in fiscal years 2013, 2012 and 2011, the proceeds were less than the Department’s cost by $1.7 billion, $9.9 billion

and $1.9 billion, respectively. 

As of September 30, 2013, the Department no longer held any ownership interest in AIG. The remaining 234 million 

shares of AIG common stock held by the Department (including TARP) as of September 30, 2012 constituted 15.9 percent 

of AIG’s total outstanding common shares. These common shares held had a fair value which approximated their 

carrying value totaling approximately $7.7 billion at September 30, 2012, of which $2.6 billion and $5.1 billion related to 

the General Fund and TARP, respectively. The fair value of the AIG common stock was based on the New York Stock 

Exchange (NYSE) quoted market price as of September 30, 2012. 

During fiscal year 2013, the carrying value of the AIG investments held on behalf of the General Fund declined by $2.6 

billion from the end of the prior fiscal year due to the sale of the remaining AIG common stock for $2.588 billion which 

resulted in a $23 million loss from the final sale. The September 30, 2012 carrying value of these investments had 

declined by $8.3 billion from September 30, 2011 due to sales of $13.0 billion during fiscal year 2012, partially offset by a 

fair value gain of $4.7 billion on the remaining existing portfolio as of September 30, 2012. Accordingly, the carrying 

value of the AIG common stock investment was adjusted by these amounts, and a corresponding amount was reported as 

custodial expense on the Statements of Custodial Activity.

Automotive Industry Financing Program

The Automotive Industry Financing Program (AIFP) was designed to help prevent a significant disruption of the 

American automotive industry, which could have had a negative effect on the economy of the United States. 

General Motors Company and General Motors Corporation

In fiscal year 2009, the Department provided $51.0 billion to General Motors Corporation (Old GM) through various loan 

agreements while Old GM was in bankruptcy. During fiscal year 2009, General Motors Company (New GM) was created 

and, through various sales and restructurings of its investment, the Department held 500 million shares of New GM

common stock, or 31.9 percent of New GM’s total outstanding common shares, as of September 30, 2012. During fiscal 

year 2013, the Department sold 399 million shares of the New GM common stock for $12.0 billion, which resulted in net 

proceeds less than cost of $5.4 billion. There were no sales of common stock during fiscal year 2012. As of September 

30, 2013, the Department held 101 million shares of New GM common stock, or 7.3 percent of New GM’s total 

outstanding common shares. The fair value of the New GM common shares held as of September 30, 2013 and 2012 was

$3.6 billion and $11.4 billion, respectively, based on the NYSE quoted market price, plus the value of any traded but not 

settled shares. Traded but not settled shares were valued based on the actual trade proceeds. 

Ally Financial Inc. (formerly known as GMAC Inc.)

The Department invested a total of $16.3 billion in GMAC Inc. between December 2008 and December 2009 to help 

support its ability to originate new loans to GM and Chrysler dealers and consumers, and to help address GMAC’s capital 

needs. In 2010, GMAC changed its corporate name to Ally Financial, Inc. (Ally). As a result of original investments, 

exchanges, conversions and warrant exercises, the Department held 981,971 shares of Ally common stock, representing 

73.8 percent of Ally’s outstanding common stock, as of September 30, 2013 and 2012. The Department also held 119 

million shares of Ally Series F-2 Mandatorily Convertible Preferred Securities (Series F-2), with a stated dividend rate of 
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9.0 percent, which were convertible into at least 513,000 shares of Ally common stock. In both fiscal years 2013 and 

2012, the Department received $534 million in dividends from Ally. The fair value of the Ally investments held was $12.0

billion and $6.2 billion at September 30, 2013 and 2012, respectively.

Per an August 2013 agreement, Ally repurchased all of the Series F-2 from the Department for $5.2 billion in November 

2013. The Department received an additional $725 million for the elimination of certain rights under the original 

agreement. This August 2013 agreement also included terms for Ally to issue a November 2013 private offering of new 

common stock at a price of $6,000 per share. To value the holdings in Ally at September 30, 2013, the Department 

considered observable market data from the November 2013 transactions pursuant to the August 2013 agreement. 

Proceeds and dividends received in November 2013 were discounted to September 30, 2013, at a risk-free discount rate 

to reflect the timing of the expected cash flows. The Department’s remaining investment in Ally, consisting of 981,971 

shares of common stock, representing 63.4 percent of Ally’s outstanding common stock, was valued at the price per share 

in Ally’s private offering.

Investments in Ally’s common equity and mandatorily convertible preferred stock were valued on an “if-converted” basis

at September 30, 2012, and the Department used an average of valuation multiples such as price-to-earnings, price-totangible book value, and asset manager valuations to estimate the value of the shares. The multiples were based on those 

of comparable publicly-traded entities. The adjustment for market risk was incorporated in the data points the 

Department uses to determine the measurement for Ally as all points relied on market data.

Public-Private Investment Program

The Public-Private Investment Program (PPIP) was part of the Department’s efforts to help restart the financial securities 

market and provide liquidity for legacy securities. Under this program, the Department (as a limited partner) made 

equity investments in and loans to nine investment vehicles (referred to as Public-Private Investment Funds or “PPIFs”) 

established by private investment managers between September and December 2009. The equity investments were used 

to match private capital and equaled 49.9 percent of the total equity invested. 

During fiscal year 2013, all of the remaining PPIFs fully liquidated their portfolios and repaid investors, including the 

Department. At September 30, 2013, the Department had no PPIF equity investments or loans outstanding. At 

September 30, 2012, the Department had investments in six PPIFs which included $4.1 billion of equity investments

outstanding and $5.7 billion of loans outstanding, for an aggregate total of $9.8 billion. At September 30, 2012, the fair 

value of these loans outstanding was $10.8 billion. These portfolios were comprised of 74.0 percent non-agency 

residential mortgage-backed securities (RMBS) and 26.0 percent commercial mortgage-backed securities (CMBS). The 

Department made no disbursements to the PPIFs during fiscal year 2013, compared to fiscal year 2012 in which the 

Department disbursed $245 million as equity investments and $803 million as loans to the PPIFs. In both fiscal years 

2013 and 2012, the Department received $5.7 billion in loan principal and interest repayments from the PPIFs. Also 

during fiscal year 2013, the Department received $5.5 billion in equity distributions, comprised of $254 million of 

investment income, $1.2 billion of net proceeds in excess of cost, and $4.1 billion reduction of the gross investment 

outstanding. In fiscal year 2012, the Department received $3.2 billion in equity distributions, comprised of $1.3 billion of 

investment income, $223 million of net proceeds in excess of cost, and $1.7 billion reduction of the gross investment 

outstanding. 

The $10 million positive subsidy allowance at September 30, 2013 represents additional proceeds expected upon final 

liquidation of remaining partnerships at the net present value. As of September 30, 2013, the Department had legal 

commitments to disburse up to $984 million in additional equity to PPIFs which will remain until all distributions have 

been received from PPIFs and all PPIF liabilities have been settled. 
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For the valuation at September 30, 2012, the Department estimated cash flows to the PPIFs by simulating the 

performance of the collateral supporting the assets held by the PPIF. Inputs used to simulate the cash flows, which 

considered market risks, included unemployment forecasts, home price appreciation/depreciation forecasts, the current 

term structure of interest rates, historical pool performance, and estimates of the net income and value of commercial 

real estate supporting the CMBS. The simulated cash flows were then run through a financial model that defined

distributions of the RMBS/CMBS to determine the estimated cash flows to the PPIF. 

Other Direct Loan and Equity Investment Programs

The Department initiated other programs intended to help unlock the flow of credit to consumers and small businesses. 

The following programs were established to help accomplish this: the Term Asset-Backed Securities Loan Facility (TALF) 

and the Community Development Capital Initiative (CDCI). Each program is discussed in more detail below and 

included in the “Other Programs” column of the table within this note.

Term Asset-Backed Securities Loan Facility

The TALF was created by the FRB to provide low-cost funding to investors in certain classes of Asset Backed Securities 

(ABS). The Department agreed to participate in the program by providing liquidity and credit protection to the FRB. 

Under the TALF, the FRBNY, as implementer of the TALF program, originated loans on a non-recourse basis to 

purchasers of certain AAA rated ABS secured by consumer and commercial loans and CMBS. The FRBNY ceased issuing 

new loans in 2010. Approximately $101 million and $1.5 billion of loans due to the FRBNY remained outstanding as of 

September 30, 2013 and 2012, respectively.

As part of the program, the FRBNY created the TALF, Limited Liability Corporation (LLC), an SPV that agreed to 

purchase from the FRBNY any collateral it has seized due to borrower default. Upon its creation, the Department 

disbursed a $100 million loan to fund the facility. The TALF, LLC would fund purchases from the accumulation of 

monthly fees paid by FRBNY as compensation for the agreement. Only if the TALF, LLC had insufficient funds to 

purchase the collateral did the Department commit to invest up to $20.0 billion in non-recourse subordinated notes 

issued by the TALF, LLC. This commitment amount has been reduced periodically since 2010, and was terminated in 

fiscal year 2013. In fiscal year 2013, a modification to the terms of the legal agreement resulted in $55 million is subsidy 

income for the program. The modification allowed the Department to receive $100 million in repayments, $13 million in 

interest and $570 million of contingent interest, recorded as proceeds in excess of cost, in fiscal year 2013 rather than in 

fiscal year 2015 as originally expected. As of September 30, 2013 and 2012, no TALF loans were in default and 

consequently no collateral was purchased by the TALF, LLC. 

In valuing the TALF loan, the Department model derives the cash flows to the SPV, and ultimately to the Department, by 

simulating the performance of underlying collateral. Loss probabilities on the underlying collateral are calculated based 

on analysis of historical loan loss and charge-off experience by credit sector and subsector. Impaired TALF-eligible 

securities are projected to be purchased by the SPV, which could require additional Department funding. Simulation 

outcomes consisting of a range of loss scenarios are probability-weighted to generate the expected net present value of 

future cash flows. 

Community Development Capital Initiative

In fiscal year 2010, the CDCI was created to provide additional low cost capital in Community Development Financial 

Institutions (CDFIs) to encourage more lending to small businesses. Under the terms of the program, the Department 

purchased senior preferred stock (or subordinated debt) from eligible CDFIs with an initial dividend rate of 2.0 percent 

that will increase to 9.0 percent after eight years. The Department invested a total of $570 million in 84 institutions 
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under the CDCI. In fiscal years 2013 and 2012, the Department received $86 million and $3 million in repayments, 

respectively. The Department values the CDCI preferred stock investments in a manner broadly analogous to the 

methodology used to value the preferred stock securities within the CPP program. 

OTHER CREDIT PROGRAMS

Asset Guarantee Program

The Asset Guarantee Program (AGP) provided guarantees for assets held by systemically significant financial institutions 

that faced a risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. Section 102 of 

the EESA required the Secretary to establish the AGP to guarantee troubled assets originated or issued prior to March 14, 

2008, including MBS. 

In January 2009, the Department entered into a guarantee agreement with Citigroup under which the Department’s 

protection was limited to $5.0 billion. The Department, Federal Deposit Insurance Corporation (FDIC), and the FRBNY 

provided protection against the possibility of large losses on a Citigroup asset pool of approximately $301.0 billion of 

loans and securities backed by residential and commercial real estate and other such assets. In fiscal year 2010, this 

guarantee agreement was terminated and, accordingly, FDIC agreed to transfer to the Department $800 million of 

Citigroup trust preferred securities (TruPS) holdings plus dividends by December 31, 2012, reduced by any losses FDIC 

incurred on its Citigroup guaranteed debt. The Department recorded a TruPS-related receivable from the FDIC valued at 

$967 million at September 30, 2012. The Department sold this investment in fiscal year 2013 for $894 million. During 

fiscal year 2013, the Department also received $200 million of dividends on the TruPS. A downward modification of $94 

million and a closing downward re-estimate of $24 million were recorded in fiscal year 2013. The Department valued the 

AGP preferred stock investments in a manner broadly analogous to the methodology used to value the preferred stock 

securities within the CPP program. As of September 30, 2013, the Department held no remaining holding in the AGP 

program.

FHA-Refinance Program

In fiscal year 2010, the Department entered into a loss-sharing agreement with the FHA to support a program in which 

FHA guarantees refinancing of borrowers whose homes are worth less than the remaining amounts owed under their 

mortgage loans. The Department established a $50 million account, held by a commercial bank as its agent, from which 

any required reimbursements for losses will be paid to third-party claimants, including banks or other investors. FHA 

disbursed $182 million and $234 million of loans during fiscal year 2013 and 2012, respectively. At September 30, 2013 

and 2012, 3,015 and 1,774 loans that FHA had guaranteed with a total value of $489 million and $307 million, 

respectively, had been refinanced under the program. At September 30, 2013 and 2012, the Department’s maximum 

exposure related to the FHA guarantee totaled $59 million and $41 million, respectively. The Department’s guarantee 

resulted in the Department incurring a $9 million and $7 million liability as of September 30, 2013 and 2012, 

respectively, that was reported in Other Liabilities on the Consolidated Balance Sheets. 

Based on credit reform accounting, the liability was derived as the present value of the future cash outflows for the 

Department’s share of losses incurred on any defaults of the disbursed loans. The budget subsidy rates for the program, 

entirely for defaults, excluding modifications and re-estimates, were set at 2.5 percent and 4.0 percent for loans

guaranteed in fiscal years 2013 and 2012, respectively. As of September 30, 2013 and 2012, the Department recorded 

subsidy cost of $5 million and $9 million, respectively, for projected losses due to defaults. The program recorded a $3 

million downward re-estimate for the year ended September 30, 2013 and 2012, due to a reduction in market risks and 

lower than projected defaults. 
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SUMMARY TABLES

The following tables provide the net composition, subsidy cost, modifications and re-estimates, a reconciliation of 

subsidy cost allowances, and subsidy by component for each TARP direct loan, equity investment or other credit 

programs for the fiscal years ended September 30, 2013 and 2012. There were no budget subsidy rates for fiscal year 

2013 and 2012, except for the FHA- Refinance Program as previously disclosed in this note. All of the disbursements in 

fiscal year 2012, were from loans or investments obligated in prior years.
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Troubled Asset Relief Program Direct Loans and Equity Investments

As of September 30, 2013 (in millions) CPP AIG AIFP PPIP

Other 

Programs 2013

Direct Loans and Equity Investment Programs:

Direct Loans and Equity Investment Outstanding, Gross $ 3,143 $ - $ 19,878 $ - $ 475 $ 23,496

Subsidy Cost Allowance (1,350) - (4,281) 10 (6) (5,627)

Direct Loans and Equity Investments

 Outstanding, Net $ 1,793 $ - $ 15,597 $ 10 $ 469 $ 17,869

Obligations for Loans and Investments Not Yet 

 Disbursed $ - $ - $ - $ 984 $ - $ 984

Reconciliation of Subsidy Cost Allowance: 

Balance, Beginning of Period $ 2,930 $ 1,658 $ 19,706 $ (1,015) $ (437) $ 22,842

 Subsidy Income for Modifications - - - - (55) (55)

 Interest and Dividend Revenue 262 - 534 271 25 1,092

 Net Proceeds from Sales and Repurchases of Assets in

 Excess of (Less than) Cost (493) (1,679) (5,361) 1,173 570 (5,790)

 Write-Offs (104) - - - (7) (111)

 Net Interest Income (Expense) on Borrowings from

 the Fiscal Service and Financing Account Balance (105) (11) (412) (59) (25) (612)

Balance, End of Period, Before Re-estimates 2,490 (32) 14,467 370 71 17,366

 Subsidy Re-estimates (1,140) 32 (10,186) (380) (65) (11,739)

Balance, End of Period $ 1,350 $ - $ 4,281 $ (10) $ 6 $ 5,627

Reconciliation of Subsidy Cost: 

 Subsidy Cost for Modifications $ - $ - $ - $ - $ (55) $ (55)

 Subsidy Re-estimates (1,140) 32 (10,186) (380) (65) (11,739)

Total Direct Loans and Equity Investment 

 Programs Subsidy Cost (Income) $ (1,140) $ 32 $ (10,186) $ (380) $ (120) $ (11,794)

As of September 30, 2012 (in millions) CPP AIG AIFP PPIP

Other 

Programs 2012

Direct Loans and Equity Investment Programs: 

Direct Loans and Equity Investment Outstanding, Gross $ 8,664 $ 6,727 $ 37,252 $ 9,763 $ 667 $ 63,073

Subsidy Cost Allowance (2,930) (1,658) (19,706) 1,015 437 (22,842)

Direct Loans and Equity Investments 

 Outstanding, Net $ 5,734 $ 5,069 $ 17,546 $ 10,778 $ 1,104 $ 40,231

New Loans or Investments Disbursed $ - $ - $ - $ 1,048 $ - $ 1,048

Obligations for Loans and Investments Not Yet 

 Disbursed $ - $ - $ - $ 3,058 $ 1,300 $ 4,358

Reconciliation of Subsidy Cost Allowance: 

Balance, Beginning of Period $ 4,857 $ 20,717 $ 19,440 $ (2,434) $ (279) $ 42,301

 Subsidy Cost (Income) for Disbursements and 

 Modifications 973 - - (31) - 942

 Interest and Dividend Revenue 572 191 534 1,426 10 2,733

 Net Proceeds from Sales and Repurchases of Assets in 

 Excess of (Less than) Cost (285) (9,735) 9 223 - (9,788)

 Net Interest Income (Expense) on Borrowings from 

 the Fiscal Service and Financing Account Balance (290) (349) (507) (439) (41) (1,626)

Balance, End of Period, Before Re-estimates 5,827 10,824 19,476 (1,255) (310) 34,562

 Subsidy Re-estimates (2,897) (9,166) 230 240 (127) (11,720)

Balance, End of Period $ 2,930 $ 1,658 $ 19,706 $ (1,015) $ (437) $ 22,842

Reconciliation of Subsidy Cost: 

 Subsidy Cost for Disbursements $ - $ - $ - $ (31) $ - $ (31)

 Subsidy Cost for Modifications 973 - - - - 973

 Subsidy Re-estimates (2,897) (9,166) 230 240 (127) (11,720)

Total Direct Loans and Equity Investment 

 Programs Subsidy Cost (Income) $ (1,924) $ (9,166) $ 230 $ 209 $ (127) $ (10,778)
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Troubled Asset Relief Program Asset Guarantee Program

As of September 30, 2013 and 2012

(in millions)

2013 2012

Asset Guarantee Program $ - $ 967

Reconciliation of Asset Guarantee Program:

Balance, Beginning of Period $ (967) $ (739)

 Subsidy Income for Modification (94) -

 Dividend Revenue 200 -

 Net Proceeds from Sale of Assets in Excess of cost 894 -

 Net Interest Expense on Borrowings from the Fiscal Service (9) (21)

Balance, End of Period, Before Re-estimate 24 (760)

 Subsidy Re-estimate (24) (207)

Balance, End of Period $ - $ (967)

Reconciliation of Subsidy Income:

Subsidy Income for Modification $ (94) $ -

Subsidy Re-estimates (24) (207)

Total Subsidy Income $ (118) $ (207)

HOUSING PROGRAMS UNDER TARP

Housing programs under TARP are designed to provide stability for both the housing market and homeowners. These 

programs assist homeowners who are experiencing financial hardships to remain in their homes until their financial 

position improves or they relocate to a more sustainable living situation. As of September 30, 2013 and 2012, the 

Department had committed up to $38.5 billion and $45.6 billion, respectively, for these programs. For fiscal year 2013

and 2012, payments made on behalf of the housing programs under TARP totaled $3.9 billion and $3.1 billion, 

respectively. 
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8. INVESTMENTS IN GOVERNMENT SPONSORED ENTERPRISES

Congress established Fannie Mae and Freddie Mac as GSEs to support the supply of mortgage loans. A key function of 

the GSEs is to package purchased mortgages into securities, which are subsequently sold to investors.

Leading up to the financial crisis, increasingly difficult conditions in the housing market challenged the soundness and 

profitability of the GSEs, thereby undermining the entire housing market. This led Congress to pass the Housing and 

Economic Recovery Act (HERA) (P.L. 110-289) in July 2008. This act created FHFA, with enhanced regulatory authority 

over the GSEs, and provided the Secretary with certain authorities intended to ensure the financial stability of the GSEs,

if necessary. In September 2008, FHFA placed the GSEs under conservatorship, and the Department entered into a 

Senior Preferred Stock Purchase Agreement (SPSPA) with each GSE. These actions were taken to preserve the GSEs’ 

assets, ensure a sound and solvent financial condition, and mitigate systemic risks that contributed to current market 

instability. The SPSPAs were amended in August 2012 (the amended SPSPAs) which changed, among other things, the 

basis for determining quarterly dividends that are paid by the GSEs to the U.S. government. The dividend change in the 

amended SPSPAs became operationally effective commencing with the quarter ending March 31, 2013.

The actions taken by the Department are intended to provide financial stability. The purpose of the Department’s actions 

is to maintain the solvency of the GSEs so they can continue to fulfill their vital roles in the home mortgage market while 

the Administration and Congress determine what structural changes should be made. The FHFA director may terminate 

the conservatorship if safe and solvent conditions can be established. Draws under the SPSPAs result in an increased 

investment in the GSEs as further discussed below.

Under the SPSPAs, the Department initially received from each GSE: (i) 1,000,000 shares of non-voting variable 

liquidation preference senior preferred stock with a liquidation preference value of $1,000 per share, and (ii) a nontransferrable warrant for the purchase, at a nominal cost, of 79.9 percent of common stock on a fully-diluted basis. The 

warrants expire on September 7, 2028. Through December 31, 2012, the senior preferred stock accrued dividends at 10.0 

percent per year, payable quarterly. Under the amended SPSPAs, the quarterly dividend payment changed from a 10.0 

percent per annum fixed rate dividend to an amount equivalent to the GSE’s positive net worth above a capital reserve 

amount. The capital reserve amount was initially set at $3.0 billion for calendar year 2013, and declines by $600 million 

at the beginning of each calendar year thereafter until it reaches zero by calendar year 2018. The GSEs will not pay a 

quarterly dividend if their positive net worth is below the required capital reserve threshold. Cash dividends of $95.7

billion and $18.4 billion were declared and received during fiscal years ended September 30, 2013 and 2012, respectively. 

The significant increase in dividends received in fiscal year 2013 compared to 2012 was attributable to a federal income 

tax benefit that was recognized in the 2013 earnings of one of the GSEs resulting in improved net worth and, thus,

increased dividends remitted to the Department. 

The SPSPAs, which have no expiration date, provide for the Department to disburse funds to the GSEs if, at the end of 

any quarter, the FHFA determines that the liabilities of either GSE exceed its assets. Draws from the Department under 

the SPSPAs are designed to ensure that the GSEs maintain positive net worth. The maximum amount available to each 

GSE under this agreement was previously based on a formulaic cap that increased by the amount of actual draws made 

for a three-year period which ended December 31, 2012, at which time, the maximum amount was automatically adjusted 

downward by each GSE’s positive net worth as of December 31, 2012 and became fixed effective December 31, 2012 (refer 

to the “Contingent Liability to GSEs” section below). Draws against the funding commitment of the SPSPAs do not result 

in the issuance of additional shares of senior preferred stock; instead, the liquidation preference of the initial 1,000,000 

shares is increased by the amount of the draw. There were no payments to the GSEs for the fiscal year ended September 

30, 2013. Payments to the GSEs for fiscal year ended September 30, 2012 were $18.5 billion. 
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ACCOUNTING TREATMENT

Entity Transactions ― The estimated contingent liability to the GSEs on the Department’s Consolidated Balance 

Sheets is accrued pursuant to the SPSPAs and funded through the Department’s direct appropriations. Therefore, the 

liability accrual is reflected at its gross amount as an “entity” cost on the Department’s Consolidated Statements of Net 

Cost, within the line item, “Cumulative Results of Operations” on the Department’s Consolidated Balance Sheets, without 

considering the increase in senior preferred stock liquidation preference/fair value adjustments, and future dividend 

receipts from the GSEs.

Non-Entity Transactions ― As actual payments are made to the GSEs, they result in increases to the U.S. 

government’s liquidation preference in the GSEs’ senior preferred stock, and thus represent General Fund exchange 

revenue reported on the Department’s Consolidated Statements of Net Cost as “GSEs Non-Entity Cost (Revenue).” 

Changes in the fair valuation of the GSE preferred stock and common stock warrants, and related dividends received, are 

General Fund-related costs and revenues that are likewise reported as “GSEs Non-Entity Cost (Revenue).”

INVESTMENTS IN GSES

As of September 30, 2013 and 2012, the Department’s investments in the GSEs consisted of the following (in millions):

GSEs Investments

Gross

Investments

As of 9/30/13

Cumulative

Valuation

Gain/(Loss)

9/30/13

Fair Value

Fannie Mae Senior Preferred Stock $ 116,989 $ (40,429) $ 76,560

Freddie Mac Senior Preferred Stock 72,160 (16,295) 55,865

Fannie Mae Warrants Common Stock 3,104 1,978 5,082

Freddie Mac Warrants Common Stock 2,264 450 2,714

Total GSEs Investments $ 194,517 $ (54,296) $ 140,221

GSEs Investments

Gross

Investments

As of 9/30/12

Cumulative

Valuation

Loss

9/30/12

Fair Value

Fannie Mae Senior Preferred Stock $ 116,989 $ (51,331) $ 65,658

Freddie Mac Senior Preferred Stock 72,160 (30,224) 41,936

Fannie Mae Warrants Common Stock 3,104 (1,956) 1,148

Freddie Mac Warrants Common Stock 2,264 (1,664) 600

Total GSEs Investments $ 194,517 $ (85,175) $ 109,342

SENIOR PREFERRED STOCK AND WARRANTS FOR COMMON STOCK

In determining the fair value of the senior preferred stock and warrants for common stock, the Department relied on the 

GSEs’ public filings and press releases concerning their financial statements, as well as non-public, long-term financial

forecasts, monthly summaries, quarterly credit supplements, independent research regarding high-yield bond and 

preferred stock trading, independent research regarding the GSEs’ common stock trading, discussions with each of the 

GSEs and FHFA, and other information pertinent to the fair valuations. Because of the nature of the instruments, which 

are not publicly traded and for which there is no comparable trading information available, the fair valuations rely on

significant unobservable inputs that reflect assumptions about the expectations that market participants would use in 

pricing. 

The fair value of the senior preferred stock considers the amount of forecasted dividend payments. The fair valuations

assume that a hypothetical buyer would acquire the discounted dividend stream as of the transaction date. The fair value 
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of the senior preferred stock increased at September 30, 2013 when compared to 2012 primarily due to the GSEs’ 

improved financial performance as discussed below. 

The fair value of the warrants is impacted by the nominal exercise price and the large number of potential exercise shares, 

the market trading of the common stock that underlies the warrants as of September 30, the principal market, and the 

market participants. Other factors impacting the fair value include, among other things, the holding period risk related 

directly to the amount of time that it will take to sell the exercised shares without depressing the market. The fair value of 

the warrants increased at the end of fiscal year 2013 when compared to 2012 primarily due to increases in the market 

price of the underlying common stock of each GSE.

CONTINGENT LIABILITY TO GSES

As part of the annual process undertaken by the Department, a series of long-term financial forecasts are prepared to 

assess the probability and magnitude of draws under the SPSPAs as of September 30. The Department used financial 

forecasts prepared through year 2038 and 2025 in estimating the contingent liability as of September 30, 2013 and 2012, 

respectively. If future payments under the SPSPAs are deemed to be probable within the forecast horizon, the 

Department will estimate and accrue a contingent liability to the GSEs to reflect the forecasted equity deficits of the 

GSEs. This accrued contingent liability will be undiscounted and will not take into account any of the offsetting dividends 

which would be received, as the dividends would be owed directly to the General Fund. Such recorded accruals are

adjusted as new information develops or circumstances change. 

Based on the annual assessment of the Department’s estimated future contingent liability, as of September 30, 2013, the 

Department estimated and accrued no contingent liability, compared to a $9.0 billion estimated contingent liability 

accrued as of September 30, 2012. Accordingly, the Department reduced its estimated liability by $9.0 billion and 

$288.7 billion at the end of fiscal years 2013 and 2012, respectively, via a reduction in expense. The reduction in the 

estimated liability in both years is primarily due to a decrease in the amount of estimated future draws forecasted to be 

required by the GSEs within the forecast time horizon. The $288.7 billion reduction in 2012 resulted in a remaining 

contingent liability of $9.0 billion at the end of that fiscal year to reflect the Department’s forecast of draws that may have

been required by the GSEs for the quarter ended December 31, 2012 to meet the 10.0 percent per annum dividend 

payment requirement in accordance with the pre-amended SPSPAs. As a result of the amended SPSPAs in which the new 

dividend payment requirement became operationally effective commencing with the quarter ended March 31, 2013, 

coupled with the long-term financial forecasts of the GSEs, the Department reduced by $9.0 billion the contingent 

liability as of September 30, 2013. The Department reported this expense reduction in entity costs within the Economic 

Program section of the Department’s Consolidated Statements of Net Cost. 

At September 30, 2013, the maximum remaining contractual commitment to the GSEs for the remaining life of the 

SPSPAs was $258.1 billion which, as discussed above, was established on December 31, 2012. At September 30, 2012, the 

maximum remaining potential commitment to the GSEs for the remaining life of the SPSPAs was estimated at $282.3 

billion, which was based upon case scenario estimates ranging from $274.0 billion to $291.5 billion.

In determining the contingent liability estimates, the Department relied on the GSEs’ public filings and press releases 

concerning their financial statements, monthly summaries, and quarterly credit supplements, as well as non-public, longterm financial forecasts, the FHFA House Price Index, discussions with each of the GSEs and FHFA, and other 

information pertinent to the liability estimates. The forecasts include three potential wind-down scenarios, with varying 

assumptions regarding the timing as to when new guarantee mortgage-backed securities would cease being underwritten 

by the GSEs. The forecasts also assume a continued gradual wind-down of the retained portfolios (and corresponding net 

interest income) through 2018, as directed under the amended SPSPAs for each GSE to reduce the maximum balance of 
U.S. Department of the Treasury | Fiscal Year 2013

93

its retained mortgage portfolio by 15.0 percent per annum beginning December 31, 2013 (a change from the 10.0 percent 

per annum prior to the amended SPSPAs). The maximum balance of the GSEs’ retained mortgage portfolio was initially 

set at $650 billion as of December 31, 2012, and is required under the amended SPSPAs to be reduced to $250.0 billion 

by December 31, 2018. 

FINANCIAL PERFORMANCE OF THE GSES

The summarized unaudited aggregated financial condition of the GSEs as of September 30, 2013 and 2012, along with 

their summarized unaudited aggregated financial operating results for the nine months ended September 30, 2013 and 

2012 were as follows (in millions):

2013 2012

Combined Assets

Investment Securities $ 266,305 $ 338,974

Mortgage Loans 4,702,674 4,641,231

Other 294,028 262,548

Total Combined Assets 5,263,007 5,242,753

Combined Liabilities

Long-Term Debt 4,959,558 4,963,297

Other 258,396 272,137

Total Combined Liabilities 5,217,954 5,235,434

Combined Net Equity $ 45,053 $ 7,319

For the Nine Months Ended September 30 

Combined Net Interest Income $ 30,238 $ 29,097

Combined Benefit (Provision) for Loan Losses 11,213 (3,628)

Combined Net Interest Income After Provision for Loan Losses $ 41,451 $ 25,469

Combined Regulatory Capital - Minimum Capital Deficit as of September 30 $ (195,697) $ (231,949)

Excludes financial guarantees not consolidated on GSE balance sheets.

The above information was taken directly from the quarterly reports filed with the SEC, which are publicly available on 

the SEC’s website (www.SEC.gov) and also the GSE investor relations websites.

The improved financial performance of the GSEs in 2013 compared to 2012 was primarily attributable to a federal 

income tax benefit that the GSEs recognized in their 2013 earnings. The GSEs’ improved financial performance in 2013 

also reflects increased guarantee fees on single family mortgages and reduced credit losses due to improving regional 

housing markets and a higher quality credit portfolio of mortgage loans originated after 2008, coupled with the ongoing 

run-off of troubled loans that were originated during 2005 through 2008. 

Under the amended SPSPAs, the Department’s forecasts indicate that neither GSE will fully utilize the amount of funding 

available. The Department’s forecasts of future draws by the GSEs may differ from actual experience. Future actual draw 

amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in 

government policy with respect to the GSEs, the business cycle, inflation, home prices, unemployment rates, interest 

rates, changes in housing preferences, home financing alternatives, availability of debt financing, market rates of 

guarantee fees, outcomes of loan refinancings and modifications, new housing programs, and other applicable factors.
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GSES NON-ENTITY COST (REVENUE)

For the fiscal years ended September 30, 2013 and 2012, GSEs Non-Entity Cost (Revenue) consisted of the following (in 

millions):

Summary of GSEs Non-Entity Cost (Revenue) 2013 2012

General Fund Revenue from Increase in Liquidation Preference of GSEs

 Preferred Stock $ - $ (18,519)

Fair Value (Gain)/Loss on GSEs Warrants/Preferred Stock (30,879) 42,220

GSEs Preferred Stock Dividends (95,727) (18,379)

Total GSEs Non-Entity Cost (Revenue) $ (126,606) $ 5,322

REGULATORY ENVIRONMENT

Pursuant to a provision within the Dodd Frank Act, the Secretary conducted a study and developed recommendations 

regarding the options for ending the conservatorship. In 2011, the President delivered to Congress a report from the 

Secretary that provided recommendations regarding the options for ending the conservatorship and plans to wind down 

the GSEs. To date, Congress has not approved a plan to address the future of the GSEs, thus the GSEs continue to 

operate under the direction of their conservator, the FHFA, whose stated strategic goals for the GSEs are to: (i) build a 

new infrastructure for the secondary mortgage market; (ii) contract the GSEs’ presence in the marketplace; and (iii)

maintain foreclosure prevention activities and credit availability.

In December 2011, Congress passed the Temporary Payroll Tax Cut Continuation Act of 2011 which was funded by an 

increase of ten basis points in the GSEs’ guarantee fees (referred to as “the increased fees”) beginning April 1, 2012, and is 

effective through October 1, 2021. The increased fees are to be remitted to the Department and not retained by the 

GSEs. Accordingly, the increased fees do not affect the profitability of the GSEs. The Department received its first 

remittance of the increased fees from the GSEs on September 28, 2012. For fiscal years 2013 and 2012, the GSEs 

remitted to the Department the increased fees totaling $946 million and $35 million, respectively. 
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9. INVESTMENTS IN INTERNATIONAL FINANCIAL INSTITUTIONS

As of September 30, 2013 and 2012, Investments in International Financial Institutions (or Multilateral Development 

Banks) consisted of the following (in millions):

2013 2012

International Bank for Reconstruction and Development $ 2,216 $ 2,103

Inter-American Development Bank (1) 1,695 1,587

Asian Development Bank 772 671

European Bank for Reconstruction and Development 636 636

International Finance Corporation 569 569

North American Development Bank 225 225

African Development Bank 238 207

Multilateral Investment Guarantee Agency 45 45

Total $ 6,396 $ 6,043

Refer to Note 27 for a description of the additional commitments related to these institutions. (1) Includes Inter-American Investment Corporation

10. OTHER INVESTMENTS AND RELATED INTEREST

Other investments and related interest include foreign currency holdings that are typically invested in interest-bearing 

securities issued or held through foreign governments or monetary authorities (See Note 5). ESF holds most of the 

Department’s foreign currency investments. 

As of September 30, 2013 and 2012, Other Investments and Related Interest consisted of the following (in millions):

Type of Investment

Cost/

Acquisition 

Value

Unamortized

(Premium)/

Discount

Interest

Receivable

9/30/13

Net

Investment

Unrealized

Gain/(Loss)

9/30/13

Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,556 $ 143 $ 75 $ 4,774 $ 85 $ 4,859

 Japanese Government Bonds 6,326 15 4 6,345 8 6,353

 Other FCDAs 2,884 - - 2,884 - 2,884

Other Investments 28 (2) - 26 (8) 18

Total Non-Federal $ 13,794 $ 156 $ 79 $ 14,029 $ 85 $ 14,114

Type of Investment

Cost/

Acquisition 

Value

Unamortized

(Premium)/

Discount

Interest

Receivable

9/30/12

Net

Investment

Unrealized

Gain/(Loss)

9/30/12

Fair Value

Foreign Investments:

 Euro Bonds & Notes $ 4,317 $ 109 $ 83 $ 4,509 $ 156 $ 4,665

 Japanese Government Bonds 7,959 27 7 7,993 18 8,011

 Other FCDAs 2,739 - - 2,739 - 2,739

Other Investments 30 (2) - 28 (7) 21

Total Non-Federal $ 15,045 $ 134 $ 90 $ 15,269 $ 167 $ 15,436
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11. OTHER CREDIT PROGRAM RECEIVABLES, NET

The Department administers a number of programs, in addition to the TARP programs, designed to stabilize the nation’s 

financial system and restore the flow of credit to consumers, businesses, and homeowners. As of September 30, 2013 and 

2012, Other Credit Program Receivables, Net consisted of the following (in millions):

2013 2012

State and Local Housing Finance Agency Program (GSE sponsored) $ 8,420 $ 12,556

Small Business Lending Fund Program 3,605 3,930

International Monetary Fund Programs:

 U.S. Quota in the IMF Program (FCRA portion) 1,896 1,858

 New Arrangements to Borrow Program (FCRA portion) 3,668 1,511

Other Direct Loans Program 39 33

Total $ 17,628 $ 19,888

STATE AND LOCAL HOUSING FINANCE AGENCY (HFA) INITIATIVE 

Under HERA, the Department, together with the FHFA, Fannie Mae, and Freddie Mac, created an initiative in October 

2009 to provide support to HFAs. This initiative was designed to support low mortgage rates and expand resources for 

low and middle income borrowers to purchase or rent homes, making them more affordable over the long term. The 

HFA Initiative is comprised of two separate programs: (i) the New Issue Bond Program (NIBP) and (ii) the Temporary 

Credit and Liquidity Program (TCLP). As of September 30, 2013 and 2012, the HFA net credit program receivable of 

$8.4 billion and $12.6 billion, respectively, included a positive subsidy allowance of $915 million and $1.1 billion, 

respectively, which reflects the Department’s projection that the HFA program will result in a net cost to the Department 

after accounting for repayments, interest, and fees. 

Under the terms of the NIBP, the Department purchased securities of Fannie Mae and Freddie Mac backed by new 

mortgage revenue bonds issued by HFAs. As of September 30, 2013 and 2012, the NIBP gross credit program receivable 

was $9.3 billion and $13.7 billion, respectively. The Department performed a financial statement re-estimate of the NIBP 

program’s cost as of September 30, 2013 and 2012. These re-estimates resulted in a downward re-estimate, or a decrease 

in the cost of the program, of $74 million as of September 30, 2013, and an upward re-estimate, or increase in cost of the 

program, of $588 million as of September 30, 2012. The downward re-estimate in fiscal year 2013 was primarily driven 

by higher than estimated principal collections. The upward re-estimate in fiscal year 2012 was primarily driven by lower 

forecasted prepayment rates and lower than expected market interest rates which reduced coupon rates for the HFA 

bonds converted from escrow in fiscal year 2012. The drop in prepayment rates increases the cost of the program since 

the HFA bonds carry a lower weighted average coupon than the funding cost of the program. 

Under the terms of the TCLP, the Department purchased participation certificates issued by Fannie Mae and Freddie 

Mac, representing participating interests in credit and liquidity facilities that the GSEs are providing to certain HFAs as 

part of the program. Fannie Mae and Freddie Mac provided replacement credit and liquidity facilities to HFAs to help 

reduce the costs of maintaining existing financing and relieve financial strains on the HFAs. The Department agreed to 

support the GSE replacement credit and liquidity facilities by purchasing from the GSEs interests in certain HFA bonds 

in the event such bonds were tendered to the GSEs. As of September 30, 2013 and 2012, the liquidity facilities covered 

$2.0 billion and $3.9 billion, respectively, of single-family and multi-family variable-rate demand obligations (VRDOs). 

As of September 30, 2013 and 2012, none of these bonds had been tendered to the GSEs and, accordingly, the 

Department had not disbursed any funds. As such, the Department did not perform September 30, 2013 or 2012 subsidy 

re-estimates for TCLP.
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97

SMALL BUSINESS LENDING FUND

The Small Business Jobs Act of 2010 (P.L. 111-240) created the SBLF program. Pursuant to the Act, the Department 

provided capital to qualified community banks, for purposes of encouraging bank lending to small businesses, by 

purchasing qualifying non-cumulative preferred stock or equivalents in each bank. As an incentive to participating banks 

to increase lending to small businesses, the dividend rate a bank pays to the Department for SBLF funding will be 

reduced as the bank’s small business lending increases. For most banks, the initial dividend rate of 5.0 percent may be 

reduced to as low as 1.0 percent. For institutions which did not increase lending by the end of the first two years of the 

program, the rate will increase to 7.0 percent, effective for the quarter ending March 31, 2014. The program provides an 

incentive for banks to repay loans within 4 1⁄2 years. At that time, the rate will increase to 9.0 percent for banks 

remaining in the program. The Department treats these purchases of capital as direct loans in accordance with the 

requirements of FCRA. The Department’s authority to provide new capital to SBLF participants expired on September 

27, 2011 and, accordingly, there were no new capital disbursements since that date.

As of September 30, 2013 and 2012, SBLF net credit program receivable was $3.6 billion and $3.9 billion, respectively. 

These amounts include a positive subsidy allowance of $28 million and $50 million at September 30, 2013 and 2012, 

respectively, which reflects the Department’s projection that the SBLF program will result in a net cost to the 

Department. 

The Department performed financial statement re-estimates of the program’s cost as of September 30, 2013 and 2012

which resulted in an upward re-estimate, or an increase in the cost of the program, of $34 million and $105 million. Both 

the 2013 and 2012 upward re-estimates were driven by changes in performance assumptions, actual performance to-date, 

and actual program funding costs. The 2013 performance assumptions anticipate an overall cost to the program due to 

lower dividend rates, both actual and projected, paid by participating institutions relative to previously projected

dividend rates. These lower dividend rates are the result of participating banks increasing small business lending to 

qualify for lower dividend rates. 

INTERNATIONAL MONETARY FUND

The Supplemental Appropriations Act of 2009 authorized an increase in the U.S. quota in the IMF, as well as an increase 

in U.S. participation in the New Arrangements to Borrow (NAB), one of the IMF’s supplemental borrowing arrangements

(Note 12). The legislation applied FCRA to both program increases and, thus, the program increases are treated as direct 

loans to the IMF. For U.S. budget and accounting purposes, there are effectively two portions of the IMF quota and NAB

programs. As of September 30, 2013 and 2012, the U.S. quota in the IMF totaled $64.6 billion and $65.0 billion, 

respectively, and comprised a FCRA and non-FCRA portion of $7.6 billion and $57.0 billion, respectively, at September 

30, 2013, and $7.7 billion and $57.3 billion, respectively, at September 30, 2012. As of September 30, 2013 and 2012, the 

U.S. NAB arrangement with the IMF totaled $106.0 billion and $106.5 billion, respectively, and comprised a FCRA and 

non-FCRA portion of $95.8 billion and $10.2 billion, respectively, at September 30, 2013, and $96.3 billion and $10.2

billion, respectively, at September 30, 2012. These designations only affect the manner in which the Department 

accounts for the use and repayment of these funds. The U.S. commitments to the IMF are denominated in SDRs and, 

thus, the dollar amounts of these commitments fluctuate with the SDR valuation rate. The following is a discussion of the 

FCRA portions of both the U.S. quota and NAB programs. 

United States Quota in the IMF

On March 25, 2011, the Department disbursed $2.0 billion (SDR 1.2 billion) to increase the reserve asset portion of the 

U.S. quota. The undisbursed FCRA portion is reported as a letter of credit (Note 12). At September 30, 2013 and 2012, 

the FCRA portion of the U.S. quota in the IMF had a net credit program receivable of $1.9 billion, including positive 

subsidy allowances of $99 million and $137 million, respectively, which reflect the Department’s projection that the 
U.S. Department of the Treasury | Fiscal Year 2013

98

program will result in a net cost to the Department after accounting for repayments and net interest. The Department 

performed financial statement re-estimates of the program’s cost as of September 30, 2013 and 2012. The re-estimates

resulted in an increase in program costs (or an upward re-estimate) of $5 million and $67 million for fiscal years 2013

and 2012, respectively, primarily due to a fluctuation in the valuation of the SDR rate since the calculation of the prior 

fiscal year’s re-estimate. 

New Arrangements To Borrow

FCRA disbursements outstanding under the NAB for fiscal years ended 2013 and 2012 totaled $3.7 billion and $1.5 

billion, respectively. The program had a negative subsidy allowance of $15 million and $21 million as of September 30, 

2013 and 2012, respectively.

The Department performed a financial statement re-estimate of the program’s cost as of September 30, 2013 and 2012. 

The re-estimates as of September 30, 2013 and 2012 resulted in a decrease in the projected cost of the program (or a 

downward re-estimate) of $1 million and $25 million, respectively, due to, among other factors, the fluctuation in the 

valuation of the SDR rate since the prior year’s re-estimate. 

SUMMARY TABLES

The following tables provide the net composition of the Department’s portfolio, subsidy cost, modifications and reestimates, a reconciliation of subsidy cost allowances, budget subsidy rates, and the components of the subsidy for each 

credit program for the fiscal years ended September 30, 2013 and 2012. The subsidy rates disclosed in the following 

tables pertain only to that year’s cohorts. These rates cannot be applied to the direct loans disbursed during the current 

reporting year to yield the subsidy expense. The subsidy expense reported in 2013 and 2012 also includes modifications 

(in 2012 only) and re-estimates.
U.S. Department of the Treasury | Fiscal Year 2013

99

2013

(in millions) HFA SBLF

IMFQuotaIMFNAB Other TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ 9,335 $ 3,633 $ 1,995 $ 3,653 $ 56 $ 18,672

 Subsidy Cost Allowance (915) (28) (99) 15 (17) (1,044)

Net Credit Program Receivables $ 8,420 $ 3,605 $ 1,896 $ 3,668 $ 39 $ 17,628

New Credit Program Loans 

Disbursed $ - $ - $ - $ 2,163 $ 14 $ 2,177

Obligations for Loans Not Yet 

Disbursed $ - $ - $ - $ - $ 333 $ 333

Budget Subsidy Rate, Excluding

Modifications and Re-estimates:

Interest Differential - - - 0.26% 28.25%

Defaults - - - - 12.01%

Other - - - 0.08% -

Total Budget Subsidy Rate - - - 0.34% 40.26%

Subsidy Cost by Component:

 Interest Differential $ - $ - $ - $ 5 $ 4 $ 9

 Defaults - - - - 2 2

 Other - - - 2 - 2

Total Subsidy Cost, Excluding

Modifications and Re-estimates $ - $ - $ - $ 7 $ 6 $ 13

Reconciliation of Subsidy Cost 

Allowance:

Balance, Beginning $ 1,128 $ 50 $ 137 $ (21) $ 13 $ 1,307

Subsidy Cost for Disbursements - - - 7 6 13

Fees Received 27 - - - - 27

Loans Written Off - - - - (1) (1)

Subsidy Allowance Amortized (166) (56) (43) - (1) (266)

Balance, Ending, Before Re-estimates 989 (6) 94 (14) 17 1,080

 Subsidy Re-estimates (74) 34 5 (1) - (36)

Balance, Ending $ 915 $ 28 $ 99 $ (15) $ 17 $ 1,044

Re-estimates

Interest on Re-estimate $ (10) $ 2 $ - $ - $ - $ (8)

Technical/Default Re-estimate (64) 32 5 (1) - (28)

Total Re-estimates – Increase 

(Decrease) in Subsidy Cost $ (74) $ 34 $ 5 $ (1) $ - $ (36)

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ - $ - $ 7 $ 6 $ 13

 Subsidy Re-estimates (74) 34 5 (1) - (36)

Total Credit Program Receivables 

Subsidy Costs $ (74) $ 34 $ 5 $ 6 $ 6 $ (23)

Administrative Expense $ 9 $ 16 $ - $ - $ - $ 25
U.S. Department of the Treasury | Fiscal Year 2013

100

2012

(in millions)

GSE

MBS(1) HFA SBLF

IMFQuota

IMFNAB Other TOTAL

Credit Program Receivables, Net:

 Credit Program Receivables, Gross $ - $ 13,684 $ 3,980 $ 1,995 $ 1,490 $ 46 $ 21,195

 Subsidy Cost Allowance - (1,128) (50) (137) 21 (13) (1,307)

Net Credit Program Receivables $ - $ 12,556 $ 3,930 $ 1,858 $ 1,511 $ 33 $ 19,888

New Credit Program Loans 

Disbursed $ - $ - $ - $ - $ 1,490 $ - $ 1,490

Budget Subsidy Rate, Excluding

Modifications and Re-estimates:

Interest Differential - - - - 0.26% -

Other - - - - 0.08% -

Total Budget Subsidy Rate - - - - 0.34% -

Subsidy Cost by Component:

 Interest Differential $ - $ - $ - $ - $ 4 $ - $ 4

 Other - - - - 1 - 1

Total Subsidy Cost, Excluding

Modifications and Re-estimates $ - $ - $ - $ - $ 5 $ - $ 5

Reconciliation of Subsidy Cost 

Allowance:

Balance, Beginning $ (1,831) $ 815 $ (80) $ 64 $ - $ 17 $ (1,015)

Subsidy Cost for Disbursements - - - - 5 - 5

Subsidy Cost for Modifications - (73) - - - - (73)

Fees Received - 38 - - - - 38

Subsidy Allowance Amortized 915 (240) 25 6 (1) (1) 704

Other 1,621 - - - - - 1,621

Balance, Ending, Before Re-estimates 705 540 (55) 70 4 16 1,280

 Subsidy Re-estimates (705) 588 105 67 (25) (3) 27

Balance, Ending $ - $ 1,128 $ 50 $ 137 $ (21) $ 13 $ 1,307

Re-estimates

Interest Rate Re-estimate $ 128 $ - $ - $ - $ - $ - $ 128

Interest on Re-estimate (82) 61 4 - - (1) (18)

Technical/Default Re-estimate (751) 527 101 67 (25) (2) (83)

Total Re-estimates – Increase 

(Decrease) in Subsidy Cost $ (705) $ 588 $ 105 $ 67 $ (25) $ (3) $ 27

Reconciliation of Subsidy Costs:

 Subsidy Cost for Disbursements $ - $ - $ - $ - $ 5 $ - $ 5

 Subsidy Cost for Modifications - (73) - - - - (73)

 Subsidy Re-estimates (705) 588 105 67 (25) (3) 27

Total Credit Program Receivables 

Subsidy Costs $ (705) $ 515 $ 105 $ 67 $ (20) $ (3) $ (41)

Administrative Expense $ 11 $ - $ 16 $ - $ - $ - $ 27

(1) The Department completed sales of its MBS portfolio in fiscal year 2012. As of September 30, 2012, the Department performed a financial 

statement re-estimate of the program’s cost that identified excess sales proceeds of $705 million. A closing re-estimate was completed in May 

2013 at which time the $705 million of excess sales proceeds were transferred to the General Fund.
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12. RESERVE POSITION IN THE INTERNATIONAL MONETARY

FUND AND RELATED LOANS AND INTEREST RECEIVABLE

The United States participates in the IMF through a quota subscription and certain borrowing arrangements that 

supplement IMF resources. The Supplemental Appropriations Act of 2009 (P.L. 111-32) provided for an increase of 

approximately SDR 5.0 billion (approximately $8.0 billion) in the U.S. quota in the IMF, as well as an increase in the 

United States’ participation in the NAB up to the dollar equivalent of SDR 75 billion. These increases in the U.S. quota 

and NAB arrangement became effective in fiscal year 2011. Unlike all prior U.S. funding for the IMF, P.L. 111-32 subjects 

the increases in both the U.S. quota and the NAB to the requirements of FCRA. All U.S. quota and NAB funding prior to 

P.L. 111-32, referred to as “non-FCRA funds,” do not result in net budgetary outlays. All such funding provided pursuant 

to P.L. 111-32, referred to as “FCRA funds,” is accounted for in accordance with credit reform accounting guidelines (Note 

11). A credit program receivable is established for FCRA fund amounts disbursed. Additionally, FCRA fund amounts 

disbursed do not result in net budgetary outlays, except for subsidy costs of the programs which constitute the excess of 

program disbursements over the net present value of expected future repayments.

RESERVE POSITION IN THE INTERNATIONAL MONETARY FUND

Quota subscriptions are paid partly through the transfer of reserve assets, such as foreign currencies or SDRs, which are 

international reserve assets created by the IMF, and partly by making domestic currency available as needed through a 

non-interest-bearing letter of credit. This letter of credit, issued by the Department and maintained by the FRBNY, 

represents the Department’s available commitment to the IMF which may be drawn upon by the IMF. 

Transfers to the IMF under the U.S. quota do not result in net budgetary outlays as they constitute an exchange of 

monetary assets in which the United States receives an equal offsetting claim on the IMF in the form of an increase in the 

U.S. reserve position in the IMF. Similarly, when the IMF repays dollars to the United States, no net budgetary receipt 

results because the U.S. reserve position declines concurrently in an equal amount. The U.S. reserve position is an 

interest-bearing asset like other international reserve assets held by the United States, and is available at any time to 

meet U.S. funding needs. 

The U.S. quota is denominated in SDRs. As of September 30, 2013 and 2012, the U.S. quota in the IMF was SDR 42.1

billion. The equivalent U.S. dollar value of the U.S. quota consisted of the following (in millions):

NonFCRA FCRATotal

2013

NonFCRA FCRATotal

2012

Letter of Credit(1) $ 39,075 $ 5,706 $ 44,781 $ 35,718 $ 5,747 $ 41,465

Reserve Position(2) 17,915 1,923 19,838 21,573 1,923 23,496

Total U.S. Quota in the IMF $ 56,990 $ 7,629 $ 64,619 $ 57,291 $ 7,670 $ 64,961

(1) Letter of Credit amounts are included as part of the “Fund Balance” as reported on the Consolidated Balance Sheets and “Appropriated Funds” 

 as disclosed in Note 2. Amounts also include approximately 0.25 percent of the U.S. quota that is held in cash in an IMF account at the FRBNY. 

(2) The Reserve Position amounts shown in the non-FCRA columns are included in “Reserve Position in the IMF" as reported on the Consolidated 

Balance Sheets, while amounts shown in the FCRA columns are included in “Other Credit Program Receivables, Net” as reported on the 

Consolidated Balance Sheets. The FCRA amount shown represents the initial 2011 disbursement under P.L. 111-32 of SDR 1.2 billion at the current 

exchange rate (Note 11).

Fluctuations in the value of the U.S. dollar with respect to the SDR result in valuation changes in dollar terms for the U.S. 

quota. The Department periodically adjusts this balance to maintain the SDR value of the U.S. quota. As of September 

30, 2013 and 2012, the U.S. quota reflects a net downward adjustment in value of $342 million and $818 million, 

respectively, due to the appreciation of the U.S. dollar against the SDR. 
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LOANS AND INTEREST RECEIVABLE

In addition to quota subscriptions, the IMF maintains borrowing arrangements to supplement its resources in order to 

forestall or cope with an impairment of the international monetary system when IMF liquidity is low. The United States 

currently participates in two such arrangements – the NAB and the General Arrangements to Borrow (GAB). In 

accordance with P.L. 111-32 which provided for an increase in the United States’ participation in the NAB of up to the 

dollar equivalent of SDR 75 billion, the United States increased its NAB participation from SDR 6.6 billion to SDR 69.1 

billion, which was equivalent to $106.0 billion and $106.5 billion as of September 30, 2013 and 2012, respectively. As of 

September 30, 2013 and 2012, under the U.S. NAB arrangement with the IMF, there was $10.0 billion and $10.2 billion 

of U.S. non-FCRA loans outstanding, and $3.7 billion and $1.5 billion of U.S. FCRA loans (Note 11) outstanding under the 

NAB arrangement, respectively. These amounts are liquid and interest-bearing claims on the IMF, and the non-FCRA 

portions are reported as Loans and Interest Receivable on the Consolidated Balance Sheets, while the FCRA portions are 

reported as Other Credit Program Receivables, Net on the Consolidated Balance Sheets. As of September 30, 2013, the 

IMF had not utilized the GAB.

13. TAXES, INTEREST, AND OTHER RECEIVABLES, NET

As of September 30, 2013 and 2012, Taxes, Interest and Other Receivables, Net consisted of the following (in millions):

2013 2012

Non-Entity

Federal Taxes Receivable, Gross $ 159,087 $ 152,060

Less: Allowance on Taxes Receivable (124,074) (113,046)

Interest Receivable on FRB Deposits of Earnings 3,079 2,282

Other Receivables 465 148

Less: Allowance on Other Receivables (30) (17)

Total Non-Entity (Note 15) 38,527 41,427

Entity

Miscellaneous Entity Receivables and Related Interest 75 36

Total Taxes, Interest and Other Receivables, Net $ 38,602 $ 41,463

Federal taxes receivable constitutes the largest portion of these receivables, with IRS-related taxes receivable 

representing the majority of the balance. IRS federal taxes receivable consists of tax assessments, penalties, and interest 

which were not paid or abated, and which were agreed to by either the taxpayer and IRS, or the courts. Federal taxes 

receivable is reduced by an allowance for doubtful accounts which is established to represent an estimate for uncollectible 

amounts. The portion of tax receivables estimated to be collectible and the allowance for doubtful accounts are based on 

projections of collectability from a statistical sample of taxes receivable (refer to the section entitled Required 

Supplemental Information (unaudited) - IRS Federal Taxes Receivable, Net).

In addition to amounts attributed to taxes, these receivables also include accrued interest income due on funds deposited 

in FRBs. The Department does not establish an allowance for the receivable on deposits of FRB earnings.
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14. PROPERTY, PLANT, AND EQUIPMENT, NET

As of September 30, 2013 and 2012, Property, Plant and Equipment, Net consisted of the following (in millions):

Depreciation 

Method

Service 

Life Cost

Accumulated 

Depreciation

2013

Book 

Net

Value

Buildings, structures, and facilities S/L 3-50 years $ 737 $ (382) $ 355

Furniture, fixtures, and equipment S/L 2-20 years 2,867 (2,005) 862

Construction in progress N/A N/A 133 - 133

Land and land improvements N/A N/A 18 (1) 17

Internal-use software in use S/L 2-15 years 1,837 (1,143) 694

Internal-use software in 

development N/A N/A 343 - 343

Assets under capital lease S/L 2-25 years 9 (3) 6

Leasehold improvements S/L 2-25 years 403 (167) 236

Total $ 6,347 $ (3,701) $ 2,646

Depreciation 

Method

Service

Life Cost

Accumulated 

Depreciation

2012

Book

Net

Value

Buildings, structures, and facilities S/L 3-50 years $ 739 $ (381) $ 358

Furniture, fixtures, and equipment S/L 2-20 years 3,012 (2,164) 848

Construction in progress N/A N/A 172 - 172

Land and land improvements N/A N/A 17 (1) 16

Internal-use software in use S/L 2-15 years 1,662 (1,002) 660

Internal-use software in 

development N/A N/A 162 - 162

Assets under capital lease S/L 2-25 years 9 (2) 7

Leasehold improvements S/L 2-25 years 411 (199) 212

Total $ 6,184 $ (3,749) $ 2,435

The service life ranges vary significantly due to the diverse nature of PP&E held by the Department.

HERITAGE ASSETS

The Department has a total of fifteen heritage assets, of which five are considered multi-use, for fiscal years 2013 and 

2012. The Treasury Complex (Main Treasury Building and Annex), declared a national historical landmark in 1972, is 

treated as a multi-use heritage asset and is expected to be preserved indefinitely. The buildings that house the Mint in 

Denver, San Francisco, Fort Knox, and West Point are also considered multi-use heritage assets and included on the 

National Register of Historic Places. Additionally, the Mint maintains heritage assets consisting of four coin collections 

and six historical artifacts. The condition of the heritage assets is disclosed within the Required Supplemental 

Information (Unaudited) section of this report. 
U.S. Department of the Treasury | Fiscal Year 2013

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15. NON-ENTITY VS. ENTITY ASSETS

Non-entity assets are those that are held and managed by the Department on behalf of the U.S. government (General 

Fund) but are not available for use by the Department. As of September 30, 2013 and 2012, the Department’s total 

assets, segregated between non-entity and entity, are shown below (in millions):

2013

Non-Entity Entity Total

Intra-governmental Assets:

Fund Balance (a) $ 1,254 $ 366,566 $ 367,820

Loans and Interest Receivable (Note 3) 1,020,773 72,786 1,093,559

Advances to the Unemployment Trust Fund (Note 4) 29,696 - 29,696

Due From the General Fund (Note 4) 17,123,357 - 17,123,357

Other Intra-governmental Assets 364 71 435

Total Intra-governmental Assets 18,175,444 439,423 18,614,867

Cash, Foreign Currency, and Other Monetary Assets (Note 5)(b) 83,208 65,298 148,506

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

Investments in GSEs (Note 8) 140,221 - 140,221

Taxes, Interest and Other Receivables, Net (Note 13) 38,527 75 38,602

Other Assets (d) 90 87,276 87,366

Total Assets $ 18,448,552 $ 592,072 $ 19,040,624

(a) $434 million of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(b) $82.9 billion of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(c) $25 million of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(d) Other Assets (Entity) include TARP and non-TARP credit program receivables, net, totaling $17.9 billion and $17.6 billion, 

respectively, a reserve position in the IMF of $17.9 billion, and other various assets on the Consolidated Balance Sheets not separately 

presented in this table.

2012

Non-Entity Entity Total

Intra-governmental Assets:

Fund Balance (e) $ 1,879 $ 342,467 $ 344,346

Loans and Interest Receivable (Note 3) 845,976 68,328 914,304

Advances to the Unemployment Trust Fund (Note 4) 32,932 - 32,932

Due From the General Fund (Note 4) 16,202,179 - 16,202,179

Other Intra-governmental Assets 456 1,039 1,495

Total Intra-governmental Assets 17,083,422 411,834 17,495,256

Cash, Foreign Currency, and Other Monetary Assets (Note 5)(f) 79,575 65,976 145,551

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

Investments in GSEs (Note 8) 109,342 - 109,342

Taxes, Interest and Other Receivables, Net (Note 13) 41,427 36 41,463

Non-TARP Investments in American International Group, Inc. (Note 7) 2,611 - 2,611

Other Assets (h) 95 116,482 116,577

Total Assets $ 17,327,534 $ 594,328 $ 17,921,862

(e) $406 million of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(f) $79.2 billion of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(g) $25 million of the non-entity balance represents assets held on behalf of the General Fund (Note 4).

(h) Other Assets (Entity) include TARP and non-TARP credit program receivables, net, totaling $40.2 billion and $19.9 billion, 

respectively, a reserve position in the IMF of $21.6 billion, and other various assets on the Consolidated Balance Sheets not 

separately presented in this table.
U.S. Department of the Treasury | Fiscal Year 2013

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16. FEDERAL DEBT AND INTEREST PAYABLE AND RELATED 

LIABILITIES

The Department is responsible for administering the federal debt on behalf of the U.S. government. The federal debt 

includes borrowings from the public as well as borrowings from federal agencies. The federal debt does not include debt 

issued by other governmental agencies, such as the Tennessee Valley Authority or the HUD.

The Federal Debt and Interest Payable as of September 30, 2013 and 2012 was as follows (in millions):

Intra-governmental 2013 2012

Beginning Balance $ 4,759,532 $ 4,625,038

New Borrowings/(Repayments) (34,396) 134,494

Subtotal at Par Value 4,725,136 4,759,532

Premium/(Discount) 69,210 55,964

Debt Principal Not Covered by Budgetary Resources (Note 19) 4,794,346 4,815,496

Interest Payable Covered by Budgetary Resources 43,090 45,509

Total $ 4,837,436 $ 4,861,005

Held by the Public 2013 2012

Beginning Balance $ 11,269,586 $ 10,127,031

New Borrowings 706,693 1,142,555

Subtotal at Par Value 11,976,279 11,269,586

Premium/(Discount) (24,444) (19,225)

Debt Principal Not Covered by Budgetary Resources (Note 19) 11,951,835 11,250,361

Interest Payable Covered by Budgetary Resources 51,195 57,222

Total $ 12,003,030 $ 11,307,583

Debt held by the public primarily represents the amount the U.S. government has borrowed to finance cumulative cash 

deficits. In contrast, intra-governmental debt holdings, primarily trust funds, represent balances of Treasury securities 

held by individual federal agencies with either the authority or the requirement to invest excess receipts in U.S. Treasury 

securities in which the principal and interest are guaranteed by the full faith and credit of the U.S. government.
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FEDERAL DEBT HELD BY OTHER FEDERAL AGENCIES

Certain federal agencies are allowed to invest excess funds in debt securities issued by the Department on behalf of the 

U.S. government. The terms and the conditions of debt securities issued are designed to meet the cash needs of the U.S. 

government. The vast majority of debt securities are non-marketable securities issued at par value, but others are issued 

at market prices and interest rates that reflect market terms. The average intra-governmental interest rate for debt held 

by the federal entities, excluding Treasury Inflation-Protected Securities (TIPS), for fiscal years 2013 and 2012 was 3.6

percent and 3.7 percent, respectively. The average intra-governmental interest rate on TIPS for fiscal years 2013 and 

2012 was 1.3 percent and 1.5 percent, respectively. The average interest rate represents the original issue weighted 

effective yield on securities outstanding at the end of the fiscal year.

The federal debt also includes intra-governmental marketable debt securities that certain agencies are permitted to buy 

and sell on the open market. The debt held by federal agencies at par value (not including premium/discount or interest 

payable) as of September 30, 2013 and 2012 was as follows (in millions):

2013 2012

Social Security Administration $ 2,756,390 $ 2,719,042

Office of Personnel Management 821,466 927,302

Department of Defense Agencies 620,815 562,657

Department of Health and Human Services 278,766 302,932

All Other Federal Agencies - Consolidated 247,699 247,599

Total Federal Debt Held by Other Federal Agencies $ 4,725,136 $ 4,759,532

FEDERAL DEBT HELD BY THE PUBLIC

Federal debt held by the public at par value (not including premium/discount or interest payable) as of September 30, 

2013 and 2012 consisted of the following (in millions):

(at par value) Term

Average 

Interest 

Rates 2013

Marketable:

Treasury Bills 1 Year or Less 0.1% $ 1,527,909

Treasury Notes Over 1 Year - 10 Years 1.8% 7,750,336

Treasury Bonds Over 10 Years 5.1% 1,363,114

Treasury Inflation-Protected Security (TIPS) 5 Years or More 1.1% 936,041

Total Marketable 11,577,400

Non-Marketable On Demand to Over 10 Years 2.4% 398,879

Total Federal Debt Held by the Public $ 11,976,279

(at par value) Term

Average 

Interest 

Rates 2012

Marketable:

Treasury Bills 1 Year or Less 0.1% $ 1,613,026

Treasury Notes Over 1 - 10 Years 2.0% 7,114,961

Treasury Bonds Over 10 Years 5.4% 1,194,715

Treasury Inflation-Protected Security (TIPS) 5 Years or More 1.4% 807,469

Total Marketable 10,730,171

Non-Marketable On Demand to Over 10 Years 2.1% 539,415

Total Federal Debt Held by the Public $ 11,269,586
U.S. Department of the Treasury | Fiscal Year 2013

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The Department issues marketable bills at a discount or at par, and pays the par amount of the security upon maturity. 

The average interest rate on Treasury bills represents the original issue effective yield on securities outstanding at year 

end. Treasury bills are issued with a term of one year or less.

The Department issues marketable notes and bonds as long-term securities that pay semi-annual interest based on the 

securities’ stated interest rates. These securities are issued at either par value or at an amount that reflects a discount or a 

premium. The average interest rate on marketable notes and bonds represents the stated interest rate adjusted by any 

discount or premium on securities outstanding at year-end. Treasury notes are issued with a term of over one year to ten 

years, and Treasury bonds are issued with a term of more than ten years. The Department also issues TIPS that have 

interest and redemption payments tied to the Consumer Price Index (CPI) for all Urban Consumers, a widely used 

measurement of inflation. TIPS are issued with a term of five years or more, and the principal for TIPS is adjusted daily 

over the life of the security based on the CPI for all Urban Consumers. At maturity, TIPS are redeemed at the inflationadjusted principal amount, or the original par value, whichever is greater. TIPS pay a semi-annual fixed rate of interest 

applied to the inflation-adjusted principal. The average interest rate on TIPS represents the stated interest rate on 

principal plus inflation, adjusted by any discount or premium on securities outstanding as of the end of the fiscal year. 

The inflation-adjusted TIPS principal balance of federal debt held by the public included inflation of $88.5 billion and 

$77.9 billion as of September 30, 2013 and 2012, respectively.

During fiscal year 2013, the Department issued bills, notes, bonds, and TIPS to meet the borrowing needs of the U.S. 

government. Treasury bills outstanding decreased by $85.1 billion; whereas, Treasury notes, bonds, and TIPS 

outstanding increased by $635.4 billion, $168.4 billion, and $128.6 billion, respectively, in fiscal year 2013. 

September 30, 2012 occurred on a Sunday and, therefore, debt repayments on matured securities occurred on Monday, 

October 1, 2012. Accordingly, $53.0 billion of marketable Treasury notes and $36 million of non-marketable securities, 

matured but not repaid, are included in the fiscal year 2012 balance of the total debt held by the public.

Federal Debt Held by the Public includes federal debt held outside of the U.S. government by individuals, corporations,

FRBs, state and local governments, foreign governments, and central banks. As of September 30, 2013, the FRBs had 

total holdings of $1.9 trillion which: (i) excluded $145 billion in Treasury securities used in overnight reverse repurchase 

transactions, and (ii) included a net of $3.1 billion in Treasury securities held by the FRB as collateral for securities 

lending activities. As of September 30, 2012, the FRBs had total holdings of $1.6 trillion, which included a net of $1.5 

billion in Treasury securities held by the FRBs as collateral for securities lending activities. Treasury securities are held 

by the FRB in the FRB System Open Market Account for the purpose of conducting monetary policy.

DEBT ISSUANCE SUSPENSION PERIOD MEASURES

Congress provided the Department with statutory authority to take certain extraordinary measures during a debt 

issuance suspension period (DISP) in the event that Treasury debt nears the statutory debt limit. These measures 

authorize the Department to depart from its normal debt management practices and exercise legal authorities to avoid 

exceeding the statutory debt limit.

The Secretary declared a DISP effective from December 31, 2012 through February 4, 2013. On February 4, 2013, 

Congress enacted a law to temporary suspend the debt limit until May 18, 2013. As Congress did not suspend or increase 

the debt limit prior to May 18, 2013, the Secretary declared another DISP effective from May 19, 2013 through October 

16, 2013, on which date Congress enacted another law to suspend the debt limit through February 7, 2014.

In fiscal year 2013, the Department undertook the following extraordinary measures during the two DISPs: (i) suspended 

investments in Treasury debt securities to the Government Securities Investment Fund of the Federal Employees’ 

Retirement System Thrift Savings Plan (TSP), the Civil Service Retirement and Disability Trust Fund (Civil Service 
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Fund), and the Postal Service Retiree Health Benefits Fund (Postal Benefits Fund); (ii) redeemed early a certain amount 

of Treasury debt securities held by the Civil Service Fund; (iii) suspended new issuances of State and Local Government 

Series securities; and (iv) issued cash management bills to manage short-term financing needs.

When a DISP ends, the Department is required by statute to restore the TSP, Civil Service Fund and Postal Benefits Fund

with the accumulated principal balance of Treasury debt securities that bears such interest rates and maturity dates 

necessary to replicate the investments the funds would have held had the DISP not occurred (the uninvested principal). 

The Department is also required by statute to pay these funds the related lost interest (forgone interest) on the 

uninvested principal. Following the DISP period that ended on February 4, 2013, the Department restored the funds 

with the uninvested principal and interest totaling $31 billion and $20 million, respectively. Forgone interest paid to the 

funds in connection with DISPs that occurred in fiscal years 2013 and 2012 totaling $20 million and $59 million, 

respectively, was reported on the Department’s Consolidated Statements of Net Cost as a non-entity expense entitled 

“Restoration of Foregone Federal Debt Interest,” with an offsetting amount reported as “Accrued Interest and Discount 

on Debt” on the Consolidated Statements of Changes in Net Position.

Since the second DISP (which commenced on May 19, 2013) did not end until October 16, 2013, none of the uninvested

principal and foregone interest payable to the funds as a result of the extraordinary measures had been restored to the 

three funds as of September 30, 2013. Uninvested principal owed to the three funds as of September 30, 2013 totaled 

$247.8 billion, and forgone interest payable to the funds for the period May 19, 2013 through September 30, 2013 totaled 

$801 million. Accordingly, the Department recorded a liability for the uninvested principal and foregone interest payable 

to the funds as of September 30, 2013. This liability, coupled with an additional liability for the uninvested principal and 

foregone interest that was incurred during the DISP period October 1, 2013 through October 16, 2013, as discussed 

below, was payable to the three funds subsequent to the October 16, 2013 ending of the DISP. 

The uninvested principal and foregone interest payable as of September 30, 2013 was reported on the Department’s 

Consolidated Balance Sheets as a liability entitled “Liability for Restoration of Federal Debt Principal and Interest,” of 

which $128.3 billion represented an intra-governmental liability of combined principal and interest payable to the Civil 

Service Fund and Postal Benefits Fund which are administered by the OPM, and the remaining $120.3 billion 

represented the principal and interest payable to the TSP, a public liability. Corresponding amounts were reported in the

“Due From the General Fund” on the Consolidated Balance Sheets for the $248.6 billion of uninvested principal and 

foregone interest owed to the funds (Note 4). Additionally, the accrued forgone interest expense of $801 million was 

reported as a non-entity expense entitled “Accrued Restoration of Foregone Federal Debt Interest” on the Consolidated 

Statements of Net Cost, with an offsetting amount reported as “Accrued Interest on Restoration of Federal Debt 

Principal” on the Consolidated Statements of Changes in Net Position.

DISP measures such as those discussed above continued from October 1 through October 16, 2013. when the DISP ended 

and Congress enacted a law to suspend temporarily the debt limit. In addition to those activities previously discussed, 

other types of extraordinary measures were taken during the DISP periods, including temporarily suspending 

investments in Treasury debt securities by the ESF, and utilization of FFB to redeem outstanding Treasury debt securities 

held by the Civil Service Fund (refer to Note 17). On October 17, 2013, the Department discontinued its use of 

extraordinary actions and resumed normal debt management operations. On this date, the Department restored 

uninvested principal of $173.9 billion to the TSP, and $117.7 billion and $4.6 billion to the Civil Service Fund and Postal 

Benefits Fund, respectively. The Department restored forgone interest to the TSP on October 18, 2013 in the amount of 

$653 million. Forgone interest payable to the Civil Service Fund and Postal Benefits Fund will be restored on the next 

semi-annual interest payment date of December 31, 2013. As of October 17, 2013, these amounts totaled $562 million 

and $24 million, respectively. In addition, the Department authorized ESF to resume investments in Treasury debt 
U.S. Department of the Treasury | Fiscal Year 2013

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securities; however, the Department did not restore the ESF for lost interest incurred during the DISP in accordance with 

statute.

17. OTHER DEBT AND INTEREST PAYABLE

The Department, through FFB, has outstanding borrowings and related accrued interest owed to the Civil Service Fund. 

At September 30, 2013 and 2012, FFB had outstanding borrowings of $5.8 billion and $7.2 billion, inclusive of $66 

million and $83 million of accrued interest payable, respectively. During fiscal years 2013 and 2012, the Department 

paid $1.4 billion and $1.3 billion in principal, respectively. The outstanding borrowings at September 30, 2013 and 2012

had a stated interest rate of 4.63 percent and an effective interest rate of 4.63 percent. Maturity dates ranged from June 

30, 2014 to June 30, 2019 for outstanding borrowings at September 30, 2013, and from June 30, 2013 to June 30, 2019

for outstanding borrowings at September 30, 2012. 

On October 1, 2013, the Department, through FFB, exchanged $9.3 billion of non-Treasury debt securities held that do 

not count against the debt limit for an equivalent amount of Treasury debt securities previously held by the Civil Service 

Fund and that do count against the debt limit. FFB used the Treasury debt securities it had received from the Civil 

Service Fund to repay $8.8 billion of outstanding principal borrowings, including interest, owed to the Fiscal Service. 

The Fiscal Service then extinguished the Treasury debt securities it had received from FFB, thereby helping the 

Department to remain below the statutory debt limit. The Department, FFB, and the Civil Service Fund took this 

extraordinary measure to help prevent Treasury debt from exceeding the statutory debt limit. These transactions 

resulted in an additional $9.3 billion outstanding debt obligation owed by FFB to the Civil Service Fund as of October 1, 

2013 to be reported as an intra-governmental liability on the Department’s Consolidated Balance Sheets entitled “Other 

Debt and Interest Payable.”
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18. D.C. PENSIONS AND JUDICIAL RETIREMENT ACTUARIAL 

LIABILITY

Title XI of the Balanced Budget Act of 1997, as amended was intended to relieve the D.C. government of the burden of 

unfunded pension liabilities transferred to the District by the U.S. government in 1979. To fulfill its responsibility, the 

Department manages two funds ― the D.C. Teachers’, Police Officers’, and Firefighters’ Federal Pension Fund (the D.C. 

Federal Pension Fund) and the District of Columbia Judicial Retirement and Survivors’ Annuity Fund (the Judicial 

Retirement Fund). The Department is required to make annual amortized payments from the General Fund to the D.C. 

Federal Pension Fund and the Judicial Retirement Fund. The D.C. Federal Pension Fund benefit payments are related to 

creditable service performed on or before June 30, 1997, while the Judicial Retirement Fund benefit payments are related 

to all creditable service. 

A reconciliation of the combined actuarial pension liability for the D.C. Federal Pension Fund and the Judicial 

Retirement Fund as of September 30, 2013 and 2012 is as follows (in millions):

2013 2012

Beginning Liability Balance $ 10,059 $ 9,671

Pension Expense:

Normal cost 5 4

Interest on Pension Liability During the Year 199 215

Actuarial (Gains) Losses During the Year:

From Experience 128 23

From Discount Rate Assumption Change (523) 532

From Other Assumption Changes (156) 158

Total Pension Expense (347) 932

Less Amounts Paid (548) (544)

Ending Liability Balance $ 9,164 $ 10,059
U.S. Department of the Treasury | Fiscal Year 2013

111

Additional Information ($ in millions):

D.C. Federal

Pension Fund

Judicial 

Retirement Fund

2013

Total

Pension and Other Actuarial Liability $ 8,972 $ 192 $ 9,164

Funded Liability (3,652) (138) (3,790)

Unfunded Liability $ 5,320 $ 54 $ 5,374

Amount Received from the General Fund $ 496 $ 9 $ 505

Annual Rate of Investment Return Assumption 1.86% - 4.41% 1.86% - 4.41%

Future Annual Rate of Inflation and Cost-of-

 Living Adjustment:

Police Officers 2.43% N/A

Firefighters 2.43% N/A

Teachers 2.53% N/A

Judicial N/A 2.56%

Future Annual Rate of Salary Increases:

Police Officers 3.40% N/A

Firefighters 3.08% N/A

Teachers 3.90% N/A

Judicial N/A 2.34%

D.C. Federal

Pension Fund

Judicial

Retirement Fund

2012

Total

Pensions and Other Actuarial Liability $ 9,863 $ 196 $ 10,059

Receipts and Appropriations Temporarily Precluded 

 from Obligations (3,571) (134) (3,705)

Unfunded Liability $ 6,292 $ 62 $ 6,354

Amount Received from the General Fund $ 482 $ 10 $ 492

Annual Rate of Investment Return Assumption 2.02% - 4.70% 2.02% - 4.70%

Future Annual Rate of Inflation and Cost-ofLiving Adjustment

Police Officers 2.55% N/A

Firefighters 2.55% N/A

Teachers 2.55% N/A

Judicial N/A 2.53%

Future Annual Rate of Salary Increases:

Police Officers 4.25% N/A

Firefighters 4.25% N/A

Teachers 4.25% N/A

Judicial N/A 1.50%
U.S. Department of the Treasury | Fiscal Year 2013

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19. LIABILITIES

LIABILITIES NOT COVERED BY BUDGETARY AND OTHER RESOURCES

As of September 30, 2013 and 2012, liabilities not covered by budgetary and other resources consisted of the following (in 

millions):

2013 2012

Intra-governmental Liabilities Not Covered by Budgetary

and Other Resources

Federal Debt Principal, Premium/Discount (Note 16) $ 4,794,346 $ 4,815,496

Liability for Restoration of Federal Debt Principal and Interest (Note 16) 128,272 -

Other Intra-governmental Liabilities 123 124

Total Intra-governmental Liabilities Not Covered by Budgetary

and Other Resources

4,922,741 4,815,620

Federal Debt Principal, Premium/Discount (Note 16) 11,951,835 11,250,361

Liability for Restoration of Federal Debt Principal and Interest (Note 16) 120,356 -

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

D.C. Pensions and Judicial Retirement - Unfunded Liability (Note 18) 5,374 6,354

Liability to GSEs (Note 8) - 9,003

Other Liabilities 2,624 2,866

Total Liabilities Not Covered by Budgetary and Other Resources 17,013,992 16,095,266

Total Liabilities Covered by Budgetary and Other Resources 1,585,489 1,437,200

Total Liabilities $ 18,599,481 $ 17,532,466

OTHER LIABILITIES

Total “Other Liabilities” displayed on the Consolidated Balance Sheets consists of both liabilities that are covered and not 

covered by budgetary resources. Other liabilities at September 30, 2013 and 2012 consisted of the following (in millions):

Current

NonCurrent2013

Total Current

NonCurrent2012

Total

Intra-governmental

Accounts Payable $ 204 $ - $ 204 $ 203 $ - $ 203

Unfunded Federal Workers Compensation 

 Program Liability (FECA) 48 56 104 47 58 105

Other Accrued Liabilities 169 - 169 233 - 233

Total Intra-governmental $ 421 $ 56 $ 477 $ 483 $ 58 $ 541

With the Public

Liability for Deposit Funds (Held by the

U.S. government for Others)

and Suspense Accounts $ 245 $ - $ 245 $ 275 $ - $ 275

Actuarial Federal Workers Compensation 

Program Liability (FECA) - 618 618 - 576 576

Accrued Funded Payroll and Benefits 269 - 269 558 - 558

Accounts Payable and Other Accrued 

 Liabilities 3,047 55 3,102 3,905 60 3,965

Total with the Public $ 3,561 $ 673 $ 4,234 $ 4,738 $ 636 $ 5,374
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20. NET POSITION

Unexpended Appropriations represents the amount of spending authorized as of year-end that is unliquidated or 

unobligated and has not lapsed, been rescinded, or withdrawn. No-year appropriations remain available for obligation 

until expended. Annual appropriations remain available for upward or downward adjustment of obligations until 

expired. 

Cumulative Results of Operations represents the net results of operations since inception, and includes cumulative 

amounts related to investments in capitalized assets and donations and transfers of assets in and out without 

reimbursement. Also included as a reduction in Cumulative Results of Operations are accruals for which the related 

expenses require funding from future appropriations and assessments. These future funding requirements include, 

among others: (a) accumulated annual leave earned but not taken, (b) accrued FECA, (c) credit reform cost re-estimates, 

(d) unfunded D.C. pensions, and (d) expenses for contingent liabilities including Liability to GSEs.

APPROPRIATIONS RECEIVED

The amount reported as “appropriations received” is appropriated by Congress from the General Fund receipts, such as 

income taxes, that are not dedicated by law for a specific purpose. This amount will not necessarily agree with the 

“appropriations (discretionary and mandatory)” amount reported on the Combined Statements of Budgetary Resources 

because of differences between proprietary and budgetary accounting concepts and reporting requirements. For 

example, certain dedicated receipts are recorded as “appropriations (discretionary and mandatory)” on the Combined 

Statements of Budgetary Resources, but are recognized as exchange or non-exchange revenue (i.e., typically in special 

and non-revolving trust funds) and reported on the Statement of Changes in Net Position in accordance with SFFAS No. 

7, Accounting for Revenue and Other Financing Sources.

TRANSFERS TO THE GENERAL FUND AND OTHER

The amount reported as “Transfers to the General Fund and Other” on the Consolidated Statement of Changes in Net 

Position under “Other Financing Sources” includes the following as of September 30, 2013 and 2012 (in millions):

2013 2012

Categories of Transfers to the General Fund and Other

Interest Revenue $ 38,436 $ 38,874

Increase/(Decrease) in Liquidation Preference of GSEs Preferred Stock, 

GSEs Preferred Stock Dividends and Valuation Changes (Note 8) 126,606 (5,322)

Downward Re-estimates of Credit Reform Subsidies (Notes 7 and 11) 11,718 11,648

Other 1,216 1,141

TOTAL $ 177,976 $ 46,341

Included in “Transfers to the General Fund and Other” are the GSE Senior Preferred Stock investments and related 

dividends, as well as the annual valuation adjustment to those investments. These transfers also include distribution of 

interest revenue to the General Fund. The interest revenue is accrued on inter-agency loans held by the Department on 

behalf of the U.S. government. A corresponding amount is reported on the Consolidated Statements of Net Cost under 

“Non-Entity Costs: Less Interest Revenue from Loans.” The amount reported on the Consolidated Statements of Net 

Cost is reduced by eliminations with Treasury bureaus. The credit reform downward re-estimate subsidies that are 

transferred to the General Fund result from a change in forecasts of future cash flows. 

The “Other” line mainly represents collections from other federal agencies as reimbursement of costs incurred by the 

Department for its administration of trust funds established within the Social Security Act. The Department is directed 

by statute to execute these administrative services. Seigniorage and numismatic profits also are included in the “Other”

line. Seigniorage is the face value of newly minted circulating coins less the cost of production. Numismatic profit is any 
U.S. Department of the Treasury | Fiscal Year 2013

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profit on the sale of proof coins, uncirculated coins, commemorative coins, and related products and accessories. The 

United States Mint is required to distribute seigniorage and numismatic profits in excess of operating expenses to the 

General Fund. In any given year, the amount recognized as seigniorage may differ from the amount distributed to the 

General Fund by an insignificant amount due to timing differences.

21. CONSOLIDATED STATEMENTS OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS

The Department’s Consolidated Statements of Net Cost display information on a consolidated basis. The Department

consists of DO and seven operating bureaus that the Department provides supporting schedules for Net Cost in the notes 

to the financial statements (Note 1). These supporting schedules provide consolidating information, which fully displays 

the costs, revenues, and net cost of DO and each operating bureau.

The classification of sub-organizations has been determined in accordance with SFFAS No. 4, Managerial Cost 

Accounting Concepts and Standards for the Federal Government which states that the predominant factor is the 

reporting entity’s organization structure and existing responsibility components, such as bureaus, administrations, 

offices, and divisions within a department.

Each sub-organization is responsible for accumulating costs. The assignment of the costs to Department-wide programs 

is the result of using the following cost assignment methods: (1) direct costs, (2) cause and effect, and (3) cost allocation.

INTRA-DEPARTMENTAL COSTS/REVENUES

Intra-departmental costs/revenues resulting from the provision of goods and/or services on a reimbursable basis among 

Departmental sub-organizations are reported as costs by providing sub-organizations and as revenues by receiving suborganizations. The Department recognized intra-departmental imputed costs on the Consolidated Statements of Net 

Cost of $621 million and $518 million during fiscal years 2013 and 2012, respectively. Accordingly, such costs or

revenues are eliminated in the consolidation process.

INTRA-GOVERNMENTAL COSTS

Intra-governmental costs relate to the source of goods and services purchased by the Department and not to the 

classification of the related intra-governmental revenue.

In certain cases, other federal agencies incur costs that are directly identifiable to the Department’s operations. In 

accordance with SFFAS No. 30, Inter-Entity Cost Implementation Amending SFFAS No. 4, Managerial Cost Accounting 

Standards and Concepts, the Department recognizes identified costs paid on behalf of the Department by other agencies. 

The imputed inter-departmental financing sources currently recognized by the Department include the actual cost of 

future benefits for the federal pension plans that are paid by other federal entities, the FEHB, and any un-reimbursed 

contract dispute payments made from the Treasury Judgment Fund on behalf of the Department. The funding for these 

costs is reflected as costs on the Consolidated Statements of Net Cost, and as imputed financing sources on the 

Statements of Changes in Net Position. Costs paid by other agencies on behalf of the Department were $776 million and 

$812 million for the fiscal years ended September 30, 2013 and 2012, respectively.
U.S. Department of the Treasury | Fiscal Year 2013

115

CONSOLIDATED STATEMENTS OF NET COST PRESENTATION

OMB Circular No. A-136, Financial Reporting Requirements, as revised, requires that the presentation of the 

Consolidated Statements of Net Cost align directly with the goals and outcomes identified in the Strategic Plan. 

Accordingly, the Department has presented the gross costs and earned revenues by the applicable strategic goals in its 

fiscal years 2012 – 2015 Strategic Plan. The majority of Treasury bureaus’ and reporting entities’ net cost information 

falls within a single strategic goal in the Consolidated Statements of Net Cost. TTB, IRS, and DO allocate costs and 

related revenues to multiple programs using a net cost percentage calculation. 

The Department’s Consolidated Statements of Net Cost also present interest expense on the Federal Debt and other 

federal costs incurred on behalf of the U.S. government. These costs are not reflected as program costs related to the 

Department’s strategic plan missions. Such costs are eliminated in the consolidation process to the extent that they 

involve transactions with Treasury sub-organizations.

Non-entity other federal costs shown on the Consolidated Statements of Net Cost for the years ended September 30, 2013

and 2012 consisted of the following (in millions):

2013 2012

Credit Reform Interest on Uninvested Fund (Intra-governmental) $ 8,210 $ 8,745

Judgment Claims and Contract Disputes 5,125 3,480

Resolution Funding Corporation 2,503 2,628

Corporation for Public Broadcasting 422 444

All Other Payments 746 993

Total $ 17,006 $ 16,290
U.S. Department of the Treasury | Fiscal Year 2013

116

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS)

For Fiscal Year Ended September 30, 2013

Program Costs

Bureau of 

Engraving & 

Printing

Bureau of the 

Fiscal 

Service(a)

Departmental 

Office(b)

Fin. Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 426 $ 2,443 $ - $ 4,256 $ -

Less: Earned Revenue - (401) (2,814) - (75) -

Intra-governmental Net Costs - 25 (371) - 4,181 -

Gross Costs with the Public - 1,550 672 - 7,908 -

Less: Earned Revenue - (1) (32) - (402) -

Net Costs with the Public - 1,549 640 - 7,506 -

Net Cost: Financial Program - 1,574 269 - 11,687 -

ECONOMIC PROGRAM

Intra-governmental Gross Costs 95 - 1,505 - - 76

Less: Earned Revenue (2) - (327) - - (3)

Intra-governmental Net Costs 93 - 1,178 - - 73

Gross Costs with the Public 591 - (6,744) - - 4,009

Less: Earned Revenue (693) - (1,528) - - (4,165)

Net Costs with the Public (102) - (8,272) - - (156)

Net Cost (Revenue): Economic Program (9) - (7,094) - - (83)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 184 43 153 -

Less: Earned Revenue - - (46) (1) (24) -

Intra-governmental Net Costs - - 138 42 129 -

Gross Costs with the Public - - 162 71 484 -

Less: Earned Revenue - - - - - -

Net Costs with the Public - - 162 71 484 -

Net Cost: Security Program - - 300 113 613 -

Total Net Program Cost (Revenue)

Before Changes in Actuarial 

Assumptions (9) 1,574 (6,525) 113 12,300 (83)

(Gain)/Loss on Pension, ORB, or OPEB 

Assumption Changes - - (679) - - -

Total Net Cost of (Revenue From) 

Treasury Operations $ (9) $ 1,574 $ (7,204) $ 113 $ 12,300 $ (83)

(a) Includes the combined financial information of the BPD and FMS operating bureaus which merged effective October 2012 (Note 1A). The salaries 

and other administrative expenses of the legacy BPD and FMS bureaus will continue to be funded separately until Congress enacts legislation to 

fund these costs through a single appropriation.

(b) Of the total $7.1 billion of net revenue reported by Departmental Offices for the Economic Program, GSE and OFS contributed $9.2 billion and $7.7 

billion, respectively, of net revenue, partially offset by Do Policy Offices, ESF, and Treasury International Assistance Programs of $5.6 billion, $1.7 

billion, and $2.2 billion, respectively. Other immaterial net costs were spread throughout other DO programs or offices. 
U.S. Department of the Treasury | Fiscal Year 2013

117

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2013

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco 

Tax and 

Trade 

Bureau

Combined 

Total Eliminations

2013

Consolidated

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 14 $ 7,139 $ 3,015 $ 4,124

Less: Earned Revenue - (3) (3,293) (603) (2,690)

Intra-governmental Net Costs - 11 3,846 2,412 1,434

Gross Costs with the Public - 39 10,169 - 10,169

Less: Earned Revenue - (2) (437) - (437)

Net Costs with the Public - 37 9,732 - 9,732

Net Cost: Financial Program - 48 13,578 2,412 11,166

ECONOMIC PROGRAM

Intra-governmental Gross Costs 142 15 1,833 1,462 371

Less: Earned Revenue (32) (1) (365) (338) (27)

Intra-governmental Net Costs 110 14 1,468 1,124 344

Gross Costs with the Public 899 40 (1,205) - (1,205)

Less: Earned Revenue (975) (1) (7,362) - (7,362)

Net Costs with the Public (76) 39 (8,567) - (8,567)

Net Cost (Revenue): Economic Program 34 53 (7,099) 1,124 (8,223)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 380 67 313

Less: Earned Revenue - - (71) (64) (7)

Intra-governmental Net Costs - - 309 3 306

Gross Costs with the Public - - 717 - 717

Less: Earned Revenue - - - - -

Net Costs with the Public - - 717 - 717

Net Cost: Security Program - - 1,026 3 1,023

Total Net Program Cost (Revenue) Before 

Changes in Actuarial Assumptions 34 101 7,505 3,539 3,966

(Gain)/Loss on Pension, ORB, or OPEB 

Assumption Changes (5) - (684) - (684)

Total Net Cost of (Revenue From) Treasury 

Operations $ 29 $ 101 $ 6,821 $ 3,539 $ 3,282
U.S. Department of the Treasury | Fiscal Year 2013

118

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2012

Program Costs

Bureau of 

Engraving & 

Printing

Bureau of the 

Fiscal 

Service

Departmental 

Office(c)

Fin. Crimes 

Enforcement 

Network

Internal 

Revenue 

Service U.S. Mint

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 418 $ 2,412 $ - $ 4,225 $ -

Less: Earned Revenue - (429) (2,762) - (47) -

Intra-governmental Net Costs - (11) (350) - 4,178 -

Gross Costs with the Public - 1,599 587 - 8,329 -

Less: Earned Revenue - (2) (1) - (433) -

Net Costs with the Public - 1,597 586 - 7,896 -

Net Cost: Financial Program - 1,586 236 - 12,074 -

ECONOMIC PROGRAM

Intra-governmental Gross Costs 88 - 4,216 - - 76

Less: Earned Revenue (2) - (1,220) - - (3)

Intra-governmental Net Costs 86 - 2,996 - - 73

Gross Costs with the Public 594 - (285,280) - - 3,194

Less: Earned Revenue (726) - (3,707) - - (3,303)

Net Costs with the Public (132) - (288,987) - - (109)

Net Cost (Revenue): Economic Program (46) - (285,991) - - (36)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 150 59 169 -

Less: Earned Revenue - - (29) 6 (2) -

Intra-governmental Net Costs - - 121 65 167 -

Gross Costs with the Public - - 154 60 526 -

Less: Earned Revenue - - - - - -

Net Costs with the Public - - 154 60 526 -

Net Cost: Security Program - - 275 125 693 -

Total Net Program Cost (Revenue)

Before Changes in Actuarial 

Assumptions (46) 1,586 (285,480) 125 12,767 (36)

(Gain)/Loss on Pension, ORB, or OPEB 

Assumption Changes - - 690 - - -

Total Net Cost of (Revenue From) 

Treasury Operations $ (46) $ 1,586 $ (284,790) $ 125 $ 12,767 $ (36)

(c) Of the total $286.0 billion of net revenue reported by Departmental Offices for the Economic Program, GSE and OFS contributed $288.4 billion 

and $7.8 billion of net revenue, respectively, partially offset by other DO policy offices net cost. 
U.S. Department of the Treasury | Fiscal Year 2013

119

21. CONSOLIDATED STATEMENT OF NET COST AND NET COSTS 

OF TREASURY SUB-ORGANIZATIONS (IN MILLIONS) (CON’T):

For Fiscal Year Ended September 30, 2012

Program Costs

Office of the 

Comptroller of the 

Currency

Alcohol

and

Tobacco 

Tax and 

Trade 

Bureau

Combined 

Total Eliminations

2012

Consolidated

FINANCIAL PROGRAM

Intra-governmental Gross Costs $ - $ 14 $ 7,069 $ 2,742 $ 4,327

Less: Earned Revenue - (1) (3,239) (578) (2,661)

Intra-governmental Net Costs - 13 3,830 2,164 1,666

Gross Costs with the Public - 41 10,556 - 10,556

Less: Earned Revenue - (3) (439) - (439)

Net Costs with the Public - 38 10,117 - 10,117

Net Cost: Financial Program - 51 13,947 2,164 11,783

ECONOMIC PROGRAM

Intra-governmental Gross Costs 136 14 4,530 4,035 495

Less: Earned Revenue (31) - (1,256) (1,226) (30)

Intra-governmental Net Costs 105 14 3,274 2,809 465

Gross Costs with the Public 913 39 (280,540) - (280,540)

Less: Earned Revenue (969) - (8,705) - (8,705)

Net Costs with the Public (56) 39 (289,245) - (289,245)

Net Cost (Revenue): Economic Program 49 53 (285,971) 2,809 (288,780)

SECURITY PROGRAM

Intra-governmental Gross Costs - - 378 59 319

Less: Earned Revenue - - (25) (21) (4)

Intra-governmental Net Costs - - 353 38 315

Gross Costs with the Public - - 740 - 740

Less: Earned Revenue - - - - -

Net Costs with the Public - - 740 - 740

Net Cost: Security Program - - 1,093 38 1,055

Total Net Program Cost (Revenue) Before 

Changes in Actuarial Assumptions 49 104 (270,931) 5,011 (275,942)

(Gain)/Loss on Pension, ORB, or OPEB 

Assumption Changes 5 - 695 - 695

Total Net Cost of (Revenue From) Treasury 

Operations $ 54 $ 104 $ (270,236) $ 5,011 $ (275,247)
U.S. Department of the Treasury | Fiscal Year 2013

120

22. ADDITIONAL INFORMATION RELATED TO THE COMBINED 

STATEMENTS OF BUDGETARY RESOURCES

UNDELIVERED ORDERS

Undelivered orders represent goods and services ordered and obligated, which have not been received. This includes any 

orders for which advance payment has been made, but for which delivery or performance has not yet occurred. 

Undelivered orders at September 30, 2013 and 2012 are shown below (in millions):

2013 2012

Paid $ 42 $ 107

Unpaid 172,804 190,252

Undelivered orders at the end of the year $ 172,846 $ 190,359

CONTRIBUTED CAPITAL

Contributed capital represents the current year authority and prior year balances of amounts actually transferred through 

non-expenditure transfers to miscellaneous receipt accounts of the General Fund of the Treasury to repay a portion of a 

capital investment. Contributed capital for the fiscal years ended September 30, 2013 and 2012 was $42 million and $78 

million, respectively. 

APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED

Apportionment categories are determined in accordance with the guidance provided in OMB Circular No. A-11, 

Preparation, Submission and Execution of the Budget. Apportionment Category A represents resources apportioned for 

calendar quarters. Apportionment Category B represents resources apportioned for other time periods for activities, 

projects or objectives, or for any combination thereof. Obligations incurred for direct and reimbursable obligations by 

apportionment category for the fiscal years ended September 30, 2013 and 2012 are shown below (in millions):

2013 2012

Direct - Category A $ 173 $ 17,958

Direct - Category B 51,173 83,093

Direct - Exempt from Apportionment 429,364 369,596

Total Direct 480,710 470,647

Reimbursable - Category B 5,448 4,490

Reimbursable - Exempt from Apportionment 1,273 1,326

Total Reimbursable 6,721 5,816

Total Direct and Reimbursable $ 487,431 $ 476,463

TERMS OF BORROWING AUTHORITY USED

Several Departmental programs have authority to borrow under the FCRA, as amended. The FCRA provides indefinite 

borrowing authority to financing accounts to fund the unsubsidized portion of direct loans and to satisfy obligations in 

the event the financing account’s resources are insufficient. Repayment requirements are defined by OMB Circular No. 

A-11. Interest expense due is calculated based on the beginning balance of borrowings outstanding and the 

borrowings/repayments activity that occurred during the fiscal year. Undisbursed Departmental borrowings earn 

interest at the same rate as the financing account pays on its debt owed to the Fiscal Service. In the event that principal 

and interest collections exceed the interest expense due, the excess will be repaid to the Department. If principal and 

interest do not exceed interest expense due, the Department will borrow the difference. The Department makes periodic 

principal repayments based on the analysis of cash balances and future disbursement needs. All interest on borrowings 

were due on September 30, 2013. Interest rates on FCRA borrowings range from 0.07 percent to 7.59 percent.
U.S. Department of the Treasury | Fiscal Year 2013

121

AVAILABLE BORROWING

The available borrowing authority and related changes in available borrowing authority as of and for the fiscal years 

ended September 30, 2013 and 2012 are shown below (in millions):

2013 2012

Beginning Balance $ 109,930 $ 123,844

Current Authority 576 11,019

Borrowing Authority Withdrawn (5,130) (10,038)

Borrowing Authority Converted to Cash (2,043) (14,895)

Ending Balance $ 103,333 $ 109,930

RECONCILIATION OF THE PRESIDENT’S BUDGET

The Budget of the United States (also known as the President’s Budget), with actual numbers for fiscal year 2013, was not 

published at the time that these financial statements were issued. The President’s Budget is expected to be published in 

February 2014, and can be located at the OMB website http://www.whitehouse.gov/omb and will be available from the 

U.S. government Printing Office. The following chart displays the differences between the Combined Statement of 

Budgetary Resources (SBR) in the fiscal year 2012 Agency Financial Report and the actual fiscal year 2012 balances 

included in the fiscal year 2014 President’s Budget.
U.S. Department of the Treasury | Fiscal Year 2013

122

Reconciliation of Fiscal Year 2012 Combined Statement of Budgetary Resources

to the Fiscal Year 2014 President's Budget

(in millions)

Budgetary 

Resources

Outlays (net 

of offsetting 

collections)

Distributed

Offsetting

Receipts

Net 

Outlays

Obligations 

Incurred

Statement of Budgetary Resources (SBR) Amounts $ 816,061 $ 315,199 $ (73,881) $ 241,318 $ 476,463

Included in the Treasury Department Chapter of the

President’s Budget (PB) but not in the SBR

IRS non-entity tax credit payments (1) 91,563 91,562 - 91,562 91,563

Tax and Trade Bureau (TTB) non-entity collections for Puerto Rico 376 376 - 376 376

Continued dumping subsidy - U.S. Customs and Border Patrol 125 418 - 418 418

Other 3 4 (13) (9) 5

Subtotal 92,067 92,360 (13) 92,347 92,362

Included in the SBR but not in the Treasury Department 

chapter of the PB

Treasury resources shown in non-Treasury chapters of the PB (2) (51,521) (6,670) - (6,670) (6,696)

Offsetting collections net of collections shown in PB (8,725) - (276) (276) -

Treasury offsetting receipts shown in other chapters of PB - - 544 544 -

Unobligated balance carried forward, recoveries of prior year funds

and expired accounts (247,926) - - - -

ESF resources not shown in PB (3) (44,092) - - - -

Treasury Financing Accounts (CDFI, GSE, OFS and SBLF) (37,112) 137,881 - 137,881 (18,321)

Enacted reduction, 50% Transfer Accounts, and Capital Transfers to 

General Fund not included in PB (44) - - - -

Unobligated balance transfers 14 - - - -

Other - - - - (5)

Subtotal (389,406) 131,211 268 131,479 (25,022)

Trust Funds (4) (2,465) (250) (436) (686) (1,371)

President's Budget Amounts(5) $ 516,257 $ 538,520 $ (74,062) $ 464,458 $ 542,432

(1) These are primarily Earned Income Tax Credit, Child Tax Credit, and Aid to First Time Homebuyers payments that are reported with 

refunds as custodial activities in the Department’s financial statements and thus are not reported as budgetary resources.

(2) The largest of these resources relate to the Department’s International Assistance Programs.

(3) The ESF is a self-sustaining component. Its primary sources of revenue are derived from interest on the ESF’s SDR holdings, investments 

in U.S. Treasury securities, and investments in foreign currency-denominated assets.

(4)

 The Trust Funds (OCC, CDFI Capital Magnet Fund & Cheyenne River Restoration) negative outlay appear in the offsetting receipts section 

of the Analytical Perspectives.

(5)

 Per the President’s Budget for fiscal year 2014 – Budgetary Resources and Outlays are from the Analytical Perspective. Offsetting 

Receipts and Obligations Incurred are from the Appendix.

LEGAL ARRANGEMENTS AFFECTING USE OF UNOBLIGATED BALANCES

The use of unobligated balances is restricted based on annual legislation requirements or enabling authorities. Funds are 

presumed to be available for only one fiscal year unless otherwise noted in the annual appropriation language. 

Unobligated balances in unexpired fund symbols are available in the next fiscal year for new obligations unless some 

restrictions had been placed on those funds by law. In those situations, the restricted funding will be temporarily 

unavailable until such time as the reasons for the restriction have been satisfied or legislation has been enacted to remove 

the restriction.

Amounts in expired fund symbols are not available for new obligations, but may be used to adjust obligations and make 

disbursements that were recorded before the budgetary authority expired or to meet a bona fide need that arose in the 

fiscal year for which the appropriation was made.
U.S. Department of the Treasury | Fiscal Year 2013

123

23. COLLECTION AND DISPOSITION OF CUSTODIAL REVENUE 

The Department collects the majority of federal revenue from income and excise taxes. Collection activity, by revenue 

type and tax year, for the fiscal years ended September 30, 2013 and 2012 are shown below (in millions):

Tax Year

2013 2012 2011

Pre20112013

Collections

Individual Income and FICA Taxes $ 1,580,379 $ 821,555 $ 22,270 $ 24,342 $ 2,448,546

Corporate Income Taxes 217,602 83,575 2,005 8,812 311,994

Estate and Gift Taxes 27 10,243 625 8,935 19,830

Excise Taxes 60,880 22,912 50 128 83,970

Railroad Retirement Taxes 4,192 1,317 1 1 5,511

Unemployment Taxes 3,974 3,786 51 85 7,896

Fines, Penalties, Interest, & Other Revenue - Tax 

Related 1,155 113 - - 1,268

Tax Related Revenue Received 1,868,209 943,501 25,002 42,303 2,879,015

Deposit of Earnings , Federal Reserve System 53,958 21,809 - - 75,767

Fines, Penalties, Interest & Other Revenue - NonTax Related 1,322 296 - - 1,618

Non-Tax Related Revenue Received 55,280 22,105 - - 77,385

Total Revenue Received $ 1,923,489 $ 965,606 $ 25,002 $ 42,303 $ 2,956,400

Less Amounts Collected for Non-Federal Entities 358

Total $ 2,956,042

Tax Year

2012 2011 2010

Pre20102012

Collections

Individual Income and FICA Taxes $ 1,415,326 $ 699,498 $ 20,718 $ 24,448 $ 2,159,990

Corporate Income Taxes 197,244 73,126 739 10,353 281,462

Estate and Gift Taxes 77 6,753 167 7,453 14,450

Excise Taxes 59,105 20,244 42 163 79,554

Railroad Retirement Taxes 3,609 1,163 - 1 4,773

Unemployment Taxes 3,886 3,162 28 83 7,159

Fines, Penalties, Interest, & Other Revenue - Tax 

Related 351 - - - 351

Tax Related Revenue Received 1,679,598 803,946 21,694 42,501 2,547,739

Deposit of Earnings, Federal Reserve System 66,102 15,855 - - 81,957

Fines, Penalties, Interest, & Other Revenue - NonTax Related 216 56 - - 272

Non-Tax Related Revenue Received 66,318 15,911 - - 82,229

Total Revenue Received $ 1,745,916 $ 819,857 $ 21,694 $ 42,501 $ 2,629,968

Less Amounts Collected for Non-Federal Entities 386

Total $ 2,629,582
U.S. Department of the Treasury | Fiscal Year 2013

124

AMOUNTS PROVIDED TO FUND THE U.S. GOVERNMENT

For the years ended September 30, 2013 and 2012, collections of custodial revenue transferred to other federal entities 

were as follows (in millions):

2013 2012

Department of the Interior $ 763 $ 511

General Fund 2,593,079 2,268,311

Total(1) $ 2,593,842 $

 

2,268,822

(1) Transferred amounts include Amounts Provided to Fund the Federal Government and Cash Proceeds from (AIG) Stock Sales Provided to 

Fund the Federal Government, as reported on the Statements of Custodial Activity.

FEDERAL TAX REFUNDS PAID

Refund activity, by revenue type and tax year, was as follows for the years ended September 30, 2013 and 2012 (in 

millions):

Tax Year

2013 2012 2011

Pre20112013

Refunds

Individual Income and FICA Taxes $ 702 $ 287,132 $ 21,861 $ 10,740 $ 320,435

Corporate Income Taxes 5,358 12,893 6,717 16,601 41,569

Estate and Gift Taxes - 188 298 561 1,047

Excise Taxes 512 797 91 118 1,518

Railroad Retirement Taxes - 2 - 70 72

Unemployment Taxes 1 112 20 14 147

Fines, Penalties, Interest & Other Revenue - - - - -

Total $ 6,573 $ 301,124 $ 28,987 $ 28,104 $ 364,788

Tax Year

2012 2011 2010

Pre20102012

Refunds

Individual Income and FICA Taxes $ 514 $ 293,434 $ 23,719 $ 10,008 $ 327,675

Corporate Income Taxes 5,093 10,567 7,356 20,954 43,970

Estate and Gift Taxes - 180 80 245 505

Excise Taxes 433 839 79 136 1,487

Railroad Retirement Taxes - 4 - 4 8

Unemployment Taxes 1 78 11 16 106

Fines, Penalties, Interest & Other Revenue 1 - - - 1

Total $ 6,042 $ 305,102 $ 31,245 $ 31,363 $ 373,752

FEDERAL TAX REFUNDS PAYABLE

As of September 30, 2013 and September 30, 2012, refunds payable to taxpayers consisted of the following (in millions):

2013 2012

Internal Revenue Service $ 2,910 $ 3,252

Alcohol and Tobacco Tax and Trade Bureau 4 3

Total $ 2,914 $ 3,255
U.S. Department of the Treasury | Fiscal Year 2013

125

24. FUNDS FROM DEDICATED COLLECTIONS

The majority of the Department’s FDC activities are attributed to the ESF. In addition, such funds managed by BEP, 

Mint, and OCC (the Department’s non-appropriated bureaus) and certain funds managed by the IRS are public 

enterprise (or revolving) funds and receive no appropriations from the Congress. Other miscellaneous FDCs are 

managed by the Fiscal Service, DO, IRS, OFR, and TFF.

The following is a list of FDCs and a brief description of the purpose, accounting, and uses of these funds.

Bureau Fund Code Fund Title/Description

Exchange Stabilization Fund (ESF)

ESF 20X4444 Exchange Stabilization Fund

Public Enterprise/Revolving Funds

BEP 20X4502 Bureau of Engraving and Printing Fund

MNT 20X4159 Public Enterprise Fund

OCC 20X8413 Assessment Funds

IRS 20X4413 Federal Tax Lien Revolving Fund

Other FDC Funds

Fiscal Service 20X5080 Gifts to Reduce Public Debt

Fiscal Service 20X5081 Presidential Election Campaign

Fiscal Service 20X8625 Gulf Coast Restoration Trust Fund

Fiscal Service 20X8902 Esther Cattell Schmitt Gift Fund

Fiscal Service 955585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 95X5585 Travel Promotion Fund, Corp for Travel Promotion

Fiscal Service 207/85445 Debt Collection Special Fund

Fiscal Service 208/95445 Debt Collection Special Fund

Fiscal Service 209/05445 Debt Collection Special Fund

Fiscal Service 200/15445 Debt Collection Special Fund

Fiscal Service 201/25445 Debt Collection Special Fund

Fiscal Service 202/35445 Debt Collection Special Fund 

Fiscal Service 203/45445 Debt Collection Special Fund

DO 20X5816 Confiscated and Vested Iraqi Property and Assets

DO 20X8790 Gifts and Bequests Trust Fund

IRS 20X5510 Private Collection Agency Program

IRS 20X5433 Informant Reimbursement

OFR 20X5590 Financial Research Fund

TFF 20X5697 Treasury Forfeiture Fund

Pursuant to the legal authority found in Section 10 of the Gold Reserve Act of 1934, as amended, the ESF may purchase or 

sell foreign currencies, hold U.S. foreign exchange and SDR assets, and may provide financing to foreign governments

and foreign entities. The ESF accounts for and reports its holdings to the Fiscal Service on the Standard Form 224, 

“Statement of Transactions,” and provides other reports to Congress. Interest on SDRs in the IMF, investments in U.S.

Treasury securities, and investments in foreign currency assets are ESF’s primary sources of revenue. The ESF’s earnings

and realized gains on foreign currency assets represent inflows of resources to the government, and the interest revenues 

earned from U.S. Securities are the result of intra-Departmental flows.

The BEP, Mint, OCC, and IRS operate “public enterprise/revolving funds” to account for their respective revenues and 

expenses. 31 USC § 5142 established the revolving fund for BEP to account for revenue and expenses related to the 

currency printing activities. P.L. 104-52 (31 USC § 5136) established the Public Enterprise Fund for the Mint to account 

for all revenue and expenses related to the production and sale of numismatic products and circulating coinage. 

Revenues and other financing sources at the Mint are mainly from the sale of numismatic and bullion products and the 
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sale of circulating coins to the FRB system. These revenues represent inflows of resources to the government. 12 USC § 

481 established the Assessment Funds for OCC. Revenue and financing sources are from the bank examinations and 

assessments for the oversight of the national banks, savings associations, and savings and loan holding companies. These 

non-appropriated funds contribute to the inflows of resources to the government to specifically fund these entity’s 

operations. 26 USC § 7810 established the Federal Tax Lien Revolving Fund to account for revenue and expenses from 

the sale of property foreclosed upon by a holder of a lien. Such revenue represents inflows of resources to the federal 

government. There are minimal transactions with other government agencies.

There are other FDCs at several Treasury bureaus, such as donations to the Presidential Election Campaign Fund, gifts to 

reduce the public debt, and other enforcement related activities. Public laws and the U.S. Code established and 

authorized the use of these funds. Sources of revenues and other financing sources include contributions, cash and 

property forfeited in enforcement activities, and public donations, all which represent inflows to the government.

INTRA-GOVERNMENTAL INVESTMENTS IN TREASURY SECURITIES

The U.S. government does not set aside assets to pay future benefits or other expenditures associated with FDCs. The 

Department’s bureaus and other federal agencies invest some of the funds that they collect from the public, if they have 

the statutory authority to do so, in securities issued by the Fiscal Service. The cash collected by the Fiscal Service is 

deposited in the General Fund, which uses the cash for general government purposes.

The investments provide Department bureaus and other federal agencies with authority to draw upon the General Fund 

to make future benefit payments or other expenditures. When the Department bureaus or other federal agencies require 

redemption of these securities to make expenditures, the government finances those redemptions out of accumulated 

cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other 

expenditures. This is the same way that the government finances all other expenditures.

The securities are an asset to the Department bureaus and other federal agencies and a liability of the Fiscal Service. The 

General Fund is liable to the Fiscal Service. Because the Department bureaus and other federal agencies are parts of the 

U.S. government, these assets and liabilities offset each other from the standpoint of the government as a whole. For this 

reason, they do not represent an asset or a liability in the U.S. government-wide financial statements.

The balances related to the investments made by the Department bureaus are not displayed on the Department’s 

financial statements because the bureaus are subcomponents of the Department. However, the General Fund remains 

liable to the Fiscal Service for the invested balances and the Fiscal Service remains liable to the investing Department 

bureaus (See Note 4).

CHANGE IN ACCOUNTING PRINCIPLE

In fiscal year 2013, the Department adopted SFFAS No. 43, Funds from Dedicated Collections: Amending SFFAS No. 27,

Identifying and Reporting Earmarked Funds which, among other things, clarifies the definition of a fund from dedicated 

collection (Note 1Y). In connection with this adoption, the Department determined that the D.C. Pension funds that were 

previously classified and reported as FDCs under SFFAS No. 27 no longer met the requirements for such classification in 

accordance with SFFAS No. 43. The D.C. Pension funds had a negative net position totaling $5.1 billion and $6.0 billion 

as of September 30, 2013 and 2012, respectively, primarily due to the net unfunded liability of the D.C. Pension fund of 

$5.4 billion and $6.4 billion at September 30, 2013 and 2012, respectively. Accordingly, these funds are no longer 

reported in the Consolidated Balance Sheet line item “Cumulative Results of Operations: Funds from Dedicated 

Collections,” but rather they are reported within the line item “Cumulative Results of Operations: Other Funds” as of 

September 30, 2013. The Department adjusted the corresponding Consolidated Balance Sheet line items by $6.0 billion 

as of September 30, 2012 to conform to the current year financial statement presentation of these funds. This change in 
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accounting had no impact to the total “Cumulative Results of Operations” or “Total Net Position” at September 30, 2013 

and 2012. In addition to the Consolidated Balance Sheet, the Department adjusted the fiscal year 2012 presentation of 

and amounts included in the following table to exclude the activity and related balances associated with those funds that 

are no longer designated as FDCs. Furthermore, as permitted by SFFAS No. 43, the Department no longer separately 

presents non-exchange revenue and other financing sources related to FDCs on the its Consolidated Statements of 

Changes in Net Position. 

Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2013

(in millions)

Exchange 

Stabilization 

Fund

Public 

Enterprise/

Revolving 

Funds

Other FDC

Fund

Combined 

FDC Funds

ASSETS

Fund Balance $ - $ 801 $ 742 $ 1,543

Investments and Related Interest – Intra-governmental 22,670 1,310 3,210 27,190

Cash, Foreign Currency and Other Monetary Assets 65,097 - 12 65,109

Investments and Related Interest 14,096 - - 14,096

Other Assets - 1,549 120 1,669

Total Assets $ 101,863 $ 3,660 $ 4,084 $ 109,607

LIABILITIES

Intra-governmental Liabilities $ - $ 33 $ 499 $ 532

Certificates Issued to Federal Reserve Banks 5,200 - - 5,200

Allocation of Special Drawing Rights 54,177 - - 54,177

Other Liabilities 6 562 453 1,021

Total Liabilities 59,383 595 952 60,930

Net Position

Unexpended Appropriations 200 - - 200

Cumulative Results of Operations 42,280 3,065 3,132 48,477

Total Liabilities and Net Position $ 101,863 $ 3,660 $ 4,084 $ 109,607

Statement of Net Cost

Gross Cost $ 2,163 $ 5,812 $ 468 $ 8,443

Less: Earned Revenue (453) (5,871) - (6,324)

Gains/Losses on Pension, ORB, or OPEB Assumption Changes - (5) - (5)

Total Net Cost of (Revenue From) Operations $ 1,710 $ (64) $ 468 $ 2,114

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 43,990 $ 3,165 $ 1,892 $ 49,047

Budgetary Financing Sources - (42) 1,647 1,605

Other Financing Sources - (122) 61 (61)

Total Financing Sources - (164) 1,708 1,544

Net Cost of (Revenue From) Operations (1,710) 64 (468) (2,114)

Change in Net Position (1,710) (100) 1,240 (570)

Ending Balance $ 42,280 $ 3,065 $ 3,132 $ 48,477
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Summary Information for Funds from Dedicated Collections

as of and for the Fiscal Year Ended September 30, 2012

(in millions)

Exchange 

Stabilization 

Fund

Public 

Enterprise/

Revolving 

Funds

Other FDC

Funds

Combined 

FDC Funds

ASSETS

Fund Balance $ - $ 1,093 $ 749 $ 1,842

Investments and Related Interest – Intra-governmental 22,680 1,380 1,634 25,694

Cash, Foreign Currency and Other Monetary Assets 65,764 - 18 65,782

Investments and Related Interest 15,416 - - 15,416

Other Assets - 1,350 139 1,489

Total Assets $ 103,860 $ 3,823 $ 2,540 $ 110,223

LIABILITIES

Intra-governmental Liabilities $ - $ 37 $ 395 $ 432

Certificates Issued to Federal Reserve Banks 5,200 - - 5,200

Allocation of Special Drawing Rights 54,463 - - 54,463

Other Liabilities 7 621 253 881

Total Liabilities 59,670 658 648 60,976

Net Position

Unexpended Appropriations 200 - - 200

Cumulative Results of Operations 43,990 3,165 1,892 49,047

Total Liabilities and Net Position $ 103,860 $ 3,823 $ 2,540 $ 110,223

Statement of Net Cost

Gross Cost $ 1,557 $ 5,001 $ 406 $ 6,964

Less: Earned Revenue (956) (5,033) - (5,989)

Gains/Losses on Pension, ORB, or OPEB Assumption Changes - 5 - 5

Total Net Cost of (Revenue From) Operations $ 601 $ (27) $ 406 $ 980

Statement of Changes in Net Position

Cumulative Results of Operations:

Beginning Balance $ 44,591 $ 3,024 $ 1,665 $ 49,280

Budgetary Financing Sources - (77) 572 495

Other Financing Sources - 191 61 252

Total Financing Sources - 114 633 747

Net Cost of (Revenue From) Operations (601) 27 (406) (980)

Change in Net Position (601) 141 227 (233)

Ending Balance $ 43,990 $ 3,165 $ 1,892 $ 49,047
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25. RECONCILIATION OF NET COST OF TREASURY OPERATIONS

AND NON-ENTITY COSTS TO BUDGET

The Reconciliation of Net Cost of Operations to Budget explains the difference between the budgetary net obligations and 

the proprietary net cost of Treasury operations and non-entity costs. For the fiscal years ended September 30, 2013 and 

2012, the Reconciliation of Net Cost of Operations to Budget consisted of the following (in millions):

2013 2012

RESOURCES USED TO FINANCE ACTIVITIES

Budgetary Resources Obligated:

Obligations Incurred (Note 22) $ 487,431 $ 476,463

Less: Spending Authority from Offsetting Collections and Recoveries of Prior Year Unpaid 

Obligations (67,901) (180,078)

Obligations Net of Offsetting Collections and Recoveries 419,530 296,385

Less: Distributed Offsetting Receipts (151,404) (73,881)

Net Obligations 268,126 222,504

Other Resources:

Donations and Forfeiture of Property 135 174

Financing Sources for Accrued Interest and Discount on Debt 10,905 95,877

Financing Sources for Accrued Interest on Restoration of Federal Debt Principal (Note 16) 801 -

Transfers In/Out Without Reimbursement (42) (47)

Imputed Financing Sources from Cost Absorbed by Others 776 812

Transfers to the General Fund and Other (Note 20) (177,976) (46,341)

Net Other Resources Used to Finance Activities (165,401) 50,475

Total Resources Used to Finance Activities 102,725 272,979

RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF 

TREASURY OPERATIONS AND NON-ENTITY COSTS

Change in Budgetary Resources Obligated for Goods, Services, and Benefits Ordered but not 

yet Provided (12,595) (11,371)

Resources that Fund Expenses Recognized in Prior Periods (8,930) 330,975

Budgetary Offsetting Collections & Receipts that do not affect Net Cost of Treasury 

Operations and Non-Entity Costs (175,527) (145,649)

Adjustment to Accrued Interest and Discount on the Debt 1,381 22,720

Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (1,225) (69,359)

Other Resources or Adjustments to Net Obligated Resources that do not Affect Net Cost of 

Treasury Operations and Non-Entity Costs (332) (11,233)

Total Resources Used to Finance Items Not Part of the Net Cost of Treasury Operations and 

Non-Entity Costs (197,228) 116,083

Total Resources Used to Finance the Net Cost of Treasury Operations and NonEntity Costs 299,953 156,896

Total Components of Net Cost of Treasury Operations and Non-Entity Costs That Will 

Require or Generate Resources in Future Periods (18,865) (15,760)

Total Components of Net Cost of Treasury Operations and Non-Entity Costs That Will Not 

Require or Generate Resources(a) 2,536 4,045

Total Components of Net Cost of Treasury Operations and Non-Entity Costs

That Will Not Require or Generate Resources in the Current Period (16,329) (11,715)

Net Cost of Treasury Operations and Non-Entity Costs $ 283,624 $ 145,181

(a) The Components not requiring or generating resources primarily include depreciation and amortization and revaluation of assets 

or liabilities.
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26. SCHEDULE OF FIDUCIARY ACTIVITY

The following funds have been identified by the Department as meeting the criteria for fiduciary activity. Details of the 

funds are provided below.

Bureau Fund Code Authority Fund Title/Description

BEP 20X6513.013 31 USC 5119 Mutilated Currency Claims Funds

Fiscal Service 20X6045 31 USC 3328 Proceeds, Payments of Unpaid Checks

Fiscal Service 20X6048 31 USC 3329, 3330 Proceeds of Withheld Foreign Checks

Fiscal Service 2015X6078 50 APP. USC 2012 War Claims Fund, Foreign Claims Settlement Commission

Fiscal Service 20X6092 31 USC 1321 Debt Management Operations

Fiscal Service 20X6104 22 USC 1627 Albanian Claims Fund, Treasury

Fiscal Service 20X6133 31 USC 1322 Payment of Unclaimed Moneys

Fiscal Service 20X6210 22 USC 1623 Iraq Claims Settlement Fund

Fiscal Service 20X6309 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 20X6310 22 USC 1627(a) Libyan Claims Settlement Fund

Fiscal Service 20X6311 98 Stat. 1876 Kennedy Center Revenue Bond

Fiscal Service 20X6312 22 USC 1627 Iranian Claims Settlement Fund

Fiscal Service 20X6314 22 USC 1644g German Democrat Settlement Fund

Fiscal Service 20X6315 22 USC 1645h Vietnam Claims Settlement Fund

Fiscal Service 20X6501.018 31 USC 3513 Small Escrow Amounts

Fiscal Service 20X6720 31 USC 3513 SM DIF Account for Dep. & Check Adj.

Fiscal Service 20X6830 104 Stat. 1061 Net Interest Payments to/from State

Fiscal Service 20X6999 31 USC 3513 Accounts Payable, Check Issue UNDDR

IRS 20X6737 90 Stat. 269-270 Internal Revenue Collections for Northern Mariana Island

IRS 20X6738 31 USC 3513 Coverover Withholdings-U.S. Virgin Islands

IRS 20X6740 31 USC 3515 Coverover Withholdings-Guam

IRS 20X6741 31 USC 3513 Coverover Withholdings-American Samoa

OAS 20X6317.001 22 USC 2431 Belize Escrow, Debt Reduction

Unclaimed monies were authorized by 31 USC 5119, which authorized the Fiscal Service to collect unclaimed monies on 

behalf of the public. Other fiduciary activities by the Department as listed above are included in All Other Fiduciary 

Funds.
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Schedule of Fiduciary Activity 

(in millions) 2013 2012

Unclaimed 

Monies -

Fiscal 

Service

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Unclaimed 

Monies -

Fiscal 

Service

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Fiduciary Net Assets, Beginning of the Year $ 509 $ 343 $ 852 $ 451 $ 413 $ 864

Increases:

Contributions to Fiduciary Net Assets 48 316 364 59 243 302

Investment Earnings - 1 1 - 1 1

Total Increases 48 317 365 59 244 303

Decreases:

Disbursements to and on behalf of beneficiaries (6) (505) (511) (1) (314) (315)

Total Decreases (6) (505) (511) (1) (314) (315)

Net Increase (Decrease) in Fiduciary Assets 42 (188) (146) 58 (70) (12)

Fiduciary Net Assets, End of Year $ 551 $ 155 $ 706 $ 509 $ 343 $ 852

Schedule of Fiduciary Net Assets

(in millions) 2013 2012

Unclaimed 

Monies -

Fiscal 

Service

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Unclaimed 

Monies -

Fiscal 

Service

All Other 

Fiduciary 

Funds

Total 

Fiduciary 

Funds

Fiduciary Assets

Cash and Cash Equivalents $ 551 $ 145 $ 696 $ 509 $ 328 $ 837

Investments - 18 18 - 17 17

Total Fiduciary Assets 551 163 714 509 345 854

Less: Fiduciary Liabilities - (8) (8) - (2) (2)

Total Fiduciary Net Assets $ 551 $ 155 $ 706 $ 509 $ 343 $ 852

27. COMMITMENTS AND CONTINGENCIES

LEGAL CONTINGENCIES

The Department is a party in various administrative proceedings, legal actions, and claims, which may ultimately result 

in settlements or decisions adverse to the U.S. government. These contingent liabilities arise in the normal course of 

operations and their ultimate disposition is unknown. The Department discloses contingent liabilities where the 

conditions for liability recognition have not been met and the likelihood of unfavorable outcome is more than remote. 

The Department does not accrue for possible losses related to cases where the potential loss cannot be estimated or the 

likelihood of an unfavorable outcome is less than probable.

In some cases, a portion of any loss that may occur may be paid by the Department’s Judgment Fund, which is separate 

from the operating resources of the Department. For cases related to the Contract Disputes Act of 1978 and awards 

under federal anti-discrimination and whistle-blower protection acts, the Department must reimburse the Judgment 

Fund from future appropriations.

In the opinion of the Department’s management and legal counsel, based on information currently available, the 

expected outcome of other legal actions, individually or in the aggregate, will not have a materially adverse effect on the 

Department’s consolidated financial statements, except for the pending legal actions described below which may have a 

materially adverse impact on the consolidated financial statements depending on the outcomes of the cases.
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Pending Legal Actions

• Tribal Trust Fund Cases: Numerous cases have been filed in the U.S. District Courts in which Native American Tribes 

seek a declaration that the United States has not provided the tribes with a full and complete accounting of their trust 

funds, and seek an order requiring the U.S. government to provide such an accounting. In addition, there are a 

number of other related cases seeking damages in the U.S. Court of Federal Claims, which do not name the Department 

as a defendant. During fiscal year 2013, a number of tribal trust fund case settlements were paid from the Judgment 

Fund for an aggregate amount totaling $405 million. The U.S. government is currently in discussion with counsel 

representing most of the remaining plaintiff tribes with tribal trust fund cases pending against the United States about 

the feasibility of an out-of-court settlement. Plaintiff tribes in several of the pending cases have chosen to pursue active 

litigation, rather than settlement discussion, and the U.S. government is vigorously litigating those cases. The 

Department is unable to determine the likelihood of an unfavorable outcome or an estimate of potential loss at this 

time.

• James X. Bormes v. United States of America: The complaint alleges that the U.S. government willfully violated 

certain provisions of the Fair and Accurate Credit Transaction Act P.L. 108-159 in that the transaction confirmation 

received by the complainant from Pay.gov improperly included, among other things, the expiration date of a credit card 

used in a transaction. The complaint does not state the amount of damages sought on behalf of the class beyond 

asserting that each class member would be entitled to $100 to $1,000 in statutory damages. In a letter sent to the 

Department of Justice, the plaintiff proposed a fund of $30 million for just the Illinois class members.

In July 2009, the U.S. District Court for the Northern District of Illinois granted the U.S. government’s motion to 

dismiss this case for lack of an unequivocal waiver of sovereign immunity. In November 2010, the U.S. Court of 

Appeals for the Federal Circuit reversed the District Court’s decision and directed that the case be remanded back to 

the District Court for further proceedings. The U.S. government’s petition for a rehearing of that decision was denied 

by the Federal Circuit in March 2011. In January 2012, the U.S. Supreme Court granted the U.S. government’s petition 

for a writ of certiorari. The case was argued in October 2012 and, in November 2012, the U.S. Supreme Court reversed 

the lower court decision and remanded the case back to the U.S. Court of Appeals for the Seventh Circuit. The parties 

have completed the appellate briefing and the oral argument occurred on September 27, 2013. The parties are awaiting 

the Seventh Circuit’s decision. The Department is unable to determine the likelihood of an unfavorable outcome or an 

estimate of potential loss at this time.

• GSE Related Cases: A number of cases were filed in the U.S. Court of Federal Claims and the U.S. District Court for 

the District of Columbia in which the plaintiffs allege, among other things, that the U.S. government took their 

property and contractual rights as preferred and common stockholders when the third amendments to the SPSPAs 

between the Department and each GSE were executed in August 2012 (Note 8). One case also alleges that the U.S. 

government took plaintiffs’ property and contractual rights when the GSEs were placed into conservatorship and 

entered into the SPSPAs with the Department in September 2008. In the Court of Federal Claims, the plaintiffs seek 

just compensation (damages) from the U.S. government. In the District Court, the plaintiffs seek to set aside the third 

amendments to the SPSPAs as well as damages. The Department is unable to determine the likelihood of an 

unfavorable outcome or an estimate of potential loss at this time.

• IRS 501(c)(4) Cases: Two cases were filed in U.S. District Court in which the plaintiffs seek actual and punitive 

damages in connection with IRS’ alleged unlawful requests for information and unreasonable delays in processing the 

plaintiffs’ applications for tax exempt status. The Department is unable to determine the likelihood of an unfavorable 

outcome or an estimate of potential loss at this time.
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• Other Legal Actions: The Department is also involved in employment related legal actions (e.g., matters alleging 

discrimination and other claims before federal courts, the Equal Employment Opportunity Commission, the Merit 

Systems Protection Board, etc.) for which an unfavorable outcome is reasonably possible, but for which an estimate of 

potential loss cannot be determined at this time. It is not expected that these cases will have a material adverse effect 

on the Department’s financial position or results. 

OTHER COMMITMENTS AND CONTINGENCIES

Loan Commitments

The Department, through FFB, makes loan commitments with federal agencies, or private sector borrowers whose loans 

are guaranteed by federal agencies, to extend them credit for their own use (refer to Notes 1L and 3). As of September 30, 

2013 and 2012, the Department had loan commitments totaling $73.6 billion and $86.2 billion, respectively.

Multilateral Development Banks

The Department, on behalf of the United States, has subscribed to capital for certain MDBs, portions of which are callable 

under certain limited circumstances to meet the obligations of the respective MDB. There has never been, nor is there 

anticipated, a call on the U.S. commitment for these subscriptions. As of September 30, 2013 and 2012, U.S. callable 

capital in MDBs was as follows (in millions):

2013 2012

Inter-American Development Bank $ 36,437 $ 32,786

International Bank for Reconstruction and Development 33,585 31,805

Asian Development Bank 13,456 11,027

European Bank for Reconstruction and Development 3,055 3,055

African Development Bank 2,534 2,053

North American Development Bank 1,275 1,275

Multilateral Investment Guarantee Agency(1) 315 315

Total $ 90,657 $ 82,316

(1) Both fiscal years 2013 and 2012 include commitments of $22 million for the undisbursed portion of the subscription to paid-in capital investments. 

Amounts included in the above table do not include amounts for which the Department may be liable to pay if future 

congressional action is taken to fund executed agreements between the Department and certain MDBs.

Terrorism Risk Insurance Program

The Terrorism Risk Insurance Act (TRIA), signed into law in November 2002, was enacted to address market 

disruptions resulting from terrorist attacks on September 11, 2001. TRIA helps to ensure available and affordable 

commercial property and casualty insurance for terrorism risk, and simultaneously allows private markets to stabilize. 

The authority to pay claims under the Terrorism Risk Insurance Program (TRIA Program) is activated upon the 

certification of an “act of terrorism” by the Secretary in concurrence with the Secretary of State and the Attorney General. 

If a certified act of terrorism occurs, insurers may be eligible to receive reimbursement from the U.S. government for 

insured losses above a designated deductible amount. Insured losses above this amount will be shared between 

insurance companies and the U.S. government. TRIA also gives the Department authority to recoup federal payments 

made under the TRIA Program through policyholder surcharges under certain circumstances, and contains provisions 

designed to manage litigation arising from or relating to a certified act of terrorism. There were no claims under TRIA as 

of September 30, 2013 or 2012.
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Exchange Stabilization Agreement

The North American Framework Agreement (NAFA), signed by the Department in 1994, includes the Exchange 

Stabilization Agreement (ESA) with Mexico. The Department, through the ESF, has a standing swap line for $3.0 billion 

with Mexico under the NAFA and its implementing ESA. The amounts and terms (including the assured source of

repayment) of any borrowing under NAFA and ESA will have to be negotiated and agreed to before any actual drawing 

can occur. The ESA does provide sample clauses that state that transactions shall be exchange rate neutral for the ESF,

and shall bear interest based on a then current rate tied to U.S. Treasury bills. There were no drawings outstanding on 

the ESF swap line as of September 30, 2013 and 2012. The Department renewed the ESA through December 14, 2014.

New Arrangements to Borrow

The Supplemental Appropriations Act of 2009 (P.L. 111-32) provided the authorization and appropriations for an 

increase in the United States’ participation in the New Arrangements to Borrow (NAB). Because the U.S. financial 

participation in the IMF is denominated in SDRs, P.L. 111-32 authorized and appropriated up to the dollar equivalent of 

SDR 75 billion to implement this commitment. The United States agreed in May 2010 that its participation in the NAB 

would increase from SDR 6.6 billion to SDR 69.1 billion, pursuant to IMF Executive Board Decision No. 14577-(10/35). 

Total U.S. participation in the NAB of SDR 69.1 billion was equivalent to $106.0 billion and $106.5 billion as of

September 30, 2013 and 2012, respectively. Refer to Notes 11 and 12 for more information on the NAB.

Commitment to GSEs

The SPSPA agreements between the Department and each GSE, which have no expiration date, provide for the 

Department to disburse funds to the GSEs if, at the end of any quarter, the FHFA determines that the liabilities exceed its 

assets. At September 30, 2013 and 2012, the Department projected a maximum remaining potential commitment to the 

GSEs of $258.1 billion and $282.3 billion, respectively. Refer to Note 8 for a full description of the SPSPA agreements 

and related contingent liability.
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REQUIRED SUPPLEMENTAL INFORMATION (UNAUDITED – SEE 

ACCOMPANYING AUDITORS’ REPORT)

INTRODUCTION

This section provides the Required Supplemental Information as prescribed by accounting standards.

OTHER CLAIMS FOR REFUNDS

The Department has estimated that $4.3 billion may be payable as other claims for tax refunds. This estimate represents 

amounts (principal and interest) that may be paid for claims pending judicial review by the federal courts or internally, 

by Appeals. The total estimated payout (including principal and interest) for claims pending judicial review by the 

federal courts is $0.8 billion and by appeals is $3.5 billion.

The Department made an administrative determination to accept the position that certain medical residents who 

received stipends be exempted from FICA taxes for periods before April 1, 2005. At September 30, 2013 and 2012, the 

IRS estimated unpaid refund claims of approximately $0.1 billion and $2.4 billion, respectively. 

In accordance with federal accounting standards, the amounts of these claims have not been recorded as a liability in the 

consolidated financial statements because certain administrative processes have not been completed as of September 30, 

2013.

IRS FEDERAL TAXES RECEIVABLE, NET

In accordance with SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling 

Budgetary and Financial Accounting, some unpaid tax assessments do not meet the criteria for financial statement 

recognition. Under Internal Revenue Code Section 6201, the Department is authorized and required to make inquiries, 

determinations, and assessments of all taxes which have not been duly paid (including interest, additions to the tax, and 

assessable penalties) under the law. Unpaid assessments result from taxpayers filing returns without sufficient payment, 

as well as from tax compliance programs such as examination, under-reporter, substitute for return, and combined 

annual wage reporting. The Department also has authority to abate the paid or unpaid portion of an assessed tax, 

interest, and penalty. Abatements occur for a number of reasons and are a normal part of the tax administration process. 

Abatements may result in claims for refunds or a reduction of the unpaid assessed amount.

Under federal accounting standards, unpaid assessments require taxpayer or court agreement to be considered federal 

taxes receivable. Assessments not agreed to by taxpayers or the courts are considered compliance assessments and are 

not considered federal taxes receivable. Due to the lack of agreement, these compliance assessments are less likely to 

have future collection potential than those unpaid assessments that are considered federal taxes receivable.

Assessments with little or no future collection potential are called write-offs. Write-offs principally consist of amounts 

owed by deceased, bankrupt, or defunct taxpayers, including many failed financial institutions liquidated by the FDIC 

and the former RTC. Write-offs have little or no future collection potential, but statutory provisions require that these 

assessments be maintained until the statute for collection expires.

Although compliance assessments and write-offs are not considered receivables under federal accounting standards, they 

represent legally enforceable claims of the U.S. government. 
U.S. Department of the Treasury | Fiscal Year 2013

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The components of the total unpaid assessments at September 30, 2013 and 2012, were as follows (in millions):

2013 2012

Total Unpaid Assessments $ 374,000 $ 364,000

Less: Compliance Assessments (85,000) (87,000)

Write Offs (130,000) (125,000)

Gross Federal Taxes Receivable 159,000 152,000

Less: Allowance for Doubtful Accounts (124,000) (113,000)

Federal Taxes Receivables, Net $ 35,000 $ 39,000

To eliminate double counting, the compliance assessments reported above exclude trust fund recovery penalties assessed

against officers and directors of businesses involved in the non-remittance of federal taxes withheld from their 

employees. The penalties totaled $2.0 billion as of September 30, 2013 and 2012. The related unpaid assessments of 

those businesses are reported as taxes receivable or write-offs, but the Department may also recover portions of those 

businesses’ unpaid assessments from any and all individual officers and directors against whom a trust fund recovery 

penalty is assessed.

ALCOHOL AND TOBACCO TAX AND TRADE BUREAU

As an agent of the U.S. government and as authorized by 26 USC, the TTB collects excise taxes from alcohol, tobacco, 

firearms, and ammunition industries. In addition, special occupational taxes are collected from certain tobacco 

businesses. During fiscal years 2013 and 2012, TTB collected approximately $22.9 billion and $23.4 billion in taxes, 

interest, and other revenues, respectively. Federal excise taxes are also collected on certain articles produced in Puerto 

Rico and the Virgin Islands, and imported into the United States. In accordance with 26 USC 7652, such taxes collected 

on rum imported into the United States are “covered over” or paid into the treasuries of Puerto Rico and the Virgin 

Islands.

Substantially all of the taxes collected by TTB, net of related refund disbursements, are remitted to the General Fund. 

The Department further distributes this revenue to Federal agencies in accordance with various laws and regulations. 

The firearms and ammunition excise taxes are an exception. Those revenues are remitted to the Fish and Wildlife 

Restoration Fund under provisions of the Pittman-Robertson Act of 1937.

DEFERRED MAINTENANCE

In fiscal years 2013 and 2012, the Department had no material amounts of deferred maintenance costs to report on 

vehicles, buildings, and structures owned by the Department.

Deferred maintenance applies to owned PP&E. Deferred maintenance is maintenance that was not performed when it 

should have been, or was scheduled to be, and is put off or delayed for a future period. Maintenance is defined as the act 

of keeping capitalized assets in an “acceptable condition” to serve their required mission. It includes preventive 

maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve 

the asset so that it continues to provide acceptable services and achieves its expected useful life. Maintenance excludes 

activities aimed at expanding the capacity or significantly upgrading the assets to a different form than it was originally 

intended (i.e., activities related to capitalized improvements, modernization, and/or restoration).

Logistic personnel use condition assessment surveys and/or the total life-cycle cost methods to determine deferred 

maintenance and acceptable operating condition of an asset. Periodic condition assessments, physical inspections, and 

review of manufacturing and engineering specifications, work orders, and building and other structure logistics reports 

can be used under these methodologies. Heritage assets held by the Department are generally in acceptable physical 

condition, and there is no deferred maintenance on heritage assets.
U.S. Department of the Treasury | Fiscal Year 2013

137

STATEMENT OF BUDGETARY RESOURCES DISAGGREGATED BY TREASURY REPORTING ENTITY

The following tables provide the Statement of Budgetary Resources for the fiscal years ended September 30, 2013 and 

2012 disaggregated by Treasury reporting entity rather than by Treasury major budget account, since Treasury manages 

its budget at the reporting entity level.

Fiscal Year 2013 Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

(in millions):

Bureau of 

Engraving & 

Printing

Bureau of the 

Fiscal 

Service(a)

Departmental 

Offices(b)

Fin. Crimes 

Enforcement 

Network

Internal 

Revenue 

Service

BUDGETARY RESOURCES

Unobligated balance brought forward, October 1 $ 51 $ 453 $ 336,295 $ 34 $ 980

Recoveries of prior year unpaid obligations - 43 15,259 4 134

Other changes in unobligated balance - (6) (26,674) (1) (72)

Unobligated balance from prior year budget authority, net 51 490 324,880 37 1,042

Appropriations (discretionary and mandatory) - 434,829 58,105 105 11,553

Borrowing authority (discretionary and mandatory) - - 576 - -

Spending authority from offsetting collections (discretionary 

and mandatory) 664 536 17,931 3 126

Total Budgetary Resources $ 715 435,855 $ 401,492 $ 145 $ 12,721

STATUS OF BUDGETARY RESOURCES

Obligations incurred $ 656 $ 435,022 $ 34,646 $ 101 $ 11,731

Unobligated balance, end of year :

Apportioned 20 784 273,045 42 637

Exempt from apportionment - 6 17,894 - 7

Unapportioned 39 43 75,907 2 346

Total unobligated balance brought forward, end of year 59 833 366,846 44 990

Total Status of Budgetary Resources $ 715 $ 435,855 $ 401,492 $ 145 $ 12,721

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 117 $ 996 $ 249,770 $ 36 $ 1,672

Obligations incurred 656 435,022 34,646 101 11,731

Outlays, gross (723) (435,403) (37,125) (110) (11,972)

Recoveries of prior year unpaid obligations - (43) (15,259) (4) (134)

Unpaid obligations, gross, end of year 50 572 232,032 23 1,297

Uncollected Payments:

Uncollected payments from federal sources, brought 

forward, October 1 (55) (34) (852) (7) (41)

Change in uncollected customer payments from

federal sources (9) (60) 81 4 11

Uncollected customer payments from federal sources, end of

 year (64) (94) (771) (3) (30)

Obligated balance, End of Year (Net) (14) 478 231,261 20 1,267

Obligated Balance, Start of Year (Net) $ 62 $ 962 $ 248,918 $ 29 $ 1,631

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 664 $ 435,365 $ 76,612 $ 108 $ 11,679

Actual offsetting collections (discretionary and mandatory) (687) (476) (46,141) (6) (137)

Change in uncollected customer payments from federal 

sources (discretionary and mandatory) (9) (60) 81 4 11

Budget Authority, Net (Discretionary and 

Mandatory) $ (32) $ 434,829 $ 30,552 $ 106 11,553

Outlay, gross (discretionary and mandatory) $ 723 $ 435,403 $ 37,125 $ 110 11,972

Actual offsetting collections (discretionary and mandatory) (687) (476) (46,141) (6) (137)

Outlays, net (discretionary and mandatory) 36 434,927 (9,016) 104 11,835

Distributed offsetting receipts - (39,401) (111,272) - (731)

Agency Outlays, Net (Discretionary and Mandatory) $ 36 $ 395,526 $ (120,288) $ 104 $ 11,104

(a) Includes the combined financial information of the BPD and FMS operating bureaus which merged effective October 2012 (Note 1A). The salaries 

and other administrative expenses of the legacy BPD and FMS bureaus will continue to be funded separately until Congress enacts legislation to 

fund these costs through a single appropriation.

(b) Of the $401 billion of Total Budgetary Resources for Departmental Offices, GSE and OFS had $260 billion and $38 billion, respectively. The 

remainder is spread throughout other offices.
U.S. Department of the Treasury | Fiscal Year 2013

138

Fiscal Year 2013 Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

(in millions): U.S. Mint

Office of the 

Comptroller 

of the 

Currency

Alcohol

and

Tobacco 

Tax and 

Trade 

Bureau Budgetary

NonBudgetary

BUDGETARY RESOURCES

Unobligated balance brought forward, October 1 $ 694 $ 1,087 $ 4 $ 320,785 $ 18,813

Recoveries of prior year unpaid obligations 42 - 2 7,876 7,608

Other changes in unobligated balance (42) - (1) (3,366) (23,430)

Unobligated balance from prior year budget authority, net 694 1,087 5 325,295 2,991

Appropriations (discretionary and mandatory) - - 95 504,687 -

Borrowing authority (discretionary and mandatory) - - - - 576

Spending authority from offsetting collections (discretionary 

and mandatory) 3,961 1,005 6 10,091 14,141

Total Budgetary Resources $ 4,655 $ 2,092 $ 106 $ 840,073 $ 17,708

STATUS OF BUDGETARY RESOURCES

Obligations incurred $ 4,159 $ 1,016 $ 100 $ 471,734 $ 15,697

Unobligated balance, end of year:

Apportioned 496 - 2 274,291 735

Exempt from apportionment - 1,076 - 18,983 -

Unapportioned - - 4 75,065 1,276

Total unobligated balance brought forward, end of year 496 1,076 6 368,339 2,011

Total Status of Budgetary Resources $ 4,655 $ 2,092 $ 106 $ 840,073 $ 17,708

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 276 $ 284 $ 22 $ 142,307 $ 110,866

Obligations incurred 4,159 1,016 100 471,734 15,697

Outlays, gross (4,195) (1,077) (103) (473,187) (17,521)

Recoveries of prior year unpaid obligations (42) - (2) (7,876) (7,608)

Unpaid obligations, gross, end of year 198 223 17 132,978 101,434

Uncollected Payments:

Uncollected payments from federal sources, brought 

forward, October 1 (6) (5) (4) (186) (818)

Change in uncollected customer payments from federal

sources - 1 1 (59) 88

Uncollected customer payments from federal sources, end of 

year (6) (4) (3) (245) (730)

Obligated balance, End of Year (Net) 192 219 14 132,733 100,704

Obligated Balance, Start of Year (Net) $ 270 $ 279 $ 18 $ 142,121 $ 110,048

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 3,961 $ 1,005 $ 101 $ 514,778 $ 14,717

Actual offsetting collections (discretionary and mandatory) (3,985) (1,007) (7) (10,088) (42,358)

Change in uncollected customer payments from federal

sources (discretionary and mandatory) - 1 1 (59) 88

Budget Authority, Net (Discretionary and

 Mandatory) $ (24) $ (1) $ 95 $ 504,631 $ (27,553)

Outlay, gross (discretionary and mandatory) $ 4,195 $ 1,077 $ 103 $ 473,187 $ 17,521

Actual offsetting collections (discretionary and mandatory) (3,985) (1,007) (7) (10,088) (42,358)

Outlays, net (discretionary and mandatory) 210 70 96 463,099 (24,837)

Distributed offsetting receipts - $ - $ - $ (151,404) $ -

Agency Outlays, Net (Discretionary and Mandatory) $ 210 70 96 311,695 (24,837)
U.S. Department of the Treasury | Fiscal Year 2013

139

Fiscal Year 2012 Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

(in millions):

Bureau of 

Engraving & 

Printing

Bureau of the 

Fiscal Service

Departmental 

Offices1

Fin. Crimes 

Enforcement 

Network

Internal 

Revenue 

Service

BUDGETARY RESOURCES

Unobligated balance brought forward, October 1 $ 26 $ 407 $ 366,022 $ 34 $ 885

Recoveries of prior year unpaid obligations - 27 13,164 1 105

Other changes in unobligated balance - (7) (40,845) (1) (96)

Unobligated balance from prior year budget authority, net 26 427 338,341 34 894

Appropriations (discretionary and mandatory) - 379,246 37,903 111 12,175

Borrowing authority (discretionary and mandatory) - - 11,019 - -

Spending authority from offsetting collections 

(discretionary and mandatory) 730 505 28,422 8 144

Total Budgetary Resources $ 756 $ 380,178 $ 415,685 $ 153 $ 13,213

STATUS OF BUDGETARY RESOURCES

Obligations incurred $ 705 $ 379,725 $ 79,390 $ 119 $ 12,233

Unobligated balance, end of year:

Apportioned 22 409 229,800 32 602

Exempt from apportionment - 6 22,593 - 6

Unapportioned 29 38 83,902 2 372

Total unobligated balance brought forward, end of year 51 453 336,295 34 980

Total Status of Budgetary Resources $ 756 $ 380,178 $ 415,685 $ 153 $ 13,213

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 140 $ 920 $ 268,670 $ 27 $ 1,776

Obligations incurred 705 379,725 79,390 119 12,233

Outlays, gross (728) (379,622) (85,126) (109) (12,232)

Recoveries of prior year unpaid obligations - (27) (13,164) (1) (105)

Unpaid obligations, gross, end of year 117 996 249,770 36 1,672

Uncollected Payments:

Uncollected payments from federal sources, brought

 forward, October 1 (40) (43) (1,010) (9) (52)

Change in uncollected customer payments from federal 

 sources (15) 9 158 2 11

Uncollected customer payments from federal sources, end

 of year (55) (34) (852) (7) (41)

Obligated balance, End of Year (Net) 62 962 248,918 29 1,631

Obligated Balance, Start of Year (Net) $ 100 $ 877 $ 267,660 $ 18 $ 1,724

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 730 $ 379,751 $ 77,344 $ 119 $ 12,319

Actual offsetting collections (discretionary and mandatory) (715) (514) (161,078) (10) (156)

Change in uncollected customer payments from federal

sources (discretionary and mandatory) (15) 9 158 2 11

Budget Authority, Net (Discretionary and 

Mandatory) $ - $ 379,246 $ (83,576) $ 111 12,174

Outlay, gross (discretionary and mandatory) $ 728 $ 379,622 $ 85,126 $ 109 12,232

Actual offsetting collections (discretionary and mandatory) (715) (514) (161,078) (10) (156)

Outlays, net (discretionary and mandatory) 13 379,108 (75,952) 99 12,076

Distributed offsetting receipts - (39,894) (33,243) - (744)

Agency Outlays, Net (Discretionary and 

Mandatory) $ 13 $ 339,214 $ (109,195) $ 99 $ 11,332

(1) Of the $416 billion of Total Budgetary Resources for Departmental Offices, GSE and OFS had $242 billion and $68 billion, respectively. The 

remainder is spread throughout other offices
U.S. Department of the Treasury | Fiscal Year 2013

140

Fiscal Year 2012 Statement of Budgetary Resources Disaggregated

by Sub-organization Accounts

(in millions): U.S. Mint

Office of the 

Comptroller 

of the 

Currency

Alcohol

and

Tobacco 

Tax and 

Trade 

Bureau Budgetary

NonBudgetary

BUDGETARY RESOURCES

Unobligated balance brought forward, October 1 $ 413 $ 1,163 $ 4 $ 340,384 $ 28,570

Recoveries of prior year unpaid obligations 51 - 1 2,818 10,531

Other changes in unobligated balance (77) - - (3,542) (37,484)

Unobligated balance from prior year budget authority, net 387 1,163 5 339,660 1,617

Appropriations (discretionary and mandatory) - - 100 429,535 -

Borrowing authority (discretionary and mandatory) - - - - 11,019

Spending authority from offsetting collections (discretionary 

and mandatory) 3,413 1,001 7 9,727 24,503

Total Budgetary Resources $ 3,800 $ 2,164 $ 112 $ 778,922 $ 37,139

STATUS OF BUDGETARY RESOURCES

Obligations incurred $ 3,106 $ 1,077 $ 108 $ 458,137 $ 18,326

Unobligated balance, end of year

Apportioned 670 - - 227,587 3,948

Exempt from apportionment - 1,087 - 23,692 -

Unapportioned 24 - 4 69,506 14,865

Total unobligated balance brought forward, end of year 694 1,087 4 320,785 18,813

Total Status of Budgetary Resources $ 3,800 $ 2,164 $ 112 $ 778,922 $ 37,139

CHANGE IN OBLIGATED BALANCE

Unpaid obligations, gross, brought forward, October 1 $ 346 $ 251 $ 23 $ 148,351 $ 123,802

Obligations incurred 3,106 1,077 108 458,137 18,326

Outlays, gross (3,125) (1,044) (108) (461,363) (20,731)

Recoveries of prior year unpaid obligations (51) - (1) (2,818) (10,531)

Unpaid obligations, gross, end of year 276 284 22 142,307 110,866

Uncollected Payments:

Uncollected payments from federal sources, brought 

forward, October 1 (7) (7) (2) (201) (969)

Change in uncollected customer payments from federal 

sources 1 2 (2) 15 151

Uncollected customer payments from federal sources, end of 

year (6) (5) (4) (186) (818)

Obligated balance, End of Year 270 279 18 142,121 110,048

Obligated Balance, Start of Year (Net) $ 339 $ 244 $ 21 $ 148,150 $ 122,833

BUDGET AUTHORITY AND OUTLAYS, NET

Budget authority, gross (discretionary and mandatory) $ 3,413 $ 1,001 $ 107 $ 439,262 $ 35,522

Actual offsetting collections (discretionary and mandatory) (3,414) (1,003) (5) (9,743) (157,152)

Change in uncollected customer payments from federal 

sources (discretionary and mandatory) 1 2 (2) 15 151

Budget Authority, Net (Discretionary and 

Mandatory) $ - $ - $ 100 $ 429,534 $ (121,479)

Outlay, gross (discretionary and mandatory) $ 3,125 $ 1,044 $ 108 $ 461,363 $ 20,731

Actual offsetting collections (discretionary and mandatory) (3,414) (1,003) (5) (9,743) (157,152)

Outlays, net (discretionary and mandatory) (289) 41 103 451,620 (136,421)

Distributed offsetting receipts - - - (73,881) -

Agency Outlays, Net (Discretionary and Mandatory) $ (289) $ 41 $ 103 $ 377,739 $ (136,421)
U.S. Department of the Treasury | Fiscal Year 2013

141

(UNAUDITED)
U.S. Department of the Treasury | Fiscal Year 2013

142
U.S. Department of the Treasury | Fiscal Year 2013

143

SECTION A: SCHEDULE OF SPENDING

Schedule of Spending (Unaudited)

For Year Ended September 30, 2013

(In Millions)

The following Schedule of Spending (SOS) presents an overview of the funds available for the Department to spend and how 

the Department spent these funds as of and for the fiscal year ended September 30, 2013. The financial data used to populate

this schedule is the same underlying data used to populate the Department’s Statement of Budgetary Resources (SBR). 

Accordingly, the budgetary financial information in this schedule is presented on a combined basis rather than on a 

consolidated basis. Specifically, the SOS presents Total Resources (or “Total Budgetary Resources” per the SBR), Amount 

Available but Not Agreed to be Spent (or “Unobligated balance, end of year – Apportioned and Exempt from Apportionment” 

per the SBR), and “Amount Not Available to be Spent” (or “Unobligated balances, end of year – Unapportioned” per the SBR). 

2013 2012

What Money is Available to Spend?

Total Resources $ 857,781 $ 816,061

Less: Amount Available but Not Agreed to be Spent (294,009) (255,227)

Less: Amount Not Available to be Spent (76,341) (84,371)

Total Amounts Agreed to be Spent $ 487,431 $ 476,463 

How was the Money Spent/Issued?

Interest and Dividends1 $ 427,946 $ 372,178

Grants, Subsidies, and Contributions2 24,590 37,885

Personnel Compensation and Other Related Benefits 11,254 11,588

Investments and Loans3 7,201 40,716

Other Contractual Services 4,079 9,882

Other 12,359 4,214

Total Amounts Agreed to be Spent $ 487,431 $ 476,463

Who did the Money go to?

Federal $ 201,954 $ 182,013

Non-Federal 285,477 294,450

Total Amounts Agreed to be Spent $ 487,431 $ 476,463 

 1 Interest and Dividends is primarily comprised of Interest on the Public Debt and interest expense related to credit reform activities.

2 Grants, Subsidies, and Contributions are primarily comprised of cash payments to States, other political subdivisions, corporations, 

associations, and individuals; credit reform program related subsidies; and contributions to foreign countries.

3 Investments and Loans primarily include investments made in connection with loans issued for credit reform and non-credit reform 

activities. The fiscal year 2012 amount includes $18.5 billion of liquidity payments made to the Government Sponsored Enterprises under the 

Senior Preferred Stock Purchase Agreements as of the fiscal year ended September 30, 2012 (Note 8). There were no payments to the GSEs for 

the fiscal year ended September 30, 2013.
U.S. Department of the Treasury | Fiscal Year 2013

144

SECTION B: TAX GAP AND TAX BURDEN

TAX GAP

Reducing the tax gap is at the heart of IRS’s enforcement and service programs. The tax gap is the difference between the tax 

(not interest and penalties) imposed on taxpayers by law for a given tax year and what they actually pay on time. The tax gap

arises from three types of noncompliance: not filing required tax returns on time or at all (the nonfiling gap), underreporting the 

correct amount of tax on timely filed returns (the underreporting gap), and not paying on time the full amount reported on 

timely filed returns (the underpayment gap). Of these three components, only the underpayment gap is observed; the nonfiling 

gap and the underreporting gap must be estimated. The tax gap, about $450 billion based on updated tax year 2006 estimates, is 

defined as underpayments net of overpayments of true tax liability. However, it excludes illegal economic activity. IRS limits its 

estimates of the tax gap to tax due on legal-sector activity only. The tax gap is not synonymous with the so- called “underground

economy,” though there is some overlap. The underground economy is made up of activities that are not very visible to tax and 

other government authorities. Some of these activities are legal-sector and some are illegal-sector activities. While some of the 

tax gap arises from legal-sector income generated by underground economy participants, some of it arises from noncompliance 

that is completely unrelated to the underground economy – such as claiming the wrong filing status or overstating exemptions or 

tax credits. Therefore, while there is substantial overlap between the tax gap and the underground economy, it is best to 

maintain the distinction between these two concepts.

The underreporting gap accounts for 84 percent of the gross tax gap, with the remainder divided between the nonfiling gap (6 

percent) and the underpayment of reported tax liability (10 percent). The IRS remains committed to finding ways to increase 

compliance and reduce the tax gap, while minimizing the burden on the vast majority of taxpayers who pay their taxes accurately 

and on time.

Each instance of noncompliance by a taxpayer at the time the tax is due contributes to the tax gap, whether or not the IRS 

detects it, and whether or not the taxpayer is even aware of the noncompliance. Obviously, some of the tax gap arises from 

intentional (willful) noncompliance, and some of it arises from mistakes caused by not applying sufficient due diligence to meet 

the tax obligation fully.

The collection gap is the cumulative amount of tax, penalties, and interest that has been assessed over many years, but has not 

been paid by a certain point in time, and which the IRS expects to remain uncollectible. In essence, it represents the difference 

between the total balance of unpaid assessments and the net taxes receivable reported on the IRS’s balance sheet. The tax gap 

and the collection gap are related and overlapping concepts, but they have significant differences. The collection gap is a 

cumulative balance sheet concept for a particular point in time, while the tax gap is like an income statement item for a single 

year. Moreover, the tax gap estimates include all noncompliance, while the collection gap includes only amounts that have been 

assessed (a small portion of all noncompliance).

TAX BURDEN

The Internal Revenue Code (IRC) provides for progressive rates of tax, whereby higher incomes are generally subject to higher 

rates of tax. The following graphs and charts present the latest available information on reported income tax and adjusted gross 

income (AGI) for individuals by reported AGI level and for corporations by size of reported assets. For individuals, the 

information illustrates, in percentage terms, the reported tax burden borne by various reported AGI levels. For corporations, the 

information illustrates, in percentage terms, the reported tax burden borne by these entities by various sizes of their reported 

total assets. The graphs are only representative of more detailed data and analysis available from the IRS’s Statistics of Income 

Division. 
U.S. Department of the Treasury | Fiscal Year 2013

145

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2,276 

21,965 

39,083 

71,169 

134,007 

284,306 

1,504,944 

60 

615 

2,168 

6,132 

16,872 

55,866 

354,225 

Dollars

Average Adjusted Gross Income (AGI) and

Average Individual Income Tax Liability

Tax Year 2011

Average AGI

Average Income Tax

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2.6% 2.8%

5.5%

8.6%

12.6%

19.6%

23.5%

Percentage

Individual Income Tax Liability as a Percentage of AGI

Tax Year 2011

INDIVIDUAL INCOME TAX LIABILITY

Tax Year 2011

Adjusted gross 

income 

(AGI)

Number of taxable 

returns 

(in thousands)

AGI 

(in millions)

Total income 

tax 

(in Millions)

Average AGI 

per return 

(in whole 

dollars)

Average 

income tax 

per return 

(in whole 

dollars)

Income tax 

as a 

percentage 

of AGI

Under $15,000

 

38,456 $ 87,540 $ 2,304 $ 2,276 $ 60 2.6%

$15,000 under 

$30,000

 

31,078 

 

682,619 19,113 21,965 615 2.8%

$30,000 under 

$50,000

 

25,504 

 

996,783 55,287 39,083 2,168 5.5%

$50,000 under 

$100,000

 

30,876 

 

2,197,423 189,342 71,169 6,132 8.6%

$100,000 under 

$200,000

 

14,756 

 

1,977,406 248,968 134,007 16,872 12.6%

$200,000 under 

$500,000

 

3,802 

 

1,080,932 212,403 284,306 55,866 19.6%

$500,000 or more

 

898 

 

1,351,440 318,094 1,504,944 354,225 23.5%

Total

 

145,370 $ 8,374,143 $ 1,045,511 - - -
U.S. Department of the Treasury | Fiscal Year 2013

146

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

31.8%

19.1%

22.9%

28.9%

31.4%

32.6%

32.1%

32.0%

30.2%

30.1%

28.2%

19.6%

Percent

Corporation Tax Liability as a Percentage of Taxable Income 

Tax Year 2010 Data

CORPORATION TAX LIABILITY

Tax Year 2010

Total Assets 

(in Thousands)

Income subject to tax 

(in Millions)

Total income tax after credits 

(in Millions)

Percentage of income tax 

after credits to taxable income

Zero Assets $ 15,068 $ 4,789 31.8%

$1 under $500 6,167 1,178 19.1%

$500 under $1,000 3,231 741 22.9%

$1,000 under $5,000 10,274 2,970 28.9%

$5,000 under $10,000 6,890 2,162 31.4%

$10,000 under $25,000 10,312 3,358 32.6%

$25,000 under $50,000 9,900 3,175 32.1%

$50,000 under $100,000 12,955 4,150 32.0%

$100,000 under $250,000 23,640 7,143 30.2%

$250,000 under $500,000 29,057 8,732 30.1%

$500,000 under $2,500,000 109,072 30,770 28.2%

$2,500,000 or more 785,609 153,801 19.6%

Total $ 1,022,175 $ 222,969 -

SECTION C: MANAGEMENT AND PERFORMANCE CHALLENGES 

IDENTIFIED BY THE INSPECTORS GENERAL AND THE SECRETARY’S 

RESPONSES

In accordance with the Reports Consolidation Act of 2000, the Inspectors General issue Semiannual Reports to Congress that 

identify specific management and performance challenges facing the Department. At the end of each fiscal year, the Treasury 

Office of Inspector General (OIG) and Treasury Inspector General for Tax Administration (TIGTA) send an update of these 

management challenges to the Secretary and cite any new challenges for the upcoming fiscal year. The Special Inspector General 

for TARP does not provide the Secretary with a semiannual report or annual update on management and performance 

challenges. This section contains the management and performance challenges letters from OIG and TIGTA and the Secretary’s 

responses describing actions taken and planned to address the challenges.
147

OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

November 14, 2013

INFORMATION MEMORANDUM FOR SECRETARY LEW

FROM: Eric M. Thorson 

 Inspector General

SUBJECT: Management and Performance Challenges Facing the

 Department of the Treasury (OIG-CA-14-004) 

In accordance with the Reports Consolidation Act of 2000, we are providing you with our 

perspective on the most serious management and performance challenges facing the Department 

of the Treasury. 

In assessing the Department’s most serious challenges, we are mindful of two factors affecting 

Treasury. The first, which we reported last year, is the sluggish economic recovery despite the 

efforts of the Administration and Congress. The second is the Nation’s budget deficit. In my 

memoranda for each of the last 2 years, we acknowledged that in looking for ways to address the 

deficit, cuts to programs and operations were likely although the extent and specific nature of 

any cuts were unknown. This situation remains the same today. The results of the last national 

election brought little clarity to the direction the Federal Government will take in addressing 

these matters, as evidenced by the recent government shutdown and the uncertainties 

surrounding the future debt ceiling debate. While a significant number of issues related to the 

future of programs like Social Security and Medicare have once again been put off, problems 

would be exacerbated if the Government were to default on its obligations. The polarized 

political environment in which the Federal Government has been operating since 2010, with the 

repeated cycle of budget and debt ceiling stopgaps, has resulted in more waste and inefficiency. 

At the same time, more incidents of imprudent use of funds, such as certain conference spending 

by the General Services Administration, Internal Revenue Service, and the Department of 

Veterans Affairs, were brought to light. While the Department has implemented strong controls 

over spending for things like conferences, it is imperative that senior leaders and front-line 

managers remain ever vigilant when spending the funds that have been entrusted to them. 

As I have also noted previously, Treasury has, in recent years, had to administer additional 

responsibilities intended to support and improve the country’s economy. To do so, in nearly 

every case, the Department had to start up and administer these new responsibilities with thin 

staffing and resources. That situation remains the case. Like last year, we cannot emphasize 

enough to the Department’s stakeholders the critical importance that Treasury is resourced 

sufficiently to maintain a strong control environment. 
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This year we are reporting four challenges, which are repeated from last year.

• Continued Implementation of Dodd-Frank (in our prior year memorandum, we referred to 

this challenge as “Transformation of Financial Regulation” but have renamed it as many 

aspects of Dodd-Frank Wall Street Reform and Consumer Protection Act have been 

implemented and are maturing)

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

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

• Gulf Coast Restoration Trust Fund Administration

In addition to the above challenges, we are continuing to report our elevated concerns about three 

matters – cybersecurity, currency and coin production, and the need to document key activities 

and decisions. We close our memorandum this year with observations about the Bureau of the 

Fiscal Service (Fiscal Service) and its Do Not Pay Initiative.

2013 Management and Performance Challenges

Challenge 1: Continued Implementation of Dodd-Frank

In response to the need for financial reform, Congress passed Dodd-Frank in July 2010. Among 

other things, Dodd-Frank established the Financial Stability Oversight Council (FSOC), which 

you chair as the Treasury Secretary. FSOC’s mission is to identify risks to financial stability that 

could arise from the activities of large, interconnected financial companies; respond to any 

emerging threats to the financial system; and promote market discipline. FSOC and its Federal 

agency members must continue to work in order to meet all of FSOC’s responsibilities. That 

said, FSOC accomplished much over the last year. For example:

Annual reporting – As required, FSOC issued its third annual report in July 2013. The report 

contained recommendations to (1) further reforms to address structural vulnerabilities in key 

markets, (2) take steps to address reform of the housing finance market, (3) identify 

alternative interest rate benchmarks, (4) heighten risk management and supervisory attention 

in specific areas, (5) monitor the impact of the low interest rate environment, (6) ensure 

enhanced capital planning and robust capital for financial institutions, and (7) ensure 

implementation and coordination on financial regulatory reform. 

Designation of nonbank financial institutions for consolidated supervision – FSOC 

designated two companies for additional supervision by the Board of Governors of the 

Federal Reserve System (FRB) in July 2013. After considering an appeal, FSOC designated 

one additional company in September 2013. FSOC continues to review other nonbank 

financial institutions for potential designation.

Money Market Reform – In November 2012, FSOC issued for public comment proposed 

recommendations to the Securities and Exchange Commission (SEC) to address the 

structural susceptibility of money market funds to investor runs. FSOC’s proposed 

recommendations state that if SEC moves forward with meaningful structural reforms of 

money market funds before FSOC finalizes its recommendation, FSOC expects not to issue a 
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final recommendation. In this regard, SEC posted a money market fund reform proposal in 

the Federal Register on June 19, 2013, with comments due by September 17, 2013.

Risk Monitoring and Regulatory Coordination – FSOC has considered issues such as 

sovereign fiscal developments in Europe and the U.S., the multi-billion dollar trading losses 

by JPMorgan Chase, the state of mortgage foreclosures in the U.S., the failure of MF Global, 

the impact of Superstorm Sandy on financial markets, weaknesses in the setting process of 

the London Interbank Offered Rate (LIBOR),1 and risks to financial stability arising from 

cybersecurity vulnerabilities. To facilitate this risk monitoring process, FSOC established the 

Systemic Risk Committee which serves as a forum for member agency staff to identify and 

analyze potential risks that may extend beyond the jurisdiction of any one agency.

The Council of Inspectors General on Financial Oversight (CIGFO), also established by DoddFrank and which I chair, facilitates the sharing of information among member inspectors general 

with a focus on reporting our concerns that may apply to the broader financial sector and ways to 

improve financial oversight. Accordingly, CIGFO is an important source of independent analysis 

to FSOC. As required, CIGFO met quarterly and issued its third annual report in July 2013. 

CIGFO also established its second Working Group in January 2013. The Working Group 

assessed the rules, procedures, and practices established by FSOC and its members to determine 

which financial market utilities (FMU)2 should be designated as systemically important. The 

Working Group determined that FSOC carried out the designation activities as established by 

Dodd-Frank and the FSOC FMU Committee carried out its activities in the designation process 

as intended by FSOC. However, the Working Group noted that the FMU Committee did not 

have a designated chairperson and did not keep records of its meetings. Also, the Working Group 

found that FSOC continues to evaluate whether to consider for designation foreign-based FMUs; 

retail FMUs; or payment, clearing, and settlement activities conducted by financial institutions, 

but had not made any such designations at the time of the review. In addition, the Working 

Group found FSOC relied on the respective regulators of the designated FMUs to monitor their 

activities and report updates to FSOC. However, there was no agreement or process established 

in writing by FSOC that defined the nature, frequency, and communication of such updates. The 

Working Group’s July 2013 report made five recommendations to FSOC to address these 

matters. Going forward, CIGFO will continue to review FSOC operations and its efforts to 

oversee the U.S. financial system.

Dodd-Frank also established two offices within Treasury: the Office of Financial Research 

(OFR) and the Federal Insurance Office (FIO).3 OFR is the data collection, research and analysis 

arm of FSOC. Last year, we reviewed the stand-up of OFR. In our report on that review, we 

noted among other things that OFR had not yet developed performance measures for the office. 

We are currently conducting a review to assess the design and implementation of performance 

 

1 LIBOR is the interest rate at which banks can borrow unsecured funds from other banks in London wholesale 

money markets, as measured by daily surveys of the British Bankers’ Association. LIBOR is used to set rates on 

mortgages, student loans, car loans, credit cards, and some complex financial derivatives.

2 FMUs are systems that provide the essential infrastructure for transferring, clearing, and settling payments, 

securities, and other financial transactions among financial institutions or between financial institutions and the 

system. FSOC may designate an FMU as systemically important under Title VIII of Dodd-Frank if a failure or a 

disruption to the functioning of the FMU could create, or increase, the risk of significant liquidity or credit 

problems spreading among financial institutions or markets and thereby threaten the stability of the U.S. financial 

system.

3 Dodd-Frank also established two other offices within Treasury – the Offices of Minority and Women Inclusion 

(OMWI) at Departmental Offices and at the Office of the Comptroller of the Currency. We are currently 

conducting a review of OMWI at Departmental Offices.
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measures by OFR. FIO is charged with monitoring the insurance industry, including identifying 

gaps or issues in the regulation of insurance that could contribute to a systemic crisis in the 

insurance industry or financial system. We are currently reviewing the stand-up of FIO. We do 

note, however, that FIO has not completed or submitted two reports required by Dodd-Frank.

1. A report on how to modernize and improve the system of insurance regulation in the 

U.S. – Due 18 months after enactment (January 27, 2012), now late by nearly 22 months

2. A report describing the breadth and scope of the global reinsurance market and the 

critical role such a market plays in supporting insurance in the U.S. – Due September 30, 

2012, now late by nearly 14 months 

The other regulatory challenges that we discussed last year still remain. Specifically, since 

September 2007, 130 financial institutions supervised by the Office of the Comptroller of the 

Currency (OCC) or the former Office of Thrift Supervision (OTS) have failed, with estimated 

losses to the Deposit Insurance Fund of approximately $36.1 billion. While we expect that bank 

failures will continue, we note the number of failures has dramatically decreased since 2010. 

Unless there is an unanticipated significant disruption to the financial markets, the rate of bank 

failures should remain low. Although many factors contributed to the economic crisis, our failed 

bank reviews generally found that OCC and the former OTS did not identify early or force 

timely correction of unsafe and unsound practices by numerous failed institutions under their 

supervision. 

Furthermore, in 2010, the unprecedented speed at which servicers foreclosed on defaulted 

mortgages revealed flaws in the processing of those foreclosures. In response, the federal 

banking regulators completed a review of foreclosure practices at major mortgage servicers. The 

review found deficiencies in the servicers’ foreclosure processes and, as a result, the federal 

banking regulators issued formal enforcement actions against 14 mortgage servicers and 2 thirdparty providers subject to the review. Among other things, the enforcement actions required the 

servicers to implement an independent foreclosure review (IFR) process using independent 

consultants to determine financial injury to affected borrowers. We reviewed OCC’s oversight of 

the servicers’ efforts to comply with the enforcement actions. We found that OCC had developed 

a framework to monitor the servicers’ efforts and oversee the foreclosure review process. 

However, we found areas where OCC oversight needed strengthening. Specifically, OCC had 

not performed comprehensive direct testing of individual independent foreclosure reviews to 

assess whether independent consultants were performing the reviews objectively, consistently, 

and in compliance with OCC guidance. In addition, improvements were needed in the 

documentation of various aspects of OCC oversight.4 Subsequent to our review, OCC negotiated 

a change to the terms of the enforcement actions with 11 of the 12 servicers under OCC 

supervision because the foreclosure reviews were taking longer than anticipated and delaying 

compensation to affected borrowers. We are currently reviewing OCC’s oversight of the 

servicers’ compliance with the amended enforcement actions.

As we have stated in the past, the intention of Dodd-Frank is most notably to prevent, or at least 

minimize, the impact of a future financial sector crisis on the U.S. economy. To accomplish this, 

Dodd-Frank has placed great responsibility with Treasury and with the Secretary. This 

management challenge from our perspective is to maintain an effective FSOC process supported 

 4 Office of Inspector General (OIG), Safety and Soundness: Improvement Needed in OCC’s Oversight of 

Foreclosure Related Consent Orders (OIG-13-049; Sep. 9, 2013)
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by OFR and FIO within Treasury and to build a streamlined banking regulatory structure that 

timely identifies and appropriately responds to emerging risks. This is especially important in 

times of economic growth and financial institution profitability, when such government action is 

generally unpopular. As the regulatory framework prescribed by Dodd-Frank is institutionalized 

and matures, we will reassess our reporting of it as a management challenge in future years..

Challenge 2: Management of Treasury’s Authorities Intended to Support and Improve the 

Economy

Congress provided Treasury with broad authorities to address the recent financial crisis under the 

Housing and Economic Recovery Act (HERA) and the Emergency Economic Stabilization Act 

(EESA) enacted in 2008, the American Recovery and Reinvestment Act of 2009 (Recovery Act), 

and the Small Business Jobs Act of 2010. As we stated last year, to a large extent Treasury’s 

program administration under these acts has matured, but challenges remain in managing 

Treasury’s programs and its outstanding investments. Additionally, the long-term impact on 

small business lending resulting from investment decisions under Small Business Jobs Act 

programs is still not clear. Our discussion of this challenge will begin with this act and then 

address the others for which Treasury is responsible. 

Management of the Small Business Lending Fund and State Small Business Credit Initiative

Enacted in September 2010, the Small Business Jobs Act created within Treasury a $30 billion 

Small Business Lending Fund (SBLF) to assist financial institutions and provided $1.5 billion to 

Treasury to allocate to eligible state programs through the State Small Business Credit Initiative 

(SSBCI). These represent key initiatives of the Administration to increase lending to small 

businesses, and thereby support job creation. Both programs were slow to disburse funds, with 

Treasury approving the majority of SBLF and SSBCI applications during the last quarter of 

fiscal year 2011. Because the majority of applicants waited until near the application deadlines to 

apply, Treasury encountered significant delays in implementing the two programs. As a result, 

Treasury was rushed in making a number of SBLF investment decisions to meet the funding 

deadlines, and disbursed the initial installment of SSBCI funds without establishing clear 

oversight obligations of participating states. Now that Treasury has completed the approval 

process for these two programs, the challenge is to exercise sufficient oversight to ensure that 

funds are used appropriately, SBLF dividends owed Treasury are paid, and programs achieve 

intended results.

SBLF – As of September 2011, Treasury had disbursed more than $4 billion to 332 financial 

institutions across the country. Of the institutions funded, approximately 41 percent used 

SBLF funds to refinance securities issued under the Troubled Asset Relief Program’s Capital 

Purchase Program. Institutions receiving investments under the SBLF program pay dividends 

to Treasury at rates that decrease as the institutions increase their qualified small business 

lending activity. During the first 41⁄2 years of Treasury’s investment, participating institutions 

initially pay dividends to Treasury of up to 5 percent, but that rate may be reduced to as low 

as 1 percent based on institutions’ self-reported increases in small business lending. 

Institutions are under no obligation to make dividend payments as scheduled or to pay off 

previously missed payments before exiting the program. There are provisions for increased 

restrictions as dividends are missed, including a prohibition against an institution paying 

dividends on common stock and a provision for Treasury to appoint one or two members to 
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the bank’s board of directors. The effectiveness of these measures, however, can be affected 

if the institution’s regulator has already restricted it from making dividend payments.

Treasury faces challenges in measuring program performance and ensuring that the SBLF 

program meets its intended objective of increasing lending to small businesses. The intent of 

the authorizing legislation was to stimulate lending to small businesses, but participating 

institutions are not required to report how they use Treasury’s investments and are under no 

obligation to increase their small business lending. Further, although participating institutions 

must report their small business lending activity, there is no way to isolate the impact of 

SBLF from other factors that could affect lending to determine program impact. Once 

participating institutions commingle SBLF disbursements with other funds, it is difficult to 

track how the funds are used. Additionally, Treasury does not verify that small business 

lending reported by participating institutions meet SBLF requirements and should be 

included when measuring performance and making dividend rate adjustments.

SSBCI – As of September 30, 2013, Treasury had disbursed approximately $912 million of 

the $1.4 billion in SSBCI funding awarded to 56 participating states, territories, and 

municipalities. Treasury disburses the funds in thirds, with each successive third transferred 

after a state certifies that it has used 80 percent of its last transfer. States have been slow to 

use their SSBCI funding as many either had to establish small business lending programs to 

be able to use their funds and/or redirect funds transferred midstream to better performing 

programs than those originally designated.

Primary oversight of the use of SSBCI funds is the responsibility of each participating state. 

The states may use funds awarded for programs that partner with private lenders to extend 

credit to small businesses. Such programs may include those that finance loan loss reserves 

and provide loan insurance, loan guarantees, venture capital funds, and collateral support. 

States must report quarterly and annually on their use of funds and certify quarterly that their 

programs approved for SSBCI funding comply with program requirements. 

However, Treasury will face challenges in holding states accountable for the proper use of 

funds as it has not clearly communicated what is prohibited and has frequently changed 

program guidelines, making it difficult for states to ensure the proper use of funds. Treasury 

also has not appropriately addressed how self-reported, non-compliant transactions will be 

remedied. Current program guidance suggests that if a state self-reports a misuse of funds, 

the funds are not subject to an OIG audit or recoupment. 

As a result, Treasury will have difficulty finding states to be in default of program 

requirements and holding them accountable. 
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Management of Recovery Act Programs

Since the Recovery Act was enacted in 2009, Treasury has been responsible for overseeing an 

estimated $150 billion of funding and tax relief for programs that provided payments for 

specified energy property in lieu of tax credits and payments to states for low-income housing 

projects in lieu of tax credits; grants and tax credits through the Community Development 

Financial Institutions (CDFI) Fund; economic recovery payments to Social Security beneficiaries 

and others; and payments to U.S. territories for distribution to their citizens. While funding for 

non-Internal Revenue Service (IRS) programs is coming to a close, Treasury must continue to 

oversee approximately $25 billion to recipients under Treasury’s payments in lieu of tax credit 

programs – to persons for specified energy properties and to states for low-income housing 

projects. That is, management must continue to ensure award compliance of approximately 

93,000 recipients over an extended period of time (5 years from the date of award for the 

specified energy properties and 15 years from the date of award for low-income housing 

projects). Additionally, our Office of Investigations had several open matters involving claims 

for low-income housing projects and specified energy properties.

Management of the Housing and Economic Recovery Act and the Emergency Economic 

Stabilization Act

Through several HERA and EESA programs, Treasury injected much needed capital into 

financial institutions and businesses. 

Under HERA, Treasury supported the financial solvency of the Federal National Mortgage 

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), 

which continue to operate under the conservatorship of the Federal Housing Finance Agency. To 

cover the losses of the two government sponsored enterprises (GSE) and maintain a positive net 

worth, Treasury purchased senior preferred stock, and as of September 30, 2013, invested $187 

billion in the two GSEs. Although the GSEs did not require Treasury’s support in fiscal year 

2013, their futures are still uncertain and further assistance may be required. If such support is 

needed, the current funding capacity available to Fannie Mae is $117.6 billion and available to 

Freddie Mac is $140.5 billion. 

Through the Housing Finance Agency Initiative supporting state and local finance agencies, 

Treasury purchased $15.3 billion of securities issued by Fannie Mae and Freddie Mac backed by 

state and local Housing Finance Agency bonds (New Issue Bond Program) and committed $8.2 

billion for a participation interest in the obligations of Fannie Mae and Freddie Mac (Temporary 

Credit and Liquidity Program). Treasury received payments of principal and interest on its 

securities, and as of September 30, 2013, holds an investment of approximately $9.3 billion. 

Additionally, several state and local housing agencies opted out of the Temporary Credit and 

Liquidity Program reducing Treasury’s commitment to about $2.0 billion. Treasury must 

continue to monitor the underlying assets of its investment in the Housing Finance Agency 

Initiative to ensure the accuracy of mortgage principal, interest, and fees collected.

As required by Dodd-Frank, Treasury and the Department of Housing and Urban Development 

conducted a study on ending the conservatorship of Fannie Mae and Freddie Mac and 

minimizing the cost to taxpayers. The report on this study was presented to the Congress in 
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February 2011.5 Regarding the long-term structure of housing finance, the report provided three 

options for increased privatization without recommending a specific option. Since this report, 

other legislation has been proposed in the Congress to address housing finance reform, but a 

legislative solution that all can agree on is still in a formative stage. Accordingly, it is difficult to 

predict what lies ahead for winding down the Fannie Mae and Freddie Mac conservatorships and 

reforming housing finance.

In addition to SBLF and SSBCI, the Small Business Jobs Act of 2010 provided Treasury with 

authority to guarantee the full amounts of bonds and notes issued for community and economic 

development activities not to exceed 30 years. Under this authority, Treasury may issue up to 

10 guarantees of no less than $100 million each, but may not exceed $1 billion in total aggregate 

guarantees in any fiscal year. As the program administrator, CDFI Fund was tasked with 

establishing regulations and implementing the program by September 27, 2012. CDFI Fund 

experienced challenges in standing up the program and missed the program’s statutory 

implementation date. The program, along with regulations, was eventually established in June 

2013. Treasury received guarantee authority of $500 million in fiscal year 2013, and as of 

September 30, 2013, guaranteed $325 million of bonds to be issued in fiscal year 2014. The 

guarantee program is authorized through fiscal year 2014. As with any new program, successful 

implementation will depend on a strong internal control structure and senior management 

involvement and support at the front end. Our office plans to assess the CDFI Fund’s 

administration of this program in 2014. 

Challenge 3: Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement

As we have reported in the past, ensuring criminals and terrorists do not use our financial 

networks to sustain their operations and/or launch attacks against the U.S. continues to be a 

challenge. Treasury’s Office of Terrorism and Financial Intelligence (TFI) is dedicated to 

disrupting the ability of terrorist organizations to fund their operations. TFI brings together 

intelligence gathering and analysis, economic sanctions, international cooperation, and privatesector cooperation to identify donors, financiers, and facilitators supporting terrorist 

organizations, and disrupt their ability to fund them. Enhancing the transparency of the financial 

system is one of the cornerstones of this effort. Treasury carries out its responsibilities to 

enhance financial transparency through the Bank Secrecy Act (BSA) and the USA Patriot Act. 

The Financial Crimes Enforcement Network (FinCEN) is the Treasury bureau responsible for 

administering BSA. 

Over the past decade, TFI has made progress closing the vulnerabilities that allowed money 

launderers and terrorists to use the financial system to support their activities. Nonetheless, 

significant challenges remain. One challenge is to ensure the continued cooperation and 

coordination of all the organizations involved in its anti-money laundering and combating 

terrorist financing efforts. A large number of federal and state entities participate with FinCEN to 

ensure compliance with BSA, including the four federal banking agencies, IRS, the Securities 

and Exchange Commission, the Department of Justice, and state regulators. Many of these 

entities also participate in efforts to ensure compliance with U.S. foreign sanction programs 

administered by Treasury’s Office of Foreign Assets Control (OFAC). 

 5 Department of the Treasury and the Department of Housing and Urban Development, Reforming America’s 

Housing Finance Market - A Report To Congress (Feb. 2011)
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Neither FinCEN nor OFAC have the resources or capability to maintain compliance with their 

programs without significant help from these other organizations. Accordingly, to be effective, 

Treasury must establish and maintain working relationships with these entities. To this end, 

FinCEN signed memoranda of understanding with 73 federal and state regulators to ensure that 

information is exchanged between FinCEN and the entities charged with examining for BSA 

compliance. While important to promote the cooperation and coordination needed, it should be 

noted that these instruments are nonbinding and carry no penalties for violations, and their 

overall effectiveness has not been independently assessed. 

In light of these challenges, in November 2012, the Department established a new anti-money 

laundering (AML) task force composed of federal policymakers, regulators, and law 

enforcement agencies to examine and strengthen the U.S. AML framework. The objective of the 

task force was to develop recommendations to address any gaps, redundancies, and inefficiencies 

in the legal and regulatory foundation, examination function, and enforcement efforts of the 

AML framework. During 2013, the AML task force was in the early stages of data gathering and 

analysis. 

Last year, financial institutions filed approximately 18.7 million BSA reports, including nearly 

1.8 million suspicious activity reports (SAR). While the number of SARs has been increasing 

since 2001, that alone does not necessarily indicate everything that is going well. Our audits have 

found problems with the quality of the data reported. Other audits have also identified gaps in the 

regulatory examination programs of the bank regulators and examining agencies. 

More recently, vulnerabilities in certain very large institutions’ monitoring of transactions for 

money laundering and terrorist financing were revealed. For example, in 2013, OCC filed a 

consent cease and desist order against JP Morgan Chase and Company for critical deficiencies 

found in its BSA program with respect to submitting SARs, monitoring transactions, conducting 

customer due diligence and risk assessment, and implementing adequate systems of internal 

controls and independent testing. Also, as a result of a critical congressional report on OCC’s 

oversight of HSBC’s BSA program in July 2012, the Comptroller of the Currency has taken 

actions to enhance its supervision of BSA compliance. 

These include issuing a supervisory memorandum instructing examiners to consider BSA/AML 

examination findings in a safety and soundness context when assigning the “management” 

component of a bank’s CAMELS rating.6 OCC also plans to issue guidance for examiners to cite 

violations when a bank fails to meet any one of the statutory minimum requirements for a 

BSA/AML program.7 In addition, OCC created a large bank review team, a Major Matters 

Supervision Review Committee, and an internal bank supervision appeals program for its 

examiners.

 

6 Federal banking agencies use the CAMELS rating system to evaluate the soundness of financial institutions on a 

uniform basis and to identify institutions requiring special supervisory attention or concern. A financial institution 

is assigned a composite rating based on ratings on six components: Capital adequacy, quality of Assets, the 

capability of the board of directors and Management, the quality and level of Earnings, the adequacy of Liquidity, 

and Sensitivity to market risk.

7 At a minimum, a BSA program must reasonably provide (1) a system of internal controls, (2) independent testing, 

(3) the designation of individual(s) responsible for managing the BSA program, and (4) the training of appropriate 

personnel.
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OCC took these actions in an effort to ensure that OCC takes timely actions for financial 

institutions with multiple Matters Requiring Attention8 or BSA/AML program violations.

FinCEN needs to continue its efforts with regulators and examining agencies to ensure that 

financial institutions establish effective BSA compliance programs and file accurate and 

complete BSA reports. Furthermore, FinCEN needs to complete work to issue anti-money 

laundering regulations, as it determines appropriate, for some non-bank financial institutions 

such as vehicle dealers, pawnbrokers, travel agents, finance companies, and real estate closing 

and settlement services, as well as financial services intermediaries, such as investment advisors. 

FinCEN also faces the continuing challenge to enhance financial transparency to strengthen 

efforts to combat financial crime. One area that has FinCEN’s attention is clarifying and 

strengthening customer due diligence requirements and associated supervisory expectations. This 

includes a possible requirement that institutions identify beneficial ownership of their 

accountholders so that the true identities of their customers are not hidden. FinCEN issued an 

advance notice of proposed rulemaking in March 2012 to address this. 

FinCEN’s BSA Information Technology (IT) Modernization Program, which began in 2008 and 

is scheduled for completion in 2014, is being built to ensure efficient management, safeguarding, 

and use of BSA information. On a positive note, we completed four audits of the program 

pursuant to a Congressional directive in which we concluded that FinCEN is generally meeting 

schedule and cost milestones, and had an appropriate oversight structure in place. As a result of a 

2013 reorganization, FinCEN did redefine some requirements and priorities. As the program 

moves closer to completion, FinCEN plans to engage users to address their concerns and 

suggested enhancements. FinCEN also plans to ensure that users are adequately trained to use 

the new system.

We note that FinCEN continues to have a difficult challenge in dealing with money service 

businesses (MSB). To that end, FinCEN has taken steps to improve MSB examination coverage 

and compliance. For example, in past years FinCEN finalized new rules and increased 

enforcement designed to ensure MSBs comply with BSA requirements, including registration 

and report filing requirements. However, ensuring MSBs register with FinCEN has been an 

ongoing challenge. Furthermore, while IRS serves as the examining agency for MSBs, it has 

limited resources to inspect MSBs or identify unregistered MSBs. FinCEN engaged the states to 

participate in joint MSB examinations with IRS and for outreach programs aimed at these 

nonbank institutions. FinCEN, IRS, and the states need to work together to ensure that MSBs 

operating in this country are identified, properly registered, and in compliance with all applicable 

laws and regulations.

FinCEN has also been concerned with MSBs that use informal value transfer systems and with 

MSBs that issue, redeem, or sell prepaid access through physical means (cards or other devices) 

or non-physical means (codes, electronic serial numbers, mobile identification numbers, or 

personal identification numbers). MSBs using informal value transfers have been identified in a 

number of attempts to launder proceeds of criminal activity or finance terrorism. Similarly, 

prepaid access can make it easier for some to engage in money laundering or terrorist financing. 

 

8 Matters Requiring Attention are practices that (1) deviate from sound governance, internal control, and risk 

management principles, which may adversely impact the bank’s earnings or capital, risk profile, or reputation, if 

not addressed; or (2) result in substantive noncompliance with laws and regulations, internal policies or processes, 

OCC supervisory guidance, or conditions imposed in writing in connection with the approval of any application or 

other request by a bank.
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In September 2010, FinCEN notified financial institutions to be vigilant and file SARs on MSBs 

that may be inappropriately using informal value transfers when they use financial institutions to 

store currency, clear checks, remit and receive funds, and obtain other financial services. In 

2011, FinCEN issued a final rule applying customer identification, recordkeeping, and reporting 

obligations to providers and sellers of prepaid access, and continues to issue clarifying guidance 

for institutions to implement the requirements. Ensuring institutions properly implement these 

rules and maintain compliance will be a continuing challenge.

To detect possible illicit wire transfer use of the financial system, FinCEN also proposed a 

regulatory requirement for certain depository institutions and MSBs to report cross-border 

electronic transmittals of funds. FinCEN determined that establishing a centralized database will 

greatly assist law enforcement in detecting and ferreting out transnational organized crime, 

multinational drug cartels, terrorist financing, and international tax evasion. Ensuring financial 

institutions, particularly MSBs, comply with the cross-border electronic transaction reporting 

requirements, as well as managing this new database, is another significant challenge for 

FinCEN. It should be noted that this system cannot be fully implemented until FinCEN 

completes work on its BSA IT Modernization Program. 

Other matters of concern are on the horizon. One concern is the increasing use of mobile devices 

for banking, internet banking, internet gaming, and peer-to-peer transactions. FinCEN, OFAC, 

and other regulatory agencies will need to make sure that providers of these services ensure 

transactions conform to BSA requirements. Monitoring the transactions of tomorrow may prove 

to be increasingly difficult for Treasury. In this regard, in March 2013, FinCEN issued guidance

on virtual currencies9 and regulatory responsibilities to provide clarity for businesses and 

individuals engaged in this expanding field of financial activity. FinCEN’s rules defined certain 

businesses or individuals which use convertible virtual currencies or make a business of 

exchanging, accepting, and transmitting them as MSBs. MSBs have registration requirements 

and a range of anti-money laundering, recordkeeping, and reporting responsibilities under 

FinCEN’s regulations. 

Given the criticality of this challenge to the Department’s mission, we continue to consider antimoney laundering and combating terrorist financing as inherently high-risk. In this regard, we 

have on-going BSA-related audits of FinCEN’s programs for MSB compliance and for 

information sharing under section 314 of the USA Patriot Act, FinCEN’s and OFAC’s use of 

Reports of Blocked Transactions as SARs, and OCC’s BSA and USA Patriot Act examinations 

and enforcement actions. We are also reviewing OFAC’s licensing program (where OFAC may 

grant exceptions to a sanction program as allowed under law) and performing a case study 

review of its Libyan sanctions program. We plan to complete these audits in fiscal year 2014.

 

9 Bitcoins are an example of a virtual currency. These consist of a series of numbers created automatically on a set 

schedule and traded anonymously between digital addresses or "wallets." Certain exchange firms buy or sell 

Bitcoins for legal tender at a rate that fluctuates with the market. Congress and regulators continue their efforts to 

determine the legality, legitimacy, and regulatory framework for virtual currencies such as Bitcoins.
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Challenge 4: Gulf Coast Restoration Trust Fund Administration

In response to the Deepwater Horizon oil spill, Congress enacted the Resources and Ecosystems 

Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 

2012 (RESTORE Act). This law established within Treasury the Gulf Coast Restoration Trust 

Fund and requires Treasury to deposit in the Trust Fund 80 percent of administrative and civil 

penalties paid by responsible parties for the Deepwater Horizon oil spill. The funds are to be 

distributed for environmental and economic restoration activities affecting the Gulf Coast states 

(Alabama, Florida, Louisiana, Mississippi, and Texas). While the total amount that will 

eventually be deposited into the Trust Fund is unknown at this time, estimates range from 

$5 billion to $21 billion. The Trust Fund has already received a deposit of approximately 

$323 million, part of a $1 billion settlement with the Transocean defendants. Litigation is 

ongoing with other defendants. 

Under the RESTORE Act, money from the Trust Fund is allocated as five components: 

• Direct Component (35 percent) – administered by Treasury for allocation in equal shares 

to the Gulf Coast states for ecological and economic restoration of the Gulf Coast region

• Council-selected Restoration Component (30 percent) – administered by the Gulf Coast 

Ecosystem Restoration Council10 for allocation to Gulf Coast states and federal agencies, 

pursuant to a comprehensive plan approved by the council, to undertake projects and 

programs using the best available science that would restore and protect the Gulf Coast 

region’s natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, 

and coastal wetlands

• Spill Impact Component (30 percent) – administered by the Gulf Coast Ecosystem 

Restoration Council for allocation to the Gulf Coast states for eligible oil spill restoration 

activities, pursuant to the council’s approval of the states’ plans to improve the 

ecosystems or economy of the Gulf Coast region, using a regulatory formula

• National Oceanic and Atmospheric Administration (NOAA) Science Program 

Component (2.5 percent) – administered by NOAA for its Gulf Coast Ecosystem 

Restoration Science, Observation, Monitoring, and Technology Program. This program is 

to carry out research, observation, and monitoring to support the long-term sustainability 

of the ecosystem, fish stocks, fish habitat, and the recreational, commercial, and charter 

fishing industry in the Gulf of Mexico

• Centers of Excellence Research Grants Program Component (2.5 percent) – administered 

by Treasury for allocation in equal shares to the Gulf Coast states for competitive grant 

awards to nongovernmental entities and consortia in the Gulf Coast region, including 

public and private institutions of higher education, to establish centers for excellence to 

conduct Gulf Coast region research

 

10 The Gulf Coast Ecosystem Restoration Council consists of the following members, or designees: (1) at the 

federal level, the Secretaries of the Interior, Army, Commerce, Agriculture, the head of the department in which 

the Coast Guard is operating (currently the Secretary of Homeland Security), and the Administrator of the 

Environmental Protection Agency; and (2) at the state level, the Governors of Alabama, Florida, Louisiana, 

Mississippi, and Texas.
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The RESTORE Act prescribes how funds will be distributed and gives the Secretary of the 

Treasury the authority to withhold funds if certain conditions in the Act are not met, including 

the following of procurement rules and regulations.

The RESTORE Act gives Treasury many responsibilities. The act also authorizes our office to 

conduct, supervise, and coordinate audits and investigations of projects, programs and activities 

funded under this legislation. Neither Treasury nor our office was provided specific funding in 

the act for carrying out our respective responsibilities. What makes the administration of the 

RESTORE Act so challenging is that (1) regulations and associated policies and procedures need 

to be established and put into place before the receipts of the Trust Fund can be used; (2) the 

numerous entities and councils that are to receive and further allocate funding are still 

establishing their own policies and procedures; and (3) the need for cooperation and coordination 

by these entities and councils to ensure funds are spent in an appropriate manner.

Treasury was required, in consultation with the Departments of the Interior and Commerce, to 

develop policies and procedures to administer the Trust Fund by January 2, 2013. Treasury’s 

Office of the Fiscal Assistant Secretary published the draft procedures, in the form of 

regulations, in the Federal Register for comment on September 6, 2013; over 8 months after the 

procedures were to be finalized. We have been meeting with the Fiscal Assistant Secretary’s 

staff and providing our perspectives on controls as the procedures to administer the Trust Fund 

are being developed. We are also actively engaged in coordinating with affected federal, state, 

and local government entities to ensure effective oversight of programs established by the act.

Matters of Concern

Although we are not reporting these as management and performance challenges, we want to 

highlight some areas of growing concern – cybersecurity, currency and coin production, and 

documenting key activities and decisions. 

Cybersecurity

Treasury’s systems are interconnected and critical to the core functions of government and 

the Nation’s financial infrastructure. Cybersecurity remains a constant area of concern and 

potential vulnerability for Treasury’s internal systems. Our audits in this area have found 

deficiencies across Treasury in the areas of vulnerability and patch management, password 

management, system security configurations, and users’ susceptibility to social engineering 

attacks. In addition, cyberthreats continue to grow and are increasingly more sophisticated, 

posing an ongoing challenge to the confidentiality, integrity, and availability of systems. 

Accordingly, Treasury management must continuously monitor Treasury’s systems for 

vulnerabilities and ensure all employees and others connected to those systems maintain a 

heightened awareness of their roles in protecting these critical assets.

The cyber attacks facing banking institutions continue to evolve at an accelerated rate, 

ranging from distributed denial of service attacks on bank websites to phishing attacks to 

fraudulent wire payments. Organized hacking groups leverage known and new vulnerabilities 

and use different methods to make attacks hard to detect and even harder to prevent. Criminal 

groups and nation-states are constantly seeking to steal information, commit fraud, disrupt, 

degrade, or deny access to information systems that can strain bank resources and cause 

financial, operational, or reputational harm. A successful, widespread attack on the banking 

industry would shake confidence in the banking system. 
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As a result, an economic and national security challenge for which Treasury must be 

prepared is providing leadership to financial institutions in particular, and the financial sector 

in general, to strengthen awareness and preparedness against cyberthreats. Given the 

evolving environment, Treasury will need to continue to strengthen partnerships and 

coordination among law enforcement, financial institutions, regulators, and private entities in 

the financial sector, to address these threats.

Currency and Coin Production

On October 8, 2013, after a 11⁄2 year delay, FRB began supplying financial institutions with 

the redesigned, NexGen $100 Note that incorporates new security features to deter 

counterfeiters and help businesses and consumers tell whether a note is genuine. The original 

scheduled introduction of this new note, in February 2011, was missed after creasing was 

detected in some of the finished notes. In January 2012, we reported on deficiencies with the 

Bureau of Engraving and Printing (BEP) NexGen $100 Note production process, project 

management, and the need to complete a comprehensive cost-benefit analysis for the 

disposition of the 1.4 billion finished NexGen $100 notes printed in 2010 but not accepted by 

FRB. The notes now being supplied to banks were produced after the production problems 

with the 1.4 billion notes were identified and sufficiently resolved; BEP and FRB still need to 

decide on a course of action for the 1.4 billion finished notes, which are currently held in 

BEP vaults. 

Another matter related to currency redesign that should be kept in mind is meaningful access 

to U.S. currency for blind and visually impaired individuals. In response to a court ruling on 

that matter, several methods were discussed that Treasury plans to use to provide such 

access. Among them, the inclusion of raised tactile features and high-contrast numerals that 

would help distinguish denominations of U.S. currency notes. The lessons learned with the 

NexGen $100 Note production process underscore the need for sound and comprehensive 

project management as BEP undertakes this redesign effort. 

Challenges continue to exist with coin production. For example, the cost of producing penny 

and nickel coins were double their face value because metal prices have resulted in higher 

production costs for the past 7 years. To meet the demands of managing a retail business, the 

U.S. Mint has also identified the need to replace its 12-year old Integrated Retail Information 

System with a new e-commerce system which fully integrates order management.

In the future, the impact of alternative payment systems and other technological advances –

such as stored value cards, the Internet, and smartphones – to BEP’s and the Mint’s 

respective business models and practices must be considered. Accordingly, it is imperative 

that BEP and the Mint factor this into their business model and future planning and 

interactions with their customer, FRB.

Documenting Key Activities and Decisions

In last year’s letter I cited two audits by my office that highlighted lapses by the Department 

in maintaining a complete and concurrent record of key activities and decisions. One audit 

involved the selection of financial agents for Treasury’s investment in Fannie Mae and 

Freddie Mac mortgage backed securities. The other audit involved Treasury’s consultative 

role with the Department of Energy’s Solyndra loan guarantee. More recently, as mentioned 

in Challenge 1, we found that documentation of OCC’s oversight of foreclosure-related 
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consent orders was lacking.11 Maintaining proper documentation is a fundamental tenet of 

government accountability and transparency. Maintaining proper documentation is also in the 

best long-term interest of Treasury and its component offices and bureaus if actions are later 

questioned, as they have been. In this regard, appropriate documentation can be as simple as 

contemporaneous notes providing a record of why decisions were made, the way they were 

made, and how the government satisfied itself that the decisions were the best course. Also 

adding to the documentation challenge is the fact that federal retirements along with the 

associated institutional knowledge in this last year are markedly higher. Accordingly, it 

becomes even more important that actions and their context are documented for reference. 

We do note that Treasury has issued policy that addresses documentation requirements, such 

as Treasury Directive Publication 80-05, Records and Information Management Program. In 

our view, this is a matter of Treasury management personnel needing to remain aware and 

vigilant.

In my memorandum last year, we reported on risks associated with the consolidation of the 

former Financial Management Service and the former Bureau of the Public Debt into Fiscal 

Service, noting that comprehensive planning and the involvement of senior management were 

key. Fiscal Service has now been stood up for over a year although certain planned restructuring 

of functions and employee relocations are delayed (along with the anticipated cost savings) in 

response to Congressional concerns about the impact to Treasury’s Maryland operations. I want 

to close this year with a comment about the Fiscal Service Do Not Pay Initiative. In light of the 

continuing and unacceptable problem of improper payments (estimated at $108 billion for fiscal 

year 2012 alone) and the extreme pressures on the federal budget, the Federal Government has 

intensified efforts to reduce improper payments in major federal programs. The Do Not Pay 

Initiative is a chief component of these efforts. In August 2013, pursuant to the Improper 

Payments Elimination and Recovery Improvement Act of 2012, the Office of Management and 

Budget (OMB) issued guidance, “Protecting Privacy while Reducing Improper Payments with 

the Do Not Pay Initiative.” The OMB guidance details Treasury’s responsibilities, which include 

hosting a working system for the Do Not Pay Initiative that allows agencies to perform preaward eligibility, prepayment, and post-payment reviews. Other Treasury responsibilities include 

entering into computer matching agreements, developing memoranda of understanding with 

agencies, ensuring records are complete, accurate, and current, complying with the Privacy Act, 

and periodically reporting to OMB. This will be a major and important undertaking by Fiscal 

Service and Treasury. We have audit work under way in this area and look forward to working 

with the Department in our oversight role to ensure the success of Do Not Pay.

We would be pleased to discuss our views on the management and performance challenges and 

the other matters in this memorandum in more detail.

cc: Nani A. Coloretti

Assistant Secretary for Management

 11 OIG, Safety and Soundness: Improvement Needed in OCC’s Oversight of Foreclosure Related Consent Orders

(OIG-13-049; issued Sep. 9, 2013)
162

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20005

INSPECTOR 

GENERAL FOR TAX

ADMINISTRATION

November 8, 2013

MEMORANDUM FOR SECRETARY LEW

FROM: J. Russell George 

Inspector General 

SUBJECT: Management and Performance Challenges Facing the Internal 

Revenue Service for Fiscal Year 2014

The Reports Consolidation Act of 20001 requires that the Treasury Inspector General for 

Tax Administration (TIGTA) summarize, for inclusion in the annual Department of the 

Treasury Agency Financial Report, its perspective on the most serious management 

and performance challenges confronting the Internal Revenue Service (IRS).

Each year, TIGTA evaluates IRS programs, operations, and management functions to 

identify the areas of highest vulnerabilities to the Nation’s tax system. For Fiscal Year 

2014, the top management and performance challenges, in order of priority, are:

1. Security for Taxpayer Data and IRS Employees;

2. Implementing the Affordable Care Act and Other Tax Law Changes;

3. Tax Compliance Initiatives;

4. Modernization;

5. Fraudulent Claims and Improper Payments;

6. Providing Quality Taxpayer Service Operations;

7. Human Capital;

8. Globalization;

9. Taxpayer Protection and Rights; and

10. Achieving Program Efficiencies and Cost Savings.

The IRS was faced with numerous challenges during FY 2013, including several that 

resulted in Congressional hearings on IRS management practices. The IRS will 

continue to face other pressing priorities and challenges during FY 2014. Several key 

provisions of the Patient Protection and Affordable Care Act (Affordable Care Act)2 will 

become effective in FY 2014, and the IRS must ensure that the tax system is able to 

 

1 31 U.S.C. § 3516(d) (2006).

2 Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified as amended in scattered sections of the U.S. Code), 

as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 

1029.
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fully implement these provisions. Of utmost importance is ensuring the adequate 

protection of Federal tax data when it is sent to the Federal and State exchanges.

Furthermore, the continuing budget constraints present a substantial challenge to the 

IRS in effectively carrying out its mission. In FY 2013, the IRS budget was reduced by 

$618 million at mid-year, which required management to make a number of difficult 

decisions: among them, implementation of a hiring freeze, a reduction in customer 

service and enforcement, and declaration of three furlough days for IRS employees. As 

the IRS faces new or growing challenges with a smaller staff, it must identify and 

implement innovative and cost saving strategies to accomplish its mission of providing 

America’s taxpayers top-quality service by helping them understand and meet their tax 

responsibilities and enforce the law with integrity and fairness for all.

The following information detailing these management and performance challenges is 

being provided to promote economy, efficiency, and effectiveness in the IRS’s 

administration of the Nation’s tax laws.

SECURITY FOR TAXPAYER DATA AND IRS EMPLOYEES

As our Nation’s tax collector and administrator of the Internal Revenue Code, the IRS 

collected over $2.5 trillion in tax revenue in FY 2012, processed over 237 million tax 

returns, and issued approximately $373 billion in tax refunds. In today’s environment, 

the IRS faces the daunting task of securing its massive computer systems against the 

growing threat of cyberattacks. Effective information systems security is essential to 

ensure that data are protected against inadvertent or deliberate misuse, improper 

disclosure or destruction, and that computer operations supporting tax administration 

are secured against disruption or compromise. According to the Department of 

Homeland Security’s U.S. Computer Emergency Readiness Team, Federal agencies 

reported 48,842 cyberattacks in FY 2012, an increase of about 11 percent from 

FY 2011.3

Computer security has been problematic for the IRS since 1997, when the IRS initially 

reported computer security as a material weakness during its annual evaluation of 

internal accounting and administrative controls under the Federal Managers’ Financial 

Integrity Act of 1982.4

 In March 2013, the Government Accountability Office reported 

that the IRS is making progress in addressing information security control weaknesses.5

However, TIGTA continues to identify significant security weaknesses in this area that 

could affect the confidentiality, integrity, and availability of financial and sensitive 

taxpayer data.

 3 Office of Management and Budget, Fiscal Year 2012 Report to Congress on the Implementation of The 

Federal Information Security Management Act of 2002 (Mar. 2013).

4 31 U.S.C. §§ 1105, 1113, and 3512. The Federal Managers’ Financial Integrity Act (FMFIA) requires 

that agency management establish and maintain effective internal controls to achieve the objectives of 1) 

effective and efficient operations, 2) reliable financial reporting, and 3) compliance with applicable laws 

and regulations. The FMFIA also requires the head of each Executive agency to report annually to the 

President and Congress on the effectiveness of internal controls and to identify any material weaknesses 

in those controls. Reporting material weaknesses under the FMFIA is not limited to weaknesses over 

financial reporting. 

5 GAO-13-350, IRS Has Improved Controls but Needs to Resolve Weaknesses (March 2013).
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Meanwhile, beyond safeguarding a vast amount of sensitive financial and personal 

data, the IRS must also protect approximately 100,000 employees and contractors 

working at more than 600 facilities throughout the country. To proactively mitigate 

threats made against IRS facilities and employees, the IRS is required to conduct 

comprehensive and timely risk assessments to identify and address vulnerabilities in 

physical security. TIGTA identified deficiencies in the IRS’s risk assessment program 

and found that not all IRS facilities had a risk assessment conducted.6 Additionally, the 

IRS did not implement some of the additional countermeasures that were identified by 

the completed risk assessments.

Physical violence, harassment, and intimidation of IRS employees pose significant 

challenges to the implementation of a fair and effective system of tax administration. 

Between FYs 2009 and 2012, TIGTA has processed over 8,600 threat-related 

complaints. This resulted in over 4,000 threat investigations that required the prompt 

response of TIGTA Special Agents to mitigate those threats and determine whether 

criminal prosecutions of the perpetrators making the threats were warranted.

Additionally, the ongoing public debate regarding the health care law and increased 

scrutiny over IRS spending and treatment of certain exempt organizations could fuel 

threats against the Federal Government, including IRS employees and facilities. These 

challenging operating conditions for the IRS underscore the need for continued 

vigilance in the area of physical and personnel security.

IMPLEMENTING THE AFFORDABLE CARE ACT AND OTHER TAX LAW CHANGES

Each filing season tests the IRS’s ability to implement tax law changes made by 

Congress. Correctly implementing late tax law changes remains a significant challenge 

because the IRS must often act quickly to assess the changes and determine the 

necessary actions to ensure that all legislative requirements are satisfied. In addition, 

the IRS must often create new or revise existing tax forms, publications and 

instructions; revise internal operating procedures; provide outreach and education to 

taxpayers and tax professionals; train employees; and reprogram computer systems to 

accurately and timely process tax returns affected by the new tax law changes. For the 

2014 filing season, the IRS announced a delay of approximately one to two weeks to 

the start of the filing season to allow adequate time to program and test tax processing 

systems following the 16-day Federal Government closure.

Affordable Care Act

The Affordable Care Act (ACA) contains an extensive array of tax law changes that will 

present a continuing source of challenge for the IRS in coming years. The Affordable 

Care Act provides incentives and tax breaks to individuals and small businesses to 

offset health care expenses. It also imposes penalties, administered through the tax 

code, for individuals and businesses that do not obtain health care coverage for 

themselves or their employees. The Affordable Care Act represents the largest set of 

tax law changes in more than 20 years.

 6 TIGTA, Ref. No. 2013-10-101, The Physical Security Risk Assessment Program Needs Improvement

(Sept. 2013).
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Starting in Calendar Year 2014, the IRS will be responsible for implementing the 

Advanced Premium Tax Credit,7 as well as implementing the penalty on applicable 

individuals for each month they fail to have minimum essential health care coverage. 

These two issues have a far-reaching impact on the IRS and will require significant 

resources, particularly customer service resources, as taxpayers turn to the IRS with 

questions and issues about the Affordable Care Act. Customer service has been 

declining in recent years, with fewer taxpayers being served at local IRS offices and the 

IRS answering fewer telephone calls.8

The IRS’s implementation plan for the ACA includes providing information on eligibility 

and enrollment, developing calculations for the Advanced Premium Tax Credit, 

reconciling Premium Tax Credits9 with reported taxable income, and developing new 

ACA information collection and processing systems. These provisions require 

development of new computer systems, modification of existing systems, revision 

and/or creation of new fraud detection systems, and deployment and testing of new 

interagency communication portals to support ACA operations.

From FY 2010 to 2012, the IRS reported that it received $488 million from the Health 

Insurance Implementation Fund to implement the ACA. Although the IRS stopped 

receiving funds from the Health Insurance Implementation Fund at the end of FY 2012, 

implementation of the ACA remains an ongoing effort, and all implementation efforts in 

FY 2013 and beyond will be funded solely from the IRS’s operating budget.

TAX COMPLIANCE INITIATIVES

With an estimated voluntary compliance rate of approximately 83 percent,10 a significant 

amount of income remains unreported and unpaid. Tax compliance initiatives include 

the administration of tax regulations, collection of the correct amount of tax from 

businesses and individuals, and oversight of tax-exempt and governmental entities.

Increasing voluntary taxpayer compliance and reducing the Tax Gap11 are the focus of 

many IRS initiatives. Although the IRS reported that the Tax Gap is caused by both 

unintentional taxpayer errors (whether due to tax law complexity, confusion, or 

carelessness) and willful tax evasion or cheating, the IRS does not have sufficient data 

to distinguish the amounts attributable to each. The IRS also reported that a meaningful 

improvement in the voluntary compliance rate requires a long-term, focused effort on 

taxpayer service, modernization, and enforcement.

However, the budget reductions over the past three years have led to a reduction in the 

IRS’s resources in the enforcement area, which has impacted tax compliance. Since 

 7 An Advanced Premium Tax Credit is paid in advance to a taxpayer’s insurance company to help cover 

the cost of premiums.

8 TIGTA, Ref. No. 2012-40-119, The Majority of Individual Tax Returns Were Processed Timely, but Not 

All Tax Credits Were Processed Correctly During the 2012 Filing Season (Sept. 2012). 9 A refundable tax credit to assist individuals and families in purchasing health insurance coverage 

through an Affordable Insurance Exchange.

10 The voluntary compliance rate is an estimate of the amount of tax for a given year that is paid 

voluntarily and timely. The IRS reported in the Tax Gap for Tax Year 2006 Overview (Jan. 2012) that the 

voluntary compliance rate for 2006 was 83.1 percent.

11 The IRS defines the Tax Gap as the difference between the estimated amount taxpayers owe and the 

amount they voluntarily and timely paid for a tax year.
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Fiscal Year 2010, approximately 8,000 full-time IRS positions have been lost—about 

5,000 from front-line enforcement.

The amount of enforcement revenue collected declined by nine percent in Fiscal Year 

2012, from $55.2 billion to $50.2 billion. This has decreased for two straight years and 

is 13 percent less than the $57.6 billion collected in Fiscal Year 2010. The 13 percent 

reduction in enforcement revenue correlates to the 14 percent reduction in the number 

of IRS enforcement personnel.

In the Examination function, the combination of a decrease in the number of revenue 

agents and tax compliance officers and an increase in the number of corporate, 

partnership, and S corporation examinations has contributed, in part, to a reduction in 

the number of individual tax returns examined. Two factors contributing to the increase 

in partnership and S corporation examinations are the growth in the number of these 

filings and the compliance risk these tax returns pose.

IRS filing statistics show that partnerships and S corporations are the fastest growing 

segments of all tax returns filed. For example, the IRS estimates that S corporations 

will file nearly 5.7 million returns in Processing Year (PY) 2015, which is a 26 percent 

increase over S corporation returns filed in PY 2011.

In terms of compliance risk and potential fraud or abuse, both partnerships and 

S corporations provide shareholders and partners with opportunities to structure 

transactions improperly to reduce the income taxes they would otherwise owe. In 

Calendar Year 2000, the IRS published guidance on 10 transactions that would likely 

trigger an audit because they purportedly abuse the tax law, represent a significant loss 

of tax revenue, and undermine the public’s confidence in the tax system. As of January 

2012, the list of such abusive transactions had expanded to 34, several of which involve 

partnerships and/or S corporations.

TIGTA reported in 2012 that examiners are recommending a considerable amount of 

adjustments to items reported on the returns. For example, in FY 2011, examiners 

closed 5,310 audits of partnership returns and recommended approximately 

$728 million in adjustments to items reported on the returns. This indicates that 

examiners recommended an average of $137,000 in adjustments for each return 

audited. TIGTA also reported that the number of partnership and S corporation 

examinations that result in no adjustments (no-change) is high. According to the IRS, a 

high number of no-change examinations means it is spending significant resources on 

unproductive examinations and unnecessarily burdening compliant taxpayers.

The following three sections will examine tax compliance challenges the IRS faces 

affecting businesses and individuals, tax-exempt entities, and tax return preparers.

Businesses and Individuals

The IRS estimated the gross Tax Gap for Tax Year 2006 to be approximately 

$450 billion. This estimate is the best approximation of noncompliance the IRS can 

provide. However, TIGTA found that the IRS could improve its Tax Gap 
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estimates.12 Specifically, there are no estimates for nonfiling of tax returns related 

to corporate, employment, or excise taxes. In addition, the reliability and accuracy 

of the tax information that is reported on corporate tax returns could be improved.

The underreporting of taxes, which comprises four major components (individual 

income tax, employment tax, corporate income tax, and estate and excise taxes), 

was estimated at $376 billion and accounted for the largest portion (approximately 

84 percent) of the Tax Gap. The underpayment of taxes was approximately 

10 percent, and the nonfiling of taxes was approximately six percent. The IRS will 

need to address the following impediments to more effectively address the Tax 

Gap:

• Information Reporting. The availability of third-party income and 

withholding information at the time tax returns are processed would 

encourage voluntary compliance and would prevent the issuance of billions 

of dollars in fraudulent tax refunds.

• Taxpayer Service. Ensuring high-quality service to taxpayers can help 

encourage those taxpayers who wish to comply with tax laws but do not 

understand their tax obligations. However, tax law changes and funding 

priorities have recently affected the IRS’s ability to provide quality taxpayer 

service. 

• Enforcement. Devoting additional resources to enforcement would enable 

the IRS to contact the millions of potentially noncompliant taxpayers it 

identifies but cannot currently contact due to resource limitations.

• Compliance Checks. Expanding compliance checks before the IRS issues 

refunds would involve matching information returns to tax returns during, 

rather than after, the tax filing season. TIGTA reported that the IRS designed 

new identity theft screening filters for the 2012 filing season that improved 

the IRS’s ability to identify false tax returns before the tax return was 

processed; however, more needs to be done in this area.13

• External Parties. Leveraging external resources, such as paid tax return 

preparers and whistleblowers, can help improve tax compliance because 

paid preparers’ actions have an enormous impact on the IRS’s ability to 

effectively administer tax laws, and whistleblowers provide the IRS with 

information on suspected noncompliance.

• Modernization. Modernizing information systems could potentially allow the 

IRS to post more comprehensive tax return information to its computer 

systems, which could facilitate the examination process and expedite 

taxpayer contacts for faster resolution.

 

12 TIGTA, Ref. No. 2013-IE-R008, the Internal Revenue Service Needs to Improve the 

Comprehensiveness, Accuracy, Reliability, and Timeliness of the Tax Gap Estimate (Aug. 2013). 13 TIGTA, Ref. No. 2012-42-080, There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting 

From Identity Theft (July 2012). 
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Tax-Exempt Entities

The IRS’s use of inappropriate methods for selecting and reviewing applications for 

tax-exempt status became a top concern for both Congress and the public in 2013 

and has resulted in congressional hearings and investigations. The IRS will 

continue to face unprecedented levels of scrutiny from a variety of stakeholders in 

the exempt organizations area in FY 2014.

Most organizations requesting tax-exempt status must submit an application to the 

IRS. The type of application submitted depends upon the type of tax-exempt 

organization the organization desires to be. For example, a charitable organization 

would request exemption under I.R.C. Section 501(c)(3),14 whereas a social 

welfare organization would request exemption under I.R.C. Section 501(c)(4).15

TIGTA found that the IRS developed and used criteria to identify potential political 

cases for review that inappropriately identified specific groups applying for taxexempt status based on their names or policy positions instead of developing 

criteria based on tax-exempt laws and Treasury Regulations.16 TIGTA also found 

that ineffective management allowed the inappropriate criteria to be developed and 

stay in place for more than 18 months, resulting in substantial delays in processing 

certain applications, and allowed unnecessary information requests to be issued.

Tax Return Preparers

Every year, more than half of all taxpayers pay someone else to prepare their 

Federal income tax returns. During the 2013 Filing Season,17 the IRS processed 

over 70 million individual Federal income tax returns prepared by paid tax return 

preparers.

TIGTA has reported on the IRS’s efforts to improve oversight of the return preparer 

community.18 While the IRS began implementing the new preparer requirements in 

FY 2011, TIGTA reported that it will take years for the IRS to implement the Return 

Preparer Program, including establishing all the program requirements and 

developing the system(s) and processes necessary to administer and oversee the 

program. However, this program is on hold based on a recent court ruling.19 On 

January 18, 2013, the U. S. District Court for the District of Columbia ruled that the 

IRS did not have the authority to regulate tax preparers who had not been 

regulated before: namely, preparers who were not certified public accountants, 

attorneys, enrolled agents, or enrolled actuaries. The IRS filed a notice of appeal 

on February 20, 2013. After the initial ruling, the Court clarified that all paid tax 

return preparers are still required to obtain a preparer tax identification number 

from the IRS.20 TIGTA also reported that the IRS’s requirement for return 

 14 I.R.C. § 501(c)(3) (2012). 15 I.R.C. § 501(c)(4) (2012). 16 TIGTA, Ref. No. 2013-10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for 

Review (May 2013). 17 The period of January 1 through April 15 when most individual income tax returns are filed. 18 TIGTA, Ref. No. 2010-40-127, It Will Take Years to Implement the Return Preparer Program and to 

Realize Its Impact (Sept. 2010). 19 Loving v. IRS, 2013 U.S. Dist. LEXIS 7980 (D.D.C. Jan. 18, 2013). 20 Loving v. IRS, 2013 U.S. Dist. LEXIS 13818 (D.D.C. Feb. 1, 2013).
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preparers to electronically file tax returns helped the IRS meet its goal to receive 

and process 80 percent of individual returns electronically, but better controls were 

needed to ensure preparer compliance with the new preparer regulations.21 

MODERNIZATION

The Business Systems Modernization Program (Modernization Program) is a complex 

effort to modernize IRS technology and related business processes. It involves 

integrating thousands of hardware and software components while replacing outdated 

technology and maintaining the current tax system. The IRS originally estimated that 

completion of the Modernization Program would take up to 15 years and incur 

contractor costs of approximately $8 billion. The Modernization Program was funded for 

$313 million in Fiscal Year 2013; the President’s Budget request for Fiscal Year 2014 

was $300.8 million.

The IRS’s modernization efforts continue to focus on core tax administration systems 

designed to provide taxpayers and IRS employees with more sophisticated tools. 

These efforts will provide the foundation for implementing a real-time tax system and 

reducing improper payments and fraudulent refunds. They will also provide the 

technology infrastructure and architecture that will enable taxpayers and other 

stakeholders the capability to securely access tax account information. The complexity 

of these efforts continues to pose significant technological and business challenges for 

the IRS.

The IRS considers the Customer Account Data Engine 2 (CADE 2) program critical to 

the IRS’s mission. It is the IRS’s most important information technology investment. 

The CADE 2 system also provides for a centralized database of individual taxpayer 

accounts. Once implemented, it will allow IRS employees to view tax data online and 

provide timely responses to taxpayers. TIGTA found that the implementation of CADE 

2 daily processing allowed the IRS to process tax returns for individual taxpayers more 

quickly by replacing existing weekly processing.22 However, the IRS has experienced 

delays in the implementation of the CADE 2 database interfaces to downstream 

systems.23 This has resulted in increased costs and delayed taxpayer service 

improvements that were to be provided by the new transactional database.

Modernization efforts also include the development of computer programs to conduct 

predictive analytics to reduce refund fraud.24 The IRS is developing a new Return 

Review Program system to implement the IRS’s new business model for a coordinated 

criminal and civil tax noncompliance system. TIGTA found that roles for program-level 

governance were not yet established for the Return Review Program and the key role of 

system integrator was not documented or clearly communicated.25 As a result, it is not 

 21 TIGTA, Ref. No. 2012-40-010, More Tax Return Preparers Are Filing Electronically, but Better Controls 

Are Needed to Ensure All Are Complying With the New Preparer Regulations (Dec. 2011). 22 TIGTA, Ref. No. 2012-20-122, Customer Account Data Engine 2 Systems Requirements and Testing 

Processing Need Improvement (Sept. 2012). 23 TIGTA, Ref. No. 2013-20-125, Customer Account Data Engine 2 Database Deployment Is 

Experiencing Delays and Increased Costs (Sept. 2013). 24 Computer models that analyze extremely large quantities of data to seek out data patterns and 

relationships that could indicate potential tax fraud schemes.

25 TIGTA, Ref. No. 2013-20-063, Improvements Are Needed to Ensure Successful Development and 

System Integration of the Return Review Program (July 2013).
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clear how the IRS will govern the systems development process for this mission-critical 

system, resolve enterprise-wide issues for fraud projects and programs, and resolve 

disputes and issues concerning fraud projects and programs.

Modernizing legacy tax administration systems to receive and process CADE 2 data 

and to process new legislative changes, such as the Affordable Care Act, will continue 

to be a major challenge for the IRS.

FRAUDULENT CLAIMS AND IMPROPER PAYMENTS

Improper payments by Federal Government agencies have been an issue for many 

years, and various efforts have been made to identify, measure, and reduce them. 

These include laws specifically addressing improper payments, an Executive Order,26

and guidance by certain oversight agencies, such as the Office of Management and 

Budget. The Improper Payments Information Act of 2002 defines an improper payment 

as any payment that should not have been made or that was made in an incorrect 

amount (both overpayments and underpayments) under statutory, contractual, 

administrative, or other legally applicable requirements.27 The Act requires Federal 

agencies, including the IRS, to estimate the amount of improper payments made each 

year and report to Congress on the causes of and the steps taken to reduce improper 

payments, as well as to address whether they have the information systems and other 

infrastructure needed to reduce improper payments. Erroneous and improper payments 

issued by the IRS generally involve improperly paid refunds, tax return filing fraud, or 

improper payments to vendors or contractors.

Refundable Credits

The IRS administers numerous refundable tax credits. These refundable credits 

allow individual taxpayers to reduce their tax liability to below zero and thus receive 

a tax refund even if no income tax was withheld or paid. Two significant refundable 

credits are the Earned Income Tax Credit and the Additional Child Tax Credit.

The Earned Income Tax Credit remains the largest refundable credit based on the 

total claims paid, and it continues to be vulnerable to a high rate of noncompliance, 

including incorrect or erroneous claims caused by taxpayer error or resulting from 

fraud. TIGTA continues to report that the IRS does not have effective processes to 

ensure that claimants qualify for these credits at the time tax returns are processed 

and prior to issuance of fraudulent tax refunds. The IRS estimates that it has paid 

between $111 billion and $133 billion in improper Earned Income Tax Credit 

payments from FY 2003 through FY 2012.28

The Additional Child Tax Credit is also susceptible to improper claims. TIGTA 

found that taxpayers repeatedly claimed erroneous Additional Child Tax Credits 

 26 Executive Order No. 13,520, 74 Fed. Reg. 62201 (Nov. 25, 2009), Reducing Improper Payments and 

Eliminating Waste in Federal Programs.

27 Pub. L. No. 1007-300, 116 Stat. 2350.

28 The Department of the Treasury Performance and Accountability Reports for Fiscal Years 2003 

through 2010 and the Agency Financial Report for Fiscal Years 2011 and 2012, as outlined in Office of 

Management and Budget Circular A-136.
U.S. Department of the Treasury | Fiscal Year 2013

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after their claims were disallowed the previous year.29 The IRS could have saved 

more than $108 million by reviewing claims made by taxpayers who were 

previously disallowed the credit.

Fraudulent Payments

Identity theft continues to be a serious and growing problem which has a significant 

impact on tax administration. Identity theft for the purpose of committing tax fraud 

occurs when an individual uses another person’s name and Taxpayer Identification 

Number (generally a Social Security Number) to file a fraudulent tax return to 

obtain a fraudulent tax refund. Incidents of identity theft affecting tax administration 

have continued to rise since Calendar Year 2011, when the IRS identified more 

than one million incidents of identity theft. During the first half of Calendar Year 

2013, the IRS had identified almost 1.9 million incidents of identity theft.

TIGTA reported that undetected tax refund fraud resulting from identity theft results 

in significant unintended Federal outlays.30 Specifically, TIGTA analyzed Tax Year 

2011 tax returns that were processed during the 2012 Filing Season and identified 

approximately 1.1 million undetected tax returns where the primary Taxpayer 

Identification Number on the tax return was a Social Security Number. These tax

returns had potentially fraudulent tax refunds issued totaling approximately 

$3.6 billion, a decrease of $1.6 billion compared to the $5.2 billion we reported for 

Tax Year 2010.

In addition, we expanded our Tax Year 2011 analysis to include tax returns for 

which the primary Taxpayer Identification Number on the return is an Individual 

Taxpayer Identification Number (ITIN). We identified more than 141,000 Tax Year 

2011 tax returns filed with an ITIN that have the same characteristics as IRS 

confirmed identity theft tax returns involving an ITIN. Potentially fraudulent tax 

refunds issued for these undetected tax returns totaled approximately $385 million.

Although the IRS is continuing to make changes to its processes to increase its 

ability to detect, prevent, and track fraudulent tax returns and improve assistance to 

victims of identity theft, there is still work to be done.

Contract and Other Payments

In the first half of Fiscal Year 2013, the IRS expended approximately $1.3 billion in 

contract spending, an area which continues to experience several risks for fraud 

and abuse. Previous TIGTA investigations and audits have identified millions of 

dollars in questioned costs and several instances of contractor fraud. During the 

last three fiscal years, TIGTA’s criminal investigative efforts contributed to courtordered civil settlements which required Government contractors to pay 

$156 million in FY 2010, $113 million in FY 2011, and $4.6 million in FY 2012 to 

the U.S. Treasury. These payments were the result of Federal procurement law 

 29 TIGTA, Ref. No. 2012-40-105, Expansion of Controls Over Refundable Credits Could Help Reduce the 

Billions of Dollars of Improperly Paid Claims (Sept. 2012). 30 TIGTA, Ref. No. 2012-42-080, There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting 

From identity Theft (July 2012).
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violations that occurred with work contracted with multiple Federal agencies, 

including the IRS.

Additionally, TIGTA continues to identify issues with the awarding and 

administering of IRS contracts. TIGTA recently performed a review of the IRS’s 

cost reimbursement contracts and found that the IRS did not comply with the 

majority of the new Federal Acquisition Regulations requirements for 46 of the 49 

cost reimbursement contracts entered into between March 17, 2011 and June 20, 

2012, totaling nearly $47 million.31 Specifically, the IRS did not always document 

required information to justify the selection of cost reimbursement contracts and did 

not always assign acquisition workforce resources prior to award to manage these 

contracts. Additionally, TIGTA reported that two contracts totaling $3.6 million 

failed to comply with Federal Acquisition Regulations requirements regarding 

contractor accounting systems. In order to adequately protect government 

resources, the Federal Acquisition Regulations states that cost reimbursement 

contracts should only be awarded to contractors with an adequate accounting 

system.

Another TIGTA review found that while some controls are working as intended, the 

IRS purchase card program lacks consistent oversight to identity and address 

inappropriate use.32 TIGTA identified approximately $7,000 in improper purchases, 

including purchases for giveaway items, purchases made for personal use, and 

items purchased from the restricted-purchase list.

PROVIDING QUALITY TAXPAYER SERVICE OPERATIONS

The Department of the Treasury and the IRS recognize that the delivery of effective 

taxpayer service has a significant impact on voluntary tax compliance. Answering 

taxpayers’ questions to assist them in correctly preparing their returns reduces the need 

to send notices and correspondence when taxpayers make errors. Taxpayer service 

also reduces unintentional noncompliance and shrinks the need for future collection 

activity.

Taxpayers have several options to choose from when they need assistance from the 

IRS, including telephone assistance through the toll-free telephone lines, face-to-face 

assistance at the Taxpayer Assistance Centers and or Volunteer Program sites, and 

self-assistance through IRS.gov and social media channels. The use of self-assistance 

options has seen the most significant growth as more taxpayers seek information and 

assistance through these channels.33

As of May 4, 2013, the IRS reported an increase of 24.7 percent in the number of visits 

to IRS.gov over the same period in the prior filing season. The IRS also reported an 

 31 TIGTA Ref. No. 2013-10-046, Cost-Reimbursement Contracts Did Not Fully Comply With Federal 

Acquisition Regulation Revisions (April 2013). 32 TIGTA, Ref. No. 2013-10-056, The Purchase Card Program Lacks Consistent Oversight to Identify and 

Address Inappropriate Use (June 2013). 33 TIGTA, Ref. No. 2013-40-124, Late Legislation Delayed the Filing of Tax Returns and Issuance of 

Refunds for the 2013 Filing Season (Sept. 2013).
U.S. Department of the Treasury | Fiscal Year 2013

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increase of 55.6 percent in the number of taxpayers obtaining their refund information 

online via the “Where’s My Refund” feature found on IRS.gov. However, TIGTA 

identified that the “Where’s My Refund” tool did not consistently provide accurate refund 

status information to some taxpayers that filed early in the 2013 Filing Season. The IRS 

reported that this issue was resolved on March 14, 2013. 

The budget reductions and declining IRS resources reduced the number of taxpayers 

whom the IRS estimated could be assisted at Taxpayer Assistance Centers. The IRS 

assisted approximately 6.8 million taxpayers at its walk-in Taxpayer Assistance Centers 

during FY 2012 and planned to assist 6 million in FY 2013. This represents 

11.8 percent fewer taxpayers than were assisted in FY 2012. The FY 2013 plan was 

based on the assumption of limited seasonal staff support and the continuing reduction 

of permanent staff as a result of the hiring freeze and buyout authority.

In addition, TIGTA reported in May 2012 that the IRS is not providing effective 

assistance to taxpayers who report that they have been victims of identity theft, resulting

in increased burden for those victims.34 In September 2013, TIGTA reported that 

taxpayers continued to face delays with some cases having significant inactivity during 

case processing. In addition, the IRS did not always correctly resolve tax accounts 

before the cases were closed.35

HUMAN CAPITAL

Human capital is the Federal Government’s most critical asset, making strategic 

management of human capital a top priority of the IRS. Continued focus by IRS 

management on human capital will remain important because the IRS is facing several 

key challenges.

First, a wave of anticipated retirements presents a critical challenge in the human 

capital area. More than one-third of all executives and almost 20 percent of nonexecutive managers are currently eligible for retirement, according to IRS data. By the 

end of FY 2017, nearly 70 percent of all IRS executives and nearly one-half of the IRS’s 

non-executive managers are projected to be eligible for retirement. Overall, about 

40 percent of the IRS’s employees will be eligible to retire within five years. In FY 2013, 

the IRS experienced significant changes in its most senior executive leadership.

Further, the IRS’s challenge of having the right people in the right place at the right time 

is made more difficult by many complex internal and external factors. Budget 

constraints have resulted in fewer personnel to accomplish the IRS’s mission. 

Specifically, the IRS’s workforce shrank by approximately 10,000 employees between 

the end of FY 2010 and the end of FY 2012. This reduction in employees possessing 

unique skills and institutional knowledge is particularly challenging as the number of tax 

returns the IRS processes continues to rise and the number of identity theft fraud cases 

the IRS works is also increasing. The IRS will also be required to implement provisions 

related to the Affordable Care Act using their own operating budget in the future, further 

stretching its limited resources.

 34 TIGTA, Ref. No. 2012-40-050, Most Taxpayers Whose identities Have Been Stolen to Commit Refund 

Fraud, Do Not Receive Quality Customer Service (May 2012). 35 TIGTA, Ref. No. 2013-40-062, The Taxpayer Protection Program Improves Identity Theft Detection; 

However, Case Processing Controls Need to Be Improved (June 2013).
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TIGTA reported that outstanding corrective actions in response to human capital audits 

require a continued focus by IRS management.36 For example, TIGTA has found that 

the IRS needs to develop an agency-wide strategy for integrating new employees into 

the workforce because some best practices that would help new employees become 

more productive were not fully implemented. 

With a shrinking workforce and budget, the IRS will be challenged to successfully 

achieve its mission of providing America’s taxpayers with top-quality service by helping 

them understand and meet their tax responsibilities and enforcing the law with integrity 

and fairness.

GLOBALIZATION

The scope, complexity, and magnitude of the international financial system present 

significant enforcement challenges for the IRS. At the end of Calendar Year 2012, 

foreign business holdings and investments in the United States were $25.5 trillion, an 

increase of nearly $135 billion over Calendar Year 2011, while U.S. business and 

investments abroad grew to over $21.6 trillion, an increase of nearly $1.5 billion during 

the same period.37 The numbers of taxpayers conducting international business 

transactions continues to grow as technological advances provide opportunities for 

offshore investments that were once only possible for large corporations and wealthy 

individuals. 

As advancing technology continues to allow more cross-border transactions, the IRS is 

increasingly challenged by a lack of information reporting on many of them. In addition, 

the varying legal requirements imposed by different jurisdictions lead to the creation of 

complex business structures that are not easy to understand, making determination of 

the full scope and effect of cross-border transactions extremely difficult.

As this global economic activity increases, so do concerns regarding the International 

Tax Gap.38 While the IRS has not developed an accurate and reliable estimate of the 

International Tax Gap, non-IRS sources estimate it to be between $40 billion and 

$133 billion annually. To address the International Tax Gap, the IRS developed an 

international tax strategy plan with two major goals: (1) enforce the law to ensure that 

all taxpayers meet their obligations and (2) improve service to make voluntary 

compliance less burdensome.

The IRS currently faces the challenge of implementing the Foreign Account Tax 

Compliance Act (FATCA).39 FATCA was enacted to combat tax evasion by U.S. 

persons holding investments in offshore accounts. Under this Act, a U.S. taxpayer with 

financial assets outside the United States will be required to report those assets to the 

IRS. In addition, foreign financial institutions will be required to report to the IRS certain 

information about financial accounts held by U.S. taxpayers or by foreign entities in 

 36 TIGTA, Ref. No. 2013-10-017, Improvements Have Been Made to Address Human Capital Issues, but 

Continued Focus Is Needed (Jan. 2013). 37 Bureau of Economic Analysis, Department of Commerce. 38 Taxes owed but not collected on time from a U.S. person or foreign person whose cross-border 

transactions are subject to U.S. taxation.

39 Pub. L. No. 111-147, Subtitle A, 124 Stat 71, *96-116 (2010)(codified in scattered sections of 26 

U.S.C.).
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which U.S. taxpayers hold a substantial ownership interest. The IRS is developing a 

new international system, the Foreign Financial Institution Registration System, to 

support the requirements of FATCA. This system is intended to register foreign 

financial institutions to assist in achieving the primary objective of FATCA which is the 

disclosure of U.S. taxpayer foreign accounts. TIGTA reviewed the development of this 

system and reported that the program management control processes did not timely 

identify or communicate system design changes to ensure its successful deployment.40

Concerns about the International Tax Gap have also led to increased enforcement 

efforts on international information reporting requirements and increased assessments 

of related penalties. For example, the IRS has automated the penalty-setting process 

for the Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign 

Corporations, which has resulted in a total of $215.4 million in late-filed Form 5471 

penalty assessments during Fiscal Years 2009 through 2012.41

In addition, the IRS established the International Campus Compliance Unit to expand 

audit coverage of tax returns with international aspects and to increase compliance 

among international individual taxpayers. For FY 2011 through March 13, 2013, the 

Campus Compliance Unit conducted almost 18,000 audits and assessed approximately 

$36 million in additional tax. Despite its accomplishments, TIGTA found that the 

Campus Compliance Unit has no specific performance measures for its operations.42

TAXPAYER PROTECTION AND RIGHTS

The IRS must ensure that tax compliance activities are balanced against the rights of 

the taxpayers to receive fair and equitable treatment. The IRS continues to dedicate 

significant resources and attention to implementing the taxpayer rights provisions of the 

IRS Restructuring and Reform Act of 1998 (RRA 98).43 The following audits related to 

taxpayer rights provisions are mandated annually: Notices of Levies; Restrictions on 

the Use of Enforcement Statistics to Evaluate Employees; Fair Debt Collection 

Practices Act44 Violations; Notices of Liens; Seizures; Illegal Protestor Designations; 

Assessment Statute of Limitations; Collection Due Process Appeals; Denial of Requests 

for Information; Restrictions on Directly Contacting Taxpayers Instead of Authorized 

Representatives; and Separated or Divorced Joint Filer Requests.

In general, the IRS has improved its compliance with these statutory taxpayer rights 

provisions and is documenting its protection of taxpayer rights. However, TIGTA 

continues to identify the same deficiencies in the IRS’s processing of collection dueprocess cases.45 Specifically, TIGTA continues to identify errors relating to the 

 40 TIGTA Ref. No. 2013-20-118, Foreign Account Tax Compliance Act: Improvements Are Needed to 

Strengthen Systems Development for the Foreign Financial Institution Registration System (Sept. 2013). 41 TIGTA, Ref. No. 2013-30-111, Systemic Penalties on Late-Filed Forms Related to Certain Foreign 

Corporations Were Properly Assessed, but the Abatement Process Needs Improvement (Sept. 2013). 42 TIGTA, Ref. No. 2013-30-113, The International Campus Compliance Unit Is Improving Individual Tax 

Compliance (Sept. 2013). 43 Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered section of 2 U.S.C., 5 U.S.C. 

app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.). 44 15 U.S.C. §§1601 note, 1692-1692o (2006). 45 TIGTA Ref. No. 2013-10-103, The Office of Appeals Continues to Experience Difficulties in the 

Handling of Collection Due Process Cases (Sept. 2013).
U.S. Department of the Treasury | Fiscal Year 2013

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determination of the Collection Statute Expiration Date46 on taxpayer accounts. In 

addition, the Office of Appeals did not always classify taxpayer requests properly and 

Office of Appeals personnel do not always document their impartiality statement in 

hearing notification letters issued to taxpayers. These deficiencies may result in 

taxpayers not receiving their full rights during an appeal hearing.

In addition, TIGTA reported that the IRS used inappropriate criteria to identify and 

review organizations applying for tax-exempt status. This activity caused delays in the 

resolution of the organizations’ applications, as well as their being subject to 

unnecessary and burdensome requests for information from the IRS. 

ACHIEVING PROGRAM EFFICIENCIES AND COST SAVINGS

Given the current economic environment and the increased focus by the Administration, 

Congress, and the American people on Federal Government accountability and efficient 

use of resources, the American people must be able to trust that their Government is 

taking action to stop wasteful practices and spending every tax dollar wisely. This 

management challenge became even more compelling in Fiscal Year 2013, when the 

IRS’s budget fell $618 million below its Fiscal Year 2012 enacted level after application 

of the enacted rescission and sequestration reductions. As a result, the IRS had to 

reduce administrative costs, furlough employees for three days, and make difficult 

decisions to reduce both taxpayer service and enforcement operations.

While the IRS has taken steps to improve program effectiveness and reduce costs, 

progress in this area continues to be a major challenge. In January 2013, TIGTA 

reported that the IRS paid over $1 million during FY 2011 for aircards and BlackBerry®

smartphones that were not used for periods of three months to one year.47 Overall, 

process improvements could result in a cost savings totaling approximately $5.9 million 

over five years.

TIGTA also reported on several areas of concern associated with an August 2010 IRS 

conference in Anaheim, California and made recommendations to ensure that taxpayer 

funds are expended more efficiently in the future.48 The Acting IRS Commissioner 

stated that new spending restrictions have been put in place at the IRS. The IRS has 

taken steps to ensure travel and conference spending is appropriate, limited, and 

undergoes a thorough review and approval process. 

In another audit, TIGTA reported that the IRS has not identified the optimal footprint for 

its data centers.49 TIGTA observed significant empty space at the IRS’s Enterprise 

Computing Center in Detroit, Michigan. After our audit was initiated, the IRS announced 

plans to close this facility, which will save the IRS approximately $15 million annually.

 46 The IRS generally has 10 years from the date of assessment to collect a liability owed by a taxpayer. 

The final date to collect is referred to as the Collection Statute Expiration Date. 47 TIGTA Ref. No. 2013-10-010, Inadequate Aircard and Blackberry Assignment and Monitoring 

Processes Result in Millions of Dollars in Unnecessary Access Fees (Jan. 2013). 48 TIGTA, Ref. No. 2013-10-037, Review of the August 2010 Small Business/Self-Employed Division’s 

Conference in Anaheim, California (May 2013). 49 TIGTA Ref. No. 2013-20-013, The Data Center Consolidation Initiative Has Made Significant Progress, 

but Program Management Should Be Improved to Ensure That Goals Are Achieved (June 2013).
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CONCLUSION

This memorandum is provided as our annual summary of the most serious major 

management and performance challenges confronting the IRS in FY 2014. TIGTA’s 

Fiscal Year 2014 Annual Audit Plan contains our proposed reviews, which are 

organized by these challenges. If you have any questions or wish to discuss our views 

on the challenges in greater detail, please contact me at (202) 622-6500.

cc: Deputy Secretary

Acting Assistant Secretary for Management and Chief Financial Officer

Acting Commissioner of Internal Revenue
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MANAGEMENT’S RESPONSE TO THE 

MANAGEMENT AND PERFORMANCE CHALLENGES IDENTIFIED BY THE 

TREASURY INSPECTOR GENERAL 

AND 

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

In their memoranda dated November 14 and 8, 2013, the Treasury Inspector General (IG) and the Treasury 

Inspector General for Tax Administration (TIGTA), respectively, identified the major challenges facing 

management. The Department of the Treasury concurs with the IG and the TIGTA on these challenges. 

These challenges do not necessarily indicate deficiencies in performance; rather, some represent inherent 

risks that must be monitored continuously. Moving forward, Treasury will continue to address these issues 

proactively. The following tables summarize the major management and performance challenges facing the 

Department of the Treasury, and provide information on the actions taken by Treasury in fiscal year 2013 and 

planned for fiscal year 2014 and beyond. The IG’s matters of concern are also addressed below.

Jacob J. Lew

Secretary of the Treasury

December 16, 2013

RESPONSE TO OIG

OIG CHALLENGE NO. 1 SUMMARY OF MAJOR ISSUES

Continued Implementation of DoddFrank

• Maintain an effective Financial Stability Oversight Council 

process supported by the Office of Financial Research and 

Federal Insurance Office within Treasury

• Build a streamlined banking regulatory structure that timely 

identifies and strongly responds to emerging risks

Financial Stability Oversight Council (FSOC)

Fiscal Year 2013 Accomplishments 

• Held 13 meetings of the FSOC to discuss and analyze emerging market developments and financial 

regulatory issues

• Continued to monitor for potential risks to U.S. financial stability, with a focus on significant financial 

market developments and structural issues within the financial system

• Designated an initial set of certain nonbank financial companies for supervision by the Federal Reserve and 

enhanced prudential standards

• Monitored the eight financial market utilities designated in 2012 for enhanced risk-management standards 

and supervision

• Continued to build out the FSOC’s institutional framework and strengthened coordination and cooperation 

among members and member agencies 
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Actions Planned or Underway

• Continue to consult with the Federal Reserve on developing rules establishing enhanced risk-management

standards

• Continue identification of specific nonbank financial companies for supervision by the Federal Reserve and 

enhanced prudential standards

• Coordinate issuance of final regulations implementing the Volcker Rule with identical rule text among the 

five rule-writing agencies

• Continue monitoring for potential risks to U.S. financial stability, with a focus on significant financial 

market developments and structural issues within the financial system

• Continue to implement operational improvements to existing processes and procedures related to the work 

of the FSOC

Office of Financial Research (OFR)

Fiscal Year 2013 Accomplishments

• The OFR Director was confirmed by the Senate in January 2013

• Completed and published a study of the asset management industry as requested by the FSOC

• Provided analytical and data-related support to the FSOC and its member agencies to continue the analysis 

related to nonbank financial company designations and to support the FSOC’s annual report

• Provided FSOC staff an enhanced Financial Stability Monitor – a dashboard of improved financial stability 

metrics and indicators

• Was selected to chair the Global Legal Entity Identifier Committee

• Established Regulatory Oversight Committee Board of Directors for the administration of Legal Entity 

Identifiers

• Held two Financial Research Advisory Committee (FRAC) meetings; the FRAC provided the OFR 

recommendations in August 2013

• The Federal Reserve Bank of Cleveland and the OFR jointly sponsored a conference on May 30 - 31, 2013, at 

the Federal Reserve Board in Washington, D.C.; the event focused on the data and tools needed for 

measuring potential threats to financial stability

• Hosted second OFR/FSOC conference in December 2012 on “Assessing Financial Intermediation: 

Measurement and Analysis”

• Procured critical infrastructure to build the OFR Long-Term Analytic Environment

• Released eight Research Working Papers to the public

• The OFR Director testified before the House Financial Services Subcommittee on Oversight and 

Investigations on “Who is Too Big to Fail? GAO’s Assessment of the Financial Stability Oversight Council 

and the Office of Financial Research” on March 14, 2013 

• Issued the first OFR Early-concept Grants for Exploratory Research (EAGER) grant in conjunction with the 

National Science Foundation to promote and support research related to financial stability

• Submitted second Annual Report to Congress on Human Capital Planning

• Increased staff from 100 to approximately 180 by the end of fiscal year 2013

• Implemented organizational performance measures and published them in the fiscal year 2014 budget

• Improved the content and presentation of the OFR website

• Continued to create operational policies and procedures as needed
U.S. Department of the Treasury | Fiscal Year 2013

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Actions Planned or Underway

• Issue second Annual Report to Congress, containing improved analysis and tools for monitoring threats to 

U.S. financial stability

• Complete acquisition of repo data

• Complete analysis of Form PF data

• Develop additional monitoring tools for use by the FSOC

• Provide support for the FSOC’s annual report

• Provide support for the FSOC’s nonbank designation process

• Provide support for the FSOC’s monitoring of threats by developing a Financial Stability Monitor

• Provide support for the FSOC by collecting data as appropriate

• Complete the third OFR Annual Report to Congress on Human Capital Planning

• Continue to build staff toward steady-state level

• Host the third annual OFR/FSOC conference in January 2014

• Host the next FRAC meeting in 2Q14

• Complete the build-out of the OFR Long-Term Analytic Environment and migrate data

• Publish additional working papers

• Issue more EAGER grants

• Complete the revised OFR Strategic Plan

• Drive efforts to support the global issuance and acceptance of Legal Entity Identifiers

Federal Insurance Office (FIO)

Fiscal Year 2013 Accomplishments

• Contributed expertise, policy support, and leadership in the FSOC

• The Director of FIO became chair of the International Association of Insurance Supervisors (IAIS) Technical 

Committee and has served in that capacity throughout 2013

• Led work at the IAIS through chairmanship of the Technical Committee, participation in the development of 

Global Systemically Important Insurers and other work streams, including leadership on technical and 

substantive work streams leading to a Common Framework for the Supervision of Internationally Active 

Insurance Groups

• Initiated, participated in, and assumed leadership and technical engagement with the European Union –

U.S. Project

• Enhanced bilateral relationships with U.S. regulatory agencies in matters concerning insurance oversight 

and supervision

• Assisted the Secretary of the Treasury in administering the Terrorism Risk Insurance Program, including 

advising on matters relating to the events in Boston

• Convened the Federal Advisory Committee on Insurance to discuss contemporary insurance issues 

• Contributed to the Hurricane Sandy Task Force and collected data from state regulators regarding insured 

losses

• Hosted the Federal Government Insurance Forum

• Participated in the Organization for Economic Cooperation and Development Insurance and Private Pension 

Committee meetings

• Established the Insurance Supervisory Forum for North America
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181

• Prepared and released reports

Actions Planned or Underway

• Release the Modernization Report and effectuate its recommendations

• Produce and release reports on pertinent issues affecting the domestic and international insurance markets

• Enter into bilateral memoranda of understanding (MOUs) with major emerging markets

• Continue to build on FIO’s current international leadership role and expand opportunities for FIO’s 

involvement in relevant international supervisory bodies

• Build resources and staff capacity

Office of the Comptroller of the Currency (OCC)

Fiscal Year 2013 Accomplishments

• Adopted final capital rule that establishes an integrated capital framework that addresses shortcomings 

revealed by the financial crisis and implements the Basel III regulatory capital reforms; the rule increases 

the quantity and quality of regulatory capital held by banks and addresses section 939A of the Dodd-Frank 

Act by removing references to credit ratings from OCC’s regulations dealing with topics other than capital 

requirements replacing it with a new non-ratings based creditworthiness; for the largest, most 

internationally active banks, the rule includes a new minimum supplementary leverage ratio that takes into 

account off-balance-sheet exposures, a countercyclical buffer, and additional capital charges and standards 

for derivatives exposures

• Published a proposed capital rule to strengthen the leverage ratio standards for the largest, most 

systemically significant U.S. banking organizations

• Adopted a final rule to implement the company-run stress tests for banks with assets greater than $10 billion

and issued proposed supervisory guidance for implementation of those rules for banks with consolidated 

assets of between $10 billion and $50 billion

• Issued supervisory guidance and tools to assist community banks in conducting stress tests

• Issued re-proposed rule to implement the Dodd-Frank Act risk retention requirements

• Published a final rule amending the lending limit rule to apply to certain credit exposures arising from 

derivative transactions and securities financing transactions, in response to a Dodd-Frank Act revision in the 

statutory definition of loans and extensions of credit to include certain exposures arising from derivative, 

repurchase and securities transactions

• Issued a final rule for appraisals on higher-risked mortgages and a proposed rule to exempt a subset of 

higher-priced mortgage loans from those requirements

• With the other federal banking agencies, issued updated supervisory risk management guidance for 

leveraged lending

• Issued a revised Commercial Real Estate Lending booklet to the Comptroller’s Handbook; updated 

guidance includes prudent loan workouts, management of concentrations, stress testing, updated 

interagency appraisal guidelines, and statutory and regulatory developments in environmental risk 

management and discussions of statutes and regulations governing federal savings associations

• Adopted a final rule on short-term investment funds (STIFs); the rule adds safeguards to address the risk of 

loss to a STIF’s principal, including measures governing the nature of a STIF’s investments, ongoing 

monitoring of its mark-to-market (MTM) value and forecasting potential changes to its MTM value under 

adverse conditions, greater transparency and regulatory reporting, and procedures to protect fiduciary 

accounts from undue dilution of their participating interests in the event the STIF loses its ability to 

maintain stable net asset value

• Issued proposed guidance on supervisory concerns and expectations for deposit advanced products

• Issued proposed interagency risk management guidance on the use of social media

• Adopted an interagency statement implementing section 612 of the Dodd-Frank Act restrictions on 

conversions for troubled financial institutions
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• Issued Semi-annual Risk Perspectives Reports that provide the industry and other interested parties the 

OCC’s perspectives on issues that pose threats to the safety and soundness of those financial institutions 

regulated by the OCC

• Continued active participation in the FSOC and its various operating committees

• Reached settlements with 11 mortgage servicers that will provide $3.2 billion in payments to eligible 

borrowers and $5.3 billion in other foreclosure prevention assistance; the settlements effectively ended 

requirements that these servicers conduct an independent foreclosure review required by Consent Orders 

issued in April 2011

• Conducted a nationwide call for federally chartered community banks on cybersecurity

• Established the position of Technical Expert for Critical Infrastructure within the OCC’s Operational Risk 

area under the Chief National Bank Examiner’s department

• Established, under the Comptroller’s leadership as chairman of the Federal Financial Institutions 

Examination Council, a cyber-working group

Actions Planned or Underway

• Continue to conduct on-site supervisory assessments of national banks and federal savings associations, 

focusing on the quality of corporate governance, risk management practices, adequacy of loan-loss reserves, 

capital, and liquidity

• Continue to perform individual bank examinations on a variety of other activities aimed at identifying and 

responding to systemic trends and emerging risks that could adversely affect asset quality or the availability 

of credit at national banks and federal savings associations and the banking system, and fair access to 

financial services

• Continue to integrate OCC national bank and Office of Thrift Supervision federal savings association rules 

under OCC regulations

• Monitor and assess the effectiveness of national bank and federal savings association mortgage servicers’ 

loan modification and foreclosure actions, including compliance with outstanding enforcement actions and 

agreements

• Issue proposed rulemaking to implement the Basel liquidity reforms

• Work closely within Treasury and with other federal financial regulatory agencies to implement the 

remaining Dodd-Frank Act reforms, and to monitor and respond to emerging risks to the stability of the U.S. 

financial system
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OIG CHALLENGE NO. 2 SUMMARY OF MAJOR ISSUES

Management of Treasury’s Authorities 

Intended to Support and Improve the 

Economy

• Protect the taxpayer from unnecessary risk 

associated with the implementation and 

administration of programs intended to support and 

improve the economy, including the provisions of 

the:

- Small Business Jobs Act of 2010

- American Recovery and Reinvestment Act of 

2009

- Housing and Economic Recovery Act of 2008

- Emergency Economic Stabilization Act of 2008

Small Business Lending Fund (SBLF)

Fiscal Year 2013 Accomplishments

• In total, the SBLF invested $4.03 billion in 332 community banks and Community Development Loan Funds 

(CDLFs)

• In fiscal year 2013, the SBLF program office continued its fiscal year 2012 focus on investment management, 

operations, compliance and controls, and outreach and reporting activities

• Specifically, the SBLF program office focused on the following activities:

o Investment Management: SBLF monitored the SBLF investment portfolio and made recommendations 

to senior Treasury officials on decisions related to investment performance and activities

o Operations: SBLF managed the program’s data and information in connection with participant 

reporting, dividend and interest payments, and capital repayments

o Compliance and Controls: SBLF monitored participant conformance with program terms, including 

lending data, certification requirements, and other requirements provided for by the SBLF Securities 

Purchase Agreement; SBLF also developed and executed internal control procedures for processes across 

SBLF program office functions

o Reporting and Outreach: SBLF continued its outreach and reporting efforts in fiscal year 2013. These 

activities included reporting to Congress on the program’s transactions, costs, and the participants’ use of 

funds, correspondence, and publishing the results of the program’s first annual lending survey; as of 

June 30, 2013, SBLF participants have increased small business lending by $10.4 billion over a $36.5 

billion baseline

Actions Planned or Underway

• For fiscal year 2014 and forward, the SBLF program office plans to continue its focus on investment 

management, operations, compliance and controls, and reporting and outreach:

o Investment Management: SBLF plans to continue to monitor the SBLF investment portfolio and make 

recommendations to senior Treasury officials on decisions related to investment performance and 

activities

o Operations: SBLF plans to continue to manage the program’s data and information in connection with 

participant reporting, dividend and interest payments, and capital repayments

o Compliance and Controls: SBLF plans to continue to execute a compliance program to monitor 

participant conformance with program terms, including lending data, certification requirements, and 

other requirements provided for by the SBLF Securities Purchase Agreement; SBLF also plans to 

continue executing internal control procedures for processes across SBLF program office functions

o Reporting and Outreach: SBLF plans to continue its outreach and reporting efforts; these activities 

include reporting to Congress on the program’s transactions, costs, and the participants’ use of funds, 

correspondence, and publishing the results of the program’s second annual lending survey
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State Small Business Credit Initiative (SSBCI)

Fiscal Year 2013 Accomplishments

• Received, tested, and transferred a cumulative $911,781,402 to States as they qualified for subsequent 

disbursements on their allocations ($379,143,821 in fiscal year 2013)

• Conducted on-site compliance reviews or training sessions in 12 States

• Evaluated and approved 21 formal modifications to States’ Approved SSBCI Programs

• Organized two national conferences of state SSBCI officials hosted by the Chicago Federal Reserve Bank and 

the Dallas Federal Reserve Bank

• Participated in three webinars organized by industry trade associations

• Convened three working groups of State SSBCI Officials to discuss and publish best practices in Collateral 

Support Programs, Loan Participation Programs and Loan Guarantee Programs

• Published Summary of States’ Quarterly Reports (Quarter Ending June 2013)

• Published Summary of States’ 2012 Annual Reports

• Published consultants’ study of SSBCI state-sponsored venture capital programs

• Coordinated responses to eight audits of states, one audit on the effectiveness of SSBCI, and one 

management alert from the Office of Special Inspector General for the SBLF, as well as an overall program 

audit by the Government Accountability Office

Actions Planned or Underway

• Continue to receive, test, and process requests for subsequent disbursements 

• Continue to evaluate and respond to requests for modifications to Approved SSBCI Programs

• Organize at least one national conference of state officials

• Convene two working groups of State SSBCI officials to discuss and publish best practices

• Continue to publish Quarterly and Annual Reports

• Publish consultants’ study of SSBCI lending programs

• Continue to coordinate responses to audits of states conducted by the Office of Special Inspector General for 

the SBLF

OCC

Fiscal Year 2013 Accomplishments

• Issued a Community Development Investments electronic newsletter, titled “The State Small Business 

Credit Initiative,” describing how national banks and federal savings associations can implement the 

Department of Treasury’s SSBCI to increase the amount of credit available for small businesses

Actions Planned or Underway

• Issue Community Development Investments electronic newsletters to support and improve the economy

Management of Recovery Act Programs 

Fiscal Year 2013 Accomplishments

• Managed the low income housing and specified energy property programs, including the extension of the 

specified energy property program by one year under Section 707 of the Job Creation Act, by supplementing 

a small core staff in Departmental Offices with support from Treasury bureaus

• Continued to review incoming applications for the energy program and make timely awards

• Continued an interagency agreement for the energy program with the Department of Energy to assist with 

the technical aspects of the energy program

• Continued an annual reporting process for the low-income housing program to ensure projects funded 
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under the program remain qualified

• Provided follow-up and support as necessary to Recovery Act Community Development Financial 

Institutions (CDFI) Program and Native American CDFI Assistance Program awardees with remaining 

federal reporting requirements in fiscal year 2013, to ensure timely data reporting to Federal 

Reporting.gov (100 percent on-time rate was achieved for fiscal year 2013)

• Conducted five site visits and 13 desk reviews on Recovery Act awards as of year-end which brings the total 

number of awards that have undergone detailed reviews of underlying data to 23

• Closely monitored spend-down of remaining Recovery Act CDFI award funds, to ensure all funds were 

expended by September 30, 2013; also monitored submission of final reports to Federal Reporting.gov by 

remaining Recovery Act CDFI Program and Native American CDFI Assistance Program awardees

Actions Planned or Underway

• Continue the compliance monitoring programs related to the low-income housing and specified energy 

property programs

• Continue to coordinate with IRS’s compliance initiative project regarding the energy program

• Continue assessment of staffing needs

• Receive final Assistance Agreement compliance reports from awardees for which performance period ended 

in fiscal year 2013; reconcile final compliance reports with reports submitted under Federal Reporting.gov

• Conduct desk reviews or site visits for remaining 46 Recovery Act awards 

• Close out all 69 Recovery Act awards

Management of the Housing and Economic Recovery Act and the Emergency Economic 

Stabilization Act 

Fiscal Year 2013 Accomplishments

• New Issue Bond Program (NIBP) 

o Concluded the period for which State and local Housing Finance Agencies (HFAs) could use program 

funds to finance new single family or multifamily mortgages

o Managed the prompt return of unused NIBP funds to Treasury well in advance of the final deadline

• Temporary Credit and Liquidity Program (TCLP)

o Concluded the process of granting a three-year extension of TCLP for six HFAs that elected to extend 

their participation, conditioned on these HFAs submitting plans for Treasury’s approval for reducing 

balances of bonds covered by TCLP

o Managed the reduction of Treasury’s exposure to risk under TCLP from $3.6 to $2.0 billion during the 

year, with the number of participating HFAs falling from six to four

• Continued to manage the wind-down of remaining Troubled Asset Relief Program (TARP) investments in a 

manner that balanced the desire to exit investments as soon as practicable with maximizing returns for 

taxpayers:

o Cumulatively collected 96.2 percent of the $420.1 billion in program funds disbursed under TARP 

(100.4 percent if non-TARP American International Group (AIG) shares are included)

o Continued to wind down some of our remaining Capital Purchase Plan investments through 

repurchases by banks, asset sales, and restructurings

o Substantially completed the wind-down of all of the TARP credit market programs, including remaining 

investments under the Public Private Investment Program and the Term Asset Backed Securities Loan 

Facility

o Made considerable progress in the wind down of the Automotive Industry Financing Program (AIFP) 

with the sale of 399 million shares of GM stock during fiscal year 2013, and with announcements by Ally 

Financial of a series of transactions that resulted in Ally repaying Treasury approximately $6 billion on 

November 20, 2013

o Exited all remaining holdings in AIG
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• Continued to implement the housing programs funded under TARP, which are designed to prevent 

avoidable foreclosures; these efforts have directly helped more than1.2 million people avoid foreclosure and 

indirectly helped millions more by setting new standards throughout the mortgage servicing industry

Actions Planned or Underway

• Manage the wind down of the HFA Initiative

• NIBP – Continue to collect data on the performance of the collateral underlying NIBP bonds, and to use this 

data to monitor and manage Treasury’s risks

• TCLP – Continue to monitor performance of four remaining HFAs in implementing approved plans for 

reducing TCLP balances, and to encourage HFAs to achieve faster reductions as market conditions permit

• Continue to manage the wind-down of the remaining TARP investments in a manner that balances the 

desire to exit as soon as practicable with maximizing returns for the taxpayers:

o Continue to wind down our remaining Capital Purchase Program investments through repurchases by 

banks, asset sales, and restructurings

o Continue to sell GM common stock through pre-arranged written trading plans and underwritten 

offerings, subject to market conditions

o Actively seek to monetize OFS’s Ally Financial investment

• Continue to implement the housing programs funded under TARP, which are designed to prevent avoidable 

foreclosures

OIG CHALLENGE NO. 3 SUMMARY OF MAJOR ISSUES

Anti-Money Laundering and Terrorist 

Financing/Bank Secrecy Act (BSA) 

Enforcement

• Prevent and detect money laundering and terrorist 

financing

• Promote U.S. and international financial systems 

that are safe and transparent 

• Ensure continued cooperation and coordination of 

all organizations involved in anti-money 

laundering and combatting terrorist financial 

efforts

• Create safeguards over the use of BSA information

FinCEN

Fiscal Year 2013 Accomplishments

• Imposed a $500 million penalty against HSBC as part of a joint enforcement action with several federal and 

state agencies resulting in a $1.9 billion overall enforcement action, the largest combined BSA and antimoney laundering (AML) penalty ever imposed against any financial institution

• Completed the majority of the components of the BSA IT Modernization Program, including deploying 

FinCEN Query to approximately 10,000 users, mandating electronic filing of all Title 31 reports, and 

introducing the ability to view automated alerts based on established business rules

• Completed the transition of financial institutions from legacy forms to new, electronic reporting formats 

through the BSA E-Filing system

• Realigned resources to establish the FinCEN Resource Center, an information operations hub for FinCEN 

that ensures consistent, efficient service to financial institutions, law enforcement, and regulators, as well as 

our foreign partners; thus far, the FRC has responded to more than 26,000 inquiries from financial 

institutions regarding proper electronic filing of BSA Reports, including money services businesses (MSBs)

registration requirements; processed more than 270 314(a) requests from law enforcement, 4,000 314(b) 

registrations from financial institutions, and 1,700 activity reports for regulatory field examiners; and 

reviewed over 8,000 FinCEN Query searches to network agencies working identical cases
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• Led a significant multilateral effort, in cooperation with the Mexican Financial Intelligence Unit (FIU), the 

Spanish FIU, and the member governments and FIUs of the Organization of American States-InterAmerican Drug Abuse Control Commission to develop and adopt a set of principles and best practices across 

the Western Hemisphere FIUs for ensuring the confidentiality of FIU information in a manner consistent 

with established Egmont principles and practices

• Continued to enhance the sharing of information derived from compliance examinations through entering 

into an additional 73 MOUs with federal and state regulators

• Issued guidance clarifying that certain administrators or exchangers of virtual currency are subject to 

FinCEN regulations as money transmitters, subjecting them to requirements including, but not limited to, 

registering with FinCEN, adopting an anti-money laundering program, and reporting suspicious activities

• Conducted strategic analytical studies and published reports on emerging money laundering trends and 

vulnerabilities, including assessments related to mortgage fraud, elder financial exploitation, depository 

institution insider abuse, 314(b) program usage, and the accounting profession, and issued analytical reports 

to state regulatory authorities overall BSA filing trends within their jurisdictions

• Realigned resources to increase staffing and revitalize enforcement efforts in all areas under FinCEN’s 

compliance and enforcement authority, including MSBs and non-bank financial institutions

Actions Planned or Underway

• Continue cooperative efforts with Federal and State regulatory agencies, pursuing MOUs with additional 

state insurance regulators, and promoting greater leveraging of resources between the IRS and state 

regulatory agencies on non-bank financial institution examinations – including implementation of 

compliance strategies for industries that have been recently subject to FinCEN’s regulations 

• Finalize existing rulemaking proposals and develop new regulations, as warranted, to address AML risks or 

gaps in the AML framework

• Implement the final components of the BSA IT Modernization Program and transition to an operations and 

maintenance environment 

• Continue to issue guidance and actionable advisories to financial institutions, regulators, and law 

enforcement on compliance and emerging money laundering trends and risks 

• Publish analytic products identifying networks, schemes, and failed institutions or jurisdictions involved in 

illicit financial activities and develop new analytic processes to streamline recurring analytic reports to 

provide faster turnarounds to customers 

• Continue to exercise enforcement authorities where appropriate to ensure compliance with the BSA and 

combat money laundering in all sectors of the financial services industry

OCC

Fiscal Year 2013 Accomplishments

• Examined national banks and federal savings associations to combat money laundering and terrorist 

financing, and to protect the integrity of the U.S. financial system through banks’ compliance with the Bank 

Secrecy Act/Anti-Money Laundering (BSA/AML), and USA PATRIOT Act laws and regulations, taking 

enforcement actions when appropriate

• Imposed a $500 million civil money penalty against HSBC Bank USA, N.A., McLean, Virginia, the largest 

penalty ever assessed by the OCC, based on the bank’s violating the BSA and its underlying regulations, and 

the bank's failure to fully comply with a cease and desist order issued in October 2010 addressing these 

violations

o The order required the bank to take comprehensive corrective actions to improve its BSA compliance 

program, while deferring the OCC's decision on assessing a penalty

o OCC announced that it has issued a separate cease and desist order to address deficiencies in the bank's 

enterprise-wide compliance program

o OCC entered into an agreement with the bank pursuant to the requirements of the Gramm-Leach-Bliley

Act 
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o OCC penalty was part of a coordinated action with the U.S. Department of Justice, the Board of 

Governors of the Federal Reserve System, the Financial Crimes Enforcement Network, the Office of 

Foreign Assets Control, and the New York County District Attorney's Office

• Issued a cease and desist order, by consent, against JPMorgan Chase, N.A.; JPMorgan Bank and Trust 

Company, N.A.; and Chase Bank USA, N.A., for deficiencies in the banks’ overall program for BSA/AML 

compliance

• Imposed a $10 million civil money penalty against TCF National Bank, Sioux Falls, S.D., for violations of the 

BSA comprising late and inadequate filing of Suspicious Activity Reports (SARs), following a cease and 

desist order issued in 2010 that directed the bank to correct deficiencies in its BSA and anti-money 

laundering programs

• Emphasized training, staffing, recruitment, policies, and interagency coordination to continually improve 

the BSA/AML supervision program

• Continued to work closely with the Treasury’s Office of Terrorism and Financial Intelligence, FinCEN and 

Office of Foreign Assets Control to promote the implementation of sound international anti-money 

laundering and counter terrorist financing standards

• Revised approach to citing BSA/AML violations in order to provide more flexibility for individual pillar 

violations to be cited, and identified steps to more promptly obtain a holistic view of a bank’s BSA/AML 

compliance

Actions Planned or Underway

• Continue examination, enforcement activities, and cooperative efforts with FinCEN and other federal 

banking agencies

OIG CHALLENGE NO. 4 SUMMARY OF MAJOR ISSUES

Gulf Coast Restoration Trust Fund 

Administration

• Monitor regulations and associated policies and 

procedures that need be established 

• Coordinate with many entities/councils that are to 

receive and further allocate funding, and need to 

establish policies and procedures

• Use Treasury’s existing resources to administer its 

responsibilities for the Trust Fund

Fiscal Year 2013 Accomplishments

• Posted notice of and published Treasury’s The Resources and Ecosystems Sustainability, Tourism 

Opportunities and Revived Economy of the Gulf Coast Act of 2011 (RESTORE Act) proposed regulations for 

comment

• Launched a Treasury RESTORE Act website that includes links to the proposed regulation, statute, Gulf 

Coast Ecosystem Restoration Council’s Comprehensive Plan and to grantees websites

• Hired a contractor to assist in the development of grant application forms, application procedures, 

application review process and compliance parameters for Treasury’s RESTORE Act grant programs

• Implemented an investment strategy for the Gulf Coast Restoration Trust Fund concurred to by the Gulf 

Coast Ecosystem Restoration Council and the National Oceanic Atmospheric Administration

• Represented Treasury at weekly conference calls and monthly meetings of the Gulf Coast Ecosystem 

Restoration Council executive committee

• Met with federal agencies who sit on the Gulf Coast Ecosystem Restoration Council to evaluate resource 

needs and provide input on RESTORE grant programs

• Utilized resources from the Fiscal Service to investigate grants management systems

• Assisted the Fiscal Service in implementing Trust Fund investments
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Actions Planned or Underway

• Hire three full time employees for the RESTORE Act

• Comment period for proposed regulations began in early November; release of final regulation anticipated in 

the second quarter fiscal year 2014

• Target date for the Fiscal Service to execute an interagency agreement for a grants management system set 

for late December 2013 and complete set up in the second quarter fiscal year 2014

• Continue to engage IT support for reporting functions to be added to RESTORE Act website 

• Target date to execute an interagency agreement or contract for subject matter experts to assist in grant 

application review is third quarter fiscal year 2014

• Target date for standard grant award agreement set for the second quarter of fiscal year 2014

• Target date to announce launch of program with accompanying application forms, procedures, and guidance 

is set for second quarter fiscal year 2014

• Target date for receipt of first grantee applications set for the third quarter of fiscal year 2014

• Target date for first awards to grantees anticipated in the fourth quarter of fiscal year 2014

Matters of Concern No. 1 SUMMARY OF MAJOR ISSUES

Cybersecurity • Build on existing partnerships among financial 

institutions, regulators, and private entities in the 

financial sector

• Identify and respond to emerging cyber threats 

against financial institutions and the broader 

financial sector

Fiscal Year 2013 Accomplishments 

• Clarified roles and responsibilities within the partnership system of the sector coordinating council 

(Financial Services Sector Coordinating Council for Critical Infrastructure Protection, FSSCC); the sector 

communications utility (Financial Services Information Sharing and Analysis Center, FS-ISAC); and the 

regulatory c0mmittee (Financial and Banking Information Infrastructure Committee)

• Implemented an information-sharing platform, to exchange sensitive information between the financial 

sector and the defense industrial base (Global Information Sharing Framework)

• Partnered with Department of Homeland Security (DHS), the intelligence community and law enforcement 

to build cyber-intelligence capabilities focused on protecting the financial services sector

• Began working with key sector partners to adapt a defense industrial base sensors program [Defense 

Enhanced Cybersecurity Services (DECS)] to serve institutions within the financial services sector

• Encouraged the sector to focus on extending communications networks beyond IT specialists to executives at 

various levels including Chief Executive Officers, Chief Information Officers, Chief Information Security 

Officers

• Stood up the Financial Sector Cyber Intelligence Group (CIG) within Treasury to provide timely and 

actionable cyber threat information to the financial sector

• Provided substantial input on key Administration cybersecurity proposals, including Executive Order 13636 

- Improving Critical Infrastructure Cybersecurity and Presidential Policy Directive (PPD)-21 Critical 

Infrastructure Security and Resilience

• Re-aligned and updated Treasury’s Cyber Critical Infrastructure Protection policies to address rapidly 

evolving federal requirements, including the 2013 Presidential Directive to protect the most essential 

information systems from potential adversaries

• Convened classified discussions with Chief Executive Officers, Chief Information Officers and Chief 

Information Security Officers from over 150 financial service firms and their service providers to identify and 

address emerging threats

• Collaborated with private and public sector partners to assess the emerging risks associated with the 

Internet Corporation for Assigned Names and Numbers proposal to delegate new financial Internet suffixes, 
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including “.bank”, “.mortgage”, “.insurance”, and “.retirement”

• Coordinated government and industry responses to attacks on individual institutions of the financial 

services sector

• Executed requests for Technical Assistance and Memoranda of Understanding to deploy government 

resources in defense of critical infrastructure

• Achieved continuous monitoring of Treasury systems covering 83 percent of the IT assets supporting 

Treasury unclassified systems, up from 65 percent at the end of fiscal year 2011

• Introduced a performance element in Bureau CIO performance plans to encourage the application of critical 

patches to at least 75 percent of applicable systems within 30 days of patch release; as result, 60 percent of 

the Treasury bureaus accomplished this goal

• Continued to improve Treasury’s network security to reduce the impact of social engineering and other 

attempts to expose Treasury IT systems to malicious software; as a result, 99 percent of Treasury network 

traffic was routed through a Trusted Internet Connection, where advanced analytic and defensive 

capabilities (including DHS monitoring with EINSTEIN technologies) help to block known and potential 

threats from entering Treasury’s IT environment

• Met the Treasury goal of 99 percent of users with a network account received cybersecurity awareness 

training, and 99 percent of users with significant security responsibilities met Treasury requirements for 

completing specialized, role-based security training

• OCC held a webinar on cyber threats and vulnerabilities to raise awareness for community banks, part of its 

continuing outreach effort to raise awareness by federally chartered banks and national savings associations 

of the growing operational risks from cyber-attacks; the webinar addressed current threats and 

vulnerabilities on how the OCC and other government entities are partnering to address these threats; and 

practical advice for community bankers on protecting their banks and customers

• OCC created and filled a new position, Senior Infrastructure Officer 

• OCC held a series of briefings for banks, third-party service providers, and bank examiners 

• OCC issued an alert on denial-of-service attacks and updated examiner handbooks, procedure, and training

materials to ensure that as threats evolve all banks and thrifts can identify cyber risks and strengthen their 

risk management and control systems

Actions Planned or Underway 

• Continuing to encourage the private sector and other government agencies to ramp up their respective 

efforts to bolster cybersecurity for the safety of their businesses as well as the entire U.S. financial system, 

including continued engagement from Treasury staff and senior management, including Assistant 

Secretaries, Under Secretaries, the Deputy Secretary, and the Secretary

• Enhancing access, staffing and automation at the sector communications utility (FS-ISAC)

• Partnering with Department of Homeland Security (DHS) to adapt the defense industrial base sensors 

program (DECS) to meet the needs of the financial sector; 

• Continuing to partner with DHS, the intelligence community and law enforcement to enhance cyberintelligence capabilities dedicated to protecting the financial sector

• Continue to work with the FSSCC and FS-ISAC, enlisting the trade associations to extend effective crisis 

management and communications to firms of all sizes

• Coordinating Private Sector Clearance Program with DHS for the Financial Services sector

• Fully operationalizing the Financial Sector Cyber Intelligence Group within Treasury to provide timely and 

actionable cyber threat information to the financial sector

• Supporting the implementation of Executive Order 13636 - Improving Critical Infrastructure Cybersecurity

and PPD-21 Critical Infrastructure Security and Resilience

• Supporting and institutionalizing the integration of financial services-specific efforts with DHS’ cross-sector 

activities 
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• Continuing to provide input on the potential risk of domain name expansion (e.g. “.bank”)

• Continuing to address individual incidents and patterns of attack

• Engaging in the planning and execution of preparedness exercises led by government and industry to 

identify and assess sector vulnerabilities

• Continuing to provide Treasury users annual cybersecurity awareness training to Treasury network users

• Accelerating transition to a logical access control model that requires users to authenticate their identities 

using the Personal Identity Verification card when accessing Treasury systems 

• OCC (as the Chair of the Federal Financial Institutions Examination Council) which spearheaded the 

formation of an interagency working group charged with coordinating with intelligence, law enforcement, 

and homeland security officials to fight existing and emerging threats; the working group will consider ways 

to improve coordination of supervisory policies relating to cybersecurity and infrastructure resilience and 

whether additional legislative authority is needed to stop security threats

Matters of Concern No. 2 SUMMARY OF MAJOR ISSUES

Currency and Coin Production • Oversee issues related to the Bureau of Engraving 

and Printing’s (BEP) redesign of NexGen $100 note 

while engaging in sound and comprehensive 

project management 

• Oversee the U.S. Mint’s costs associated of 

producing penny, nickel coins, and the suspended 

production of the dollar coins

Fiscal Year 2013 Accomplishments

Coin Production

• The U.S. Mint delivered an alternative coinage materials report to Congress in fiscal year 2013 that provided 

an assessment for both metal and production costs; no formal recommendations were made to change the 

current metallic content of circulating coins and the U.S. Mint is continuing to conduct R&D

• The U.S. Mint has implemented strategies that have dramatically reduced costs over the past three years 

(fiscal year 2009 – fiscal year 2012); as a result U.S. Mint reduced its non-metal plant operating costs by 

$14.5 million (more than seven percent) from $200.3 million in fiscal year 2009 to $185.8 million in fiscal 

year 2012; the U.S. Mint also reduced selling, general, and administrative costs by $31.8 million (nearly 18 

percent) from $179.5 million in fiscal year 2009 to $147.7 million in fiscal year 2012

Currency Production

• The BEP worked with its currency paper supplier, Crane & Company, and other BEP stakeholders, including 

the Federal Reserve Board, Department of the Treasury, and the U.S. Secret Service to resolve the creasing 

issue and completed production validation testing for the NexGen $100 note

Actions Planned or Underway

Coin Production

• The next biennial report to Congress on alternative coinage materials will be delivered in December 2014

Currency Production

• The Board of Governors of the Federal Reserve System announced that the date of issuance for the NexGen 

$100 note will be issued in the first quarter 2014

• The increasing complexity of U.S. currency note design demands the highest degree of cutting edge research 

and development, state-of-the-art production technology, and best-in-class quality and process control; the 

production challenges associated with the NexGen $100 note highlighted the need for a fundamental reengineering of process control and quality assurance at BEP; and the BEP is implementing a Currency 

Quality Assurance Program which is intended to be a strategic re-alignment that will position BEP for more 

efficient currency production and provide long-term cost reductions related to spoilage and reduced 

currency redesign cycle time 
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Matters of Concern No. 3 SUMMARY OF MAJOR ISSUES

Documenting Key Activities and Decisions Promote an effective records management program to 

ensure Treasury management personnel remain 

aware and vigilant

Fiscal Year 2013 Accomplishments

• The Do Not Pay Program published its system of records notice, TREASURY/Fiscal Service.023, Do Not Pay 

Payment Verification Records, after receiving OMB approval following its review to ensure consistency with 

OMB M 13-20, Protecting Privacy while Reducing Improper Payments with the Do Not Pay Initiative 

(guidance required under the Improper Payment Elimination and Recovery Improvement Act of 2012

(IPERIA), 31 U.S.C. § 3321 note, Pub. L. 112-248)

• Implementation of the Enterprise Content Management (ECM) program was a top priority for Treasury in 

2013; as ECM is a set of web-based tools that electronically capture, store, search, collaborate, and manage 

records; and successful deployment of the ECM platform has delivered significant tools and resources to 

facilitate effective records management such as e-Records Management and Digitization

• Ensured compliance with Federal records regulations, Treasury’s Office of Treasury Records conducted 

reviews of each bureau records management program, documented findings, and made recommendations to 

improve the effectiveness and efficiency in the respective programs

Actions Planned or Underway

• Continued support for Treasury program offices in configuring and utilizing the ECM Records Center 

program, to ensure consistent and efficient management of unstructured electronic records

• Review and overhaul of Departments Orders and Directives Process—the primary method by which 

Treasury-wide policy is codified; this process improvement initiative is focused on providing proactive 

support to Treasury programs in establishing and regularly review and updating, Treasury Orders and 

Directives in each office’s area of expertise

• Review and updating of proactive accessible records and digitization strategy, to prioritize digitization of 

high-value and high-demand records, reduce paper records stores in accordance with National Archives and 

Records Administration (NARA) guidance, and ensure digitized record stores are maintained in compliance 

with accessibility requirements

• Continuing to update the Department’s policy for records management, in conformance with new guidance 

from NARA, to address the retention and disposition of electronic media (email) and use and retention of 

social media communications and web 2.0 technologies
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RESPONSE TO TIGTA

TIGTA CHALLENGE NO. 1 SUMMARY OF MAJOR ISSUES

Security for Taxpayer Data and IRS Employees Promote measures for appropriate physical security 

and protection of financial, personal, and other 

information

Fiscal Year 2013 Accomplishments

• For fiscal year 2013, IRS performed a self-assessment of its internal controls for systems that impact the 

financial statements and demonstrated that management, technical, and operational controls are in place 

and effective to secure the IRS information; on June 28, 2013, the Financial and Management Controls 

Executive Steering Committee voted unanimously to downgrade the internally-carried information security 

material weakness to a significant deficiency

• Identified, mitigated, and responded to more than 1,300 cyber incidents and blocked over 5,800 websites to 

prevent access to malicious or compromised sites

• Eliminated 3,119 fraudulent domestic websites including 2,790 fraudulent malware websites

• Masked social security numbers (SSNs) using a two-dimensional (2D) barcode on 12 additional nonpayment 

notices, for a total of 58 nonpayment notices and 106 payment notices, affecting 20.4 million and 97.3 

million annual taxpayer notices, respectively

• Developed additional levels of security to the existing e-Auth system for IRS online applications, such as 

third-party identification data, which required taxpayers to prove who they are before accessing the IRS 

application; nearly 175,000 callers leveraged the third party ID proofing process

• Developed a Non-filers Identification Proofing and Authentication process for first-time filers for whom the 

IRS has no identification data using a combination of IRS and third party proofing, which standardized 

security services in Affordable Care Act applications and enhanced the ability to securely deliver services to 

customers via IRS.gov

• Implemented a process to ensure that Physical Security and Emergency Preparedness (PSEP) Office 

inventory records include all relevant information, such as the date facilities are open and closed as well as 

the dates risk assessments should be performed

Actions Planned or Underway

• Launch the third phase of the SSN Elimination project to mask SSNs on payment notices, beginning with four 

notices of installment agreements impacting an estimated 33 million notices annually

• Upgrade technology to improve identity theft filters and taxpayer authentication procedures

• Update the Physical Security Internal Revenue Manual to distinguish which risk assessments are the 

responsibility of Federal Protective Services and which are the responsibility of PSEP

TIGTA CHALLENGE NO. 2 SUMMARY OF MAJOR ISSUES

Implementing the Affordable Care Act and 

Other Tax Law Changes 

Effectively implement new tax provisions, including 

tax-related health care provisions of the Patient 

Protection and Affordable Care Act (ACA), and other 

tax law changes

Affordable Care Act (ACA)

Fiscal Year 2013 Accomplishments

• Experienced successful testing and rollout of Treasury and IRS-led systems related to the ACA

• Published Healthcare Law Online Resources (Pub. 5093), which provided links to Internet resources 

available from IRS federal agency partners, including the Department of Health and Human Services (HHS), 

the Department of Labor and the Small Business Administration (SBA)
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• Created a new ACA web page, which explains the tax benefits and responsibilities for individuals, families, 

and employers, as well as provides information regarding taxpayers’ health insurance choices and how they 

may affect tax returns filed in 2015

• Launched two new IT services for Marketplace exchanges, providing both income and family size data and 

an optional computation service for exchanges to determine the maximum Advance Premium Tax Credit

• Developed an ACA speaker’s cadre that included speakers throughout the IRS who manage stakeholder 

outreach and education requests related to ACA tax law implementation during the 2013 Health Insurance 

Marketplace pre-enrollment and enrollment period

• Conducted separate ACA discussions at an IRS Nationwide Tax Forum providing information on health carerelated tax provisions for individuals and businesses, details about provisions that may affect taxpayers in 

2013, and a preview of provisions beginning in 2014

• Published 34 items of regulations and other guidance on ACA tax provisions including Hospital Insurance 

Tax on High Income Taxpayers (9015), Net Investment Income Tax (1402), and Industry Fees (PatientCentered Outcomes Research Trust Fund, and Health Insurance Providers)

• Worked closely with HHS and the states on tax data safeguarding issues including education, correct and 

complete documentation, and on site validation reviews for, HHS data services Hub, Federally-Facilitated 

Marketplace, and State Marketplace, Medicaid and Children’s Health Insurance Program agencies

• Collaborated with HHS, the SBA and other partners to provide live and virtual outreach to individuals, 

employers, states, insurers, tax professionals, and other third parties

Actions Planned or Underway 

• Complete development of an ACA awareness module, including key acronyms, for customer-facing managers 

and employees

• Respond to requests to verify income and family size and requests to calculate the Advance Premium Tax 

Credit

• Continue implementation of ACA mid-horizon provisions 

• Continue working with federal and state agencies on implementation including outreach, guidance, 

information technology, and safeguarding of federal tax data

• Continue preparing for Exchange-related tax provisions taking effect in 2014 and impacting 2015 filing 

season (customer service, IT systems and business processes, and compliance)

• Continue ACA outreach to stakeholders including individuals, employers, states, insurers, tax professionals, 

and other third parties

• Coordinate new ACA IT requirements as modules are developed or enhanced

• Determine the impact and update related guidance resulting from the Defense of Marriage Act judicial

actions

• Ensure ACA requirements are met under e-Authorization Release 3 by aligning release schedules and 

supporting new modules as they are developed or enhanced

TIGTA CHALLENGE NO. 3 SUMMARY OF MAJOR ISSUES

Tax Compliance Initiatives Improve compliance and fairness in the application of 

the tax laws

Businesses and Individuals

Fiscal Year 2013 Accomplishments

• Developed a three-pronged approach to Improve Individual Tax Identification Number (ITIN) compliance 
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by:

o Manually reviewing returns involving new ITIN applications that claim Additional Child Tax Credit 

(ACTC) and/or American Opportunity Tax Credit (AOTC), if discrepancies are found, the returns are 

selected for audit

o Selecting ITIN returns that already have existing ITINs and appear to be claiming ACTC for potential 

audit

o Freezing potential refunds and auditing the returns of cases that meet the specific criteria

• Identified over 1,000 amended returns using a new screening criteria for Form 1040X (Amended Income 

Tax Return) where ITIN filers increased the number of dependents and claimed additional ACTC/AOTC

• Completed and posted on the web the final lesson for Virtual Small Business Tax Workshop (VSBTW) 

relating to “Hiring People Who Live in the U.S. but who aren’t U.S. Citizens,” which included closed 

captioning in English; as these online workshops focus on providing taxpayers information to help them 

understand and meet their federal tax obligations

• Continued to focus on a comprehensive and aggressive strategy to identify and combat tax-related identity 

theft, which consisted of: preventing refund fraud caused by identity theft; investigating and initiating 

criminal recourse against perpetrators of refund fraud caused by identity theft; and assisting taxpayers

victimized by identity theft; fiscal year 2013 efforts included:

o Issued Identity Protection PINs to more than 770,000 taxpayers who had been victimized by identity 

theft, compared to 250,000 in fiscal year 2012

o Increased the staff dedicated to refund fraud prevention and assisting taxpayers victimized by identity 

theft victim assistance to over 3,000 employees, more than twice the number of employees in fiscal year 

2012

Actions Planned or Underway 

• Conduct outreach efforts via direct contact and social media to market the Visual Small Business Tax 

Workshop (VSBTW) and establish relationships with organizations that represent small business owners in 

industries that frequently hire people who live in the U.S. but are not U.S. citizens

• Proceed with VSBTW translations for Chinese, Korean, Portuguese, Russian, Polish, French Creole, and 

Arabic

• Implement closed captioning for new VSBTW for Spanish, Chinese, and Vietnamese

• Collaborate with state and federal correctional agencies to reduce and deter inmate tax fraud by signing 

agreements to exchange information

• Continue the Corporate (Form 1120) reporting compliance study

• Continue to refine and expand the tax processing filters used to detect and prevent the issuance of fraudulent 

tax refunds resulting from identity theft

Tax-Exempt Entities

Fiscal Year 2013 Accomplishments

• Revised the relevant Internal Revenue Manual (IRM) sections related to promoter investigations in the taxexempt arena facilitating abusive tax transactions

• Issued 30-day report titled “Charting a Path Forward at the IRS: Initial Assessment and Plan of Action“ 

outlining corrective actions to address TIGTA recommendations and other critical management challenges

• Installed new leadership at all five levels of the senior executive managerial chain that had responsibility 

over the activities identified in the TIGTA report to ensure accountability

• Offered an expedited option to organizations applying for IRC § 501(c)(4) exemption whose applications, as 

of May 28, 2013, had been pending 120 days or more since their original filing date

• Improved the screening criteria for applications for tax-exempt status by eliminating the “Be on the 
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Lookout” or BOLO lists 

• Issued guidelines and instructions to Exempt Organizations (EO) personnel requiring screening assessments 

to be based on activity, not names or labels

• Enhanced training for EO personnel in the proper ways to review applications to determine the extent of 

political campaign activities

• Led seven promoter investigations related to tax-exempt entities where retirement plans were 

accommodating parties to abusive transactions and where a promoter required a monetary donation to an 

associated charity for services rendered to individuals; four retirement plans and three charitable 

organizations were involved in these abusive transactions

• Supported the newly formed Security and Exchange Commission (SEC), Office of Municipal Securities, by 

meeting with officials to discuss market trends and observations, legislative and regulatory developments, 

compliance issues and projects, and possible opportunities for additional collaboration pursuant to a 

memorandum of understanding between the IRS and SEC

• Completed 163 out of 330 examinations of retirement plans detected through an advanced data mining 

application that compared past audit analytics to current return information in the Risk Modeling II project

• Revised Forms 5300, 5310, and 5307 relating to applications for determination letters for qualified 

employee plans; the changes to the determination letter filing included eliminating elective demonstrations 

regarding coverage and nondiscrimination requirements and limiting the use of the Form 5307 to employers 

that have made limited modifications to a pre-approved volume submitter plan

Actions Planned or Underway 

• Identify gaps and make improvements to the exempt organizations examination program

• Issue guidance on how to measure the “primary activity” of IRC § 501(c)(4) social welfare organizations

• Establish a robust Enterprise Risk Management Program

• Conduct a comprehensive, agency-wide review of compliance selection criteria

• Work with the National Taxpayer Advocate to increase taxpayers’ awareness of mechanisms at their disposal 

for resolving issues with the IRS

• Re-engineer the determination process for organizations seeking tax-exempt status and publish these 

procedures publicly

• Evaluate the determination letter process for employee retirement plans for areas of improvement, 

specifically related to alleviating the determination backlog and improving case processing times

• Develop procedures to better document the reason(s) applications are chosen for review by the team of 

specialists (e.g., evidence of specific political campaign intervention in the application file or specific reasons 

the Exempt Organizations function may have for choosing to review the application further based on past 

experience)

• Develop training or workshops to be held before each election cycle including, but not limited to, the proper 

ways to identify applications that require review of political campaign intervention activities

• Develop training or workshops to be held before each election cycle including, but not limited to: (a) what 

constitutes political campaign intervention versus general advocacy (including case examples) and (b) the 

ability to refer for follow-up those organizations that may conduct activities in a future year which may cause 

them to lose their tax-exempt status

• Provide oversight to ensure that potential political cases, some of which have been in process for three years, 

are approved or denied expeditiously
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Tax Return Preparers

Fiscal Year 2013 Accomplishments

• Issued corrective action letters to 4,200 professional credentialed (CPAs, Attorneys, and Enrolled Agents) 

return preparers in fiscal year 2013 who were noncompliant due to nonpayment of a federal individual or 

business tax liability or the failure to file a required federal individual or business tax return, up from 500 in 

fiscal year 2012

• Verified the personal tax compliance of approximately 920,000 registered Preparer Tax Identification 

Number holders and found that 97 percent were compliant; monitored the tax obligations of the remaining 3

percent and treated the noncompliance based on program policy, which resulted in compliance from more 

than 2,200 return preparers

• Developed risk models using National Research Program (NRP) data to select preparers for treatment tests

• Implemented a study to compare the effectiveness of treatments for noncompliant preparers who prepare 

inaccurate tax returns to improve return accuracy

Actions Planned or Underway 

• Analyze results of the controlled testing study comparing the effectiveness of different treatments

TIGTA CHALLENGE NO. 4 SUMMARY OF MAJOR ISSUES

Modernization Improve taxpayer service and efficiency of operations

Fiscal Year 2013 Accomplishments

• Transferred data from the CADE 2 database demonstrating the ability to feed data to downstream systems, 

which enabled robust data accuracy, a sustainable database system, and operational performance to 

facilitate future use

• Delivered transcripts to third parties in seconds compared to days via electronic delivery to secure mailboxes 

using the Proof of Concept (PoC) application; however, the PoC was deactivated due to a low participation 

level of the Send My Transcript Proof of Concept, which also resulted in discontinuing plans to add more 

Income Verification Express Services vendors and financial institutions

• Established the Revenue Protection Technology (RPT) Governance Board and the RPT Executive Steering 

Committee to provide enterprise-wide governance to oversee the Return Review Program (RRP)

• Developed and included the system integrator roles and responsibilities in the RRP Project Management 

plan

Actions Planned or Underway 

• Deploy CADE 2 2014 Database Implementation to integrate testing and Data Assurance activities into the 

Annual Integrated Filing Season test

• Convert the Martinsburg and Memphis Computing Centers into a new benchmarkable format, which 

integrates the best methods of data center strategy, planning, operation, and continuous improvement

• Relocate Detroit Computing Center infrastructure and equipment to appropriate IRS facilities
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TIGTA CHALLENGE NO. 5 SUMMARY OF MAJOR ISSUES

Fraudulent Claims and Improper Payments Effective use of taxpayer funds

Refundable Credits

Fiscal Year 2013 Accomplishments

• Identified multiple submission and processing issues regarding Form 8867 (Paid Preparer's Earned Income 

Credit Checklist) during filing season 2013, which required additional review of the Tax Year 2012 returns to 

effectively and accurately identify the noncompliant returns

• Stood up a new Automated Questionable Credit (AQC) operation, assembled two operational groups, and 

conducted multiple phases of training

• Selected 7,265 returns claiming children age 24 and over as disabled qualifying children using pre-refund 

examination filters to address erroneous EITC claims

• Implemented additional controls to identify and stop erroneous claims for refundable credits before refunds 

are issued including freezing and verifying claims for the Additional Child Tax Credit on all returns for which 

the EITC is frozen

Actions Planned or Underway

• Analyze AQC case results and recommend rule changes to improve selection criteria

Fraudulent Payments

Fiscal Year 2013 Accomplishments

• Initiated the Entity Fabrication Pilot focusing on taxpayers who used false information documents to claim 

fraudulent refunds

• Updated the electronic fraud detection system to identify fabricated business entities with false Form W-2 

filings as “suspicious”

• Conducted 368 audits for the Multi-DUPTIN audit program and coordinated with Submission Processing 

and other IRS offices to resolve processing of returns with questionable Taxpayer Identification Numbers 

(TINs) for dependency exemptions

• Implemented clustering filters to detect additional ID Theft cases with suspicious criteria such as duplicate 

use of addresses and bank account information, resulting in over 392,000 returns selected and preventing 

over $1.2 billion in refunds

Actions Planned or Underway

• Update filters, codes, and finalize treatment stream to identify fraudulent filings based on Entity Fabrication 

pilot results

• Implement new programming, processes, and coding for false information documents

• Develop and implement processes to mark or exclude false Forms W-2 from the automated verification 

process

Contract and Other Payments

Fiscal Year 2013 Accomplishments

• Implemented processes and procedures requiring the inclusion of an overhead rate on reimbursable 

agreements

• Developed and updated policies and procedures to reflect the new Federal Acquisition Regulation (FAR) 

revisions for cost-reimbursement contracts

• Established better controls regarding invoice payments, by requiring on-line training for Contracting 

Officer’s Representatives, invoice approvers and their managers

• Required all contract specialists and Federal Acquisition Certification for Contracting Officer 

Representatives enter training and certification data in the Federal Acquisition Institute Training 

Application System, which is verified quarterly

• Reinforced controls over contract invoice review, approval, and payment processes which included: 

implementing a quarterly receipt & acceptance review process to verify that end users maintained the proper 
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R&A documentation required before making payment

• Implemented a review process to identify potential personal and/or inappropriate purchase card 

transactions

Actions Planned or Underway

• Develop and document an IRS-wide approach to identify, track, and monitor the adequacy of its acquisition 

workforce

• Provide training on recent FAR revisions resulting from the Duncan Hunter National Defense Authorization 

Act to those acquisition personnel involved in the award and administration of cost-reimbursement 

contracts

TIGTA CHALLENGE NO. 6 SUMMARY OF MAJOR ISSUES

Providing Quality Taxpayer Service Operations Improve taxpayer service

Fiscal Year 2013 Accomplishments

• Deployed Virtual Service Delivery (VSD) in 14 new Taxpayer Account Centers locations for walk-in 

customers

• Tested VSD technology with taxpayers in pilot sites and determined that virtual face-to-face conferences 

could be held successfully between employees and taxpayers

• Launched IRS2Go V3, a new version of the IRS2Go Smartphone application, which provided the application 

in Spanish for the first time and included minor updates to existing functionality; IRS2Go is available for 

both iOS and Android devices and has been downloaded by over 2.5 million users

• Increased the number of employees dedicated to preventing refund fraud and assisting taxpayers victimized 

by identity theft and updated and broadened the scope of the training for employees

• Completed the second and final phase of the TIN Matching re-engineering effort to resolve system 

integration, capacity, and maintenance issues and resulted in fewer maintenance and delivery issues, and 

reduced downtime

• Enhanced the MeF system, which successfully processed all Form 1040 electronic returns received within 

five minutes during non-peak periods and within two hours during peak periods

• Refined procedures to ensure appropriate indicators are recorded on taxpayer accounts to document both 

the opening and closures of identity theft investigations

• Delivered quality taxpayer service despite limited resources under severe budget constraints as a result of 

appropriations cuts, including sequestration

Actions Planned or Underway 

• Leverage new and existing partners to provide taxpayers expanded access via alternate filing methods such 

as Facilitated Self Assistance and virtual VITA 

• Evaluate capacity data to determine options to optimize VSD in support sites and identify locations for 

expansion

• Implement VSD technology as a permanent part of Campus operations

TIGTA CHALLENGE NO. 7 SUMMARY OF MAJOR ISSUES

Human Capital Enable the IRS to achieve its mission

Fiscal Year 2013 Accomplishments

• Implemented an Entrance On Duty System 2, which reduced administrative burden on the new hires and 

HR Staff by automating the collection of numerous prescreening and onboarding forms

• Emphasized the recruitment of veterans and persons with disabilities: 

o Established and posted the Disability, Schedule A, and Veteran Plans that outline goals, objectives, 

resources, tools and support available to managers
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o Promoted the use of Veteran Hiring Authorities through IRS-wide communications

o Marketed the Treasury Veterans’ Newsletter

o Launched a marketing campaign, called Veterans Employment Month, highlighting veterans’ 

accomplishments, which resulted in an increase of 1000 unique hits to the IRS Careers veteran hiring 

website

o Expanded the CareerConnector to improving hiring and to track applicant and workforce data

• Increased virtual recruitment efforts such as implementing the Schedule A disability portal for applicants 

applying for positions under the disability hiring authority initiative

• Increased Geographic Leadership Communities (GLCs) throughout the nation; thirty-two GLCs, comprised 

of cross-functional groups (executives, senior managers, and frontline managers) hosted developmental 

opportunities and skill-building workshops across the country 

Actions Planned or Underway 

• Finalize the IRS drug free workplace program plan, including the testing designated positions list

TIGTA CHALLENGE NO. 8 SUMMARY OF MAJOR ISSUES

Globalization Increase the outreach efforts to foreign governments 

on cross-border transactions

Fiscal Year 2013 Accomplishments

• Partnered with the Department of the Treasury’s Office of Terrorist Financing and Financial Crimes (TFFC) 

to address global money laundering

• Began implementing the Foreign Account Tax Compliance Act (FATCA) by conferring with more than 80 

countries to gather information about foreign accounts held by U.S. taxpayers via Tax Information Exchange 

Agreements:

o Signed Model 1 Agreements, Agreement to Improve International Tax Compliance and to Implement 

FATCA, with seven countries: Denmark, Ireland, Germany, Mexico, Norway, Spain, and the United 

Kingdom

o Signed two Model 2 Agreements, Agreement for Cooperation to Facilitate the Implementation of FATCA, 

with two countries: Japan and Switzerland

• Collected $5.5 billion in back taxes, interest, and penalties from 38,000 taxpayers by implementing strategic 

enforcement efforts and the offshore voluntary disclosure programs, which since inception, gave U.S. 

taxpayers with undisclosed offshore assets or income an opportunity to become compliant with the U.S. tax 

system and avoid potential criminal charges

• Joined the Treasury’s Working Group on Terrorist Financing and Charities, an interagency working group 

that reviews the abuse of the charitable sector for the diversion of funds for the financing of terrorist 

activities

• Developed bi-lateral working initiatives with the Department of the Treasury’s TFFC aimed at identifying 

and addressing threats presented by all forms of illicit finance to the international financial system

• Collaborated with the Treasury Executive Office for Asset Forfeiture on the emerging issue of Third-Party 

Money Launderers involved in domestic and global money laundering

Actions Planned or Underway 

• Collaborate with the Department of Treasury’s working group on Terrorist Financing and Charities to revise 

guidance

• Enhance the case management system to identify the initiation and completion of criminal investigations of 

global money laundering schemes that are used by third party money launderers

• Initiate criminal investigations of third party money launderers involved in domestic and global money 

laundering schemes

• Develop systems, technology and processes to implement FATCA

• Continue FATCA implementation by signing Intergovernmental Agreements to exchange tax information 

with additional countries
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• Conduct a study to determine if the automated penalty-setting process should be expanded to other types of 

income tax and international information reporting returns

• Evaluate the current performance measures and International Campus Compliance Unit (CCU) inventory 

results to determine how best to enhance the performance measures specific to work performed by CCU 

examiners

TIGTA CHALLENGE NO. 9 SUMMARY OF MAJOR ISSUES

Taxpayer Protection and Rights Apply the tax laws fairly

Fiscal Year 2013 Accomplishments

• Trained 35,000 employees to detect the characteristics of identity theft cases and assist taxpayers who are 

victims of identity theft

• Worked with victims to resolve and close more than 565,000 ID theft cases

• Engaged federal and state agencies to participate in an identity theft data exchange to address identity theft 

and refund fraud; began transmission of the data to two participating states, California and New York, 

resulting in sharing over 575,000 records of identity theft victims

• Prevented fraudulent refunds of over $3.3 million as the result of referrals through the State Suspicious Filer 

Group, which consists of 41 participating states; eight of the 41 participating states submitted information 

on over 5,000 suspicious filers under an exchange of information agreement

• Launched the Law Enforcement Assistance Program nationwide; the program allowed victimized taxpayers 

to sign a waiver (Form 8821-A) authorizing the release of any tax information to the designated state or local 

law enforcement official pursuing the investigation; in fiscal year 2013, 270 state/local law enforcement 

agencies from 31 states participated in the program, resulting in over 3,200 waiver requests for taxpayer 

consent access to their tax return data 

• Implemented new identity theft screening filters, including filters that target multiple refunds deposited into 

a single bank account or sent to a single address, to improve the ability to identify fraudulent returns before 

processing and issuing refunds

• Improved customer service using the Two Dimension (2D) Barcode technology which enabled assistors to 

instantly access the correct taxpayer account information and reduced notice processing errors

• Initiated 1,492 identity theft investigations and recommended 1,257 cases for prosecution in fiscal year 2013

• Suspended the use of BOLO lists in the application process for tax exempt status

Actions Planned or Underway 

• Expand partnerships and participation in data exchange and information sharing programs to combat 

identity theft and tax fraud

• Receive installment payment information through the 2D Barcode technology to expedite payment 

processing and reduce payment errors

• Develop guidance for specialists on how to process requests for tax-exempt status involving potentially 

significant political campaign intervention; this guidance should also be posted to the Internet to provide 

transparency to organizations on the application process

TIGTA CHALLENGE NO. 10 SUMMARY OF MAJOR ISSUES

Achieving Program Efficiencies and Cost 

Savings

Use resources to focus on producing the best value for 

stakeholders

Fiscal Year 2013 Accomplishments

• Completed space reductions that resulted in the release of 557,000 square feet for an annualized rent savings 

of $15.7 million

• Operated under an exception-only hiring freeze since December 2010 and reduced the total number of fulltime, permanent IRS employees by almost 9,000 
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• Secured buyout authority that resulted in the elimination of 1,224 positions 

• Limited employee travel and training to mission-critical projects, reducing training costs by 83 percent and 

training-related travel costs by 87 percent since 2010

• Reduced spending on professional and technical service contracts by $200 million

• Generated $60 million in printing and postage savings

• Reduced retention allowances paid to senior staff

• Updated and expanded the use of cost accounting information for exam and collections operations to 

improve program efficiency

o Expanded study on source of assessment for notices and added FTE’s to the notice cost model to compare 

Balance Due notice process against other collection processes

o Developed the average hourly rate for use in determining the costs of different types of exams based on 

the hours expended on them

o Enhanced the cost/benefit study on notices to include costs and revenues for first through fourth balance 

due notices

o Developed the cost/benefit of the Federal Agency Delinquency program which established the threshold 

amount for write-off of aged delinquent accounts

o Developed the cost of examinations of Tax-Exempt organizations

• Submitted requirements for the RRP to design a web-based portal to exchange data between the IRS and 

correctional agencies that are required to submit inmate data to the IRS to speed up the process of receiving, 

reviewing and loading data files into the system. 

• Established a policy to periodically evaluate the job series profiled for aircards and smartphones as well as 

monitor and document smartphones with no usage

• Released 45,395 square feet of available data center space by consolidating information technology 

operations in Atlanta, GA; Brookhaven, NY; Ogden, UT; Philadelphia, PA; and the New Carrollton Federal 

Building to be used for other IRS space requirements

• Issued additional guidance related to conference spending, attendance and tracking of expenditure

Actions Planned or Underway 

• Complete the development of the cost of collection processes by activity

• Enhance the hourly rate for small business exams by incorporating more detail such as grade and activity 

type

• Support the development of a marginal revenue/cost model for exam by completing the costs of enforcement 

labor costs by job series and grade

• Create a database to import prisoner/prison data files, which will eliminate any missing corrected files that 

are returned from the states

• Use available data systems to systemically research missing prisoner Social Security Numbers that were not 

provided by the prisons

• Relocate Detroit Computing Center infrastructure and equipment to appropriate IRS facilities

• Update IRM 6.410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, 

to include:

o Procedures that require all documentation supporting the selection of non-Government facilities for 

future conferences be maintained for management review

o Guidance on the use, selection and compensation if event planners must be used
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SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND 

MANAGEMENT ASSURANCES

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion Unmodified

Restatement No

Material Weakness Beginning

Balance New Resolved Consolidated EndingBalance

Material Weakness in Internal Control Over Financial Reporting at 

the IRS 1 0 0 0 1

SUMMARY OF MANAGEMENT ASSURANCES

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

Statement of Assurance Qualified

Material Weakness

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

IRS – Unpaid Tax Assessments 1 0 0 0 0 1

Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of Assurance Qualified

Material Weaknesses

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

IRS – Computer Security 1 0 1 0 0 0

Fiscal Service – Systems, Controls, and 

Procedures to Prepare the Government-wide 

Financial Statements 1 0 0 0 0 1

Total Material Weaknesses (FMFIA § 2) 3 0 1 0 0 2

Conformance with Financial Management System Requirements (FMFIA § 4)

Statement of Assurance Systems conform to financial management system requirements

Material Weaknesses

Beginning

Balance New Resolved Consolidated Reassessed

Ending

Balance

Total Non-conformances 0 0 0 0 0 0

Compliance with Federal Financial Management Improvement Act (FFMIA)

Agency Auditor

Noncompliance noted Noncompliance noted

Noncompliance 

noted

1. System Requirements Noncompliance noted

2. Accounting Standards Noncompliance noted

3. USSGL at the Transaction Level No noncompliance noted
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SECTION E: IPIA (AS AMENDED BY IPERA)

On July 22, 2010, President Obama signed into law the Improper Payments Elimination and Recovery Act (IPERA, 

Pub. L. 111-204). IPERA amends the Improper Payments Information Act (IPIA), generally repeals the Recovery 

Auditing Act, and significantly increases agency payment recapture efforts by expanding the types of payments to be 

reviewed and lowering the dollar threshold of annual payments that requires agencies to conduct payment recapture 

audit programs. Agencies continue to be required to review their programs and activities periodically to identify 

those susceptible to significant improper payments. OMB Circular No. A-123, Management’s Responsibility for 

Internal Control, Appendix C, Requirements for Effective Measurement and Remediation of Improper Payments (A123, Appendix C), amended April 14, 2011, defines “significant improper payments” as gross annual improper 

payments in a program exceeding both the threshold of 2.5 percent and $10 million of total program outlays or $100 

million regardless of the improper payment percentage. A-123, Appendix C, also requires agencies with programs 

susceptible to significant improper payments to implement corrective action plans that include improper payment 

root cause identification, reduction targets, and accountable officials. 

Section 2(B) of IPERA allows the development of an alternative approach for meeting the requirements for obtaining 

a statistically valid estimate of the annual amount of improper payments for federal programs that are so complex 

that developing an annual error rate is not feasible. Agencies may establish an annual estimate for a high-risk 

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

perform trend analyses to update the program’s baseline error rate in the interim years between detailed program 

studies. When development of a statistically valid error rate is possible, the reduction targets are revised and become 

the basis for future trend analyses.

On January 10, 2013, the President signed into law, the Improper Payments Elimination and Recovery Improvement 

Act of 2012 (IPERIA; Pub. L. 112-248), which also amends IPIA. It is important to note that Section 5 of IPERIA, 

regarding the Do Not Pay Initiative, is treated separately from Circular No. A-136 reporting requirements.

I. RISK ASSESSMENT

Each year, the Department develops a comprehensive inventory of the funding sources for all programs and activities 

and distributes it to the Treasury bureaus and offices. The bureaus and offices must perform risk assessments at the 

payment type level (e.g., payroll, contracts, vendors, travel, etc.). The Department’s risk assessment process follows 

the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated 

Framework. The framework includes:

1. Internal Control Environment

2. Risk Assessment

3. Internal Control Activities

4. Information and Communication

5. Monitoring

The factors considered in the determination of risk levels include:

Operating Environment – Existence of factors which necessitate or allow for loosening of financial controls; any 

known instances of fraud
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Payment Processing Controls – Management’s implementation of internal controls over payment processes 

including existence of current documentation, the assessment of design and operating effectiveness of internal 

controls over payments, the identification of deficiencies related to payment processes, and whether or not effective 

compensating controls are present

Internal Monitoring Activities – Periodic internal program reviews to determine if payments are made properly; 

strength of documentation requirements and standards to support testing of design and operating effectiveness for 

key payment controls

Human Capital – Experience, training, and size of payment staff; ability of staff to handle peak payment 

requirements; level of management oversight, and monitoring against fraudulent activity

Prior to the enactment of the IPERA changes to IPIA, Treasury maintained and performed a robust improper 

payment risk assessment process in which the new IPERA payment types were included. During fiscal year 2013, 

Treasury continued the use of its robust assessment process. 

For those payment types resulting in high-risk assessments that comprise at least 2.5 percent and $10 million in total 

program outlays or $100 million at any rate, (1) statistical sampling must be performed to determine the actual 

improper payment rate, and (2) a corrective action plan must be developed and submitted to the Department and 

OMB for approval. Responses to the risk assessments produce a score that falls into pre-determined categories of 

risk. The following table describes the actions required at each risk level:

Risk Level Required Action(s)

High Risk > 2.5% Error Rate & > $10 Million or 

$100,000,000 at any error rate

Corrective Action Plan

Medium Risk Review Payment Controls for Improvement

Low Risk No Further Action Required

The risk assessments performed across the Department in fiscal year 2013 resulted in all programs and activities 

being of low or medium risk susceptibility for improper payments, except for the IRS’s Earned Income Tax Credit 

(EITC) program. The EITC’s high-risk status is well-documented, having been identified previously in the former 

Section 57 of OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget, and has been deemed 

by OMB a complex program for the purposes of the IPIA. OMB’s guidance requires additional reporting on programs 

deemed high-risk; that information, for the EITC program only, follows.
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II. STATISTICAL SAMPLING 

EITC Program

This section describes how the IRS currently develops its erroneous payment projections for the EITC. 

The EITC is a refundable federal tax credit that offsets income taxes owed by low-income workers and, if the credit 

exceeds the amount of taxes owed, provides a lump-sum refund to those who qualify. The most recent projection is 

based on a tax year 2009 reporting compliance study that estimated the level of improper overclaims for fiscal year 

2013 to range between $13.3 to $15.6 billion and 22.1 percent (lower bound) to 25.9 percent (upper bound) of 

approximately $60.3 billion in total program payments.

The complexity of the EITC program, the nature of tax processing, and the expense of compliance studies preclude 

statistical sampling on an annual basis to develop error rates for comparison to reduction targets. The estimates are 

based primarily on information from the IRS’s National Research Program (NRP) reporting compliance study of 

individual income tax returns for tax year 2009—the most recent year for which compliance information from a 

statistically valid, random sample of individual tax returns is available.

Under the tax year 2009 NRP reporting compliance study, which reviewed individual income tax returns filed during 

calendar year 2010 for tax year 2009, approximately 2,400 of the returns in the regular NRP sample were EITC 

claimants randomly selected for examination.

The IRS National Research Program (NRP) conducts annual studies on the reporting compliance of Form 1040 

taxpayers. Imbedded in these annual studies is a sample of EITC claimants large enough to estimate the improper 

payment percentage with plus or minus 2.5 percent precision and 90 percent confidence. This is the data source 

used to estimate the absolute amount of EITC overclaims and underpayments. EITC overclaims are defined as the 

difference between the EITC amount claimed by the taxpayer on his or her return and the amount the taxpayer should 

have claimed, as determined by the NRP examination. EITC underpayments are defined as the amount of EITC 

disallowed by the IRS in processing that should have been allowed, as determined by the NRP examination. For tax 

year 2009 (the most recent data available), the absolute overclaim and underpayment amount is estimated to be 

$16.3 billion. This year is the first year in which the estimate includes underpayments in the improper payment 

calculation. The underpayments increase the overall improper payment rate by less than 0.05 percent.

The IRS also uses the NRP sample to estimate the total amount of EITC claims. The amount of the taxpayers’ original 

claims is captured during data processing. Rather than try to edit the entire population of claimants, the IRS chose to 

use the NRP sample, edit those returns and use them to estimate the total amount of claims. For tax year 2009, 

approximately $58.8 billion was claimed for EITC.

The improper payments estimates for fiscal year 2013 through fiscal year 2016 were developed by multiplying the

improper payment rate estimated from the fiscal year 2009 NRP data by total estimated EITC claims for the 

corresponding fiscal year. It is assumed that the NRP-based tax year 2009 improper payments rate is applicable for 

each of these years

To obtain projections of total EITC claims, upward adjustments were made to estimates of EITC tax expenditures and 

outlays in the fiscal year 2014 federal budget; this was done for two types of adjustments. The first adjustment 

reflects that these amounts likely understate the amount of EITC initially claimed on filed tax returns. This is because 

some of the original claims are never actually disbursed to taxpayers, being disallowed through math-error processing 

or revenue protected by pre-refund examinations, although these are offset to some extent by new EITC claims made 
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on amended returns. The relationship between estimates of EITC claims and estimates of expenditures and outlays in 

prior years was used to determine the appropriate adjustment factor.

The second adjustment reflects that projected EITC claims published in the fiscal year 2014 budget assumed the third 

child EITC provisions would expire after tax year 2012. With the passage of the American Taxpayer Relief Act of 

2012, the third child EITC provisions were extended through tax year 2017. The adjustments made to the fiscal year

2014 budget are based on prior year increases in total EITC claims resulting from the third child EITC provisions.

The final step of estimating EITC improper payments for fiscal year 2013 involves multiplying the improper payment 

rate by the estimate of total claims for that year. This yields the estimate for EITC improper payments for fiscal year

2013 shown in the table. In order to provide projections through fiscal year 2016, the same improper payment rate is 

applied to future year projections of total claims.

III. CORRECTIVE ACTIONS 

This section describes the ongoing and planned corrective actions to reduce the improper payment rate for Treasury’s 

only high-risk susceptible program, the EITC.

Root Causes

The root causes of EITC improper payments are from the following sources:

Authentication – It is estimated that 70 percent or $10.15 billion in improper payments are from authentication 

errors. They include errors associated with the inability to authenticate qualifying child eligibility requirements, 

mainly relationship and residency requirements, filing status, when married couples file as single or head of 

household, and eligibility in nontraditional and complex living situations. Authentication is completed on a portion 

of this error category during pre-refund examinations.

Verification – It is estimated that 30 percent or $4.35 billion in improper payments are from verification errors. 

These errors relate to improper income reporting which allows claimants to fall within the EITC income limitations 

and qualify for EITC. The errors include both underreporting and overreporting of income by both wage earners and 

taxpayers who report that they are self-employed.

Income reported through information returns such as Forms W-2, Forms 1099, etc, which can be used for verification 

of some income, becomes available only after tax returns are processed. Under law, the IRS must process income tax 

returns within 45 days of receipt or pay interest to taxpayers.

Base Program

In 2013, the IRS prevented approximately $4 billion of EITC from being paid in error. The prevention activity

primarily focused on three areas:

• Examinations – IRS identifies tax returns for examination and holds the EITC portion of the refund until an 

audit can be conducted. This is the only ongoing IRS audit program where exams are conducted before a refund is 

released. The examination closures and enforcement revenue protected in the charts below do not include test 

initiatives

• Math Error – Refers to an automated process in which the IRS identifies math or other irregularities and 

automatically prepares an adjusted return for a taxpayer. Legislation is required for each specific type of math error 

• Document Matching – Involves comparing income information provided by the taxpayer with matching 

information (e.g., W-2s, 1099s) from employers and other third parties to identify discrepancies
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The chart below shows significant results from fiscal year 2008 through an estimate of fiscal year 2014. In fiscal year 2013

alone, the IRS conducted an estimated 483,000 EITC-related examinations, issued approximately 240,000 math error 

notices, and closed nearly 907,000 document matching reviews.

Compliance Activities

FY08 FY09 FY10 FY11 FY12* FY13** FY14*** FY08-FY14

Total

Examination Closures 503,755 508,180 473,999 483,574 487,408 483,139 483,000 3,423,055

Math Error Notices 432,797 355,416 341,824 293,450 270,492 240,000 210,000 2,143,979

Document Matching 727,916 688,087 904,920 1,178,129 985,172 906,994 907,000 6,298,218

Amended Returns1 32,473 25,395 19,347 14,317 13,284 8,129 8,000 120,945

* Restated actual.

** Preliminary estimates.

*** Estimate based on fiscal year 2013 preliminary data.

1 Amended returns are a subset of Examination Closures.

These compliance activities had a significant effect. Treasury projects that continued enforcement efforts will protect a total 

of approximately $27 billion in revenue through fiscal year 2014, as shown below.

Enforcement Revenue Protected (Dollars in Billions)

FY08 FY09 FY10 FY11 FY12* FY13** FY14***

FY08-FY14

Total

Examination Closures $ 2.00 $ 2.15 $ 1.97 $ 2.04 $ 2.05 $ 2.11 $ 2.00 $ 14.32

Math Error Notices $ 0.44 $ 0.40 $ 0.41 $ 0.35 $ 0.31 $ 0.28 $ 0.24 $ 2.43

Document Matching $ 1.23 $ 1.17 $ 1.43 $ 1.32 $ 1.55 $ 1.42 $ 1.42 $ 9.54

Amended Returns $ 0.07 $ 0.07 $ 0.06 $ 0.04 $ 0.04 $ .03 $ 0.03 $ 0.34

TOTAL $ 3.74 $ 3.79 $ 3.87 $ 3.75 $ 3.95 $ 3.84 $ 3.69 $ 26.63

* Restated actual.

** Preliminary estimates.

*** Estimate based on fiscal year 2013 preliminary data.

Maximizing Current Business Processes 

• Completed strategic studies to update the estimates of the two key EITC performance measures, participation rate and 

error rate, which comply with the Government Performance and Results Act of 1993. Delivered estimates of EITC 

participation for tax year 2010, using a Census-IRS match. IRS also completed a new error rate estimate based on the EITC 

component of the tax year 2009 National Research Plan (NRP) study that meets IPIA standards for measuring and reporting 

on improper payments. This year is the first year in which the estimate includes underpayments in the improper payment 

calculation, although its effect was not significant.
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• As part of the fiscal year 2013 EITC Return Preparer Strategy, the IRS completed activities associated with a traditional 

suite of EITC paid preparer treatments, selected from a risk-based model, and activities associated with an expanded pilot 

that used real-time data to assess EITC preparer risk and test progressive sets of treatments.

• As part of the traditional suite of treatments, IRS completed 540 pre-filing season due diligence visits (DDVs) reflecting a 

continuing high penalty rate of 86 percent and over $14.9 million in proposed penalties. Revenue and criminal investigation 

agents completed 109 Knock and Talk (KTV) educational visits. IRS proposed penalties of over $200 thousand on 27 DDVs 

completed as a follow-up for those preparers who received pre-filing season KTVs, but did not improve their due diligence. 

Almost 3,000 educational notices were mailed before the filing season as well. Additionally, the IRS obtained four civil 

injunctions protecting revenue of $15.4 million.

• In the second year of the real-time return preparer pilot, the IRS expanded the number of non-compliant preparers 

treated to almost 7,000 and tested progressive combinations of treatments that included pre-filing season letters and client 

return audits and filing season letters, phone calls, client return audits, and DDVs. The 300 real-time DDVs closed with a 

penalty rate of 81 percent and almost $2.9 million in penalties.

• The preliminary analysis of the fiscal year 2013 EITC Preparer Strategy revealed that in addition to the penalties and 

injunction revenue protected above, the treatments protected over half a billion dollars (EITC and Child Tax Credit). The 

analysis showed that low cost treatments do have an impact on non-compliant return preparers. The low cost letters have a 

high return on investment and alone protected an estimated $408.5 million.

• As a result of IRS's collaboration with software developers, most companies did program their tax year 2012 professional 

software to automatically transmit Form 8867. As a result, IRS received far less than one percent of paid preparer electronic 

returns without the required form attached.
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IV. IMPROPER PAYMENTS REPORTING 

The following table provides the improper payment reduction outlook for Treasury’s only high risk susceptible program, the 

EITC:

 Improper Payment (IP) Reduction Outlook 

 (Dollars in Billions)

V. RECAPTURE OF IMPROPER PAYMENTS REPORTING

In accordance with IPERA and OMB Circular No. A-123, Appendix C, Treasury performs and reports annually on its payment 

recapture program. In fiscal year 2011, Treasury incorporated the IPERA amendments into the existing Treasury payment 

recapture (recovery audit) program, and continued to address them in fiscal years 2012 and 2013. Prior to the enactment of 

the IPERA changes to IPIA, Treasury maintained and performed a robust improper payment risk assessment process which 

already included the new IPERA payment types. 

During fiscal year 2013, Treasury issued contracts and other reviewed payments totaling approximately $11 billion. The 

amended act expanded the payment types reviewed beyond just contracts to include grants, benefits, loans, and 

miscellaneous payments.

Treasury’s annual risk assessment process includes a review of pre-payment controls that minimize the likelihood and 

occurrence of improper payments. Treasury requires each bureau and office to conduct post-award audits and report on 

payment recapture activities, contracts issued, improper payments made, and recoveries achieved. Bureaus and offices may 

use payment recapture audit contingency firms to perform many of the steps in their payment recapture auditing program 

and identify candidates for payment recapture action. However, no Treasury bureaus used contractors to perform recapture 

activities for fiscal year 2013. Treasury employees performed this work.

Treasury considers both pre- and post-reviews to identify payment errors a sound management practice that should be 

included among basic payment controls. All Treasury bureaus have a process in place to identify improper payments during 

pre- and post-reviews. At times, bureaus may use the results of IG and GAO reviews to help identify payment anomalies and 

Program

2012Outlays2012 IP

%

2012IP$2013 Outlays2013 IP%2013 IP$2014 Est. Outlays2014 IP%2014 IP$2015 Est. Outlays2015 IP%2015 IP$2016 Est. Outlays2016 IP%2016 IP$

EITC 

Upper 

Bound

Estimate

$55.4 24.6% $13.6 $60.3 25.9% $15.6 $58.3 25.9% $15.1 $60.0 25.9% $15.6 $61.1 25.9% $15.9

EITC 

Lower 

Bound

Estimate

$55.4 21.0% $11.6 $60.3 22.1% $13.3 $58.3 22.1% $12.9 $60.0 22.1% $13.3 $61.1 22.1% $13.5

The term “Outlays” equals “Estimated Claims.”

Estimated Claims: Estimated total claims for the EITC are based on projections of EITC tax expenditures plus outlays as estimated by the Office of Tax 

Analysis within the Department of the Treasury, adjusted to account for the difference between taxpayer claims and accounts received by taxpayers due 

to return processing and enforcement.

IP % and IP $: These estimates follow the prior approach which provided a range for the error rate (%) and improper payments amounts ($).
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target areas for improvement. However, Treasury applies extensive payment controls at the time each payment is processed, 

making recapture activity minimal. 

Payment Recapture Audit Reporting

Type of

Payment

Amount Subject

to Review for

2013 Reporting

Actual Amount

Reviewed and

Reported

(2013)

Amount

Identified for

Recovery 

(2013)

Amount

Recovered

(2013)

% of Amount

Recovered out 

of

Amount 

Identified

(2013)

Amount

Outstanding

(2013)

% of 

Amount

Outstanding

out of

Amount

Identified

(2013)

Contracts $7,289,700,639 $ 7,114,265,877 $ 1,285,978 $ 1,205,728 93.8 $ 80,250 6.2

Grants $ 87,160,667 $ 87,160,667 $ 17,814,845 $ 16,361,039 91.8 $ 1,453,806 8.2

Benefits $ 651,558,439 $ 4,654,814 $ 1,081,184 $ 1,075,563 99.4 $ 5,621 0.5

Loans $ 0 $ 0 $ 0 $ 0 0 $ 0 0

Other $3,978,608,796 $ 3,961,793,673 $ 143,048 $ 110,692 77.3 $ 31,438 22.0

Type of

Payment

Amount

Determined

Not to be

Collectable

(2013)

% of Amount

Determined

Not to be

Collectable

out of Amount

Identified

(2013)

Amounts Identified 

for Recovery 

(2004-2012)

Amounts 

Recovered 

(2004-2012)

Cumulative 

Amounts

Identified for 

Recovery

(2004-2013)

Cumulative 

Amounts Recovered 

(2004-2013)

Cumulative 

Amounts 

Outstanding

(2004-2013)

Cumulative 

Amounts 

Determined

Not to be

Collectable

(2004-2013)

Contracts $ 0 0 $ 7,967,748 $ 6,653,882 $ 9,253,726 $ 7,859,610 $ 81,550 $ 75,130

Grants $ 0 0 $ 917,316 $ 917,316 $ 18,732,161 $ 17,278,355 $ 1,453,806 $ 0

Benefits $ 0 0 $ 14,968 $ 1,438 $ 1,669,073 $ 1,132,587 $ 286,409 $ 248,706*

Loans $ 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Other $ 918 0.7 $ 2,999,477 $ 2,885,738 $ 3,142,525 $ 2,999,430 $ 38,490 $ 1,603

*This amount includes a prior year amount of $248,706. This amount represents annuitant benefit balances determined to be uncollectible by 

the Department of Justice.

During fiscal year 2013, Treasury determined that conducting a Payment Recapture Audit on the following five programs 

would not be cost-effective: 

• Fiscal Service Debt Activity Programs 

• Treasury Management Accounts

• Treasury Executive Office for Asset Forfeiture 

• Departmental Offices International Financial Institutions – International Assistance Programs

• Federal Financing Bank

The Fiscal Service Debt Activity Programs continued to reflect a low level of risk in every group and payment type in fiscal 

year 2013. 

Disbursements from the Fiscal Service - Treasury Managed Accounts are based on public law, adjudications, or payment 

certifications from federal agencies. Payments are made via the Fiscal Service Secure Payment System.

The Treasury Executive Office for Asset Forfeiture’s program payments to state and local law enforcement agencies are 

intergovernmental payments that represent a low risk of improper payment. In addition, the Treasury Executive Office of 

Asset Forfeiture staff reviews payments monthly for accuracy.
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The Departmental Offices International Financial Institutions non-federal payments to the Multilateral Development Banks

are submitted by either a voucher on a letter of credit administered by the Federal Reserve Bank of New York or through 

direct cash payments via the Fiscal Service Secure Payment System. These payments present a low level of improper 

payment risk based on the number of payments annually and the quality of third party controls.

The FFB has an interagency agreement with the General Services Agency (GSA) to provide acquisition support. Invoices are 

paid through GSA’s ITSS platform and are reviewed prior to payment by the task order COR. Contractor payments are paid 

through the GSA via the Intra-Governmental Payment and Collection Systems. The FFB’s lone contractor bills the FFB once 

a month. The effort required in performing this review would be significantly disproportionate to the low volume of invoices 

associated with a single vendor.

Based on the justifications submitted by the five Treasury entities, payment recapture audits for these programs were not 

deemed cost effective. 

Payment Recapture Audit Targets

The payment recapture audit targets listed below are preliminary estimates developed by Treasury bureaus and offices based 

on historical performance and current payment recapture audit programs.

Type of Payment

2013

Amount 

Identified

2013

Amount Recovered

2013

Recovery Rate (%)

(Amount Recovered / 

Amount Identified)

2014

Recovery 

Rate (%)

Target

2015

Recovery 

Rate (%)

Target

2016

Recovery 

Rate (%)

Target

Contracts $ 1,285,978 $ 1,205,728 93.8 85 85 85

Grants $ 17,814,845 $ 16,361,039 91.8 85 85 85

Benefits $ 1,081,184 $ 1,075,563 99.4 85 85 85

Loans $ 0 $ 0 0 85 85 85

Other $ 143,048 $ 110,692 77.3 85 85 85

Aging of Outstanding Overpayments

Type of Payment 

CY* Amount Outstanding

(0-6 months)

CY Amount Outstanding

(6 months – 1 year)

CY Amount Outstanding

(Over 1 year)

Contracts $ 80,250 $ 0 $ 1,300

Grants $ 1,453,806 $ 0 $ 0

Benefits $ 5,621 $ 0 $ 280,788

Loans $ 0 $ 0 $ 0

Other $ 31,437 $ 0 $ 7,052

*CY = Current Year
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Disposition of Recaptured Funds

Type of 

Payment 

Agency Expenses to 

Administer the 

Program

Payment 

Recapture 

Auditor Fees

Financial 

Management 

Improvement 

Activities Original Purpose

Office of the 

Inspector General

Returned to 

Treasury

Contracts $ 62,761 $ 0 $ 0 $ 1,137,168 $ 0 $ 6,152

Grants $ 0 $ 0 $ 0 $ 17,492,189 $ 0 $ 0

Benefits $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Loans $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Other $ 9,395 $ 0 $ 0 $ 106,179 $ 0 $ 0

Overpayments Recaptured Outside of Payment Recapture Audit

Source of Recovery

Amount 

Identified CY

Amount 

Recovered CY

Amount 

Identified PY*

Amount 

Recovered PY

Cumulative 

Amount 

Identified 

(CY + PY)

Cumulative 

Amount 

Recovered 

(CY+PY)

Statistical Samples $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Post Payment 

Reviews or Audits $ 84,305 $ 84,305 $ 112 $ 112 $ 84,417 $ 84,417

OIG Reviews $ 1,089 $ 0 $ 8 $ 8 $ 7,331 $ 3,121

Single Audit Reports $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Self-Reported $ 0 $ 0 $ 2,896,776 $ 2,896,776 $ 2,896,776 $ 2,896,776

Reports from Public $ 40,045,280 $ 40,044,803 $ 155,484 $ 149,402 $ 40,200,764 $ 40,194,205

*PY = Prior Year

VI. ACCOUNTABILITY

The Secretary of the Treasury has delegated responsibility for addressing improper payments to the Assistant Secretary for 

Management (ASM). Improper payments fall under the Department’s management and internal control program. A major 

component of the internal control program is risk assessments, which are an extension of each bureau’s annual improper 

payment elimination and recovery review process, as required under A-123, Appendix C. Under Treasury Directive 40-04, 

Treasury Internal (Management) Control Program, executives and other managers are required to have management 

control responsibilities as part of their annual performance plans. With oversight mechanisms such as the Treasury CFO 

Council and the IRS’s Financial and Management Controls Executive Steering Committee, managerial responsibility and 

accountability in all management and internal control areas are visible and well-documented. Treasury has identified 

executives who are responsible and accountable for reducing the level of EITC overclaims, while other senior and mid-level 

officials have responsibility for monitoring progress in this area as bureau and program internal control officers.

VII. INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE

Overall, Treasury has the internal controls, human capital, and information systems and other infrastructure it needs to 

reduce improper payments to the targeted levels.
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VIII. LIMITING STATUTORY AND REGULATORY BARRIERS

A number of factors continue to serve as barriers to reducing overclaims in the EITC program. These include:

• Complexity of the tax law (including the need for Congressional authorization of math error authority)

• Structure of the EITC

• Confusion among eligible claimants

• High turnover of eligible claimants

• Unscrupulous return preparers

• Fraud

No one of these factors can be considered the primary driver of program error. Furthermore, the interaction among the 

factors makes addressing the credit’s erroneous claims rate, while balancing the need to ensure the credit makes its way to 

taxpayers who are eligible, extremely difficult.

Also, statutory requirements limit the IRS’s ability to ensure that EITC claims are valid before they are paid. Since the EITC 

is administered through the Internal Revenue Code, it is claimed by taxpayers during the filing and processing of their tax 

returns. The Internal Revenue Code requires the IRS to process tax returns and pay any related tax refunds within 45 days 

of receipt of the tax return or the tax return due date, whichever is later. Because of this requirement, the IRS cannot 

conduct extensive eligibility checks similar to those that occur with other federal programs that typically certify eligibility 

prior to the issuance of payments or benefits.

IX. ADDITIONAL COMMENTS

In fiscal year 2013, the OIG issued Report Number OIG-13-034, Treasury was Not in Compliance with IPERA for Fiscal 

Year 2012, which covered the IPERA program as presented in Treasury’s fiscal year 2012 Agency Financial Report. During 

fiscal year 2013, the Department continued to implement corrective actions to address the findings and recommendations in 

the OIG report.
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SECTION F: MATERIAL WEAKNESSES AND AUDIT FOLLOW-UP

This section provides detailed descriptions of Treasury’s material weakness inventory, including summaries of actions taken 

and planned to resolve the weaknesses; tracking and follow-up activities related to Treasury’s GAO, OIG, TIGTA, and 

SIGTARP audit inventory; an analysis of potential monetary benefits arising from audits performed by Treasury’s three IGs; 

and an update on Treasury’s financial management systems framework.

I. Treasury’s Material Weaknesses

Management may declare audit findings or internal situations as a material weakness whenever a condition exists that may 

jeopardize the Treasury mission or continued operations. The FMFIA requires agency reporting on material weaknesses.

FMFIA and FFMIA

The FMFIA requires agencies to establish and maintain internal controls. The Secretary must evaluate and report annually 

on the operational and financial reporting controls (FMFIA Section 2) and financial systems (FMFIA Section 4 and FFMIA) 

that protect the integrity of federal programs. The requirements of the FMFIA serve as an umbrella under which other 

reviews, evaluations, and audits should be coordinated and considered to support management’s assertion about the 

effectiveness of internal control over operations, financial reporting, and compliance with laws and regulations.

As of September 30, 2013, Treasury had two material weaknesses under Section 2 of the FMFIA, summarized as follows:

Summary of FMFIA Material Weaknesses Section 2 Section 4 Total

Balance at the Beginning of Fiscal Year 2013 3 0 3

Closures/Downgrades during Fiscal Year 2013 1 0 1

Reassessed during Fiscal Year 2013 0 0 0

New Material Weakness Declared during Fiscal Year 2013 0 0 0

Balance at the End of Fiscal Year 2013 2 0 2
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Below are detailed descriptions of Treasury’s two material weaknesses: 

Material Weakness Description

Internal Revenue Service – Unpaid Tax Assessments

The IRS needs to improve its internal control over Unpaid Assessments. Original key elements:

• Subsidiary ledger does not track and report one Trust Fund Recovery Penalty (TFRP) balance

• Untimely posting of TFRP assessments and untimely review of TFRP accounts

• General ledger cannot accurately report the Taxes Receivable balance without a statistical estimation process

Actions Completed in FY 2013 What Remains to be Done

 Evaluated contractor recommendations and 

determined that changes to the estimation process 

are not needed

 Completed the fiscal year 2012 “After the Audit” 

report and issued the results to the Business Owners 

for follow-up and corrective action

 Performed a “look back” analysis on fiscal year 2010 

and determined that sampled items were accurate. 

The analysis was completed to ensure business rules 

and methodology were current and accurate.

 Partnered with the Business Owners to verify that 

IRS management is performing continuous 

monitoring to ensure data input to Integrated Data 

Retrieval System (IDRS) is accurate

 Determined process improvement for entering data 

into IDRS to decrease errors posting to Master File 

and CADE 2, including the feasibility of changes to 

the IDRS system. Based on the analysis, process 

improvements will be incorporated into CADE2 

requirements which will decrease errors posting in 

CADE2.

 Programmed Custodial Detail Database (CDDB) to 

accurately report on single Business Master File

(BMF) modules with a partial collection statuteexpired assessment. 

 Verified that the CDDB program changes achieved 

the expected results. Implemented program 

changes for the fiscal year 2013 audit, as 

appropriate. CFO verified that the CDDB 

programming changes accurately report on single 

BMF modules with a partial collection statuteexpired assessment met the desired results. These 

changes will enable CDDB to classify the cases when 

the BMF modules have no additional freezes and 

complex transactions are not in the module. The 

programming changes were successfully tested and 

implemented. 

 Automated Trust Fund Recovery (ATFR) JAVA 

Conversion – move processing of transcripts for 

performing payment cross-referencing from 

PowerBuilder to JAVA to improve accuracy of 

assessments and timeliness in crediting payments

 Complete the fiscal year 2013 “After the Audit” 

report and issue the results to the Business Owners 

for follow-up and corrective actions

 Follow-up with the business owners as to the results 

of the “After the Audit” report findings and issue 

responses for corrective actions

 Develop milestones for leveraging funded CADE 2 

TS2 functionality and determine a date the plan will 

be completed and add to the Remediation Plan to 

address the Unpaid Assessment Material Weakness.

 Targeted Downgrade/Closure: Fiscal year 2015

 
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Material Weakness Description

Bureau of the Fiscal Service – Systems, Controls, and Procedures to Prepare the Government-wide Financial 

Statements

The government does not have adequate systems, controls, and procedures to properly prepare the Consolidated 

Government-wide Financial Statements. Original key elements:

• The government lacks a process to obtain information to effectively reconcile the reported excess of net costs over 

revenue with the budget deficit, and when applicable, a reported excess of revenue over net costs with the budget 

surplus

• Weaknesses in financial reporting procedures in internal control over the process for preparing the Consolidated 

Financial Statements

Actions Completed in FY 2013 What Remains to be Done

 Partially reconciled fiscal year 2012 operating revenues 

with budget receipts

 Refined analysis model for unreconciled transactions that 

affect the change in net position

 Accounted for intra-governmental differences through 

formal consolidating and elimination accounting entries 

using all reciprocal fund categories including the General 

Fund

 Completed closing package submitted to GAO by federal 

agencies

 Established traceability from agency footnotes to the 

Consolidated Financial Statements (CFS) for completeness

 Complete reconciliation of operating net cost to 

the budget deficit

 Complete reciprocal category for the Treasury 

General Fund

 Implement changes to capture material 

balances and activity from the Reporting Entity 

as defined per the Financial Accounting 

Standards Advisory Board criteria

 Include all disclosures as appropriate

 Include all loss contingencies as appropriate

 Targeted Downgrade/Closure: Fiscal year 2015
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II. Audit Follow-up Activities

During fiscal year 2013, Treasury continued to place emphasis on both the general administration of internal control issues 

throughout the Department and the timely resolution of findings and recommendations identified by GAO, OIG, TIGTA, 

SIGTARP, external auditors, and management. During the year, Treasury continued to implement enhancements to the 

tracking system called the “Joint Audit Management Enterprise System” (JAMES). JAMES is a Department-wide, 

interactive, web-based system accessible to management, OIG, TIGTA, SIGTARP, and others. The system tracks information 

on audit reports from issuance through completion of all corrective actions required to address findings and 

recommendations contained in an audit report. JAMES is the official system of record for Treasury’s audit follow-up 

program.

Potential Monetary Benefits

The Inspector General Act of 1978, as amended, Public Law 95-452, requires the IGs and secretaries of executive agencies 

and departments to submit semiannual reports to the Congress on actions taken on audit reports issued that identify 

potential monetary benefits. The Department consolidates and analyzes all relevant information for inclusion in this report. 

The information contained in this section represents a consolidation of information provided separately by OIG, TIGTA, 

SIGTARP, and Treasury management.

In the course of their audits, the IGs periodically identify “questioned costs”, recommend that funds be put to better use, 

enhancements to revenues of the federal government, and identify measures that demonstrate the value of audit 

recommendations to tax administration and business operations. 

“Questioned costs” include a:

• Cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, or other 

requirement governing the expenditure of funds

• Finding, at the time of the audit, that such costs are not supported by adequate documentation (i.e., an unsupported 

cost)

• Finding that expenditure of funds for the intended purpose is unnecessary or unreasonable

The phrase “disallowed cost” means a questioned cost that management, in a management decision, has sustained or agreed 

should not be charged to the U.S. Government.

“Funds Put to Better Use” include:

• Reductions in outlays

• Deobligation of funds from programs or operations

• Costs not incurred by implementing recommended improvements related to operations

• Avoidance of unnecessary expenditures noted in pre-award reviews of contract agreements

• Prevention of erroneous payment of refundable credits (e.g., the Earned Income Tax Credit)

• Any other savings that are specifically identified

“Revenue Enhancements” include opportunities to increase revenue to the federal government.

The Department regularly reviews progress made by the bureaus to realize potential monetary benefits identified in audit 

reports, and coordinates with the auditors as necessary to ensure the consistency and integrity of information on monetary 

benefit recommendations tracked in JAMES.
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The statistical data in the following summary tables represent audit report activity for the period from October 1, 2012 

through September 30, 2013. The data reflect information on OIG, TIGTA, and SIGTARP reports that identified potential 

monetary benefits.

Audit Report Activity With Potential Monetary Benefits for Which Management Has Identified Corrective 

Actions (OIG, TIGTA, and SIGTARP) October 1, 2012 through September 30, 2013 

(Dollars in Millions)

Disallowed Costs Funds Put to

Better Use

Revenue

Enhancements Totals

Reports Dollars Reports Dollars Reports Dollars Report

Total

Total

Dollars

Beginning Balance 14 $80.1 11 $9,299.7 8 $2,047.6 33 $11,427.4

New Reports 8 32.0 11 5,899.0 10 9,234.4 29 15,165.4

Total 22 112.1 22 15,198.7 18 11,282.0 62 26,592.8

Reports Closed 11 64.2 16 9,310.3 8 2,048.3 35 11,422.8

a. Realized or 

Actual1

10 31.7 7 18.1 2 55.6 19 105.4

b. Unrealized or 

Written off1

3 32.52 10 9,292.23 7 1,992.74 20 11,317.4

Ending Balance 11 $47.9 6 $5,888.4 10 $9,233.7 27 $15,170.0

1 Report numbers in categories a and b may not equal the Reports Closed. One report can be included in one or both categories.

2 This figure includes one TIGTA report, with $32.4 million written off, for which TIGTA does not agree with the IRS that the benefit has not 

been realized.

3 This figure includes six TIGTA reports, with $7.1 billion written off, for which IRS management did not concur with TIGTA’s projected benefits; 

and six TIGTA reports with $869.3 million written off, for which TIGTA does not agree with the IRS that the benefits have not been realized. 

There are two reports that have monetary benefits that fall into both categories which is why the total of the reports exceed the total reports 

written off.

4 This figure includes three TIGTA reports, with $1.8 billion written off, for which IRS management did not concur with TIGTA’s projected 

benefits or recommendation; and one TIGTA report, with $44.9 million written off, for which TIGTA does not agree with the IRS that the 

benefit has not been realized.
U.S. Department of the Treasury | Fiscal Year 2013

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The following table presents a summary of OIG, TIGTA, and SIGTARP audit reports with potential monetary benefits 

that were open for more than one year as of the end of fiscal years 2011, 2012, and 2013.

Number of Reports with Potential Monetary Benefits Open for More than One Year 

(Dollars In Millions)

AFR Report Year 9/30/2011 9/30/2012 9/30/2013

OIG

No. of Reports 0 0 0

$ Projected Benefits $ 0 $0 $0

TIGTA

No. of Reports 11 9 7

$ Projected Benefits $ 4,384.6 $10,018.5 $39.2

SIGTARP

No. of Reports 0 2 2

$ Projected Benefits $ 0 $8.7 $8.8

The following table presents a summary of the audit reports containing potential monetary benefits, broken out by 

year of report issuance, on which management decisions were made on or before September 30, 2012, but the final 

actions had not been taken as of September 30, 2013. 

Details of the Audit Reports with Potential Monetary Benefits 

on Which Management Decisions Were Made On or Before September 30, 2012, 

But Final Actions Have Not Been Taken as of September 30, 2013

(Dollars In Millions)

Bureau Report 

No.

Report 

Issue Date Brief Description Disallowed 

Costs

Funds

Put to

Better 

Use

Revenue

Enhancement

Total Due Date

IRS 2011-1c080 8/23/2011

The IRS should use the 

Defense Contract Audit 

Agency (DCAA) report 

in the administration 

of the contract and 

determine whether the 

questioned costs 

should be recovered.

0.09 - - 0.09 8/31/2016

IRS 2011-1c122 9/28/2011

The IRS should use the 

DCAA report in the 

administration of the 

contract and determine 

whether the questioned 

costs should be 

recovered.

28.57 - - 28.57 9/30/2016

OFS SIG-AR11-003 4/14/2011

OFS should review 

previously paid legal 

fee bills to identify 

unreasonable or 

unallowable charges, 

and seek 

reimbursement for 

0.68 - - 0.68

Delay due 

to 

Contracting

4/30/2014
U.S. Department of the Treasury | Fiscal Year 2013

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Bureau Report 

No.

Report 

Issue Date Brief Description Disallowed 

Costs

Funds

Put to

Better 

Use

Revenue

Enhancement

Total Due Date

those charges, as 

appropriate.

OFS SIG-AR11-004 9/28/2011

OFS should determine 

whether the 

questioned, 

unsupported legal fees 

and expenses paid to 

specified law firms are 

allowable

8.07 - - 8.07

Delay due 

to Further 

Research/ 

Analysis of 

Data

11/10/2014

FY 2011 4 $37.41 $0 $0 $37.41

IRS 2012-1c003 12/02/2011

The IRS should use the 

DCAA report in the 

administration of the 

contract and determine 

whether the questioned 

costs should be 

recovered

0.02 0.02 12/02/2016

IRS 2012-1c032 3/19/2012

The IRS should use the 

DCAA report in the 

administration of the 

contract to determine 

whether the questioned 

costs should be 

recovered.

7.42 - - 7.42 3/31/2017

IRS 2012-1c079 8/17/2012

The IRS should use the 

DCAA report in 

administering and 

closing out contracts.

1.48 - - 1.48 8/07/2017

IRS 2012-11-

101 9/19/2012

The IRS should ensure 

the validity of all labor 

charges associated with 

the procurement 

TIGTA identified as 

having a total of 

$394,430 paid for 

labor charges that were 

not supported 

0.93 - - 0.93 7/15/2014

IRS 2012-30-

097 9/07/2012

The IRS should 

develop and implement 

additional procedures 

to ensure that all audits 

entering the Campus 

Case Processing 

operation with short 

statute expiration dates 

and large dollar 

assessment amounts 

are timely and 

accurately assigned 

- - 0.72 0.72

Delay due 

to Further 

Research/

Analysis of 

Data

1/15/2014
U.S. Department of the Treasury | Fiscal Year 2013

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Bureau Report 

No.

Report 

Issue Date Brief Description Disallowed 

Costs

Funds

Put to

Better 

Use

Revenue

Enhancement

Total Due Date

and processed in 

accordance with 

applicable procedures.

FY 2012 5 $9.85 $0 $0.72 $10.57

Total 9 $47.26 $0 $0.72 $47.98

The following table provides a snapshot of OIG and TIGTA audit reports with significant recommendations reported 

in previous semiannual reports for which corrective actions had not been completed as of September 30, 2012 and 

September 30, 2013, respectively. OIG and TIGTA define “significant” as any recommendation open for more than 

one year. There were no “Undecided Audit Recommendations” during the same periods. 

Audit Reports with Significant Unimplemented Recommendations

9/30/2012 9/30/2013

OIG TIGTA OIG TIGTA

No. of Reports 5 17 6 25

The following table provides a snapshot of the number of recommendations made in SIGTARP audit reports and 

quarterly reports for which corrective actions had not been completed as of September 30, 2012 and September 30, 

2013, respectively. SIGTARP defines a recommendation as “unimplemented” if it is listed as “partially implemented,” 

“in process,” or “not implemented” in SIGTARP’s quarterly report.

Unimplemented SIGTARP Recommendations

9/30/2012 9/30/2013

No. of Unimplemented 

Recommendations 25 15
U.S. Department of the Treasury | Fiscal Year 2013

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APPENDIX:

GLOSSARY OF ACRONYMS

Glossary of Acronyms

2D Two Dimension

ABS Asset-Backed Securities

ACA Affordable Care Act

ACTC Additional Child Tax Credit

ACH Automated Clearinghouse

AFR Agency Financial Report

AFTR Automated Trust Fund Recovery

AGP Asset Guarantee Program

AIFP Automotive Industry Financing Program

AIG American International Group, Inc.

AML Anti-Money Laundering

AOTC American Opportunity Tax Credit

AQC Automated Acquisition Credit

ARC Administrative Resource Center

ASM/CFO Assistant Secretary for Management & Chief Financial Officer

ATFR Automated Trust Fund Recovery

BEP Bureau of Engraving and Printing

BMF Business Master File

BOLO Be on the Lookout

BPD Bureau of the Public Debt

BSA Bank Secrecy Act

CADE2 Customer Account Data Engine

CCU Campus Compliance Unit

CDCI Community Development Capital Initiative

CDDB Custodial Detail Database

CDE Community Development Entity

CDFI Community Development Financial Institutions

CDLF Community Development Loan Fund

CFIUS Committee on Foreign Investment in the United States

CFO Chief Financial Officer

CFOV CFO Vision Software

CFS Consolidated Financial Statements

CFT Counter-Terrorist Financing 

CGAC Common Government-wide Accounting Classification

CHIPRA Children’s Health Insurance Program Reauthorization Act of 2009

CIG Cyber Intelligence Group

CIGFO Council of Inspectors General on Financial Oversight

CIP Critical Infrastructure Protection

CMBS Commercial Mortgage Backed Securities

COLA Certificate of Label Approval

COR Contracting Officers Representative
U.S. Department of the Treasury | Fiscal Year 2013

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Glossary of Acronyms

COSO Committee of Sponsoring Organizations of the Treadway Commission

COTS Commercial off-the-shelf

CSRS Civil Service Retirement System

CPI Consumer Price Index

CPP Capital Purchase Program

CRS Centralized Receivables Service

CSI Customer Satisfaction Index

CY Calendar Year

DCAA Defense Contract Audit Agency

DCFO Deputy Chief Financial Officer

DCP Office of D.C. Pensions

DDV Due Diligence Visit

DISP Debt Issuance Suspension Period

DO Departmental Offices

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

DOL Department of Labor

EAGER Early-concept Grants for Exploratory Research

EESA Emergency Economic Stabilization Act of 2008

EFTPS Electronic Federal Tax Payment System

EITC Earned Income Tax Credit

EO Exempt Organization

ESA Exchange Stabilization Agreement

ESF Exchange Stabilization Fund

Fannie Mae Federal National Mortgage Association

FAR Federal Acquisition Regulation

FARS Financial Analysis and Reporting System

FASAB Federal Accounting Standards Advisory Board

FATCA Foreign Account Tax Compliance Act

FATF Financial Action Task Force

FCDA Foreign Currency Denominated Assets

FCRA Federal Credit Reform Act

FDC Funds from Dedicated Collections

FDIC Federal Deposit Insurance Corporation

FECA Federal Employees’ Compensation Act

FEHBP Federal Employees Health Benefits Program

FEGLI Federal Employees Group Life Insurance

FERS Federal Employees’ Retirement System

FFB Federal Financing Bank

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FICA Federal Insurance Contributions Act

FinCEN Financial Crimes Enforcement Network

FIO Federal Insurance Office
U.S. Department of the Treasury | Fiscal Year 2013

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Glossary of Acronyms

FMFIA Federal Managers’ Financial Integrity Act

FMS Financial Management Service

FMU Financial Market Utilities

FOMC Federal Open Market Committee

FRAC Financial Research Advisory Committee

FRB Federal Reserve Bank

FRBNY Federal Reserve Bank of New York

FR System Federal Reserve System

Freddie Mac Federal Home Loan Mortgage Corporation

FS-ISAC Financial Services Information Sharing and Analysis Center

FSOC Financial Stability Oversight Council

FSSCC Financial Services Sector Coordinating Council for Critical Infrastructure 

Protection

FTE Full Time Employee

FTO Fine Troy Ounce

FY Fiscal Year

GAAP Generally Accepted Accounting Principles

GAB General Arrangement to Borrow

GAIS Government Agency Investment Services

GAO U.S. Government Accountability Office

GLC Geographic Leadership Community

GSA General Services Administration

GSE Government Sponsored Enterprise

GTAS Government Treasury Account Symbol Adjusted Trial Balance System

HERA Housing and Economic Recovery Act

HFA Housing Finance Agency

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

IA International Affairs

IAIS International Association of Insurance Supervisors

IAP International Assistance Program

IC Intelligence Community

IDRS Integrated Data Retrieval System

IFR Independent Foreclosure Review

IMF International Monetary Fund

IP Improper Payment

IPERA Improper Payments Elimination and Recovery Act

IPERIA Improper Payments Elimination and Recovery Act Improvement Act of 2012

IPIA Improper Payments Information Act

IPP Invoice Processing Platform

IRM Internal Revenue Manual

IRS Internal Revenue Service

IT Information Technology

ITIN Individual Taxpayer Identification Number

ITSS Information Technology Solutions Shop
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Glossary of Acronyms

JAMES Joint Audit Management Enterprise System

KTV Knock and Talk Educational Visits

LIBOR London Interbank Offered Rate

LIC Low-Income Community

LLC Limited Liability Corporation

MBS Mortgage-Backed Security

MDB Multilateral Development Bank

MHA Making Home Affordable Program

MOU Memoranda of Understanding

MRADR Market Risk Adjusted Discount Rate

MSB Money Service Businesses

MTM Mark- to- Market

NAB New Arrangement to Borrow

NACA Native American CDFI Assistance

NAFA North American Framework Agreement

NARA National Archives and Records Administration

NIBP New Issue Bond Program

NMTC New Markets Tax Credit

NOAA National Oceanic and Atmospheric Administration

NOGA Notice of Guarantee Availability

NRP National Research Program

NYSE New York Stock Exchange

OAS Office of International Affairs

OCC Office of the Comptroller of the Currency

ODCP Office of D.C. Pensions

OFAC Office of Foreign Assets Control

OFR Office of Financial Research

OFS Office of Financial Stability

OIA Office of Intelligence and Analysis

OIG Office of Inspector General

OMB Office of Management and Budget

OPEB Other Post-Employment Benefits

OPM Office of Personnel Management

ORB Other Retirement Benefits

OTP Office Tax Policy

OTS Office of Thrift Supervision

PB President’s Budget

PCIE President’s Council on Integrity and Efficiency

PDBP Pentegra Defined Benefit Plan

P.L. Public Law

PP&E Property, Plant, and Equipment

PPD Presidential Policy Directive

PPIF Public-Private Investment Fund

PPIP Public-Private Investment Program
U.S. Department of the Treasury | Fiscal Year 2013

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Glossary of Acronyms

PSEP Physical Security and Emergency Preparedness

PTIN Preparer Taxpayer Identification Number

PY Processing Year

QALICB Qualified Active Low-Income Community Business

QFI Qualified Financial Institution

QLICI Qualified Low Income Community Investments

RESTORE Act Resources and Ecosystems Sustainability, Tourist Opportunities and Revived 

Economies of the Gulf Coast States Act

RMBS Residential Mortgage Backed Securities

RRA – 98 IRS Restructuring and Reform Act of 1998

RRP Return Review Program

RTC Resolution Trust Corporation

RYO Roll-Your-Own

S&ED Strategic and Economic Dialogue

SAR Suspicious Activity Report

SBA Small Business Administration

SBLF Small Business Lending Fund

SBR Statement of Budgetary Resources

SDN Specially Designated Nationals

SDR Special Drawing Rights

SEC Securities and Exchange Commission

SFFAC Statement of Federal Financial Accounting Concepts

SFFAS Statement of Federal Financial Accounting Standards

SIGTARP Special Office of Inspector General for the Troubled Asset Relief Program 

SOMA System Open Market Account

SOP Standard Operating Procedure

SOS Schedule of Spending

SPSPA Senior Preferred Stock Purchase Agreements

SPV Special Purpose Vehicle

SSBCI State Small Business Credit Initiative

SSN Social Security Number

STIF Short – term Investment Fund

TALF Term Asset-Backed Securities Loan Facility

TARP Troubled Asset Relief Program

TCLP Temporary Credit and Liquidity Program

TFF Treasury Forfeiture Fund

TFFC Terrorist Financing and Financial Crimes

TFI Terrorism and Financial Intelligence

TFRP Trust Fund Recovery Penalty

TFS TIER Financial Statements

TFTP Terrorist Finance Tracking Program

TGA Treasury General Account

TIER Treasury Information Executive Repository

TIGTA Treasury Inspector General for Tax Administration

TIPS Treasury Inflation-Protected Securities
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Glossary of Acronyms

TP Tax Policy

TRIA Terrorism Risk Insurance Act

TTB Alcohol and Tobacco Tax and Trade Bureau

TY Tax Year

UIC Unemployment Insurance Compensation

USC United States Code

USSGL United States Standard General Ledger

VSBTW Virtual Small Business Tax Workshop

VSD Virtual Service Delivery

WMD Weapons of Mass Destruction
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