Management Report: Improvements Needed in Controls over the Processes Used to Prepare the U.S. Consolidated Financial Statements
Published: 2015-07-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Treasury, in coordination with OMB, prepares the Financial Report of the United States Government , which contains the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based CFS. As part of the fiscal year 2014 CFS audit, GAO identified material weaknesses and other control deficiencies in the processes used to prepare the CFS. The purpose of this report is to provide (1) details on the control deficiencies GAO identified related to the processes used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions Treasury and OMB have taken to address GAO's prior recommendations relating to the processes used to prepare the CFS that remained open at the end of the fiscal year 2013 audit.
section_title: What GAO Found
paragraphs: During its audit of the fiscal year 2014 consolidated financial statements of the U.S. government (CFS), GAO identified control deficiencies in the Department of the Treasury's (Treasury) and the Office of Management and Budget's (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control over the federal government's ability to
adequately account for and reconcile intragovernmental activity and balances between federal entities;
reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and
reasonably assure that the information in the Reconciliation of Net Operating Cost and Unified Budget Deficit and the Statement of Changes in Cash Balance from Unified Budget and Other Activities is complete and consistent with the underlying information in the audited entities' financial statements and other financial data.
During its audit of the fiscal year 2014 CFS, GAO identified three new internal control deficiencies. Specifically, GAO found that Treasury did not have
a sufficient process to work with key federal entities prior to the end of the fiscal year to reasonably assure that new or substantially revised federal accounting standards were consistently implemented by the entities to allow appropriate consolidation at the government-wide level,
procedures for determining whether entities and transactions for which it does not have audit assurance are significant in the aggregate to the CFS, and
sufficient procedures for (1) identifying significant increases or decreases in all CFS line items and disclosures from prior fiscal year reported amounts and (2) understanding the reasons for such changes.
In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the processes used to prepare the CFS continued to exist. Specifically, 24 of the 31 recommendations from GAO's prior reports regarding control deficiencies in the processes used to prepare the CFS remained open as of February 19, 2015, the date of GAO's report on its audit of the fiscal year 2014 CFS. GAO will continue to monitor the status of corrective actions taken to address the 3 new recommendations made in this report as well as the 24 open recommendations from prior years as part of its fiscal year 2015 CFS audit.
section_title: What GAO Recommends
paragraphs: GAO is making three new recommendations to Treasury to address the control deficiencies identified during the fiscal year 2014 CFS audit. In commenting on GAO's draft report, Treasury and OMB generally concurred with GAO's recommendations.

section_title: Letter
paragraphs: Such material weaknesses involve the federal adequately account for and reconcile intragovernmental activity and  balances between federal entities;  reasonably assure that the consolidated financial statements are      (1) consistent with the underlying audited entities’ financial  statements, (2) properly balanced, and (3) in accordance with U.S.  generally accepted accounting principles; and  reasonably assure that the information in the Reconciliation of Net  Operating Cost and Unified Budget Deficit and the Statement of  Changes in Cash Balance from Unified Budget and Other Activities is  complete and consistent with the underlying information in the audited  entities’ financial statements and other financial data.
The Department of the Treasury (Treasury), in coordination with the  Office of Management and Budget (OMB), prepares the CFS on behalf of  the federal government.control over financial reporting that have contributed to our continuing  disclaimers of opinion on the federal government’s accrual-based  consolidated financial statements were reported in detail along with  related recommendations made by other auditors in their audit reports on  individual federal entities’ financial statements.
Several of the material weaknesses in internal  The purpose of this report is to provide (1) detailed information on three  new control deficiencies identified during our fiscal year 2014 audit that  relate to the processes used by Treasury and OMB to prepare the CFS,  along with related recommendations, and (2) the status of corrective  actions Treasury and OMB have taken to address the 31  recommendations relating to the processes to prepare the CFS, detailed  in our previous reports, that remained open at the end of the fiscal year  2013 audit.as of February 19, 2015, the date of our report on the audit of the fiscal  year 2014 CFS, to address the open recommendations from our previous  reports.
subsections: section_title: Scope and Methodology
paragraphs: As part of our audit of the fiscal years 2014 and 2013 CFS, we  considered the federal government’s financial reporting procedures and  related internal control. Also, we determined the status of corrective  actions Treasury and OMB have taken to address open  recommendations relating to their processes to prepare the CFS that  were detailed in our previous reports. A full discussion of our scope and  methodology is included in our February 2015 report on our audit of the   We have communicated each of the  fiscal years 2014 and 2013 CFS.control deficiencies discussed in this report to your staff. We performed  our audit of the fiscal years 2014 and 2013 CFS in accordance with U.S.  generally accepted government auditing standards. We believe that our  audit provided a reasonable basis for our conclusions in this report.
section_title: Control Deficiencies Identified during Our Fiscal Year 2014 Audit
paragraphs: During our audit of the fiscal year 2014 CFS, we identified three new  internal control deficiencies in Treasury’s processes used to prepare the  CFS. Specifically, we found that Treasury did not have (1) a sufficient  process to work with key federal entities prior to the end of the fiscal year  to reasonably assure that new or substantially revised federal accounting  standards were consistently implemented by the entities to allow  appropriate consolidation at the government-wide level, (2) procedures  for determining whether entities and transactions for which it does not  have audit assurance are significant in the aggregate to the CFS, and    (3) sufficient procedures for (a) identifying significant increases or  decreases in all CFS line items and disclosures from prior fiscal year  reported amounts and (b) understanding the reasons for such changes.
subsections: section_title: Federal Accounting Standards
paragraphs: Treasury did not have a sufficient process to work with key federal entities  prior to the end of the fiscal year to reasonably assure that new or  substantially revised federal accounting standards were consistently  implemented by the entities to allow appropriate consolidation at the  government-wide level. For example, for the Financial Report of the  United States Government (Financial Report), the Federal Accounting  Standards Advisory Board’s (FASAB) Technical Bulletin 2011-1,  Accounting for Federal Natural Resources Other Than Oil and Gas,  requires a concise statement as part of required supplementary  information (RSI) explaining the nature and valuation of federal natural  resources. The statement is to encompass significant federal natural  resources other than oil and gas under management by the federal  government. For fiscal year 2014, only one federal entity (the Department  of the Interior) provided to Treasury a discussion of significant federal  natural resources under entity management, specifically related to coal  leases. As a result, the RSI for federal natural resources other than oil  and gas included in the fiscal year 2014 Financial Report reported only  coal leases from the Department of the Interior. The RSI did not describe  coal resources that are not currently under lease or certain other natural  resources owned by the federal government. We communicated this  matter to Treasury and OMB officials who revised the Financial Report  before issuance, as appropriate.
We found that Treasury has a process to work with federal entities when  implementing new and revised federal accounting standards. Specifically,  Treasury presents the standards for discussion at regularly scheduled  monthly meetings—called Central Reporting Team meetings—that  include financial reporting representatives from federal entities. Treasury  also updates the Treasury Financial Manual, its financial reporting  guidance for federal entities, to include new reporting requirements. This  process was followed in implementing Technical Bulletin 2011-1 in fiscal  year 2014. However, this process is not sufficient to reasonably assure  that new or substantially revised federal accounting standards are  consistently implemented by the entities. In a prior year, after we  identified inconsistencies in the information reported to Treasury related  to the implementation of FASAB Statement of Federal Financial  Accounting Standards (SFFAS) No. 33, Treasury established a working  group involving the key federal entities affected by the standard. The  group met several times to discuss the standard and through such  discussions was able to identify and resolve inconsistencies in the  reporting of information for consolidation at the government-wide level.  However, Treasury has not adopted a similar process for implementing  subsequent standards.
Federal financial statements are to be presented in accordance with  applicable generally accepted accounting principles (GAAP). FASAB, the  body designated as the source of GAAP for federal reporting entities,  regularly issues new and revised standards, including two new federal  accounting standards that are to be implemented in fiscal year 2015.
Without a sufficient process to work with key federal entities to reasonably  assure that new or substantially revised federal accounting standards are  consistently implemented by the entities, there is an increased risk of  misstatements in the financial statements or incomplete and inaccurate  disclosure of information within the Financial Report.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to develop and implement a sufficient process to work  with key federal entities prior to the end of the fiscal year to reasonably  assure that new or substantially revised federal accounting standards are  consistently implemented by the responsible entities to allow appropriate  consolidation at the government-wide level.
section_title: Significant Entities and Transactions
paragraphs: Treasury did not have procedures for determining whether entities and  transactions for which it does not have audit assurance are significant in  the aggregate to the CFS. Treasury’s standard operating procedure  (SOP) entitled “Significant Entities” includes procedures for identifying  federal entities with activity that is material to at least one financial  statement line item or note disclosure. Each federal entity identified as  significant is to submit an audited closing package to Treasury. The  closing package methodology is intended to link federal entities’ audited  consolidated department-level financial statements to certain statements  of the CFS. Chief financial officers of significant federal entities are  required to verify the consistency of the closing package data with their  respective entities’ audited financial statements. In addition, entity  auditors are required to separately audit and report on the financial  information in the closing packages. However, the SOP did not include,  and therefore Treasury did not perform, procedures for determining  whether entities and amounts that were not included in a closing  package, and thus for which Treasury did not have audit assurance, were  significant to the CFS in the aggregate before the CFS was finalized.  Specifically, we found that Treasury’s SOP did not include procedures for  assessing the significance of aggregate amounts for which it does not  have audit assurance, including amounts related to the following: non-significant entities, which are not required to submit audited  closing packages;   significant entities that did not submit audited closing packages; nonmaterial line items for significant calendar year-end entities; material line items for calendar year-end entities that did not submit  audited closing packages;   journal vouchers processed by Treasury that were not based on the  closing packages; and uncorrected misstatements identified at the consolidated level,  including uncorrected misstatements submitted by the significant  entities with their closing packages.
Standards for Internal Control in the Federal Government provides that  control activities are the policies, procedures, techniques, and  mechanisms that enforce management’s directives.provide that an entity should accurately record transactions and events— from initiation to summary records—and that control activities include  procedures to achieve accurate recording of transactions and events.  Without procedures for determining whether aggregate amounts for which  Treasury does not have audit assurance are significant to the CFS, there  is an increased risk of material misstatements in the financial statements.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to develop and implement procedures for determining  whether entities and transactions for which Treasury does not have audit  assurance are significant in the aggregate to the CFS.
section_title: Significant Changes from Prior Year Amounts
paragraphs: Treasury did not have sufficient procedures for (1) identifying significant  increases or decreases in all CFS line items and disclosures from prior  fiscal year reported amounts and (2) understanding the reasons for such  changes. Treasury’s SOP entitled “Preparation of the Financial Report”  includes procedures for performing an overall variance analysis at the  consolidated line item level for the Balance Sheet, Statement of Net Cost,  Statement of Operations and Changes in Net Position, and related notes  to the Balance Sheet. The variance analysis compares the amounts for  the current and prior years and provides an explanation for material  changes.anomalies in the data that, if unexplained, could indicate misstatements in  the data. However, the SOP did not include, and therefore Treasury did  not perform, an overall variance analysis on the remaining CFS line items  and disclosures where comparable amounts were presented. This  includes the CFS budget statements, which consist of the Reconciliation  of Net Operating Cost and Unified Budget Deficit and Statement of  Changes in Cash Balance from Unified Budget and Other Activities; non- Balance Sheet notes; RSI; Required Supplementary Stewardship  Information; and Other Information.
Such variance analysis helps identify unusual trends or  Standards for Internal Control in the Federal Government provides that  control activities are the policies, procedures, techniques, and  mechanisms that enforce management’s directives. The standards also  provide that an entity should accurately record transactions and events— from initiation to summary records—and that control activities include  procedures to achieve accurate recording of transactions and events.  Without sufficient procedures for identifying and understanding significant  changes from prior year reported amounts, there is an increased risk of  misstatements in the financial statements or incomplete and inaccurate  disclosure of information within the Financial Report.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to develop and implement procedures for identifying  significant increases or decreases in all CFS line items and disclosures  from prior fiscal year reported amounts and for understanding the reasons  for such changes.
section_title: Status of Recommendations from Prior Reports
paragraphs: At the end of the fiscal year 2013 audit, 31 recommendations from our  prior reports regarding control deficiencies in the processes used to  prepare the CFS were open. Treasury implemented corrective actions  during fiscal year 2014 that resulted in significant progress in resolving  certain of the control deficiencies addressed by our recommendations.  For 7 recommendations, the corrective actions resolved the related  control deficiencies, and we closed the recommendations. While progress  was made, 24 recommendations from our prior reports remained open as  of February 19, 2015, the date of our report on the audit of the fiscal year  2014 CFS. Consequently, a total of 27 recommendations need to be  addressed—24 remaining from prior reports and the 3 new  recommendations we are making in this report.
Appendix I summarizes the status as of February 19, 2015, of the 31  open recommendations from our prior reports, including the status  according to Treasury and OMB, as well as our own assessment and  additional comments where appropriate. Various efforts are under way to  address these recommendations. We will continue to monitor Treasury’s  and OMB’s progress in addressing our recommendations as part of our  fiscal year 2015 CFS audit.
section_title: Agency Comments
subsections: section_title: OMB Comments
paragraphs: In oral comments on a draft of this report, OMB generally concurred with  the findings and recommendations of this report.
section_title: Treasury Comments
paragraphs: In written comments on a draft of this report, which are reprinted in  appendix II, Treasury concurred with our three new recommendations.  Treasury also provided details on its ongoing efforts to address the  material weaknesses that relate to the federal government’s processes  used to prepare the CFS. To address the material weakness related to  intragovernmental transactions, Treasury stated that it will continue to  devote significant resources toward resolving the material weakness and,  in order to resolve systemic intragovernmental differences, Treasury has  requested that federal agencies provide it with root cause information and  corrective action plans. Regarding the material weakness related to the  compilation process, Treasury stated that it continued to implement  software and processes to automate and streamline the compilation of  the Financial Report, and that in fiscal year 2015, it will focus on collecting  critical information from reporting entities identified as significant to the  Financial Report, including entities in the legislative and judicial branches.  In addition, Treasury noted that it is continuing its efforts to validate  material completeness of budgetary information included in the Financial  Report, as well as the consistency of such information with agency  reports.
This report contains recommendations to the Secretary of the Treasury.  The head of a federal agency is required by 31 U.S.C. § 720 to submit a  written statement on actions taken on our recommendations to the  Senate Committee on Homeland Security and Governmental Affairs and  to the House Committee on Oversight and Government Reform not later  than 60 days after the date of this report. A written statement must also  be sent to the Senate and House Committees on Appropriations with the  agency’s first request for appropriations made more than 60 days after  the date of this report. Please provide me with a copy of your responses.
We are sending copies of this report to interested congressional  committees, the Fiscal Assistant Secretary of the Treasury, and the  Controller of the Office of Management and Budget’s Office of Federal  Financial Management. In addition, this report is available at no charge  on the GAO website at http://www.gao.gov.
We acknowledge and appreciate the cooperation and assistance  provided by Treasury and OMB during our audit. If you or your staff have  any questions or wish to discuss this report, please contact me at (202)  512-3406 or simpsondb@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report.
section_title: Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS
subsections: section_title: Recommendation and
paragraphs: related material weaknessNo.  Count  GAO-04-45 (results of the fiscal year 2002 audit)  1  02-22    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to perform an assessment to  define the reporting entity, including its specific  components, in conformity with the criteria issued  by the Federal Accounting Standards Advisory  Board (FASAB). Key decisions made in this  assessment should be documented, including the  reason for including or excluding components and  the basis for concluding on any issue. Particular  emphasis should be placed on demonstrating that  any financial information that should be included  but is not included is immaterial. (Preparation  material weakness)
Treasury developed a process to  identify all reporting entities for  inclusion in the Financial Report of  the U.S. Government (Financial  Report). The reporting entities can  be found in appendix A of the  Financial Report.
Closed.
Open.
Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to provide in the financial  statements all the financial information relevant to  the defined reporting entity, in all material  respects. Such information would include, for  example, the reporting entity’s assets, liabilities,  and revenues. (Preparation material weakness)
Treasury was able to collect data  from all reporting entities in the  executive branch for fiscal year-end  2014. Partial data were also  collected from the judicial and  legislative branches, despite those  entities not being statutorily  required to report to Treasury.  Treasury and OMB will continue to  work with non-executive branch  entities to collect all necessary  information.
02-24    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to disclose in the financial  statements all information that is necessary to  inform users adequately about the reporting entity.  Such disclosures should clearly describe the  reporting entity and explain the reason for  excluding any components that are not included in  the defined reporting entity. (Preparation material  weakness)
Treasury revamped the wording in  appendix A of the Financial Report  to clearly demonstrate the reporting  entities included in the Financial  Report. In addition, appendix A  clearly discloses the reasons for  excluding certain reporting entities.
Closed.
Open.
Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to help ensure that federal  agencies provide adequate information in their  legal representation letters regarding the expected  outcomes of the cases. (Preparation material  weakness)
Treasury and OMB will work with  the agencies to encourage the  proper usage of the “unable to  determine” category for the legal  cases. In addition, Treasury will  work to limit agency use of this  category, require that additional  information be reported when this  category is selected, or both.
section_title: Recommendation and
paragraphs: No.  02-37    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to establish written policies and  procedures to help ensure that major treaty and  other international agreement information is  properly identified and reported in the CFS.  Specifically, these policies and procedures should  require that federal agencies develop a detailed  schedule of all major treaties and other  international agreements that obligate the U.S.  government to provide cash, goods, or services, or  that create other financial arrangements that are  contingent on the occurrence or nonoccurrence of  future events (a starting point for compiling these  data could be the State Department’s Treaties in  Force). (Preparation material weakness)
Per Treasury and OMB   Treasury and OMB will develop a  process to leverage the existing  information from agencies, where  possible, and assess methods and  approaches for obtaining additional  information from agencies.
02-38    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to establish written policies and  procedures to help ensure that major treaty and  other international agreement information is  properly identified and reported in the CFS.  Specifically, these policies and procedures should  require that federal agencies classify all such  scheduled major treaties and other international  agreements as commitments or contingencies.  (Preparation material weakness)
See the status of recommendation  No. 02-37.
Per GAO   Open. Until a  comprehensive  analysis of major  treaty and other  international  agreement  information has been  performed, Treasury  and OMB are  precluded from  determining if  additional disclosure  is required by  generally accepted  accounting principles  (GAAP) in the CFS,  and we are precluded  from determining  whether the omitted  information is  material.  Open. See the status  of recommendation  No. 02-37.
02-39    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to establish written policies and  procedures to help ensure that major treaty and  other international agreement information is  properly identified and reported in the CFS.  Specifically, these policies and procedures should  require that federal agencies disclose in the notes  to the CFS amounts for major treaties and other  international agreements that have a reasonably  possible chance of resulting in a loss or claim as a  contingency. (Preparation material weakness)
See the status of recommendation  No. 02-37.
Open. See the status  of recommendation  No. 02-37.
section_title: Recommendation and
paragraphs: Per Treasury and OMB   See the status of recommendation  No. 02-37.
Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to establish written policies and  procedures to help ensure that major treaty and  other international agreement information is  properly identified and reported in the CFS.  Specifically, these policies and procedures should  require that federal agencies disclose in the notes  to the CFS amounts for major treaties and other  international agreements that are classified as  commitments and that may require measurable  future financial obligations. (Preparation material  weakness)
Per GAO   Open. See the status  of recommendation  No. 02-37.
02-41    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB, to establish written policies and  procedures to help ensure that major treaty and  other international agreement information is  properly identified and reported in the CFS.  Specifically, these policies and procedures should  require that federal agencies take steps to prevent  major treaties and other international agreements  that are classified as remote from being recorded  or disclosed as probable or reasonably possible in  the CFS. (Preparation material weakness)
See the status of recommendation  No. 02-37.
Open. See the status  of recommendation  No. 02-37.
02-129    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary to ensure that the note  disclosure for stewardship responsibilities related  to the risk assumed for federal insurance and  guarantee programs meets the requirements of  Statement of Federal Financial Accounting  Standards No. 5, Accounting for Liabilities of the  Federal Government, paragraph 106, which  requires that when financial information pursuant  to Financial Accounting Standards Board  standards on federal insurance and guarantee  programs conducted by government corporations  is incorporated in general purpose financial reports  of a larger federal reporting entity, the entity should  report as required supplementary information what  amounts and periodic change in those amounts  would be reported under the “risk assumed”  approach. (Preparation material weakness)
Treasury will continue to request  this information from the agencies  at interim and through year-end  reporting requirements in the  Treasury Financial Manual (TFM)  2-4700. In addition, Treasury will  continue to participate on the  FASAB Risk Assumed task force  and implement any related changes  corresponding to the issuance of  revised or new federal accounting  standards.
Open. Treasury’s  reporting in this area  is not complete. The  CFS should include  all major federal  insurance programs  in the risk assumed  reporting and  analysis. Also, since  future events are  uncertain, risk  assumed information  should include  indicators of the  range of uncertainty  around expected  estimates, including  indicators of the  sensitivity of the  estimate to changes  in major  assumptions.
section_title: Recommendation and
paragraphs: No.
Count  GAO-04-866 (results of the fiscal year 2003 audit)  11  03-8    The Director of OMB should direct the Controller of  OMB, in coordination with Treasury’s Fiscal  Assistant Secretary, to work with the Department  of Justice and certain other executive branch  federal agencies to ensure that these federal  agencies report or disclose relevant criminal debt  information in conformity with GAAP in their  financial statements and have such information  subjected to audit. (Preparation material  weakness)
Treasury and OMB will assess  options as to what methodologies  or approaches to use for obtaining  the additional information needed  from the agencies.
Open.
03-9    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary to include relevant  criminal debt information in the CFS or document  the specific rationale for excluding such  information. (Preparation material weakness)
See the status of recommendation  No. 03-8.
Open.
GAO-05-407 (results of the fiscal year 2004 audit)  13  04-3    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary to require that Treasury  employees contact and document communications  with federal agencies before recording journal  vouchers to change agency audited closing  package data. (Preparation material weakness)
Treasury will continue to strengthen  internal control procedures to  ensure accurate and supported  journal vouchers.
Open.
04-6    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary to assess the  infrastructure associated with the compilation  process and modify it as necessary to achieve a  sound internal control environment. (Preparation  material weakness)
Treasury continues to make  improvements to its internal control  infrastructure by updating and  revising its standard operating  procedures (SOP) and working to  help ensure that key controls are in  place at all critical areas.
Open.
GAO-07-805 (results of the fiscal year 2006 audit)  15 06-6    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB’s Office of Federal  Financial Management, to establish effective  processes and procedures to ensure that  appropriate information regarding litigation and  claims is included in the government-wide legal  representation letter. (Preparation material  weakness)
Treasury and OMB will develop a  process to leverage the existing  information from agencies, where  possible, and assess options for  approaches to use for obtaining  additional information from  agencies.
Open.
section_title: Recommendation and
paragraphs: No.
Count  GAO-08-748 (results of the fiscal year 2007 audit)  16  07-9    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, in coordination with the  Controller of OMB’s Office of Federal Financial  Management, to develop and implement effective  processes for monitoring and assessing the  effectiveness of internal control over the processes  used to prepare the CFS. (Preparation material  weakness)
Treasury will start to implement an  internal review, based on OMB  Circular No. A-123 guidance, on  the Financial Report in fiscal year  2016.
Open.
07-10    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB’s Office of Federal  Financial Management, to develop and implement  alternative solutions to performing almost all of the  compilation effort at the end of the year, including  obtaining and utilizing interim financial information  from federal agencies. (Preparation material  weakness)
Treasury obtained and utilized  interim financial information from  federal agencies starting in fiscal  year 2012. In fiscal year 2014,  Treasury increased the number of  key topics and completed subject  matters to the extent possible  before fiscal year-end.
Closed.
Open.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to develop and  implement procedures to provide for the active  involvement of key federal entity personnel with  technical expertise in relatively new areas and  more complex areas in the preparation and review  process of the Financial Report. (Preparation  material weakness)  11-09    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to enhance the SOP  entitled “Significant Federal Entities Identification”  to include procedures for identifying any entities  that become significant to the Financial Report  during the fiscal year but were not identified as  significant in the prior fiscal year. (Preparation  material weakness)
Treasury has involved key federal  entity personnel with technical  expertise during the interim and  year-end preparation and review of  the Financial Report. In fiscal year  2015, Treasury will continue to  work collaboratively with the  agencies to increase their  involvement in preparing certain  key disclosures and other  information.  Treasury implemented a process in  fiscal year 2014 to identify all  significant entities in the Financial  Report. This process monitors the  significant entity reporting  throughout the fiscal year and is  finalized before the publication  date.
Closed.
Open.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to enhance the SOP  entitled “Significant Federal Entities Identification”to include procedures for obtaining audited closing  packages from newly identified significant entities  in the year they become significant, including  timely written notification to newly identified  significant entities. (Preparation material  weakness)
Treasury has enhanced the SOP to  include notifying the significant  entities in a timely manner and  explaining the required significant  entity reporting. Treasury and OMB  will continue to work with the  identified significant entities to  obtain audit coverage over the  required reporting.
section_title: Recommendation and
paragraphs: Treasury implemented a process in  fiscal year 2014 to identify all  significant entities in the Financial  Report. This process monitors the  significant entity reporting  throughout the fiscal year and is  finalized before the publication  date.
Closed.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to enhance the SOP  entitled “Significant Federal Entities Identification”  to include procedures for identifying any material  line items for significant calendar year-end entities  that become material to the CFS during the current  fiscal year but were not identified as material in the  analysis using prior year financial information.  (Preparation material weakness)  12-02    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to enhance the SOP  entitled “Significant Federal Entities Identification”
Treasury has enhanced the SOP to  notify the significant entities in a  timely manner and to explain the  required significant entity reporting.  Treasury and OMB will continue to  work with the identified significant  entities to obtain audit coverage  over the required reporting.
Open.
Open.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB’s Office of Federal  Financial Management, to establish and implement  effective procedures for reporting amounts in the  CFS budget statements that are fully consistent  with the underlying information in significant  federal entities’ audited financial statements and  other financial data. (Budget statements material  weakness)
Treasury has established and  begun implementing procedures to  request agency submission of  closing package data as a means  of validating budget deficit data  against agencies’ audited financial  information. In addition, Treasury is  examining the benefits of  performing a complete audit on the  general ledger data used for the  budget statements.
12-05    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB’s Office of Federal  Financial Management, to establish and implement  effective procedures for identifying and reporting  all items needed to prepare the CFS budget  statements. (Budget statements material  weakness)
Treasury will strengthen  procedures to demonstrate that all  material reconciling items are  included on the budget statements.
Open.
section_title: Recommendation and
paragraphs: Count  GAO-14-543 (results from the fiscal year 2013 audit)  25  No.  13-01    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to include all key  elements recommended by the Implementation  Guide for OMB Circular A-123, Management’s  Responsibility for Internal Control – Appendix A,  Internal Control over Financial Reporting and fully  consider the interrelationships between  deficiencies in the corrective action plans.  (Preparation material weakness)
Treasury and OMB are working to  develop a remediation plan to  address issues that are  impediments to auditability.
Open.
Closed.
Fiscal Assistant Secretary to develop and  implement procedures to sufficiently document  management’s conclusions and the basis of such  conclusions regarding the accounting policies for  the CFS. (Preparation material weakness)
Treasury implemented procedures  in fiscal year 2014 related to  documenting accounting policies.  Treasury documented several  accounting policies for the Financial  Report in fiscal year 2014.
13-03    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary to improve and  implement Treasury’s procedures for verifying that  staff’s preparation of the narrative within the notes  to the CFS is accurate and supported by the  underlying financial information of the significant  component entities. (Preparation material  weakness)
Treasury implemented a cross- reference guide in fiscal year 2014  to verify each line in the narrative of  the Financial Report.
Closed.
Starting in fiscal year 2015,  Treasury will require agencies to  provide detailed root cause  analysis documentation and  corrective action plans (including  target completion dates) through  TFM 2-4700.
Open.
Treasury will complete the analysis  of agency intragovernmental  differences on a quarterly basis to  determine if additional agencies  should be integrated into the  quarterly reconciliation process.
Open.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to expand the  scorecard process to include intragovernmental  activity and balances that are currently not covered  by the process or demonstrate that such  information is immaterial to the CFS.  (Intragovernmental material weakness)
section_title: Count 30
paragraphs: No.  13-06    The Secretary of the Treasury should direct the  Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to establish and  implement policies and procedures for accounting  for and reporting all significant General Fund  activity and balances, obtaining assurance on the  reliability of the amounts, and reconciling the  activity and balances between the General Fund  and federal entities. (Intragovernmental material  weakness)
Per Treasury and OMB   Treasury is working to complete the  General Fund general ledger and  will continue to implement  processes and controls in  preparation for its auditability.  Treasury has expanded the  reciprocal categories for General  Fund activity and balances to assist  with reconciling intragovernmental  differences with federal agency  trading partners.
Per GAO   Open.
Open.
Fiscal Assistant Secretary, working in coordination  with the Controller of OMB, to establish a  formalized process to require the performance of  additional audit procedures specifically focused on  intragovernmental activity and balances between  federal entities to provide increased audit  assurance over the reliability of such information.  (Intragovernmental material weakness)
Treasury and OMB will assess  options to increase audit assurance  over the reliability of agency  intragovernmental activity and  balances.
Legend: CFS= consolidated financial statements of the U.S. government; OMB = Office of Management and Budget; Treasury = Department of the  Treasury.
The status of the recommendations listed in app. I is as of February 19, 2015, the date of our report  on the audit of the fiscal year 2014 CFS.
The recommendations in our prior reports related to material weaknesses in the following areas:   Preparation: The material weakness related to the federal government’s inability to reasonably  assure that the consolidated financial statements are (1) consistent with the underlying audited  entities’ financial statements, (2) properly balanced, and (3) in accordance with U.S. GAAP.   Budget statements: The material weakness related to the federal government’s inability to  reasonably assure that the information in the Reconciliation of Net Operating Cost and Unified Budget  Deficit and the Statement of Changes in Cash Balance from Unified Budget and Other Activities is  complete and consistent with the underlying information in the audited entities’ financial statements  and other financial data.   Intragovernmental: The material weakness related to the federal government’s inability to  adequately account for and reconcile intragovernmental activity and balances between federal  entities.
The title of this SOP changed to “Significant Entities” in fiscal year 2013.
section_title: Appendix II: Comments from the Department of the Treasury