Financial Audit: Significant Internal Control Weaknesses Remain in the Preparation of the Consolidated Financial Statements of the U.S. Government
Published: 2007-07-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: For the past 10 years, since GAO's first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2006 disclaimer of opinion on the fiscal year 2006 CFS included a discussion of continuing weaknesses related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing and new weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on 143 open recommendations related to the preparation of the CFS that GAO reported in April 2006.
section_title: What GAO Found
paragraphs: GAO identified continuing and new weaknesses during its audit of the federal government's process for preparing the fiscal year 2006 CFS. Such weaknesses impair the U.S. government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. The weaknesses GAO identified during its tests of the fiscal year 2006 CFS preparation process involved the following areas: reconciling and reporting undistributed offsetting receipts (component of the budget deficit); directly linking audited federal agencies' financial statements to the CFS; reporting unexpended budget balances; reporting operating cash; reporting and disclosing legal contingencies; reconciling intragovernmental activity and balances; preparing and auditing certain information in federal agencies' closing packages; conformity with U.S. generally accepted accounting principles; and various other internal control weaknesses that were identified in previous years' audits but remained in fiscal year 2006. Of the 143 open recommendations GAO reported in April 2006 regarding the process for preparing the CFS, 70 remained open as of December 1, 2006, when GAO completed its fieldwork for the audit of the fiscal year 2006 CFS. Of the 73 recommendations that were closed, 53 were closed based on the issuance in fiscal year 2006 of Statement of Federal Financial Accounting Standards No. 32, Consolidated Financial Report of the United States Government Requirements: Implementing Statement of Federal Financial Accounting Concepts 4 "Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government." This standard eliminated or lessened the disclosure requirements for the consolidated financial statements related to certain information that the Department of the Treasury (Treasury) had not been reporting. GAO will continue to monitor the status of corrective actions to address the 11 new recommendations and the new remaining balance of 81 open recommendations during its fiscal year 2007 audit of the CFS.

section_title: Letter
paragraphs: In our report dated December 1, 2006, we disclaimed an opinion on the  consolidated financial statements of the U.S. government (CFS) for the  fiscal years ended September 30, 2006 and 2005. For the past 10 years,  certain material weaknesses in internal control and in selected accounting  and financial reporting practices have resulted in conditions that  prevented us from expressing an opinion on the CFS. We have reported  that the federal government did not have adequate systems, controls, and  procedures for preparing the CFS. On behalf of the federal government,  the Department of the Treasury (Treasury), in coordination with the Office  of Management and Budget (OMB), prepares the CFS. Many of the  weaknesses in internal control that have contributed to our continuing  disclaimers of opinion were identified by auditors during their audits of  federal agencies’ financial statements and were reported in detail with  recommendations to the agencies in separate reports. Other internal  control weaknesses were identified during our tests of the federal  government’s process for preparing the CFS.
The purpose of this report is to (1) discuss the details of the weaknesses  we identified during our audit of the fiscal year 2006 CFS regarding  financial reporting procedures and internal control over the process for  preparing the CFS, (2) recommend improvements to address those  weaknesses, and (3) provide the status of corrective actions on the  recommendations detailed in our prior reports and listed in appendix I. We  have discussed each of the new weaknesses identified during our fiscal  year 2006 audit with your staff and have incorporated their comments as  appropriate.
subsections: section_title: Scope and Methodology
paragraphs: As part of our audit of the fiscal years 2006 and 2005 CFS, we evaluated  the federal government’s financial reporting procedures and related  internal control, and we followed up on the status of Treasury and OMB  corrective actions to address open recommendations regarding the  process for preparing the CFS that were in our prior years’ reports. In our  disclaimer of opinion on the fiscal year 2006 CFS, which is included in the  fiscal year 2006 Financial Report of the United States Government, we  discussed material deficiencies related to the federal government’s  process for preparing the CFS. These material deficiencies contributed to  our disclaimer of opinion on the CFS and also constitute material  weaknesses in internal control, which contributed to our adverse opinion  on internal control. We performed sufficient audit procedures to provide  the disclaimer of opinion in accordance with U.S. generally accepted  government auditing standards. This report provides the details of the  weaknesses we identified in performing our fiscal year 2006 audit  procedures related to the process for preparing the CFS and our  recommendations to correct those weaknesses, as well as the status of  corrective actions taken by Treasury and OMB to address  recommendations in our prior reports.
We requested comments on a draft of this report from the Director of OMB  and the Secretary of the Treasury or their designees. OMB provided oral  comments, which are discussed in the Agency Comments and Our  Evaluation section of this report. Treasury’s comments are reprinted in  appendix II and are also discussed in the Agency Comments and Our  Evaluation section.
section_title: Reconciling and Reporting Undistributed Offsetting Receipts (Component of the Budget Deficit)
paragraphs: The federal government reports a unified budget deficit (budget deficit) in  the Reconciliation of Net Operating Cost and the Unified Budget Deficit  and in the Statement of Changes in Cash Balance from Unified Budget and  Other Activities. The budget deficit is calculated by subtracting actual  budget outlays from actual budget receipts. Budget outlays consist of  federal agencies’ outlay amounts and undistributed offsetting receipts.
For several years, we have been reporting material unreconciled  differences between the total net outlays reported in selected federal  agencies’ Statements of Budgetary Resources (SBR) and Treasury’s central  accounting records used to compute the budget deficit reported in the  CFS. OMB and Treasury have been working with federal agencies to  reduce these material unreconciled differences. Such efforts have resulted  in significantly reducing the net outlay differences in fiscal year 2006.  However, billions of dollars of differences still exist in this and other  components of the budget deficit because the federal government does not  have effective processes and procedures for identifying and either  resolving or explaining material differences in the components of the  budget deficit between Treasury’s central accounting records and  information reported in agency financial statements and underlying  agency financial information and records. For example, during our audit of  the 2006 CFS, we found that undistributed offsetting receipts related to  two intragovernmental activities: both (1) federal employers’  contributions to their employees’ retirement and (2) interest received by  federal trust funds did not always link to related amounts reported in  federal agencies’ financial statements. For fiscal year 2006, Treasury’s  central accounting records used to compute the budget deficit reported in  the CFS showed (1) undistributed offsetting receipts for federal  employers’ contributions to their employees’ retirement of $60.9 billion  and (2) $169.3 billion of interest received by certain federal agencies’ trust  funds on Treasury’s borrowings from the trust funds. These activities,  which totaled $230.2 billion, were material components of the budget  deficit.
We compared components of undistributed offsetting receipts reflected in  Treasury’s central accounting records of about $54.7 billion, or about 24  percent of the $230.2 billion balance, to amounts reported in certain  federal agency financial statement information and found differences.  However, neither Treasury nor the respective federal agencies had  identified that differences existed. In addition, we were not able to link the  remainder of these undistributed offsetting receipts, $175.5 billion, to  related information in other federal agencies’ financial statements because  the information was not separately disclosed in such statements. Neither  OMB nor Treasury was able to explain how undistributed offsetting  receipts reflected in Treasury’s central accounting records linked to  related amounts reported in federal agency financial statements.
Consolidated financial statements are intended to present the results of  operations and financial position of the components that make up a  reporting entity as if the entity were a single enterprise. When preparing  consolidated financial statements, the preparer must eliminate  intragovernmental activity and balances between federal agencies. For  fiscal year 2006, we found that Treasury was unable to demonstrate that it  fully eliminated amounts related to intragovernmental interest from the  reported budget deficit. As noted above, for fiscal year 2006, Treasury’s  central accounting records reflected $169.3 billion of intragovernmental  interest received by certain federal agencies’ trust funds. Treasury’s  central accounting records also reflected outlays by Treasury to such trust  funds for intragovernmental interest of $187.4 billion. Treasury was unable  to provide support to demonstrate where and how the $18.1 billion  difference between these two intragovernmental amounts was eliminated  in the calculation of the budget deficit. Until these types of differences are  timely reconciled by the federal government, their effect on the CFS will  be unknown.
subsections: section_title: Recommendations for Executive Action
paragraphs: We recommend that the Director of OMB and Secretary of the Treasury  direct the Controller of the Office of Federal Financial Management and  Fiscal Assistant Secretary, respectively, to develop formal processes and  procedures for identifying and either resolving or explaining any material  differences in undistributed offsetting receipt amounts between Treasury’s  central accounting records and information reported in agency financial  statements and underlying agency financial information and records.
We also recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to develop formal processes and procedures for  ensuring that intragovernmental activity and balances, including  intragovernmental interest, are fully eliminated in the calculation of the  budget deficit.
section_title: Directly Linking Audited Federal Agencies’ Financial Statements to the CFS
paragraphs: As discussed in our report on our audit of the fiscal year 2006 CFS, fiscal  year 2006 was the third year that Treasury used the Governmentwide  Financial Report System (GFRS) to collect agency financial statement  information taken directly from federal agencies’ audited financial  statements. The goal of GFRS, which we strongly support, is to be able to  directly link information from federal agencies’ audited financial  statements to amounts reported in the CFS and resolve many of the  weaknesses we previously identified in the process for preparing the CFS.  However, GFRS was still undergoing development and was not yet fully  operational.
As we have reported in the past, Treasury’s process for compiling the CFS  does not yet fully ensure that financial information from federal agencies’  audited financial statements and other financial data directly link to  amounts reported in the CFS. In our report on our audit of the fiscal year  2006 CFS, we noted that Treasury showed progress by demonstrating that  amounts in the SOSI were consistent with the underlying federal agencies’  audited financial statements and that the Balance Sheet and the Statement  of Net Cost were consistent with federal agencies’ audited financial  statements prior to eliminating intragovernmental activity and balances.  However, Treasury’s process for compiling the CFS did not ensure that the  information in the remaining three principal financial statements and  notes was consistent with the underlying information in federal agencies’  audited financial statements and other financial data.
We reaffirm the recommendation in our prior report that as Treasury  continues to design and further implement its process for compiling the  CFS, the Secretary of the Treasury should direct the Fiscal Assistant  Secretary, in coordination with the Controller of OMB, to modify  Treasury’s closing package to (1) require federal agencies to directly link  their audited financial statement notes to the CFS notes and (2) provide  the necessary information to demonstrate that all of the six principal  consolidated financial statements are consistent with the underlying  information in federal agencies’ audited financial statements and other  financial data.
section_title: Reporting Unexpended Budget Balances
paragraphs: Treasury lacked effective processes and procedures for ensuring that  unexpended balances of budget authority (unexpended budget balances)  are properly reported in the supplemental information section of the CFS.
Instead of obtaining federal agencies’ unobligated and obligated amounts  through the closing packages, Treasury reported estimated amounts for  unobligated and obligated balances (which comprise the unexpended  budget balances). Specifically, in the supplemental information section of  the fiscal year 2006 CFS, Treasury noted that because the President’s  Budget with fiscal year 2006 actual amounts would not be published until  February 2007, it used the estimated fiscal year 2006 amounts from the  previous fiscal year’s President’s Budget, which was issued in February  2006, to report unobligated and obligated budget balances for fiscal year  2006. Subsequent to our fiscal year 2006 CFS audit, we compared the fiscal  year 2006 unobligated and obligated budget balances reported in the fiscal  year 2006 CFS to the fiscal year 2006 actual amounts reported in the  President’s Budget, issued in February 2007, and noted a material  difference. Specifically, for fiscal year 2006, we identified an absolute  difference of $118.4 billion—an $82.2 billion understatement in  unobligated balances and a $36.2 billion overstatement in obligated  balances—between the estimated amounts reported by Treasury and the  actual amounts reported in the President’s Budget. Actual amounts  reported in the President’s Budget are compiled from amounts reported in  agencies’ SF-133s. The SBR is an agencywide report, which aggregates  account-level information reported in the SF-133. Agency auditors have  also reported internal control issues regarding differences and the lack of  effective reconciliation between the unexpended budget balances reported  in agencies’ financial statements and amounts reported in agencies’ SF- 133s. To address these reporting issues, OMB recently issued requirements  for agencies to reconcile these amounts quarterly. Until agencies fully  implement corrective actions to resolve internal control issues regarding  the reliability of recorded and reported budgetary information, and  Treasury develops effective processes and procedures for obtaining  federal agencies’ obligated and unobligated amounts to assist Treasury in  reporting unexpended budget balances in the supplemental information  section of the CFS, the effect on the CFS will be unknown.
subsections: section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary, in coordination with the Controller of OMB’s Office of  Federal Financial Management, to develop processes and procedures for  collecting all the necessary information that would enable the proper  reporting of unexpended budget balances in the CFS.
We also recommend that the Director of OMB direct the Controller of  OMB’s Office of Federal Financial Management to continue to work with  federal agencies to resolve internal control issues regarding differences  and the lack of effective reconciliation between the unexpended budget  balances reported in agencies’ financial statements and amounts reported  in agencies’ SF-133s.
section_title: Reporting Operating Cash
paragraphs: In the U.S. government’s Statement of Changes in Cash Balance from  Unified Budget and Other Activities for the Years Ended September 30,  2006 and 2005, the amounts reported as “Operating Cash” agreed to the  amounts reported in the notes to Treasury’s consolidated agency financial  statements as “Operating Cash of the Federal Government.” However,  other federal agencies reported additional unrestricted cash balances  totaling $13.2 billion and $10.5 billion for fiscal years 2006 and 2005,  respectively. Treasury could not provide us with an adequate explanation  of the rationale for excluding these amounts from the CFS “Operating  Cash” balance.
For example, in fiscal year 2006, the Pension Benefit Guaranty  Corporation (PBGC) reported $8.5 billion in cash on hand, demand  deposits, and cash equivalents with 1-day maturities in its Balance Sheet  and as “Cash and cash equivalents” in its Statement of Cash Flows. PBGC  prepares its financial statements in accordance with accounting principles  promulgated by the Financial Accounting Standards Board (FASB).
Accordingly, “Cash and cash equivalents” could be considered and would  conform to the definition of “Operating Cash” for purposes of preparing  the CFS.
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 processes and procedures  for identifying and either resolving or explaining the differences that exist  between operating cash reported in certain federal agencies’ financial  statements and the operating cash balance reported in the CFS.
section_title: Reporting and Disclosing Legal Contingencies
paragraphs: The Department of Justice (Justice) is charged with, among other things,  the supervision of litigation to which the U.S. government is a party and  providing advice and opinions to the President and heads of executive  departments when requested. The Accounting and Auditing Policy  Committee (AAPC) guidance (Technical Release No. 1, Audit Legal  Letter Guidance) clarifies FASAB Interpretation No. 2, Accounting for  Treasury Judgment Fund Transactions, with respect to Justice’s role  related to legal letters in cases in which Justice’s attorneys are handling  legal matters on behalf of other federal reporting entities. This guidance  states that a federal entity’s management, its legal counsel, or the auditor  may consult with Justice as well as other outside legal counsel to ensure  completeness and accuracy of the entity’s financial statements’  presentation of matters related to litigation, claims, and assessments. Such  consultation may include requesting a list of pending litigation, claims, and  assessments from Justice or other outside legal counsel or discussion of  specific cases.
In the governmentwide legal representation letter, Justice represented to  us that it provided us with an assessment for individual cases in which the  potential for loss exceeded $500 million individually and $1 billion in the  aggregate. The legal representation letter was limited to matters with  which Justice had been engaged and to which Justice had devoted  substantial attention on behalf of the U.S. government. In addition, we  were provided legal representation letters for the 35 federal agencies that  Treasury and OMB deemed significant to the CFS. However, the federal  government was unable to provide us with sufficient evidence to  determine that cases below the $500 million individual case threshold  were (1) considered by the agencies’ legal counsels and, where  appropriate, included in their legal representation letters and (2) in the  aggregate, not material to the CFS. Until the federal government  implements effective processes and procedures to ensure that all  appropriate litigation and claims are included in the governmentwide legal  representation letter and are appropriately considered for potential  financial reporting, the adequacy of reporting and disclosing legal  contingencies in the CFS will be unknown and the potential effect of these  litigation claims on the financial condition of the federal government will  likewise be unclear.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury 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 governmentwide legal representation letter.
section_title: Reconciling Intragovernmental Activity and Balances
paragraphs: The federal government’s inability to adequately account for and reconcile  intragovernmental activity and balances between federal agencies has  been a long-standing problem and major impediment to us being able to  render an opinion on the CFS. Resolving this difficult challenge will  require, among other things, strong leadership and oversight by Treasury  and OMB.
Treasury and OMB require federal agencies to reconcile selected  intragovernmental activity and balances with their “trading partners” and  report the extent and results of the reconciliation efforts to Treasury.  However, in our view, federal agencies have not provided Treasury and  OMB with sufficient information to enable them to adequately oversee and  monitor agencies’ efforts to reconcile intragovernmental activity and  balances with their trading partners. Specifically, for fiscal year 2006, we  found that federal agencies did not provide Treasury and OMB with         (1) detailed information regarding the nature and description of the  differences that exist between trading partners’ records of  intragovernmental activity and balances, (2) detailed reasons why such  differences exist, (3) steps being taken to work with the agencies’ trading  partners to resolve the differences, and (4) the potential outcome of such  steps.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary, working in coordination with the Controller of OMB’s  Office of Federal Financial Management, to develop a process for  obtaining sufficient information from federal agencies to enable Treasury  and OMB to adequately monitor agencies’ efforts to reconcile  intragovernmental activity and balances with their trading partners. This  information should include (1) the nature and a detailed description of the  significant differences that exist between trading partners’ records of  intragovernmental activity and balances, (2) detailed reasons why such  differences exist, (3) details of steps taken or being taken to work with the  agencies’ trading partners to resolve the differences, and (4) the potential  outcome of such steps.
section_title: Preparing and Auditing Certain Information in Federal Agencies’ Closing Packages
paragraphs: OMB Bulletin No. 06-03, Audit Requirements for Federal Financial  Statements, and the Treasury Financial Manual provide guidance to  agencies for preparing and auditing their closing packages. As part of the  closing package process, agencies are required to reclassify certain of  their audited financial statement line items to the appropriate CFS line  items and enter certain of their financial statement notes and other  requested data into GFRS. The 35 federal agencies that Treasury and OMB  determined to be significant to the CFS are required to have their closing  packages audited and audit reports issued on such packages. However,  auditors for several of these agencies did not perform the required audit  procedures on certain information in the footnotes to the respective  agencies’ closing packages, including intragovernmental trading partner  data, stewardship land information, and heritage assets information. In  addition, one of the significant agencies did not provide in its closing  package the required cost allocation information used by Treasury in  preparing the consolidated Statement of Net Cost. As a result, Treasury’s  ability to prepare and our ability to audit the CFS were impaired.
subsections: section_title: Recommendations for Executive Action
paragraphs: We recommend that the Director of OMB direct the Controller of the  Office of Federal Financial Management, in coordination with the  Treasury Fiscal Assistant Secretary, to establish additional procedures to  ensure that agencies prepare their closing packages and have them  audited in accordance with the requirements specified in the closing  package instructions.
We also recommend that the Director of OMB direct the Controller of the  Office of Federal Financial Management to work with the significant  agency that did not provide in its closing package the required information  that Treasury uses to allocate costs in the consolidated Statement of Net  Cost to ensure that such information is reported by the agency in future  years.
section_title: Conformity with GAAP
paragraphs: As we have reported in previous years, and noted during our fiscal year  2006 audit, Treasury lacks an adequate process to ensure that the financial  statements, related notes, stewardship information, and supplemental  information in the CFS are presented in conformity with GAAP. In our  prior report, we recommended that the Secretary of the Treasury direct  the Fiscal Assistant Secretary to establish a formal process that will cause  the financial statements, related notes, stewardship information, and  supplemental information in the CFS to be presented in conformity with  GAAP in all material respects. The process should  timely identify GAAP requirements;    make timely modifications to Treasury’s closing package requirements to    assess, qualitatively and quantitatively, the impact of any omitted    document decisions reached and the rationale for such decisions.
FASAB issued SFFAS No. 32 on September 28, 2006, which was effective  for periods after September 30, 2005. This standard eliminated or lessened  the disclosure requirements for the CFS related to certain information that  Treasury had not been reporting. As a direct result of the requirements in  SFFAS No. 32, 53 of the 76 disclosure-related recommendations from our  previous reports were closed during fiscal year 2006.
However, there continued to be other disclosures required by GAAP that  are not disclosed in the CFS. Specifically, 13 of our disclosure-related  recommendations from previous years’ audits have not yet been  implemented by Treasury. In addition, during our fiscal year 2006 audit of  the CFS, we identified an additional disclosure required by applicable  standards related to including consolidated totals in the consolidated  SOSI. Further, while there is no specific GAAP requirement to disclose  foreign currencies in the CFS, we believe Treasury should separately  disclose the balance of foreign currencies held at fiscal year end in the  cash footnote to the CFS.
subsections: section_title: Consolidated Statement of Social Insurance
paragraphs: Beginning in fiscal year 2006, the SOSI became a principal financial  statement. However, in our view, the fiscal year 2006 consolidated SOSI  was not fully presented in conformity with GAAP. Specifically, for each  social insurance program included in the consolidated SOSI, Treasury  presented the “excess of the present value of future expenditures less  future revenues.” However, the fiscal year 2006 consolidated SOSI did not  include a consolidated total for all of such programs.
Paragraph 32 (3) of SFFAS No. 17, Accounting for Social Insurance, as  amended by SFFAS No. 25, Reclassification of Stewardship  Responsibilities and Eliminating the Current Services Assessment,  requires a statement combining the entity statements for all programs,  except Unemployment Insurance, including data for the current year and  separate estimates for each of the 4 preceding years. In addition, the pro  forma illustrations of the SOSI shown in Appendix B of SFFAS No. 17 and  in OMB Circular No. A-136, Financial Reporting Requirements, include a  total of the “excess of actuarial present values of future benefit payments  over future contributions and tax income” summarized and consolidated  in accordance with paragraph 32. Further, each of the applicable  component entities’ respective SOSI included a total of the excess of  actuarial present values of future benefit payments over future  contributions and tax income. Finally, Treasury reported the consolidated  total of the excess of the present value of future expenditures less future  revenues for the social insurance programs in the Management’s  Discussion and Analysis section of the CFS.
According to Treasury, a consolidated total was not presented on the  consolidated SOSI because the Social Security, Medicare, Railroad  Retirement, and Black Lung social insurance programs have different  valuation dates, projection periods, and discount rates. However, our audit  work found that (1) the most significant social insurance programs (Social  Security and Medicare) have the same valuation dates and projection  periods and (2) the key elements used in the projections for the social  insurance programs were either displayed in the footnotes of the  consolidated SOSI or disclosed in the notes to the CFS. The existence of  differences among certain social insurance programs in the elements used  in the projections is not, in our view, a relevant factor in deciding whether  to present a consolidated total, especially since the elements are disclosed.  In addition, we believe that including a consolidated total in the statement  provides increased transparency.
section_title: Cash and Other Monetary Assets
paragraphs: While there is no specific GAAP requirement to disclose foreign currencies  in the CFS, we believe that the balance of foreign currencies held at fiscal  year end should be separately disclosed in the cash footnote to the CFS. In  this regard, OMB Circular No. A-136 requires the disclosure of foreign  currencies, including the balance of foreign currencies held at fiscal year  end, in the notes to federal agencies’ financial statements. For fiscal year  2006, we found that the Cash and Other Monetary Assets note included a  disclosure that international monetary assets included official reserves of  foreign currency. However, the balance of such foreign currency was not  disclosed. OMB Circular No. A-136 requirements do not specifically apply  to the CFS. However, we believe that the balance of foreign currency  holdings as of the fiscal year end should be disclosed in the CFS since     (1) OMB has deemed this a necessary disclosure at the agency level;        (2) foreign currencies constituted about $11.7 billion, or 12 percent, of the  reported fiscal year 2006 Cash and Other Monetary Assets in the CFS;      (3) foreign currency information was readily available as certain federal  agencies, including Treasury, disclosed foreign currencies in the notes to  their respective financial statements; and (4) disclosing the dollar amount  of the foreign currencies provides increased transparency.
section_title: Recommendations for Executive Action
paragraphs: We reaffirm our prior recommendation regarding the establishment of a  formal process that will cause the financial statements, related notes,  stewardship information, and supplemental information in the CFS to be  presented in conformity with GAAP in all material respects. In addition,  we recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to establish procedures to ensure that the CFS include  required consolidated totals in the SOSI or document the specific rationale  for excluding such disclosure.
We also recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary to disclose the balance of foreign currencies held at  fiscal year end in the Cash and Other Monetary Assets footnote to the CFS.
section_title: Agency Comments and Our Evaluation
subsections: section_title: OMB Comments
paragraphs: In oral comments on a draft of this report, OMB stated that it generally  agreed with the new findings and related recommendations in this report.  In addition, OMB provided some technical comments, which we have  incorporated as appropriate.
section_title: Treasury Comments
paragraphs: In written comments on a draft of this report, which are reprinted in  appendix II, Treasury stated that it concurs with the new findings and  related recommendations with the exception of the nonconformity with  GAAP finding and recommendation related to reporting a consolidated  total in the consolidated SOSI. Treasury also stated that it concurs with  GAO that the preparation process should continually be improved, and  will continue to work with GAO on CFS matters where improvements  need to be made.
With respect to the SOSI GAAP finding, Treasury stated that it does not  believe that GAAP requires the reporting of a consolidated total in the  consolidated SOSI. In addition, Treasury noted that because of differences  in key assumptions and other criteria used in preparing the different  sections of the SOSI, it does not believe that a consolidated total is  especially meaningful.
We do not agree with Treasury on these matters. As stated earlier in the  report, in our view, the consolidated SOSI was not fully presented in  conformity with GAAP because it did not include a consolidated total for  all the social insurance programs. In the body of the report, we noted that  (1) the most significant social insurance programs (Social Security and  Medicare) have the same valuation dates and projection periods, and       (2) the key elements used in the projections for the social insurance  programs were either displayed in the footnotes of the consolidated SOSI  or disclosed in the notes to the CFS. We also noted that the existence of  differences among certain social insurance programs in the elements used  in the projections is not, in our view, a relevant factor in deciding whether  to present a consolidated total, especially since the elements are disclosed.  The consolidated SOSI is one of the principal financial statements  included in the CFS and represents an important source for the  consolidated information on federal social insurance programs. As such,  we believe that including a total on the consolidated SOSI, as was included  in the Management’s Discussion and Analysis section of the CFS, is both  necessary to provide increased transparency and is meaningful to the  users of the CFS. Treasury also provided technical comments, which we  have incorporated as appropriate.
This report contains recommendations to the Secretary of the Treasury  and the Director of OMB. The head of a federal agency is required by 31  U.S.C. § 720 to submit a written statement on actions taken on these  recommendations. You should submit your statement to the Senate  Committee on Homeland Security and Governmental Affairs and the  House Committee on Oversight and Government Reform within 60 days of  the date of this report. A written statement must also be sent to the House  and Senate Committees on Appropriations with the agency’s first request  for appropriations made more than 60 days after the date of the report.
We are sending copies of this report to the Chairmen and Ranking  Members of the Senate Committee on Homeland Security and  Governmental Affairs; the Subcommittee on Federal Financial  Management, Government Information, Federal Services, and  International Security, Senate Committee on Homeland Security and  Governmental Affairs; the House Committee on Oversight and  Government Reform; and the Subcommittee on Government Management,  Organization, and Procurement, House Committee on Oversight and  Government Reform. In addition, we are sending copies to the Fiscal  Assistant Secretary of the Treasury, the Deputy Director for Management  of OMB, and the Controller of OMB’s Office of Federal Financial  Management. Copies will be made available to others upon request. This  report is also available at no charge on GAO’s Web site 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 Jeffrey C.  Steinhoff, Managing Director, Financial Management and Assurance, on  (202) 512-2600, or Gary T. Engel, Director, Financial Management and  Assurance, on (202) 512-3406. Key contributors to this report are listed in  appendix III.
section_title: Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS
paragraphs: This appendix includes open recommendations from four of our prior  reports: Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Needs Improvement, GAO- 04-45 (Washington, D.C.: Oct. 30, 2003); Financial Audit: Process for  Preparing the Consolidated Financial Statements of the U.S.  Government Needs Further Improvement, GAO-04-866 (Washington, D.C.:  Sept. 10, 2004); Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Continues to Need  Improvement, GAO-05-407 (Washington, D.C.: May 4, 2005); and Financial  Audit: Significant Internal Control Weaknesses Remain in Preparing  the Consolidated Financial Statements of the U.S. Government, GAO-06- 415 (Washington, D.C.: Apr. 21, 2006). Recommendations that were closed  in prior reports are not included in this appendix. This appendix includes  the status of the recommendations according to the Department of the  Treasury (Treasury) and the Office of Management and Budget (OMB) as  well as our own assessments. Explanations are included in the status of  recommendations per GAO when Treasury and OMB disagreed with our  recommendation.
Of the 143 recommendations regarding the process for preparing the  consolidated financial statements of the U.S. government (CFS) that are  listed in this appendix, 70 remained open as of December 1, 2006, the end  of GAO’s fieldwork for the audit of the fiscal year 2006 CFS. Of the 73  recommendations that were closed, 53 were closed with the issuance of  Statement of Federal Financial Accounting Standards No. 32,  Consolidated Financial Report of the United States Government  Requirements: Implementing Statement of Federal Financial Accounting  Concepts 4 “Intended Audience and Qualitative Characteristics for the  Consolidated Financial Report of the United States Government.” In  fiscal year 2006, the Federal Accounting Standards Advisory Board issued  this new standard, which eliminated or lessened the disclosure  requirements for the CFS related to certain information that Treasury had  not been reporting.
section_title: Appendix II: Comments from the Department of the Treasury
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the above contact, the following individuals made key  contributions to this report: Lynda Downing, Assistant Director; Bill  Boutboul; Darryl Chang; Mina Gusukuma; Nina Marrero; Maria Morton;  Paula Rascona; Katherine Schirano; and Taya Tasse.