Management Report: Improvements Needed in Controls over the Processes Used to Prepare the U.S. Consolidated Financial Statements
Published: 2014-06-19T00:00:00

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 2013 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 (1) provide details on the control deficiencies GAO identified related to the processes used to prepare the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken by Treasury and OMB 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 2012 audit.
section_title: What GAO Found
paragraphs: During its audit of the fiscal year 2013 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;
ensure that the federal government's accrual-based consolidated financial statements were (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in conformity with U.S. generally accepted accounting principles; and
ensure the consistency of (1) information used by Treasury to compute the budget deficit reported in the consolidated financial statements, (2) Treasury's records of cash transactions, and (3) information reported in federal entity financial statements and underlying financial information and records.
Specifically, for fiscal year 2013, GAO found that
Treasury's and OMB's corrective action plans are not adequate to reasonably assure that internal control deficiencies involving the processes used to prepare the CFS are efficiently and effectively addressed,
Treasury does not have procedures to sufficiently document management's conclusions and the basis for such conclusions regarding the accounting policies for the CFS, and
Treasury does not have adequate procedures for verifying staff's preparation of the narrative within the notes to the CFS to reasonably assure that the narrative is accurate and supported by the underlying financial information of the significant component entities.
GAO also updated the description of the control deficiencies related to the long-standing material weakness regarding the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal entities. GAO closed 6 recommendations from prior GAO reports and made 4 new recommendations that are better aligned with the remaining internal control deficiencies in this area. 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 37 recommendations from GAO's prior reports regarding control deficiencies in the processes used to prepare the CFS remained open as of February 19, 2014, the date of GAO's report on its audit of the fiscal year 2013 CFS. GAO will continue to monitor the status of corrective actions taken to address the 7 new recommendations as well as the 24 open recommendations from prior years as part of its fiscal year 2014 CFS audit.
section_title: What GAO Recommends
paragraphs: GAO is making seven new recommendations—five to both Treasury and OMB and two to Treasury—to address the control deficiencies identified by GAO during the fiscal year 2013 CFS audit. In commenting on GAO's draft, Treasury and OMB generally concurred with GAO's recommendations.

section_title: Letter
paragraphs: In our February 2014 report on the results of our audit of the consolidated  financial statements of the U.S. government (CFS) for the fiscal years  ended September 30, 2013, and 2012, we disclaimed an opinion on the  CFS, except for the 2009 Statement of Social Insurance (SOSI), which  received an unmodified opinion. Since GAO’s first audit of the fiscal year  1997 CFS, certain material weaknesses in internal control over financial  reporting and other limitations on the scope of our work have resulted in  conditions that prevented us from expressing an opinion on the federal  government’s accrual-based consolidated financial statements. These  include material weaknesses that relate to the federal government’s  processes used to prepare the CFS. Such material weaknesses involve  the federal government’s inability to adequately account for and reconcile intragovernmental activity and  balances between federal entities; ensure that the federal government’s accrual-based consolidated  financial statements were (1) consistent with the underlying audited  entities’ financial statements, (2) properly balanced, and (3) in  conformity with U.S. generally accepted accounting principles; and ensure the consistency of (1) information used by the Department of  the Treasury (Treasury) to compute the budget deficit reported in the  consolidated financial statements, (2) Treasury’s records of cash  transactions, and (3) information reported in federal entity financial  statements and underlying financial information and records.
Treasury, in coordination with the Office of Management and Budget  (OMB), prepares the CFS on behalf of the federal government. Several  of the material weaknesses in internal 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 by other auditors in  their audit reports on individual federal entities’ financial statements.
The purpose of this report is to provide (1) detailed information on control  deficiencies identified during our fiscal year 2013 audit that relate to the  processes used by Treasury and OMB to prepare the CFS, (2) 7 new  recommendations to address these control deficiencies, and (3) the  status of corrective actions taken by Treasury and OMB to address the 37  recommendations relating to the processes used by them to prepare the  CFS, detailed in our previous reports, that remained open at the end of  the fiscal year 2012 audit. Appendix I provides a summary of the status  of actions taken to address the open recommendations from our previous  reports as of February 19, 2014, the date of our report on the audit of the  fiscal year 2013 CFS.
subsections: section_title: Scope and Methodology
paragraphs: As part of our audit of the fiscal years 2013 and 2012 CFS, we  considered the federal government’s financial reporting procedures and  related internal control. Also, we determined the status of corrective  actions taken by Treasury and OMB to address open recommendations  relating to the processes used by them to prepare the CFS that were  detailed in our previous reports. A full discussion of our scope and  methodology is included in our February 2014 report on our audit of the  fiscal years 2013 and 2012 CFS. We have communicated each of the  control deficiencies discussed in this report to your staff. We performed  our audit of the fiscal years 2013 and 2012 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.
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 summarized in the Agency Comments section  of this report. Treasury’s Fiscal Assistant Secretary provided written  comments on June 10, 2014, which are reprinted in their entirety in  appendix II and are also summarized in the Agency Comments section.
section_title: Control Deficiencies Identified during Our Fiscal Year 2013 Audit
paragraphs: During our audit of the fiscal year 2013 CFS, we identified several new  internal control deficiencies in Treasury’s and OMB’s processes used to  prepare the CFS. Specifically, we found that (1) Treasury’s and OMB’s  corrective action plans are not adequate to reasonably assure that  internal control deficiencies involving the processes used to prepare the  CFS are efficiently and effectively addressed, (2) Treasury does not have  procedures to sufficiently document management’s conclusions and the  basis for such conclusions regarding accounting policies for the CFS, and  (3) Treasury does not have adequate procedures for verifying staff’s  preparation of the narrative within the notes to the CFS to reasonably  assure that the narrative is accurate and supported by the underlying  financial information of the significant component entities. We also  updated the description of the control deficiencies related to the long- standing material weakness regarding the federal government’s inability  to adequately account for and reconcile intragovernmental activity and  balances between federal entities.
subsections: section_title: Corrective Action Plans
paragraphs: Treasury’s and OMB’s corrective action plans are not adequate to  reasonably assure that internal control deficiencies involving the  processes used to prepare the CFS are efficiently and effectively  addressed. Corrective action plans are the mechanism whereby  management presents the procedures the agency will follow to resolve  internal control deficiencies. Well-defined corrective action plans provide  benefits such as consistency in addressing internal control deficiencies,  concurrence on remediation activities, transparency in defining  accountability and responsibility to ensure that results are achieved, and  improved decision making on the status of remediation activities. An  effective corrective action planning framework facilitates corrective action  plan preparation, accountability, monitoring, and communication and  helps ensure that the agency personnel responsible for completing the  planned corrective actions and monitoring progress toward resolution  have the information and resources they need to do so.
The Chief Financial Officers Council’s Implementation Guide for OMB  Circular A-123, Management’s Responsibility for Internal Control –  Appendix A, Internal Control over Financial Reporting (Implementation  Guide) includes guidance for preparing well-defined corrective action  plans. Based on the guidance included in the Implementation Guide,  well-defined corrective action plans include the following elements for  each deficiency: (1) descriptions of the deficiency and the planned  corrective actions in sufficient detail to facilitate a common understanding  of the deficiency and the steps that must be performed to resolve it; (2) a  clear delineation of agency personnel responsible for completing the  planned corrective actions and monitoring progress toward resolution;   (3) the year the deficiency was first identified; (4) the targeted resolution  date; (5) interim targeted milestones and completion dates, including  subordinate indicators, statistics, or metrics used to gauge resolution  progress; and (6) planned validation activities and outcome measures  used for assessing the effectiveness of the corrective actions taken.
During our audit of the fiscal year 2013 CFS, we found that Treasury’s  and OMB’s corrective action plans lacked certain key elements as  recommended by the Implementation Guide. For example, these plans do  not contain sufficiently detailed actions that must be performed to resolve  each of the deficiencies, interim milestones so that interim actions and  progress can be monitored and progress assessed, and outcome  measures to assist in assessing the effectiveness of the corrective  actions. In addition, we found that Treasury’s and OMB’s corrective action  plans do not fully consider the interrelationships between deficiencies,  such as designing a corrective action that will help resolve multiple  deficiencies. Standards for Internal Control in the Federal Government  provides that federal agencies should establish policies and procedures  for promptly resolving findings of audits and other reviews. In addition,  OMB Circular No. A-123, Management’s Responsibility for Internal  Control, requires management to develop corrective action plans for  material weaknesses and periodically assess and report on the progress  of those plans. The Implementation Guide is widely viewed as a “best  practices” methodology for executing the requirements of Appendix A of  OMB Circular No. A-123. Without well-defined corrective action plans,  Treasury’s and OMB’s efforts to address the numerous issues involving  the processes used to prepare the CFS will be hampered.
subsections: section_title: Recommendation for Executive Action
paragraphs: To efficiently and effectively address internal control deficiencies involving  the processes used to prepare the CFS, we recommend that the  Secretary of the Treasury direct the Fiscal Assistant Secretary, working in  coordination with the Controller of OMB, to include all key elements  recommended by the Implementation Guide and fully consider the  interrelationships between deficiencies in the corrective action plans.
section_title: Accounting Policies
paragraphs: Treasury does not have procedures to sufficiently document  management’s conclusions and the basis for such conclusions regarding  the accounting policies for the CFS. Accounting policies are the  mechanism whereby management summarizes the accounting principles  and methods of applying those principles that management has  concluded are appropriate for presenting fairly the entity’s assets,  liabilities, net cost of operations, and changes in net position. Such  policies should sufficiently document management’s conclusions  regarding fair presentation and the basis of such conclusions. When  sufficiently documented, accounting policies help ensure the consistent  application of accounting principles by management from period to period  and over similar classes of transactions, account balances, and  disclosures. A summary of the significant accounting policies for the CFS  is disclosed in Note 1 to the CFS, as required by U.S. generally accepted  accounting principles.
During our audit of the fiscal year 2013 CFS, we found that Treasury had  not sufficiently documented management’s conclusions and the basis of  such conclusions regarding the accounting policies for the CFS.  Standards for Internal Control in the Federal Government provides that  federal agencies should clearly document internal control activities—the  policies, procedures, techniques, and mechanisms that enforce  management’s directives—and properly manage and maintain such  documentation so that it will be readily available for examination. In  addition, OMB Circular No. A-123 requires management to document the  decisions made during its process for developing and maintaining  effective internal control over financial reporting. Without sufficiently  documented accounting policies that include management’s conclusions  regarding fair presentation and the basis of such conclusions, Treasury  cannot be assured that accounting principles will be applied consistently  from period to period and over similar classes of transactions, account  balances, and disclosures.
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 to sufficiently  document management’s conclusions and the basis of such conclusions  regarding the accounting policies for the CFS.
section_title: Note Disclosure Narrative
paragraphs: Treasury does not have adequate procedures for verifying staff’s  preparation of the narrative within the notes to the CFS to reasonably  assure that the narrative is accurate and supported by the underlying  financial information of the significant component entities. Accompanying  notes are an integral part of financial statements and provide additional  disclosures that are necessary to make the financial statements more  informative. Such additional disclosures often take the form of narrative  and amounts, presented both within the narrative and in tables.
During our audit of the fiscal year 2013 CFS, we found that Treasury’s  standard operating procedures for preparing the CFS, including its  procedures for analyzing the financial information submitted by the  significant component entities, provide that Treasury staff are to verify the  narrative within the notes and make changes so that the narrative reflects  the financial information submitted by the significant component entities.  However, the procedures do not include specific steps to be performed to  verify the accuracy of the staff’s work, such as verifying the  appropriateness of changes made by the staff and that all necessary  changes were identified and made. We identified inconsistencies and  errors in the narrative within the notes to the draft CFS that were not  identified through the review of the staff’s work but were subsequently  corrected by Treasury. 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 agencies should accurately and timely record  transactions and events. Without adequate procedures for verifying staff’s  preparation of the narrative within the notes to the CFS, Treasury cannot  be assured that such narrative is reliable.
subsections: section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of the Treasury 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.
section_title: Intragovernmental Activity and Balances
paragraphs: During our fiscal year 2013 CFS audit, we found that the federal  government continued to be unable to adequately account for and  reconcile intragovernmental activity and balances between federal  entities. Treasury has taken certain actions over the past few years to  address control deficiencies in this area. Consequently, we have updated  the description of the remaining control deficiencies related to this  material weakness, as discussed below.
Consolidated financial statements are intended to present the results of  operations and financial position of the components that make up the  reporting entity as if the entity were a single enterprise. When preparing  the consolidated financial statements, intragovernmental activity and  balances between federal entities should be in agreement and must be  subtracted out, or eliminated, from the financial statements. If the two  federal entities engaged in an intragovernmental transaction do not both  record the same intragovernmental transaction in the same year and for  the same amount, the intragovernmental transactions will not be in  agreement, resulting in errors in the consolidated financial statements.
Federal entities are responsible for properly accounting for and reporting  their intragovernmental activity and balances in their entity financial  statements and for effectively implementing related internal controls. This  includes reconciling and resolving intragovernmental differences at the  transaction level with their trading partners. To support this process,  Treasury has established certain controls to monitor whether  intragovernmental activity and balances reported to Treasury by federal  entities are properly reconciled and balanced at the account and line item  levels. For example, based on intragovernmental information provided by  the significant component entities, Treasury provides quarterly scorecards  that highlight intragovernmental differences at the account level requiring  the entities’ attention. As part of this process, Treasury gathers  information from the entities on such differences to identify causes of  intragovernmental differences and monitors how the differences are  addressed by federal entities. Treasury also reviews disputes between  federal entities and their respective trading partners when the entities  cannot resolve an intragovernmental difference. After reviewing a dispute,  Treasury issues a decision on how to resolve the difference.
In fiscal year 2013, Treasury continued to actively work with federal  entities, resulting in a significant number of intragovernmental differences  being identified and resolved. While such progress was made, we  continued to note that amounts reported by federal entity trading partners  were not in agreement by significant amounts. Reasons for the  differences cited by several chief financial officers included differing  accounting methodologies, accounting errors, and timing differences.  Treasury’s process focuses on the cause and resolution of individual  differences, not on systemic “root causes” of differences. As such, the  root causes of the differences are not fully identified and reported, which  affects (1) the entities’ ability to resolve and prevent further differences  and (2) Treasury’s ability to monitor how the entities are addressing the  root causes. Furthermore, Treasury’s scorecard process generates  scorecards for the significant component entities and focuses on the most  significant reconciliation issues faced by each entity receiving a  scorecard. However, Treasury has not demonstrated that differences not  covered by the scorecard process are immaterial to the CFS.
While certain intragovernmental transactions and balances related to the  General Fund of the U.S. government (General Fund) are reported in  Treasury’s audited department-level financial statements, there are  significant intragovernmental transactions and balances related to the  General Fund that are not currently accounted for and reported in  Treasury’s audited department-level financial statements or in separate  audited financial statements. Treasury is in the process of reviewing and  developing accounting and reporting mechanisms for the General Fund.  However, Treasury does not have policies and procedures for all  significant intragovernmental activity and balances related to the General  Fund to be accounted for and reported in financial statements, reconciled,  and subjected to an appropriate level of assurance, including internal  controls and audit. Consequently, there were unreconciled transactions  between the records of the General Fund and federal entity trading  partners related to appropriations and other intragovernmental  transactions, which amounted to hundreds of billions of dollars.
Auditors for the significant component entities are responsible for  providing opinions on the entities’ overall department-level financial  statements and on the entities’ closing package financial statements  taken as a whole, which include intragovernmental activity and balances  between federal entities. However, a formalized process has not been  established to perform additional audit procedures specifically focused on  intragovernmental activity and balances between federal entities. This  process would include finalizing the procedures to be performed and  establishing the criteria for determining which federal entities would be  required to perform the procedures. Such a process would provide  increased audit assurance over the reliability of such information and help  address the above-noted significant unreconciled transactions at the  government-wide level.
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 agencies should accurately and timely record transactions.
Without adequate procedures to fully account for and reconcile  intragovernmental activity and balances, the federal government is unable  to determine the impact of unreconciled transactions on the amounts  reported in the CFS and Treasury’s ability to fully eliminate such amounts  from the CFS is impaired.
subsections: section_title: Recommendations 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,  to  continue to build on the procedures in place to effectively identify  systemic root causes of intragovernmental differences and monitor  how federal entities are addressing the root causes; 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; 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; and 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.
section_title: Status of Recommendations from Prior Reports
paragraphs: Of our 37 recommendations from our prior reports regarding control  deficiencies in the processes used to prepare the CFS that were open at  the end of the fiscal year 2012 audit, we closed 13 recommendations  during our fiscal year 2013 audit. Of the 13 closed recommendations, we  closed 7 as a result of corrective actions taken by Treasury and OMB. We  closed the other 6 recommendations, which were related to  intragovernmental activity and balances, by making 4 new  recommendations in this report that are better aligned with the current  status of the remaining internal control deficiencies associated with the  federal government’s inability to adequately account for and reconcile  intragovernmental activity and balances between federal entities and  reflect certain actions taken by Treasury. Twenty-four recommendations  from our prior reports remained open as of February 19, 2014, the date of  our report on the audit of the fiscal year 2013 CFS.
Appendix I summarizes the status as of February 19, 2014, of the 37  open recommendations from our prior years’ reports. Specifically,  appendix I includes the status according to Treasury and OMB, as well as  our own assessments where appropriate. The status of recommendations  per GAO includes explanatory comments on Treasury’s and OMB’s  information. We will continue to monitor Treasury’s and OMB’s progress  in addressing our recommendations as part of our fiscal year 2014 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 in 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 seven new recommendations.  To address the long-standing material weakness related to  intragovernmental transactions, Treasury stated that it will expand the  scorecard program to include transactions with the General Fund using a  phased approach during fiscal year 2014. As it relates to the material  weakness related to the compilation process, Treasury stated that it will  be implementing Phase II of an automated tool to streamline this process,  expanding its analysis performed on third quarter reporting, and  collaborating with key personnel at the federal entities. In addition,  Treasury noted that it is continuing its efforts to fully implement the  process to reconcile the budget deficit to federal entities’ audited financial  statements.
This report contains recommendations to you. 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  Interim 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 engelg@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: Count GAO-04-45 (results of the fiscal year 2002 audit) 1 02-4
paragraphs: No.
As the Department of the Treasury (Treasury)  is designing its new financial statement  compilation process to begin with the fiscal  year 2004 consolidated financial statements  of the U.S. government (CFS), the Secretary  of the Treasury should direct the Fiscal  Assistant Secretary, in coordination with the  Controller of the Office of Management and  Budget (OMB), to develop reconciliation  procedures that will aid in understanding and  controlling the net position balance as well as  eliminate the plugs previously associated with  compiling the CFS.
Treasury has taken certain  actions regarding accounting for  and reconciling  intragovernmental activity and  balances to address GAO’s  past recommendations.  Treasury is committed to  continuing its efforts to address  the remaining control  deficiencies in this area.
Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to design  procedures that will account for the difference  in intragovernmental assets and liabilities  throughout the compilation process by means  of formal consolidating and elimination  accounting entries.
See the status of  recommendation No. 02-4.
Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
section_title: Count 3
paragraphs: Recommendation  The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to develop  solutions for intragovernmental activity and  balance issues relating to federal agencies’  accounting, reconciling, and reporting in  areas other than those OMB now requires be  reconciled, primarily areas relating to  appropriations.
Per Treasury and OMB   See the status of  recommendation No. 02-4.
Per GAO   Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to reconcile the  change in intragovernmental assets and  liabilities for the fiscal year, including the  amount and nature of all changes in  intragovernmental assets or liabilities not  attributable to cost and revenue activity  recognized during the fiscal year. Examples  of these differences would include capitalized  purchases, such as inventory or equipment,  and deferred revenue.
See the status of  recommendation No. 02-4.
Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
section_title: Count 5
paragraphs: Recommendation  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.
Per GAO   Open.
The Secretary of the Treasury should direct  the 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.
Per Treasury and OMB   Treasury will enhance its  documentation of the  assessment of the reporting  entity to ensure compliance with  the FASAB criteria, including  documenting the reason as to  whether entities are to be  included or excluded and the  basis for that conclusion. As  part of this assessment,  Treasury will also take into  account FASAB’s Reporting  Entity standard, once it is  issued. An analysis will be  performed to demonstrate that  the information that is not  included but should be included  is immaterial.  Treasury conducted an analysis  of the entity’s revenue and  expenses on a cash basis that  are not currently required by law  to submit financial statements to  verify the materiality of their  data to the Financial Report of  the United States Government  (Financial Report). This analysis  demonstrated that the amounts  not included in the journal  voucher prepared at year-end  are immaterial to the Financial  Report. Treasury will finalize  this analysis to cover assets  and liabilities.
Open.
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.
Pending the results of actions  taken pursuant to  recommendation Nos. 02-22  and 02-23, Treasury will  enhance the current disclosure  in the Financial Report related  to the reporting entity.
Open.
section_title: Count 8
paragraphs: Recommendation  The Secretary of the Treasury should direct  the 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.
Per Treasury and OMB   Treasury will work with the  Department of Justice, OMB,  GAO and the agencies to  determine if further changes in  policy and/or guidance (e.g.,  OMB Circular No. A-136) are  needed for all agencies to  provide the required information  regarding the expected  outcomes of legal cases in their  legal representations.
Per GAO   Open.
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).
Agencies are currently required  to report contingencies in their  financial statements and notes  pursuant to generally accepted  accounting principles (GAAP).  In addition, OMB Circular No. A- 136 specifically references the  inclusion of treaties and  international agreements within  “Commitments and  Contingencies.” Further,  agencies include specific  representations with respect to  material liabilities or  contingencies in their  management representations.  In addition, the financial  statements of most significant  entities and many other federal  entities received unqualified  audit opinions. However, no  additional analysis of treaties  has been performed to  reasonably ensure that all of the  federal government’s treaties  are considered in agency  analysis or that agencies are  consistently analyzing treaties  for recognition or disclosure.  Treasury will annually review  agency financial statements,  audit reports, and management  representation letters for any  references to treaties and  international agreements, and if  deemed material will disclose in  the CFS.
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 GAAP in the CFS,  and we are precluded from  determining whether the omitted  information is material.
section_title: Count 10
paragraphs: Recommendation  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.
Per Treasury and OMB   See the status of  recommendation No. 02-37.
Per GAO   Open. See the status of  recommendation 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 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.
See the status of  recommendation No. 02-37.
Open. See the status of  recommendation 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 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.
See the status of  recommendation No. 02-37.
Open. See the status of  recommendation No. 02-37.
section_title: Count 13
paragraphs: Recommendation  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.
Per Treasury and OMB   See the status of  recommendation No. 02-37.
Per GAO   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.
Treasury requests this  information from the agencies in  the Treasury Financial Manual  2-4700. Treasury will include  this subject matter as a key  area for the third quarter  reporting requirements to allow  sufficient time to complete this  analysis.
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.
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.
Treasury and OMB will assess  options as to what  methodologies or approaches to  use for obtaining the additional  information needed from the  agencies.
Open.
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.
See the status of  recommendation No. 03-8.
Open.
section_title: Count 17
paragraphs: Recommendation  The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to modify  Treasury’s plans for the new 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 five  principal consolidated financial statements  are consistent with the underlying information  in federal agencies’ audited financial  statements and other financial data.
Per Treasury and OMB   Treasury has demonstrated that  the three principal accrual- based consolidated financial  statements are consistent with  the significant federal entities’  financial statements prior to  eliminating intragovernmental  activity and balances. Treasury  has taken certain actions  regarding the two CFS budget  statements to address GAO’s  past recommendations.  Treasury is committed to  continuing its efforts to address  the remaining control  deficiencies in the area.
Per GAO   Closed. Treasury’s process for  compiling the CFS generally  demonstrated that amounts in  the Statement of Social  Insurance and the Statement of  Changes in Social Insurance  Amounts were consistent with  the underlying federal entities’  audited financial statements  and that the Balance Sheet,  Statement of Net Cost, and  Statement of Operations and  Changes in Net Position were  also consistent with the  significant federal entities’  financial statements prior to  eliminating intragovernmental  activity and balances. With  regard to directly linking the  Reconciliation of Net Operating  Cost and Unified Budget Deficit  and Statement of Changes in  Cash Balance from Unified  Budget and Other Activities to  federal entities’ audited financial  statements and other financial  data, we incorporated this issue  along with other control  deficiencies related to the two  CFS budget statements into  recommendations 12-04 and  12-05 below.
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.
Treasury attempted to contact  agencies before recording  journal vouchers and made  management decisions on  making journal vouchers that  affect agency audited closing  package data. In fiscal year  2014, Treasury will ensure that  this agency communication  along with the Treasury  decision-making process will be  fully documented in the support  for the journal vouchers.
Open.
section_title: Count 19
paragraphs: Recommendation  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.
Per Treasury and OMB   Treasury continues to make  improvements to its internal  control infrastructure, by  updating and revising its  standard operating procedures  (SOP), ensuring key controls  are in place at all critical areas  of the CFS preparation process.  Treasury will continue to  monitor and assess its internal  control during fiscal year 2014  toward achieving a sound  internal control environment.
Per GAO   Open.
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.
Treasury, in coordination with  OMB, will continue to work with  the Department of Justice to  include appropriate information  regarding litigation and claims in  the government-wide legal  representation letter. In the  interim, Treasury will use the  information from the federal  agencies’ legal representation  letters for cases less than $500  million to analyze the materiality  impact on the CFS.
Open.
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 a process for obtaining sufficient  information from federal agencies to enable  Treasury and OMB to adequately monitor  federal 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 federal agencies’ trading  partners to resolve the differences, and   (4) the potential outcome of such steps.
See the status of  recommendation No. 02-4.
Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
section_title: Count GAO-08-748 (results of the fiscal year 2007 audit) 22 07-9
paragraphs: No.
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.
See the status of  recommendation No. 04-6.
Open.
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.
Treasury has obtained and  utilized third quarter financial  information from agencies,  focusing on key topics and  issues to compile a major part  of the CFS for fiscal years 2012  and 2013. In fiscal year 2014,  Treasury will increase the  number of key topics and will  identify subject matters that can  be completed before fiscal year- end.
Open.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary to design,  document, and implement policies and  procedures to identify and eliminate  intragovernmental payroll tax amounts at the  government-wide level when compiling the  CFS.
Treasury implemented a  quarterly process to identify and  eliminate intragovernmental  payroll tax amounts at the  government-wide level.
Closed.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary to enhance the  SOP entitled “Statement of Social Insurance,  Social Insurance Note, and Required  Supplementary Information” to implement and  document procedures for assuring the  accuracy of staff’s work related to preparing  the social insurance information for the CFS.
Treasury enhanced the SOP  entitled “Statement of Social  Insurance, Social Insurance  Note, and Required  Supplementary Information” to  ensure proper internal controls  were followed in preparing the  social insurance information.
Closed.
section_title: Count GAO-12-529 (results from the fiscal year 2011 audit) 26 11-01
paragraphs: No.
The Acting Director of OMB should direct the  Controller of OMB to develop and implement  written procedures specifying the steps  required for effectively reviewing and  approving the drafts of the Financial Report  before they are provided to GAO, to include  clear delineation of the review and approval  roles and responsibilities of designated  appropriate higher-level officials in OMB’s  Office of Federal Financial Management,  including the Controller of OMB.
OMB developed and  implemented written procedures  specifying the steps for  reviewing and approving the  drafts of the Financial Report.
Closed.
The Secretary of the Treasury should direct  the 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.
Treasury has involved key  federal entity personnel with  technical expertise during the  interim and year-end review and  preparation of the Financial  Report. As Treasury increases  the key topics for the third  quarter analysis in fiscal year  2014, the key federal entity  personnel and the Treasury  employees will work  collaboratively from third quarter  analysis until the Financial  Report publication on these key  topics.
Open.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary to revise the  SOP to include requirements for using the  CFS disclosure checklist to prepare the  format draft of the CFS and to update the  CFS disclosure checklist as necessary when  subsequent drafts of the CFS are prepared.
Treasury prepared the CFS  disclosure checklist for the  generation of the format draft of  the CFS and ensured that all  necessary updates were made  to the checklist.
Closed.
section_title: Count 29
paragraphs: Recommendation  The Secretary of the Treasury should direct  the Fiscal Assistant Secretary to establish a  mechanism for ensuring that all steps in the  required validation process are completed,  documented, and reviewed prior to the  distribution of Intragovernmental Reporting  and Analysis System (IRAS) reports.
Per Treasury and OMB   See the status of  recommendation No. 02-4.
Per GAO   Closed. Over the past few  years, Treasury has taken  certain actions to address  recommendations related to  intragovernmental activity and  balances. To provide  recommendations that are  better aligned with the  remaining internal control  deficiencies in this area, we  have (1) closed this  recommendation and   (2) included in this report under  “Intragovernmental Activity and  Balances” new  recommendations for corrective  action.
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.
Treasury will implement a new  approach in fiscal year 2014 for  identifying new entities that  become significant to the  Financial Report during the  fiscal year. This approach will  include an analysis performed  using data from the Central  Accounting Reporting system  (CARS), Governmentwide  Treasury Account Symbol  Adjusted Trial Balance System  (GTAS), and Governmentwide  Financial Report System  (GFRS) throughout the fiscal  year.
Open.
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 obtaining audited closing packages from  newly identified significant entities in the year  they become significant, including timely  written notification to newly identified  significant entities.
Treasury will update the SOP  entitled “Significant Federal  Entities Identification” to include  procedures as determined in  the approach as a result of  recommendation No. 11-09.
Open.
section_title: Count GAO-13-540 (results from the fiscal year 2012 audit) 32 12-01
paragraphs: No.
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 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.
Treasury will implement a new  approach in fiscal year 2014 for  identifying new material line  items for significant calendar  year entities that become  significant to the Financial  Report during the fiscal year.
Open.
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 obtaining audit assurance over identified  material line items for significant calendar  year-end entities in the year they become  material.
Treasury will update the SOP  entitled “Significant Federal  Entities Identification” to include  procedures as determined in  the approach as a result of  recommendation No. 12-01.
Open.
The Secretary of the Treasury should direct  the Fiscal Assistant Secretary to enhance the  SOP entitled “Prior Period Adjustments” to  include procedures for analyzing and  assessing the effects of significant federal  entities’ restatements and reclassifications on  related line items and notes presented in the  CFS.
Treasury updated the SOP  entitled “Prior Period  Adjustments” to include  procedures for analyzing and  assessing restatements and  reclassifications of significant  federal entities.
Closed.
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 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.
Treasury has started to improve  the documentation to show the  consistency of budget  statement information in the  CFS with the federal entities’  audited financial statements.  Treasury will leverage the  reconciliation information  requested from and provided by  the agencies in 2013 to improve  the analysis in 2014 by  supplementing that information  with additional crosswalks and  support to be provided by the  agencies and verified by  Treasury.
Open.
section_title: Count 36
paragraphs: Recommendation  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.
Per Treasury and OMB   Treasury will develop a  crosswalk to ensure that all data  is included in the preparation of  the budget statements. The  implementation of the budget  deficit reconciliation in fiscal  year 2013 will be leveraged as  support for the financial  statement lines on the budget  statements.
Per GAO   Open.
The Director of OMB should ensure that OMB  continues its efforts to remove the  requirement for reporting “overall substantial  compliance” from OMB Circular No. A-136,  Financial Reporting Requirements.
OMB revised OMB Circular No.  A-136.
Closed.
The status of the recommendations listed in app. I is as of February 19, 2014, the date of our report  on the audit of the fiscal year 2013 CFS.
section_title: Appendix II: Comments from the Department of the Treasury