Federal Data Transparency: Effective Implementation of the DATA Act Would Help Address Government-wide Management Challenges and Improve Oversight
Released: 2014-12-03T00:00:00

Letter

Much Work Remains to Improve the Quality of Federal Spending Data

Congress and the Administration Have Acted to Make More Data Available and Accessible

The federal government spends more than $3.5 trillion annually, but data on this spending lack transparency. Moreover, the data are often incomplete or have quality limitations. To address these data issues, several statutes were enacted over the last decade, including:

The first, the Federal Funding Accountability and Transparency Act of 2006 (FFATA), required OMB to establish a website to provide information on grant and contract awards, and subawards.information is available at www.USASpending.gov.

The second, the American Recovery and Reinvestment Act of 2009 (Recovery Act), which provided approximately $840 billion in funding, required that funding recipients’ reports on award and spending data be made available on a website.funding is available at www.Recovery.gov. Information on the spending and distribution of Hurricane Sandy funds are available on that site as well.

Today, data related to Recovery Act

The third, the Digital Accountability and Transparency Act of 2014 (DATA Act), expands FFATA so that taxpayers and policy makers can track federal spending more effectively. When fully implemented in 2018, the DATA Act will require federal agencies to disclose their direct expenditures and link federal contract, loan, and grant spending information to agency programs. That data are to be available on the web in machine-readable and open formats. The act also requires the establishment of government-wide financial data standards and simplified reporting requirements for entities receiving federal funds. Lastly, to improve the quality of data submitted to USAspending.gov, the act requires Inspectors General (IG) to assess the completeness, timeliness, quality, and accuracy of the spending data submitted by their respective agencies and the use of the data standards. To assist with that effort, the DATA Act also calls for the establishment of a pilot program, with participants to include, among others, a diverse group of recipients of federal awards. The purpose of the pilot program is to develop recommendations for 1) the standardization of reporting elements across the federal government, 2) the elimination of unnecessary duplication in financial reporting, and 3) the reductions of compliance costs for recipients of federal funds.

Persistent USASpending.gov Challenges Highlight the Need for Strong Leadership of DATA Act Implementation

Strong and consistent leadership will be needed to ensure the DATA Act is fully implemented. Our work underscores this point, as we have found that unclear guidance and weaknesses in oversight have contributed to persistent challenges with data on USASpending.gov. These challenges relate to the quality and completeness of data submitted by federal agencies. In 2010, we reported that USAspending.gov did not include information on awards from 15 programs at nine agencies for fiscal year 2008. Also in that report, we looked at a sample of 100 awards on the website and found that each award had at least one data error. To address this problem, we recommended that OMB include all required data on the site, ensure complete reporting, and clarify guidance for verifying agency-reported data. OMB generally agreed with our findings and recommendations, and subsequently issued additional guidance on agency responsibilities. Our most recent report on this subject reinforces these earlier findings.

In June 2014, we reported that while agencies generally reported contract information as required, many assistance programs (e.g., grants or loans) were not reported. Specifically, we found agencies did not appropriately submit the required information on 342 assistance award programs totaling approximately $619 billion in fiscal year 2012, although many reported the information after we informed them of the omission. In addition, we found few awards on the website contained information that was fully consistent with agency records. We found that only between 2 percent and 7 percent of the awards contained information that was fully consistent with agencies’ records for all 21 data elements we examined. The element that identifies the name of the award recipient was the most consistent, while the elements that describe the award’s place of performance were generally the most inconsistent. To address these problems, we recommended the Director of OMB (1) clarify guidance on reporting award information and maintaining supporting records and (2) develop and implement oversight processes to ensure that award data are consistent with agency records. OMB generally agreed with our recommendations and we will continue to monitor OMB’s implementation.

DATA Act Implementation Efforts Under Way Need to Address Known Challenges

Initial Actions Are Focused on Data Standards, Stakeholder Outreach, and Establishing Plans to Monitor Compliance

Across the federal government, initiatives are under way to implement key provisions of the DATA Act. Among these provisions is a requirement for OMB and Treasury to consult with public and private stakeholders in establishing data standards. In response, Treasury and OMB convened a data transparency town hall meeting in late September 2014 so the public could provide input to Treasury officials responsible for developing data standards. The event drew more than 200 participants from the public and private sector, including congressional staff and representatives from federal agencies, state and local governments, private industry, and transparency advocacy organizations. Agency officials provided information on efforts to standardize federal financial management data and members of the public shared their views on the importance of data standards and recommendations for successful implementation.

In addition, on September 26, 2014, Treasury published notice in the Federal Register seeking public comment on the establishment of financial data standards by November 25, 2014. These actions are consistent with our recommendations based on lessons learned from the implementation of both USAspending.gov and Recovery.gov. These lessons stressed the importance of obtaining input from federal agencies, recipients, and subrecipients early in the development of new transparency systems to minimize reporting burden.

The DATA Act also calls on Treasury to establish a data analysis center or to expand an existing service, to provide data, analytic tools, and data management techniques for preventing or reducing improper payments and improving the efficiency and transparency in federal spending. The act also directs Treasury to work with federal agencies, including IGs and federal law enforcement agencies, to provide data from the data analysis center to identify and reduce fraud waste and abuse and for use in the conduct of criminal investigations, among other purposes. In response to this requirement, Treasury established the Data Transparency Office which is working with the Recovery Board to transfer assets from the board’s Recovery Operations Center to Treasury.assumed program responsibility for USAspending.gov to display accurate government-wide spending data to the public, as called for in the act.

Building on lessons learned from the implementation of the Recovery Act, the DATA Act’s provisions also ensure that implementation will be closely monitored. These provisions require IGs and us to assess the implementation of the act throughout the next 7 years (see figure 1 for a timeline of key DATA Act provisions). The DATA Act requires the Inspectors General to assess the completeness, timeliness, quality and accuracy of spending data submitted by their respective agencies and the use of the data standards. These reports are due 18 months after OMB and Treasury issue data standards guidance and then within 2 and 4 years after that. The Treasury IG is leading the IG community’s efforts to develop a comprehensive framework of audit procedures, in consultation with us, to ensure IGs meet their auditing and reporting responsibilities under the act. The Treasury IG is also reviewing Treasury’s standup of a Transparency Office and Treasury’s efforts to improve USASpending.gov, as well as Treasury’s plans to implement its responsibilities under the DATA Act.

We are fully prepared to meet the DATA Act’s oversight and consultative roles for us as well. The act requires us to review IG reports on agency spending data quality and use of data standards in compliance with the act, and IGs are to consult with us to assess the completeness and accuracy of agency data. We are working with the Treasury IG and through the Council of Inspectors General for Integrity and Efficiency to develop common audit procedures and practices across the federal accountability community to avoid duplication. We are also working to ensure that the Treasury’s implementation efforts follow good consultative practices, and that views from both federal and nonfederal stakeholders are appropriately considered as data standards are developed. We also will evaluate the data standards to ensure that they are complete, clear, and at the right level of specificity. Toward that end, we plan to provide an interim report to the Congress in 2015 on the establishment of the standards.

DATA Act Implementation Needs to Address Key Technical Issues

To effectively implement the DATA Act, the federal government will need to address multiple technical issues. The first of these issues involves developing and defining common data elements across multiple reporting areas. Among the lessons learned from the implementation of the Recovery Act’s transparency provisions was the value of standardized data for improving data quality and transparency, including uniform information for contracts and financial assistance awards. To address this issue for DATA Act implementation, the DOD and the Department of Health and Human Services (HHS) are examining data elements used by the procurement and grants communities to identify financial data elements common to both communities that can be standardized.assessment focuses on 72 data elements that are linked to five data Their areas: (1) identification of award; (2) awardee/recipient information; (3) place of performance; (4) period of performance; and (5) identification of agencies. HHS and DOD were able to reach agreement on a basic set of data elements that could be standardized across the procurement and award communities. Some of the elements will require changes in policy, while in other cases agencies will have to change how they collect and report data. Plans to identify and coordinate recommended policy changes with OMB are under way.

Another related issue is how to enhance data transparency while protecting individual privacy and national security. The DATA Act does not require the disclosure of any information that is exempt from disclosure under the Freedom of Information Act, including information that is specifically authorized to be kept secret in the interest of national defense or foreign policy. Additionally, the DATA Act does not require federal agencies to report direct payments to individuals. However, some federal agencies have raised concerns about how privacy and national security can be maintained if more data are made available.

In January 2013, we co-hosted a forum on data analytics with the Recovery Board and The Council of Inspectors General for Integrity and Efficiency. The forum brought together representatives from federal, state, and local agencies and the private sector to explore the use of data analytics—which involve a variety of techniques to analyze and interpret data—to help identify fraud, waste, and abuse in government. Forum participants identified opportunities to enhance data-analytics efforts, such as consolidating data and analytics operations in one location to increase efficiencies by enabling the pooling of resources as well as accessing and sharing of the data to enhance oversight. The forum participants also identified a variety of challenges that hinder their abilities to share and use data. For example, forum participants cited statutory requirements that place procedural hurdles on agencies wishing to perform data matching to detect fraud, waste, and abuse, and technical obstacles—such as the lack of uniform data standards across agencies— which make it more difficult for oversight and law enforcement entities to share available data.coordination and data sharing, we formed the Government Data Sharing Community of Practice (CoP). In 2013 and 2014, the CoP partnered with a variety of organizations, including MITRE and the National Intergovernmental Audit Forum, to host a series of events for the audit community to discuss legal issues and technological challenges to data sharing.

Effective Implementation of the DATA Act Would Help Address Ongoing Government Management Challenges and Enhance Oversight

When fully and effectively implemented, the DATA Act holds great promise for improving the efficiency and effectiveness of the federal government, and for addressing persistent government management challenges. Expanding the quality and availability of federal spending data will better enable federal program managers to make data-driven decisions about how they use government resources to meet agency goals. Providing open and consumable federal data will enable innovation and help new and existing businesses to use data to inform activities. By expanding the quality and availability of federal spending data, the DATA Act also holds great promise for enhancing government oversight and preventing and detecting fraud, waste and abuse.

Our work on examining fragmentation, overlap and duplication in federal government programs has demonstrated the need for more reliable and consistent federal data, which implementation of the DATA Act should produce. As we have reported and I have testified before this Committee, better data and a greater focus on expenditures and outcomes are essential to improving the efficiency and effectiveness of federal efforts.Currently, there is not a comprehensive list of all federal programs and agencies often lack reliable budgetary and performance information about their programs.

Without knowing the scope, cost, or performance of programs, it is difficult for executive branch agencies or Congress to gauge the magnitude of the federal commitment to a particular area of activity, or the extent to which associated federal programs are effectively and efficiently achieving shared goals. Moreover, the lack of reliable, detailed budget information makes it difficult to estimate the cost savings that could be achieved should Congress or agencies take certain actions to address identified fragmentation, overlap, and duplication. Absent this information, Congress and agencies cannot make fully informed decisions on how federal resources should be allocated and the potential budget trade-offs.

Implementing data standards across the federal government, as required under the DATA Act, could help address another ongoing challenge: the need for reliable and consistent agency program information. We recently examined the implementation of the agency program inventory requirements under the GPRA Modernization Act of 2010 (GPRAMA) and found that inconsistent program definitions and program-level budget information limit comparability among like programs. In developing the inventory, OMB allowed for significant discretion in several areas leading to a variety of approaches for defining programs and inconsistencies in the type of information reported. The inconsistent definitions, along with agencies not following an expected consultation process, led to challenges in identifying similar programs in different agencies. The lack of program comparability hampers decision makers’ ability to identify duplicative programs and accurately measure the cost and magnitude of federal investments.

In addition, we found that although GPRAMA requires agencies to identify program-level funding, OMB did not direct agencies to include this information in their 2013 inventories and it was not included in the May 2014 update. OMB officials told us that they put the 2014 update on hold to determine how to merge these requirements with DATA Act transparency requirements since both laws require web-based reporting.

Implementing data standards across the federal government, as required under the DATA act, could help address this ongoing challenge.

Effective implementation of the DATA Act could also provide additional data analytic tools for agencies to detect, reduce, and prevent improper payments. Throughout the past decade, we have reported and testified on improper payment issues across the federal government, as well as at specific agencies. In July, we testified that federal agencies reported an estimated $105.8 billion in improper payments in fiscal year 2013 that were attributable to 84 programs spread among 18 agencies. The Improper Payments Elimination and Recovery Improvement Act of 2012 is the latest in a series of laws aimed at addressing this issue. The act requires that agencies verify benefit eligibility by checking multiple existing databases before making a payment to a person or entity. The act also modified requirements to promote computer matching activities that assist in the detection and prevention of improper payments.

As we have previously found, a number of strategies across government, some of which are under way, could help to reduce improper payments, including (1) designing and implementing strong preventive controls activities such as up-front validation of eligibility through data sharing and predictive analytic tests and (2) implementing effective detection techniques to quickly identify and recover improper payments after they have been made. By establishing a data analysis center to provide data, analytical tools, and data management techniques, the DATA Act could also help address this problem.

The open data provisions of the DATA Act will also enhance the federal government’s emerging use of data analytics capabilities to conduct incisive analysis to support oversight, improve decision-making by federal program managers, and foster innovation by making more federal data available to the public. This oversight will include, but not be limited to, the detection and prevention of fraud, waste and abuse as well as analysis of improper payments and overlap, duplication, and fragmentation across federal programs. For example, we plan to leverage open data as part of our piloting of data analytic technologies, which include (1) data mining for improper payments analysis; (2) link analysis for fraud identification and mitigation; (3) document clustering and text mining for overlap and duplication analysis; and (4) network analysis for program coordination assessment, among other potential endeavors.

Results of Our Audit of the U.S. Government’s Consolidated Financial Statements for Fiscal Years 2013 and 2012

As in prior years, the federal government was unable to demonstrate the reliability of significant portions of its accrual-based consolidated financial statements for fiscal years 2013 and 2012, principally resulting from limitations related to certain material weaknesses in internal control over financial reporting. For example, about 33 percent of the federal government’s reported total assets as of September 30, 2013, and approximately 16 percent of the federal government’s reported net cost for fiscal year 2013 relate to DOD, which received a disclaimer of opinion on its consolidated financial statements. As a result, we were unable to provide an opinion on the accrual-based consolidated financial statements of the U.S. government. Further, significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth reflected in the 2013, 2012, 2011, and 2010 Statements of Social Insurance, prevented us from expressing opinions on those statements,Social Insurance Amounts. as well as on the 2013 and 2012 Statements of Changes in It is important to note, however, that since the enactment of key financial management reforms in the 1990s, significant progress has been made in improving financial management activities and practices. For fiscal year 2013, almost all of the 24 Chief Financial Officers (CFO) Act agencies received unmodified (“clean”) audit opinions on their respective entities’ financial statements, up from 6 CFO Act agencies for fiscal year 1996. Also, for the first time, the Department of Homeland Security was able to obtain an unmodified audit opinion on all of its financial statements—a significant achievement.

Addressing Impediments to an Opinion on the Accrual-Based Consolidated Financial Statements

Three major impediments continued to prevent us from expressing an opinion on the U.S. government’s accrual-based consolidated financial statements: (1) serious financial management problems at DOD that have prevented its financial statements from being auditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.

Improving Financial Management at DOD

Having sound financial management practices and reliable, timely financial information is important to ensure accountability over DOD’s extensive resources to efficiently and economically manage the department’s assets, budgets, mission, and operations. Accomplishing this goal is a significant challenge given the worldwide scope of DOD’s mission and operations; the diversity, size, and culture of the organization; and its reported trillions of dollars of assets and liabilities and its hundreds of billions of dollars in annual appropriations. Given the federal government’s continuing fiscal challenges, reliable and timely financial and performance information is important to help federal managers ensure fiscal responsibility and demonstrate accountability; this is particularly true for DOD, the federal government’s largest department.

DOD continues to work toward the long-term goal of improving financial management and full financial statement auditability. The National Defense Authorization Act (NDAA) for Fiscal Year 2010 requires that DOD’s Financial Improvement and Audit Readiness (FIAR) Plan set as its goal that the department’s financial statements be validated as ready for audit by September 30, 2017. In addition, the NDAA for Fiscal Year 2013 required that the FIAR Plan also describe specific actions to be taken, and their associated costs, to ensure that DOD’s Statement of Budgetary Resources (SBR) would be validated as ready for audit by September 30, 2014.

DOD’s current FIAR strategy and methodology focus on two priorities— budgetary information and asset accountability—with an overall goal of preparing auditable department-wide financial statements by September 30, 2017. Based on difficulties encountered in auditing the SBR of the U.S. Marine Corps, DOD made a significant change to its FIAR Guidance that will limit the scope of the first-year SBR audits for all DOD components. As outlined in the November 2014 FIAR Plan Status Report and the November 2013 revised FIAR Guidance, the scope of the SBR audits, beginning in fiscal year 2015, will be on budget activity only related to the current year appropriations as reflected in a Schedule of Budgetary Activity (SBA), an interim step toward achieving the audit of multiple-year budgetary activity and expenditures required for a full audit of the SBR. The most current FIAR Plan acknowledges that DOD did not achieve the above noted requirement for the SBR to be validated as ready for audit by September 30, 2014.

The military departments and other defense agencies asserted audit readiness for their SBAs on September 30, 2014, and plan to start their first-year SBA audits during fiscal year 2015. Even though DOD components are moving forward with SBA audits, our work has shown that DOD components are asserting audit readiness without fully implementing the FIAR Guidance. For example, prior to asserting audit readiness, the Defense Finance and Accounting Service did not fully implement the FIAR Guidance in the areas of planning, testing, and corrective actions for processing payments to contractors. Also, the Army did not ensure that all budgetary processes, systems, and risks were adequately considered and identified as required by the FIAR Guidance For example, the Army did not adequately identify for audit readiness.significant activity attributable to its service provider business processes and systems. Also, the Army’s documentation and assessment of controls were not always complete or accurate.

To meet its audit readiness goal of June 30, 2016, for asset accountability, DOD is also continuing to implement plans that focus on the existence and completeness of mission-critical assets to (1) ensure accurate quantity and location information, and (2) support valuation activities. However, with regards to meeting its goal of full auditability by September 30, 2017, the department has not fully developed a strategy for consolidating individual component financial statements into department-wide financial statements.

The effects of DOD’s financial management problems extend beyond financial reporting. Long-standing control deficiencies adversely affect the economy, efficiency, and effectiveness of its operations. As we have previously reported, DOD’s financial management problems have contributed to (1) inconsistent and sometimes unreliable reports to Congress on estimated weapon system operating and support costs, limiting the visibility needed for effective oversight of the weapon system programs; and (2) continuing reports of Antideficiency Act violations— 75 such violations reported from fiscal year 2007 through fiscal year 2012, totaling nearly $1.1 billion—which emphasize DOD’s inability to ensure that obligations and expenditures are properly recorded and do not exceed statutory levels of control.

With improvements to its financial management processes, DOD would be better able to provide its management and Congress with reliable, useful, and timely information on the results of its business operations. Effectively implementing needed improvements, however, continues to be a difficult task. While DOD has made efforts to improve its financial management, we have reported over the past few years significant internal control, financial management, and systems deficiencies including the following:

Fundamental deficiencies in DOD funds control significantly impair its ability to properly use resources, produce reliable financial reports on the results of operations, and meet its audit readiness goals.

Risk management policies and procedures associated with preparing auditable financial statements through the FIAR Plan were not in accordance with widely recognized guiding principles for effective risk management.

The effective implementation of DOD’s planned Enterprise Resource Planning (ERP) systems is considered by DOD to be critical to the success of all of its planned long-term financial improvement efforts; however, as we have previously reported, DOD continues to encounter difficulties in implementing its planned ERP systems on schedule and within budget, and experiences significant operational problems such as deficiencies in data accuracy, inability to generate auditable financial reports, and the need for manual workarounds.

We have made numerous recommendations to DOD to address these financial management issues. We are encouraged by DOD’s sustained commitment to improving financial management and achieving audit readiness, but several DOD business operations, including financial management, remain on our list of high-risk programs. DOD has financial management improvement efforts under way and is monitoring progress against milestones; however, we have found that DOD and its components have emphasized the assertion of audit readiness by milestone dates over the implementation of effective underlying processes, systems, and controls. While establishing milestones is important for measuring progress, DOD should not lose sight of the ultimate goal—implementing lasting financial management reform to help ensure that it has the systems, processes, and personnel to routinely generate reliable financial management and other information critical to decision-making and effective operations for achieving its missions. Continued congressional oversight of DOD’s financial management improvement efforts will be critical to helping ensure DOD achieves its financial management improvement and audit readiness goals. To assist Congress in its oversight efforts, we will continue to monitor DOD’s progress and provide feedback on the status of its improvement efforts.

Reconciling Intragovernmental Activity and Balances

In fiscal year 2013, despite significant progress, the federal government continued to be unable to adequately account for and reconcile intragovernmental activity and balances between federal entities. 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.

In fiscal year 2013, Treasury continued to actively work with federal entities to resolve intragovernmental differences. For example, Treasury expanded its quarterly scorecard process to include all 35 significant component entities, highlighting differences requiring the entities’ attention and encouraging the use of the dispute resolution process.a result of these and other actions, a significant number of intragovernmental differences were 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 CFOs included differing accounting methodologies, accounting errors, and timing differences. In addition, the auditor for DOD reported that DOD, which contributes significantly to the unreconciled amounts, could not accurately identify most of its intragovernmental transactions by customer, and was unable to reconcile most intragovernmental transactions with trading partners, which resulted in adjustments that cannot be fully supported.

Additionally, for fiscal year 2013, there continued to be unreconciled transactions between the General Fund of the U.S. Government (General Fund) and federal entity trading partners related to appropriations and other intragovernmental transactions, which amounted to hundreds of billions of dollars. because only some of the General Fund is reported in Treasury’s department-level financial statements. For example, these financial statements include various General Fund-related assets and liabilities that Treasury manages on behalf of the federal government (e.g., federal debt and cash held by Treasury), but do not include certain other activities such as receipts and disbursements related to other federal agencies. As a result of these circumstances, the federal government’s ability to determine the impact of these differences on the amounts reported in the accrual-based consolidated financial statements is significantly impaired. In fiscal year 2013, Treasury continued to establish processes to account for and report General Fund activity and balances, such as providing entities information to assist them in complying with the proper use of the General Fund as a trading partner.

The General Fund is a central reporting entity that tracks core activities fundamental to funding the federal government (e.g., issued budget authority, operating cash, and debt financing activities).

Over the years, we have made several recommendations to Treasury to address these issues. Treasury has taken or plans to take actions to address these recommendations.

Preparing the Consolidated Financial Statements

Treasury, in coordination with OMB, implemented corrective actions during fiscal year 2013 to address certain internal control deficiencies detailed in our previously issued reports regarding the process for preparing the consolidated financial statements. These include further developing and beginning to implement a methodology to reconcile certain outlays and receipts between Treasury’s records and underlying federal entity financial information and records. Nevertheless, the federal government continued to have inadequate systems, controls, and procedures to ensure that the consolidated financial statements are consistent with the underlying audited entity financial statements, properly balanced, and in accordance with U.S. generally accepted accounting principles (U.S. GAAP). For example, Treasury was unable to properly balance the accrual-based consolidated financial statements. To make the fiscal years 2013 and 2012 consolidated financial statements balance, Treasury recorded a net decrease of $9.0 billion and a net increase of $20.2 billion, respectively, to net operating cost on the Statements of Operations and Changes in Net Position, which were identified as “Unmatched transactions and balances.” Treasury recorded an additional net $5.9 billion and $1.8 billion of unmatched transactions in the Statement of Net Cost for fiscal years 2013 and 2012, respectively.

Over the years, we have made numerous recommendations to Treasury to address these issues. Most recently, in June 2014, we recommended that Treasury, working in coordination with OMB, include all key elements for preparing well-defined corrective action plans from 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, in Treasury’s and OMB’s corrective action plans. Treasury has taken or plans to take actions to address these recommendations.

Long-Term Federal Fiscal Challenges

The 2013 Financial Report includes comprehensive long-term fiscal projections for the U.S. government that, consistent with our recent simulations, show that while the near-term outlook has improved—absent policy changes—the federal government continues to face an unsustainable long-term fiscal path. Such reporting provides a much needed perspective on the federal government’s long-term fiscal position and outlook. The projections included in the Financial Report and our simulations both underscore the need to take action soon to address the long-term path to avoid larger policy changes in the future that could be disruptive to individuals and the economy, while also taking into account concerns about near-term economic growth.

In the near term, deficits are expected to continue to decline from the recent historic highs as the economy further recovers and actions taken by Congress and the President continue to take effect. Treasury recently reported that the deficit for fiscal year 2014 was the lowest as a share of the economy since 2007. Both the projections in the Financial Report and our long-term simulations reflect enactment of the Budget Control Act of 2011 (BCA), which established discretionary spending limits through Under these limits, discretionary spending will continue fiscal year 2021. to decline as a share of the economy and in fiscal year 2021 will be lower than any level seen in the past 50 years. At the same time, revenues are projected to rise in the near-term as the economy continues to recover.

The Budget Control Act of 2011, Pub. L. No. 112-25, § 302, 125 Stat. 240, 256-59 (Aug. 2, 2011). The BCA amended the Balanced Budget and Emergency Deficit Control Act (BBEDCA), classified, as amended, at 2 U.S.C. § 901a. Our Spring 2014 simulations also incorporate the effects of the Bipartisan Budget Act of 2013, which further amended BBEDCA to establish higher limits on discretionary appropriations for fiscal years 2014 and 2015 and to extend sequestration for direct spending programs, as well as making other changes to direct spending and revenue. In all, the BBEDCA, as amended through December 2013, reduced deficits over the next 10 years in our Baseline Extended simulation but did not significantly change the long-term federal budget outlook. Our updated simulations for 2015 will incorporate the effects of more recently enacted amendments to the BBEDCA.

Debt held by the public as a share of gross domestic product (GDP), however, remains well above historical averages. Debt held by the public at these high levels could limit the federal government’s flexibility to address emerging issues and unforeseen challenges such as another economic downturn or large-scale natural disaster. Further, even with BCA and other actions taken, the U.S. government continues to face a significant long term structural imbalance between revenues and spending. This imbalance, which is driven on the spending side largely by the aging of the population and rising health care costs, will cause debt held by the public to rise continuously in coming decades. Changing this path will not be easy, and it will likely require difficult decisions affecting both federal spending and revenue. However, as both the projections in the Financial Report and our long-term simulations show, delaying action only increases the size of actions eventually needed.

Our past work has also identified a variety of fiscal exposures— responsibilities, programs, and activities that explicitly or implicitly expose Fiscal exposures vary widely the federal government to future spending.as to source, extent of the U.S. government’s legal commitment, and magnitude. Over the past decade, some fiscal exposures have grown due to events and trends and the U.S. government’s response to them. Increased attention to these fiscal exposures will be important for understanding risks to the federal fiscal outlook and enhancing oversight over federal resources.

In conclusion, to operate as effectively and efficiently as possible, and to address persistent government-wide challenges that exacerbate the federal government’s fiscal challenges, Congress, the administration, federal managers, the public and the accountability community must have ready access to consistent, reliable and complete financial data. When fully and effectively implemented, the DATA Act will improve the accountability and transparency of federal spending data (1) by establishing government-wide financial data standards so that data are comparable across agencies and (2) by holding federal agencies more accountable for the quality of the information disclosed. Such increased transparency provides opportunities for improving the efficiency and effectiveness of federal spending; increasing the accessibility of data to benefit the public and the business community; and improving oversight to prevent and detect fraud, waste, and abuse of federal funds.

While the process to implement the DATA Act has begun, more work remains. We are committed to being a continuing presence to monitor Treasury’s, OMB’s, and agencies’ progress as data standards are developed and implemented, and to work with Inspectors General to ensure an effective audit process is in place to help ensure data quality.

Chairman Issa, Ranking Member Cummings, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer questions.

GAO Contacts

For further information regarding this testimony, please contact J. Christopher Mihm, Managing Director, Strategic Issues at (202) 512-6806 or Gary Engel, Director, Financial Management and Assurance at (202) 512-3406.

Staff Acknowledgement

In addition to the contact names above, key contributions to this testimony were made by Nabajyoti Barkakati, Kathleen M. Drennan, Joah Iannotta, Thomas J. McCabe, Timothy Persons, James Sweetman, Jr., and staff on our Consolidated Financial Statement audit team.

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