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

Letter

Scope and Methodology

As part of our audit of the fiscal years 2006 and 2005 CFS, we evaluated the federal government’s financial reporting procedures and related internal control, and we followed up on the status of Treasury and OMB corrective actions to address open recommendations regarding the process for preparing the CFS that were in our prior years’ reports. In our disclaimer of opinion on the fiscal year 2006 CFS, which is included in the fiscal year 2006 Financial Report of the United States Government, we discussed material deficiencies related to the federal government’s process for preparing the CFS. These material deficiencies contributed to our disclaimer of opinion on the CFS and also constitute material weaknesses in internal control, which contributed to our adverse opinion on internal control. We performed sufficient audit procedures to provide the disclaimer of opinion in accordance with U.S. generally accepted government auditing standards. This report provides the details of the weaknesses we identified in performing our fiscal year 2006 audit procedures related to the process for preparing the CFS and our recommendations to correct those weaknesses, as well as the status of corrective actions taken by Treasury and OMB to address recommendations in our prior reports.

We requested comments on a draft of this report from the Director of OMB and the Secretary of the Treasury or their designees. OMB provided oral comments, which are discussed in the Agency Comments and Our Evaluation section of this report. Treasury’s comments are reprinted in appendix II and are also discussed in the Agency Comments and Our Evaluation section.

Reconciling and Reporting Undistributed Offsetting Receipts (Component of the Budget Deficit)

The federal government reports a unified budget deficit (budget deficit) in the Reconciliation of Net Operating Cost and the Unified Budget Deficit and in the Statement of Changes in Cash Balance from Unified Budget and Other Activities. The budget deficit is calculated by subtracting actual budget outlays from actual budget receipts. Budget outlays consist of federal agencies’ outlay amounts and undistributed offsetting receipts.

For several years, we have been reporting material unreconciled differences between the total net outlays reported in selected federal agencies’ Statements of Budgetary Resources (SBR) and Treasury’s central accounting records used to compute the budget deficit reported in the CFS. OMB and Treasury have been working with federal agencies to reduce these material unreconciled differences. Such efforts have resulted in significantly reducing the net outlay differences in fiscal year 2006. However, billions of dollars of differences still exist in this and other components of the budget deficit because the federal government does not have effective processes and procedures for identifying and either resolving or explaining material differences in the components of the budget deficit between Treasury’s central accounting records and information reported in agency financial statements and underlying agency financial information and records. For example, during our audit of the 2006 CFS, we found that undistributed offsetting receipts related to two intragovernmental activities: both (1) federal employers’ contributions to their employees’ retirement and (2) interest received by federal trust funds did not always link to related amounts reported in federal agencies’ financial statements. For fiscal year 2006, Treasury’s central accounting records used to compute the budget deficit reported in the CFS showed (1) undistributed offsetting receipts for federal employers’ contributions to their employees’ retirement of $60.9 billion and (2) $169.3 billion of interest received by certain federal agencies’ trust funds on Treasury’s borrowings from the trust funds. These activities, which totaled $230.2 billion, were material components of the budget deficit.

We compared components of undistributed offsetting receipts reflected in Treasury’s central accounting records of about $54.7 billion, or about 24 percent of the $230.2 billion balance, to amounts reported in certain federal agency financial statement information and found differences. However, neither Treasury nor the respective federal agencies had identified that differences existed. In addition, we were not able to link the remainder of these undistributed offsetting receipts, $175.5 billion, to related information in other federal agencies’ financial statements because the information was not separately disclosed in such statements. Neither OMB nor Treasury was able to explain how undistributed offsetting receipts reflected in Treasury’s central accounting records linked to related amounts reported in federal agency financial statements.

Consolidated financial statements are intended to present the results of operations and financial position of the components that make up a reporting entity as if the entity were a single enterprise. When preparing consolidated financial statements, the preparer must eliminate intragovernmental activity and balances between federal agencies. For fiscal year 2006, we found that Treasury was unable to demonstrate that it fully eliminated amounts related to intragovernmental interest from the reported budget deficit. As noted above, for fiscal year 2006, Treasury’s central accounting records reflected $169.3 billion of intragovernmental interest received by certain federal agencies’ trust funds. Treasury’s central accounting records also reflected outlays by Treasury to such trust funds for intragovernmental interest of $187.4 billion. Treasury was unable to provide support to demonstrate where and how the $18.1 billion difference between these two intragovernmental amounts was eliminated in the calculation of the budget deficit. Until these types of differences are timely reconciled by the federal government, their effect on the CFS will be unknown.

Recommendations for Executive Action

We recommend that the Director of OMB and Secretary of the Treasury direct the Controller of the Office of Federal Financial Management and Fiscal Assistant Secretary, respectively, to develop formal processes and procedures for identifying and either resolving or explaining any material differences in undistributed offsetting receipt amounts between Treasury’s central accounting records and information reported in agency financial statements and underlying agency financial information and records.

We also recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to develop formal processes and procedures for ensuring that intragovernmental activity and balances, including intragovernmental interest, are fully eliminated in the calculation of the budget deficit.

Directly Linking Audited Federal Agencies’ Financial Statements to the CFS

As discussed in our report on our audit of the fiscal year 2006 CFS, fiscal year 2006 was the third year that Treasury used the Governmentwide Financial Report System (GFRS) to collect agency financial statement information taken directly from federal agencies’ audited financial statements. The goal of GFRS, which we strongly support, is to be able to directly link information from federal agencies’ audited financial statements to amounts reported in the CFS and resolve many of the weaknesses we previously identified in the process for preparing the CFS. However, GFRS was still undergoing development and was not yet fully operational.

As we have reported in the past, Treasury’s process for compiling the CFS does not yet fully ensure that financial information from federal agencies’ audited financial statements and other financial data directly link to amounts reported in the CFS. In our report on our audit of the fiscal year 2006 CFS, we noted that Treasury showed progress by demonstrating that amounts in the SOSI were consistent with the underlying federal agencies’ audited financial statements and that the Balance Sheet and the Statement of Net Cost were consistent with federal agencies’ audited financial statements prior to eliminating intragovernmental activity and balances. However, Treasury’s process for compiling the CFS did not ensure that the information in the remaining three principal financial statements and notes was consistent with the underlying information in federal agencies’ audited financial statements and other financial data.

We reaffirm the recommendation in our prior report that as Treasury continues to design and further implement its process for compiling the CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to modify Treasury’s closing package to (1) require federal agencies to directly link their audited financial statement notes to the CFS notes and (2) provide the necessary information to demonstrate that all of the six principal consolidated financial statements are consistent with the underlying information in federal agencies’ audited financial statements and other financial data.

Reporting Unexpended Budget Balances

Treasury lacked effective processes and procedures for ensuring that unexpended balances of budget authority (unexpended budget balances) are properly reported in the supplemental information section of the CFS.

Instead of obtaining federal agencies’ unobligated and obligated amounts through the closing packages, Treasury reported estimated amounts for unobligated and obligated balances (which comprise the unexpended budget balances). Specifically, in the supplemental information section of the fiscal year 2006 CFS, Treasury noted that because the President’s Budget with fiscal year 2006 actual amounts would not be published until February 2007, it used the estimated fiscal year 2006 amounts from the previous fiscal year’s President’s Budget, which was issued in February 2006, to report unobligated and obligated budget balances for fiscal year 2006. Subsequent to our fiscal year 2006 CFS audit, we compared the fiscal year 2006 unobligated and obligated budget balances reported in the fiscal year 2006 CFS to the fiscal year 2006 actual amounts reported in the President’s Budget, issued in February 2007, and noted a material difference. Specifically, for fiscal year 2006, we identified an absolute difference of $118.4 billion—an $82.2 billion understatement in unobligated balances and a $36.2 billion overstatement in obligated balances—between the estimated amounts reported by Treasury and the actual amounts reported in the President’s Budget. Actual amounts reported in the President’s Budget are compiled from amounts reported in agencies’ SF-133s. The SBR is an agencywide report, which aggregates account-level information reported in the SF-133. Agency auditors have also reported internal control issues regarding differences and the lack of effective reconciliation between the unexpended budget balances reported in agencies’ financial statements and amounts reported in agencies’ SF- 133s. To address these reporting issues, OMB recently issued requirements for agencies to reconcile these amounts quarterly. Until agencies fully implement corrective actions to resolve internal control issues regarding the reliability of recorded and reported budgetary information, and Treasury develops effective processes and procedures for obtaining federal agencies’ obligated and unobligated amounts to assist Treasury in reporting unexpended budget balances in the supplemental information section of the CFS, the effect on the CFS will be unknown.

Recommendations for Executive Action

We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB’s Office of Federal Financial Management, to develop processes and procedures for collecting all the necessary information that would enable the proper reporting of unexpended budget balances in the CFS.

We also recommend that the Director of OMB direct the Controller of OMB’s Office of Federal Financial Management to continue to work with federal agencies to resolve internal control issues regarding differences and the lack of effective reconciliation between the unexpended budget balances reported in agencies’ financial statements and amounts reported in agencies’ SF-133s.

Reporting Operating Cash

In the U.S. government’s Statement of Changes in Cash Balance from Unified Budget and Other Activities for the Years Ended September 30, 2006 and 2005, the amounts reported as “Operating Cash” agreed to the amounts reported in the notes to Treasury’s consolidated agency financial statements as “Operating Cash of the Federal Government.” However, other federal agencies reported additional unrestricted cash balances totaling $13.2 billion and $10.5 billion for fiscal years 2006 and 2005, respectively. Treasury could not provide us with an adequate explanation of the rationale for excluding these amounts from the CFS “Operating Cash” balance.

For example, in fiscal year 2006, the Pension Benefit Guaranty Corporation (PBGC) reported $8.5 billion in cash on hand, demand deposits, and cash equivalents with 1-day maturities in its Balance Sheet and as “Cash and cash equivalents” in its Statement of Cash Flows. PBGC prepares its financial statements in accordance with accounting principles promulgated by the Financial Accounting Standards Board (FASB).

Accordingly, “Cash and cash equivalents” could be considered and would conform to the definition of “Operating Cash” for purposes of preparing the CFS.

Recommendation for Executive Action

We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to develop and implement processes and procedures for identifying and either resolving or explaining the differences that exist between operating cash reported in certain federal agencies’ financial statements and the operating cash balance reported in the CFS.

Reporting and Disclosing Legal Contingencies

The Department of Justice (Justice) is charged with, among other things, the supervision of litigation to which the U.S. government is a party and providing advice and opinions to the President and heads of executive departments when requested. The Accounting and Auditing Policy Committee (AAPC) guidance (Technical Release No. 1, Audit Legal Letter Guidance) clarifies FASAB Interpretation No. 2, Accounting for Treasury Judgment Fund Transactions, with respect to Justice’s role related to legal letters in cases in which Justice’s attorneys are handling legal matters on behalf of other federal reporting entities. This guidance states that a federal entity’s management, its legal counsel, or the auditor may consult with Justice as well as other outside legal counsel to ensure completeness and accuracy of the entity’s financial statements’ presentation of matters related to litigation, claims, and assessments. Such consultation may include requesting a list of pending litigation, claims, and assessments from Justice or other outside legal counsel or discussion of specific cases.

In the governmentwide legal representation letter, Justice represented to us that it provided us with an assessment for individual cases in which the potential for loss exceeded $500 million individually and $1 billion in the aggregate. The legal representation letter was limited to matters with which Justice had been engaged and to which Justice had devoted substantial attention on behalf of the U.S. government. In addition, we were provided legal representation letters for the 35 federal agencies that Treasury and OMB deemed significant to the CFS. However, the federal government was unable to provide us with sufficient evidence to determine that cases below the $500 million individual case threshold were (1) considered by the agencies’ legal counsels and, where appropriate, included in their legal representation letters and (2) in the aggregate, not material to the CFS. Until the federal government implements effective processes and procedures to ensure that all appropriate litigation and claims are included in the governmentwide legal representation letter and are appropriately considered for potential financial reporting, the adequacy of reporting and disclosing legal contingencies in the CFS will be unknown and the potential effect of these litigation claims on the financial condition of the federal government will likewise be unclear.

Recommendation for Executive Action

We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB’s Office of Federal Financial Management, to establish effective processes and procedures to ensure that appropriate information regarding litigation and claims is included in the governmentwide legal representation letter.

Reconciling Intragovernmental Activity and Balances

The federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies has been a long-standing problem and major impediment to us being able to render an opinion on the CFS. Resolving this difficult challenge will require, among other things, strong leadership and oversight by Treasury and OMB.

Treasury and OMB require federal agencies to reconcile selected intragovernmental activity and balances with their “trading partners” and report the extent and results of the reconciliation efforts to Treasury. However, in our view, federal agencies have not provided Treasury and OMB with sufficient information to enable them to adequately oversee and monitor agencies’ efforts to reconcile intragovernmental activity and balances with their trading partners. Specifically, for fiscal year 2006, we found that federal agencies did not provide Treasury and OMB with (1) detailed information regarding the nature and description of the differences that exist between trading partners’ records of intragovernmental activity and balances, (2) detailed reasons why such differences exist, (3) steps being taken to work with the agencies’ trading partners to resolve the differences, and (4) the potential outcome of such steps.

Recommendation for Executive Action

We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB’s Office of Federal Financial Management, to develop a process for obtaining sufficient information from federal agencies to enable Treasury and OMB to adequately monitor agencies’ efforts to reconcile intragovernmental activity and balances with their trading partners. This information should include (1) the nature and a detailed description of the significant differences that exist between trading partners’ records of intragovernmental activity and balances, (2) detailed reasons why such differences exist, (3) details of steps taken or being taken to work with the agencies’ trading partners to resolve the differences, and (4) the potential outcome of such steps.

Preparing and Auditing Certain Information in Federal Agencies’ Closing Packages

OMB Bulletin No. 06-03, Audit Requirements for Federal Financial Statements, and the Treasury Financial Manual provide guidance to agencies for preparing and auditing their closing packages. As part of the closing package process, agencies are required to reclassify certain of their audited financial statement line items to the appropriate CFS line items and enter certain of their financial statement notes and other requested data into GFRS. The 35 federal agencies that Treasury and OMB determined to be significant to the CFS are required to have their closing packages audited and audit reports issued on such packages. However, auditors for several of these agencies did not perform the required audit procedures on certain information in the footnotes to the respective agencies’ closing packages, including intragovernmental trading partner data, stewardship land information, and heritage assets information. In addition, one of the significant agencies did not provide in its closing package the required cost allocation information used by Treasury in preparing the consolidated Statement of Net Cost. As a result, Treasury’s ability to prepare and our ability to audit the CFS were impaired.

Recommendations for Executive Action

We recommend that the Director of OMB direct the Controller of the Office of Federal Financial Management, in coordination with the Treasury Fiscal Assistant Secretary, to establish additional procedures to ensure that agencies prepare their closing packages and have them audited in accordance with the requirements specified in the closing package instructions.

We also recommend that the Director of OMB direct the Controller of the Office of Federal Financial Management to work with the significant agency that did not provide in its closing package the required information that Treasury uses to allocate costs in the consolidated Statement of Net Cost to ensure that such information is reported by the agency in future years.

Conformity with GAAP

As we have reported in previous years, and noted during our fiscal year 2006 audit, Treasury lacks an adequate process to ensure that the financial statements, related notes, stewardship information, and supplemental information in the CFS are presented in conformity with GAAP. In our prior report, we recommended that the Secretary of the Treasury direct the Fiscal Assistant Secretary to establish a formal process that will cause the financial statements, related notes, stewardship information, and supplemental information in the CFS to be presented in conformity with GAAP in all material respects. The process should timely identify GAAP requirements; make timely modifications to Treasury’s closing package requirements to assess, qualitatively and quantitatively, the impact of any omitted document decisions reached and the rationale for such decisions.

FASAB issued SFFAS No. 32 on September 28, 2006, which was effective for periods after September 30, 2005. This standard eliminated or lessened the disclosure requirements for the CFS related to certain information that Treasury had not been reporting. As a direct result of the requirements in SFFAS No. 32, 53 of the 76 disclosure-related recommendations from our previous reports were closed during fiscal year 2006.

However, there continued to be other disclosures required by GAAP that are not disclosed in the CFS. Specifically, 13 of our disclosure-related recommendations from previous years’ audits have not yet been implemented by Treasury. In addition, during our fiscal year 2006 audit of the CFS, we identified an additional disclosure required by applicable standards related to including consolidated totals in the consolidated SOSI. Further, while there is no specific GAAP requirement to disclose foreign currencies in the CFS, we believe Treasury should separately disclose the balance of foreign currencies held at fiscal year end in the cash footnote to the CFS.

Consolidated Statement of Social Insurance

Beginning in fiscal year 2006, the SOSI became a principal financial statement. However, in our view, the fiscal year 2006 consolidated SOSI was not fully presented in conformity with GAAP. Specifically, for each social insurance program included in the consolidated SOSI, Treasury presented the “excess of the present value of future expenditures less future revenues.” However, the fiscal year 2006 consolidated SOSI did not include a consolidated total for all of such programs.

Paragraph 32 (3) of SFFAS No. 17, Accounting for Social Insurance, as amended by SFFAS No. 25, Reclassification of Stewardship Responsibilities and Eliminating the Current Services Assessment, requires a statement combining the entity statements for all programs, except Unemployment Insurance, including data for the current year and separate estimates for each of the 4 preceding years. In addition, the pro forma illustrations of the SOSI shown in Appendix B of SFFAS No. 17 and in OMB Circular No. A-136, Financial Reporting Requirements, include a total of the “excess of actuarial present values of future benefit payments over future contributions and tax income” summarized and consolidated in accordance with paragraph 32. Further, each of the applicable component entities’ respective SOSI included a total of the excess of actuarial present values of future benefit payments over future contributions and tax income. Finally, Treasury reported the consolidated total of the excess of the present value of future expenditures less future revenues for the social insurance programs in the Management’s Discussion and Analysis section of the CFS.

According to Treasury, a consolidated total was not presented on the consolidated SOSI because the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs have different valuation dates, projection periods, and discount rates. However, our audit work found that (1) the most significant social insurance programs (Social Security and Medicare) have the same valuation dates and projection periods and (2) the key elements used in the projections for the social insurance programs were either displayed in the footnotes of the consolidated SOSI or disclosed in the notes to the CFS. The existence of differences among certain social insurance programs in the elements used in the projections is not, in our view, a relevant factor in deciding whether to present a consolidated total, especially since the elements are disclosed. In addition, we believe that including a consolidated total in the statement provides increased transparency.

Cash and Other Monetary Assets

While there is no specific GAAP requirement to disclose foreign currencies in the CFS, we believe that the balance of foreign currencies held at fiscal year end should be separately disclosed in the cash footnote to the CFS. In this regard, OMB Circular No. A-136 requires the disclosure of foreign currencies, including the balance of foreign currencies held at fiscal year end, in the notes to federal agencies’ financial statements. For fiscal year 2006, we found that the Cash and Other Monetary Assets note included a disclosure that international monetary assets included official reserves of foreign currency. However, the balance of such foreign currency was not disclosed. OMB Circular No. A-136 requirements do not specifically apply to the CFS. However, we believe that the balance of foreign currency holdings as of the fiscal year end should be disclosed in the CFS since (1) OMB has deemed this a necessary disclosure at the agency level; (2) foreign currencies constituted about $11.7 billion, or 12 percent, of the reported fiscal year 2006 Cash and Other Monetary Assets in the CFS; (3) foreign currency information was readily available as certain federal agencies, including Treasury, disclosed foreign currencies in the notes to their respective financial statements; and (4) disclosing the dollar amount of the foreign currencies provides increased transparency.

Recommendations for Executive Action

We reaffirm our prior recommendation regarding the establishment of a formal process that will cause the financial statements, related notes, stewardship information, and supplemental information in the CFS to be presented in conformity with GAAP in all material respects. In addition, we recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to establish procedures to ensure that the CFS include required consolidated totals in the SOSI or document the specific rationale for excluding such disclosure.

We also recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to disclose the balance of foreign currencies held at fiscal year end in the Cash and Other Monetary Assets footnote to the CFS.

Agency Comments and Our Evaluation

OMB Comments

In oral comments on a draft of this report, OMB stated that it generally agreed with the new findings and related recommendations in this report. In addition, OMB provided some technical comments, which we have incorporated as appropriate.

Treasury Comments

In written comments on a draft of this report, which are reprinted in appendix II, Treasury stated that it concurs with the new findings and related recommendations with the exception of the nonconformity with GAAP finding and recommendation related to reporting a consolidated total in the consolidated SOSI. Treasury also stated that it concurs with GAO that the preparation process should continually be improved, and will continue to work with GAO on CFS matters where improvements need to be made.

With respect to the SOSI GAAP finding, Treasury stated that it does not believe that GAAP requires the reporting of a consolidated total in the consolidated SOSI. In addition, Treasury noted that because of differences in key assumptions and other criteria used in preparing the different sections of the SOSI, it does not believe that a consolidated total is especially meaningful.

We do not agree with Treasury on these matters. As stated earlier in the report, in our view, the consolidated SOSI was not fully presented in conformity with GAAP because it did not include a consolidated total for all the social insurance programs. In the body of the report, we noted that (1) the most significant social insurance programs (Social Security and Medicare) have the same valuation dates and projection periods, and (2) the key elements used in the projections for the social insurance programs were either displayed in the footnotes of the consolidated SOSI or disclosed in the notes to the CFS. We also noted that the existence of differences among certain social insurance programs in the elements used in the projections is not, in our view, a relevant factor in deciding whether to present a consolidated total, especially since the elements are disclosed. The consolidated SOSI is one of the principal financial statements included in the CFS and represents an important source for the consolidated information on federal social insurance programs. As such, we believe that including a total on the consolidated SOSI, as was included in the Management’s Discussion and Analysis section of the CFS, is both necessary to provide increased transparency and is meaningful to the users of the CFS. Treasury also provided technical comments, which we have incorporated as appropriate.

This report contains recommendations to the Secretary of the Treasury and the Director of OMB. The head of a federal agency is required by 31 U.S.C. § 720 to submit a written statement on actions taken on these recommendations. You should submit your statement to the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform within 60 days of the date of this report. A written statement must also be sent to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of the report.

We are sending copies of this report to the Chairmen and Ranking Members of the Senate Committee on Homeland Security and Governmental Affairs; the Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, Senate Committee on Homeland Security and Governmental Affairs; the House Committee on Oversight and Government Reform; and the Subcommittee on Government Management, Organization, and Procurement, House Committee on Oversight and Government Reform. In addition, we are sending copies to the Fiscal Assistant Secretary of the Treasury, the Deputy Director for Management of OMB, and the Controller of OMB’s Office of Federal Financial Management. Copies will be made available to others upon request. This report is also available at no charge on GAO’s Web site at http://www.gao.gov.

We acknowledge and appreciate the cooperation and assistance provided by Treasury and OMB during our audit. If you or your staff have any questions or wish to discuss this report, please contact Jeffrey C. Steinhoff, Managing Director, Financial Management and Assurance, on (202) 512-2600, or Gary T. Engel, Director, Financial Management and Assurance, on (202) 512-3406. Key contributors to this report are listed in appendix III.

Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

This appendix includes open recommendations from four of our prior reports: Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Improvement, GAO- 04-45 (Washington, D.C.: Oct. 30, 2003); Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Further Improvement, GAO-04-866 (Washington, D.C.: Sept. 10, 2004); Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Continues to Need Improvement, GAO-05-407 (Washington, D.C.: May 4, 2005); and Financial Audit: Significant Internal Control Weaknesses Remain in Preparing the Consolidated Financial Statements of the U.S. Government, GAO-06- 415 (Washington, D.C.: Apr. 21, 2006). Recommendations that were closed in prior reports are not included in this appendix. This appendix includes the status of the recommendations according to the Department of the Treasury (Treasury) and the Office of Management and Budget (OMB) as well as our own assessments. Explanations are included in the status of recommendations per GAO when Treasury and OMB disagreed with our recommendation.

Of the 143 recommendations regarding the process for preparing the consolidated financial statements of the U.S. government (CFS) that are listed in this appendix, 70 remained open as of December 1, 2006, the end of GAO’s fieldwork for the audit of the fiscal year 2006 CFS. Of the 73 recommendations that were closed, 53 were closed with the issuance of Statement of Federal Financial Accounting Standards No. 32, Consolidated Financial Report of the United States Government Requirements: Implementing Statement of Federal Financial Accounting Concepts 4 “Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government.” In fiscal year 2006, the Federal Accounting Standards Advisory Board issued this new standard, which eliminated or lessened the disclosure requirements for the CFS related to certain information that Treasury had not been reporting.

Appendix II: Comments from the Department of the Treasury

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

In addition to the above contact, the following individuals made key contributions to this report: Lynda Downing, Assistant Director; Bill Boutboul; Darryl Chang; Mina Gusukuma; Nina Marrero; Maria Morton; Paula Rascona; Katherine Schirano; and Taya Tasse.