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entitled 'Management Report: Improvements Needed in Controls over the 
Processes Used to Prepare the U.S. Consolidated Financial Statements' 
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United States Government Accountability Office: 
GAO: 

Report to Agency Officials: 

June 2014: 

Management Report: 

Improvements Needed in Controls over the Processes Used to Prepare the 
U.S. Consolidated Financial Statements: 

GAO-14-543: 

GAO Highlights: 

Highlights of GAO-14-543, a report to agency officials. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-14-543]. For more 
information, contact Gary Engel at (202) 512-3406 or engelg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Scope and Methodology: 

Control Deficiencies Identified during Our Fiscal Year 2013 Audit: 

Status of Recommendations from Prior Reports: 

Agency Comments: 

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

Appendix II: Comments from the Department of the Treasury: 

Abbreviations: 

CFS: consolidated financial statements of the U.S. government: 

FASAB: Federal Accounting Standards Advisory Board: 

GAAP: generally accepted accounting principles: 

OMB: Office of Management and Budget: 

SOP: standard operating procedure: 

SOSI: Statement of Social Insurance: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

June 19, 2014: 

The Honorable Jacob J. Lew: 
Secretary of the Treasury: 

The Honorable Brian C. Deese: 
Acting Director: 
Office of Management and Budget: 

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,[Footnote 1] we 
disclaimed an opinion on the CFS, except for the 2009 Statement of 
Social Insurance (SOSI), which received an unmodified opinion. 
[Footnote 2] Since GAO's first audit of the fiscal year 1997 CFS, 
certain material weaknesses[Footnote 3] 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.[Footnote 4] These include material weaknesses 
that relate to the federal government's processes used to prepare the 
CFS.[Footnote 5] 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.[Footnote 
6] 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.[Footnote 7] 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. 

Scope and Methodology: 

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.[Footnote 8] 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. 

Control Deficiencies Identified during Our Fiscal Year 2013 Audit: 

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.[Footnote 9] 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. 

Corrective Action Plans: 

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.[Footnote 10] 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.[Footnote 11] 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.[Footnote 12] 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. 

Recommendation for Executive Action: 

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. 

Accounting Policies: 

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. 

Recommendation for Executive Action: 

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. 

Note Disclosure Narrative: 

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. 

Recommendation for Executive Action: 

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. 

Intragovernmental Activity and Balances: 

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.[Footnote 13] 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)[Footnote 14] 
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.[Footnote 15] 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. 

Recommendations for Executive Action: 

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. 

Status of Recommendations from Prior Reports: 

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. 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. 

Agency Comments: 

OMB Comments: 

In oral comments on a draft of this report, OMB generally concurred 
with the findings and recommendations in this report. 

Treasury Comments: 

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 [hyperlink, 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. 

Signed by: 

Gary T. Engel: 
Director: 
Financial Management and Assurance: 

[End of section] 

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

GAO-04-45; (results of the fiscal year 2002 audit): 

Count: 1; 
Number: 02-4; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
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. 

Count: 2; 
Number: 02-9; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 02-4; 
Status of recommendation[A]: 
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. 

Count: 3; 
Number: 02-10; 
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; 
Status of recommendation[A]: 
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. 

Count: 4; 
Number: 02-11; 
Recommendation: 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; 
Status of recommendation[A]: 
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. 

Count: 5; 
Number: 02-22; 
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; 
Status of recommendation[A]: 
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; 
Per GAO: Open. 

Count: 6; 
Number: 02-23; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 7; 
Number: 02-24; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 8; 
Number: 02-35; 
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; 
Status of recommendation[A]: 
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. 

Count: 9; 
Number: 02-37; 
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 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); 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. Until a comprehensive analysis of major treaty and 
other international agreement information has been performed, Treasury 
and OMB are precluded from determining if additional disclosure is 
required by GAAP in the CFS, and we are precluded from determining 
whether the omitted information is material. 

Count: 10; 
Number: 02-38; 
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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 02-37; 
Per GAO: Open. See the status of recommendation No. 02-37. 

Count: 11; 
Number: 02-39; 
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 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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 02-37; 
Per GAO: Open. See the status of recommendation No. 02-37. 

Count: 12; 
Number: 02-40; 
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 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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 02-37; 
Per GAO: Open. See the status of recommendation No. 02-37. 

Count: 13; 
Number: 02-41; 
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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 02-37; 
Per GAO: Open. See the status of recommendation No. 02-37. 

Count: 14; 
Number: 02-129; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: 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. 

GAO-04-866; (results of the fiscal year 2003 audit): 

Count: 15; 
Number: 03-8; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: Treasury and OMB will assess options as to what 
methodologies or approaches to use for obtaining the additional 
information needed from the agencies; 
Per GAO: Open. 

Count: 16; 
Number: 03-9; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 03-8; 
Per GAO: Open. 

Count: 17; 
Number: 03-11; 
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; 
Status of recommendation[A]: 
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. 

GAO-05-407; (results of the fiscal year 2004 audit): 

Count: 18; 
Number: 04-3; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 19; 
Number: 04-6; 
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; 
Status of recommendation[A]: 
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. 

GAO-07-805; (results of the fiscal year 2006 audit): 

Count: 20; 
Number: 06-6; 
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 effective 
processes and procedures to ensure that appropriate information 
regarding litigation and claims is included in the government-wide 
legal representation letter; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 21; 
Number: 06-7; 
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 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; 
Status of recommendation[A]: 
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. 

GAO-08-748; (results of the fiscal year 2007 audit): 

Count: 22; 
Number: 07-9; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: See the status of recommendation No. 04-6; 
Per GAO: Open. 

Count: 23; 
Number: 07-10; 
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 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

GAO-09-387; (results of the fiscal year 2008 audit): 

Count: 24; 
Number: 08-01; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: Treasury implemented a quarterly process to 
identify and eliminate intragovernmental payroll tax amounts at the 
government-wide level; 
Per GAO: Closed. 

GAO-10-757; (results of the fiscal year 2009 audit): 

Count: 25; 
Number: 09-06; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Closed. 

GAO-12-529; (results from the fiscal year 2011 audit): 

Count: 26; 
Number: 11-01; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: OMB developed and implemented written procedures 
specifying the steps for reviewing and approving the drafts of the 
Financial Report; 
Per GAO: Closed. 

Count: 27; 
Number: 11-03; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 28; 
Number: 11-05; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Closed. 

Count: 29; 
Number: 11-08; 
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; 
Status of recommendation[A]: 
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. 

Count: 30; 
Number: 11-09; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 31; 
Number: 11-10; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

GAO-13-540; (results from the fiscal year 2012 audit): 

Count: 32; 
Number: 12-01; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 33; 
Number: 12-02; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 34; 
Number: 12-03; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: Treasury updated the SOP entitled "Prior Period 
Adjustments" to include procedures for analyzing and assessing 
restatements and reclassifications of significant federal entities; 
Per GAO: Closed. 

Count: 35; 
Number: 12-04; 
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 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; 
Status of recommendation[A]: 
Per Treasury and OMB: 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; 
Per GAO: Open. 

Count: 36; 
Number: 12-05; 
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; 
Status of recommendation[A]: 
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. 

Count: 37; 
Number: 12-06; 
Recommendation: 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; 
Status of recommendation[A]: 
Per Treasury and OMB: OMB revised OMB Circular No. A-136; 
Per GAO: Closed. 

Sources: GAO, Treasury, and OMB. 

[A] 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. 

[End of table] 

[End of section] 

Appendix II: Comments from the Department of the Treasury: 

Department of the Treasury: 
Assistant Secretary: 
Washington, DC 

June 10, 2014: 

Mr. Gary T. Engel: 
Director, Financial Management and Assurance: 
Governmental Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Engel: 

Thank you for the opportunity to comment on the Government 
Accountability Office's (GAO) draft Management Report (Report) on the 
Fiscal Year (FY) 2013 audit, GAO-14-543, Management Report, 
Improvements Needed in Controls over the Processes Used to
Prepare the U.S. Consolidated Financial Statements. 

The draft Report identifies seven new recommendations concerning the 
Financial Report of the U S. Government (Financial Report) preparation 
process. As stated in the draft report, four of these new 
recommendations replace six prior recommendations on intragovernmental 
activity and balances. The four new recommendations better align 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 actions taken by Treasury. We 
concur with these four new recommendations and are hopeful that this 
realignment will help facilitate resolution of these issues. We also
concur with the three new recommendations specific to Treasury's 
corrective action plans, accounting policies, and note disclosure 
narratives. 

We are pleased with our progress, notably the closing of 13 of the 37 
outstanding recommendations from prior years' reports in the past 
year, including the six aforementioned internal control deficiency 
recommendations. The remaining recommendations place greater emphasis 
on reconciling the intragovernmental elimination differences that 
occur with the General Fund as a trading partner, fully implementing 
an automated tool for the compilation of the Financial Report, and 
identifying and reporting all items needed to prepare the Financial
Report's budget statements. 

In FY 2014, Treasury will continue to devote significant management 
attention and staff resources to resolving material intragovernmental 
differences along with developing or improving process controls within 
Fiscal Service and the Federal agencies. For example, Treasury will 
expand the Intragovernmental Metrics Scorecard program to include 
transactions with General Fund using a phased approach during FY 2014. 
Identification and resolution of the intragovernmental elimination 
differences with the General Fund is critical to our efforts to 
resolve this long-standing material weakness. 

With respect to the compilation material weakness, in FY 2013, 
Treasury implemented Phase I of an automated tool to streamline the 
compilation process improving accuracy and control. Phase II will be 
rolled out in FY 2014 fully automating the compilation process; reducing
inherent risk attributed to manual processes, and providing an audit 
trail from the agency's Closing Package data to the published 
Financial Report. Through the implementation phase, the process and 
controls will be fully documented. Treasury will expand analysis 
performed on third quarter reporting and will collaborate with the key 
personnel at the Federal agencies to obtain their involvement in 
ensuring completeness of the Financial Report. 

Finally, Treasury will work to fully implement the Budget Deficit 
Validation process. In FY 2013, Treasury expanded the information 
requested from agencies regarding the receipts and outlays underlying 
the balances reported in the Federal agency financial statements. The
agencies were also responsible for providing explanations of, and 
support for, any differences. Treasury will develop crosswalks mapping 
the information coming from the agencies to the U.S. Central Summary 
General Ledger (CSGL) account balances and ultimately, to financial
statement lines on the Reconciliation of Net Operating Cost and 
Unified Budget Deficit. The crosswalks will reference evidential 
support required and provide explanatory notes. This crosswalk will 
aid in identifying and explaining the reporting differences between 
the accrual-based financial statements and the budget deficit 
calculation. Tying this information to the agencies' audited 
information is a critical part of the long-term resolution of the 
reconciliation and compilation challenges. 

In conclusion, we are appreciative of GAO's recommendations and 
continued support. Thank you again, for the opportunity to review and 
comment on the Report. We look forward to working with you and your 
staff as we fulfill our commitment to improve Federal financial
reporting. 

Sincerely, 

Signed by: 

Richard L. Gregg: 
Fiscal Assistant Secretary: 

cc: Mark Reger, Acting Deputy Controller, OMB. 

[End of section] 

Footnotes: 

[1] The CFS for the fiscal years ended September 30, 2013, and 2012, 
consist of the Statements of Net Cost; Statements of Operations and 
Changes in Net Position; Reconciliations of Net Operating Cost and 
Unified Budget Deficit; Statements of Changes in Cash Balance from 
Unified Budget and Other Activities; Balance Sheets; 2013, 2012, 2011, 
2010, and 2009 Statements of Social Insurance; and 2013 and 2012 
Statements of Changes in Social Insurance Amounts, including the 
related notes to these financial statements. See GAO, Financial Audit: 
U.S. Government's Fiscal Years 2013 and 2012 Consolidated Financial 
Statements, [hyperlink, http://www.gao.gov/products/GAO-14-319R] 
(Washington, D.C.: Feb. 27, 2014). 

[2] Because of significant uncertainties, primarily related to the 
achievement of projected reductions in Medicare cost growth reflected 
in the 2013, 2012, 2011, and 2010 SOSI, we were unable to, and did 
not, express opinions on the 2013, 2012, 2011, and 2010 SOSI as well 
as on the 2013 and 2012 Statements of Changes in Social Insurance 
Amounts. We were able to render an unmodified opinion on the 2009 SOSI. 

[3] A material weakness is a deficiency, or combination of 
deficiencies, in internal control, such that there is a reasonable 
possibility that a material misstatement of the entity's financial 
statements will not be prevented, or detected and corrected, on a 
timely basis. A deficiency in internal control exists when the design 
or operation of a control does not allow management or employees, in 
the normal course of performing their assigned functions, to prevent, 
or detect and correct, misstatements on a timely basis. 

[4] As used in this report, accrual-based consolidated financial 
statements refer to all of the consolidated financial statements and 
notes, except for those related to the SOSI and the Statements of 
Changes in Social Insurance Amounts. 

[5] Our February 2014 report also discussed material weaknesses and 
scope limitations that did not relate to the processes used to prepare 
the CFS but that also prevented us from expressing an opinion on the 
federal government's accrual-based consolidated financial statements. 

[6] The Government Management Reform Act of 1994 has required such 
reporting, covering the executive branch of government, beginning with 
financial statements prepared for fiscal year 1997. 31 U.S.C. § 
331(e). The federal government has elected to include certain 
financial information on the legislative and judicial branches in the 
CFS as well. 

[7] GAO, Management Report: Improvements Needed in Controls over the 
Preparation of the U.S. Consolidated Financial Statements, [hyperlink, 
http://www.gao.gov/products/GAO-13-540] (Washington, D.C.: June 28, 
2013). 

[8] [hyperlink, http://www.gao.gov/products/GAO-14-319R]. 

[9] For fiscal year 2013, OMB and Treasury identified 35 federal 
entities that are significant to the U.S. government's consolidated 
financial statements, consisting of the 24 Chief Financial Officers 
Act agencies, several other federal executive branch agencies, and 
some government corporations. 

[10] Office of Management and Budget, Implementation Guide for OMB 
Circular A-123, Management's Responsibility for Internal Control - 
Appendix A, Internal Control over Financial Reporting (Washington, 
D.C.: July 2005). 

[11] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[12] Office of Management and Budget, Management's Responsibility for 
Internal Control, OMB Circular No. A-123 (revised Dec. 21, 2004). 

[13] For each quarter, Treasury produces a scorecard for each 
significant entity that reports various aspects of the entity's 
intragovernmental differences with its trading partners, including the 
composition of the differences by trading partner and category. 
Entities are expected to resolve, with the respective trading 
partners, the differences identified in their scorecards. 

[14] 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). 

[15] The closing package methodology is intended to link federal 
entities' audited consolidated, department-level financial statements 
to certain statements of the CFS. 

[End of section] 

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