Auditing and Financial Management:

Responses to Posthearing Questions Related to GAO's Testimony on the U.S. Government's Consolidated Financial Statements for Fiscal Year 2002

GAO-03-848R: Published: Jun 16, 2003. Publicly Released: Jun 16, 2003.

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On April 8, 2003, GAO testified before the House Committee on Government Reform, Subcommittee on Government Efficiency and Financial Management at a hearing on our report on the U.S. government's consolidated financial statements for fiscal year 2002. This letter responds to questions related to our testimony from the Subcommittee's Chairman and the Ranking Minority Member and to subsequent questions from the Vice Chairman that the Chairman asked us to answer for the record.

At a meeting on April 16th, GAO agreed to compile a list of the 24 Chief Financial Officers Act agencies' core financial systems along with key data related to each system, such as whether it is a commercial off-the-shelf system. We will identify the status of agencies' plans to acquire new core financial systems and whether any mixed financial systems at the agencies are slated to be updated. The Department of Energy (DOE) is responsible for management and cleanup of environmental contamination related to the process of producing nuclear weapons. For fiscal year 1998, the DOE Inspector General's (IG) financial audit opinion stated that auditors were unable to satisfy themselves that DOE's recorded environmental liability of $186 billion was fairly stated. To ensure the reliability of future environmental liability estimates and to guide cleanup efforts, DOE developed a program based on site-developed, project-by-project forecasts of the scope, schedule, and costs to complete DOE's projects. For fiscal year 1999, the DOE IG was able to conclude that DOE's reported $231 billion environmental liability was fairly stated. The Department of Defense (DOD) is responsible for management and cleanup of very diverse types of environmental contamination. Although the types of cleanup are different, the obstacles to reliable cost estimates are similar to those faced by DOE in fiscal year 1998. The DOD IG has reported that the environmental liability figure reported in DOD's financial statements is not auditable because of problems related to insufficient guidance, lack of audit trails, use of inconsistent or unvalidated cost-estimating models, and incomplete inventories of sites. In its fiscal year 2002 performance and accountability report, DOD management included a discussion of progress being made to address material weaknesses, including environmental liabilities. DOD claims that various components of its environmental cleanup and disposal costs are now auditable. Reducing the relative future burdens of Social Security and health programs is critical to promoting a sustainable budget policy for the longer term. Absent reform, the impact of federal health and retirement programs on budget choices will be felt long before projected trust fund insolvency dates when the cash needs of these programs begin to seriously constrain overall budgetary flexibility. Early action to change these programs would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in their own planning. Unfortunately, the long-range challenge has become more difficult, and the window of opportunity to address the entitlement challenge is narrowing. For Medicare and Medicaid, the sustainability challenge has three levels--the level of the individual programs, the health care system in which they are embedded, and our long-term federal fiscal challenge. Current budget reporting is not always designed to promote the recognition and explicit consideration of the costs of some policies and programs. Specifying the estimated potential future costs associated with current decisions would improve transparency. Other entities also can promote transparency and visibility of fiscal exposures by various actions. Ultimately, the objective is for agencies to generate high-quality data and measure performance in a meaningful way to help inform decision makers during the budget process when allocating resources and determining the most efficient and effective means of achieving policy objectives. The audited financial statements present data as of a single point in time or for a specific period. However, as part of the audits, material weaknesses in internal control and inadequate financial systems are often identified.

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