Financial Audit:

Significant Internal Control Weaknesses Remain in the Preparation of the Consolidated Financial Statements of the U.S. Government

GAO-07-805: Published: Jul 23, 2007. Publicly Released: Jul 23, 2007.

Additional Materials:

Contact:

Gary T. Engel
(202) 512-8815
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

For the past 10 years, since GAO's first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2006 disclaimer of opinion on the fiscal year 2006 CFS included a discussion of continuing weaknesses related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing and new weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on 143 open recommendations related to the preparation of the CFS that GAO reported in April 2006.

GAO identified continuing and new weaknesses during its audit of the federal government's process for preparing the fiscal year 2006 CFS. Such weaknesses impair the U.S. government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. The weaknesses GAO identified during its tests of the fiscal year 2006 CFS preparation process involved the following areas: reconciling and reporting undistributed offsetting receipts (component of the budget deficit); directly linking audited federal agencies' financial statements to the CFS; reporting unexpended budget balances; reporting operating cash; reporting and disclosing legal contingencies; reconciling intragovernmental activity and balances; preparing and auditing certain information in federal agencies' closing packages; conformity with U.S. generally accepted accounting principles; and various other internal control weaknesses that were identified in previous years' audits but remained in fiscal year 2006. Of the 143 open recommendations GAO reported in April 2006 regarding the process for preparing the CFS, 70 remained open as of December 1, 2006, when GAO completed its fieldwork for the audit of the fiscal year 2006 CFS. Of the 73 recommendations that were closed, 53 were closed based on the issuance in fiscal year 2006 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." This standard eliminated or lessened the disclosure requirements for the consolidated financial statements related to certain information that the Department of the Treasury (Treasury) had not been reporting. GAO will continue to monitor the status of corrective actions to address the 11 new recommendations and the new remaining balance of 81 open recommendations during its fiscal year 2007 audit of the CFS.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Director of the Office of Management and Budget (OMB) and the Secretary of the Treasury should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: In fiscal year 2008, Treasury documented its processes and procedures for reconciling the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.

    Recommendation: The Director of the Office of Management and Budget (OMB) and the Secretary of the Treasury should 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: In fiscal year 2008, Treasury documented its processes and procedures for reconciling the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.

    Recommendation: The Secretary of the Treasury should 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: In fiscal year 2008, Treasury documented and implemented its processes and procedures for eliminating intragovernmental activities and balances, including intragovernmental interest on federal trust funds, in the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.

    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 processes and procedures for collecting all the necessary information that would enable the proper reporting of unexpended budget balances in the CFS.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: During fiscal year 2007, Treasury changed its disclosure for unexpended budget balances in the CFS by reporting the fiscal years 2006 and 2005 actual amounts rather than reporting fiscal year 2006 actual amounts and estimating the fiscal year 2007 amounts. As such, this enabled the proper reporting of unexpended budget balances in the CFS.

    Recommendation: The Director of OMB should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: During fiscal year 2007, OMB established a requirement for federal agencies to submit to OMB a quarterly reconciliation of amounts reported in agencies' SBRs to amounts reported in agencies' SF-133s. By requiring agencies to submit quarterly SBR to SF-133 reconciliations, OMB is better able to identify agencies with significant differences and work with those agencies to address underlying internal control weaknesses contributing to these deficiencies and thereby improve their financial reporting. Further, OMB improved procedures and is continuing to enhance this reconciliation process and its guidance to agencies, and is continuing to work with federal agencies to resolve internal control issues related to reporting budgetary information, including unexpended budget balances.

    Recommendation: The Secretary of the Treasury should 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: In fiscal year 2007, Treasury redesigned its approach for reporting operating cash in the Cash and Other Monetary Assets footnote to the CFS for fiscal year 2007. Specifically, Treasury clarified in the footnote disclosure that the operating cash reported in the CFS represented only the cash held by the Department of the Treasury for Governmentwide operations. We validated that the operating cash reported in the CFS was consistent with the related information reported in both the Department of the Treasury's audited consolidated financial statements and audited Schedule of Governmentwide Cash.

    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 governmentwide legal representation letter.

    Agency Affected: Department of the Treasury

    Status: Open

    Comments: As of the completion of our fiscal year 2013 CFS audit, Treasury agreed that this recommendation remained open. Treasury, in coordination with OMB, will continue to work with Justice to include appropriate information regarding litigation and claims in the governmentwide 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. We will follow-up on progress made by Treasury as part of our fiscal year 2014 CFS audit.

    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 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.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury has made significant progress in addressing internal control deficiencies related to intragovernmental activity and balances, such as implementing a scorecard process for the significant entities that highlights differences requiring the entities' attention and involves meetings between Treasury and the entity to discuss differences. The remaining internal control deficiencies in this area were included in new recommendations for corrective action in GAO-14-543 under the section "Intragovernmental Activity and Balances".

    Recommendation: The Director of OMB should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: During fiscal year 2007, OMB established procedures to help ensure that agencies prepare their closing packages and have them properly audited. Federal agencies prepared closing packages and had them audited in accordance with the requirements. The procedures OMB established are to be used every year to ensure that federal agencies continue to follow these requirements.

    Recommendation: The Director of OMB should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: During fiscal year 2007, OMB established procedures to ensure the significant agencies provided the information required by Treasury to enable the allocation of costs in the consolidated statement of net cost.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish procedures to ensure that the CFS include required consolidated totals in the Statement Of Social Insurance or document the specific rationale for excluding such disclosure.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury acted on our recommendation and reported a consolidated total, along with summary totals for the open (i.e., current and future participants) and closed (i.e., those age 14 and over on January 1 of the valuation year) groups, in the 2007 consolidated SOSI.

    Recommendation: The Secretary of the Treasury should 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 Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: In fiscal year 2008, Treasury revised the Treasury Financial Manual to instruct federal agencies to provide the amount of foreign currencies held. The collection of this information enabled Treasury to disclose the balance of foreign currencies held at fiscal year end in the Cash and Other Monetary Assets footnote to the CFS.

    Jul 9, 2014

    Jun 19, 2014

    May 30, 2014

    May 15, 2014

    May 13, 2014

    May 12, 2014

    May 2, 2014

    Mar 27, 2014

    Mar 13, 2014

    Looking for more? Browse all our products here