Financial Audit:

Material Weaknesses in Internal Control Continue to Impact Preparation of the Consolidated Financial Statements of the U.S. Government

GAO-09-387: Published: Apr 21, 2009. Publicly Released: Apr 21, 2009.

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Since GAO's first audit of the fiscal year 1997 consolidated financial statements of the U.S. government (CFS), material weaknesses in internal control and other limitations on the scope of our work have prevented GAO from expressing an opinion on the accrual basis CFS. Certain of those material weaknesses relate to inadequate systems, controls, and procedures to properly prepare the CFS. The purpose of this report is to (1) provide details of the continuing material weaknesses related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address the 56 open recommendations GAO reported for this area in June 2008.

During its audit of the fiscal year 2008 CFS, GAO identified continuing and new control deficiencies in the federal government's processes used to prepare the CFS. These control deficiencies contribute to material weaknesses in internal control over the federal government's ability to (1) adequately account for and reconcile intragovernmental activity and balances between federal agencies; (2) ensure that the CFS was consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences between components of the budget deficit reported in the Department of the Treasury's records, used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities, and related amounts reported in federal agencies' financial statements and underlying financial information and records. The control deficiencies GAO identified involved: (1) establishing and documenting policies and procedures for identifying and eliminating federal agencies' intragovernmental payroll tax amounts when compiling the CFS, (2) establishing and documenting policies and procedures for preparing and reviewing information included in key sections of the Financial Report of the U.S. Government, (3) establishing criteria for identifying federal entities' significance to the CFS and annually assessing which entities meet such criteria, (4) enhancing procedures for analyzing and reviewing data used when compiling the Statements of Net Cost, and (5) various other control deficiencies identified in previous years' audits. Of the 56 open recommendations GAO reported in June 2008, 16 were closed and 40 remained open as of December 9, 2008, the date of GAO's report on its audit of the fiscal year 2008 CFS. GAO will continue to monitor the status of corrective actions taken to address the 4 new recommendations as well as the 40 open recommendations from prior years.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: We found that during fiscal year 2013 Treasury designed, documented and implemented policies and procedures to identify and eliminate intragovernmental payroll tax amounts at the governmentwide level when compiling the CFS.

    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 governmentwide level when compiling the CFS.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: We found that during fiscal year 2009, Treasury developed new policies and procedures for assessing, on an annual basis, which entities meet the criteria established for identifying federal entities as significant to the CFS. For fiscal years 2010 and 2011, we found that Treasury did not effectively implement these policies and procedures. However, during fiscal year 2012, we found that Treasury effectively implemented the policies and procedures for assessing and documenting which entities meet the criteria established for identifying federal entities as significant to the CFS.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement policies and procedures for assessing and documenting, on an annual basis, which entities meet the criteria established for identifying federal entities as significant to the CFS.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: We found that during fiscal year 2011, Treasury and OMB appropriately established and documented the criteria to be used in identifying federal entities as significant to the CFS for purposes of obtaining assurance over the information being submitted by those entities for the CFS.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish and document criteria to be used in identifying federal entities as significant to the CFS for purposes of obtaining assurance over the information being submitted by those entities for the CFS.

    Agency Affected: Department of the Treasury

  4. Status: Open

    Comments: As of the completion of our fiscal year 2010 CFS audit, this recommendation remained open. During FY 2009, Treasury drafted and in fiscal year 2010 enhanced standard operating procedures (SOP) concerning the preparation of the Management's Discussion & Analysis (MD&A) and Citizen's Guide. According to Treasury, as a result of implementing the enhanced SOP in fiscal year 2010, instances of inaccuracies and inconsistency were lower during the fiscal year 2010 reporting process than it had been during prior years. During fiscal year 2011, Treasury will further enhance its SOP and focus on its implemetiation to assure that information reported in the MD&A and Citizen's Guide is complete, accurate and consistent with related information reported elsewhere in the Financial Report. We will follow up on actions taken during our fiscal year 2011 audit.

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop, document, and implement processes and procedures for preparing and reviewing the Management and Discussion Analysis (MD&A) and Citizen's Guide sections of the Financial Report to help assure that information reported in these sections is complete, accurate, and consistent with related information reported elsewhere in the Financial Report.

    Agency Affected: Department of the Treasury

  5. Status: Closed - Implemented

    Comments: We found that over the past few years, Treasury, in coordination with OMB, has taken several actions to address this recommendation. To provide recommendations that are better aligned with the current status of remaining deficiencies related to this area, we have (1) closed this recommendation based on Treasury's significant progress in developing and implementing procedures for preparing the U.S. government's management discussion and analysis and citizen's guide, and (2)included new recommendations for corrective actions for the remaining control deficiencies in the FY 2011 CFS management report [GAO-12-529] under section "Review and Approval of the Financial Report".

    Recommendation: The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop, document, and implement processes and procedures for preparing and reviewing the Management and Discussion Analysis (MD&A) and Citizen's Guide sections of the Financial Report to help assure that information reported in these sections is complete, accurate, and consistent with related information reported elsewhere in the Financial Report.

    Agency Affected: Department of the Treasury

 

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