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entitled 'Management Report: Improvements Needed in Controls over the 
Preparation of the U.S. Consolidated Financial Statements' which was 
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United States Government Accountability Office: 
GAO: 

Report to Agency Officials: 

June 2012: 

Management Report: 

Improvements Needed in Controls over the Preparation of the U.S. 
Consolidated Financial Statements: 

GAO-12-529: 

GAO Highlights: 

Highlights of GAO-12-529, a report to agency officials. 

Why GAO Did This Study: 

Treasury, in coordination with OMB, is primarily responsible for 
preparing the Financial Report, 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 GAO’s work have prevented GAO 
from expressing an opinion on the CFS, exclusive of the Statement of 
Social Insurance (SOSI). Also, GAO was unable to express opinions on 
the 2011 and 2010 SOSI and the 2011 Statement of Changes in Social 
Insurance Amounts because of significant uncertainties, primarily 
related to the achievement of projected reductions in Medicare cost 
growth, reflected in these statements. 

As part of the fiscal year 2011 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 new control deficiencies GAO identified related to the preparation 
of the CFS, (2) recommend improvements, and (3) provide the status of 
corrective actions taken to address GAO’s prior recommendations in 
this area that remained open at the end of the fiscal year 2010 audit. 

What GAO Found: 

During its audit of the fiscal year 2011 consolidated financial 
statements of the U.S. government (CFS), GAO identified new and 
continuing 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 consistent with the underlying audited 
entities’ financial statements, properly balanced, and in conformity 
with U.S. generally accepted accounting principles; and; 

* identify and either resolve or explain material differences between
(1) components of the budget deficit that are used to prepare certain 
information in the CFS and (2) related amounts reported in federal 
entities’ financial statements and underlying financial information 
and records. 

GAO identified new control deficiencies involving the need to: 

* develop or revise and implement written procedures for appropriate 
Treasury and OMB officials to (1) review and approve the drafts of the 
Financial Report of the United States Government (Financial Report) 
before they are provided to GAO and (2) better ensure that key federal 
entity personnel are actively involved in the process for preparing 
and reviewing the Financial Report; 

* enhance procedures for timely review, approval, and use of the CFS 
disclosure checklist; 

* develop procedures for pursuing indications that financial 
information provided by federal entities for inclusion in the CFS may 
not be in conformity with applicable accounting standards; 

* enhance Treasury’s intragovernmental data validation process; and; 

* enhance procedures for timely identifying, notifying, and obtaining 
closing packages from federal entities as they first become 
significant to the Financial Report. 

In addition, GAO found that various other control deficiencies 
identified in previous years’ audits with respect to the CFS 
preparation continued to exist. Specifically, of the 50 open 
recommendations from GAO’s prior reports regarding control 
deficiencies in the CFS preparation process,12 were closed and 38 
remained open as of December 12, 2011, the date of GAO’s report on its 
audit of the fiscal year 2011 CFS. GAO will continue to monitor the 
status of corrective actions taken to address the 10 new 
recommendations as well as the 38 open recommendations from prior 
years as part of its fiscal year 2012 CFS audit. 

What GAO Recommends: 

GAO is making 10 recommendations-—9 to Treasury and 1 to OMB-—to 
address new control deficiencies. In commenting on GAO’s draft report, 
Treasury and OMB generally concurred with GAO’s findings. 

View [hyperlink, http://www.gao.gov/products/GAO-12-529]. For more 
information, contact Gary Engel at (202) 512-3406 or engelg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Scope and Methodology: 

Review and Approval of the Financial Report: 

Timely Review and Approval of the Financial Reporting Disclosure 
Checklist: 

Review of Federal Entities' Financial Information for Inclusion in the 
CFS: 

Treasury's Intragovernmental Data Validation Process: 

Timely Submission of Audited Closing Packages by Newly Identified 
Significant Federal Entities: 

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: 

AGA: Association of Government Accountants: 

CFO: chief financial officer: 

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

FASAB: Federal Accounting Standards Advisory Board: 

FEVBP: Federal Employee and Veteran Benefits Payable: 

Financial Report: Financial Report of the United States Government: 

FMS: Financial Management Service: 

FRD: Financial Reports Division: 

GAAP: generally accepted accounting principles: 

GFRS: Governmentwide Financial Report System: 

IRAS: Intragovernmental Reporting and Analysis System: 

Justice: Department of Justice: 

MD&A: Management's Discussion and Analysis: 

OFAS: Office of the Fiscal Assistant Secretary: 

OMB: Office of Management and Budget: 

SFFAS: Statement of Federal Financial Accounting Standards: 

SOP: standard operating procedure: 

SOSI: Statement of Social Insurance: 

STAR/CARS: Treasury's central accounting and reporting system: 

Treasury: Department of the Treasury: 

TVA: Tennessee Valley Authority: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 27, 2012: 

The Honorable Timothy F. Geithner: 
Secretary of the Treasury: 

The Honorable Jeffrey Zients: 
Acting Director: 
Office of Management and Budget: 

In our report dated December 12, 2011,[Footnote 1] we disclaimed an 
opinion on the consolidated financial statements of the U.S. 
government (CFS) for the fiscal years ended September 30, 2011 and 
2010,[Footnote 2] except for the 2009, 2008, and 2007 Statements of 
Social Insurance (SOSI), which received unqualified opinions.[Footnote 
3] Since GAO's first audit of the fiscal year 1997 CFS, certain 
material weaknesses 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. 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 consistent with the underlying audited 
entities' financial statements, properly balanced, and in conformity 
with U.S. generally accepted accounting principles; and: 

* identify and either resolve or explain material differences between 
(1) certain components of the budget deficit reported in the 
Department of the Treasury's (Treasury) central accounting records 
that are used to prepare the Reconciliation of Net Operating Cost and 
Unified Budget Deficit, the Statement of Changes in Cash Balance from 
Unified Budget and Other Activities, and the Fiscal Projections for 
the U.S. Government (included in Supplemental Information) and (2) 
related amounts reported in federal entities' 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 
5] Several of the material weaknesses[Footnote 6] 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 identified by other auditors 
during their audits of individual federal entities' financial 
statements and were reported in detail with recommendations to the 
entities in separate reports. 

The purpose of this report is to provide (1) detailed information on 
new control deficiencies identified during our fiscal year 2011 audit 
that relate to the processes used to prepare the CFS, (2) 10 
recommendations to address these new control deficiencies, and (3) the 
status of corrective actions taken by Treasury and OMB to address the 
50 recommendations relating to the processes used to prepare the CFS 
detailed in our previous reports that remained open at the end of the 
fiscal year 2010 audit. We closed 12 of the 50 recommendations at the 
end of the fiscal year 2011 audit. We closed 4 of these 
recommendations based on Treasury's progress to date and opened new 
recommendations that are better aligned with the current status of the 
remaining internal control deficiencies related to these areas. 
Appendix I provides a summary of the status of actions taken to 
address the open recommendations from our previous reports as of 
December 12, 2011, the date of our report on the audit of the fiscal 
year 2011 CFS. 

Scope and Methodology: 

As part of our audit of the fiscal years 2011 and 2010 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 to prepare the CFS detailed in our 
previous reports. Based on the scope of our work and the effects of 
the other limitations on the scope of our audit noted throughout our 
audit report on the fiscal year 2011 CFS, our internal control work 
would not necessarily identify all deficiencies in internal control, 
including those that might be material weaknesses or significant 
deficiencies.[Footnote 7] We have communicated each of the new control 
deficiencies to your staff. We performed our audit of the fiscal years 
2011 and 2010 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 Acting 
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 7, 2012, which are reprinted in 
their entirety in appendix II and are also summarized in the Agency 
Comments section. 

Review and Approval of the Financial Report: 

Over the past several years, Treasury and OMB have improved the 
process for preparing the Financial Report of the United States 
Government (Financial Report)[Footnote 8] and have addressed several 
of the issues underlying prior years' recommendations, including our 
recommendation regarding the preparation and review of the 
Management's Discussion and Analysis and Citizen's Guide sections of 
the Financial Report. However, we continued to identify numerous 
incorrect amounts and inconsistent and incomplete disclosures in the 
draft 2011 Financial Report, including the consolidated financial 
statements, and the Notes and Supplemental Information sections of the 
Financial Report. These errors, inconsistencies, and omissions 
occurred more frequently in the relatively new and in more complex 
areas of the Financial Report. For example, several note disclosures 
in the draft Financial Report related to social insurance, the 
Troubled Asset Relief Program, Government-Sponsored Enterprises, and 
federal employee and veteran benefits were inconsistent with related 
disclosures in federal agencies' Performance and Accountability 
Reports or Agency Financial Reports, and in some cases were not 
accurate or complete. The errors, inconsistencies, and omissions were 
not identified through Treasury's and OMB's processes for preparing 
and reviewing the draft Financial Report. We communicated these 
matters to Treasury and OMB officials who revised the Financial 
Report, as appropriate. 

While Treasury maintains standard operating procedures for preparing, 
reviewing, and approving the Financial Report, the extent of errors, 
inconsistencies, and omissions we identified is evidence of 
deficiencies in Treasury's process for preparing and reviewing the 
draft Financial Report, particularly with respect to relatively new 
areas and in more complex areas. Treasury procedures did not provide 
for key federal entity personnel with technical expertise in the 
relatively new and the more complex areas to be actively involved in 
the preparation and review process of the Financial Report. More 
active involvement of such key federal entity personnel can help 
prevent or detect and correct incorrect amounts and inconsistent and 
incomplete disclosures. Further, Treasury's procedures for preparing 
and reviewing the Financial Report did not require review and approval 
of drafts of the Financial Report by appropriate higher-level Treasury 
officials of the Office of the Fiscal Assistant Secretary before they 
were provided to GAO for audit.[Footnote 9] Also, although OMB had 
certain informal procedures for its Office of Federal Financial 
Management's review and approval of drafts of the Financial Report 
before they were provided to GAO, it had not documented these 
procedures. Documented procedures that clearly delineate the roles and 
responsibilities of the appropriate Treasury and OMB officials can 
help to provide an effective review process. 

According to Standards for Internal Control in the Federal Government, 
one of the key objectives of an organization's internal control over 
financial reporting is to provide reasonable assurance as to the 
reliability of its financial reporting, including its financial 
statements.[Footnote 10] Without effectively implemented preparation, 
review, and approval processes for drafts of the Financial Report, 
Treasury and OMB are at risk of presenting information that is 
incorrect, inconsistent, or incomplete. 

Recommendations for Executive Action: 

We recommend that the Acting Director of OMB 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. 

We also recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to revise and implement Treasury's procedures 
related to preparing and reviewing 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 the Office of the Fiscal 
Assistant Secretary, including the Fiscal Assistant Secretary. 

We further recommend that the Secretary of the Treasury 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. 

Timely Review and Approval of the Financial Reporting Disclosure 
Checklist: 

For many years, we have reported that Treasury had not established a 
formal process to reasonably assure that the CFS, including the 
related notes, were presented in conformity with generally accepted 
accounting principles (GAAP).[Footnote 11] Over the past several 
years, Treasury has developed procedures utilizing a financial 
reporting disclosure checklist (CFS disclosure checklist) that is 
intended to significantly improve Treasury's ability to timely 
identify GAAP requirements, assess the effect of any omitted 
disclosures, and document decisions reached with regard to the 
omission of any disclosures and the rationale for such decisions. 
However, during our audit of the fiscal year 2011 CFS, we determined 
that Treasury's assessment and documentation regarding the reporting 
of certain financial information required by GAAP continued to be 
impaired. Specifically, we found that Treasury officials did not 
complete and document their required review and approval of the CFS 
disclosure checklist within the time frames established by Treasury's 
policies and procedures. 

In response to our prior recommendation, Treasury developed 
procedures, including use of its CFS disclosure checklist, to help 
determine that all disclosures required by GAAP are included in the 
CFS. Several years ago, Treasury established a standard operating 
procedure (SOP), entitled "The FR Disclosure List," to update the CFS 
disclosure checklist to reflect new disclosures that are required to 
be included in the CFS. In fiscal year 2011, Treasury further enhanced 
the SOP to include procedures for periodically updating the CFS 
disclosure checklist and documenting preparer sign-offs and managerial 
approvals. Specifically, the fiscal year 2011 enhancement to the SOP 
requires the CFS disclosure checklist to be revised annually, as 
necessary, to incorporate any (1) new and amended disclosure 
requirements effective for the current year's reporting and (2) 
additional information necessary to address GAO audit recommendations 
related to financial disclosure. The SOP was also modified to require 
a final review and sign-off on the CFS disclosure checklist by the 
Financial Reports Division (FRD) Director in Treasury's Financial 
Management Service (FMS) by December 5, 2011, to help provide 
reasonable assurance that the disclosures are in conformity with GAAP. 
[Footnote 12] However, we found that the final review and approval by 
the FRD Director was not completed and documented by December 5, 2011, 
as required by the SOP. We also noted that the SOP did not require 
Treasury to use the CFS disclosure checklist to assist in preparing 
the format draft that Treasury prepares in advance of the year-end 
consolidation. Using the CFS disclosure checklist to assist in 
preparing the format draft could assist Treasury in completing the 
final checklist on a timely basis. 

As a result, Treasury was limited in its ability to rely on the CFS 
disclosure checklist to reasonably assure that the CFS was prepared in 
conformity with GAAP as intended by the SOP. Specifically, the lack of 
timely review and approval of the CFS disclosure checklist limited 
Treasury's ability to reasonably assure that all GAAP-required 
disclosures are included in the CFS. 

Recommendations for Executive Action: 

To help to provide reasonable assurance that the information reported 
in the CFS is complete, accurate, and in conformity with GAAP, the 
Secretary of the Treasury should direct the Fiscal Assistant Secretary 
to (1) establish a mechanism to ensure that Treasury's CFS disclosure 
checklist is reviewed and approved by the date in Treasury's policies 
and procedures and (2) 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. 

Review of Federal Entities' Financial Information for Inclusion in the 
CFS: 

Over the past several years, Treasury has made progress in developing, 
documenting, and implementing numerous improvements to its SOPs 
intended to enhance internal control over the process for preparing 
the CFS. However, in fiscal year 2011, we identified a control 
deficiency involving Treasury's review of audited closing packages. 
[Footnote 13] In connection with Treasury's role as preparer of the 
CFS, Treasury management is responsible for developing and documenting 
detailed policies and procedures for preparing the CFS and ensuring 
that appropriate internal control is built into and is an integral 
part of the CFS compilation process. Standards for Internal Control in 
the Federal Government calls for clear documentation of policies and 
procedures. 

Treasury's SOP entitled "Data Analysis" includes procedures for 
Treasury staff to compare financial information submitted by federal 
entities through their audited closing packages to the entities' 
audited financial statements for consistency and to work with the 
entities to correct any material inconsistencies identified by 
Treasury. However, Treasury's SOP did not include steps to pursue 
instances where the information provided to Treasury contains 
indications that federal entities' financial information submitted 
through the closing package, even if consistent with the entities' 
audited financial statements, may not be in conformity with GAAP. 
Steps to pursue these instances would be particularly relevant when a 
new federal accounting standard is implemented to reasonably assure 
appropriate and consistent application across government. For example, 
as part of its fiscal year 2011 CFS compilation process, Treasury did 
not identify federal entities' potential GAAP exceptions related to 
Statement of Federal Financial Accounting Standards No. 33, Pensions, 
Other Retirement Benefits, and Other Postemployment Benefits: 
Reporting the Gains and Losses from Changes in Assumptions and 
Selecting Discount Rates and Valuation Dates, which was first 
implemented in fiscal year 2010. As part of our fiscal year 2011 
audit, we raised concerns that the financial information presented at 
the governmentwide level, which was provided by federal entities, may 
not be in conformity with GAAP. However, there was not sufficient time 
for Treasury to pursue and resolve our concerns. As a result, Treasury 
was unable to reasonably assure that such Federal Employee and Veteran 
Benefits Payable information in the fiscal year 2011 CFS was presented 
in conformity with GAAP. Inadequate policies and procedures increase 
the risk that errors in the compilation process could go undetected 
and result in misstatements in the financial statements or incomplete 
and inaccurate disclosure of information within the Financial Report. 

Recommendation for Executive Action: 

To help to provide reasonable assurance that financial information is 
properly reported in the CFS, we recommend that the Secretary of the 
Treasury direct the Fiscal Assistant Secretary to enhance the SOP 
entitled "Data Analysis" to include required steps for pursuing any 
instances where the information provided to Treasury contains 
indications that financial information provided by federal entities 
for inclusion in the CFS may not be in conformity with GAAP, 
particularly with respect to any recent changes in GAAP. 

Treasury's Intragovernmental Data Validation Process: 

The Treasury Financial Manual section entitled "Agency Reporting 
Requirements for the Financial Report of the United States Government" 
requires federal entities to report intragovernmental balances 
quarterly to Treasury and work with their trading partners to 
reconcile and resolve intragovernmental differences. Treasury 
developed the Intragovernmental Reporting and Analysis System (IRAS) 
to begin to address the long-standing weakness we reported regarding 
the federal government's inability to adequately account for and 
reconcile intragovernmental activity and balances. Using IRAS, 
Treasury generates reports on a quarterly basis to assist federal 
entities in identifying, reconciling, and resolving intragovernmental 
differences with their trading partners prior to year-end reporting. 
Further, Treasury personnel use IRAS reports to monitor entities' 
progress in reconciling their intragovernmental differences both 
quarterly and at year-end. Treasury's SOP entitled "Intragovernmental 
Quarterly Reporting Process and Analysis" includes IRAS validation 
procedures for Treasury personnel to validate the IRAS reports for 
accuracy prior to providing them to federal entities. However, during 
our fiscal year 2011 audit, we found control deficiencies over the 
design and implementation of the IRAS data validation process. 

Specifically, during our fiscal year 2011 audit, we found that one 
individual at Treasury, who was the developer of IRAS, also had 
several other incompatible roles and responsibilities, including 
serving as the IRAS administrator as well as a review accountant for 
one of the federal entities included in the IRAS process. In these 
various roles, his responsibilities included uploading the federal 
entities' reported intragovernmental data into IRAS, using IRAS to 
process the data and generate the IRAS reports, and monitoring his 
assigned entity's progress in reconciling and resolving the 
intragovernmental differences with its trading partners. As such, his 
roles included responsibilities for much of the process for 
identifying, reconciling, and resolving intragovernmental differences. 

Standards for Internal Control in the Federal Government calls for 
segregation of duties among different people in order to reduce the 
risk of error or fraud, thus preventing a single individual from 
having full control of a transaction or event. Treasury noted that it 
reduced the risk of error through the required quarterly IRAS 
validation process, which provides for the IRAS administrator to 
verify randomly selected federal entities' submitted data for 
consistency and completeness with IRAS reports. The process also calls 
for the IRAS team leader to review and approve the IRAS 
administrator's testing documentation prior to the distribution of 
IRAS reports to the federal entities. In addition, the process 
includes completing a checklist to document that these procedures have 
been performed. If properly designed and effectively implemented, this 
process could reduce the risk of error caused by inadequate 
segregation of duties. However, we found that although the IRAS 
validation process calls for testing of randomly selected federal 
entities' data with IRAS reports for consistency and completeness, 
this procedure did not require testing of the federal entity that the 
administrator was responsible for under his review accountant's role. 
Further, we found that since the IRAS validation checklist has been in 
place--the third and fourth quarters of fiscal year 2011--the 
completed checklists did not always include the IRAS team leader's 
signature to document that the required review took place. We also 
noted that the data from IRAS were provided to federal entities for 
use prior to the validations, increasing the risk of entities 
receiving inaccurate reports. 

These deficiencies in the design and implementation of the IRAS 
validation process impair Treasury's assurance that it has reduced the 
risk of error in the IRAS reports that Treasury and federal entities 
depend on to help identify and reconcile intragovernmental differences 
between federal entities and their trading partners. 

Recommendations for Executive Action: 

To help to provide reasonable assurance that appropriate controls are 
in place to reduce the risk of errors in IRAS reports, we recommend 
that the Secretary of the Treasury direct the Fiscal Assistant 
Secretary to (1) enhance the IRAS validation procedures, at a minimum, 
to include specific steps for testing intragovernmental data of the 
administrator's assigned entity and (2) establish a mechanism for 
ensuring that all steps in the required validation process are 
completed, documented, and reviewed prior to the distribution of IRAS 
reports. 

Timely Submission of Audited Closing Packages by Newly Identified 
Significant Federal Entities: 

Treasury's SOP entitled "Significant Federal Entities Identification" 
includes procedures for Treasury to annually[Footnote 14] assess 
whether federal entities that were previously determined 
nonsignificant, have become significant to the Financial Report. The 
SOP also includes procedures for Treasury, in coordination with OMB, 
to help provide reasonable assurance that any newly identified 
significant entities comply with the reporting requirements for 
significant entities. Treasury's assessments are based on prior year 
financial information. In addition, the SOP requires federal entities 
identified as significant to the Financial Report to submit a closing 
package to Treasury that includes audited special purpose financial 
statements that have been appropriately reclassified in accordance 
with CFS reporting requirements for inclusion in the Financial Report. 

In fiscal year 2011, we found that Treasury's and OMB's processes were 
not effective in ensuring timely submission of audited closing 
packages by entities newly identified as significant to the Financial 
Report because of deficiencies in the design of Treasury's related 
policies and procedures. Specifically, we found that Treasury's SOP 
did not include procedures to (1) identify any federal entities that 
became significant to the Financial Report during the fiscal year but 
were not identified as significant in the prior fiscal year and (2) 
obtain audited closing packages from newly identified entities in the 
year they are determined to be significant, including timely written 
notification to newly identified significant entities. Without these 
procedures, Treasury is unable to reasonably assure that it has 
appropriate audit assurance over financial information for all federal 
entities that are significant to the Financial Report. 

Recommendations for Executive Action: 

To help to provide reasonable assurance that Treasury timely receives 
the audited closing package from those federal entities that are newly 
identified as being significant to the Financial Report, we recommend 
that the Secretary of the Treasury 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 (1) 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 and (2) 
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 Recommendations from Prior Reports: 

Of our 50 recommendations from our prior reports regarding control 
deficiencies in the CFS preparation process that were open at the end 
of the fiscal year 2010 audit, we were able to close 12 during our 
fiscal year 2011 audit, generally as a result of corrective actions 
taken by Treasury. The other 38 recommendations remained open as of 
December 12, 2011, the date of our report on the audit of the fiscal 
year 2011 CFS. 

Appendix I summarizes the status as of December 12, 2011, for the 50 
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 2012 CFS audit. 

Agency Comments: 

OMB Comments: 

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

Treasury Comments: 

In written comments on a draft of this report, Treasury concurred with 
our findings and noted that the agency has made significant progress 
in enhancing its policies and procedures for the CFS preparation since 
the issuance of the fiscal year 2011 audit report. Also, Treasury 
stated that it expects to implement additional recommendations by the 
end of fiscal year 2012, and that it will use our findings to continue 
to improve the central accounting and compilation activities 
associated with the CFS. In addition, Treasury stated that it has 
given great management attention and staff resources to resolving 
material intragovernmental differences along with developing or 
improving process controls within FMS and the federal agencies. 
Treasury also stated that its strategy includes the use of multiple 
focus groups that have identified both short-and long-term solutions 
through analysis of material differences and working closely with 
agencies to identify root causes of differences. Further, Treasury 
stated that it has developed General Fund accounts that will provide 
Treasury with the capability to reconcile to federal agency financial 
reporting data. 

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. 

We are sending copies of this report to interested congressional 
committees, the Fiscal Assistant Secretary of the Treasury, and the 
Controller of OMB'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; 
No.: 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: To eliminate or 
explain adjustments to net position, Treasury eliminates, at the 
consolidated level, intragovernmental activity and balances using 
formal balanced accounting entries (via Reciprocal Categories) and 
analyzes transactions that contribute to the unmatched transactions 
and balances adjustment i.e., the plug. Major contributors to the plug 
are transactions with the General Fund (within Reciprocal Category 29); 
A Treasury task group is currently developing the Schedule of General 
Fund Authority, with the goal to enter audited data for fiscal year 
2013 into the Governmentwide Financial Report System (GFRS) and to 
remove General Fund transactions from the plug. In the interim, 
Treasury will separately identify certain General Fund transactions by 
providing agencies with monthly STAR/CARS (Central Accounting 
Reporting System) data to facilitate reconciliation on a quarterly 
basis. In addition, Treasury has revised the guidance related to the 
appropriate use of "Trading Partner 99" (General Fund). This guidance 
will be issued in fiscal year 2012, to be effective in fiscal year 
2013; Also throughout fiscal year 2012, Treasury will continue to 
identify and resolve, via communications to, and assistance from, 
agencies, material differences related to fiduciary, employee 
benefits, buy/sell and transfer activity through the continued efforts 
of Treasury focus groups to identify and mitigate root causes and 
implement short-and long-term solutions; 
Status of recommendation[A]: Per GAO: Open. 

Count: 2; 
No.: 02-6; 
Recommendation: As OMB continues to make strides to address issues 
related to intragovernmental transactions, the Director of OMB should 
direct the Controller of OMB to develop policies and procedures that 
document how OMB will enforce the business rules provided in OMB 
Memorandum M-07-03, Business Rules for Intragovernmental Transactions; 
Status of recommendation[A]: Per Treasury and OMB: Treasury has taken 
the lead role for resolving intragovernmental disputes and major 
differences between trading partners. In fiscal year 2011, Treasury 
published the updated Intragovernmental Business Rules, which include 
dispute resolution procedures for trading partner agencies to follow. 
Treasury's dispute resolution process includes a new Intragovernmental 
Dispute Resolution Request Form to be certified by federal entity 
chief financial officers (CFO). Treasury as the enforcer of the 
updated business rules, working with OMB as necessary, will work with 
agencies, to help ensure the effectiveness of the dispute resolution 
process during each fiscal year and will document the resolutions; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 3; 
No.: 02-7; 
Recommendation: As OMB continues to make strides to address issues 
related to intragovernmental transactions, the Director of OMB should 
direct the Controller of OMB to require that significant differences 
noted between business partners be resolved and the resolution be 
documented; 
Status of recommendation[A]: Per Treasury and OMB: See the status for 
recommendation No. 02-6; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 4; 
No.: 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: Treasury has 
designed and implemented formal consolidating and eliminating 
procedures with regard to intragovernmental assets and liabilities, 
but some issues remain. During fiscal year 2012, Treasury is revising 
existing guidance and policies, and developing new guidance and 
policies as needed, for these remaining issues. Upon implementation of 
the revised guidance and policies by the agencies, Treasury's 
consolidation and elimination accounting entries should effectively 
account for the difference in intragovernmental assets and 
liabilities. Final resolution is contingent on fully resolving 
material intragovernmental differences; See the status for 
recommendation No. 02-4; 
Status of recommendation[A]: Per GAO: Open. 

Count: 5; 
No.: 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 for 
recommendation No. 02-4; 
Status of recommendation[A]: Per GAO: Open. 

Count: 6; 
No.: 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: Treasury's 
consolidating procedures request information from the agencies related 
to asset capitalization and agency advances or deferred revenue to 
assist in ensuring the proper reporting of this activity. During 
fiscal year 2012, Treasury will finalize guidance related to 
intragovernmental capitalized purchases to be effective in fiscal year 
2013. See the status of recommendation No. 02-4 and No. 02-9; 
Status of recommendation[A]: Per GAO: Open. 

Count: 7; 
No.: 02-12; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost 
and unified budget surplus (or deficit). Treasury should report "net 
unreconciled differences" included in the net operating results line 
item as a separate reconciling activity in the reconciliation 
statement; 
Status of recommendation[A]: Per Treasury and OMB: These unmatched 
transactions and balances will be reflected only in the Statements of 
Operations and Changes in Net Position until intragovernmental 
differences are materially resolved. At that point, unresolved 
reconciling items, if any, needed to reconcile net operating cost to 
the unified budget deficit can be separately identified in the 
reconciliation statements. See the status of recommendation No. 02-13; 
Status of recommendation[A]: Per GAO: Open. 

Count: 8; 
No.: 02-13; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost 
and unified budget surplus (or deficit). Treasury should develop 
policies and procedures to ensure completeness of reporting and 
document how all the applicable components reported in the other 
consolidated financial statements (and related note disclosures 
included in the CFS) were properly reflected in the reconciliation 
statement; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2012, Treasury is refining its methodology for reconciling operating 
revenue to budgetary receipts (a component of the unified budget 
deficit), in collaboration with agencies, and is in the process of 
readying the methodology for review and comment from all agencies and 
GAO; In addition, during fiscal year 2012, Treasury will work with OMB 
to further identify and define all sources of budgetary receipts 
reported to STAR/CARS. Treasury will take into account GAO review 
comments, if any, during finalization of the methodology for the CFS 
and the resolution of unresolved differences; Lastly, a group formed 
by the Association of Government Accountants (AGA group) is performing 
an independent review of the compilation of the reconciliation 
statement and cash statement and will provide short-and long-term 
solutions for improving the completeness of these statements and 
consistency with underlying agency financial statement data. Treasury 
will consider AGA group's recommendations in revising its 
reconciliation methodology; 
Status of recommendation[A]: Per GAO: Open. 

Count: 9; 
No.: 02-14; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost 
and unified budget surplus (or deficit). Treasury should establish 
reporting materiality thresholds for determining which agency 
financial statement activities to collect and report at the 
governmentwide level to assist in ensuring that the reconciliation 
statement is useful and conveys meaningful information; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2012, as Treasury works on its reconciliation methodology, it will 
request more information from agencies related to certain items in the 
reconciliation statement due to their reporting of certain activity on 
a net basis instead of on a disaggregated basis; Based on the results 
of this work, Treasury will determine what additional information is 
needed from the agencies. Once all disaggregated information is 
obtained, Treasury can implement its reporting materiality policy to 
provide more meaningful and useful information in the CFS. See also 
the status of recommendation No. 02-13; 
Status of recommendation[A]: Per GAO: Open. 

Count: 10; 
No.: 02-15; 
Recommendation: If Treasury chooses to continue using information from 
both federal agencies' financial statements and Treasury's central 
accounting and reporting system (STAR), Treasury should demonstrate 
how the amounts from STAR reconcile to federal agencies' financial 
statements; 
Status of recommendation[A]: Per Treasury and OMB: Treasury has chosen 
to use information from STAR/CARS and has identified material areas 
where STAR/CARS data does not reconcile to federal agencies' financial 
statements. Treasury will continue to work on its reconciliation 
methodology during fiscal year 2012 to further resolve these 
reconciliation issues. In addition, the reconciliation methodology 
will be revised pending implementation of the AGA group's 
recommendations. See also the status of recommendation No. 02-13; 
Status of recommendation[A]: Per GAO: Open. 

Count: 11; 
No.: 02-16; 
Recommendation: If Treasury chooses to continue using information from 
both federal agencies' financial statements and from STAR, Treasury 
should identify and document the cause of any significant differences, 
if any are noted; 
Status of recommendation[A]: Per Treasury and OMB: See the status of 
recommendation No. 02-13; 
Status of recommendation[A]: Per GAO: Open. 

Count: 12; 
No.: 02-17; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop and implement a process to ensure that the Statement of 
Changes in Cash Balance from Unified Budget and Other Activities 
properly reflects the activities reported in federal agencies' audited 
financial statements. Treasury should document the consistency of the 
significant line items on this statement to federal agencies' audited 
financial statements; 
Status of recommendation[A]: Per Treasury and OMB: Treasury has chosen 
to use information from STAR/CARS. During fiscal year 2012, Treasury 
will continue to work on its reconciliation statement methodology 
which also affects related line items on the cash statement. Once 
fully developed, the reconciliation methodology will also provide 
consistency of significant line items on the cash statement to the 
underlying federal agencies' audited financial statements. In 
addition, the reconciliation methodology will be revised pending 
implementation of the AGA group's recommendations. See also the status 
of recommendation No. 02-13 and No. 02-15; 
Status of recommendation[A]: Per GAO: Open. 

Count: 13; 
No.: 02-20; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop and implement a process to ensure that the Statement of 
Changes in Cash Balance from Unified Budget and Other Activities 
properly reflects the activities reported in federal agencies' audited 
financial statements. Treasury should explain and document the 
differences between the operating revenue amount reported on the 
Statement of Operations and Changes in Net Position and unified budget 
receipts reported on the Statement of Changes in Cash Balance from 
Unified Budget and Other Activities; 
Status of recommendation[A]: Per Treasury and OMB: Treasury will 
refine its reconciliation methodology for reconciling budgetary 
receipts to net operating revenue during fiscal year 2012. Treasury 
will again work with the agencies that contribute to the largest 
unreconciled differences to identify the causes of the differences and 
to resolve them. Treasury will take into account GAO comments, if any, 
as it finalizes the reconciliation methodology for resolving these 
differences, as well as consider the AGA group's recommendations 
related to the compilation of the reconciliation statement and cash 
statement; 
Status of recommendation[A]: Per GAO: Open. 

Count: 14; 
No.: 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: During fiscal year 
2012, Treasury will address some of the issues raised by FASAB's 
Reporting Entity Task Force and Treasury is supporting and 
participating in the task force's efforts to help gain clarity and 
finality on this issue; 
Status of recommendation[A]: Per GAO: Open. 

Count: 15; 
No.: 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: See the status of 
recommendation No. 02-22; 
Status of recommendation[A]: Per GAO: Open. 

Count: 16; 
No.: 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: See the status of 
recommendation No. 02-22; 
Status of recommendation[A]: Per GAO: Open. 

Count: 17; 
No.: 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: During fiscal year 
2011, with few exceptions, the agencies provided Treasury and OMB 
adequate information in their legal representation letters regarding 
the expected outcomes of the cases. Treasury and OMB will work with 
the few agencies to provide all required information in fiscal year 
2012. Treasury has already held a "lessons learned" meeting related to 
the fiscal year 2011 process and will work during the year with the 
Department of Justice (Justice), OMB and GAO and the agencies to 
determine if further changes in policy and/or guidance (e.g., OMB 
Memorandum 01-02) is needed for all agencies to provide the required 
information regarding the expected outcomes of legal cases in their 
legal representations; 
Status of recommendation[A]: Per GAO: Open. 

Count: 18; 
No.: 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) guidance. In addition, OMB Circular 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 analyses 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; 
Status of recommendation[A]: 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: 19; 
No.: 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; 
Status of recommendation[A]: Per GAO: Open. See the status of 
recommendation No. 02-37. 

Count: 20; 
No.: 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; 
Status of recommendation[A]: Per GAO: Open. See the status of 
recommendation No. 02-37. 

Count: 21; 
No.: 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; 
Status of recommendation[A]: Per GAO: Open. See the status of 
recommendation No. 02-37. 

Count: 22; 
No.: 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; 
Status of recommendation[A]: Per GAO: Open. See the status of 
recommendation No. 02-37. 

Count: 23; 
No.: 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 (SFFAS) 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: This information 
was requested from federal agencies for disclosure in the fiscal year 
2011 CFS. Treasury will work with agencies to improve the consistency 
of this disclosure in the fiscal year 2012 CFS and will also monitor 
the work of the FASAB task force that is reviewing the reporting for 
risk assumed; 
Status of recommendation[A]: 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. 

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

Count: 24; 
No.: 03-6; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop a process that will allow full 
reporting of the changes in cash balance of the U.S. government. 
Specifically, the process should provide for reporting on the change 
in cash reported on the consolidated balance sheet, which should be 
linked to cash balances reported in federal agencies' audited 
financial statements; 
Status of recommendation[A]: Per Treasury and OMB: Treasury will 
analyze cash transactions, and work with its Cash Policy area to 
achieve complete and consistent reporting of cash transactions, to 
provide full reporting of the changes in the cash balance of the U.S. 
government; 
Status of recommendation[A]: Per GAO: Open. Treasury has not 
established and implemented effective processes and procedures for 
identifying and reporting all items needed to prepare the Statement of 
Changes in Cash Balance from Unified Budget and Other Activities. 

Count: 25; 
No.: 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 (Justice) and certain other 
executive branch federal agencies to ensure that these federal 
agencies report or disclose relevant criminal debt information in 
conformity with generally accepted accounting principles (GAAP) in 
their financial statements and have such information subjected to 
audit; 
Status of recommendation[A]: Per Treasury and OMB: OMB, working with 
Treasury, Justice, and certain other agencies, will continue working 
to address this recommendation; 
Status of recommendation[A]: Per GAO: Open. 

Count: 26; 
No.: 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: Treasury will 
disclose criminal debt information in the CFS if material as reflected 
in the agencies' financial statements. See the status of 
recommendation No. 03-8; 
Status of recommendation[A]: Per GAO: Open. 

Count: 27; 
No.: 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's current 
CFS compilation process provides for direct linkage from the 35 
significant federal agencies audited financial statements to most of 
the CFS principal statements and to the related note disclosures. 
However, additional work is needed related to the two budgetary 
principal financial statements. Treasury will take into account GAO 
comments, if any, as it develops its reconciliation methodology during 
fiscal year 2012. Treasury will also consider the AGA group's comments 
and recommendations to improve the compilation of the reconciliation 
statement and cash statement. See the status of recommendation No. 02-
13 and No. 02-15; 
Status of recommendation[A]: Per GAO: Open. 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' 
financial statements and that the Balance Sheet and the Statement of 
Net Cost were also consistent with the 35 significant federal 
entities' financial statements prior to eliminating intragovernmental 
activity and balances. However, Treasury's process did not ensure that 
the information in the remaining three principal financial statements 
was fully consistent with the underlying information in the 35 
significant federal entities' audited financial statements and other 
financial data. 

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

Count: 28; 
No.: 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: During fiscal year 
2012, Treasury will fully implement and enforce its procedures to 
document communications to the agencies in the supporting 
documentation for journal vouchers; 
Status of recommendation[A]: Per GAO: Open. 

Count: 29; 
No.: 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: During fiscal year 
2011, with the assistance of its contractor, Treasury continued to 
make improvements to its internal control infrastructure. Treasury 
updated, and will revise and improve, its standard operating 
procedures (SOP) to document that key controls are in place at all 
critical areas of the CFS preparation process. Treasury will monitor 
and assess its efforts to determine its progress in achieving a sound 
internal control environment; Also, during fiscal year 2011, Treasury 
restructured the management of the organization responsible for the 
CFS compilation process to provide additional oversight and 
accountability over the year-end CFS process; In addition, during 
fiscal year 2012, Treasury plans to obtain additional personnel, via 
details from other agencies, with financial reporting expertise, to 
assist with enhancements and improvements to internal controls; 
Status of recommendation[A]: Per GAO: Open. 

Count: GAO-06-415 (results of the fiscal year 2005 audit): 

Count: 30; 
No.: 05-3; 
Recommendation: The Director of OMB should direct the Controller of 
the Office of Federal Financial Management to consider, in order to 
provide audit assurance over federal agencies' closing packages, not 
waiving the closing package audit requirements for any verifying 
agency in future years, such as Tennessee Valley Authority (TVA); 
Status of recommendation[A]: Per Treasury and OMB: For fiscal year 
2011, OMB did not waive the closing package audit requirements for any 
verifying agency. In addition, over the last 3 fiscal years, TVA 
progressively moved closer to submitting its closing package by the 
required financial reporting deadline and is now submitting the 
closing package timely; 
Status of recommendation[A]: Per GAO: Closed. 

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

Count: 31; 
No.: 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 governmentwide 
legal representation letter; 
Status of recommendation[A]: Per Treasury and OMB: Treasury, in 
coordination with OMB and Justice, will work during fiscal year 2012 
to establish effective processes and procedures to require that 
appropriate information regarding litigation and claims is included in 
the governmentwide legal representation letter; 
Status of recommendation[A]: Per GAO: Open. 

Count: 32; 
No.: 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: During fiscal year 
2012, Treasury will continue its intragovernmental collection, 
analysis, and reporting process as enhanced in fiscal year 2011, 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. The information obtained includes (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, (4) the potential outcome of such steps, 
and (5) additional information related to their intragovernmental 
differences that would allow Treasury to correct these differences 
within GFRS. This effort was successful during fiscal year 2011 in 
reducing the amount, both on a net and absolute value basis, of the 
total amount of intragovernmental differences; 
Status of recommendation[A]: Per GAO: Open. Treasury furthered its 
commitment to resolve differences in intragovernmental activity and 
balances, for example, by expanding focus groups' monitoring and 
outreach efforts that involved quarterly analysis and ongoing 
collaboration with entities to resolve intragovernmental differences; 
However, we found that a significant number of CFOs continue to cite 
differing accounting methodologies, accounting errors, and timing 
differences for material differences with their trading partners. Some 
CFOs indicated that they did not know the reason for the differences. 

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

Count: 33; 
No.: 07-1; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to enhance and fully document all practices 
referred to in the standard operating procedure (SOP) entitled 
"Preparing the Financial Report of the U.S. Government" to better 
ensure that practices are proper, complete, and can be consistently 
applied by staff members; 
Status of recommendation[A]: Per Treasury and OMB: Treasury will 
document all of its current practices for preparing the CFS in the SOP; 
Status of recommendation[A]: Per GAO: Open. 

Count: 34; 
No.: 07-2; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to enhance Treasury's checklist or design an 
alternative and use it to adequately and timely document Treasury's 
assessment of the relevance, usefulness, or materiality of information 
reported by the federal agencies for use at the governmentwide level; 
Status of recommendation[A]: Per Treasury and OMB: Treasury addressed 
many of GAO's concerns related to the checklist during fiscal year 
2011, specifically the inclusion of disclosure items related to the 
principal financial statements and management's discussion and 
analysis; 
Status of recommendation[A]: Per GAO: Closed. Over the past few years, 
Treasury 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 
and (2) included in this report under "Timely Review and Approval of 
the Financial Reporting Disclosure Checklist" new recommendations for 
corrective actions for the remaining deficiencies. 

Count: 35; 
No.: 07-5; 
Recommendation: The Director of OMB should direct the Controller of 
OMB's Office of Federal Financial Management, in coordination with 
Treasury's Fiscal Assistant Secretary, to develop formal processes and 
procedures for identifying and resolving any material differences in 
distributed offsetting receipt amounts included in the net outlay 
calculation of federal agencies' Statement of Budgetary Resources and 
the amounts included in the computation of the budget deficit in the 
CFS; 
Status of recommendation[A]: Per Treasury and OMB: Treasury will work 
with OMB to perform this analysis and to develop policies and 
procedures, as part of developing its reconciliation methodology, to 
resolve these differences. OMB and Treasury, as applicable, will 
continue their efforts to implement the completed methodology. 
Treasury will also be working with OMB to further identify and define 
all sources of distributed offsetting receipts reported to STAR/CARS; 
Status of recommendation[A]: Per GAO: Open. 

Count: 36; 
No.: 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: Treasury is in the 
process of reviewing its documentation of internal control procedures, 
as completed during fiscal year 2011, to determine what internal 
control design gaps remain and what further controls are needed 
related to new or revised procedures. See also the status of 
recommendation No. 04-6; 
Status of recommendation[A]: Per GAO: Open. 

Count: 37; 
No.: 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 is leading 
a subgroup with governmentwide participation on the OMB Circular No. A-
136 subcommittee to determine what information can be obtained during 
the third and fourth quarters of fiscal year 2012 to facilitate the 
year-end CFS preparation process. Depending on the results of this 
effort, Treasury will consider what additional requirements related to 
third quarter information in fiscal year 2013 are needed to facilitate 
the year-end compilation effort; 
Status of recommendation[A]: Per GAO: Open. 

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

Count: 38; 
No.: 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 governmentwide level when compiling the CFS; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2012, Treasury will evaluate the adequacy of the payroll tax amounts 
reported in the Monthly Treasury Statement by discussing the 
methodology for preparing this amount with the providing agency. If 
deemed adequate, policies and procedures will be modified to reflect 
the results of the analysis and document how this amount is identified 
and used when compiling the CFS; 
Status of recommendation[A]: Per GAO: Open. 

Count: 39; 
No.: 08-02; 
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's Discussion and Analysis 
(MD&A) and "The Federal Government's Financial Health: A Citizen's 
Guide to the Financial Report of the United States Government" 
sections of the Financial Report of the U.S. Government (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; 
Status of recommendation[A]: Per Treasury and OMB: The Office of the 
Fiscal Assistant Secretary (OFAS) first implemented SOPs concerning 
the preparation of the MD&A and Citizen's Guide for the fiscal year 
2009 Financial Report. Since that time, instances of inaccuracies, 
inconsistency, and incompleteness have been consistently lower than in 
prior years. OFAS will update its SOPs as needed to reflect new 
reporting requirements and/or process improvements; 
Status of recommendation[A]: Per GAO: Closed. 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 and OMB's significant progress, and (2) included in this 
report under "Review and Approval of the Financial Report" new 
recommendations for corrective actions for the remaining deficiencies. 

Count: 40; 
No.: 08-03; 
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; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2011, Treasury and OMB established and documented the criteria to 
identify all federal entities that are significant to the CFS; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 41; 
No.: 08-04; 
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; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2011, Treasury used the significant entity criteria to assess which 
entities are considered significant to the CFS, and will perform this 
assessment on an annual basis; 
Status of recommendation[A]: Per GAO: Open. During fiscal year 2011, 
Treasury did not properly implement its procedures for assessing which 
entities meet its criteria for identifying federal entities as 
significant to the CFS. 

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

Count: 42; 
No.: 09-03; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to enhance the SOP entitled "Analyzing Agency 
Restatements" to include procedures for analyzing the overall impact 
of entities' restatements on the CFS and documenting the analysis and 
related conclusion; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2011, Treasury complied with its enhanced procedures for analyzing the 
impact of entities' restatements on the CFS, documenting its analysis 
and related conclusions, and correctly incorporating the impact of the 
entities' restatements into the CFS; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 43; 
No.: 09-04; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop, implement, and document procedures for 
identifying, analyzing, compiling, and reporting all significant 
accounting policies and related party transactions at the 
governmentwide level; 
Status of recommendation[A]: Per Treasury and OMB: Treasury will fully 
implement its procedures for identifying, analyzing, compiling, and 
reporting all related party transactions at the governmentwide level 
in fiscal year 2012 by verifying the related party information 
received in the closing packages to the agencies' underlying audited 
financial statements, and will document this verification procedure. 
In addition, Treasury will monitor the work of FASAB's Reporting 
Entity Task Force as it relates to related party disclosures; 
Status of recommendation[A]: Per GAO: Open. 

Count: 44; 
No.: 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: In fiscal year 
2012, Treasury will comply with its enhanced Statement of Social 
Insurance SOP to document that all the social insurance information in 
the CFS is consistent with the agencies' social insurance information; 
Status of recommendation[A]: Per GAO: Open. 

Count: 45; 
No.: 09-08; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to implement and document procedures for assuring 
the accuracy of staff's work related to preparing the Schedule of 
Differences; 
Status of recommendation[A]: Per Treasury and OMB: In fiscal year 
2011, Treasury improved the implementation and documentation of its 
procedures to help assure completeness and accuracy of documenting the 
inconsistencies between the amounts provided by the agencies; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 46; 
No.: 09-10; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to implement and document procedures for assuring 
the accuracy of staff's work related to performing analytical 
procedures; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2012 Treasury will improve the implementation and documentation of its 
procedures to address remaining GAO issues related to assuring the 
accuracy of staff's work related to performing analytical procedures, 
specifically strengthening the explanations for all significant 
variances found during the year-end analyses; 
Status of recommendation[A]: Per GAO: Open. 

Count: GAO-11-525 (results of the fiscal year 2010 audit): 

Count: 47; 
No.: 10-01; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to enhance the applicable SOPs to include required 
steps for assuring conformity with SFFAS No. 33 and the consistency of 
amounts between the Statement of Net Cost and the Federal Employee and 
Veteran Benefits Payable (FEVBP) note disclosure; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2011, Treasury enhanced and implemented the applicable SOPs to verify 
the conformity with SFFAS No. 33 and the consistency of amounts 
between the Statement of Net Cost and FEVBP note disclosure; 
Status of recommendation[A]: Per GAO: Closed. Treasury 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 and (2) 
included in this report under "Review of Federal Entities' Financial 
Information for Inclusion in the CFS" a new recommendation for 
corrective actions for the remaining deficiencies. 

Count: 48; 
No.: 10-02; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to implement and document procedures for assuring 
conformity with SFFAS No. 33 and the consistency of amounts between 
the Statement of Net Cost and the FEVBP note disclosure; 
Status of recommendation[A]: Per Treasury and OMB: See the status of 
recommendation No. 10-01; 
Status of recommendation[A]: Per GAO: Closed. See the status of 
recommendation No. 10-01. 

Count: 49; 
No.: 10-03; 
Recommendation: The Director of OMB should direct the Controller of 
OMB to enhance its procedures for preparing the appendixes to include 
required steps to assure the accuracy and consistency of the 
accompanying information presented in the appendixes to the Financial 
Report related to the federal government's financial management; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2011, OMB reported this information on the newly released 
Performance.gov website and no longer included this in the Other 
Accompanying Information section of the Financial Report; 
Status of recommendation[A]: Per GAO: [Empty]. 

Count: 50; 
No.: 10-04; 
Recommendation: The Director of OMB should direct the Controller of 
OMB to enhance its procedures for preparing the appendixes to include 
required steps to maintain documentation supporting the accompanying 
information presented in the appendixes to the Financial Report 
related to the federal government's financial management; 
Status of recommendation[A]: Per Treasury and OMB: See the status of 
recommendation No. 10-03; 
Status of recommendation[A]: Per GAO: [Empty]. 

Sources: GAO, Treasury, and OMB. 

[A] The status of the recommendations listed in app. I is as of 
December 12, 2011, the date of our report on the audit of the fiscal 
year 2011 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 7, 2012: 

Mr. Gary T. Engel: 
Director, Financial Management and Assurance: 
Government 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 report on the Fiscal Year (FY) 
2011 audit, GAO-12-529, Management Report, improvements Needed in 
Controls over the Preparation of the U.S. Consolidated Financial
Statements. 

The draft Management Report for the FY 2011 audit identifies 10 new 
recommendations for improving the Consolidated Financial Statements 
(CFS) preparation process. We concur with GAO's findings and will use 
them to continue to improve the central accounting and compilation 
activities associated with the CFS. 

We have made significant progress in enhancing our policies and 
procedures since the issuance of the FY 2011 audit report and expect 
to implement additional recommendations by the end of FY 2012. We have 
closed 12 of the 50 recommendations outstanding from the previous CFS 
audit reports. We also strengthened the internal controls related to 
the preparation of the CFS. Our efforts included improved CFS 
disclosures, enhanced internal control processes and procedures, and 
the development of more detailed corrective actions to address the 
recommendations. 

We have given great management attention and staff resources to 
resolve material intragovernmental differences along with developing 
or improving process controls within FMS and the Federal Program 
Agencies. Our strategy includes the use of multiple focus groups that 
have identified both short and long term solutions through analysis of 
material differences and working closely with agencies to identify 
root causes of differences. We have dedicated full-time resources to 
review and strengthen policy and guidance for agency reporting of 
intragovernmental transactions and have worked collaboratively with 
other agencies and the audit community to issue a comprehensive policy 
that will help to resolve the material weakness. 

Along with implementing new policy, we have developed metrics and 
scorecards that will provide targeted quarterly feedback to agencies 
on their performance. These metrics and scorecards should produce 
improved reporting by agencies as we take a proactive approach to 
enforcing the policy and encouraging agencies to resolve their 
differences throughout the year. Through the Dispute Resolution 
Process Treasury has taken a key role in assisting agencies in 
resolving long standing differences which complements other changes we 
are implementing. In addition, the team has identified tools and 
possible system solutions that will aid in compliance with the policy. 
We have started agency pilot testing of our electronic interact 
payment platform for intra-governmental buy-sell transactions. We 
believe that with continued focus and strengthened policy and 
guidance, differences will be identified and resolved and repeatable 
processes put in place so that the material weakness can he closed 
soon. 

Finally, we have determined that during the compilation process, 
transactions with the General Fund are not consolidated or eliminated. 
As a result, we have developed General. Fund accounts that will 
provide Treasury with the capability to reconcile to agency financial 
reporting data. Regular postings in the General Fund will begin this 
fiscal year, and may help in the FY 2012 consolidation. The 
implementation of the General Fund will move us closer to resolving 
another material weakness. 

In conclusion, we are appreciative of GAO's recommendations. Thank 
you, again, for the opportunity to review and comment on the final 
draft. 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: Daniel Werfel, Comptroller, OMB. 

[End of section] 

Footnotes: 

[1] The 2011 Financial Report of the United States Government includes 
our report and was issued by the Department of the Treasury on 
December 23, 2011, and is available through GAO's website at 
[hyperlink, http://www.gao.gov/financial.html] and Treasury's website 
at [hyperlink, http://www.fms.treas.gov/fr/index.html]. 

[2] The CFS for the fiscal years ended September 30, 2011 and 2010, 
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, the 2011, 2010, 
2009, 2008, and 2007 Statements of Social Insurance, and the 2011 
Statement of Changes in Social Insurance Amounts, including the 
related notes to these financial statements. 

[3] Because of significant uncertainties (discussed in Note 26 to the 
consolidated financial statements), primarily related to the 
achievement of projected reductions in Medicare cost growth reflected 
in the 2011 and 2010 SOSI, we were unable to, and did not, express 
opinions on the 2011 and 2010 SOSI as well as on the 2011 Statement of 
Changes in Social Insurance Amounts. We were, however, able to render 
unqualified opinions on the 2009, 2008, and 2007 SOSI. 

[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 Statement of 
Changes in Social Insurance Amounts. 

[5] 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). 

[6] 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. 

[7] A significant deficiency is a deficiency, or a combination of 
deficiencies, in internal control that is less severe than a material 
weakness, yet important enough to merit attention by those charged 
with governance. 

[8] The Financial Report comprises the consolidated financial 
statements, related notes, stewardship information, supplemental 
information, and other accompanying information, including the 
Citizen's Guide and Management's Discussion and Analysis. The 
Citizen's Guide presents information regarding the financial position 
and condition of the U.S. government and discusses key financial 
topics. The Management's Discussion and Analysis assists in (1) 
communicating management's insights about the reporting entity, (2) 
increasing the understandability and usefulness of the financial 
report, and (3) providing information about the reporting entity and 
its operations and challenges. 

[9] The Secretary of the Treasury, in coordination with the Director 
of OMB, is required to annually submit financial statements of the 
U.S. government to the President and the Congress. The Office of the 
Fiscal Assistant Secretary and the Office of Federal Financial 
Management are the respective offices within Treasury and OMB that 
have primary responsibility for performing this function. 

[10] 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). These standards define the minimum 
level of quality acceptable for internal control in the government and 
provide the basis against which internal control is to be evaluated. 

[11] The Federal Accounting Standards Advisory Board is the body 
designated by the American Institute of Certified Public Accountants 
as the source of generally accepted accounting principles for federal 
reporting entities. 

[12] Treasury's SOP is modified annually to include new due dates for 
updating the CFS disclosure checklist to correspond with the current 
fiscal year CFS reporting requirements. In fiscal year 2011, Treasury 
required the CFS disclosure checklist to be reviewed and approved by 
December 5, 2011. 

[13] The closing package methodology links federal entities' audited 
consolidated department-level financial statements to the CFS. 
Verifying entities' chief financial officers must verify the 
consistency of the closing package data with these entities' audited 
financial statements. In addition, for most verifying entities, the 
full closing package is required to be audited. 

[14] Prior to fiscal year 2011, Treasury's SOP called for biennial 
assessments for entities with a fiscal year end and for triennial 
assessments for entities with a calendar year end. In fiscal year 
2011, Treasury revised this SOP to require annual assessments. 

[End of section] 

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