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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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Report to the Secretary of the Treasury and the Director of the Office 
of Management and Budget: 

United States Government Accountability Office: 
GAO: 

July 2010: 

Management Report: 

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

GAO-10-757: 

GAO Highlights: 

Highlights of GAO-10-757, a report to the Secretary of the Treasury 
and the Director of the Office of Management and Budget. 

Why GAO Did This Study: 

Since GAO’s first audit of the fiscal year 1997 consolidated financial 
statements of the U.S. government (CFS), material weaknesses in 
internal control and other limitations on the scope of GAO’s work have 
prevented GAO from expressing an opinion on the consolidated financial 
statements, other than the Statement of Social Insurance (accrual-
based consolidated financial statements). The Department of the 
Treasury (Treasury), in coordination with the Office of Management and 
Budget (OMB), is responsible for preparing the CFS. As part of the 
fiscal year 2009 CFS audit, GAO identified material weaknesses and 
other control deficiencies in Treasury’s processes used to prepare the 
CFS that warrant management’s attention and corrective action. The 
purpose of this report is to (1) provide details on new control 
deficiencies GAO identified during its audit of the fiscal year 2009 
CFS that related to the preparation of the CFS, (2) recommend 
improvements, and (3) provide the status of corrective actions taken 
to address GAO’s previous 44 recommendations in this area. 

What GAO Found: 

During its audit of the fiscal year 2009 CFS, GAO identified 
continuing and new control deficiencies in the federal government’s 
processes used to prepare the CFS. The control deficiencies GAO 
identified involved: 

* enhancing policies and procedures for identifying and analyzing 
federal entities’ reported restatements and changes in accounting 
principles; 

* establishing and documenting policies and procedures for disclosing 
significant accounting policies and related party transactions; 

* establishing and documenting procedures to assure the accuracy of 
Treasury staff’s work in three areas: (1) social insurance, (2) legal 
contingencies, and (3) analytical procedures; and; 

* various other control deficiencies identified in previous years’ 
audits (see appendix I for related recommendations). 

These control deficiencies contribute to material weaknesses in 
internal control over the federal government’s ability to (1) 
adequately account for and reconcile intragovernmental activity and 
balances between federal entities; (2) ensure that the 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 (3) 
identify and either resolve or explain material differences between 
components of the budget deficit reported in Treasury’s records, which 
are used to prepare the Reconciliation of Net Operating Cost and 
Unified Budget Deficit and Statement of Changes in Cash Balance from 
Unified Budget and Other Activities, and related amounts reported in 
federal entities’ financial statements and underlying financial 
information and records. As a result of these and other material 
weaknesses, the federal government did not have effective internal 
control over financial reporting. 

Of the 44 open recommendations GAO reported in April 2009, 2 were 
closed and 42 remained open as of February 19, 2010, the date of GAO’s 
report on its audit of the fiscal year 2009 CFS. GAO will continue to 
monitor the status of corrective actions taken to address the 10 new 
recommendations as well as the 42 open recommendations from prior 
years (see appendix I). 

What GAO Recommends: 

GAO is making 10 new recommendations to Treasury to address control 
deficiencies identified during the fiscal year 2009 CFS audit related 
to the processes used to prepare the CFS. In commenting on GAO’s draft 
report, Treasury and OMB stated that they concurred with GAO’s 
findings. 

View [hyperlink, http://www.gao.gov/products/GAO-10-757] or key 
components. For more information, contact Gary Engel at (202) 512-3406 
or engelg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Scope and Methodology: 

New Internal Control Deficiencies: 

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: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

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

GAAP: Generally accepted accounting principles: 

GFRS: Governmentwide Financial Report System: 

HHS: Department of Health and Human Services: 

MD&A: Management's Discussion and Analysis: 

OMB: Office of Management and Budget: 

SFFAS: Statement of Federal Financial Accounting Standards: 

SOP: Standard Operating Procedure: 

SSA: Social Security Administration: 

STAR: Treasury's Central Accounting and Reporting System: 

VA: Department of Veterans Affairs: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

July 30, 2010: 

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

The Honorable Peter Orszag: 
Director, Office of Management and Budget: 

In our report dated February 19, 2010,[Footnote 1] we disclaimed an 
opinion on the consolidated financial statements of the U.S. 
government (CFS) for the fiscal years ended September 30, 2009 and 
2008,[Footnote 2] except for the 2009, 2008, and 2007 Statements of 
Social Insurance, which received unqualified opinions. Since GAO's 
first audit of the fiscal year 1997 CFS, material weaknesses in 
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 3] 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 (1) adequately account for and reconcile 
intragovernmental activity and balances between federal entities; (2) 
ensure that the 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 (3) identify and either resolve or explain 
material differences between certain components of the budget deficit 
reported in the Department of the Treasury's (Treasury) records, which 
are used to prepare the Reconciliation of Net Operating Cost and 
Unified Budget Deficit and Statement of Changes in Cash Balance from 
Unified Budget and Other Activities, and related amounts reported in 
federal entities' financial statements and underlying financial 
information and records. 

Treasury, in coordination with the Office of Management and Budget 
(OMB),[Footnote 4] prepares the CFS on behalf of the federal 
government. Many of the material weaknesses[Footnote 5] in internal 
control that have contributed to our continuing disclaimers of opinion 
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) more detailed information 
on new control deficiencies that we identified during our audit of the 
fiscal year 2009 CFS that relate to the processes used to prepare the 
CFS, (2) 10 recommendations to address these control deficiencies, and 
(3) the status of corrective actions by Treasury and OMB to address 
the 44 recommendations relating to the processes used to prepare the 
CFS that were detailed in our previous reports that remained open at 
the end of the fiscal year 2008 audit (see app. I). We have discussed 
each of the new control deficiencies identified during our fiscal year 
2009 audit with your staff and have incorporated their comments as 
appropriate. 

Scope and Methodology: 

As part of our audit of the fiscal years 2009 and 2008 CFS, we 
evaluated the federal government's financial reporting procedures and 
related internal control. Also, we determined the status of corrective 
actions by Treasury and OMB to address open recommendations relating 
to the processes used to prepare the CFS detailed in our previous 
reports. In our audit report on the fiscal year 2009 CFS, which is 
included in the fiscal year 2009 Financial Report of the United States 
Government (Financial Report), we discussed the material weaknesses 
related to the federal government's processes used to prepare the CFS. 
These material weaknesses contributed to our disclaimer of opinion on 
the accrual-based consolidated financial statements and our conclusion 
that the federal government did not have effective internal control 
over financial reporting. We performed our audit of the fiscal years 
2009 and 2008 CFS in accordance with U.S. generally accepted 
government auditing standards. We believe that our audit provided a 
reasonable basis for our conclusions in this report. 

We requested comments on a draft of this report from the Director of 
OMB and the Secretary of the Treasury or their designees. OMB provided 
oral comments, which are summarized in the Agency Comments section of 
this report. Treasury's comments are reprinted in appendix II and are 
also summarized in the Agency Comments section. 

New Internal Control Deficiencies: 

Standard Operating Procedures for Preparing the CFS: 

Over the past several years, Treasury has made progress in developing, 
documenting, and implementing internal control over the process for 
preparing the CFS through numerous standard operating procedures 
(SOP). However, we identified areas where SOPs were not developed, 
implemented, fully documented for fiscal year 2009, or a combination 
of these. Specifically, we found that SOPs were missing or inadequate 
in five key areas: (1) restatements and changes in accounting 
principles, (2) summary of significant accounting policies, (3) social 
insurance, (4) legal contingencies, and (5) analytical procedures. In 
connection with its role as preparer of the CFS, Treasury management 
is responsible for developing and documenting detailed policies, 
procedures, and practices for preparing the CFS and ensuring that 
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. 
[Footnote 6] Missing or 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. 

Restatements and Changes in Accounting Principles: 

Treasury's SOP entitled "Analyzing Agency Restatements," which is 
intended to document Treasury's procedures regarding prior period 
adjustments (i.e., restatements and changes in accounting principles) 
at the governmentwide level, was not adequate to help assure that 
prior period adjustments are properly identified and reported in the 
CFS. Specifically, we found that (1) not all procedures Treasury 
performs to identify, analyze, and report restated closing package 
data and changes in accounting principles in the CFS were fully 
documented in the SOP; (2) for some steps listed in the SOP, it was 
unclear who was responsible for performing the procedures; and (3) the 
SOP did not require an analysis of the overall impact of entities' 
restatements on the CFS or documentation of the analysis and related 
conclusion. 

Recommendations for Executive Action: 

To help assure that prior period adjustments are properly identified 
and reported in the CFS, we recommend that the Secretary of the 
Treasury direct the Fiscal Assistant Secretary to enhance the SOP 
entitled "Analyzing Agency Restatements" to (1) fully document all 
procedures related to identifying, analyzing, and reporting restated 
closing package data as well as changes in accounting principles; (2) 
clarify who is responsible for performing the procedures contained in 
the SOP; and (3) include procedures for analyzing the overall impact 
of entities' restatements on the CFS and documenting the analysis and 
related conclusion. 

Significant Accounting Policies: 

Treasury did not have written policies and procedures to help assure 
that all significant accounting policies and related party 
transactions were properly identified and disclosed in Note 1 - 
Summary of Significant Accounting Policies (Note 1) to the CFS. 
Statement of Federal Financial Accounting Standards (SFFAS) No. 32, 
Consolidated Financial Report of the United States Government 
Requirements: Implementing Statement of Federal Financial Accounting 
Concepts 4 "Intended Audience and Qualitative Characteristics for the 
Consolidated Financial Report of the United States Government", 
requires that significant accounting policies be disclosed within Note 
1 to the financial statements. 

In accordance with SFFAS No. 32, Note 1 should, among other things, 
"Summarize the accounting principles and methods of applying those 
principles that management has concluded are appropriate for 
presenting fairly the agencies' assets, liabilities, net cost of 
operations, and changes in net position. Disclosure of accounting 
policies should identify and describe the accounting principles 
followed by the reporting agency and the methods of applying those 
principles. In general, the disclosure should encompass important 
judgments as to the valuation, recognition, and allocation of assets, 
liabilities, expenses, revenues and other financing sources." 

However, we identified significant accounting policies that were not 
disclosed in Note 1 to the draft CFS, including accounting policies 
regarding federal debt securities held by the public, beneficial 
interest in trust, and certain securities and investments. In 
addition, Treasury had not disclosed that certain federal entities--
primarily Treasury and the Federal Deposit Insurance Corporation along 
with the Board of Governors of the Federal Reserve System and the 
Federal Reserve Banks--engaged in a related party transaction 
involving concurrent actions, coordinated actions, or both to help 
stabilize the financial system and the housing market. We communicated 
these omissions to Treasury officials who included these disclosures 
in Note 1 to the fiscal year 2009 CFS. 

Recommendation for Executive Action: 

To help assure complete and accurate disclosure of significant 
accounting policies and related party transactions in Note 1 to the 
CFS, we recommend that the Secretary of the Treasury 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. 

Social Insurance Information: 

Treasury did not have adequate procedures to assure the accuracy of 
staff's work performed in accordance with Treasury's SOP entitled 
"Statement of Social Insurance, Social Insurance Note, and Required 
Supplementary Information." The SOP provides detailed procedures for 
Treasury personnel to perform related to the reporting and disclosure 
of social insurance information. However, the SOP did not include 
adequate procedures to be performed to assure the accuracy of staff's 
work and we identified several errors made by Treasury personnel in 
preparing the social insurance sections of the CFS. 

Specifically, when reviewing the Statement of Social Insurance-related 
note in the draft fiscal year 2009 CFS, we found instances where 
certain social insurance-related information was inconsistent with the 
related information provided by the federal entities through the 
Governmentwide Financial Report System (GFRS).[Footnote 7] For 
example, the Department of Health and Human Services (HHS) and the 
Social Security Administration (SSA) both submitted demographic data 
in GFRS showing that the ultimate fertility rate was assumed to be 
reached in 2033; however, the draft CFS reported 2032. Additionally, 
the beneficiary-to-worker ratio reported in GFRS by HHS and SSA for 
Medicare and the Old-Age and Survivors, and Disability Insurance 
programs did not agree to the amounts reported in the draft CFS 
prepared by Treasury personnel. These inconsistencies were not 
identified through Treasury's process to prepare the social insurance 
information for the CFS. We communicated these matters to Treasury 
officials who corrected this information for disclosure in the fiscal 
year 2009 CFS. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to (1) enhance the SOP entitled "Statement of 
Social Insurance, Social Insurance Note, and Required Supplementary 
Information" to include procedures for assuring the accuracy of 
staff's work related to preparing the social insurance information for 
the CFS and (2) implement and document such procedures. 

Legal Contingencies: 

Treasury did not have adequate procedures to assure the accuracy of 
staff's work performed in accordance with Treasury's SOP entitled 
"Federal Agency Legal Letter Analysis." The SOP has detailed 
procedures for Treasury staff to perform with regard to reviewing and 
analyzing entities' legal representation letters and related 
management schedules.[Footnote 8] As part of the legal representation 
letter process, the SOP requires Treasury staff to compare the 
entities' and the Department of Justice (Justice) lawyer's assessments 
of the major cases and document any differences on a Schedule of 
Differences. The schedule is to be used by Treasury to identify, 
research, and resolve significant inconsistencies and also to make any 
adjustments to the CFS to help assure complete and accurate reporting 
of legal contingencies. However, the SOP did not include adequate 
procedures to be performed to assure the accuracy of staff's work and 
we identified several errors made by Treasury personnel in preparing 
the Schedule of Differences. 

Specifically, our review of the Schedule of Differences identified 
nine additional cases in fiscal year 2009 where there were significant 
differences between the entities' and Justice's assessments, but such 
differences were not documented on the Schedule of Differences. 
Treasury did not have adequate procedures to detect that the Treasury 
staff had not identified these differences. Lack of identification and 
follow-up on inconsistent assessments by Justice and entity legal 
counsels impairs Treasury's ability to determine the proper accounting 
treatment in the CFS for the related legal cases. We communicated 
these matters to Treasury officials who subsequently corrected some of 
these inconsistencies in the fiscal year 2009 Schedule of Differences. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to (1) enhance the SOP entitled "Federal Agency 
Legal Letter Analysis" to include procedures for assuring the accuracy 
of staff's work related to preparing the Schedule of Differences and 
(2) implement and document such procedures. 

Analytical Procedures: 

Treasury's SOP entitled "Preparing the Financial Report of the U.S. 
Government" provides that Treasury staff are to perform an overall 
analysis of the balances reported in the CFS, including a review for 
reasonableness of changes from the prior year to the current year. The 
analysis should assist Treasury in identifying any significant changes 
in balances from year to year that should be disclosed in the 
Financial Report. The SOP did not include adequate procedures to be 
performed to assure the accuracy of the overall analysis, and we 
identified errors in the formulas used in the analysis and 
inadequacies in the explanations provided by Treasury personnel 
through performance of the analytical procedures. 

Our review of the overall line item analysis covering the Balance 
Sheets, Statements of Net Cost, Statements of Operations and Changes 
in Net Position, and related notes identified incorrect formulas used 
to calculate the percentage change from year to year.[Footnote 9] 
Specifically, Treasury calculated the change using the current year 
balances, rather than the prior year balances, as the denominator for 
the calculation. This error in the formulas resulted in incorrect 
percentage changes being used for the analysis. For example, the 
percentage change between years determined for the Investments in 
Government Sponsored Enterprises line item, was calculated as 89 
percent, when the actual change was 824 percent. We communicated the 
formula errors to Treasury officials who took action to correct the 
errors. We also noted that Treasury staff's documented explanations 
for certain significant fluctuations were inadequate. For example, the 
Department of Veterans Affairs' (VA) gross costs in the CFS Statements 
of Net Cost changed from $435 billion in 2008 to ($39) billion in 
2009, a change of over $473 billion and more than 100 percent. The 
significant decrease in gross cost was primarily attributable to VA's 
reestimation of its actuarial liability for, and anticipated cost of, 
veterans' compensation benefits. However, the explanation provided for 
this change by Treasury in its documentation of the analysis included 
a discussion of VA's and several other federal entities' changes in 
costs and did not specifically explain the primary reasons for the 
significant decrease in VA's gross cost. As a result of incorrect 
formulas used in the overall analysis and inadequate explanations of 
changes, the risk of Treasury failing to properly report in the 
Financial Report significant changes in certain balances is increased. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to (1) enhance the SOP entitled "Preparing the 
Financial Report of the U.S. Government" to include procedures for 
assuring the accuracy of staff's work related to performing analytical 
procedures and (2) implement and document such procedures. 

Status of Recommendations from Prior Reports: 

As part of our audit of the fiscal years 2009 and 2008 CFS, we 
determined the status of corrective actions by Treasury and OMB to 
address open recommendations detailed in our previous reports. Of the 
44 recommendations that are listed in appendix I, 2 were closed and 42 
remained open as of February 19, 2010, the date of our report on the 
audit of the fiscal year 2009 CFS. 

Appendix I includes the status of recommendations from seven prior 
reports[Footnote 10] that were open at the beginning of our fiscal 
year 2009 audit. Recommendations from these reports that were closed 
in prior years are not included in this appendix. Appendix I includes 
the status according to Treasury and OMB, as well as our own 
assessments. Explanations are included in the status of 
recommendations per GAO when Treasury and OMB disagreed with our 
recommendation or our assessment of the status of a recommendation. We 
will continue to monitor Treasury's and OMB's progress in addressing 
GAO's recommendations. 

Agency Comments: 

OMB Comments: 

In oral comments on a draft of this report, OMB stated that it 
concurred with the new findings and related recommendations in this 
report. 

Treasury Comments: 

In July 21, 2010, written comments on a draft of this report, which 
are reprinted in appendix II, Treasury's Fiscal Assistant Secretary 
concurred with our findings and noted that the agency has already made 
significant progress in improving its policies and procedures for the 
CFS preparation since the issuance of the report. Further, Treasury 
stated that it expects to implement additional recommendations by the 
end of fiscal year 2010, and that it will use GAO's findings to focus 
its efforts on improving the central accounting and compilation 
activities associated with the CFS. Also, while noting that they may 
take several years to provide measurable reductions, Treasury cited 
plans it has initiated to address long-standing material issues, 
including the development of an infrastructure for General Fund 
accounting and plans for automating the interagency agreement process. 

This report contains recommendations to the Secretary of the Treasury. 
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 that report. 

We are sending copies of this report to interested congressional 
committees, the Fiscal Assistant Secretary of the Treasury, the Deputy 
Director for Management and Chief Performance Officer of OMB, and the 
Controller of OMB's Office of Federal Financial Management. This 
report also is available at no charge on GAO's Web site 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. GAO staff who made major contributions to this 
report are listed in appendix III. 

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 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 has continued to 
eliminate, at the consolidated level, intragovernmental activity and 
balances using formal balanced accounting entries (via Reciprocal 
Categories) and has continued its analysis of transactions that 
contribute to the unmatched transactions and balances adjustment. 
Major contributors to the plug are transactions with the General Fund 
(Reciprocal Category 29). In fiscal year 2009, a new Treasury Task 
Group was formed to develop the financial statements for the General 
Fund, with the goal to prepare them for financial audit. In the 
interim, Treasury continues to separately identify General Fund 
transactions to facilitate their agency reconciliation on a quarterly 
basis. Also throughout fiscal year 2009, Treasury continued its 
efforts on particular areas (fiduciary and employee benefits) and 
increased its analysis and monitoring efforts on agencies' 
explanations of material differences with their trading partners; 
Status of recommendation[A]: Per GAO: Open. Treasury has continued 
developing reconciliation procedures to aid in understanding the net 
position balance but remains unable to eliminate the plugs associated 
with compiling the CFS. In addition, there are hundreds of billions of 
dollars of unreconciled differences between the General Fund and 
federal entities related to appropriation and other intragovernmental 
transactions. The ability to reconcile these transactions is hampered 
because only some of the General Fund transactions are reported in 
Treasury's financial statements. 

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: OMB will continue 
its efforts to implement this recommendation; 
Status of recommendation[A]: Per GAO: Open. 

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: OMB will continue 
its efforts to implement this recommendation; 
Status of recommendation[A]: Per GAO: Open. 

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 formal consolidating and eliminating procedures to account 
for these differences and has implemented them. See status of 
recommendation no. 02-4; 
Status of recommendation[A]: Per GAO: Open. Treasury's formal 
consolidating and eliminating accounting entries could not fully 
account for the difference in intragovernmental assets and liabilities 
during the fiscal year 2009 compilation process. For example, there 
are hundreds of billions of dollars of unreconciled differences 
between the General Fund and federal entities related to appropriation 
and other intragovernmental transactions. These amounts are not 
eliminated by Treasury's formal consolidating and elimination 
accounting entries because Treasury's ability to reconcile these 
transactions is hampered because not all General Fund transactions are 
reported in Treasury's financial statements. 

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: Treasury continues 
to provide to federal agencies information from its Central Accounting 
and Reporting System (STAR) related to special and trust fund 
appropriations and nonexpenditure transfers for the agencies' use in 
reconciling with this centrally reported data. The agencies were 
required to reconcile with this information in fiscal year 2009 on a 
quarterly basis. In addition, in fiscal year 2010, the agencies will 
also be required to reconcile their fund balance with Treasury and 
appropriations received against STAR on a quarterly basis; 
Status of recommendation[A]: Per GAO: Open. Although Treasury's 
analysis of agencies' transactions with the General Fund is ongoing, 
the ability to reconcile these transactions is hampered because only 
some of the General Fund transactions are reported in Treasury's 
financial statements. 

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: The current 
reconciliation of intragovernmental activity does account for 
differences caused by asset capitalization and agency advances or 
deferred revenue. Given current intragovernmental differences, further 
resolution of this activity is contingent on these differences being 
materially resolved. See status of recommendation no. 02-4; 
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 continue to be reflected in the 
Statements of Operations and Changes in Net Position until they are 
materially resolved. However, based on its analyses of these unmatched 
transactions and balances, Treasury believes that these unmatched 
transactions and balances are primarily caused by unreconciled 
transactions that affect only the amounts reported on an accrual basis 
of accounting (net operating cost) and, therefore, these unmatched 
transactions and balances should not be included as a separate 
reconciling item on this statement. Treasury will continue its 
analysis in fiscal year 2010; 
Status of recommendation[A]: Per GAO: Open. Treasury has not 
implemented a process that demonstrates the amount, if any, of 
unmatched transactions and balances that should be included as a 
separate reconciling item in the reconciliation statement. 

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: Treasury will 
continue to improve the completeness and consistency of the 
information in this reconciliation statement and will continue to 
resolve significant inconsistencies, if any, to the applicable and 
related components reported in the other basic financial statements, 
and in the related note disclosures included in the CFS; 
Status of recommendation[A]: Per GAO: Open. Treasury has not fully 
developed a process to ensure the completeness of reporting of 
information on the reconciliation statement and to document how all 
applicable components reported elsewhere in the CFS are properly 
reflected in the reconciliation statement. 

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: Treasury will 
continue to update and revise its materiality policy in fiscal year 
2010 to address remaining GAO concerns; 
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 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 
elected to continue the use of information from STAR and has 
identified the material areas where STAR data does not reconcile to 
federal agencies' financial statements. Treasury intends to continue 
working on these material areas in fiscal year 2010; 
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 status of 
recommendation no. 02-15; 
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 
elected to continue to use information from STAR. Treasury will 
document the consistency of the significant line items on this 
statement to federal agencies' audited financial statements as 
possible during fiscal year 2010. See status of recommendation 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 
continue with its efforts to reconcile budgetary receipts to net 
operating revenue. During fiscal year 2009, Treasury made significant 
progress with identifying and documenting the larger differences 
between budgetary receipts and net operating revenue and automated a 
portion of this reconciliation in the Governmentwide Financial Report 
System (GFRS); 
Status of recommendation[A]: Per GAO: Open. OMB and Treasury continue 
to work toward establishing effective processes and procedures for 
identifying, resolving, and explaining material differences in net 
outlays and other components of the deficit between Treasury's central 
accounting records and information reported in entity financial 
statements and underlying entity financial information and records. 

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. Key decisions made in 
this assessment should be documented, including the reason for 
including or excluding components and the basis for concluding on any 
issue. Particular emphasis should be placed on demonstrating that any 
financial information that should be included but is not included is 
immaterial; 
Status of recommendation[A]: Per Treasury and OMB: Treasury developed 
a reporting entity policy in fiscal year 2009. Treasury will continue 
to revise the policy in fiscal year 2010 to address remaining GAO 
concerns; 
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 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 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 
2010, Treasury and OMB will continue to work with federal agencies to 
help better ensure that adequate information is provided in the legal 
representation letters regarding the expected outcomes of the cases; 
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: OMB and Treasury 
undertook a number of corrective actions in fiscal year 2009 that 
resulted in published policy guidance in OMB Circular A-136 and 
procedural guidance in the Treasury Financial Manual regarding the 
proper reporting and disclosure of treaties. OMB and Treasury will 
continue to work with federal agencies in fiscal year 2010 to help 
ensure proper and complete recognition and disclosure of contingencies 
related to treaties and other international agreements; 
Status of recommendation[A]: Per GAO: Open. As noted in Note 22, 
Contingencies, a comprehensive analysis to determine any financial 
obligation or possible exposure to loss and its related effect on the 
CFS has not yet been performed. 

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 status of 
recommendation no. 02-37; 
Status of recommendation[A]: Per GAO: Open. See 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 status of 
recommendation no. 02-37; 
Status of recommendation[A]: Per GAO: Open. See 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 status of 
recommendation no. 02-37; 
Status of recommendation[A]: Per GAO: Open. See 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 status of 
recommendation no. 02-37; 
Status of recommendation[A]: Per GAO: Open. See 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 required 
information was requested from federal agencies for disclosure in the 
required supplementary information (risk assumed) section of the 
fiscal year 2009 CFS. In addition, Treasury completed an analysis of 
the risk assumed reporting by the agencies to document agency 
compliance with the applicable reporting requirements. Treasury will 
continue working with the federal agencies to ensure proper and 
complete disclosure of this information in fiscal year 2010; 
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: In fiscal year 
2009, Treasury disclosed the change in cash balances as reported on 
the Balance Sheet on the Statement of Changes in Cash Balance; 
Status of recommendation[A]: Per GAO: Open. Treasury has not developed 
a process that will allow full reporting of the changes in cash 
balance. For example, Treasury had not identified some of the 
significant changes in cash that we had noted as needing to be 
reported in the fiscal year 2009 Statement of Changes in Cash Balance. 

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 
include criminal debt information in the CFS as it becomes available. 
See 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 continues 
to use its CFS compilation process, GFRS, to provide direct linkage 
from the agency audited financial statements to most of the CFS 
principal statements. However, additional work is needed related to 
the two budgetary principal financial statements. See status of 
recommendation no. 02-17. With regard to note disclosures, GFRS note 
references (linkages), along with additional Treasury analysis, are 
designed to link the CFS and agency note disclosures; 
Status of recommendation[A]: Per GAO: Open. Treasury's process for 
compiling the CFS demonstrated that amounts in the Statement of Social 
Insurance were consistent with the underlying federal agencies' 
audited financial statements and that the Balance Sheet and the 
Statement of Net Cost were also consistent with 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 federal entities' 
audited financial statements and other financial data. 

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

Count: 28; 
No.: 04-2; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to require and maintain appropriate supporting 
documentation for all journal vouchers recorded in the CFS; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2009, Treasury ensured that journal vouchers included appropriate 
supporting documentation; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 29; 
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: Treasury will 
continue its efforts to ensure that all journal vouchers are 
communicated to the federal agencies before recording them in GFRS; 
Status of recommendation[A]: Per GAO: Open. We believe that Treasury 
should be required to contact federal entities to resolve any 
discrepancies between federal entities' audited closing packages and 
audited financial statements and discuss any other situations that 
require adjustments to federal entities' audited closing package data 
because Treasury could incorrectly adjust federal entities' audited 
information. 

Count: 30; 
No.: 04-4; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to require and document management reviews of all 
procedures that result in data changes to the CFS; 
Status of recommendation[A]: Per Treasury and OMB: During fiscal year 
2009, Treasury ensured that management reviews of procedures that 
resulted in data changes to the CFS were required and documented; 
Status of recommendation[A]: Per GAO: Closed. 

Count: 31; 
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: Treasury continued 
to make improvements to its internal control infrastructure during 
fiscal year 2009. Treasury has updated its documentation to help 
ensure that control procedures are in place at all critical areas of 
the CFS preparation process and is working to ensure that these 
controls are adequately monitored and assessed each year; 
Status of recommendation[A]: Per GAO: Open. Treasury has not completed 
an assessment to ensure that it has sufficient personnel with 
specialized financial reporting experience to achieve a sound internal 
control environment to carry out the compilation process and help 
ensure reliable financial reporting by the reporting date. 

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

Count: 32; 
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: OMB will continue 
working with TVA so that it submits its audited closing package by the 
required financial reporting deadline. Of note, TVA moved closer to 
submitting its closing package by the required year-end reporting 
deadline during fiscal year 2009; 
Status of recommendation[A]: Per GAO: Open. OMB has not yet reasonably 
ensured that audit assurance is provided over all federal agencies' 
closing package information. 

Count: 33; 
No.: 05-4; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop policies and procedures for monitoring internal control to 
help ensure that (1) audit findings are promptly evaluated; 
(2) proper actions are determined in response to audit findings and 
recommendations, such as a documented plan of action with milestones 
for short-term and long-range solutions; 
and (3) all actions that correct or otherwise resolve the audit 
findings are completed within established time frames; 
Status of recommendation[A]: Per Treasury and OMB: Treasury has 
designed a process to identify and execute the actions necessary to 
address GAO audit findings. Efforts will continue in fiscal 2010 to 
track and resolve audit findings; 
Status of recommendation[A]: Per GAO: Open. Although Treasury has 
developed a process, the process did not ensure that corrective action 
plans were appropriately updated and monitored to help ensure 
effective resolution of audit findings within established time frames. 

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

Count: 34; 
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, will continue working 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 GAO: Open. The federal government was 
unable to provide us with adequate legal representation regarding the 
accrual-based consolidated financial statements for fiscal year 2009. 

Count: 35; 
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 
2009, Treasury continued 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 included (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 will continue in fiscal year 2010, including following up 
with any federal agencies that either did not comply or provided 
incomplete information related to this new requirement; 
Status of recommendation[A]: Per GAO: Open. While Treasury continued 
to take action in this area, we identified instances in which the 
procedures that Treasury designed to monitor intragovernmental 
transactions and balances had not been implemented consistently. For 
example, some review accountants did not follow up for additional 
explanations as necessary with agencies that either did not respond or 
had incomplete responses. 

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

Count: 36; 
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 and complete and can be consistently 
applied by staff members; 
Status of recommendation[A]: Per Treasury and OMB: In fiscal year 
2009, Treasury updated this SOP by significantly expanding the 
functions covered by this SOP and increasing the level of detail 
related to all the key procedures. Treasury will work to ensure full 
compliance with this SOP, as well as all other significant policies, 
during fiscal year 2010, to address remaining GAO concerns; 
Status of recommendation[A]: Per GAO: Open. Although Treasury made 
improvements to this SOP, key practices and procedures--including 
those related to preparing the budget statements--were excluded. 

Count: 37; 
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: During fiscal year 
2009, Treasury enhanced its analysis procedures to take into account 
agency-specific disclosures and assess their impact at the 
governmentwide level. Treasury will update its checklist during fiscal 
year 2010, as necessary, to comply with federal GAAP; 
Status of recommendation[A]: Per GAO: Open. Although Treasury made 
significant improvements in documenting its assessment of agency 
information, we found that the assessment was not complete. 

Count: 38; 
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: OMB, working 
jointly with Treasury, will enhance its efforts to implement this 
recommendation; 
Status of recommendation[A]: Per GAO: Open. 

Count: 39; 
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 
currently revising its internal control procedures to formalize 
monitoring and assessment of the effectiveness of internal control 
over the preparation of the CFS; 
Status of recommendation[A]: Per GAO: Open. 

Count: 40; 
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 will 
continue to consider what information can be obtained during the 
interim period to facilitate the year-end CFS preparation process; 
Status of recommendation[A]: Per GAO: Open. 

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

Count: 41; 
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 
2009, Treasury began documenting its procedures for identifying and 
eliminating intragovernmental payroll tax amounts at the 
governmentwide level. Treasury will continue to update and revise the 
policy in fiscal year 2010 to address remaining GAO concerns; 
Status of recommendation[A]: Per GAO: Open. 

Count: 42; 
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: During fiscal year 
2009, Treasury prepared a new SOP pertaining to preparation of the 
MD&A section of the Financial Report and the Citizen's Guide (Guide). 
Treasury noted that new steps and processes were being implemented 
during fiscal year 2009 to improve the efficiency and integrity of 
financial analysis in the MD&A and the Guide and that it was likely 
that the SOP was going to have to evolve as those steps were put into 
practice and refined. During fiscal year 2010, Treasury will be 
working with GAO to resolve its comments received in fiscal year 2009. 
These changes notwithstanding, the SOP will have to further evolve to 
accommodate the phased, 3-year implementation of SFFAS No. 36, 
Reporting Comprehensive, Long-Term Fiscal Projections for the U.S. 
Government. The steps that the government will be taking to comply 
with SFFAS No. 36, which will ultimately be reflected in the SOP, 
remain under discussion; 
Status of recommendation[A]: Per GAO: Open. 

Count: 43; 
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 
2009, Treasury documented its criteria for identifying significant 
entities. Treasury and OMB will revise the criteria to address 
remaining GAO concerns; 
Status of recommendation[A]: Per GAO: Open. The criteria developed by 
Treasury are in conflict with criteria developed and implemented by 
OMB for identifying significant entities. In addition, implementation 
of the policy as currently designed will not result in obtaining, in a 
timely manner, audit assurance over the information reported by newly 
identified significant entities for use in the CFS. 

Count: 44; 
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 
2009, Treasury documented its procedures for identifying significant 
entities based on the criteria for these entities. Treasury will 
document and implement the policies related to significant entities 
based on the revised criteria from recommendation no. 08-03; 
Status of recommendation[A]: Per GAO: Open. See status of 
recommendation no. 08-03. 

Source: GAO. 

[A] The status of the recommendations listed in app. I is as of 
February 19, 2010, the date of our report on the audit of the fiscal 
year 2009 CFS. 

[End of table] 

[End of section] 

Appendix II: Comments from the Department of the Treasury: 

Department Of The Treasury: 
Assistant Secretary: 
Washington: 

July 21, 2010: 

Mr. Gary T. Engel: 
Director, Financial Management and Assurance: 
Government Accountability Office: 
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) 
2009 audit, GA0-10-757, Management Report: Improvements Needed in 
Controls Over the Preparation of the U.S. Consolidated Financial 
Statements. 

The 2009 draft report identifies ten new recommendations for improving 
the Consolidated Financial Statements (CFS) preparation process 
through changes to documented policies and enhancements to standard 
operating procedures. We have made significant progress in improving 
our policies and procedures since the issuance of the report and we 
expect to implement additional recommendations by the end of FY 2010. 
We concur with the GAO findings and will use them to focus our efforts 
on improving the central accounting and compilation activities 
associated with the Consolidated Statements. 

Although the FY 2009 Consolidated Report and this associated report 
were issued later than normal, we continued to make progress in 
improving the preparation of the CFS, leading to the closing of two of 
44 recommendations outstanding from the previous CFS audit reports. We 
are making steady improvement on our data analysis capabilities and 
improvements in the procedural and automated changes to our reporting 
processes. We also strengthened the internal controls related to the 
preparation of the CFS. Our efforts included improved Financial Report 
disclosures, enhanced internal control processes and procedures and 
development of more detailed corrective actions to address these 
recommendations. This year we initiated two efforts aimed at 
addressing long standing material items. We have initiated plans to: 
(1) develop a General Fund accounting infrastructure and (2) automate 
the interagency agreement process. While these efforts may take 
several years to provide measurable reductions they are significant 
efforts towards resolving a major cause of the annual disclaimer and 
numerous report findings. 

Thank you, again, for the opportunity to review and comment on the 
final draft. We look forward to working with you and your staff in 
making the CFS more meaningful and usable to its readers. 

Sincerely, 

Signed by: 

Richard L. Gregg
Fiscal Assistant Secretary: 

cc: Daniel Werfel, Comptroller, OMB: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Gary Engel, (202) 512-3406 or engelg@gao.gov: 

Acknowledgments: 

In addition to the contact named above, the following individuals made 
key contributions to this report: Louise DiBenedetto, Assistant 
Director; John Ahern; Shawkat Ahmed; William Boutboul; Darryl Chang; 
Malissa Livingston; Susan Mata; Thanomsri Piyapongroj; Taya Tasse; and 
Cindy Tsao. 

[End of section] 

Footnotes: 

[1] The fiscal year 2009 Financial Report of the United States 
Government includes our report and was issued by the Department of the 
Treasury (Treasury) on February 26, 2010, and is available through 
GAO's Web site at [hyperlink, http://www.gao.gov/financial.html] and 
Treasury's Web site at [hyperlink, 
http://www.fms.treas.gov/fr/index.html]. 

[2] The consolidated financial statements for the fiscal years ended 
September 30, 2009 and 2008, 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, and the Statements of Social Insurance, including the 
related notes to these financial statements. 

[3] As used in this report, accrual-based consolidated financial 
statements refer to all of the consolidated financial statements and 
notes, except those related to the Statement of Social Insurance. 

[4] 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). 

[5] 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 agency's financial 
statements will not be prevented, or detected and corrected, on a 
timely basis. 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. 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. 

[6] 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. 

[7] Treasury developed GFRS to collect federal entities' audited 
financial statement information to prepare the CFS. The goal of GFRS 
is to be able to directly link information from federal entities' 
audited financial statements to amounts reported in the CFS. 

[8] Generally accepted government auditing standards require that the 
entity auditors obtain written legal representations as part of the 
audit. Office of Management and Budget, Audit Requirements for Federal 
Financial Statements, OMB-07-04 (amended Aug. 25, 2008), requires each 
entity chief financial officer to prepare a management schedule that 
documents how the information obtained in the legal counsel's response 
was considered in preparing the entity's financial statements. 

[9] Percentage change represents the change in particular accounts or 
line items in the financial statements from the prior year to the 
current year. It represents the change between the old value and the 
new one divided by the old value. For example, if the prior year's 
balance for the cash line item was $100,000 and the current year's 
balance is $125,000 then the percentage change for the cash line item 
would be 25 percent (i.e., $25,000 divided by $100,000). 

[10] GAO, Financial Audit: Process for Preparing the Consolidated 
Financial Statements of the U.S. Government Needs Improvement, 
[hyperlink, http://www.gao.gov/products/GAO-04-45] (Washington, D.C.: 
Oct. 30, 2003); Financial Audit: Process for Preparing the 
Consolidated Financial Statements of the U.S. Government Needs Further 
Improvement, [hyperlink, http://www.gao.gov/products/GAO-04-866] 
(Washington, D.C.: Sept. 10, 2004); Financial Audit: Process for 
Preparing the Consolidated Financial Statements of the U.S. Government 
Continues to Need Improvement, [hyperlink, 
http://www.gao.gov/products/GAO-05-407] (Washington, D.C.: May 4, 
2005); Financial Audit: Significant Internal Control Weaknesses Remain 
in Preparing the Consolidated Financial Statements of the U.S. 
Government, [hyperlink, http://www.gao.gov/products/GAO-06-415] 
(Washington, D.C.: Apr. 21, 2006); Financial Audit: Significant 
Internal Control Weaknesses Remain in the Preparation of the 
Consolidated Financial Statements of the U.S. Government, [hyperlink, 
http://www.gao.gov/products/GAO-07-805] (Washington, D.C.: July 23, 
2007); Financial Audit: Material Weaknesses in Internal Control over 
the Processes Used to Prepare the Consolidated Financial Statements of 
the U.S. Government, [hyperlink, 
http://www.gao.gov/products/GAO-08-748] (Washington, D.C.: June 17, 
2008); and Financial Audit: Material Weaknesses in Internal Control 
Continue to Impact Preparation of the Consolidated Financial 
Statements of the U.S. Government, [hyperlink, 
http://www.gao.gov/products/GAO-09-387] (Washington, D.C.: Apr. 21, 
2009). 

[End of section] 

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