Financial Audit: Significant Internal Control Weaknesses Remain in the Preparation of the Consolidated Financial Statements of the U.S. Government
GAO-07-805
Published: Jul 23, 2007. Publicly Released: Jul 23, 2007.
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Highlights
For the past 10 years, since GAO's first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2006 disclaimer of opinion on the fiscal year 2006 CFS included a discussion of continuing weaknesses related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing and new weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on 143 open recommendations related to the preparation of the CFS that GAO reported in April 2006.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Management and Budget | The Director of the Office of Management and Budget (OMB) and the Secretary of the Treasury should direct the Controller of the Office of Federal Financial Management and Fiscal Assistant Secretary, respectively, to develop formal processes and procedures for identifying and either resolving or explaining any material differences in undistributed offsetting receipt amounts between Treasury's central accounting records and information reported in agency financial statements and underlying agency financial information and records. |
In fiscal year 2008, Treasury documented its processes and procedures for reconciling the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.
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| Department of the Treasury | The Director of the Office of Management and Budget (OMB) and the Secretary of the Treasury should direct the Controller of the Office of Federal Financial Management and Fiscal Assistant Secretary, respectively, to develop formal processes and procedures for identifying and either resolving or explaining any material differences in undistributed offsetting receipt amounts between Treasury's central accounting records and information reported in agency financial statements and underlying agency financial information and records. |
In fiscal year 2008, Treasury documented its processes and procedures for reconciling the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop formal processes and procedures for ensuring that intragovernmental activity and balances, including intragovernmental interest, are fully eliminated in the calculation of the budget deficit. |
In fiscal year 2008, Treasury documented and implemented its processes and procedures for eliminating intragovernmental activities and balances, including intragovernmental interest on federal trust funds, in the undistributed offsetting receipts included in the budget outlays component of the unified budget deficit.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB's Office of Federal Financial Management, to develop processes and procedures for collecting all the necessary information that would enable the proper reporting of unexpended budget balances in the CFS. |
During fiscal year 2007, Treasury changed its disclosure for unexpended budget balances in the CFS by reporting the fiscal years 2006 and 2005 actual amounts rather than reporting fiscal year 2006 actual amounts and estimating the fiscal year 2007 amounts. As such, this enabled the proper reporting of unexpended budget balances in the CFS.
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| Office of Management and Budget | The Director of OMB should direct the Controller of OMB's Office of Federal Financial Management to continue to work with federal agencies to resolve internal control issues regarding differences and the lack of effective reconciliation between the unexpended budget balances reported in agencies' financial statements and amounts reported in agencies' SF-133s. |
During fiscal year 2007, OMB established a requirement for federal agencies to submit to OMB a quarterly reconciliation of amounts reported in agencies' SBRs to amounts reported in agencies' SF-133s. By requiring agencies to submit quarterly SBR to SF-133 reconciliations, OMB is better able to identify agencies with significant differences and work with those agencies to address underlying internal control weaknesses contributing to these deficiencies and thereby improve their financial reporting. Further, OMB improved procedures and is continuing to enhance this reconciliation process and its guidance to agencies, and is continuing to work with federal agencies to resolve internal control issues related to reporting budgetary information, including unexpended budget balances.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement processes and procedures for identifying and either resolving or explaining the differences that exist between operating cash reported in certain federal agencies' financial statements and the operating cash balance reported in the CFS. |
In fiscal year 2007, Treasury redesigned its approach for reporting operating cash in the Cash and Other Monetary Assets footnote to the CFS for fiscal year 2007. Specifically, Treasury clarified in the footnote disclosure that the operating cash reported in the CFS represented only the cash held by the Department of the Treasury for Governmentwide operations. We validated that the operating cash reported in the CFS was consistent with the related information reported in both the Department of the Treasury's audited consolidated financial statements and audited Schedule of Governmentwide Cash.
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| Department of the Treasury |
Priority Rec.
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. |
As of the completion of our fiscal year 2019 audit of the consolidated financial statements of the U.S. government (CFS), this recommendation is closed. Treasury and OMB conducted an analysis to document whether legal contingencies below the individual case threshold are material to the consolidated financial statements in the aggregate. Treasury and OMB also made improvements to the analysis by (1) enhancing the management schedule template used by agencies per the Treasury Financial Manual, section 2-4700; (2) including the sum of the agencies' individual and aggregate materiality thresholds so the total can be compared against the government-wide aggregate materiality level; and (3) noting whether agencies included aggregate materiality levels in their legal representation letters.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary, working in coordination with the Controller of OMB's Office of Federal Financial Management, to develop a process for obtaining sufficient information from federal agencies to enable Treasury and OMB to adequately monitor agencies' efforts to reconcile intragovernmental activity and balances with their trading partners. This information should include (1) the nature and a detailed description of the significant differences that exist between trading partners' records of intragovernmental activity and balances, (2) detailed reasons why such differences exist, (3) details of steps taken or being taken to work with the agencies' trading partners to resolve the differences, and (4) the potential outcome of such steps. |
Treasury has made significant progress in addressing internal control deficiencies related to intragovernmental activity and balances, such as implementing a scorecard process for the significant entities that highlights differences requiring the entities' attention and involves meetings between Treasury and the entity to discuss differences. The remaining internal control deficiencies in this area were included in new recommendations for corrective action in GAO-14-543 under the section "Intragovernmental Activity and Balances".
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| Office of Management and Budget | The Director of OMB should direct the Controller of the Office of Federal Financial Management, in coordination with the Treasury Fiscal Assistant Secretary, to establish additional procedures to ensure that agencies prepare their closing packages and have them audited in accordance with the requirements specified in the closing package instructions. |
During fiscal year 2007, OMB established procedures to help ensure that agencies prepare their closing packages and have them properly audited. Federal agencies prepared closing packages and had them audited in accordance with the requirements. The procedures OMB established are to be used every year to ensure that federal agencies continue to follow these requirements.
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| Office of Management and Budget | The Director of OMB should direct the Controller of the Office of Federal Financial Management to work with the significant agency that did not provide in its closing package the required information that Treasury uses to allocate costs in the consolidated Statement of Net Cost to ensure that such information is reported by the agency in future years. |
During fiscal year 2007, OMB established procedures to ensure the significant agencies provided the information required by Treasury to enable the allocation of costs in the consolidated statement of net cost.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish procedures to ensure that the CFS include required consolidated totals in the Statement Of Social Insurance or document the specific rationale for excluding such disclosure. |
Treasury acted on our recommendation and reported a consolidated total, along with summary totals for the open (i.e., current and future participants) and closed (i.e., those age 14 and over on January 1 of the valuation year) groups, in the 2007 consolidated SOSI.
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| Department of the Treasury | The Secretary of the Treasury should direct the Fiscal Assistant Secretary to disclose the balance of foreign currencies held at fiscal year end in the Cash and Other Monetary Assets footnote to the CFS. |
In fiscal year 2008, Treasury revised the Treasury Financial Manual to instruct federal agencies to provide the amount of foreign currencies held. The collection of this information enabled Treasury to disclose the balance of foreign currencies held at fiscal year end in the Cash and Other Monetary Assets footnote to the CFS.
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AccountingAccounting proceduresAccounting standardsAudit reportsFinancial recordsFinancial statement auditsFinancial statementsInternal auditsInternal controlsObligated budget balancesRegulatory agenciesReporting requirementsUnexpended budget balances