Financial Audit

For the first time ever, the federal government has prepared consolidated financial statements. In accordance with the Chief Financial Officers Act, consolidated financial statements for fiscal year 1997 were prepared by the Treasury Department and audited by GAO. GAO found significant financial systems weaknesses, recordkeeping problems, incomplete documentation, and weak internal controls, all of which prevented the government from accurately reporting a large portion of its assets, liabilities, and costs. These deficiencies affect the reliability of the consolidated financial statements and much of the underlying financial information. They also affect the government's ability to accurately measure the full cost and financial performance of programs, effectively and efficiently manage its operations, and ensure compliance with laws and regulations. Among other things, the government could not properly account for billions of dollars worth of property, equipment, and materials; properly estimate the cost of most federal credit programs; determine the proper amount of reported liabilities, from postretirement health benefits for military and civilian employees to veterans compensation benefits; or determine the full extent of improper payments in major programs that are estimated to involve billions of dollars annually. These shortcomings prevented GAO from rendering an opinion on the reliability of the consolidated financial statements. Considerable effort is underway to address these problems. GAO believes that, with a concerted effort, the federal government, as a whole, can continue to make progress toward generating reliable information on a regular basis. Annual financial statement audits are essential to ensuring the effectiveness of the improvements now ongoing. GAO summarized this report in testimony before Congress; see: U.S. Government Financial Statements: Results of GAO's Fiscal Year 1997 Audit, by Gene L. Dodaro, Assistant Comptroller General for Accounting and Information Management Issues, before the Subcommittee on Government Management, Information and Technology, House Committee on Government Reform and Oversight. GAO/T-AIMD-98-128, Apr. 1 (14 pages).

GAO noted that: (1) significant financial systems weaknesses, problems with fundamental recordkeeping, incomplete documentation, and weak internal controls, including computer controls, prevent the government from accurately reporting a large portion of its assets, liabilities, and costs; (2) these deficiencies affect the reliability of the consolidated financial statements and much of the underlying financial information; (3) they also affect the government's ability to accurately measure the full cost and financial performance of programs, effectively and efficiently manage its operations, and ensure compliance with laws and regulations; (4) major problems include the federal government's inability to: (a) properly account for and report billions of dollars of property, equipment, materials, and supplies; (b) properly estimate the cost of most federal credit programs and the related loans receivable and loan guarantee liabilities; (c) estimate and report material amounts of environmental and disposal liabilities and related costs; (d) determine the proper amount of various reported liabilities, including postretirement health benefits for military compensation benefits, accounts payable, and other liabilities; (e) accurately report major portions of the net costs of government operations; (f) determine the full extent of improper payments that occur in major programs and that are estimated to involve billions of dollars annually; (g) properly account for billions of dollars of basic transactions, especially those between governmental entities; (h) ensure that the information in the consolidated financial statements is consistent with agencies' financial statements; (i) ensure that all disbursements are properly recorded; and (j) effectively reconcile the change in net position reported in the financial statements with budget results; (5) these deficiencies prevented GAO from being able to form an opinion on the reliability of the consolidated financial statements; (6) considerable effort is already under way to address these problems; (7) several individual agencies that have been audited for a number of years faced serious deficiencies in their initial audits and have made good progress in resolving them; (8) with a concerted effort, the federal government, as a whole, can continue to make progress toward generating reliable information on a regular basis; and (9) annual financial statement audits are essential to ensuring the effectiveness of the improvements now under way.