Financial Audit
Bureau of the Public Debt's Fiscal Years 2004 and 2003 Schedules of Federal Debt Gao ID: GAO-05-116 November 5, 2004GAO is required to audit the consolidated financial statements of the U.S. government. Due to the significance of the federal debt held by the public to the governmentwide financial statements, GAO has also been auditing the Bureau of the Public Debt's (BPD) Schedules of Federal Debt annually. The audit of these schedules is done to determine whether, in all material respects, (1) the schedules prepared are reliable, (2) BPD management maintained effective internal control relevant to the Schedule of Federal Debt, and (3) BPD complies with selected provisions of significant laws related to the Schedule of Federal Debt. Federal debt managed by BPD consists of Treasury securities held by the public and by certain federal government accounts, referred to as intragovernmental debt holdings. The level of debt held by the public reflects how much of the nation's wealth has been absorbed by the federal government to finance prior federal spending in excess of total federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds such as Social Security, that typically have an obligation to invest their excess annual receipts over disbursements in federal securities.
In GAO's opinion, BPD's Schedules of Federal Debt for fiscal years 2004 and 2003 were fairly presented in all material respects and BPD maintained effective internal control related to the Schedule of Federal Debt as of September 30, 2004. GAO also found no instances of noncompliance in fiscal year 2004 with the statutory debt limit. A s of September 30, 2004 and 2003, federal debt managed by BPD totaled about $7,379 billion and $6,783 billion, respectively. At the end of fiscal year 2004, debt held by the public as a percentage of the U.S. economy is estimated at 37.5 percent, up from 33.1 percent at the end of fiscal year 2001. Further, certain trust funds (e.g., Social Security) continue to run surpluses, resulting in increased intragovernmental debt holdings. These debt holdings are backed by the full faith and credit of the U.S. government and represent a priority call on future budgetary resources. Gross federal debt has increased 27 percent between the end of fiscal years 2001 and 2004. As a result of the increasing federal debt, on October 14, 2004, Treasury entered into a debt issuance suspension period to avoid exceeding the current $7,384 billion statutory debt limit and requested the Congress take action to raise the debt limit by mid- November 2004. The total federal debt increased over each of the last 4 fiscal years. Debt held by the public decreased as a result of cash surpluses for fiscal year 2001, but increased during fiscal years 2002 through 2004, with the return of annual unified budget deficits. Intragovernmental debt holdings steadily increased during this 4-year period primarily due to excess receipts over disbursements in federal trust funds.
GAO-05-116, Financial Audit: Bureau of the Public Debt's Fiscal Years 2004 and 2003 Schedules of Federal Debt
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Report to the Secretary of the Treasury:
November 2004:
FINANCIAL AUDIT:
Bureau of the Public Debt's Fiscal Years 2004 and 2003 Schedules of
Federal Debt:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-116]:
GAO Highlights:
Highlights of GAO-05-116, a report to the Secretary of the Treasury.
Why GAO Did This Study:
GAO is required to audit the consolidated financial statements of the
U.S. government. Due to the significance of the federal debt held by
the public to the governmentwide financial statements, GAO has also
been auditing the Bureau of the Public Debt‘s (BPD) Schedules of
Federal Debt annually. The audit of these schedules is done to
determine whether, in all material respects, (1) the schedules prepared
are reliable, (2) BPD management maintained effective internal control
relevant to the Schedule of Federal Debt, and (3) BPD complies with
selected provisions of significant laws related to the Schedule of
Federal Debt.
Federal debt managed by BPD consists of Treasury securities held by the
public and by certain federal government accounts, referred to as
intragovernmental debt holdings. The level of debt held by the public
reflects how much of the nation‘s wealth has been absorbed by the
federal government to finance prior federal spending in excess of total
federal revenues. Intragovernmental debt holdings represent balances of
Treasury securities held by federal government accounts, primarily
federal trust funds such as Social Security, that typically have an
obligation to invest their excess annual receipts over disbursements in
federal securities.
What GAO Found:
In GAO‘s opinion, BPD‘s Schedules of Federal Debt for fiscal years 2004
and 2003 were fairly presented in all material respects and BPD
maintained effective internal control related to the Schedule of
Federal Debt as of September 30, 2004. GAO also found no instances of
noncompliance in fiscal year 2004 with the statutory debt limit.
As of September 30, 2004 and 2003, federal debt managed by BPD totaled
about $7,379 billion and $6,783 billion, respectively. At the end of
fiscal year 2004, debt held by the public as a percentage of the U.S.
economy is estimated at 37.5 percent, up from 33.1 percent at the end
of fiscal year 2001. Further, certain trust funds (e.g., Social
Security) continue to run surpluses, resulting in increased
intragovernmental debt holdings. These debt holdings are backed by the
full faith and credit of the U.S. government and represent a priority
call on future budgetary resources. Gross federal debt has increased 27
percent between the end of fiscal years 2001 and 2004. As a result of
the increasing federal debt, on October 14, 2004, Treasury entered into
a debt issuance suspension period to avoid exceeding the current $7,384
billion statutory debt limit and requested the Congress take action to
raise the debt limit by mid-November 2004.
As shown below, total federal debt increased over each of the last 4
fiscal years. Debt held by the public decreased as a result of cash
surpluses for fiscal year 2001, but increased during fiscal years 2002
through 2004, with the return of annual unified budget deficits.
Intragovernmental debt holdings steadily increased during this 4-year
period primarily due to excess receipts over disbursements in federal
trust funds.
Total Gross Federal Debt Outstanding (in billions)
[See PDF for image] -- graphic text
As of September 30, 2000;
Intragovernmental Debt Holdings: $2,220;
Held by the Public: $3,439;
Total: $5,659.
As of September 30, 2001;
Intragovernmental Debt Holdings: $2,453;
Held by the Public: $3,339;
Total: $5,792.
As of September 30, 2002;
Intragovernmental Debt Holdings: $2,660;
Held by the Public: $3,553;
Total: $6,213.
As of September 30, 2003;
Intragovernmental Debt Holdings: $2,859;
Held by the Public: $3,924;
Total: $6,783.
As of September 30, 2004;
Intragovernmental Debt Holdings: $3,072;
Held by the Public: $4,307;
Total: $7,379.
Source: BPD.
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-05-116.
For a fuller understanding of GAO‘s opinion on BPD‘s fiscal years 2004
and 2003 Schedules of Federal Debt, readers should refer to the
complete audit report, available by clicking the link above, which
includes information on audit objectives, scope, and methodology. For
more information, contact Gary T. Engel at (202) 512-3406 or
engelg@gao.gov.
[End of section]
Contents:
Letter:
Auditor's Report:
Opinion on Schedules of Federal Debt:
Opinion on Internal Control:
Compliance with Laws and Regulations:
Consistency of Other Information:
Objectives, Scope, and Methodology:
Agency Comments:
Overview, Schedules, and Notes:
Overview on Federal Debt Managed by the Bureau of the Public Debt:
Schedules of Federal Debt:
Notes to the Schedules of Federal Debt:
Appendixes:
Appendix I: Comments from the Bureau of the Public Debt:
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Letter November 5, 2004:
The Honorable John W. Snow:
The Secretary of the Treasury:
Dear Mr. Secretary:
The accompanying auditor's report presents the results of our audits of
the Schedules of Federal Debt Managed by the Bureau of the Public Debt
for the fiscal years ended September 30, 2004 and 2003. The Schedules
of Federal Debt present the beginning balances, increases and
decreases, and ending balances for (1) Federal Debt Held by the Public
and Intragovernmental Debt Holdings, (2) the related Accrued Interest
Payables, and (3) the related Net Unamortized Premiums and Discounts
managed by the bureau.[Footnote 1]
The auditor's report contains our (1) opinion on the Schedules of
Federal Debt for the fiscal years ended September 30, 2004 and 2003,
(2) opinion on the effectiveness of related internal control as of
September 30, 2004, (3) conclusion on the bureau's compliance in fiscal
year 2004 with a selected provision of a law we tested, and (4)
conclusion on the consistency between information in the Schedules of
Federal Debt and the Overview on Federal Debt Managed by the Bureau of
the Public Debt.
As of September 30, 2004 and 2003, federal debt managed by the bureau
totaled about $7,379 billion and $6,783 billion, respectively, for
moneys borrowed to fund the government's operations. As shown on the
Schedules of Federal Debt, these balances consisted of approximately
(1) $4,307 billion as of September 30, 2004, and $3,924 billion as of
September 30, 2003, of debt held by the public and about (2) $3,072
billion as of September 30, 2004, and $2,859 billion as of September
30, 2003, of intragovernmental debt holdings.
The level of debt held by the public reflects how much of the nation's
wealth has been absorbed by the federal government to finance prior
federal spending in excess of total federal revenues. It best
represents the cumulative effect of past federal borrowing on today's
economy and the federal budget. To finance a cash deficit, the
government borrows from the public. When a cash surplus occurs, the
annual excess funds can then be used to reduce debt held by the public.
In other words, cash deficits or surpluses generally approximate the
annual net change in the amount of government borrowing from the
public.
Cash surpluses during fiscal years 1998 through 2001 enabled Treasury
to reduce debt held by the public by $476 billion, from $3,815 billion
as of September 30, 1997, to $3,339 billion as of September 30, 2001.
Treasury reduced this debt by redeeming maturing debt, reducing the
number of auctions and size of new debt issues, conducting "buybacks"
of debt before its maturity date, and redeeming callable securities
when the opportunities arose.[Footnote 2] However, because of the
return to deficits, in fiscal years 2002 through 2004, debt held by the
public increased by $968 billion, with about $383 billion of this
increase occurring in fiscal year 2004. Treasury issued more debt by
increasing the number of auctions and the size of new debt issues.
During fiscal year 2003, Treasury reintroduced the 3-year note, which
will be offered every quarter. In addition, Treasury increased the
offerings of the 5-year note from quarterly to monthly offerings; the
10-year note from an offering every quarter to eight offerings a year;
and the 10-year Treasury Inflation-Protected Security (TIPS) from three
offerings a year to an offering every quarter. During fiscal year 2004,
Treasury introduced a 20-year TIPS, first issued on July 30, 2004, and
a 5-year TIPS, first issued on October 29, 2004. Both securities will
be offered semiannually. Notwithstanding the increases in fiscal years
2002 through 2004, debt held by the public as a percentage of total
federal debt has decreased from approximately 71 percent as of
September 30, 1997, to approximately 58 percent as of September 30,
2004.
Intragovernmental debt holdings represent balances of Treasury
securities held by federal government accounts, primarily federal trust
funds, that typically have an obligation to invest their excess annual
receipts over disbursements in federal securities. Most federal trust
funds invest in special U.S. Treasury securities that are guaranteed
for principal and interest by the full faith and credit of the U.S.
government. These securities are nonmarketable; however, they represent
a priority call on future budgetary resources. Certain of these trust
funds, such as the Social Security and federal civilian employee
retirement trust funds, have been running cash surpluses, which are
loaned to the Treasury and reduce the current need for the government
to borrow from the public in order to finance current operations. As a
result of total trust fund surpluses, intragovernmental debt holdings
have increased by approximately $1,489 billion during fiscal years 1998
through 2004, from $1,583 billion as of September 30, 1997, to $3,072
billion as of September 30, 2004, with about $213 billion of this
increase occurring in fiscal year 2004. Intragovernmental debt holdings
as a percentage of total federal debt have increased from approximately
29 percent as of September 30, 1997, to approximately 42 percent as of
September 30, 2004.
The transactions relating to the use of the federal government
accounts' surpluses net out on the government's consolidated financial
statements because, in effect, they represent loans from one part of
the government to another. Importantly, these intragovernmental debt
holdings also constitute future obligations of the Treasury since the
Treasury must provide cash to redeem these securities in order for the
individual accounts to pay their benefits or other obligations as they
come due. When this occurs, if sufficient cash surpluses are not
available to redeem the securities, the government would either need to
increase borrowing from the public, raise future taxes, reduce future
spending, retire less debt (if the budget as a whole is in surplus), or
some combination thereof.
While both are important, debt held by the public and intragovernmental
debt holdings are very different. Debt held by the public approximates
the federal government's competition with other sectors in the credit
markets. Federal borrowing absorbs resources available for private
investment and may put upward pressure on interest rates. In addition,
interest on debt held by the public is paid in cash and represents a
burden on current taxpayers. It reflects the amount the government pays
to its outside creditors. In contrast, intragovernmental debt holdings
perform an accounting function but typically do not require cash
payments from the current budget or represent a burden on the current
economy. In addition, from the perspective of the budget as a whole,
interest payments to federal government accounts by the Treasury are
entirely offset by the income received by such accounts--in effect, one
part of the government pays the interest and another part receives it.
This intragovernmental debt and the interest on it represents a claim
on future resources and hence a burden on future taxpayers and the
future economy when it has to be redeemed to meet obligations under the
respective programs. However, these intragovernmental debt holdings do
not fully reflect the government's total future commitment to trust
fund financed programs. They primarily represent the cumulative
historical surpluses of those trust funds and also reflect future
priority claims on the U.S. Treasury. They do not have the current
economic effects of borrowing from the public and do not currently
compete with the private sector for available funds in the credit
markets. However, when trust funds redeem Treasury securities to obtain
cash to fund expenditures, and Treasury borrows from the public to
finance these redemptions, there is competition with the private sector
and thus an effect on the economy.
During fiscal year 2003, Treasury faced the challenge of managing the
debt within the statutory debt limit. On February 20, 2003, Treasury
entered into a debt issuance suspension period. A debt issuance
suspension period is any period for which the Secretary of the Treasury
has determined that obligations of the United States may not be issued
without exceeding the debt limit.[Footnote 3] Actions taken by
Treasury, which were consistent with legal authorities provided to the
Secretary, included suspending investment of receipts of the Government
Securities Investment Fund (G-Fund) of the federal employees' Thrift
Savings Plan, the Civil Service Retirement and Disability Trust Fund
(Civil Service fund), and the Exchange Stabilization Fund; redeeming
Civil Service fund securities early; suspending the sales of State and
Local Government Series nonmarketable Treasury securities; exchanging
Treasury securities for Federal Financing Bank securities; and
recalling compensating balances held at some commercial banks. In
addition, because the debt subject to the limit was so close to the
ceiling during this period, Treasury turned to issuing bills with
maturity dates of 14 days or less to manage short-term financing needs.
On May 27, 2003, legislation was enacted to raise the statutory debt
limit by $984 billion to $7,384 billion. Subsequently, Treasury
restored all losses to the G-Fund and Civil Service fund in accordance
with legal authorities provided to the Secretary of the
Treasury.[Footnote 4] On October 14, 2004, Treasury again determined
that a debt issuance suspension period was in effect. So far during the
period, Treasury has suspended investment of receipts of the G-Fund and
sales of State and Local Government Series nonmarketable Treasury
securities to avoid exceeding the debt limit. The Secretary of the
Treasury has requested that the Congress take action to raise the debt
limit by mid-November 2004. As of October 25, 2004, the statutory debt
limit remains at $7,384 billion.[Footnote 5]
During our audits, we have noted certain trends--the increase in the
amount of Treasury securities held by foreign and international
investors and the increased costs to finance the federal government's
growing debt. Foreign and international investors are a major holder of
debt held by the public. According to amounts reported in the September
2004 Treasury Bulletin, Treasury estimates that the amount of Treasury
securities held by foreign and international investors has increased by
$624 billion, from about $1,135 billion as of June 30, 2002, to $1,759
billion as of June 30, 2004, or an estimated 42 percent of total debt
held by the public as of that date. During the same 2-year period, debt
held by the public increased by $755 billion, from about $3,464 billion
to $4,219 billion. Based on amounts reported in the September 2004
Treasury Bulletin, the estimated increase in holdings by foreign and
international investors represents about 83 percent of the increase in
debt held by the public over the same period. The United States
benefits from foreign purchases of Treasury securities because foreign
investors fill part of our borrowing needs. However, to service this
foreign-held debt, the U.S. government must send interest payments
abroad, which adds to the incomes of residents of other countries
rather than to the incomes of U.S. residents. In addition, this
increasing reliance on foreign investors to finance the deficits of the
U.S. government presents a potential risk to the U.S. economy,
especially since the U.S. gross national saving rate is low by U.S.
historical standards and averages well below that of other major
industrialized nations.
Rising interest rates on Treasury securities--although relatively low
by historical standards--are contributing to an increased cost to
finance the federal government's growing debt. During fiscal year 2004,
the interest rate for 13-week Treasury bills increased from a low of
0.87 percent to 1.71 percent as of September 30, 2004. Also, the
interest rate on 2-year Treasury notes increased from a low of 1.50
percent to 2.50 percent during this same period. About $2,040 billion,
or 47 percent, of Treasury securities held by the public as of
September 30, 2004, will mature at least once during the next 2 years.
The Congressional Budget Office projects that interest rates on
Treasury securities, especially short-term rates, will continue to
increase. As such, as the Treasury securities mature over the next 2
years and are replaced by new debt, the interest rates on the majority
of the new issuances will likely be higher than the September 30, 2004,
rates and result in continued increased cost to finance the federal
government's debt. Thus, the combined effect of greater levels of debt
and higher interest rates will likely place increasing pressure on the
federal budget in the years ahead.
The challenge of managing the federal debt is not likely to diminish
any time soon. Debt held by the public has continued to grow relative
to the economy. At the end of fiscal year 2004, debt held by the public
as a share of gross domestic product (GDP) is estimated at 37.5
percent, up from 33.1 percent at the end of fiscal year 2001. In
addition, gross federal debt has increased 27 percent during the same
period, from $5,792 billion as of September 30, 2001, to $7,379 billion
as of September 30, 2004. While growth in the debt held by the public-
to-GDP measure does not necessarily create problems in the short term,
continued growth in the long term would reduce budgetary flexibility
and ultimately lead to an unsustainable fiscal path.
Indeed, GAO's fiscal policy simulations show that over the long term,
debt held by the public will rise to unprecedented levels as a share of
GDP. These simulations illustrate that the fiscal policies in place
today--absent substantive entitlement reform or dramatic changes in tax
and spending policies--will result in large, escalating, and persistent
deficits that are economically unsustainable over the long term.
Without reform, known demographic trends; escalating health care costs;
and projected growth in federal spending for Social Security, Medicare,
and Medicaid will result in massive fiscal pressures that will hobble
the economy. Budget controls instituted to achieve balance in the past
have expired, and no agreement has been reached on the appropriate
structure or process for focusing on the large and growing fiscal
challenges that now face the federal government.
As discussed earlier, federal debt managed by the bureau totaled about
$7.4 trillion at the end of the fiscal year, or about $25,000 for every
man, woman, and child in this country today. But that number excludes
many items, including the gap between promised and funded Social
Security and Medicare benefits, veterans' health care, and a range of
other commitments and contingencies that the federal government has
pledged to support. If these items are factored in, the total burden in
current dollars is at least $42 trillion. One of the biggest
contributors to this total bill is the new Medicare prescription drug
benefit, whose estimated current-dollar cost over the next 75 years is
more than $8 trillion. Stated differently, the current total burden for
every American is more than $140,000--and every day that burden becomes
larger. Our long-term budget simulations show that by 2040, the federal
government may have to either cut federal spending by 60 percent or
raise taxes to about 2.5 times today's level to pay for the mounting
cost of the federal government's current unfunded commitments. Either
option would be devastating to the economy and the future standard of
living for Americans.
A top-to-bottom review of government activities to ensure their
relevance and fit for the 21ST century and their relative priority is
long overdue. As we have spoken about in the past, the federal
government needs a three-pronged approach to (1) restructure existing
entitlement programs; (2) reexamine the base of discretionary and other
spending; and (3) review and revise the federal government's tax
policy, including major tax preferences, and enforcement programs. In
addition, new accounting and reporting approaches, budget control
mechanisms, and metrics are needed for considering and measuring the
impact of spending and tax policies and decisions over the long term.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Appropriations; the Senate
Committee on Governmental Affairs; the Senate Committee on the Budget;
the Subcommittee on Transportation, Treasury, and General Government,
Senate Committee on Appropriations; the House Committee on
Appropriations; the House Committee on Government Reform; the House
Committee on the Budget; the Subcommittee on Transportation, Treasury,
and Independent Agencies, House Committee on Appropriations; and the
Subcommittee on Government Efficiency and Financial Management, House
Committee on Government Reform. We are also sending copies of this
report to the Commissioner of the Bureau of the Public Debt, the
Inspector General of the Department of the Treasury, the Director of
the Office of Management and Budget, and other agency officials. In
addition, the report will be available at no charge on the GAO Web site
at [Hyperlink, http://www.gao.gov].
If I can be of further assistance, please call me at (202) 512-5500.
This report was prepared under the direction of Gary T. Engel,
Director, Financial Management and Assurance. Should you or members of
your staff have any questions concerning this report, please contact
Mr. Engel at (202) 512-3406 or [Hyperlink, engelg@gao.gov]. Another key
contact and staff acknowledgments are provided in appendix II.
Sincerely yours,
Signed by:
David M. Walker:
Comptroller General of the United States:
Auditor's Report To the Commissioner of the Bureau of the Public Debt:
In connection with fulfilling our requirement to audit the financial
statements of the U.S. government,[Footnote 6] we audited the Schedules
of Federal Debt Managed by the Bureau of the Public Debt (BPD) because
of the significance of the federal debt to the federal government's
financial statements.
This auditor's report presents the results of our audits of the
Schedules of Federal Debt Managed by BPD for the fiscal years ended
September 30, 2004 and 2003. The Schedules of Federal Debt present the
beginning balances, increases and decreases, and ending balances for
(1) Federal Debt Held by the Public and Intragovernmental Debt
Holdings, (2) the related Accrued Interest Payables, and (3) the
related Net Unamortized Premiums and Discounts managed by BPD.[Footnote
7]
In our audits of the Schedules of Federal Debt for the fiscal years
ended September 30, 2004 and 2003, we found the following:
* the Schedules of Federal Debt are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles;
* BPD had effective internal control over financial reporting and
compliance with laws and regulations related to the Schedule of Federal
Debt as of September 30, 2004; and:
* no reportable noncompliance in fiscal year 2004 with a selected
provision of a law we tested.
The following sections discuss, in more detail, (1) these conclusions
and our conclusion on the Overview on Federal Debt Managed by the
Bureau of the Public Debt and (2) the scope of our audits.
Opinion on Schedules of Federal Debt:
The Schedules of Federal Debt including the accompanying notes present
fairly, in all material respects, in conformity with U.S. generally
accepted accounting principles, the balances as of September 30, 2004,
2003, and 2002, for Federal Debt Managed by BPD; the related Accrued
Interest Payables and Net Unamortized Premiums and Discounts; and the
related increases and decreases for the fiscal years ended September
30, 2004 and 2003.
Opinion on Internal Control:
BPD maintained, in all material respects, effective internal control
relevant to the Schedule of Federal Debt related to financial reporting
and compliance with applicable laws and regulations as of September 30,
2004, that provided reasonable assurance that misstatements, losses, or
noncompliance material in relation to the Schedule of Federal Debt
would be prevented or detected on a timely basis. Our opinion is based
on criteria established under 31 U.S.C. § 3512 (c), (d) (commonly
referred to as the Federal Managers' Financial Integrity Act) and the
Office of Management and Budget (OMB) Circular A-123, revised June 21,
1995, Management Accountability and Control.
We found matters involving information security controls that we do not
consider to be reportable conditions.[Footnote 8] We will communicate
these matters to BPD's management, along with our recommendations for
improvement, in a separate letter to be issued at a later date.
Compliance with Laws and Regulations:
Our tests for compliance in fiscal year 2004 with the statutory debt
limit disclosed no instances of noncompliance that would be reportable
under U.S. generally accepted government auditing standards or OMB
audit guidance. However, the objective of our audit of the Schedule of
Federal Debt for the fiscal year ended September 30, 2004, was not to
provide an opinion on overall compliance with laws and regulations.
Accordingly, we do not express such an opinion.
Consistency of Other Information:
BPD's Overview on Federal Debt Managed by the Bureau of the Public Debt
contains information, some of which is not directly related to the
Schedules of Federal Debt. We do not express an opinion on this
information. However, we compared this information for consistency with
the schedules and discussed the methods of measurement and presentation
with BPD officials. Based on this limited work, we found no material
inconsistencies with the schedules.
Objectives, Scope, and Methodology:
Management is responsible for the following:
* preparing the Schedules of Federal Debt in conformity with U.S.
generally accepted accounting principles;
* establishing, maintaining, and assessing internal control to provide
reasonable assurance that the broad control objectives of the Federal
Managers' Financial Integrity Act are met; and:
* complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether (1)
the Schedules of Federal Debt are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles and (2) management maintained effective related internal
control as of September 30, 2004, the objectives of which are the
following:
* Financial reporting: Transactions are properly recorded, processed,
and summarized to permit the preparation of the Schedule of Federal
Debt for the fiscal year ended September 30, 2004, in conformity with
U.S. generally accepted accounting principles.
* Compliance with laws and regulations: Transactions related to the
Schedule of Federal Debt for the fiscal year ended September 30, 2004,
are executed in accordance with laws governing the use of budget
authority and with other laws and regulations that could have a direct
and material effect on the Schedule of Federal Debt.
We are also responsible for testing compliance with selected provisions
of laws and regulations that have a direct and material effect on the
Schedule of Federal Debt. Further, we are responsible for performing
limited procedures with respect to certain other information appearing
with the Schedules of Federal Debt.
In order to fulfill these responsibilities, we:
* examined, on a test basis, evidence supporting the amounts and
disclosures in the Schedules of Federal Debt;
* assessed the accounting principles used and any significant estimates
made by management;
* evaluated the overall presentation of the Schedules of Federal Debt;
* obtained an understanding of internal control relevant to the
Schedule of Federal Debt as of September 30, 2004, related to financial
reporting and compliance with laws and regulations (including execution
of transactions in accordance with budget authority);
* tested relevant internal controls over financial reporting and
compliance, and evaluated the design and operating effectiveness of
internal control related to the Schedule of Federal Debt as of
September 30, 2004;
* considered the process for evaluating and reporting on internal
control and financial management systems under the Federal Managers'
Financial Integrity Act; and:
* tested compliance in fiscal year 2004 with the statutory debt limit
(31 U.S.C. § 3101(b), as amended by Pub. L. No. 107-199, § 1, 116 Stat.
734 (2002) and Pub. L. No. 108-24, 117 Stat. 710 (2003)).
We did not evaluate all internal controls relevant to operating
objectives as broadly described by the Federal Managers' Financial
Integrity Act, such as those controls relevant to preparing statistical
reports and ensuring efficient operations. We limited our internal
control testing to controls over financial reporting and compliance.
Because of inherent limitations in internal control, misstatements due
to error or fraud, losses, or noncompliance may nevertheless occur and
not be detected. We also caution that projecting our evaluation to
future periods is subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of
compliance with controls may deteriorate.
We did not test compliance with all laws and regulations applicable to
BPD. We limited our tests of compliance to a selected provision of a
law that has a direct and material effect on the Schedule of Federal
Debt for the fiscal year ended September 30, 2004. We caution that
noncompliance may occur and not be detected by these tests and that
such testing may not be sufficient for other purposes.
We performed our work in accordance with U.S. generally accepted
government auditing standards and applicable OMB audit guidance.
Agency Comments:
In commenting on a draft of this report, BPD concurred with the facts
and conclusions in our report. The comments are reprinted in appendix
I.
Signed by:
David M. Walker:
Comptroller General of the United States:
October 25, 2004:
Overview, Schedules, and Notes:
Overview on Federal Debt Managed by the Bureau of the Public Debt:
Gross Federal Debt Outstanding[NOTE 1]:
Federal debt managed by the Bureau of the Public Debt comprises debt
held by the public and debt held by certain federal government
accounts, the latter of which is referred to as intragovernmental debt
holdings. As of September 30, 2004 and 2003, outstanding gross federal
debt managed by the bureau totaled $7,379 and $6,783 billion,
respectively. The increase in gross federal debt of $596 billion during
fiscal year 2004 was due to an increase in gross intragovernmental debt
holdings of $213 billion and an increase in gross debt held by the
public of $383 billion. As Figure 1 illustrates, intragovernmental debt
holdings have steadily increased since fiscal year 2000 and debt held
by the public decreased in fiscal year 2001, but increased in fiscal
years 2002 through 2004. The primary reason for the increases in
intragovernmental debt holdings is the annual surpluses in the Federal
Old-Age and Survivors Insurance Trust Fund, Civil Service Retirement
and Disability Trust Fund, Federal Hospital Insurance Trust Fund,
Federal Disability Insurance Trust Fund, and Military Retirement Fund.
The fiscal years 2002 through 2004 increases in debt held by the public
are due primarily to total federal spending exceeding total federal
revenues. As of September 30, 2004, gross debt held by the public
totaled $4,307 billion and gross intragovermnental debt holdings
totaled $3,072 billion.
Figure 1: Total Gross Federal Debt Outstanding (in billions)
[See PDF for image] -- graphic text
As of September 30, 2000;
Intragovernmental Debt Holdings: $2,220;
Held by the Public: $3,439;
Total: $5,659.
As of September 30, 2001;
Intragovernmental Debt Holdings: $2,453;
Held by the Public: $3,339;
Total: $5,792.
As of September 30, 2002;
Intragovernmental Debt Holdings: $2,660;
Held by the Public: $3,553;
Total: $6,213.
As of September 30, 2003;
Intragovernmental Debt Holdings: $2,859;
Held by the Public: $3,924;
Total: $6,783.
As of September 30, 2004;
Intragovernmental Debt Holdings: $3,072;
Held by the Public: $4,307;
Total: $7,379.
Source: BPD.
[End of figure]
Interest Expense:
Interest expense incurred during fiscal year 2004 consists of (1)
interest accrued and paid on debt held by the public or credited to
accounts holding intragovernmental debt during the fiscal year, (2)
interest accrued during the fiscal year, but not yet paid on debt held
by the public or credited to accounts holding intragovermnental debt,
and (3) net amortization of premiums and discounts. The primary
components of interest expense are interest paid on the debt held by
the public and interest credited to federal government trust funds and
other federal government accounts that hold Treasury securities. The
interest paid on the debt held by the public affects the current
spending of the federal government and represents the burden in
servicing its debt (i.e., payments to outside creditors). Interest
credited to federal government trust funds and other federal government
accounts, on the other hand, does not result in an immediate outlay of
the federal government because one part of the government pays the
interest and another part receives it. However, this interest
represents a claim on future budgetary resources and hence an
obligation on future taxpayers. This interest, when reinvested by the
trust funds and other federal government accounts, is included in the
programs' excess funds not currently needed in operations, which are
invested in federal securities. During fiscal year 2004, interest
expense incurred totaled $322 billion, interest expense on debt held by
the public was $158 billion, and $164 billion was interest incurred for
intragovernmental debt holdings. As Figure 2 illustrates, total
interest expense decreased each year from fiscal year 2001 through
2003, but increased in fiscal year 2004. Average interest rates on
principal balances outstanding as of fiscal year end are disclosed in
the Notes to the Schedules of Federal Debt.
Figure 2: Total Interest Expense:
[See PDF for image]
[End of figure]
Debt Held by the Public:
Debt held by the public reflects how much of the nation's wealth has
been absorbed by the federal government to finance prior federal
spending in excess of total federal revenues. As of September 30, 2004
and 2003, gross debt held by the public totaled $4,307 billion and
$3,924 billion, respectively (see Figure 1), an increase of $383
billion. The borrowings and repayments of debt held by the public
increased from fiscal year 2003 to 2004 primarily due to Treasury's
decision to finance current operations using more short-term
securities.
As of September 30, 2004, $3,846 billion, or 89 percent, of the
securities that constitute debt held by the public were marketable,
meaning that once the government issues them, they can be resold by
whoever owns them. Marketable debt is made up of Treasury bills,
Treasury notes, Treasury bonds, and Treasury Inflation-Protected
Securities (TIPS) [NOTE 2] with maturity dates ranging from less than 1
year out to 30 years. Of the marketable securities currently held by
the public as of September 30,2004,$2,576 billion or 67 percent will
mature within the next 4 years (see Figure 3). As of September 30, 2004
and 2003, notes and TIPS held by the public maturing within the next 10
years totaled $2,274 billion and $1,919 billion, respectively, an
increase of $355 billion.
The government also issues to the public, state and local governments,
and foreign governments and central banks nomnarketable securities,
which cannot be resold, and have maturity dates from on demand to more
than 10 years. As of September 30, 2004, nonmarketable securities
totaled $461 billion, or 11 percent of debt held by the public. As of
that date, nomnarketable securities primarily consisted of savings
securities totaling $204 billion and special securities for state and
local governments totaling $158 billion.
Figure 3: Maturity Dates [NOTE 3] of Marketable Debt Held by the Public
as of September 30, 2004:
[See PDF for image]
[End of figure]
Intragovernmental Debt Holdings:
Intragovernmental debt holdings represent balances of Treasury
securities held by over 200 individual federal government accounts with
either the authority or the requirement to invest excess receipts in
special U.S. Treasury securities that are guaranteed for principal and
interest by the full faith and credit of the U.S. Government.
Intragovernmental debt holdings primarily consist of balances in the
Social Security, Medicare, Military Retirement, and Civil Service
Retirement and Disability trust funds [NOTE 4] As of September 30,
2004, such funds accounted for $2,726 billion, or 89 percent, of the
$3,072 billion intragovernmental debt holdings balances (see Figure 4).
As of September 30, 2004 and 2003, gross intragovernmental debt
holdings totaled $3,072 billion and $2,859 billion, respectively (see
Figure 1), an increase of $213 billion.
The majority of intragovernmental debt holdings are Government Account
Series (GAS) securities. GAS securities consist of par value securities
and market-based securities, with terms ranging from on demand out to
30 years. Par value securities are issued and redeemed at par (100
percent of the face value), regardless of current market conditions.
Market-based securities, however, can be issued at a premium or
discount and are redeemed at par value on the maturity date or at
market value if redeemed before the maturity date.
Figure 4: Components of Intragovernmental Debt Holdings as of September
30, 2004:
[See PDF for image]
[End of figure]
Increased Issuance of Treasury Inflation-Protected Securities (TIPS):
During fiscal year 2004, Treasury increased the issuances of inflation-
indexed securities known as Treasury Inflation-Protected Securities
(TIPS). In the May 5, 2004, Quarterly Refunding Statement, Treasury
introduced both a 5-year TIPS and a 20-year TIPS. Each security will be
issued semiannually with the 5-year TIPS issued in April and October
and the 20-year TIPS issued in January and July. A 10-year TIPS will
continue to be issued in January, April, July and October. The first
20-year TIPS was issued on July 30, 2004, in the amount of $11 billion
and will be reopened in January 2005 and July 2005. Similarly, the 5-
year TIPS will be issued in late October 2004, and will be reissued in
April 2005 and October 2005.
Treasury System Changes:
In the February 2004 Quarterly Refunding Statement, Treasury announced
its intentions to compute price awards in auctions to six decimal
places per hundred. Calculating prices to six decimals ensures price
uniqueness for all discount rates or yields bid in all marketable
Treasury securities auctions. This change also makes Treasury's pricing
practice consistent with secondary market practices. In addition, the
August 2004 Quarterly Refunding Statement announced that the limit on
non-competitive Treasury auction awards will be $5 million for all
auctions. The previous limit on non-competitive awards, in effect since
1991, was $1 million for bill auctions and $5 million for coupon
auctions. These changes were effective on September 20, 2004.
Uniform Offering Circular Rewritten:
The Uniform Offering Circular (UOC), in conjunction with the
announcement for each auction, provides the terms and conditions for
the auction and issuance of marketable Treasury securities to the
public. Treasury has rewritten the UOC in plain language because the
wide variety ofbidders in our securities auctions-broker-dealers,
depository institutions, non-financial firms, individuals, etc. - have
widely different levels of experience in dealing with federal
regulations in general and with securities-related concepts and
regulations in particular. On July 28, 2004, the rewritten UOC was
published in the Federal Register. Treasury believes that a better
understanding of the auction rules may increase direct participation in
our auctions and improve the auction process overall, resulting in
lower borrowing costs.
Significant Events in FY 2004, cont.:
Series HH Savings Bonds Discontinued:
As announced on February 18, 2004, the final Series HH Savings Bonds
were issued to the public on August 31, 2004. These bonds are current-
income securities that pay interest to their owners semiannually.
Series HH Savings Bonds issued through August 2004 will continue to
earn interest until they reach final maturity 20 years after issue.
Treasury withdrew the offering of HH bonds due to the high cost in
relation to the relatively small value of transactions. These bonds
were initially issued in 1980 and were available in exchange for Series
E or EE Savings Bonds. After August 31, 2004, holders of eligible E
and/or EE bonds may choose to accept the proceeds of maturing issues or
invest them in marketable bills, notes, or TIPS at auction, or they may
choose to purchase Series EE or I Savings Bonds.
EasvSaver Program To Be Discontinued:
EasySaver was introduced in November 1998 to encourage savings and
broaden access to Treasury securities. Customers enrolled in EasySaver
could buy U.S. Savings Bonds through authorized debits to their bank
accounts thus allowing employees of smaller businesses to have access
to a regular savings plan like the millions of Americans who buy bonds
through payroll savings plans at work. Since some of the same EasySaver
features and even more features are available in TreasuryDirect
(www.treasurydirect.govl, the Bureau of the Public Debt stopped
accepting EasySaver enrollments on December 31, 2003. All existing
automatic EasySaver debits will be discontinued in March 2005.
Customers are encouraged to enroll in TreasuryDirect to buy, manage,
and redeem their securities online.
TreasuryDirect:
TreasuryDirect represents a direct relationship between customers -
individuals and financial professionals alike - and the U.S. Treasury.
The TreasuryDirect website (www.treasurydirect.gov) provides complete
information for people who want to buy securities directly from the
Treasury - in a way that's easy for everyone to understand. Electronic
purchasers can use TreasuryDirect to schedule electronic Series EE and
I Savings Bond purchases. TreasuryDirect enhanced its Internet website
capability during fiscal year 2004. One new feature offered is a
payroll deduction option to purchase a Zero-Percent Certificate of
Indebtedness (C of I). While these securities do not earn any interest,
they can be used as a source of funds to purchase savings bonds within
a TreasuryDirect account after accumulating a minimum of $25 in the C
of I or by scheduling a purchase in advance. Customers may purchase
electronic Series EE and I Savings Bonds ranging in value from $25 -
$30,000 in increments as low as $0.01. There is a $30,000 annual limit
per series per person. Customers may redeem a bond one year after
purchase, or hold the bond to maturity.
Depositary Compensation Securities Redeemed, Replaced By Appropriation:
In July 2003, Treasury began issuing Depositary Compensation Securities
(DCS), a non-marketable security, to compensate those financial
institutions serving as financial agents of the United States for
essential banking services provided to the Government. These securities
were issued to financial agents in an amount sufficient to generate
interest payments equal to the monthly expenses for financial agent
services provided to Treasury. As part of the fiscal year 2004 Treasury
appropriation, a permanent and indefinite appropriation was enacted to
reimburse financial institutions serving as financial agents for the
United States. As a result, more than $16 billion of DCS were called on
February 29, 2004.
Statutory Debt Limit Being Evaluated:
As a consequence of the changes in the government's financing needs,
resulting in part from the current economic environment, Treasury
Secretary John Snow urged the Congress on August 2, 2004, to raise the
debt limit. Delays in raising the current debt limit of $7,384 billion
have forced Treasury to enter into a debt issuance suspension period
(DISP) that involves Treasury's departure from its normal investment
and redemption procedures for certain federal government accounts.
Consistent with legal authorities available to the Secretary, on
October 14, 2004, Treasury suspended sales of State and Local
Government series (SLGS) nonmarketable securities and was unable to
fully invest contributions in the Government Securities Investment Fund
(G-Fund) of the federal employee 401 (k) retirement plan.
Historical Perspective:
Federal debt outstanding is one of the largest legally binding
obligations of the federal government. Nearly all the federal debt has
been issued by the Treasury with a small portion being issued by other
federal government agencies. Treasury issues debt securities for two
principal reasons, (1) to borrow needed funds to finance the current
operations of the federal government and (2) to provide an investment
and accounting mechanism for certain federal government accounts'
excess receipts, primarily trust funds. Total gross federal debt
outstanding has dramatically increased over the past 25 years from
$827 billion as of September 30, 1979 to $7,379 billion as of September
30, 2004 (see Figure 5). Large budget deficits emerged during the
1980's due to tax policy decisions and increased outlays for defense
and domestic programs. Through fiscal year 1997, annual federal
deficits continued to be large and debt continued to grow at a rapid
pace. As a result, total federal debt increased more than five fold
between 1980 and 1997.
Figure 5: Total Gross Federal Debt Outstanding:
[See PDF for image]
[End of figure]
Historical Perspective, cont.:
However, by fiscal year 1998, federal debt held by the public was
beginning to decline. In fiscal years 1998 through 2001, the amount of
debt held by the public fell by $476 billion, from $3,815 billion to
$3,339 billion. As a consequence of the changes in the federal
government's financing needs, resulting from increased federal outlays,
tax policy decisions, and the deterioration of overall economic
performance, from fiscal year 2001 to 2004 debt held by the public rose
by $968 billion, from $3,339 billion to $4,307 billion. Even in those
years where debt held by the public declined, total federal debt
increased because of increases in intragovernmental debt holdings. Over
the past 4 fiscal years, intragovernmental debt holdings increased by
$852 billion, from $2,220 billion as of September 30, 2000, to $3,072
billion as of September 30, 2004. Bylaw, trust funds have the authority
or are required to invest surpluses in federal securities. As a result,
the intragovernmental debt holdings balances primarily represent the
cumulative surplus of funds due to the trust funds' cumulative annual
excess of tax receipts, interest credited, and other collections
compared to spending.
As shown in Figure 6, interest rates have fluctuated over the past 25
years. The average interest rates reflected here represent the original
issue weighted effective yield on securities outstanding at the end of
the fiscal year.
Figure 6: Average Interest Rates of Federal Debt Outstanding
(Unaudited):
[See PDF for image]
[End of figure]
NOTES:
[1] Federal debt outstanding reported here differs from the amount
reported in the Financial Report of the United States Government
because of the securities not maintained or reported by the bureau and
which are issued by the Federal Financing Bank and other federal
government agencies.
[2] TIPS were previously included with Notes and Bonds.
[3] Callable securities mature between fiscal years 2010 and 2015, but
are reported by their call date.
[4] The Social Security trust funds consist of the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insurance
Trust Fund. In addition, the Medicare trust funds are made up of the
Federal Hospital Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund.
[End of section]
Schedules of Federal Debt:
Schedules of Federal Debt:
Managed by the Bureau of the Public Debt:
For the Fiscal Years Ended September 30, 2004 and 2003 (Dollars in
Millions):
[See PDF for image]
[End of table]
The accompanying notes are an integral part of these schedules.
Notes to the Schedules of Federal Debt:
Notes to the Schedules of Federal Debt Managed by the Bureau of the
Public Debt:
For the Fiscal Years Ended September 30, 2004 and 2003:
(Dollars in Millions):
Note 1. Significant Accounting Policies:
Basis of Presentation:
The Schedules of Federal Debt Managed by the Bureau of the Public Debt
(BPD) have been prepared to report fiscal year 2004 and 2003 balances
and activity relating to monies borrowed from the public and certain
federal government accounts to fund the U.S. government's operations.
Permanent, indefinite appropriations are available for the payment of
interest on the federal debt and the redemption of Treasury securities.
Reporting Entity:
The Constitution empowers the Congress to borrow money on the credit of
the United States. The Congress has authorized the Secretary of the
Treasury to borrow monies to operate the federal government within a
statutory debt limit. Title 31 U.S.C. authorizes Treasury to prescribe
the debt instruments and otherwise limit and restrict the amount and
composition of the debt. BPD, an organizational entity within the
Fiscal Service of the Department of the Treasury, is responsible for
issuing Treasury securities in accordance with such authority and to
account for the resulting debt. In addition, BPD has been given the
responsibility to issue Treasury securities to trust funds for trust
fund receipts not needed for current benefits and expenses. BPD issues
and redeems Treasury securities for the trust funds based on data
provided by program agencies and other Treasury entities.
Basis of Accounting:
The schedules were prepared in conformity with U.S. generally accepted
accounting principles and from BPD's automated accounting system,
Public Debt Accounting and Reporting System. Interest costs are
recorded as expenses when incurred, instead of when paid. Certain
Treasury securities are issued at a discount or premium. These
discounts and premiums are amortized over the term of the security
using an interest method for all long term securities and the straight
line method for short term securities. The Department of the Treasury
also issues Treasury Inflation-Protected Securities (TIPS). The
principal for TIPS is adjusted over the life of the security based on
the Consumer Price Index for all Urban Consumers.
Note 2. Federal Debt Held by the Public:
As of September 30, 2004 and 2003, Federal Debt Held by the Public
consisted of the following:
[See PDF for image]
[End of table]
Treasury issues marketable bills at a discount and pays the par amount
of the security upon maturity. The average interest rate on Treasury
bills represents the original issue effective yield on securities
outstanding as of September 30, 2004 and 2003, respectively. Treasury
bills are issued with a term of one year or less.
Treasury issues marketable notes and bonds as long-term securities that
pay semi-annual interest based on the securities' stated interest rate.
These securities are issued at either par value or at an amount that
reflects a discount or a premium. The average interest rate on
marketable notes and bonds represents the stated interest rate adjusted
by any discount or premium on securities outstanding as of September
30, 2004 and 2003. Treasury notes are issued with a term of 2 -10 years
and Treasury bonds are issued with a term of more than 10 years.
Treasury also issues TIPS that have interest and redemption payments,
which are tied to the Consumer Price Index, the leading measurement of
inflation. TIPS are issued with a term of more than 5 years. At
maturity, TIPS are redeemed at the inflation-adjusted principal amount,
or the original par value, whichever is greater. TIPS pay a semi-annual
fixed rate of interest applied to the inflation-adjusted principal.
Inflation-indexed securities, TIPS, were previously included with
Treasury notes and bonds. The fiscal year 2003 amounts and average
interest rates have been reclassified to conform with the presentation
adopted in fiscal year 2004.
As of September 30, 2004, nonmarketable securities primarily consisted
of $204,246 million in U.S. Savings Securities, $158,214 million in
securities issued to State and Local Governments, $5,881 million in
Foreign Series Securities, and $29,995 million in Domestic Series
Securities. As of September 30, 2003, nonmarketable securities
primarily consisted of $201,606 million in U.S. Savings Securities,
$148,366 million in securities issued to State and Local Governments,
$11,007 million in Foreign Series Securities, $29,995 million in
Domestic Series Securities, and $14,991 million in Depositary
Compensation Securities. Treasury issues nonmarketable securities at
either par value or at an amount that reflects a discount or a premium.
The average interest rate on the nonmarketable securities represents
the original issue weighted effective yield on securities outstanding
as of September 30, 2004 and 2003. Nonmarketable securities are issued
with a term of on demand to more than 10 years.
Government Account Series (GAS) securities are nonmarketable securities
issued to federal government accounts. Federal Debt Held by the Public
includes GAS securities issued to certain federal government accounts.
One example is the GAS securities held by the Government Securities
Investment Fund (G-Fund) of the federal employees' Thrift Savings Plan.
Federal employees and retirees who have individual accounts own the GAS
securities held by the fund. For this reason, these securities are
considered part of the Federal Debt Held by the Public rather than
Intragovernmental Debt Holdings. The GAS securities held by the G-Fund
consist of overnight investments redeemed one business day after their
issue. The net increase in amounts borrowed from the fund during fiscal
years 2004 and 2003 are included in the respective Borrowings from the
Public amounts reported on the Schedules of Federal Debt.
Federal Debt Held by the Public includes federal debt held outside of
the U. S. government by individuals, corporations, Federal Reserve
Banks (FRB), state and local governments, and foreign governments and
central banks. The FRB owned $698 billion and $654 billion of Federal
Debt Held by the Public as of September 30, 2004 and 2003,
respectively. These securities are held in the FRB System Open Market
Account (SOMA) for the purpose of conducting monetary policy.
Note 3. Intragovernmental Debt Holdings:
As of September 30, 2004 and 2003, Intragovernmental Debt Holdings are
owed to the following:
[See PDF for image]
[End of table]
* These amounts include marketable Treasury securities as well as GAS
securities as follows:
[See PDF for image]
[End of table]
Social Security Administration (SSA); Office of Personnel Management
(OPM); Department of Health and Human Services (HHS); Department of
Defense (DOD); Department of Labor (DOL); Federal Deposit Insurance
Corporation (FDIC); Department of Energy (DOE); Department of Housing
and Urban Development (HUD); Department of Transportation (DOT);
Department of State (DOS); Department of Veterans Affairs (VA);
Department of the Treasury (Treasury).
Note 3. Intragovernmental Debt Holdings (continued):
Intragovernmental Debt Holdings primarily consist of GAS securities.
Treasury issues GAS securities at either par value or at an amount that
reflects a discount or a premium. The average interest rates for fiscal
years 2004 and 2003 were 5.4 percent and 5.5 percent, respectively. The
average interest rate represents the original issue weighted effective
yield on securities outstanding as of September 30, 2004 and 2003. GAS
securities are issued with a term of on demand to 30 years.
Note 4. Interest Expense:
Interest expense on Federal Debt Managed by BPD for fiscal years 2004
and 2003 consisted of the following:
[See PDF for image]
[End of table]
Note 5. Fund Balance With Treasury:
As of As of September 30. 2004 September 30. 2003:
Appropriated Funds Obligated;
As of September 30, 2004: $145;
As of September 30, 2003: $162.
The Fund Balance with Treasury, a non-entity, intragovernmental
account, is not included on the Schedules of Federal Debt and is
presented for informational purposes.
[End of section]
Appendixes:
Appendix I: Comments from the Bureau of the Public Debt:
DEPARTMENT OF THE TREASURY:
BUREAU OF THE PUBLIC DEBT:
WASHINGTON, DC 20239-0001:
October 29, 2004:
Mr. Gary T. Engel:
Director:
U.S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Engel:
This letter is our response to your audit of the Schedules of Federal
Debt Managed by the Bureau of the Public Debt for the fiscal years
ended September 30, 2004 and 2003. We agree with your audit report's
conclusions.
Although the past few years have presented new challenges associated
with debt issuance suspension periods, we appreciate the experience and
professional attitude of your audit team. We would like to thank you
and your staff for conducting an efficient and thorough audit of these
schedules with increasingly stringent audit requirements. The usability
of these reports continues to develop through combined efforts, and we
look forward to continuing this productive and successful relationship.
Sincerely,
Signed by:
Van Zeck:
Commissioner:
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Dawn Simpson, (202) 512-9473:
Acknowledgments:
In addition to the individual named above, Erik A. Braun, Dean D.
Carpenter, Dennis L. Clarke, Chau L. Dinh, Mickie E. Gray, Jennifer L.
Hall, Jay McTigue, Lori B. Ryza, Kathryn J. Peterson, and Jason O.
Strange made key contributions to this report.
(198247):
FOOTNOTES
[1] Intragovernmental Debt Holdings represent federal debt issued by
Treasury and held by certain federal government accounts, such as the
Social Security and Medicare trust funds.
[2] During this period, Treasury eliminated the 3-year note and the 52-
week bill. On October 31, 2001, Treasury suspended issuance of the 30-
year bond.
[3] 5 U.S.C. §§ 8348(j)(5)(B), 8438(g)(6)(B).
[4] In May 2004, we reported on the results of our review of the
actions taken and the policies and procedures Treasury implemented
during the 2003 debt issuance suspension period. See GAO, Debt Ceiling:
Analysis of Actions Taken during the 2003 Debt Issuance Suspension
Period, GAO-04-526 (Washington, D.C.: May 20, 2004).
[5] 31 U.S.C. § 3101(b), as amended by Pub. L. No. 107-199, § 1, 116
Stat. 734 (2002) and Pub. L. No. 108-24, 117 Stat. 710 (2003).
[6] 31 U.S.C. § 331(e).
[7] Intragovernmental Debt Holdings represent federal debt issued by
Treasury and held by certain federal government accounts, such as the
Social Security and Medicare trust funds.
[8] Reportable conditions are matters coming to our attention that, in
our judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control, which
could adversely affect the organization's ability to meet the internal
control objectives described in the Objectives, Scope, and Methodology
section of this report.
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NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
