Financial Audit
Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Further Improvement Gao ID: GAO-04-866 September 10, 2004For the past 7 years, since the first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and financial reporting have resulted in conditions that have prevented GAO from expressing an opinion on the CFS. Specifically, GAO has reported that the federal government did not have adequate systems, controls, and procedures to properly prepare the CFS. In October 2003, GAO reported on weaknesses identified during the fiscal year 2002 audit regarding financial reporting procedures and internal control over the process for preparing the CFS. The purpose of this report is to (1) discuss additional weaknesses identified during the fiscal year 2003 audit, (2) recommend improvements to address those weaknesses, and (3) provide the status of corrective actions to address the 129 recommendations contained in the October 2003 report.
Many of the weaknesses in internal control that have contributed to GAO's continuing disclaimers of opinion on the CFS were identified by agency financial statement auditors during their audits of federal agencies' financial statements and have been reported in detail with recommendations to agencies in separate reports. However, some of the weaknesses GAO reported were identified during GAO's tests of the Department of the Treasury's process for preparing the CFS. Such weaknesses impair the federal government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. In addition to the compilation and reporting weaknesses that GAO reported in October 2003, GAO found additional weaknesses in the compilation and reporting process in the following seven areas during the fiscal year 2003 CFS audit: (1) allocation methodology for certain costs in the statement of net cost, (2) statement of changes in cash balance from unified budget and other activities, (3) reporting of criminal debt, (4) recording and disclosing contingencies, (5) directly linking audited federal agency financial statements to the CFS, (6) prior period adjustments, and (7) conformity with U.S. generally accepted accounting principles. GAO found that with respect to four required disclosure areas, information was either not included in the CFS or was not presented in conformity with U.S. generally accepted accounting principles. As a result of this and certain other weaknesses GAO identified, GAO was unable to determine if the missing information was material to the CFS. The four disclosure areas were (1) federal employee and veteran benefits payable, (2) environmental and disposal liabilities, (3) research and development, and (4) deferred maintenance. GAO's October 2003 report contained 129 recommendations. Of those recommendations, 118 remained open as of February 20, 2004, the end of GAO's fieldwork for the fiscal year 2003 CFS audit.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-866, Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Further Improvement
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Report to the Secretary of the Treasury and the Director of the Office
of Management and Budget:
September 2004:
Financial Audit:
Process for Preparing the Consolidated Financial Statements of the U.S.
Government Needs Further Improvement:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-866]:
GAO Highlights:
Highlights of GAO-04-866, a report to the Secretary of the Treasury and
the Director of the Office of Management and Budget
Why GAO Did This Study:
For the past 7 years, since the first audit of the consolidated
financial statements of the U.S. government (CFS), certain material
weaknesses in internal control and financial reporting have resulted
in conditions that have prevented GAO from expressing an opinion on
the CFS. Specifically, GAO has reported that the federal government did
not have adequate systems, controls, and procedures to properly prepare
the CFS. In October 2003, GAO reported on weaknesses identified during
the fiscal year 2002 audit regarding financial reporting procedures and
internal control over the process for preparing the CFS. The purpose of
this report is to (1) discuss additional weaknesses identified during
the fiscal year 2003 audit, (2) recommend improvements to address those
weaknesses, and (3) provide the status of corrective actions to address
the 129 recommendations contained in the October 2003 report.
What GAO Found:
Many of the weaknesses in internal control that have contributed to
GAO‘s continuing disclaimers of opinion on the CFS were identified by
agency financial statement auditors during their audits of federal
agencies‘ financial statements and have been reported in detail with
recommendations to agencies in separate reports. However, some of the
weaknesses we reported were identified during GAO‘s tests of the
Department of the Treasury‘s process for preparing the CFS. Such
weaknesses impair the federal government‘s ability to ensure that the
CFS is consistent with the underlying audited agency financial
statements, properly balanced, and in conformity with U.S. generally
accepted accounting principles.
In addition to the compilation and reporting weaknesses that GAO
reported in October 2003, GAO found additional weaknesses in the
compilation and reporting process in the following seven areas during
the fiscal year 2003 CFS audit:
* allocation methodology for certain costs in the statement of net
cost,
* statement of changes in cash balance from unified budget and other
activities,
* reporting of criminal debt,
* recording and disclosing contingencies,
* directly linking audited federal agency financial statements to the
CFS,
* prior period adjustments, and
* conformity with U.S. generally accepted accounting principles.
GAO found that with respect to four required disclosure areas,
information was either not included in the CFS or was not presented in
conformity with U.S. generally accepted accounting principles. As a
result of this and certain other weaknesses we identified, we were
unable to determine if the missing information was material to the CFS.
The four disclosure areas were (1) federal employee and veteran
benefits payable, (2) environmental and disposal liabilities, (3)
research and development, and (4) deferred maintenance.
GAO‘s October 2003 report contained 129 recommendations. Of those
recommendations, 118 remained open as of February 20, 2004, the end of
GAO‘s fieldwork for the fiscal year 2003 CFS audit.
What GAO Recommends:
GAO is making 25 new recommendations to address weaknesses identified
during the fiscal year 2003 CFS audit, including 11 recommendations
related to four disclosure areas required under U.S. generally accepted
accounting principles. Treasury and the Office of Management and Budget
stated that they generally concur with the findings in the report,
however Treasury disagrees with some recommendations in two areas.
www.gao.gov/cgi-bin/getrpt?GAO-04-866.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gary T. Engel at (202)
512-3406 or engelg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Scope and Methodology:
Allocation Methodology for Certain Costs in the Statement of Net Cost:
Statement of Changes in Cash Balance from Unified Budget and Other
Activities:
Reporting of Criminal Debt:
Recording and Disclosing Contingencies:
Directly Linking Audited Federal Agency Financial Statements to the
CFS:
Prior Period Adjustments:
Conformity with U.S. Generally Accepted Accounting Principles:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Disclosure Issues:
Federal Employee and Veteran Benefits Payable:
Environmental and Disposal Liabilities:
Research and Development:
Deferred Maintenance:
Appendix II: Status of Treasury's and OMB's Progress in Addressing GAO
Recommendations for Preparing the CFS:
Appendix III: Comments from the Office of Management and Budget:
Appendix IV: Comments from the Department of the Treasury:
GAO Comments:
Letter September 10, 2004:
The Honorable John W. Snow:
The Secretary of the Treasury:
The Honorable Joshua B. Bolten:
Director, Office of Management and Budget:
In February 2004, we issued our disclaimer of opinion on the
consolidated financial statements of the U.S. government (CFS) for the
fiscal years ended September 30, 2003 and 2002. For the past 7 years,
certain material weaknesses in internal control and financial reporting
resulted in conditions that prevented us from expressing an opinion on
the CFS. Specifically, we have reported that the federal government did
not have adequate systems, controls, and procedures to properly prepare
its consolidated financial statements. Many of these weaknesses in
internal control that contributed to our continuing disclaimers of
opinion were identified by agency financial statement auditors during
their audits of federal agencies' financial statements and were
reported in detail with recommendations to the agencies in separate
reports. However, some of the internal control weaknesses were
identified during our tests of the Department of the Treasury's
(Treasury) process for preparing the CFS. Such weaknesses impair the
federal government's ability to ensure that the CFS is consistent with
the underlying audited agency financial statements, properly balanced,
and in conformity with U.S. generally accepted accounting principles
(GAAP). Consequently, these weaknesses also contributed to our
inability to render an opinion on the CFS.
In October 2003, we reported to you detailed weaknesses we identified
during our fiscal year 2002 audit regarding financial reporting
procedures and internal control over the process for preparing the
CFS.[Footnote 1] The purpose of this report is to (1) discuss in
greater detail additional weaknesses we identified during our fiscal
year 2003 audit regarding financial reporting procedures and internal
control over the process for preparing the CFS, (2) recommend
improvements to address those weaknesses, and (3) provide the status of
corrective actions to address the 129 recommendations contained in our
October 2003 report and that are listed in appendix II. We have
discussed each of the new weaknesses we identified during our fiscal
year 2003 audit with your staff.
Results in Brief:
In addition to the compilation and reporting processes weaknesses we
reported in October 2003, we found more weaknesses in the compilation
and reporting processes during our fiscal year 2003 audit, involving
the following seven areas: (1) allocation methodology for certain costs
in the statement of net cost, (2) statements of changes in cash balance
from unified budget and other activities, (3) reporting of criminal
debt, (4) recording and disclosing contingencies, (5) directly linking
audited federal agency financial statements to the CFS, (6) prior
period adjustments, and (7) conformity with GAAP.
This report includes 25 new recommendations to address weaknesses we
identified, including 11 recommendations related to four required GAAP
disclosure areas identified in appendix I. We are recommending that the
required disclosures that are not included in the fiscal year 2003 CFS
either be included in future years' CFS or that the specific rationale
for their exclusion be documented. Appendix II of this report reflects
the status of actions taken as of February 20, 2004, the end of our
fieldwork, on our fiscal year 2003 CFS audit, to address the
recommendations from our October 2003 report. Of the 129
recommendations contained in our October 2003 report, 118 are still
open.
The Office of Management and Budget (OMB) stated that it generally
concurred with the findings in the report and would work with Treasury
and other executive departments and agencies to address these findings.
Treasury stated that our report identified issues regarding certain
federal financial reporting procedures and internal controls and
provided valuable advice and recommendations for improvements. It also
stated that many of the concerns we raised are in critical areas where
federal financial reporting can be improved. While Treasury stated that
it generally agreed with our concerns on most of the major issues, in
some cases it disagreed with either our finding or our recommended
approach to addressing the problem. We continue to believe that our
findings and recommendations are sound. Treasury's disagreements
involve two areas of weaknesses we identified and reported on as part
of our fiscal year 2003 audit and are discussed in this report (1)
Statements of Changes in Cash Balance from Unified Budget and Other
Activities, and (2) Treasury's allocation methodology for certain costs
in the Statement of Net Cost. In addition, Treasury disagreed with
certain matters involving three areas we identified and reported on as
part of our fiscal year 2002[Footnote 2] audit (1) unreconciled
transactions affecting the change in net position, (2) Reconciliation
of Net Operating Cost and Unified Budget Surplus/Deficit, and (3)
management representation letters.
Scope and Methodology:
As part of our audit of the fiscal years 2003 and 2002 CFS, we
evaluated Treasury's financial reporting procedures and related
internal control. In our report, which is included in the fiscal year
2003 Financial Report of the United States Government,[Footnote 3] we
reported material deficiencies relating to Treasury's financial
reporting procedures and internal control. These material deficiencies
contributed to our disclaimer of opinion on the CFS and also constitute
material weaknesses in internal control, which contributed to our
adverse opinion on internal control. We performed our work in
accordance with U.S. generally accepted government auditing standards.
This report provides the details of the additional weaknesses we
identified in our audit of the fiscal year 2003 and 2002 CFS and
recommendations to correct those weaknesses.
We requested comments on a draft of this report from the Director of
OMB and the Secretary of the Treasury or their designees. OMB's and
Treasury's comments are reprinted in appendix III and IV, respectively,
and discussed in the Agency Comments and Our Evaluation section of this
report. Treasury also provided an attachment to its written comments
that we did not reprint in appendix IV. This attachment was a detailed
reconciliation spreadsheet that was an expanded version of the
information we had already taken into account in our review of the
fiscal year 2003 reconciliation statement.
Allocation Methodology for Certain Costs in the Statement of Net Cost:
Statement of Federal Financial Accounting Standard (SFFAS) No. 4,
Managerial Cost Accounting Standards and Concepts, states that a
fundamental element of managerial cost accounting for the federal
government is the use of appropriate costing methodologies to
accumulate and assign costs to outputs. The standard further states
that costs should be allocated on a reasonable and consistent basis.
Without consistently applying an allocation methodology, the net cost
amounts by federal agency, as shown on the Statement of Net Cost, may
be misstated.
The Statement of Net Cost is intended to present the net cost of the
U.S. government's operations. These costs are presented in the
statement by individual federal agencies rather than by significant
federal government program. The reported net cost amounts by federal
agency include an allocated portion of the Office of Personnel
Management (OPM) costs. This allocation is made to reflect the fair
share of the cost of the functions performed by OPM that benefit other
federal agencies, most notably, pension payments to federal retirees.
As the basis for allocating OPM costs to each federal agency,
Treasury's written procedures call for the use of full-time equivalents
(FTE). Those FTEs are published in the Analytical Perspectives, Budget
of the United States Government, fiscal year 2005.
During our fiscal year 2003 audit, we found that the FTEs used for
allocating OPM costs to some of the federal agencies listed in the
Statement of Net Cost did not always agree with the respective
agencies' FTEs in the Analytical Perspectives, Budget of the United
States Government, fiscal year 2005. In addition, we found that there
was no review of the underlying support used to compile the Statement
of Net Cost by Treasury management to ensure that OPM costs were
allocated accurately. Treasury was not able to explain the differences
we identified. We also found that Treasury's written procedures for
allocating OPM costs on the Statement of Net Cost were not updated to
reflect the changes Treasury made to its allocation methodology during
fiscal year 2003.
We also found that Treasury made errors in allocating OPM costs to the
Department of Homeland Security (DHS). Most of the errors occurred
because Treasury allocated a full year of OPM costs to DHS, even though
DHS did not begin operations until March 2003. DHS was originally
allocated 5.3 percent of OPM costs and after we notified Treasury of
the errors we identified, DHS was correctly allocated 2.6 percent.
Recommendations for Executive Action. We recommend that the Secretary
of the Treasury direct the Fiscal Assistant Secretary to:
* ensure that, if FTEs are used as part of Treasury's methodology for
allocating OPM costs, the FTEs used for the agencies listed on the
Statement of Net Cost agree with the FTEs listed in the Analytical
Perspectives, Budget of the United States Government as currently
stated in Treasury's methodology;
* document any changes to the stated methodology for allocating OPM
costs and the rationale for these changes; and:
* require reviews by Treasury management of the accuracy of the
allocated OPM costs.
Statement of Changes in Cash Balance from Unified Budget and Other
Activities:
As part of our fiscal year 2003 audit of the Statement of Changes in
Cash Balance from Unified Budget and Other Activities (Statement of
Changes in Cash Balance), we found (1) material differences between the
net outlay records used by Treasury to prepare the Statement of Changes
in Cash Balance and the total net outlays reported in selected federal
agencies' audited Statements of Budgetary Resources (SBR);[Footnote 4]
(2) that the Statement of Changes in Cash Balance reported only the
changes in the "operating" cash of the U.S. government rather than all
cash, as it is reported on the U.S. government's Balance Sheet; and (3)
that the major program activities of the U.S. government relating to
direct and guaranteed loans extended to the public were reported as a
net amount on the Statement of Changes in Cash Balance rather than
disclosed as gross amounts for receipts and disbursements of cash
related to direct loans and loan guarantees.
Net Outlays:
OMB Bulletin 01-09, Form and Content of Agency Financial
Statements,[Footnote 5] states that outlays in federal agencies' SBRs
should agree with each agency's net outlays reported in the budget of
the U.S. government. In addition, SFFAS No. 7, Accounting for Revenue
and Other Financing Sources and Concepts for Reconciling Budgetary and
Financial Accounting, requires explanation of any material differences
between the information required to be disclosed (including net
outlays) and the amounts described as "actual" in the budget of the
U.S. government.
As part of our fiscal year 2003 audit of the Statement of Changes in
Cash Balance, we found material differences between the net outlay
records used by Treasury to prepare the Statement of Changes in Cash
Balance and the total net outlays reported in selected federal
agencies' audited SBRs. These differences totaled about $140 billion
and $186 billion for fiscal years 2003 and 2002, respectively.[Footnote
6]
Two agencies--Treasury and the Department of Health and Human Services
(HHS)--accounted for about 83 percent and 75 percent of the differences
identified in fiscal years 2003 and 2002, respectively. We found that
the major cause of the differences for the two agencies was the
treatment of offsetting receipts.[Footnote 7] Some offsetting receipts
for these two agencies had not been included in the agencies' SBRs,
which would have reduced the agencies' net outlays and made the amounts
more consistent with Treasury records used to prepare the Statement of
Changes in Cash Balance.[Footnote 8] We found that Treasury publishes
offsetting receipts by agency or department monthly, including fiscal
year-to-date information in the Monthly Treasury Statement.
Nevertheless, material differences between the two agencies' and
Treasury's records remained at the end of the fiscal year.[Footnote 9]
For example, we found that HHS reported net outlays for fiscal year
2003 as $596 billion on its audited SBR, while the records that
Treasury used to prepare the fiscal year 2003 Statement of Changes in
Cash Balance showed net outlays of $505 billion for HHS.
Until the differences between the total net outlays reported in the
federal agencies' SBRs and the records used to prepare the Statement of
Changes in Cash Balance are reconciled, the effect of these differences
on the CFS will be unknown. OMB has stated that it plans to work with
the agencies to address this issue.
Recommendations for Executive Action. We recommend that the Director of
OMB direct the Controller of OMB, in coordination with Treasury's
Fiscal Assistant Secretary, to work with the federal agencies so that
the differences between net outlays the agencies report in their SBRs
and the net outlay records Treasury uses to prepare the Statement of
Changes in Cash Balance are reconciled.
In addition, we recommend that the Secretary of the Treasury direct the
Fiscal Assistant Secretary to determine and address the effects that
any of the differences between net outlays the agencies report in their
SBRs and Treasury's net outlay records may have on the CFS.
Reporting the Change in Cash:
The Statement of Changes in Cash Balance reported only the changes in
the "operating" cash of the U.S. government of $35 billion rather than
the changes in all cash reported on the U.S. government's Balance Sheet
of $62.2 billion, as of September 30, 2003. We also found that the
total operating cash amount reported in the Statement of Changes in
Cash Balance did not link to the underlying agencies' operating cash
reported in their financial statements. For example, Treasury reported
$51 billion of operating cash in Treasury's own fiscal year 2003
audited financial statements. This amount, by itself, exceeded the $35
billion operating cash balance reported in the Statement of Changes in
Cash Balance.
SFFAS No. 1, Accounting for Selected Assets and Liabilities, defines
nonentity cash as cash that a federal entity collects and holds on
behalf of the U.S. government or other entities. In some circumstances,
the entity deposits the cash in its accounts in a fiduciary capacity
for Treasury or other entities. Several provisions of SFFAS No. 24,
Selected Standards for the Consolidated Financial Report of the United
States Government, require the Statement of Changes in Cash Balance to
explain changes in the U.S. government's cash balance.
Recommendation for Executive Action. We recommend that the Secretary of
the Treasury 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.
Net Direct and Guaranteed Loans:
We found that the major program activities of the U.S. government
relating to direct and guaranteed loans extended to the public were
reported as a net amount on the Statement of Changes in Cash Balance
rather than disclosed as gross amounts for receipts and disbursements
of cash related to direct loans and loan guarantees.
In this regard, the illustrative financial statement for the Statement
of Changes in Cash Balance provided in SFFAS No. 24, while not
prescriptive, shows gross reporting of direct loans and guarantees
activities. In addition, gross reporting is consistent with the
reporting advocated in Financial Accounting Standards Board[Footnote
10] Statement No. 95, Statement of Cash Flows.
Treasury does not have a process for obtaining receipt and disbursement
amounts for direct and guaranteed loans. As a result, the Statement of
Changes in Cash Balance does not show the magnitude of these major
government loan programs. Net reporting of direct and guaranteed loan
program activity does not disclose how much cash the government
disbursed to promote the nation's welfare by making these loans
available to the general population or how much in related repayments
the government received. For example, in fiscal year 2003, the
Statement of Changes in Cash Balance reported a net $1.2 billion of
direct loan activity, while the Department of Education alone disbursed
approximately $18 billion in direct loans to eligible borrowers and
received approximately $15 billion in loan repayments.
Recommendation for Executive Action. We recommend that the Secretary of
the Treasury direct the Fiscal Assistant Secretary to report gross
amounts for receipts and disbursements of cash related to direct loans
and loan guarantees.
Reporting of Criminal Debt:
We found that the CFS did not report criminal debt, as determined
through the U.S. Courts, in accordance with GAAP. SFFAS No. 1,
Accounting for Selected Assets and Liabilities, and SFFAS No. 7,
Accounting for Revenue and Other Financing Sources and Concepts for
Reconciling Budgetary and Financial Accounting, require that a
receivable and related revenue be recognized once amounts due to the
U.S. government are assessed. Further, these standards require that an
allowance for uncollectible accounts be used to reduce the gross amount
of the receivable and revenue to its net realizable value. Also, in
accordance with OMB Circular No. A-129, Policies for Federal Credit
Programs and Non-Tax Receivables, agencies are to (1) service and
collect debts in a manner that best protects the value of the U.S.
government's assets and (2) provide accounting and management
information for effective stewardship, including resources entrusted to
the U.S. government (e.g., for nonfederal and federal restitution).
Criminal debt consists primarily of fines and restitution[Footnote 11]
related to a wide range of criminal activities, including domestic and
international terrorism, drug trafficking, firearms activities, and
white-collar fraud. The U.S. Courts assess these debts, and the
Department of Justice's (Justice) U.S. Attorneys' Offices throughout
the country are charged with enforcing collection. Although Justice and
the U.S. Courts develop unaudited annual statistical data for
informational purposes,[Footnote 12] neither entity is accounting for
any of these criminal debts as receivables, disclosing the debts in
financial statements, or having the information subject to audit. The
U.S. Courts, which serve as the assessor, depositor, and disburser of
most of the funds collected, are not required to prepare financial
statements or disclose criminal debt information. In addition, Justice,
which enforces criminal debt collection, prepares audited financial
statements but does not record or disclose receivables for criminal
debt. Therefore, criminal debt outstanding is not being reported to
Treasury for inclusion in the CFS. Financial statement reporting of
criminal debt would increase oversight of the debt collection process
because amounts would be subject to audit. Such audits would include
assessments of internal control and compliance with applicable laws and
regulations related to the criminal debt collection process.
In our recently issued report on criminal debt,[Footnote 13] we
reemphasized the need for Justice, the Administrative Office of the
U.S. Courts, OMB, and Treasury to form a joint task force to develop a
strategic plan that addresses managing, accounting for, and reporting
criminal debt.[Footnote 14] We stated that the strategy should include
(1) determining an approach for assessing the collectibility of
outstanding criminal debt amounts so that a meaningful allowance for
uncollectible criminal debts can be reported and used for measuring
debt collection performance and (2) having OMB work with Justice and
certain other executive branch agencies to ensure that these entities
report and/or disclose relevant criminal debt information in their
financial statements and subject such information to audit. As of the
completion of our fieldwork, the task force had not yet been
established and, therefore, a strategic plan had not been developed.
Recommendations for Executive Action. In the interim, until the joint
task force is established and a strategic plan is developed, we
recommend that the Director of OMB direct the Controller of OMB, in
coordination with the Fiscal Assistant Secretary of the Treasury, to
work with Justice and certain other executive branch agencies to ensure
that these agencies report or disclose relevant criminal debt
information in conformity with GAAP in their financial statements and
have such information subjected to audit.
In addition, we recommend that the Secretary of the Treasury direct the
Fiscal Assistant Secretary to include relevant criminal debt
information in the CFS or document the specific rationale for excluding
such information.
Recording and Disclosing Contingencies:
As we have reported in previous years' audits, the U.S. government has
not been able to determine whether loss contingencies were complete and
properly reported in the CFS. Part of the problem is that Treasury has
not requested all relevant information for loss contingencies required
under the accounting standards from all applicable federal agencies.
For fiscal year 2003, Treasury's primary means of compiling information
for the CFS was through its system called Federal Agencies' Centralized
Trial Balance System (FACTS). Under FACTS, federal agencies were
instructed to enter information for legal contingencies that are
assessed as both "reasonably possible" and "estimable." Treasury does
not specifically request other information for loss contingencies that
is required by accounting standards, such as loss contingencies
assessed (1) to be probable, (2) as reasonably possible with estimated
loss ranges, or (3) as uncertain.
For example, one federal agency provided Treasury with information
regarding a legal claim amount of $1.7 billion for which the agency's
lawyers were unable to provide an assessment of the likelihood of an
unfavorable outcome. Because FACTS does not allow for narrative
descriptions of amounts provided to Treasury and only classifies loss
contingencies as reasonably possible and estimable, the agency was
unable to properly report to Treasury that the assessment of the
likelihood of an unfavorable outcome was uncertain. Consequently,
Treasury incorrectly considered this amount as reasonably possible and
estimable and therefore overstated its estimated possible losses for
legal contingencies in the CFS by this federal agency's claimant amount
of $1.7 billion. We notified Treasury of this error and a correction
was made in the final version of the CFS.
SFFAS No. 5, Accounting for Liabilities of the Federal Government, as
amended by SFFAS No. 12, Recognition of Contingent Liabilities Arising
from Litigation: An Amendment of SFFAS No. 5, contains accounting and
reporting standards for loss contingencies, including those arising
from litigation, claims, and assessments. A contingency is defined as
an existing condition, situation, or set of circumstances involving
uncertainty as to possible gain or loss to an entity. The uncertainty
will ultimately be resolved when one or more future events occur or
fail to occur. When a loss contingency exists, the likelihood that the
future event or events will confirm the loss or impairment of an asset
or the incurrence of a liability can range from probable to remote.
SFFAS Nos. 5 and 12 use the terms probable, reasonably possible, and
remote to identify three areas within the range of potential loss, as
follows:
* Probable. For contingencies, the future event or events are more
likely than not to occur. In addition, for contingencies related to
pending or threatened litigation and unasserted claims, the future
confirming event or events are those likely to occur.
* Reasonably possible. The chance of the future confirming event or
events occurring is more than remote but less than probable.
* Remote. The chance of the future event or events occurring is slight.
Under SFFAS Nos. 5 and 12, a liability and the related cost for an
estimated loss from a loss contingency should be recognized (accrued by
a charge to income) when (1) a past event or exchange transaction has
occurred, (2) a future outflow or other sacrifice of resources is
probable, and (3) the future outflow or sacrifice of resources is
measurable.
Disclosure of the nature of an accrued liability for loss
contingencies, including the amount accrued, may be necessary for the
financial statements not to be misleading. For example, if the amount
recognized is large or unusual, disclosure should be considered.
However, if no accrual is made for a loss because one or more of the
conditions in SFFAS No. 12 are not met, disclosure of the contingency
should be made when there is at least a reasonable possibility that a
loss has been incurred. The disclosure should include the nature of the
contingency and an estimate of the possible liability or range of
possible liability, if estimable, or a statement that such an estimate
cannot be made.
Recommendation for Executive Action. Because the limited information
requested through Treasury's FACTS does not capture all the disclosure
requirements under the accounting standards, the contingency note
disclosure for the CFS may have been inaccurate and unreliable. For
fiscal year 2004, Treasury is completing the design of and will be
implementing a new system for compiling the CFS. We recommend that the
Secretary of the Treasury direct the Fiscal Assistant Secretary to
include in the new system a request for federal agencies to provide the
following contingency loss information to assist Treasury in disclosing
contingencies in the CFS in accordance with GAAP:
* contingency losses assessed as probable and for which possible losses
and estimated loss ranges are measurable,
* contingency losses assessed as probable and for which possible losses
cannot be estimated,
* contingency losses assessed as reasonably possible and for which
losses and estimated loss ranges are measurable,
* contingency losses assessed as reasonably possible and for which
possible losses are not measurable, and:
* the nature and extent of significant contingency losses for which the
agency is unable to provide an assessment on the likelihood of an
unfavorable outcome.
Directly Linking Audited Federal Agency Financial Statements to the
CFS:
As we have reported in the past, Treasury's current process for
compiling the CFS did not directly link information from federal
agencies' audited financial statements to amounts reported in the CFS,
and therefore Treasury could not fully ensure that the information in
the CFS was consistent with the underlying information in federal
agencies' audited financial statements and other financial data. For
fiscal year 2004 reporting, Treasury is planning a new process to
compile the CFS. We reviewed Treasury's plans for the new process and
found that there is a plan to link most of the agencies' audited
financial statements to the consolidated financial statements through
the use of a new closing package. Treasury will require each
significant agency[Footnote 15] to prepare the closing package and to
certify its accuracy.
However, we found that the planned closing package does not require
federal agencies to directly link their audited financial statement
notes to the closing package notes. Treasury plans to rely on note
templates it designed that call for predefined information from the
federal agencies. We found that these templates are too restrictive and
that important information reported at the agency level may not be
included in the CFS because it is not specifically called for in the
closing package. The use of such predefined templates increases the
risk that Treasury will continue to produce consolidated financial
statements that are not in conformity with GAAP.
We also found that the planned closing package does not require the
necessary information to compile all five of the required consolidated
financial statements. For example, as noted earlier, we found that
there were significant differences between the total net outlays
reported in selected agencies' audited financial statements and the
records Treasury uses to prepare its Statement of Changes in Cash
Balance from Unified Budget and Other Activities. Because the planned
closing package does not call for agencies to provide information to
compile this statement that is consistent with underlying information
in the agencies' audited financial statements, the risk of differences
between the CFS and the underlying agency financial statements is
increased. The lack of direct linkage also affects the efficiency and
effectiveness of the audit of the CFS.
Statement of Federal Financial Accounting Concepts No. 4, Intended
Audience and Qualitative Characteristics for the Consolidated Financial
Report of the United States Government, states that the consolidated
financial report should be a general purpose report that is aggregated
from agency reports and that it should tell users where to find
information in other formats, both aggregated and disaggregated, such
as in individual agency reports, on agency Web sites, and in the
President's Budget.
Recommendations for Executive Action. As Treasury is still designing
its new compilation process, which it expects to implement beginning
with the fiscal year 2004 CFS, we recommend that the Secretary of the
Treasury direct the Fiscal Assistant Secretary, in coordination with
the Controller of OMB, to modify Treasury's plans for the new closing
package to:
* require federal agencies to directly link their audited financial
statement notes to the CFS notes and:
* 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.
Prior Period Adjustments:
According to SFFAS No. 21, Reporting Corrections of Errors and Changes
in Accounting Principles, Amending SFFAS 7, Accounting for Revenue and
Other Financing Sources, an entity should restate the prior year to
report correction of errors that are material and should disclose the
nature of the prior period adjustments. If errors are not material,
they should be included in the current year results and not cited as
prior period adjustments on the Statement of Operations and Changes in
Net Position, and no disclosure is required. Also, according to SFFAS
No. 21, an entity should adjust the beginning balance of cumulative
results of operations for changes in accounting principles and disclose
the nature of those changes.
Treasury did not fully comply with the requirements of SFFAS No. 21 in
connection with certain identified errors relating to prior periods.
Treasury did not restate the prior year to correct net errors of $2.6
billion because it determined the errors to be immaterial, which was
the correct accounting treatment. However, Treasury reported the $2.6
billion amount as a prior period adjustment on the Statement of
Operations and Changes in Net Position and adjusted the beginning
balance of cumulative results of operations as would be required if
these amounts were material. Therefore, Treasury was inconsistent when
implementing the requirements of SFFAS No. 21.
Treasury also did not initially comply with the requirements of SFFAS
No. 21 in connection with reporting a change in accounting principle.
Treasury reported in several drafts of the CFS a change in accounting
principle of $383 billion as an error relating to prior periods because
Treasury did not specifically require federal agencies to separately
identify changes in accounting principles. Instead, Treasury allowed
federal agencies to report changes in accounting principles together
with prior period adjustments, which made them difficult to
differentiate. Changes in accounting principles are not errors and have
different reporting requirements. We brought this to Treasury's
attention and it corrected the mistake in the final version of the CFS.
Recommendations for Executive Action. We recommend that the Secretary
of the Treasury direct the Fiscal Assistant Secretary to:
* report prior period adjustments in accordance with SFFAS No. 21 by
(1) restating the prior year for corrections of material errors and
adjusting the beginning balance of cumulative results of operations and
disclosing the nature of the errors in the notes to the CFS and (2)
including corrections of immaterial errors in the current year and not
citing them as prior period adjustments on the Statement of Changes in
Net Position and not disclosing them in the notes to the CFS and:
* include in Treasury's new closing package a process that will allow
federal agencies to clearly distinguish between prior period
adjustments and changes in accounting principles in accordance with
SFFAS No. 21.
Conformity with U.S. Generally Accepted Accounting Principles:
As we reported as part of our fiscal year 2002 audit, and found again
during our fiscal year 2003 audit, Treasury lacks an adequate process
to ensure that the financial statements, related notes, stewardship,
and supplemental information in the CFS are presented in conformity
with GAAP. SFFAS No. 24 states that the Federal Accounting Standards
Advisory Board (FASAB) standards apply to all federal agencies,
including the U.S. government as a whole, unless provision is made for
different accounting treatment in a current or subsequent standard.
Specifically, we found that Treasury did not (1) timely identify
applicable GAAP requirements; (2) make timely modifications to agency
data calls to obtain information needed; (3) assess, qualitatively and
quantitatively, the materiality of omitted disclosures;[Footnote 16] or
(4) document decisions reached with regard to omitted disclosures and
the rationale for such decisions. During our fiscal year 2002 audit, we
identified 16 disclosure areas consisting of 86 specific disclosures
that may not have been in conformity with applicable standards. During
our fiscal year 2003 audit, we found 4 disclosure areas involving an
additional 11 specific disclosures that may not have been in conformity
with applicable standards. As a result of this and certain other
weaknesses we identified, we were unable to determine if the missing
information was material to the CFS. These additional required
disclosures are described in appendix I. We did note that Treasury is
requesting certain information in its planned closing package for
fiscal year 2004 that may address some of the needed disclosures.
Recommendations for Executive Action. We reaffirm our recommendation
that the Secretary of the Treasury direct the Fiscal Assistant
Secretary to establish a formal process that will allow the financial
statements, related notes, stewardship information, and supplemental
information in the CFS to be presented in conformity with GAAP, in all
material respects. The process should:
* timely identify GAAP requirements;
* make timely modifications to Treasury's closing package requirements
to obtain information needed;
* assess, qualitatively and quantitatively, the impact of any omitted
disclosures; and:
* document decisions reached and the rationale for such decisions.
With respect to the 11 required disclosures identified in appendix I
for which information was either not included in the CFS or was
presented in a way that did not meet GAAP standards, we recommend that
each of these disclosures be included in the CFS or that the specific
rationale for excluding any of them be documented.
Agency Comments and Our Evaluation:
OMB and Treasury provided written comments on a draft of this report;
these comments are reprinted in appendixes III and IV, respectively.
OMB stated that it generally concurred with the findings in the report
and would work with Treasury and other executive departments and
agencies to address these findings. Treasury stated that our report
identified issues regarding certain federal financial reporting
procedures and internal controls and provided valuable advice and
recommendations for improvements. It also stated that many of the
concerns we raised are in critical areas where federal financial
reporting can be improved. While Treasury stated that it generally
agreed with our concerns on most of the major issues, in some cases it
disagreed with either our finding or our recommended approach to
addressing the problem. We continue to believe that our findings and
recommendations are sound. Treasury's disagreements involve two areas
of weaknesses we identified and reported on as part of our fiscal year
2003 audit and are discussed in this report (1) Statement of Changes in
Cash Balance from Unified Budget and Other Activities, and (2)
Treasury's allocation methodology for certain costs in the Statement of
Net Cost. In addition, Treasury disagreed with certain matters
involving three areas we identified and reported on as part of our
fiscal year 2002[Footnote 17] audit (1) unreconciled transactions
affecting the change in net position, (2) Reconciliation of Net
Operating Cost and Unified Budget Surplus/Deficit, and (3) management
representation letters. We will address each of Treasury's points
relating to these five areas, beginning with the two related to this
report.
Statement of Changes in Cash Balance:
Treasury expressed disagreement with certain issues we identified with
the Statement of Changes in Cash Balance. Treasury disagreed with our
position that it should determine and address the effects on the
accuracy of the CFS of differences between net outlays the federal
agencies report in their individual audited SBRs and Treasury's net
outlay records used to prepare the Statement of Changes in Cash
Balance. As stated in this report, OMB and GAAP require federal
agencies to report net outlays in their SBRs. The Statement of Changes
in Cash Balance also reports actual unified budget outlays. Both are
intended to represent the same amount and be consistent with the
information in the budget of the U.S. government. We found material
differences between these amounts for selected federal agencies for
fiscal year 2003. Until these types of significant differences are
reconciled, the effect on the CFS will be unknown. OMB has stated that
it has begun working with the federal agencies to address this issue
and we continue to believe that Treasury, in coordination with OMB,
should work with the federal agencies on this matter as well.
Treasury also stated that it believes it is not required to report both
budget receipts and budget outlays in the Statement of Changes in Cash
Balance but only the budget deficit or surplus, as required by SFFAS
No. 24. We understand that SFFAS No. 24 calls for a financial statement
that explains how the annual budget surplus or deficit relates to the
change in the government's cash, and does not prescribe the individual
reporting of budget receipts and outlays. However, the budget deficit
or surplus is the simple calculation of netting the budget receipt and
outlay amounts. Also, Treasury does not maintain "budget deficit or
surplus" records; rather Treasury maintains separate budget receipt and
outlay records and relies on these records to calculate the budget
deficit or surplus. As such, regardless of whether Treasury continues
to separately report budget receipts and budget outlays or elects to
only report the budget deficit or surplus, Treasury and OMB will still
need to determine the effects of the types of net outlay differences
described above on the CFS.
While Treasury agreed that the illustrative statement for the Statement
of Changes in Cash Balance provided in SFFAS No. 24 shows total cash
and the gross amounts for receipts and disbursements of cash related to
direct loans and loan guarantees, it stated that presentation of this
amount of detail is not required. As such, Treasury states that, at
this time, it will not report the gross amounts for receipts and
disbursements of cash related to direct loans and loan guarantees as we
recommend. As stated in this report, we recognize that the illustrative
statement is not prescriptive. However, we also note that the gross
reporting is consistent with the reporting encouraged in Financial
Accounting Standards Board Statement No. 95, Statement of Cash Flows.
We also stated in this report that net reporting of direct and
guaranteed loan program activity does not disclose how much cash the
government disbursed to promote the nation's welfare by making these
loans available to the general population or how much in related
repayments the government received. Therefore, we continue to believe
that gross reporting of this information is more meaningful and useful
to a reader of the CFS.
Allocation Methodology for Certain Costs in the Statement of Net Cost:
In its comments on a draft of this report, Treasury implied that we
disagreed with Treasury for amending its methodology for allocating OPM
costs in the Statement of Net Cost to reflect a new law mandating fully
funded pension cost recognition at the U.S. Postal Service (USPS). We
did not take issue with Treasury modifying its methodology for the
change, but rather that Treasury had not updated its written procedures
to reflect the modification and had made errors in applying the
methodology. Specifically, as stated in our report, we found that
Treasury did not update its methodology in its written procedures for
allocating OPM costs to reflect the change caused by the USPS pension
cost recognition and DHS' partial year existence. Our review found that
Treasury did modify its methodology for allocating OPM costs based on
the changes caused by USPS; however, it was not documented in its
standard operating procedures and the spreadsheet used to apply the
methodology had several significant errors--none of which were
identified by Treasury. One significant error was that the FTEs used by
Treasury for some agencies did not agree with the respective agencies'
FTEs in the Analytical Perspectives, Budget of the United States
Government as prescribed by Treasury's methodology. As such, we
continue to recommend that Treasury (1) ensure that, if FTEs are used
as part of Treasury's methodology for allocating OPM costs, the FTEs
used for the agencies listed on the Statement of Net Cost agree with
the FTEs listed in the Analytical Perspectives, Budget of the United
States Government as currently stated in Treasury's methodology; (2)
document any changes to the stated methodology for allocating OPM costs
and the rationale for these changes; and (3) require reviews by
Treasury management of the accuracy of the allocated OPM costs.
Unreconciled Transactions Affecting the Change in Net Position:
Treasury stated that it agreed that reconciling net position is a
problem and that eliminations of intragovernmental activity and
balances are not performed through balanced accounting entries but
expressed concern that we are over emphasizing the elimination process.
Treasury also stated that it agrees that increasing the granularity of
the eliminations will help Treasury focus on where the problem exists
as we reported as part of our fiscal year 2002 audit.[Footnote 18]
We are not unduly emphasizing the elimination process. Our focus is on
Treasury to identify and quantify all components of the activity in the
net position line item and reconcile the change in the U.S.
government's net position from year to year. During our fiscal year
2002 audit, we recommended that Treasury develop reconciliation
procedures that will aid in understanding and controlling the net
position balance, including the need to understand the components,
including intragovernmental transactions, that are presently causing
the net unreconciled transactions. These actions would allow the use of
balanced accounting entries to account for the change in net position
rather than simple subtraction of liabilities from assets and should
narrow the amount of unexplained differences that comprise the net
unreconciled transactions. Treasury added that it has a new process
that will involve (1) use of reciprocal categories in performing
eliminations and (2) a net position tracking methodology that will
identify both the nature and source of the unreconciled transactions
"plug" by financial area and by agency. We will evaluate this new
process as part of the fiscal year 2004 audit.
Reconciliation of Net Operating Cost and Unified Budget Surplus/Deficit
(Reconciliation Statement):
Treasury stated that it does not agree with the recommendation in our
report on the fiscal year 2002 audit[Footnote 19] that Treasury report
"net unreconciled transactions" included in the net operating results
line item as a separate reconciling activity in the Reconciliation
Statement because it does not know whether it belongs in the statement.
The Reconciliation Statement begins with the net operating cost amount
reported in the Statement of Operations and Changes in Net Position.
The fiscal year 2003 amount includes a net $24.5 billion labeled as
"unreconciled transactions," which was needed to balance the
consolidated financial statements. The Reconciliation Statement ends
with the budget deficit amount, and is intended to show key reconciling
items between the two amounts. For fiscal year 2003, Treasury included
this $24.5 billion net unreconciled transactions balance as part of the
net operating cost, which indicated that this amount is attributable to
fiscal year 2003 activity. We maintain that the $24.5 billion should
have been included as a reconciling item in the Reconciliation
Statement because the fiscal year 2003 budget deficit, the amount being
reconciled to, did not include this $24.5 billion amount.
While Treasury agreed that it could always improve its Reconciliation
Statement, Treasury stated that it took exception to our finding that
the amounts identified as changes in the balance sheet items are
incorrect. We did not report such a finding. Instead, as part of the
fiscal year 2002 audit, we reported that Treasury's process for
preparing the Reconciliation Statement did not ensure completeness of
reporting or ascertain the consistency of all the amounts reported in
the Reconciliation Statement with the related balance sheet line items,
related notes, or federal agencies' financial statements. We stated
that we performed an analysis to determine whether all applicable
components reported in the other statements (and related note
disclosures) included in the CFS were properly reflected in the
Reconciliation Statement. For the fiscal year 2002 audit, we found
about $21 billion of net changes in various line item account balances
on the balance sheet between fiscal year 2002 and 2001 that were not
explained on either the Reconciliation Statement or the Statement of
Changes in Cash Balance. For example, the Reconciliation Statement
reported annual depreciation expense ($20.5 billion) and total
capitalized fixed assets ($40.9 billion) as the components of the net
change in property, plant, and equipment from fiscal year 2001.
Although these activities accounted for a net increase of $20.4
billion, the balance sheet reflected a smaller net increase, $18
billion; Treasury was unable to explain the remaining $2.4 billion of
the net change.
Treasury stated that our preference for more detail flow information in
the statements is not something that it plans to do. We did not state
this as a preference. Instead, as part of our fiscal year 2002 audit,
we reported that Treasury did not establish a reporting materiality
threshold for purposes of collecting and reporting information in the
Reconciliation Statement. For example, some items were reported simply
as a net "increase/decrease" without considering how material, both
quantitatively and qualitatively, the gross changes were. Treasury was
unable to demonstrate whether material, informative amounts were
netted, and pertinent information may therefore not be disclosed.
Management Representation Letters:
Treasury disagreed with several of the statements related to management
representation letters that we made in our report on the fiscal year
2002 audit.[Footnote 20] Based on Treasury's comments, it appears that
it misunderstood our primary point which is that without performing an
adequate review and analysis of federal agencies' management
representation letters, Treasury and OMB management may not be fully
informed of matters that may affect their representations made with
respect to the audit of the CFS.
For each agency financial statement audit, generally accepted
government auditing standards require that agency auditors obtain
written representations from agency management as part of the audit. In
turn, Treasury and OMB are to receive all the required management
representation letters and the related summaries of unadjusted
misstatements from the federal agencies. This is important because
generally accepted government auditing standards require Treasury and
OMB to provide us, as their auditor, a management representation letter
for the CFS. To prepare their representations on the CFS, Treasury and
OMB rely on the information within agencies' management representation
letters. However, we found that Treasury and OMB did not have policies
or procedures to adequately review and analyze federal agencies'
management representation letters.
This report contains recommendations to you. The head of a federal
agency is required by 31 U.S.C. 720 to submit a written statement on
actions taken on these recommendations. You should submit your
statement to the Senate Committee on Governmental Affairs and the House
Committee on Government Reform within 60 days of the date of this
report. A written statement must also be sent to the House and Senate
Committees on Appropriations with the agency's first request for
appropriations made more than 60 days after the date of the report.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Governmental Affairs; the
Subcommittee on Financial Management, the Budget, and International
Security, Senate Committee on Governmental Affairs; the House Committee
on Government Reform; and the Subcommittee on Government Efficiency and
Financial Management, House Committee on Government Reform. In
addition, we are sending copies to the Fiscal Assistant Secretary of
the Treasury and the Controller of OMB. Copies will be made available
to others upon request. This report is also 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 Jeffrey C.
Steinhoff, Managing Director, Financial Management and Assurance, on
(202) 512-2600 or Gary T. Engel, Director, Financial Management and
Assurance, on (202) 512-3406.
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Appendixes:
Appendix I: Disclosure Issues:
U.S. generally accepted accounting principles (GAAP) require the 11
disclosures described below to be included in the consolidated
financial statements (CFS) or, if they are excluded, that the specific
rationale for their exclusion be documented. However, the Department of
the Treasury (Treasury) neither included nor documented the exclusion
of these disclosures.
Federal Employee and Veteran Benefits Payable:
The note disclosure for federal employee and veteran benefits payable
departed from the following disclosure requirements of Statements of
Federal Financial Accounting Standards (SFFAS) No. 5, Accounting for
Liabilities of the Federal Government.
SFFAS No. 5, paragraph 65, states that actuarial assumptions should be
on the basis of the actual experience of the covered group, to the
extent that credible experience data are available, but should
emphasize expected long-term future trends rather than give undue
weight to recent experience. However, the fiscal year 2003 military
rates of inflation and projected salary increases included in the CFS
were the actual fiscal year 2003 rates disclosed in the Department of
Defense's audited financial statements rather than the long-term rates.
For other retirement benefits, SFFAS No. 5, paragraph 83, states that
the entity should disclose the assumptions used. However, assumptions
were not shown for the liability for veterans' compensation and burial
benefits.
According to SFFAS No. 5, paragraph 72, the entity should report a
pension expense for the net of the following components: normal costs;
interest on the pension liability during the period; prior (and past)
service cost from plan amendments (or the initiation of a new plan)
during the period, if any; and actuarial gains and losses during the
period, if any. The individual components should be disclosed. However,
the CFS did not disclose prior service costs from plan amendments as a
separate component.
According to SFFAS No. 5, paragraph 88, the entity should report an
other retirement benefits expense for the net of the following
components: normal cost; interest on the other retirement benefits
liability during the period; prior (and past) service costs from plan
amendments (or the initiation of a new plan) during the period, if any;
any gains or losses due to a change in the medical inflation rate
assumption; and other actuarial gains or losses during the period, if
any. The individual components should be disclosed. However, the CFS
did not disclose any gains or losses due to a change in the medical
inflation rate assumption for health benefits as a separate component.
Environmental and Disposal Liabilities:
The CFS note disclosure for environmental and disposal liabilities
departed from the requirements of paragraphs 108, 109, and 111 of SFFAS
No. 6, Accounting for Property, Plant, and Equipment, in the following
ways:
* The CFS does not disclose the method for assigning estimated total
cleanup costs to current operating periods (i.e., physical capacity
versus passage of time).
* For cleanup costs associated with general property, plant, and
equipment (PP&E), the CFS does not disclose the unrecognized portion of
estimated total cleanup costs.
* The CFS does not describe the nature of estimates and the disclosure
of information regarding possible changes to the estimates resulting
from inflation, deflation, technology, or applicable laws and
regulations.
In addition, Treasury should consider whether the reader would be
interested in understanding why the environmental and disposal
liabilities amount significantly changed during the year and include
the explanation for the change in the note disclosure.
Research and Development:
The information in stewardship information for research and development
departed from the disclosure requirements of SFFAS No. 8, Supplementary
Stewardship Reporting, paragraph 99, in the following ways:
* Information on the program outcomes (i.e., program outcome data or
output data) for the investments in research and development are not
properly reported. Outcome data are expected to consist typically of a
narrative discussion of the major results achieved by the program along
the lines of basic research, applied research, and development--as
defined in the standard. If outcome data are not available (for
example, the agency has not agreed on outcome measures for the program,
the agency is unable to collect reliable outcome data, or the outcomes
will not occur for several years), the outputs that best provide
indications of the intended program outcomes shall be used to justify
continued treatment of expenses as investments until outcome data are
available.
* The CFS does not include a narrative description of the major results
achieved through the investments in basic research, applied research,
and development.
Deferred Maintenance:
The required supplemental information for deferred maintenance departed
from the disclosure requirements of SFFAS No. 6, Accounting for
Property, Plant, and Equipment, paragraph 83, by not disclosing the
identification of each major class of asset (i.e., building and
structures, furniture and fixtures, equipment, vehicles, and land) for
which maintenance has been deferred.
[End of section]
Appendix II: Status of Treasury's and OMB's Progress in Addressing GAO
Recommendations for Preparing the CFS:
No. 1;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in connection with Treasury's current compilation
process and the development of Treasury's new compilation system and
process, to segregate the duties of individuals who have the capability
to enter, change, and delete data within the Federal Agencies'
Centralized Trial Balance System and the Hyperion database and post
adjustments to the consolidated financial statements (CFS);
Status: Open.
No. 2;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in connection with Treasury's current compilation
process and the development of Treasury's new compilation system and
process, to develop and fully document policies and procedures for the
CFS preparation process so that they are proper, complete, and
consistently applied by staff members;
Status: Open.
No. 3;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in connection with Treasury's current compilation
process and the development of Treasury's new compilation system and
process, to require and document reviews by management of all
procedures that result in data changes to the CFS;
Status: Closed;
Management reviews were implemented in fiscal year 2003 under the
current compilation environment;
GAO will review management reviews in the new compilation environment.
No. 4;
Recommendation: As 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: Open.
No. 5;
Recommendation: As 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 OMB, to use balanced accounting
entries to account for the change in net position rather than simple
subtraction of liabilities from assets;
Status: Open.
No. 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-03-01, Business Rules for Intragovernmental Transactions;
Status: Open.
No. 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: Open.
No. 8;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in coordination with the Controller of OMB, to
implement the plan to require federal agencies to report in Treasury's
new closing package, beginning with fiscal year 2004, intragovernmental
activity and balances by trading partner and to indicate amounts that
have not been reconciled with trading partners and amounts, if any,
that are in dispute;
Status: Open.
No. 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: Open.
No. 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: Open.
No. 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: Open.
No. 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: Open.
No. 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: Open.
No. 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: Open.
No. 15;
Recommendation: If Treasury chooses to continue using information from
both federal agencies' financial statements and the Central Accounting
and Reporting System (STAR), Treasury should demonstrate how the
amounts from STAR reconcile to federal agencies' financial statements;
Status: Open.
No. 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: Open.
No. 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 agencies' audited financial statements;
Status: Open.
No. 18;
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 request, through its closing package, that
federal agencies provide the net outlays reported in their Combined
Statement of Budgetary Resources and explanations for any significant
differences between net outlay amounts reported in the Combined
Statement of Budgetary Resources and the budget of the U.S. government;
Status: Open.
No. 19;
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 investigate the differences between net
outlays reported in federal agencies' Combined Statement of Budgetary
Resources and Treasury's records in STAR to ensure that the proper
amounts are reported in the Statement of Changes in Cash Balance from
Unified Budget and Other Activities;
Status: Open.
No. 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: Open.
No. 21;
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 provide support for how the line items in
the "other activities" section of this statement relate to either the
underlying Balance Sheet or related notes accompanying the CFS;
Status: Open.
No. 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: Open.
No. 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: Open.
No. 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: Open.
No. 25;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary to establish a formal process that will allow the
financial statements, related notes, and stewardship and supplemental
information in the CFS to be presented in conformity with U.S.
generally accepted accounting principles (GAAP). The process should
timely identify GAAP requirements;
Status: Open.
No. 26;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary to establish a formal process that will allow the
financial statements, related notes, and stewardship and supplemental
information in the CFS to be presented in conformity with GAAP. The
process should make timely modifications to Treasury's closing package
requirements to obtain information needed;
Status: Open.
No. 27;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary to establish a formal process that will allow the
financial statements, related notes, and stewardship and supplemental
information in the CFS to be presented in conformity with GAAP. The
process should assess, qualitatively and quantitatively, the impact of
the omitted disclosures;
Status: Open.
No. 28;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary to establish a formal process that will allow the
financial statements, related notes, and stewardship and supplemental
information in the CFS to be presented in conformity with GAAP. The
process should document decisions reached and the rationale for such
decisions;
Status: Open.
No. 29;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require an analysis
of the agency management representations to determine if discrepancies
exist between what the agency auditor reported and the representations
made by the agency, including the resolution of such discrepancies;
Status: Open.
No. 30;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require a
determination that the agency management representation letters have
been signed by the highest-level agency officials who are responsible
for and knowledgeable about the matters included in the agency
management representation letters;
Status: Open.
No. 31;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require an
assessment of the materiality thresholds used by federal agencies in
their respective management representation letters;
Status: Open.
No. 32;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require an
assessment of the impact, if any, of federal agencies' materiality
thresholds on the management representations made at the governmentwide
level;
Status: Open.
No. 33;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require an
evaluation and assessment of the omission of representations ordinarily
included in agency management representation letters;
Status: Open.
No. 34;
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 for preparing the
governmentwide management representation letter to help ensure that it
is properly prepared and contains sufficient representations.
Specifically, these policies and procedures should require an analysis
and aggregation of the agencies' summary of unadjusted misstatements to
determine the completeness of the summaries and to ascertain the
materiality, both individually and in the aggregate, of such unadjusted
misstatements to the CFS taken as a whole;
Status: Open.
No. 35;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in coordination with the Controller of OMB, to
help ensure that agencies provide adequate information in their legal
representation letters regarding the expected outcome of the cases;
Status: Open.
No. 36;
Recommendation: The Secretary of the Treasury should direct the Fiscal
Assistant Secretary, in coordination with the Controller of OMB, to
help ensure that agencies provide related management schedules;
Status: Open.
No. 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 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: Open.
No. 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 agencies classify all such scheduled
major treaties and other international agreements as commitments or
contingencies;
Status: Open.
No. 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 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: Open.
No. 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 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: Open.
No. 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 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: Open.
No. 42;
Recommendation: As Treasury is designing its new compilation process,
which it expects to implement beginning with the fiscal year 2004 CFS,
the Secretary of the Treasury should direct the Fiscal Assistant
Secretary, in coordination with the Controller of OMB, to design the
new compilation process to directly link information from federal
agencies' audited financial statements to amounts reported in all the
applicable CFS and related footnotes;
Status: Open.
No. 43;
Recommendation: As Treasury is designing its new compilation process,
which it expects to implement beginning with the fiscal year 2004 CFS,
the Secretary of the Treasury should direct the Fiscal Assistant
Secretary, in coordination with the Controller of OMB, to consider the
other applicable recommendations in this report when designing and
implementing the new compilation process;
Status: Open.
No. 44;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of Statement of
Federal Financial Accounting Standards (SFFAS) No. 3, Accounting for
Inventory and Related Property, paragraph 91, which requires the
reporting entity to disclose the valuation basis for foreclosed
property;
Status: Open.
No. 45;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 91, which
requires the reporting entity to disclose the changes from the prior
year's accounting methods, if any;
Status: Open.
No. 46;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 91, which
requires the reporting entity to disclose the restrictions on the use/
disposal of property;
Status: Open.
No. 47;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 91, which
requires the reporting entity to disclose the balances by categories
(i.e., pre-1992 and post-1991 foreclosed property);
Status: Open.
No. 48;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 91, which
requires the reporting entity to disclose the number of properties held
and average holding period by type or category;
Status: Open.
No. 49;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 91, which
requires the reporting entity to disclose the number of properties for
which foreclosure proceedings are in process at the end of the period
for foreclosed assets acquired in full or partial settlement of a
direct or guaranteed loan;
Status: Open.
No. 50;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 9, which requires credit programs to reestimate
the subsidy cost allowance for outstanding direct loans and the
liability for outstanding loan guarantees. There are two kinds of
reestimates: (1) interest rate reestimates and (2) technical/default
reestimates. Entities should measure and disclose each program's
reestimates in these two components separately;
Status: Open.
No. 51;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 10, which requires the reporting entity to
display in the notes to the financial statements a reconciliation
between the beginning and ending balances of the subsidy cost allowance
for outstanding direct loans and the liability for outstanding loan
guarantees reported on the entity's balance sheet;
Status: Open.
No. 52;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 11, which requires disclosure of the total amount
of direct or guaranteed loans disbursed for the current reporting year
and the preceding reporting year;
Status: Open.
No. 53;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 11, which requires disclosure of the subsidy
expense by components, recognized for the direct or guaranteed loans
disbursed in the current reporting year and the preceding reporting
year;
Status: Open.
No. 54;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 11, which requires disclosure of the subsidy
reestimates by components for the current reporting year and the
preceding reporting year;
Status: Open.
No. 55;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 11, which requires disclosure, at the program
level, of the subsidy rates for the total subsidy cost and its
components for the interest subsidy costs, default costs (net of
recoveries), fees and other collections, and other costs estimated for
direct loans and loan guarantees in the current year's budget for the
current year's cohorts;
Status: Open.
No. 56;
Recommendation: The note disclosure for loans receivable and loan
guarantee liabilities should meet the requirements of SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, paragraph 11, which requires the reporting entity to
disclose, discuss, and explain events and changes in economic
conditions, other risk factors, legislation, credit policies, and
subsidy estimation methodologies and assumptions that have had a
significant and measurable effect on subsidy rates, subsidy expense,
and subsidy reestimates;
Status: Open.
No. 57;
Recommendation: The note disclosure for inventories and operating
materials and supplies should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 30, which
requires the difference between the carrying amount and the expected
net realizable value to be recognized as a loss or gain and either
separately reported or disclosed when inventory or operating materials
and supplies are declared excess, obsolete, or unserviceable;
Status: Open.
No. 58;
Recommendation: The note disclosure for inventories and operating
materials and supplies should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraphs 35 and 50,
that require disclosure of inventory and operating materials and
supplies general composition;
Status: Open.
No. 59;
Recommendation: The note disclosure for inventories and operating
materials and supplies should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraphs 35 and 50,
that require disclosure of any changes from the prior year in
accounting methods for inventory and operating materials and supplies;
Status: Open.
No. 60;
Recommendation: The note disclosure for inventories and operating
materials and supplies should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraphs 35 and 50,
which require the disclosure of any restrictions on the sale of
inventory and the use of operating materials and supplies;
Status: Open.
No. 61;
Recommendation: The note disclosure for inventories and operating
materials and supplies should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraphs 35 and 50,
which require disclosure of any changes in the criteria for
categorizing inventory and operating materials and supplies;
Status: Open.
No. 62;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of the basis for
valuing stockpile material, including valuation method and any cost
flow assumptions;
Status: Open.
No. 63;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of any changes from
the prior year's accounting methods;
Status: Open.
No. 64;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of restrictions on
the use of stockpile material;
Status: Open.
No. 65;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of the balances in
each category of stockpile material (i.e., stockpile material held and
held for sale);
Status: Open.
No. 66;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of the criteria for
grouping stockpile material held for sale;
Status: Open.
No. 67;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 56, which requires disclosure of changes in
criteria for categorizing stockpile material held for sale;
Status: Open.
No. 68;
Recommendation: The note disclosure for stockpile material should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 55, which requires disclosure of any difference
between the carrying amount (i.e., purchase price or cost) of stockpile
material held for sale and the estimated selling price of such assets;
Status: Open.
No. 69;
Recommendation: The note disclosure for seized material should meet the
requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 66, which requires disclosure of the valuation
method;
Status: Open.
No. 70;
Recommendation: The note disclosure for seized material should meet the
requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 66, which requires disclosure of any changes from
the prior year's accounting methods;
Status: Open.
No. 71;
Recommendation: The note disclosure for seized material should meet the
requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 66, which requires disclosure of the analysis of
change in seized property (including dollar value and number of seized
properties) that are on hand at the beginning of the year, seized
during the year, disposed of during the year, and on hand at the end of
the year, as well as known liens or other claims against the property.
This information should be presented by type of seizure and method of
disposition, when material;
Status: Open.
No. 72;
Recommendation: The note disclosure for forfeited property should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 78, which requires disclosure of the valuation
method;
Status: Open.
No. 73;
Recommendation: The note disclosure for forfeited property should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 78, which requires disclosure of the analysis of
the changes in forfeited property by type and dollar amount that
includes (1) number of forfeitures on hand at the beginning of the
year, (2) additions, (3) disposals and method of disposition, and (4)
end-of-year-balances;
Status: Open.
No. 74;
Recommendation: The note disclosure for forfeited property should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 78, which requires disclosure of any restriction on
the use or disposition of the property;
Status: Open.
No. 75;
Recommendation: The note disclosure for forfeited property should meet
the requirements of SFFAS No. 3, Accounting for Inventory and Related
Property, paragraph 78, which requires disclosure, if available, of an
estimate of the value of property to be distributed to other federal,
state, and local agencies in future reporting periods;
Status: Open.
No. 76;
Recommendation: The note disclosure for goods held under price support
and stabilization programs should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 98, which
requires that if a contingent loss is not recognized because it is less
than probable or it is not reasonably measurable, disclosure of the
contingency shall be made if it is at least reasonably possible that a
loss may occur;
Status: Open.
No. 77;
Recommendation: The note disclosure for goods held under price support
and stabilization programs should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 109, which
requires disclosure of the basis for valuing commodities, including
valuation method and cost flow assumptions;
Status: Open.
No. 78;
Recommendation: The note disclosure for goods held under price support
and stabilization programs should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 109, which
requires disclosure of any changes from the prior year's accounting
methods;
Status: Open.
No. 79;
Recommendation: The note disclosure for goods held under price support
and stabilization programs should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 109, which
requires disclosure of any restrictions on the use, disposal, or sale
of commodities;
Status: Open.
No. 80;
Recommendation: The note disclosure for goods held under price support
and stabilization programs should meet the requirements of SFFAS No. 3,
Accounting for Inventory and Related Property, paragraph 109, which
requires disclosure of the analysis of the change in dollar amount and
volume of commodities, including those (1) on hand at the beginning of
the year, (2) acquired during the year, (3) disposed of during the year
listed by method of disposition, (4) on hand at the end of the year,
(5) on hand at year-end and estimated to be donated or transferred
during the coming period, and (6) received as a result of surrender of
collateral related to nonrecourse loans outstanding. The analysis
should also show the dollar value and volume of purchase agreement
commitments;
Status: Open.
No. 81;
Recommendation: The note disclosure for property, plant, and equipment
(PP&E) should meet the disclosure requirements of SFFAS No. 6,
Accounting for Property, Plant, and Equipment, paragraph 45, which
requires disclosure of the estimated useful lives for each major class
of PP&E;
Status: Open.
No. 82;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 6, Accounting for Property, Plant, and
Equipment, paragraph 45, which requires disclosure of capitalization
thresholds, including any changes in thresholds during the period;
Status: Open.
No. 83;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 6, Accounting for Property, Plant, and
Equipment, paragraph 45, which requires disclosure of restrictions on
the use or convertibility of general PP&E;
Status: Open.
No. 84;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 10, Accounting for Internal Use Software,
paragraph 35, which requires disclosure of the cost, associated
amortization, and book value of internal use software;
Status: Closed;
Fiscal year 2003 CFS footnote for PP&E disclosed the cost, associated
amortization, and book value of internal use software.
No. 85;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 10, Accounting for Internal Use Software,
paragraph 35, which requires disclosure of the estimated useful life
for each major class of software for internal use software;
Status: Open.
No. 86;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 10, Accounting for Internal Use Software,
paragraph 35, which requires disclosure of the method of amortization
for internal use software;
Status: Open.
No. 87;
Recommendation: The note disclosure for PP&E should meet the disclosure
requirements of SFFAS No. 16, Amendments to Accounting for Property,
Plant, and Equipment, paragraph 9, which requires an appropriate PP&E
note disclosure to explain that "physical quantity" information for the
multiuse heritage assets is included in supplemental stewardship
reporting for heritage assets;
Status: Open.
No. 88;
Recommendation: The note disclosure for federal employee and veteran
benefits payable should be completely and properly reported,
specifically, that (1) it include a line for the valuation of plan
amendments that occurred during the year and (2) the liability for
military pensions and note disclosure related to the "change in
actuarial accrued pension liability and components of related expenses"
agree with the information presented in the Department of Defense's
financial statements;
Status: Open.
No. 89;
Recommendation: The note disclosure for environmental and disposal
liabilities should meet the requirements of SFFAS No. 6, Accounting for
Property, Plant, and Equipment, that require (1) estimation and
recognition of cleanup costs associated with general PP&E at the time
the PP&E is placed in service and (2) recognition of a liability for
the portion of the estimated total cleanup cost attributable to that
portion of the physical capacity used or that portion of the estimated
useful life that has passed since the general PP&E was placed in
service;
Status: Open.
No. 90;
Recommendation: The note disclosure for environmental and disposal
liabilities should meet the requirements of SFFAS No. 6, Accounting for
Property, Plant, and Equipment, that require inclusion of material
changes in total estimated cleanup costs due to changes in laws,
technology, or plans;
Status: Open.
No. 91;
Recommendation: The note disclosure for capital leases should meet the
requirements of Federal Accounting Standards Board (FASB), Statement of
Financial Accounting Standards (SFAS) No. 13, Accounting for Leases,
paragraph 16, which requires future minimum lease payments as of the
date of the latest balance sheet presented, in the aggregate and for
each of the 5 succeeding fiscal years, with separate deductions from
the total for the amount representing executory costs, including any
profit thereon, included in the minimum lease payments, and for the
amount of the imputed interest necessary to reduce the net minimum
lease payments to present value;
Status: Open.
No. 92;
Recommendation: The note disclosure for capital leases should meet the
requirements of FASB, SFAS No. 13, Accounting for Leases, paragraph 16,
which requires a summary of assets under capital lease by major asset
category and the related total accumulated amortization;
Status: Open.
No. 93;
Recommendation: The note disclosure for capital leases should meet the
requirements of FASB, SFAS No. 13, Accounting for Leases, paragraph 16,
which requires a general description of the lessee's leasing
arrangements, including but not limited to (1) the basis on which
contingent rental payments are determined, (2) the existence and terms
of renewal or purchase options and escalation clauses, and (3)
restrictions imposed by lease agreements, such as those concerning
dividends, additional debt, and further leasing;
Status: Open.
No. 94;
Recommendation: The note disclosure for life insurance liabilities
should meet the requirements of SFFAS No. 5, Accounting for Liabilities
of the Federal Government, paragraph 117, which requires all federal
reporting entities with whole life insurance programs to follow
applicable standards as prescribed in the private sector standards when
reporting the liability for future policy benefits: FASB SFAS No. 60,
Accounting and Reporting by Insurance Enterprises;
SFAS No. 97, Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments;
and SFAS No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts;
and American Institute of Certified Public Accountants Statement of
Position 95-1, Accounting for Certain Insurance Activities of Mutual
Life Insurance Enterprises;
Status: Open.
No. 95;
Recommendation: The note disclosure for life insurance liabilities
should meet the requirements of SFFAS No. 5, Accounting for Liabilities
of the Federal Government, paragraph 5, which requires all components
of the liability for future policy benefits (i.e., the net-level
premium reserve for death and endowment policies and the liability for
terminal dividends) to be separately disclosed in a footnote with a
description of each amount and an explanation of its projected use and
any other potential uses (e.g., reducing premiums, determining and
declaring dividends available, and reducing federal support in the form
of appropriations related to administrative cost or subsidies);
Status: Open.
No. 96;
Recommendation: The note disclosure on major commitments and
contingencies be consistent with disclosed information in individual
agencies' financial statements;
Status: Open.
No. 97;
Recommendation: The note disclosure on major commitments and
contingencies disclose sufficient information (detailed discussion)
regarding certain major commitments and contingencies;
Status: Open.
No. 98;
Recommendation: The note disclosure for collections and refunds of
federal revenue should meet the requirements of SFFAS No. 7, Concepts
for Reconciling Budgetary and Financial Accounting, paragraph 64, which
requires, among other things, that collecting entities disclose the
basis of accounting when the application of the general rule results in
a modified cash basis of accounting;
Status: Closed;
The fiscal year 2003 CFS footnote for collections and refunds of
federal revenue reflects that such information is accounted for using a
modified cash basis of accounting.
No. 99;
Recommendation: The note disclosure for collections and refunds of
federal revenue should meet the requirements of SFFAS No. 7, Concepts
for Reconciling Budgetary and Financial Accounting, paragraph 69.2,
which requires collecting entities to provide in the other accompanying
information any relevant estimates of the annual tax gap that become
available as a result of federal government surveys or studies;
Status: Open.
No. 100;
Recommendation: The note disclosure for dedicated collections should
meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue
and Other Financing Sources, paragraph 85, which requires inclusion of
condensed information about assets and liabilities showing investments
in Treasury securities, other assets, liabilities due and payable to
beneficiaries, other liabilities, and fund balance;
Status: Open.
No. 101;
Recommendation: The note disclosure for dedicated collections should
meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue
and Other Financing Sources, paragraph 85, which requires inclusion of
condensed information on net cost and changes to fund balance, showing
revenues by type (exchange/nonexchange), program expenses, other
expenses, other financing sources, and other changes in fund balance;
Status: Open.
No. 102;
Recommendation: The note disclosure for dedicated collections should
meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue
and Other Financing Sources, paragraph 85, which requires inclusion of
any revenues, other financing sources, or costs attributable to the
fund under accounting standards but not legally allowable as credits or
charges to the fund;
Status: Open.
No. 103;
Recommendation: The note disclosure for Indian trust funds should meet
the requirements of SFFAS No. 7, Part I, Accounting for Revenue and
Other Financing Sources, paragraph 85, which requires a description of
each fund's purpose, how the administrative entity accounts for and
reports the fund, and its authority to use those collections;
Status: Open.
No. 104;
Recommendation: The note disclosure for Indian trust funds should meet
the requirements of SFFAS No. 7, Part I, Accounting for Revenue and
Other Financing Sources, paragraph 85, which requires disclosure of the
sources of revenue or other financing for the period and an explanation
of the extent to which they are inflows of resources to the government
or the result of intragovernmental flows;
Status: Open.
No. 105;
Recommendation: The note disclosure for Indian trust funds should meet
the requirements of SFFAS No. 7, Part I, Accounting for Revenue and
Other Financing Sources, paragraph 85, which requires condensed
information about assets and liabilities showing investments in
Treasury securities, other assets, liabilities due and payable to
beneficiaries, and other liabilities;
Status: Open.
No. 106;
Recommendation: The note disclosure for Indian trust funds should meet
the requirements of SFFAS No. 7, Part I, Accounting for Revenue and
Other Financing Sources, paragraph 85, which requires condensed
information on net cost and changes to fund balance, showing revenues
by type (exchange/nonexchange), program expenses, other expenses, other
financing sources, and other changes in fund balance;
Status: Open.
No. 107;
Recommendation: The note disclosure for Indian trust funds should meet
the requirements of SFFAS No. 7, Part I, Accounting for Revenue and
Other Financing Sources, paragraph 85, which requires disclosure of any
revenues, other financing sources, or costs attributable to the fund
under accounting standards, but not legally allowable as credits or
charges to the fund;
Status: Open.
No. 108;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 31, which requires the program descriptions for Hospital
Insurance and Supplementary Medical Insurance and an explanation of
trends revealed in Chart 11: Estimated Railroad Retirement Income
(Excluding Interest) and Expenditures 2002-2076;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 109;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 24, which requires a description of statutory or other
material changes, and the implications thereof, affecting the Medicare
and Unemployment Insurance programs after the current fiscal year, and
the implications thereof;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 110;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 25, which requires the significant assumptions used in making
estimates and projections regarding the Black Lung and Unemployment
Insurance programs;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 111;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 32(1)(b), which requires the total cash inflow from all
sources, less net interest on intragovernmental borrowing and lending,
and the total cash outflow to be shown in nominal dollars for the
Hospital Insurance program;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 112;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 32(1)(a), which requires the narrative to accompany the cash
flow data for Unemployment Insurance. The narrative should include the
identification of any year or years during the projection period when
cash outflow exceeds cash inflow, without interest, on
intragovernmental borrowing or lending, and the presentation should
include an explanation of material crossover points, if any, where cash
outflow exceeds cash inflow and the possible reasons for this;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 113;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraphs 27(3)(h) and 27(3)(j), which require the estimates of the
fund balances at the respective valuation dates of the social insurance
programs (except Unemployment Insurance) to be included for each of the
4 preceding years. Only 1 year is shown;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 114;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 32(4), which requires individual program sensitivity analyses
for projection period cash flow in present value dollars and annual
cash flow in nominal dollars. The CFS includes only present value
sensitivity analyses for Social Security and Hospital Insurance.
Paragraph 32(4) states that, at a minimum, the summary should present
Social Security, Hospital Insurance, and Supplementary Medical
Insurance separately;
Status: Open.
No. 115;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 27(4)(a), which requires the individual program sensitivity
analyses for Social Security and Hospital Insurance to include an
analysis of assumptions regarding net immigration;
Status: Open.
No. 116;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance,
paragraph 27(4)(a), which requires the individual program sensitivity
analysis for Hospital Insurance to include an analysis of death rates;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 117;
Recommendation: The note disclosure for social insurance should meet
the requirements of SFFAS No. 17, Accounting for Social Insurance, by
not including financial interchange income (intragovernmental income
from Social Security) in the actuarial present value information for
the Railroad Retirement Board;
Status: Closed;
The fiscal year 2003 social insurance disclosures in the CFS provided
the disclosures required in this recommendation.
No. 118;
Recommendation: The note disclosure for nonfederal physical property
included in Stewardship information should meet the requirements of
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 87, which
requires disclosure of the annual investment, including a description
of federally owned physical property transferred to state and local
governments. This information should be provided for the year ended on
the balance sheet date as well as for each of the 4 preceding years. If
data for additional years would provide a better indication of
investment, reporting of the additional years' data is encouraged.
Reporting should be at a meaningful category or level;
Status: Open.
No. 119;
Recommendation: The note disclosure for nonfederal physical property
included in stewardship information should meet the requirements of
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 87, which
requires a description of major programs involving federal investments
in nonfederal physical property, including a description of programs or
policies under which noncash assets are transferred to state and local
governments;
Status: Open.
No. 120;
Recommendation: The note disclosure for human capital included in
stewardship information should meet the requirements of SFFAS No. 8,
Supplementary Stewardship Reporting, paragraph 94, which requires a
narrative description and the full cost of the investment in human
capital for the year being reported on as well as the preceding 4 years
(if full cost data are not available, outlay data can be reported);
Status: Open.
No. 121;
Recommendation: The note disclosure for human capital included in
stewardship information should meet the requirements of SFFAS No. 8,
Supplementary Stewardship Reporting, paragraph 94, which requires the
full cost or outlay data for investments in human capital at a
meaningful category or level (e.g., by major program, agency, or
department);
Status: Open.
No. 122;
Recommendation: The note disclosure for human capital included in
stewardship information should meet the requirements of SFFAS No. 8,
Supplementary Stewardship Reporting, paragraph 94, which requires a
narrative description of major education and training programs
considered federal investments in human capital;
Status: Open.
No. 123;
Recommendation: The note disclosure for research and development
included in stewardship information should meet the requirements of
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which
requires reporting of the annual investment made in the year ended on
the balance sheet date as well as in each of the 4 years preceding that
year. (As defined in this standard, "annual investment" includes more
than the annual expenditure reported by character class for budget
execution. Full cost shall be measured and accounted for in accordance
with SFFAS No. 4, Managerial Cost Accounting Standards for the Federal
Government.) If data for additional years would provide a better
indication of investment, reporting of the additional years' data is
encouraged. In those unusual instances when entities have no historical
data, only current reporting year data need be reported. Reporting must
be at a meaningful category or level, for example, a major program or
department;
Status: Open.
No. 124;
Recommendation: The note disclosure for research and development
included in stewardship information should meet the requirements of
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which
requires a narrative description of major research and development
programs;
Status: Open.
No. 125;
Recommendation: The note disclosure for deferred maintenance should
meet the requirements of SFFAS No. 6, Accounting for Property, Plant,
and Equipment, paragraphs 83 and 84, which require inclusion of the
method of measuring deferred maintenance for each major class of PP&E;
Status: Open.
No. 126;
Recommendation: The note disclosure for deferred maintenance should
meet the requirements of SFFAS No. 6, Accounting for Property, Plant,
and Equipment, paragraphs 83 and 84, which require that if the
condition assessment survey method of measuring deferred maintenance is
used, the following should be presented for each major class of PP&E:
(1) description of requirements or standards for acceptable operating
condition, (2) any changes in the condition requirements or standards,
and (3) asset condition and a range estimate of the dollar amount of
maintenance needed to return the asset to its acceptable operating
condition;
Status: Open.
No. 127;
Recommendation: The note disclosure for deferred maintenance should
meet the requirements of SFFAS No. 6, Accounting for Property, Plant,
and Equipment, paragraphs 83 and 84, which require that if the total
life-cycle cost method is used, the following should be presented for
each major class of PP&E: (1) the original date of the maintenance
forecast and an explanation for any changes to the forecast, (2) prior
year balance of the cumulative deferred maintenance amount, (3) the
dollar amount of maintenance that was defined by the professionals who
designed, built, or managed the PP&E as required maintenance for the
reporting period, (4) the dollar amount of maintenance actually
performed during the period, (5) the difference between the forecast
and actual maintenance, (6) any adjustments to the scheduled amounts
deemed necessary by the managers of the PP&E and (7) the ending
cumulative balance for the reporting period for each major class of
asset experiencing deferred maintenance;
Status: Open.
No. 128;
Recommendation: The note disclosure for deferred maintenance should
meet the requirements of SFFAS No. 6, Accounting for Property, Plant,
and Equipment, paragraphs 83 and 84, which require that if management
elects to disclose critical and noncritical amounts, the disclosure is
to include management's definition of these categories;
Status: Open.
No. 129;
Recommendation: The note disclosure for stewardship responsibilities
related to the risk assumed for federal insurance and guarantee
programs should meet the requirements of SFFAS No. 5, Accounting for
Liabilities of the Federal Government, paragraph 106, which requires
that when financial information pursuant to FASB 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: Open.
Source: GAO.
Note: During the fiscal year 2003 CFS audit, Treasury and OMB did not
provide GAO with an action plan for addressing these recommendations.
In May 2004, Treasury provided GAO with a draft corrective action plan
to address the recommendations made to both Treasury and OMB. We plan
to evaluate the effectiveness of any corrective actions taken by
Treasury and OMB during our fiscal year 2004 audit.The source report
for recommendations contained in this appendix is
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-45], Process for
Preparing the CFS Needs Improvement, October 2003.
[End of table]
[End of section]
Appendix III: Comments from the Office of Management and Budget:
EXECUTIVE OFFICE OF THE PRESIDENT:
OFFICE OF MANAGEMENT AND BUDGET:
WASHINGTON, D.C. 20503:
THE CONTROLLER:
Mr. Jeffrey C. Steinhoff:
Managing Director, Financial Management Assurance:
Government Accountability Office:
Washington, DC 20548:
Thank you for the opportunity to comment on the draft of your report
"Process for Preparing the Consolidated Financial Statements of the
U.S. Government Needs Further Improvement" before it is finalized and
issued. We understand that the Department of the Treasury (Treasury)
will be providing more detailed comments under a separate cover.
We appreciate your recommendations to improve the process for preparing
the Financial Report of the United States Government and have worked
closely with the Government Accountability Office and Treasury to
implement the new Closing Package.
We generally concur with the findings in your report and will work with
Treasury and other Executive departments and agencies to address these
findings.
If you have any questions, please contact David M. Zavada, Chief,
Financial Standards and Grants Branch, Office of Federal Financial
Management at (202) 395-3993.
Sincerely,
Signed by:
Linda M. Springer:
Controller:
[End of section]
Appendix IV: Comments from the Department of the Treasury:
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
ASSISTANT SECRETARY:
July 23, 2004:
Mr. Jeffrey C. Steinhoff:
Managing Director, Financial Management and Assurance:
Government Accountability Office:
Washington, DC 20548:
RE: GAO FY 2003 Financial Audit Management Letter:
Process for Preparing the Consolidated Financial Statements of the US
Government Needs Further Improvement (GAO-04-866):
Dear Mr. Steinhoff:
We received GAO's draft financial audit letter (management letter) on
the FY 2003 Financial Report of the U.S. Government (Process for
Preparing the Consolidated Financial Statements of the US Government
Needs Further Improvement, GAO-04-866) and are pleased to provide our
comments. This response also addresses at greater length some FY 2002
management letter concerns which are still listed as open in Appendix
11 of this report.
We appreciate your recommendations for improving the preparation of
this government-wide report. GAO's audit report clearly pointed out
issues regarding certain federal financial reporting procedures and
internal controls and offered valuable advice and recommendations for
improvements. Many of the concerns GAO raised are in critical areas
where federal financial reporting can be improved. We have already been
addressing many of these recommendations through procedural changes and
revised policies and guidance to the agencies whose financial
information comprises the report. While we generally agree with GAO's
concerns on most major issues, in some cases, we disagree on either the
finding or the approach to addressing the problem. We discuss these
specific items below.
1. Unreconciled transactions affecting the change in net position. We
agree with GAO that net position is a problem and that the eliminations
are not performed through balanced accounting entries. We do have some
concerns with your emphasis on the elimination process. Mathematically
the plug is the same no matter how the eliminations are performed. The
focus on the elimination process clouds the problem. The fundamental
issue here is that agency net position balances do not add forward from
one year to the next. Our process does not introduce out of balance
conditions, they are inherent in the agency balances. We do agree that
increasing the granularity of the eliminations will help us focus on
where the problem exists. That is why our new process will do two
things. First, eliminations will be performed using reciprocal
categories insofar as they exist. Second, we have devised a net
position tracking methodology that will identify both the nature and
the source of the plug (i.e. by financial area and by agency).
2. Reconciliation of net operating cost with budget surplus/deficit
and Statements of changes in cash balance from budget. The GAO
recommendation is to report the amount of net unreconciled differences
as a separate reconciling activity in the reconciliation statement. We
disagree. While we agree that this difference needs to be taken in to
account we believe that showing the amount on the reconciliation
schedule implies that we know that is where it belongs. This is an
unidentified difference which by definition is unknown. Therefore we
will continue to place it in results of operations until we have more
information about where it belongs.
You have stated that we failed to ensure completeness in the
preparation of the reconciliation statement and you have expressed a
preference for a lower level of detail in the line items. While we
agree that we can always improve the report, we take exception to your
finding that the amounts identified as changes in the balance sheet
items are incorrect. As the attached reconciliation shows, the prior
period items account for the majority of the differences you
identified. In addition, your preference for more detail flow
information in the statements is not something we plan to do, in part
because the report is already overly detailed and lengthy, and in part
because the primary value of the reconciliation occurs in the display
of the actuarial costs.
3. Statements of Changes in Cash Balance from Unified Budget and Other
Activities You have recommended that we reconcile receipts and outlays
used by agencies in their statements of budgetary resources to our
statements. The FASAB Board realized that this information was not
reliable or appropriate for our purposes. SFFAS 24 states:
9. SFFAS 7, paragraphs 77-82, require certain information abut
budgetary resources and abut the relationship between budget
obligations and proprietary net costs of operations. Such information
is reported in the Statement of Budgetary Resources and Statement of
Financing, respectively. This information is not required in the
consolidated financial report of the Government as a whole and
accordingly such statements are not required.
It is important to note that the "information" is not required
therefore agency budgetary data is not used nor was ever contemplated
to be used in our reports. We maintain the source of original entry for
budgetary information in the STAR system and consider the use of other
data not only less accurate but also a waste of taxpayer resources to
both obtain and then correct the balances when we already have the
information at our finger tips. There are no material differences
between outlays reported by us and those included in the President's
Budget. The standard does not require either receipts or outlays. SFFAS
24 requires only the unified budget surplus or deficit as follows:
10. The financial report of the Government as a whole should provide a
financial statement reconciling net operating revenue (or cost) and the
annual unified budget surplus (or deficit). The financial statement
should highlight:
GAO recommended that amounts used in preparing the consolidated
statements be reconciled to agency statements. The unified government
surplus is not reported in any agency statement.
As to the findings for cash and loans, we agree that the illustrative
financial statement for Statement of Changes in Cash Balance provided
in SFFAS No. 24 does show total cash and the gross amounts for receipts
and disbursement s of cash related to direct loans and loan guarantees.
However, we also see that presentation of this amount of detail is not
authoritative, as seen in the following cite from SFFAS 24 for cash:
39. Several respondents urged the board to tic the change in cash on
the new statement of changes in cash balance to balance sheet line item
and accompanying note disclosure, and/or to include beginning and
ending cash balances on the statement. The Board decided that such
information would improve the statement and has included it in the
illustration on the standard, but does not believe that it is necessary
to require it as part of the standard.
At this time, we will not provide the amount of detail called for on
the illustrative statement but will focus on resolving matters required
by the standard.
The example cited about the difference between the Department of the
Treasury's financial statement operating cash and the FR's operating
cash is not an appropriate example. The Department of the Treasury
includes time deposits and other cash items in what it presents as
operating cash. The FR separately presents these items, as disclosed in
footnote 2.
4. Management representation letters. We disagree with several of the
statements in this section. First, we already are using the auditor's
opinion where discrepancies exist between management and their auditor.
Second, we believe that the appropriate level of the officials who are
being asked to sign the letters is something determined by their
auditors. These letters are written by the agencies to their auditors
not to us. Third, audit standards do not require the materiality
disclosures that GAO is recommending. In fact, materiality is a matter
negotiated between each auditor and their clients and we believe it is
inappropriate for us to take such a position. You obviously have
concerns with regard to materiality levels used by agencies. We believe
this should be taken up by GAO with those auditors along with any other
audit quality issues you may have.
5. Allocation process. The draft report recommends that OPM costs be
allocated by FTEs to the agencies listed in the Statement of Net Cost
in accordance with Treasury's methodology. A new law mandating fully
funded pension cost recognition at the LISPS occurred in mid-year,
which necessitated that we adjust our OPM pension costs allocation
methodology to reflect the change. To not have amended our methodology
to reflect the change in the law would have resulted in an inaccurate
allocation of OPM pension costs to the LISPS and to the other agencies
listed in the Statement of Net Cost.
The draft report also recommended that reviews of the accuracy of the
allocated OPM costs by Treasury management be a requirement. In fact,
management played a large role in the adjustment of the OPM pension
allocation methodology in FY 2003.
6. Criminal debt. As previously discussed with GAO, we will need to
explore this with both Justice and the court system.
In conclusion, we are appreciative of GAO's recommendations. We agree
with most of the recommendations and have been at work implementing
them since we received the draft report. We would like to meet with you
to discuss both our progress on correcting the deficiencies and those
areas where we disagree. We look forward to working together to improve
Federal financial reporting.
Sincerely,
Signed by:
Donald V. Hammond:
Fiscal Assistant Secretary:
Department of the Treasury:
GAO Comments:
1. See "Agency Comments and Our Evaluation" section.
2. Treasury provided a detailed reconciliation that purports to show
that prior period adjustments accounted for the majority of the
differences we identified. The spreadsheet provided an expanded version
of the information we had already taken into account in our review of
the fiscal year 2003 reconciliation statement. Therefore, our view is
unchanged.
3. As we stated last year as part of our fiscal year 2002 audit, we
were not calling for Treasury to use federal agencies' financial
statements to prepare the Statement of Changes in Cash Balance.
Instead, we recommended that Treasury collect certain information
already reported in federal agencies' audited financial statements and
develop procedures that ensure consistency of the significant line
items on the Statement of Changes in Cash Balance with the agency-
reported information. As we stated in our fiscal year 2002 report,
Treasury has expressed the belief that the information it maintains in
its system is materially reliable. However, federal agencies also
believe their amounts are materially reliable and are supported by
unqualified audit opinions on their financial statements.
4. Our example is appropriate. As stated in this report, we found that
the total operating cash amount reported in the Statement of Changes in
Cash Balance did not link to the underlying agencies' operating cash
reported in their financial statements. Our analysis showed that
Treasury reported operating cash in its own financial statements of $51
billion but reported only $35 billion of operating cash in the
Statement of Changes in Cash Balance in the CFS. Treasury attributes
the difference to time deposits and other cash items which are included
in Treasury's department wide financial statements as components of
operating cash, but are reported in the CFS separately from operating
cash. In that Treasury is the preparer of the CFS, we see this
inconsistency as a relevant example.
5. As part of our audit of the fiscal year 2002 CFS, we found that 2 of
the 30 federal agencies' management representation letters we had
reviewed had discrepancies between what the auditor found and what the
agency represented in its management representation letter. Treasury
needs to be aware of these types of discrepancies and their resolution
in order to determine the effects, if any, on the representations made
in the management representation letter for the CFS.
6. As part of our audit of the fiscal year 2002 CFS, we found that 8 of
the 30 federal agencies' management representation letters we had
reviewed were not signed by the appropriate level of management.
Treasury has a responsibility to determine that the agency management
representation letters are signed by the highest-level agency officials
that are responsible for and knowledgeable about the matters included
in the agency management representation letter because Treasury is
relying on federal agencies' representations in the management
representations letter for the CFS.
7. As part of our audit of the fiscal year 2002 CFS, we found that 25
of the 30 federal agencies' management representation letters we had
reviewed did not disclose the materiality thresholds used by management
in determining items to be included in the letter. Treasury stated that
the audit standards do not require these amounts to be included in the
management representation letter. While we agree that the standards do
not require the materiality amounts to be included, we require Treasury
and OMB to include a materiality threshold in the management
representation letter for the CFS. Therefore, without assessing the
materiality thresholds used by federal agencies in their management
representation letters, we are unsure as to how Treasury and OMB can
ensure that the representations made to GAO at the governmentwide level
are within the materiality thresholds they state in the management
representation letter for the CFS.
8. Materiality is one of several tools the auditor uses to determine
that the nature, timing, and extent of procedures are appropriate.
Materiality is a matter of the auditors' professional judgment,
influenced by the needs of the reasonable person relying on the
financial statements, and is not negotiated between the auditors and
their clients. The management representation letter findings we
reported as part of our fiscal year 2002 audit have also been
communicated to agency auditors and we will continue to work with them
to resolve these issues.
(198263):
FOOTNOTES
[1] GAO, Financial Audit: Process for Preparing the Consolidated
Financial Statements of the U.S. Government Needs Improvement, GAO-04-
45 (Washington, D.C.: Oct. 30, 2003).
[2] See footnote 1.
[3] The fiscal year 2003 Financial Report of the United States
Government was issued by Treasury on February 27, 2004, and is
available through GAO's Web site at www.gao.gov and Treasury's Web site
at www.fms.treas.gov/fr/index.html.
[4] OMB and GAAP require agencies to report net outlays in their SBRs.
The Statement of Changes in Cash Balance also reports unified budget
outlays-actual. Both are intended to represent the same amount and be
consistent with the information presented in the budget of the U.S.
government.
[5] OMB Bulletin No. 01-09, Form and Content of Agency Financial
Statements (Washington, D.C.: Sept. 25, 2001), is OMB's official
guidance for the form and content of federal agencies' financial
statements.
[6] In some agencies' fiscal year 2003 financial statements, the
comparable fiscal year 2002 amounts were restated.
[7] Offsetting receipts are collections that are credited to general
fund, special fund, or trust fund receipt accounts and that offset
gross outlays at the agency or governmentwide level.
[8] These two agencies did not adequately explain their fiscal year
2002 differences between the net outlays reported on their SBRs and the
budget of the U.S. government in the notes to their fiscal year 2003
financial statements.
[9] Treasury publishes the Monthly Treasury Statement, which contains
year-to-date information for budget receipts and outlays. These reports
present the same amounts that Treasury reports as the unified budget
outlays in the Statement of Changes in Cash Balance and contain summary
offsetting receipts information by agency or department.
[10] The Financial Accounting Standards Board (FASB) sets financial
reporting standards for privately owned entities in the United States.
FASB pronouncements that are specifically made applicable to the
federal government by the Federal Accounting Standards Advisory Board
(FASAB) are part of federal GAAP hierarchy.
[11] The courts assess fines as punishment, whereas restitution is
intended to make identifiable victims whole.
[12] The United States Attorneys' Annual Statistical Report summarizes
and presents data related to criminal prosecutions and civil litigation
conducted by the U.S. Attorneys for each fiscal year.
[13] GAO, Criminal Debt: Actions Still Needed to Address Deficiencies
in Justice's Collection Processes, GAO-04-338 (Washington, D.C.: Mar.
5, 2004).
[14] In July 2001, we reported that criminal debt owed the federal
government was not being reported in accordance with SFFAS No.1 and
SFFAS No. 7 and recommended that Justice, the Administrative Office of
the U.S. Courts, OMB, and Treasury form a joint task force to develop a
strategic plan that addresses managing, accounting for, and reporting
criminal debt. See GAO, Criminal Debt: Oversight and Actions Needed to
Address Deficiencies in Collection Process, GAO-01-664 (Washington,
D.C.: July 16, 2001).
[15] Treasury refers to the significant agencies as "verifying
agencies." They are the 23 Chief Financial Officers Act agencies, the
Department of Homeland Security, the Export-Import Bank of the United
States, the Farm Credit System Insurance Corporation, the Federal
Communications Commission, the Federal Deposit Insurance Corporation,
the National Credit Union Administration, the U.S. Postal Service, the
Pension Benefit Guaranty Corporation, the Railroad Retirement Board,
the Securities and Exchange Commission, the Smithsonian Institution,
and the Tennessee Valley Authority.
[16] An item's omission or error is considered material if the
surrounding circumstances make it probable that the judgment of a
reasonable person relying on the information would have been changed or
influenced by the inclusion or correction of the item.
[17] See footnote 1.
[18] See footnote 1.
[19] See footnote 1.
[20] See footnote 1.
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