U.S. Government Financial Statements

For the first time ever, the federal government has prepared consolidated financial statements. In accordance with the Chief Financial Officers Act, consolidated financial statements for fiscal year 1997 were prepared by the Treasury Department and audited by GAO. GAO found significant financial systems weaknesses, recordkeeping problems, incomplete documentation, and weak internal controls, all of which prevented the government from accurately reporting a large portion of its assets, liabilities, and costs. These deficiencies affect the reliability of the consolidated financial statements and much of the underlying financial information. They also affect the government's ability to accurately measure the full cost and financial performance of programs, effectively and efficiently manage its operations, and ensure compliance with laws and regulations. Among other things, the government could not properly account for billions of dollars worth of property, equipment, and materials; properly estimate the cost of most federal credit programs; determine the proper amount of reported liabilities, from postretirement health benefits for military and civilian employees to veterans compensation benefits; or determine the full extent of improper payments in major programs that are estimated to involve billions of dollars annually. These shortcomings prevented GAO from rendering an opinion on the reliability of the consolidated financial statements. Considerable effort is underway to address these problems. GAO believes that, with a concerted effort, the federal government, as a whole, can continue to make progress toward generating reliable information on a regular basis. Annual financial statement audits are essential to ensuring the effectiveness of the improvements now ongoing.

GAO noted that: (1) significant financial systems weaknesses, problems with fundamental recordkeeping, incomplete documentation, and weak internal controls, including computer controls, prevented the government from accurately reporting a large portion of assets, liabilities, and costs; (2) these deficiencies affect the reliability of the consolidated financial statements and much of the underlying financial information; (3) they also affect the government's ability to accurately measure the full cost and financial performance of programs and effectively and efficiently manage its operations; (4) such deficiencies prevented GAO from being able to form an opinion on the reliability of the consolidated financial statements; (5) they are the result of widespread material internal control and financial systems weaknesses that significantly impair the federal government's ability to adequately safeguard assets, ensure proper recording of transactions, and ensure compliance with laws and regulations; (6) GAO's audit of the federal government's consolidated financial statements and the Inspectors General audits of agencies' financial statements have resulted in an identification and analysis of deficiencies in the government's recordkeeping and control systems and recommendations to correct them; (7) fixing these problems represents a significant challenge because of the size and complexity of the federal government and the discipline needed to comply with new accounting and reporting requirements; (8) several individual agencies that have been audited for a number of years faced serious deficiencies in their initial audits and made good progress in resolving them; (9) with a concerted effort, the federal government, as a whole, can continue to make progress toward ensuring full accountability and generating reliable information on a regular basis; (10) annual financial statement audits are essential to ensuring the effectiveness of the improvements now under way, and ultimately, to producing the reliable and complete information needed by decisionmakers and the public to evaluate the government's financial performance; and (11) they are also central to helping the government implement broader management reforms called for by the Government Performance and Results Act.