Auditing the Nation's Finances

Last year, in the first-ever audit of the U.S. government's financial statements, GAO reported serious deficiencies in the government's systems, recordkeeping, documentation, financial reporting, and controls. This report on the government's 1998 financial statements finds similar shortcomings that call into question the reliability of the financial statements. These deficiencies also affect the government's ability to accurately measure the full cost and financial performance of its programs and manage its operations. Among other things, the government was unable to (1) account for billions of dollars in property and equipment, (2) estimate the cost of most major federal credit programs and the related loans receivable and loan guarantee liabilities, (3) estimate and reliably report environmental and disposal liabilities, (4) determine the proper amount of such reported liabilities as postretirement health benefits for military employees and accounts payable, and (5) ensure that all disbursements were properly recorded. These deficiencies prevented GAO from forming an opinion on the reliability of the financial statements and represent material weaknesses in internal control. The government's long-standing inattention to financial issues, combined with the size and complexity of government operations, makes corrective actions difficult. The pace of improvement will be greatly influenced by agencies' progress in modernizing their information systems and internal controls, in revamping human capital practices to build greater capacity, and in implementing change management to achieve the discipline needed to follow sound financial management and reporting practices. This testimony summarizes the March 1999 GAO report, GAO/AIMD-99-130.

GAO noted that: (1) significant financial systems weaknesses, problems with fundamental recordkeeping and financial reporting, incomplete documentation, and weak internal controls, including computer controls, continue to prevent the government from accurately reporting a significant portion of its assets, liabilities, and costs; (2) widespread and serious computer control weaknesses affect virtually all federal agencies and significantly contribute to many material deficiencies; (3) the federal government does not have adequate systems and controls to ensure the accuracy of information about the amount of assets held to support its domestic and global operations; (4) as a result, the government could not satisfactorily determine that all assets were included in the financial statements, verify that reported assets actually exist, or substantiate the amounts at which they were valued; (5) most federal credit agencies responsible for federal lending programs were unable to properly estimate the cost of these programs in accordance with federal accounting standards and budgeting requirements; (6) liabilities for remediation of environmental contamination and disposal of hazardous waste, reported at $225-billion, were materially understated by at least tens of billions of dollars primarily because no estimate was reported for environmental and disposal liabilities associated with certain major weapons systems; (7) adequate systems and cost data were not available to accurately estimate the reported $223-billion military postretirement health benefits liability included in federal employee and veteran benefits payable; (8) some agencies do not maintain adequate records or have systems to ensure that accurate and complete data were used to estimate a reported $90 billion of accounts payable and a reported $155 billion in other liabilities; (9) the government was unable to support significant portions of the more than $1.8 trillion reported as the total net cost of government operations or determine the full extent of improper payments; (10) the federal government cannot ensure that the information in the financial statements of the U.S. government is properly and consistently compiled in an accurate manner; and (11) continuing serious and widespread computer security weaknesses are placing enormous amounts of federal assets at risk of fraud and misuse, financial information at risk of unauthorized modification or destruction, sensitive information at risk of inappropriate disclosure, and critical operations at risk of disruption.