[Senate Report 107-331]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 733

107th Congress        SENATE                          Report
 2d Session                                           107-331
_______________________________________________________________________
 
                   ACCOUNTABILITY OF TAX DOLLARS ACT

                                OF 2002

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              TO ACCOMPANY

                                S. 2644

  TO AMEND CHAPTER 35 OF TITLE 31, UNITED STATES CODE, TO EXPAND THE 
    TYPES OF FEDERAL AGENCIES THAT ARE REQUIRED TO PREPARE AUDITED 
                          FINANCIAL STATEMENTS

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                November 4, 2002.--Ordered to be printed

  Filed under authority of the order of the Senate of October 17, 2002











                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 THAD COCHRAN, Mississippi
THOMAS R. CARPER, Delaware           ROBERT F. BENNETT, Utah
JEAN CARNAHAN, Missouri              JIM BUNNING, Kentucky
MARK DAYTON, Minnesota               PETER G. FITZGERALD, Illinois
           Joyce A. Rechtschaffen, Staff Director and Counsel
                       Susan E. Propper, Counsel
              Richard A. Hertling, Minority Staff Director
          Mason C. Alinger, Minority Professional Staff Member
                     Darla D. Cassell, Chief Clerk







                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background.......................................................1
III. Discussion of Legislation........................................2
 IV. Legislative History..............................................4
  V. Section by Section Analysis......................................4
 VI. Evaluation of Regulatory Impact..................................5
VII. CBO Cost Estimate................................................5
VIII.Changes to Existing Law..........................................6


                                                       Calendar No. 733
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-331

======================================================================

               ACCOUNTABILITY OF TAX DOLLARS ACT OF 2002

                                _______
                                

                November 4, 2002.--Ordered to be printed

  Filed under authority of the order of the Senate of October 17, 2002

                                _______
                                

 Mr. Lieberman, from the Committee on Governmental Affairs, submitted 
                             the following

                              R E P O R T

                         [To accompany S. 2644]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 2644) to amend chapter 35 of title 31, 
United States Code, to expand the types of Federal agencies 
that are required to prepare audited financial statements, 
reports favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill as amended do pass.

                         I. Purpose and Summary

    S. 2644 is a bill to amend title 31, United States Code, to 
expand the requirement to conduct annual audits of the agency's 
finances to all executive branch agencies in the federal 
government. Currently, only the 24 major departments and 
agencies covered by the Chief Financial Officers (CFO) Act (31 
U.S.C. 3515) are required by law to prepare audited financial 
statements each year, although several independent agencies 
such as the Federal Communications Commission and the Federal 
Trade Commission have been doing so voluntarily.

                             II. Background

    Congress enacted the CFO Act in 1990 to improve Federal 
financial management. The Act requires 24 federal agencies to 
have Chief Financial Officers and Deputy Chief Financial 
Officers, and lays out their authority and functions. In 1994, 
Congress passed the Government Management Reform Act (GMRA), 
which expanded the CFO Act by establishing requirements for the 
preparation and audit of the 24 CFO Act agencies' financial 
statements. A report on the audit by the agency Inspector 
General or an independent auditor, which is often the General 
Accounting Office (GAO), must be submitted to the head of the 
agency.
    GMRA also required the Department of Treasury to prepare a 
consolidated financial statement for these 24 agencies, which 
is audited by the Comptroller General. The government-wide 
statement reflects the overall financial position of the 
executive branch, including assets, liabilities, and results of 
operations of the executive branch. The statement also provides 
useful financial information on the workings of the federal 
government to the President, Congress, and the American public.
    The financial reporting requirements of GMRA have prompted 
improvement in federal financial accountability. There has been 
steady progress at federal agencies toward achieving 
unqualified, or ``clean,'' audit opinions. Only 6 of the 24 CFO 
Act agencies received clean opinions for fiscal year 1996, the 
first year GMRA was effective. For fiscal year 2001, 18 of the 
24 agencies received clean opinions, and all of the CFO Act 
agencies met the statutory reporting deadline for the second 
year in a row.
    In 2001, GAO surveyed 26 executive branch agencies not 
covered by the CFO Act to learn their views on having audited 
financial statements. Survey Results of Selected Non-CFO Act 
Agencies' Views on Having Audited Financial Statements, GAO-02-
281R. These agencies all had budget authority for FY 1999 of at 
least $10 million. Of the 26 agencies surveyed, 12 had 
conducted financial statements audits within the previous 5 
years. Overall, the agencies reported that ``they either 
achieved significant benefits or would anticipate achieving 
such benefits from having audited financial statements.'' 
Testimony of Gary T. Engel, Director, Financial Management and 
Assurance, GAO, Before the Subcommittee on Government 
Efficiency, Financial Management and Intergovernmental 
Relations, House Committee on Government Reform, May 14, 2002. 
Benefits cited included enhancing accountability, identifying 
inefficiencies and weaknesses, improving internal control, and 
monitoring assets and liabilities.

                     III. Discussion of Legislation

    S. 2644 extends the requirement to prepare and have audited 
annual financial statements to all executive branch agencies, 
not just those covered by the CFO Act. This requirement goes 
into effect on March 1, 2003. A substitute amendment filed by 
Senator Fitzgerald and adopted by the Committee at its October 
9, 2002 markup allows the Office of Management and Budget (OMB) 
to exempt a non-CFO Act agency from this requirement if the 
agency's budget authority for the fiscal year does not exceed 
$25 million and the OMB Director determines that requiring an 
audited financial statement from the agency for that fiscal 
year is unwarranted based on the agency's demonstrated 
performance, the absence of risks associated with the agency's 
operations, or other factors the Director considers relevant. 
The OMB Director must notify theSenate Committee on 
Governmental Affairs and the House Committee on Government Reform of 
each agency that receives an exemption for a fiscal year and the 
reasons for the exemption.
    Under S. 2644, the OMB Director may also waive the 
requirement to prepare an audited financial statement for any 
non-CFO Act agency for the first two fiscal years after this 
Act becomes effective.
    Non-CFO Act agencies that will be covered by the 
requirement to prepare audited financial statements under this 
legislation, unless they are exempted in a fiscal year by OMB, 
include:

 Advisory Council on Historic Preservation
 Armed Forces Retirement Home
 Commission on Civil Rights
 Commodity Futures Trading Commission
 Consumer Product Safety Commission
 Defense Nuclear Facilities Safety Board
 Denali Commission
 Equal Employment Opportunity Commission
 Farm Credit Administration
 Federal Communications Commission
 Federal Election Commission
 Federal Emergency Management Agency
 Federal Energy Regulatory Commission
 Federal Housing Finance Board
 Federal Labor Relations Authority
 Federal Mediation and Conciliation Service
 Federal Mine Safety and Health Review Commission
 Federal Reserve
 Federal Retirement Thrift Investment Board
 Federal Trade Commission
 Holocaust Memorial Museum
 Institute of Museum and Library Services
 Inter-American Foundation
 International Broadcasting Bureau
 International Trade Commission
 Merit Systems Protection Board
 National Archives and Records Administration
 National Capital Planning Commission
 National Commission on Libraries and Information 
        Science
 National Council on Disability
 National Credit Union Administration
 National Foundation on the Arts and the Humanities
 National Indian Gaming Commission
 National Labor Relations Board
 National Mediation Board
 National Transportation Safety Board
 Navajo and Hopi Indian Relocation Commission
 Nuclear Waste Technical Review Board
 Occupational Safety and Health Review Commission
 Office of Government Ethics
 Office of Special Counsel
 Peace Corps
 Postal Rate Commission
 Presidio Trust
 Railroad Retirement Board
 Securities Exchange Commission
 Selective Service System
 Trade and Development Agency
 Voice of America

                        IV. Legislative History

    S. 2644 was introduced by Senator Fitzgerald on June 19, 
2002 and was referred to the Committee on Governmental Affairs. 
At the Committee's markup on October 9, 2002, S. 2644 was 
reported out with a Fitzgerald substitute amendment by a 
rollcall vote of 9-0. Members present were Levin, Akaka, 
Durbin, Torricelli, Cleland, Carper, Carnahan, Dayton and 
Lieberman. Senator Fitzgerald's substitute conformed the 
provisions of S. 2644 to those of H.R. 4685 as passed by the 
House of Representatives.
    The companion bill, H.R. 4685, was introduced in the House 
of Representatives by Representative Toomey on May 9, 2002. The 
bill was co-sponsored by a bipartisan group of 11 
Representatives. On May 14, 2002, the Subcommittee on 
Government Efficiency, Financial Management and 
Intergovernmental Relations of the Committee on Government 
Reform held a hearing on H.R. 4685. Witnesses included 
Representative Toomey; Gary T. Engel, Director, Financial 
Management and Assurance, GAO; Mark A. Reger, Chief Financial 
Officer, Federal Communications Commission; Alison L. Doone, 
Deputy Staff Director for Management, Federal Election 
Commission; Frederick J. Zirkel, Inspector General, Federal 
Trade Commission, and Paul Brachfeld, Inspector General, 
National Archives and Records Administration. On June 18, 2002, 
the Subcommittee marked up H.R. 4685, with a manager's 
amendment.
    On October 7, 2002, the House considered H.R. 4685 under 
suspension of the rules with a substitute amendment offered by 
Representative Horn. The substitute deleted the bill's 
requirement that non-CFO Act agencies also comply with the 
Federal Financial Management Improvement Act. H.R. 4685 as 
amended passed the House by voice vote.

                     V. Section-by-Section Analysis

    Section 1 entitles the Act as the ``Accountability of Tax 
Dollars Act of 2002.''
    Section 2(a) amends section 3515 of title 31, United States 
Code. It changes the list of agencies covered by section 3515's 
requirement to prepare annual audited financial statements by 
deleting the cross-reference to CFO Act agencies and replacing 
that reference with ``each covered executive agency.'' It 
replaces the instruction to prepare such reports beginning in 
1997 with 2003. It also adds new subsections (e) and (f) to 
section 3515.
    New subsection (e) provides that the Director of OMB may 
exempt an agency from the requirement to prepare an audited 
financial statement in a fiscal year in which that agency's 
budget authority does not exceed $25 million and the OMB 
Director determines that requiring the agency to prepare such a 
statement is not warranted because of the absence of risks 
associated with the agency's operations, the agency's 
demonstrated performance, or other factors that the Director 
considers relevant. The Director is required to notify the 
House Committee on Government Reform and the Senate Committee 
on Governmental Affairs of each agency that has received an 
exemption and the reasons for each exemption.
    New subsection (f) defines the term ``covered executive 
agency'' to mean any executive agency that is not required by 
another provision of law to prepare and submit to Congress and 
OMB an audited financial statement for each fiscal year. The 
definition excludes a corporation, agency, or instrumentality 
subject to chapter 91 of title 31. The government corporations 
covered by that chapter are listed in section 9101 of title 31 
and include entities such as the Federal Deposit Insurance 
Corporation, the Government National Mortgage Association, and 
the Pension Benefit Guaranty Corporation.
    Section 2(b) allows OMB to waive the application of this 
legislation to any non-CFO Act agency for the first two fiscal 
years after the enactment of this legislation. This provision 
responds to concerns that agencies that have not previously 
been required to prepare audited financial statements need time 
to train and engage in other necessary preparations.

                  VI. Evaluation of Regulatory Impact

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate ``the regulatory impact which would be incurred in 
carrying out this bill.''
    The enactment of this legislation will not have significant 
regulatory impact.

                         VII. CBO Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 23, 2002.
Hon. Joseph I. Lieberman,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2644, the 
Accountability of Tax Dollars Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 2644--Accountability of Tax Dollars Act of 2002

    S. 2644 would amend title 31 of the United States Code to 
expand the number of federal agencies that are required to 
prepare audited financial statements. Under the bill, all 
executive agencies with budget authority of $25 million or more 
would be required to submit audited financial statements to the 
Congress and the Office of Management and Budget (OMB) by March 
1, 2003. The bill also would allow OMB to waive the audit 
requirement for an additional two years.
    S. 2644 would expand the requirements of the Chief 
Financial Officers Act to more than 20 additional executive 
agencies. Based on a recent report by the General Accounting 
Office concerning agency auditing costs, and on information 
from OMB, CBO estimates that implementing S. 2644 would cost 
about $5 million annually beginning in 2005, subject to the 
availability of appropriated funds. (This estimate assumes that 
OMB would exercise the option to waive the audit requirement 
for two years.) In addition, enacting the bill would not affect 
direct spending or revenues.
    The use of audited financial statements could help agencies 
strengthen accountability, better monitor assets and 
liabilities, enhance cost controls, and identify 
inefficiencies. Improved financial information also could 
reduce waste and fraud, but we have no basis for estimating any 
potential savings from these actions.
    S. 2644 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                     VIII. Changes to Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 2644 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

                           UNITED STATES CODE

TITLE 31--MONEY AND FINANCE

           *       *       *       *       *       *       *


CHAPTER 35--ACCOUNTING AND COLLECTION

           *       *       *       *       *       *       *



Sec. 3515. Financial statements of agencies

    (a) [Not later] (1) Except as provided in subsection (e), 
not later than March 1 of [1997] 2003 and each year thereafter, 
the head of [each executive agency identified in section 901(b) 
of this title] each covered executive agency shall prepare and 
submit to the Congress and the Director of the Office of 
Management and Budget an audited financial statement for the 
preceding fiscal year, covering all accounts and associated 
activities of each office, bureau, and activity of the agency.
    (b) Each audited financial statement of [an executive 
agency] a covered executive agency under this section shall 
reflect--
          (1) the overall financial position of the offices, 
        bureaus, and activities covered by the statement, 
        including assets and liabilities thereof; and
          (2) results of operations of those offices, bureaus, 
        and activities.
    (c) The Director of the Office of Management and Budget 
shall identify components of [executive agencies] covered 
executive agencies that shall be required to have audited 
financial statements meeting the requirements of subsection 
(b).
    (d) The Director of the Office of Management and Budget 
shall prescribe the form and content of the financial 
statements of [executive agencies] covered executive agencies 
under this section, consistent with applicable accounting and 
financial reporting principles, standards, and requirements.
    (e)(1) The Director of the Office of Management and Budget 
may exempt a covered executive agency, except an agency 
described in section 901(b), from the requirements of this 
section with respect to a fiscal year if--
          (A) the total amount of budget authority available to 
        the agency for the fiscal year does not exceed 
        $25,000,000; and
          (B) the Director determines that requiring an annual 
        audited financial statement for the agency with respect 
        to the fiscal year is not warranted due to the absence 
        of risks associated with the agency's operations, the 
        agency's demonstrated performance, or other factors 
        that the Director considers relevant.
    (2) The Director shall annually notify the Committee on 
Government Reform of the House of Representatives and the 
Committee on Governmental Affairs of the Senate of each agency 
the Director has exempted under this subsection and the reasons 
for each exemption.
    (f) The term ``covered executive agency''--
          (1) means an executive agency that is not required by 
        another provision of Federal law to prepare and submit 
        to Congress and the Director of the Office of 
        Management and Budget an audited financial statement 
        for each fiscal year, covering all accounts and 
        associated activities of each office, bureau, and 
        activity of the agency; and
          (2) does not include a corporation, agency, or 
        instrumentality subject to chapter 91 of this title.

                                
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