[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
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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.