Financial Audit: 1997 Consolidated Financial Statements of the United
States Government (Letter Report, 03/31/98, GAO/AIMD-98-127).

GAO reviewed the 1997 consolidated financial statements of the United
States government.

GAO noted that: (1) significant financial systems weaknesses, problems
with fundamental recordkeeping, incomplete documentation, and weak
internal controls, including computer controls, prevent the government
from accurately reporting a large portion of its 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, effectively
and efficiently manage its operations, and ensure compliance with laws
and regulations; (4) major problems include the federal government's
inability to: (a) properly account for and report billions of dollars of
property, equipment, materials, and supplies; (b) properly estimate the
cost of most federal credit programs and the related loans receivable
and loan guarantee liabilities; (c) estimate and report material amounts
of environmental and disposal liabilities and related costs; (d)
determine the proper amount of various reported liabilities, including
postretirement health benefits for military compensation benefits,
accounts payable, and other liabilities; (e) accurately report major
portions of the net costs of government operations; (f) determine the
full extent of improper payments that occur in major programs and that
are estimated to involve billions of dollars annually; (g) properly
account for billions of dollars of basic transactions, especially those
between governmental entities; (h) ensure that the information in the
consolidated financial statements is consistent with agencies' financial
statements; (i) ensure that all disbursements are properly recorded; and
(j) effectively reconcile the change in net position reported in the
financial statements with budget results; (5) these deficiencies
prevented GAO from being able to form an opinion on the reliability of
the consolidated financial statements; (6) considerable effort is
already under way to address these problems; (7) several individual
agencies that have been audited for a number of years faced serious
deficiencies in their initial audits and have made good progress in
resolving them; (8) with a concerted effort, the federal government, as
a whole, can continue to make progress toward generating reliable
information on a regular basis; and (9) annual financial statement
audits are essential to ensuring the effectiveness of the improvements
now under way.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-127
     TITLE:  Financial Audit: 1997 Consolidated Financial Statements of 
             the United States Government
      DATE:  03/31/98
   SUBJECT:  Financial statement audits
             Financial management systems
             Financial records
             Federal agency accounting systems
             Internal controls
             Accounting procedures
             Auditing standards
             Public administration
             Government liability (legal)
             Reporting requirements

             
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Cover 
================================================================
COVER 
 
March 1998 
FINANCIAL AUDIT  
1997 Consolidated Financial Statements  
of the United States Government  
 
GAO/AIMD-98-127  

1997 Consolidated Financial Statements of the United States
Government
 
  
Pages 1--76 from  FINANCIAL AUDIT: 1997 Consolidated Financial
Statements of the United States Government GAO/AIMD-98-127 
  Table of Contents  
  Management's Discussion and Analysis  
  GAO Report  
  Consolidated Financial Statements  
  Notes to the Financial Statements  
  Stewardship Reporting (Unaudited)  
  Supplemental Table (Unaudited)  
  Appendix  
 
 
 
 Pages 1--76 from  FINANCIAL AUDIT: 1997 Consolidated Financial
Statements of the United States Government GAO/AIMD-98-127 
 
 Page 1 
2 
 
United States General Accounting Office  
GAO Report to the Congress  
 
March 1998 FINANCIAL AUDIT  
1997 Consolidated Financial Statements  
of the United States Government  
 
GAO/ AIMD-98-127  
1  
 
1 
 Page 2 
3 
 
 
2  
 
2 
 Page 3 
4 
 
B-279169  
March 31, 1998  
The President of the Senate  
The Speaker of the House of Representatives  
 
For the first time in the nation's history, the federal government 
has prepared  consolidated financial statements that have been 
subjected to an independent  audit. In accordance with the Chief 
Financial Officers Act, consolidated  financial statements for 
fiscal year 1997 were prepared by the Department of  the Treasury 
and audited by GAO. Our report is included in Treasury's  
publication of the statements. This letter highlights our 
conclusions.  
 
In summary, significant financial systems weaknesses, problems with 

fundamental recordkeeping, incomplete documentation, and weak 
internal  controls, including computer controls, prevent 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. Major problems include 
the federal government's inability  to  
 
--properly account for and report billions of dollars of property, 
equipment,  materials, and supplies;  
 
--properly estimate the cost of most federal credit programs and the 
related  loans receivable and loan guarantee liabilities;  
 
--estimate and report material amounts of environmental and disposal  
liabilities and related costs;  
 
--determine the proper amount of various reported liabilities, 
including  postretirement health benefits for military and federal 
civilian employees,  veterans compensation benefits, accounts 
payable, and other liabilities;  
 
--accurately report major portions of the net costs of government 
operations;  --determine the full extent of improper payments that 
occur in major programs  and that are estimated to involve billions 
of dollars annually;  
 
GAO/ AIMD-98-127  3  
 
3 
 Page 4 5 
 
B-279169  --properly account for billions of dollars of basic 
transactions, especially those  between governmental entities;  
 
--ensure that the information in the consolidated financial 
statements is  consistent with agencies' financial statements;  
 
--ensure that all disbursements are properly recorded; and  --
effectively reconcile the change in net position reported in the 
financial  statements with budget results.  
 
These deficiencies prevented us from being able to form an opinion 
on the  reliability of the consolidated financial statements.  
 
Considerable effort is already underway to address these problems. 
Several  individual agencies that have been audited for a number of 
years faced serious  deficiencies in their initial audits and have 
made good progress in resolving  them. 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 underway.  
 
We appreciate the cooperation and assistance we received from the 
Chief  Financial Officers and Inspectors General throughout 
government, as well as  Department of the Treasury and Office of 
Management and Budget officials, in  carrying out our responsibility 
to audit the government's consolidated financial  statements. We 
look forward to continuing to work with these officials to  achieve 
the CFO Act's financial management reform goals.  
 
Our report was prepared under the direction of Gene L. Dodaro, 
Assistant  Comptroller General; Philip T. Calder, Chief Accountant; 
and Robert F. Dacey,  Director, Consolidated Audit and Computer 
Security Issues. If you have any  questions, please contact me on 
(202) 512-5600 or them on (202) 512-3317.  
 
James F. Hinchman  Acting Comptroller General  of the United States  
 
Page 2 GAO/ AIMD-98-127  4  
 
4 
 Page 5 6 
 
 
5  
 
5 
 Page 6 7 
 
 
6  
 
6 
 Page 7 8 
 
Contents  A Message from the Secretary of the Treasury 1  
Management's Discussion and Analysis 2  
 
General Accounting Office Report  Acting Comptroller General's 
Statement 13  General Accounting Office Report 14  
 
Consolidated Financial Statements  Balance Sheet 30  Statement of 
Net Cost 32  Statement of Changes in Net Position 40  
 
Notes to the Financial Statements  Note 1 -Summary of significant 
accounting policies 43  Note 2 -Cash and other monetary assets 45  
Note 3 -Loans receivable and loan guarantee liabilities 46  Note 4 -
Taxes receivable 47  Note 5 -Inventories and related property 47  
Note 6 -Property, plant, and equipment 48  Note 7 -Other assets 48  
Note 8 -Accounts payable 49  Note 9 -Federal debt securities held by 
the public 49  Note 10 -Federal employee and veteran benefits 
payable 51  Note 11 -Environmental liabilities 54  Note 12 -Benefits 
due and payable 54  Note 13 -Other liabilities 55  Note 14 -
Commitments and contingencies 55  Note 15 -Unreconciled transactions 
affecting the change in net position 57  Note 16 -Dedicated 
collections 57  Note 17 -Fiduciary trust funds 59  
 
Stewardship Reporting (Unaudited)  Stewardship land 61  Stewardship 
responsibilities:  Social Security 63  Medicare 64  
 
Supplemental Table (Unaudited)  Reconciliation of the Changes in Net 
Position  to the Deficit on the Budgetary Basis 65  
 
Appendix  List of significant U. S. Government entities included  
and entities excluded from the consolidated financial statements 66 

7  
 
7 
 Page 8 9 
 
A MESSAGE FROM THE SECRETARY OF THE TREASURY  I am pleased to 
present the fiscal year 1997 Consolidated Financial Statements  of 
the United States Government  a truly historic undertaking. Never 
before has  the United States Government attempted to assemble 
comprehensive financial  statements covering all of its myriad 
activities and to subject those financial  statements to an audit. I 
am confident that in future years, as the data used to  prepare 
these financial statements continue to improve, these financial 
statements  will prove to be an important management tool for 
policy-makers and the public.  
 
The publication of these audited financial statements represents yet 
another stage  in the Clinton Administration's continuing efforts to 
improve the management and  efficiency of the United States 
Government. In 1994, the Administration strongly  supported the 
Government Management Reform Act, which mandated the issuance  of 
the audited financial statements which follow. The Administration 
has worked  through the Federal Accounting Standards Advisory Board 
to create the accounting  standards that form the basis for these 
financial statements.  
 
Despite the substantial progress that has been made, however, 
further  improvements are clearly necessary. The audit report from 
the General Accounting  Office (GAO) discusses many areas in which 
the reliability of the current financial  statements must be 
enhanced and improved. As a result, the GAO was unable to  render an 
opinion on these statements. The Administration is therefore 
committed  to working with the GAO, Federal agencies, and other 
interested parties to achieve  the President's goal of receiving an 
unqualified opinion from the GAO on the FY  1999 Consolidated 
Financial Statements. We believe that the publication of these  
audited statements is an important step in providing American 
citizens with more  information about the operations of their 
government.  
 
Robert E. Rubin  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  8  
 
8 
 Page 9 10 
 
No other entity in the world com-pares  in size and scope to the U. 
S. Gov-ernment,  which has continuing  responsibilities for the 
general welfare  of its citizens and for national defense  Yet, to 
this date, the U. S. Government  has never set forth a comprehensive  
statement of its finances in accordance  with applicable accounting 
standards.  This document is the U. S. Govern-ment's  first 
preparation, in accordance  with new Federal accounting standards,  
of comprehensive financial statements  that include all of its vast 
and complex  activities and that subject those financial  statements 
to the rigors of an audit. We  are pleased that these financial 
state-ments  have been produced and sub-jected  to audit on a timely 
basis within  the relevant statutory guidelines.  For over 200 
years, effective manage-ment  of the U. S. Government has suf-fered  
from a lack of comprehensive  financial information. The Administra-
tion  is committed to addressing this  shortcoming. In 1994, the 
Administra-tion  strongly supported the Govern-ment  Management 
Reform Act, which  mandated the issu-ance  of annual  audited 
financial  statements for the  24 largest agencies  and for the 
Govern-ment  as a whole. To  provide a sound ba-sis  for these 
financial statements, the Ad-ministration  and the General Account-
ing  Office (GAO) have worked through  the Federal Accounting 
Standards Advi-sory  Board (FASAB) to create the ac-counting  
standards that form the basis  for these statements.  
 
The Administration appreciates the  cooperation and assistance of 
the GAO  in auditing these financial statements in  a timely manner, 
and looks forward to  working with the GAO, Federal agen-cies,  and 
other interested parties to con-tinue  improving the reliability of 
the  financial information upon which the  statements are based. The 
effort to pro- 
 
vide a comprehensive and reliable set of  financial statements for 
the U. S. Gov-ernment,  which began in 1997, is ongo-ing  and 
improvements are clearly  necessary. Because of current data limita-
tions,  the GAO is not able to render an  opinion on the reliability 
of these finan-cial  statements. The Administration is  committed to 
improving the reliability  of the financial information so that the  
U. S. Government can achieve the Presi-dent's  goal, as stated in 
the fiscal 1999  Budget, of receiving an unqualified opin-ion  from 
the GAO on the fiscal 1999  Consolidated Financial Statements. In  
addition, the Administration's objec-tives  for individual agencies 
are re-flected  in the Federal Financial  Management Status Report 
and Five-Year  Plan issued by the Office of Man-agement  and Budget. 
That document  sets forth the dates by which agencies  have pledged 
to submit timely financial  statements with unqualified audit opin-
ions.  
 
The ongoing challenges involved in  obtaining reliable financial 
information  should not, however, obscure the pro-gress  that has 
been  made or the poten-tial  insights pro-vided  by  preparation 
and  audit of these state-ments.  The Admini-stration  remains  
committed to providing the President,  the Congress, and the 
American people  with reliable information about the fi-nancial  
position of the U. S. Govern-ment  on an accrual basis  including  
the cost of its operations and the financ-ing  sources used to fund 
these opera-tions.  Such information will ultimately  prove 
extremely helpful to policy-mak-ers  and the public.  
 
It is worth emphasizing that the U. S.  Government does not have a 
single bot-tom  line that reflects its financial status.  Its 
operations and scope are much too  complicated to be summarized in 
any  single number. But the information in- 
 
"No other entity in the world compares in size  and scope to the U. 
S. Government."  
 
Consolidated Financial Statements  of the United States Government, 
Fiscal 1997  Management's Discussion and Analysis:  Introduction  
 
2 Discussion and Analysis  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  9  
 
9 
 Page 10 11 
 
cluded in these statements provides a  view of the Government's 
finances that  has not previously been presented in a  comprehensive 
form.  The accompanying financial state-ments  are required by 31 U. 
S. C. 33  (e)( 1) and consist of Management's Dis-cussion  and 
Analysis (MD& A), a Bal- 
 
ance Sheet, a Statement of Net Cost, a  Statement of Changes in Net 
Position,  Notes to the Financial Statements, and  Supplementary 
Information, which in-cludes  a stewardship section. Each sec-tion  
of these financial statements is  preceded by a description of the 
sec-tion's  contents.  
 
Management's Discussion and Analysis This section explains the basis 
of ac-counting  used to prepare the statements  and presents 
selected financial and eco-nomic  information intended to assist  
readers in their assessment of the U. S.  Government's financial 
status. It also  summarizes financial management initia-tives  
designed to continue improving  the reliability of the financial 
statements  and to address the issues identified in  GAO's report on 
these financial state-ments.  
 
Reporting entity  and basis of accounting  
 
Coverage  The financial statements cover the ex-ecutive  branch, as 
well as parts of the  legislative and judicial branches of the  U. 
S. Government. Information from  the legislative and judicial 
branches is  limited because those entities are not re-quired  to 
prepare comprehensive finan-cial  statements. For example, the  
property, plant and equipment of the ju-dicial  branch and the 
Congress are not  reflected in these statements. In addi-tion,  
government-sponsored enterprises  (such as Federal Home Loan Banks 
and  the Federal National Mortgage Associa-tion)  are excluded 
because they are pri-vately  owned. The Federal Reserve  System is 
also excluded because mone-tary  policy is conducted separately from  
and independently of the other central  Government functions. The 
narrative as-sociated  with the Statement of Net Cost  describes the 
major functions of the  U. S. Government.  
 
Accounting standards  In 1994, Congress passed and the  President 
signed the Government Man-agement  Reform Act, which required  the 
preparation and audit of financial  statements. At that time, the U. 
S. Gov- 
 
ernment did not have a comprehensive  set of generally accepted 
accounting  standards. The three principals con-cerned  with overall 
financial manage-ment  in the U. S. Government (the  Secretary of 
the Treasury, the Director  of OMB, and the Comptroller General)  
created the FASAB to address this void.  Just as the effort to 
improve the reliabil-ity  of the financial statements is ongo-ing,  
the effort to produce and  implement a comprehensive set of ac-
counting  principles is also ongoing:  FASAB completed work on the 
basic  set of Federal financial accounting stand-ards  (FFAS) in 
1996, but some of the  standards will not become effective un-til  
fiscal years 1998 and 1999.  The accounting standards developed  by 
FASAB are tailored to the Federal  Government's unique 
characteristics  
 
and special needs. For example, the U. S.  Government needs 
financial informa-tion  that is useful in planning future  budgets 
and in controlling budgetary ex-penditures.  Consequently net costs,  
rather than profit, are used as the pri-mary  financial measure for 
assessing effi-ciency  and effectiveness of Government  operations.  
 
The Consolidated Financial State-ments  of the U. S. Government are 
gen- 
 
"The Administration remains committed to  providing the President, 
the Congress, and the  American people with reliable information  
about the financial position of the U. S.  Government."  
 
Discussion and Analysis 3  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  10  
 
10 
 Page 11 12 
 
erally prepared in accordance with appli-cable  FFAS. The statements 
are on the  accrual basis unless otherwise noted.  Thus transactions 
are recorded in the ac-counting  records when the events giv-ing  
 
rise to the transactions occur, rather  than when cash is received 
or paid. By  contrast, the Federal budget is generally  based on 
budgetary concepts and poli-cies  adopted by the Congress and the 
Ex-ecutive  branch, which are generally on  the cash basis.  
 
The most significant difference be-tween  FFAS and budgetary 
measures in-volves  timing and other differences  between the 
recognition and measure-ment  of revenues and costs. For exam-ple,  
accounting standards require  recognition of liabilities for costs 
related  to environmental clean-up when the  events resulting in 
such costs occur. By  contrast, only the amounts expended  currently 
are included as outlays in the  budget. The effects of these 
differences  are reflected in the "Reconciliation of  the Changes in 
Net Position to the Defi-cit  on the Budgetary Basis," which is  
presented in the supplementary section  of these financial 
statements.  
 
These financial statements do not in-clude  information on natural 
resources  (depletable resources, such as mineral de-posits  and 
petroleum or renewable re-sources,  such as timber) because  
standards have not yet been recom-mended  for recognizing and 
measuring  these assets. Nor are values for steward-ship  land (land 
not used in Government  operations) included in these financial  
statements  information about the  composition and quantity of such 
land  is, however, reported in the stewardship  section in 
accordance with FFAS.  
 
Finally, a comprehensive assessment  of the Government's financial 
status  should recognize the Government's sov- 
 
ereign powers to raise revenue and regu-late  commerce. These powers 
are not re-flected  in the following statements, but  should be 
considered in a comprehen-sive  assessment of the Government's fi-
nancial  condition.  
 
Future changes  As noted above, the process of im-proving  these 
financial statements is on-going.  For example, in future financial  
statements, FASAB is proposing that  the value of national defense 
property,  plant, and equipment (weapons systems  and support 
property used in the per-formance  of military missions and ves-sels  
held as part of the National Defense  Reserve Fleet) be removed from 
the bal-ance  sheet and that information about  these assets be 
reported in the steward-ship  section of the financial statements.  
These assets are currently valued at $636  billion. In addition, 
future financial  statements will include information  about 
deferred maintenance (mainte-nance  that was not performed when it  
should have been or was scheduled).  The 1998 financial statements 
will  also expand the stewardship section,  which will include a 
current services as-sessment  showing both the short-and  medium-
term direction of current pro-grams.  The current services 
assessment  will present actual receipt and outlay  data for all 
programs for the year for  which the financial statements are pre-
pared  
 
(the base year) and estimates for  at least six years subsequent to 
the base  year. This assessment will thus facilitate  evaluation of 
the sufficiency of future re-sources  to sustain public services and 
to  meet current and future obligations as  they become due.  
 
The stewardship section of these fi-nancial  statements in future 
years will  
 
"The accounting standards developed by  FASAB are tailored to the 
Federal  Government's unique characteristics and special  needs."  
 
"The 1998 financial statements will include a  current services 
assessment showing both  the short-and medium-term direction  of 
current programs."  
 
4 Discussion and Analysis  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  11  
 
11 
 Page 12 13 
 
also include information about heritage  assets and stewardship 
investments.  Heritage assets are national monuments,  museums and 
library collections. Stew-ardship  investments include:  Non-federal 
physical property: the  Federal share of properties owned by  State 
and local governments (e. g. high-ways  and airports).  Human 
capital: Investments in edu-cation  and training programs financed  
by the Federal Government for the  benefit of the public.  Research 
and development: Federal  Government investments in basic and  
applied research and development.  These investments will be 
separately  identified in the stewardship section,  but will not be 
reported on the Consoli-dated  Balance Sheet.  
 
Economic and  budgetary results Economic conditions were ex-tremely  
 
favorable in fiscal 1997. Over  the year ending in  September, the 
rate  of growth of eco-nomic  activity accel-erated,  job gains  
continued to be very  strong, and the un-employment  rate  fell to 
24-year lows.  At the same time, in-flation  was very well  
contained, with the  underlying rate of in-flation  dropping to  
levels not seen since the mid1960's.  Strong growth in incomes 
contributed  to a decline in the Federal budget deficit  to its 
lowest level since 1974.  
 
The economy in fiscal 1997  Real gross domestic product (GDP)  grew 
by 3.9 percent during fiscal 1997  (which encompasses the fourth 
quarter  of calendar 1996 through the third quar-ter  of calendar 
1997), the fastest rate of  growth since fiscal year 1984. Growth  
was strongest in the first two quarters  of the fiscal year at a 
more than 4 per-cent  annualized pace, then it moderated  to close 
to a 3 percent annualized rate in  the second half of the year.  The 
economy was led by strong  gains in consumer spending and in busi- 
 
ness capital investment. Consumer  spending, which accounts for 
about two-thirds  of real GDP, expanded by 3.8 per-cent  during the 
fiscal year, much faster  than the 2.4 percent average pace in the  
prior two fiscal years. Business invest-ment  spending grew by 10.8 
percent dur-ing  fiscal 1997, chiefly due to continued  strong gains 
in spending on capital  equipment such as computers and other  high 
technology goods. Residential con-struction  started the fiscal year 
on a  weak note but strengthened over the  course of the year, 
posting a modest 2.2  percent increase for the year as a whole.  
Restraining growth in fiscal 1997 was  further deterioration in net 
exports, as  accelerating domestic economic growth  continued to 
draw in imports at a faster  pace than the growth in exports.  
Employment growth accelerated in  fiscal 1997 as the economy added 
2.8  million new jobs, compared with gains  of 2.4 million and 2.6 
million for the  previous two fiscal years. Most of the  new jobs 
were in  the private service-producing  sector,  with especially  
rapid growth in  business and engi-neering  and manage-ment  
services.  Employment in  manufacturing in-creased  by 126,000  in 
fiscal 1997, and  construction jobs  grew by more than  200,000 due 
to a pickup in both residen-tial  and nonresidential building. The 
un-employment  rate fell below 5 percent at  the end of the fiscal 
year and averaged  5.1 percent for the year as a whole.  These rates 
were the lowest rates of un-employment  in 24 years.  
 
Despite healthy economic growth  and very low rates of unemployment,  
price pressures did not build up during  the year; indeed, if 
anything, inflation  declined. Broad measures of inflation re-mained  
extremely low, rising at rates  not seen since the mid-1960's. Lower 
en-ergy  and food prices played a role in  holding inflation down, 
as prices for  these commodities eased after some  pickup in the 
prior year. Prices for  other goods and services were also well- 
 
"Over the year ending in September, the rate of  growth of economic 
activity accelerated, job  gains continued to be very strong, and 
the  unemployment rate fell to 24-year lows."  
 
Discussion and Analysis 5  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  12  
 
12 
 Page 13 14 
 
contained. Total consumer prices in-creased  by 2.2 percent during 
the fiscal  year and "core" prices (excluding the  food and energy 
components) also rose  a modest 2.2 percent. In fiscal 1996, in  
contrast, total consumer prices in-creased  by 3.1 percent and the 
underly-ing  (" core") rate of inflation was 2.6  percent.  
 
Budget results  The Federal budget deficit improved  dramatically in 
fiscal 1997, falling to $22  billion from $107 billion a year 
earlier.  The 1997 deficit was the lowest in more  than two decades, 
and continues the sub-stantial  progress made over the past few  
years in reducing the deficit. Since reach-ing  an all-time high of 
$290 billion in fis-cal  1992, the deficit has been cut by  almost 
90 percent over the past five  years. As a share of GDP, the deficit  
now stands at 0.3 percent, the lowest  percentage since fiscal 1969, 
when the  budget was last in surplus.  The fiscal 1997 deficit was 
well be-low  the deficit that was forecast at the  start of the 
fiscal year, due in large part  to higher-than-expected receipts, 
which  increased by 8.7 percent in fiscal 1997.  Growth of receipts 
was led by strong  gains in individual income tax pay-ments,  
reflecting rapid job and income  growth as well as high levels of 
capital  gains from the rising stock market. Cor-porate  income tax 
receipts also grew rap-idly  as profits continued to rise.  
 
Growth of outlays was just 2.7 per-cent  in fiscal 1997, held down 
in part by  spectrum auction proceeds and inflows  
 
to the deposit insurance account, both  of which are netted against 
outlays in  budget accounting. Excluding those two  
 
categories, growth of outlays in fiscal  1997 was approximately 3.5 
percent,  still a very moderate increase. Most cate-gories  of 
outlays posted only modest in-creases  in spending compared with the  
previous year, except for defense and a  few small programs, which 
grew at  slightly faster rates.  
 
Improvements in the deficit have  continued into fiscal 1998. The 
Federal  Budget for fiscal 1999 projects the  budget to show a $10 
billion deficit in  fiscal 1998  followed by a nearly $10  billion 
surplus in fiscal 1999, which  would be the first surplus in 30 
years.  Some outside analysts believe that re-sults  so far through 
the current fiscal  year suggest that the fiscal 1998 budget  may 
actually post a surplus  which  would be the first in 29 years  
instead  of a small deficit.  
 
Revenue and expense  summary  
 
Revenue  Nonexchange revenue is the U. S.  Government's primary 
source of reve-nue,  and totaled $1,577 billion in 1997.  More than 
95 percent of this total came  from tax receipts, with the remainder  
coming from customs duties and other  miscellaneous receipts.  
 
Earned revenues are inflows of re-sources  that arise from exchange 
transac-tions.  Exchange transactions occur  when each party to the 
transaction sacri-fices  value and receives value in return  
 for example, when the U. S. Govern-ment  sells goods or services to 
the pub-lic.  During 1997, the Government  earned $158 billion in 
such revenue.  These revenues are offset against the  
 
"The Federal budget deficit improved  dramatically in fiscal 1997, 
falling to $22  billion from $107 billion a year earlier."  
 
6 Discussion and Analysis  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  13  
 
13 
 Page 14 15 
 
gross cost of the related functions to ar-rive  at the function's 
net cost. The U. S.  Government also earned $12 billion  that was 
not offset against the cost of  any function.  
 
Expenses by function  The net cost of U. S. Government op-erations  
was $1,603 billion for 1997.  Net cost represents the gross cost of 
op-erations  less attributable earned reve-nues.  The statement of 
net cost reflects  the cost incurred to carry out the na-tional  
priorities identified by the Presi-dent  and the Congress. The 
functions  and subfunctions used to accumulate  costs associated 
with the national priori-ties  are identified in the President's  
budget and described in detail in the  Consolidated Financial 
Statements sec-tion  of this report. The accompanying  chart 
presents the percentage of the net  cost of Government operations 
repre-sented  by each of the U. S. Govern-ment's  functions.  
 
Asset and liability summary  Assets  The assets of the U. S. 
Government  are the resources available to pay liabili-ties  or to 
satisfy future service needs.  The assets presented on the balance  
sheet are not a comprehensive list of  Federal resources. For 
example, the  Government's most important financial  resource, its 
ability to tax and regulate  commerce, cannot be quantified and is  
not reflected. Natural resources and  stewardship land (national 
parks, forests  and grazing lands) are other examples of  resources 
that are not included in the  $1,602 billion of Federal assets 
reported  at the end of 1997. The accompanying  chart depicts the 
major categories of re-ported  assets as of September 30, 1997  as a 
percentage of reported total assets.  Detailed information about the 
compo-nents  of these asset categories can be  found in the notes to 
the financial state-ments.  
 
Liabilities  At the end of 1997, the U. S. Govern-ment  reported 
liabilities of $6,605 bil-lion.  These liabilities are probable and  
measurable future outflows of resources  arising out of past 
transactions or  events. The largest component of these  
 
liabilities ($ 3,768 billion) is represented  by Federal debt 
securities held by the  public. The next largest component  ($ 2,244 
billion) relates to pension, dis-ability,  and health care costs for 
veter-ans,  and retired military and Federal  employees.  
 
Another liability, which will likely  require substantial future 
budgetary re-sources  to liquidate, is related to envi-ronmental  
clean-up costs. As of  September 30, 1997, the cost of cleaning  up 
environmental contamination was es-timated  to be $212 billion. This 
figure is  subject to much uncertainty, however,  for two reasons. 
First, it does not in-clude  complete estimates from all agen-cies  
with likely environmental clean up  responsibilities. Second, 
agencies lack  substantial experience in estimating  clean-up costs. 
Therefore it is likely that  the liability estimate will be revised 
as  agencies gain experience in identifying  and estimating 
environmental clean-up  costs. The accompanying chart presents  
 
Discussion and Analysis 7  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  14  
 
14 
 Page 15 16 
 
the percentage of total Federal liabilities  represented by each of 
the categories of  liabilities reported on the balance sheet.  
Additional details about the U. S. Gov-ernment's  reported 
liabilities can be  found in the notes to the financial state-ments.  
 
Future commitments The U. S. Government has substan-tial  future 
commitments to its citizens,  including the provision of social 
insur-ance  through the Social Security and  Medicare programs and 
other commit-ments  associated with Federal insurance  and loan 
programs. Information about  the nature and extent of these commit-
ments  is presented below.  
 
Financial condition of the Social  Security trust funds  
 
Two trust funds have been estab-lished  by law to finance the Social 
Secu-rity  program (OASDI) -Federal Old  Age and Survivors Insurance 
(OASI)  and Federal Disability Insurance (DI).  OASI pays retirement 
and survivors  benefits and DI pays benefits after a  worker becomes 
disabled. OASDI reve-nues  consist of taxes on earnings that  are 
paid by employees, their employers,  and the self-employed. OASDI 
also re-ceives  revenue from taxation of part of  Social Security 
benefits. Revenues that  are not needed to pay current benefits  or 
administrative expenses are invested  in Treasury securities to earn 
interest  for the trust funds. The securities issued  to the trust 
funds are guaranteed as to  both principal and interest and backed  
by the full faith and credit of the U. S.  
 
Government. All else equal, the issu-ance  of securities to the 
trust funds re-duces  the amount Treasury must  borrow from the 
public. Conversely,  when the trust funds need cash, they re-deem  
investments and raise the financ-ing  requirements of the Treasury 
(again,  all else equal).  The Board of Trustees of the OASI  and DI 
Trust Funds provides the Presi-dent  and the Congress with short 
range  (10 years) and long range (75 year) actu-arial  estimates of 
each trust fund. Be-cause  of the inherent uncertainty in  estimates 
for as long as 75 years into the  future, the Social Security 
Trustees use  three alternative sets of economic and  demographic 
assumptions to show a  range of possibilities. Most analysts use  
the intermediate set of assumptions to  evaluate the financial 
condition of the  Social Security program.  The 75-year estimates 
assume that fu-ture  workers (except for those working  in types of 
employment not mandato-rily  covered by the program) are cov-ered  
by Social Security once they enter  the labor force. The estimates 
reflect the  impact of the retirement of the baby  boomers, as well 
as changing demo-graphics  (e. g. an increase in life expec-tancy  
and a decline in the birth rate).  For example, in 1960, 5 workers 
paid  for every beneficiary. Today, the ratio  of workers to 
beneficiaries is 3.3 to 1  and 30 years from now, when the baby  
boom generation retires, it will drop to  2 to 1. The retirement 
component of  
 
the program is financed largely on a  "pay-as-you-go" basis, i. e., 
current retire-ment  benefits are largely financed by  current 
payroll contributions.  
 
Under current legislation and using  intermediate assumptions, the 
Trustees  estimated in their 1997 report that by  2012 cash 
disbursements for the pro-grams  will exceed cash receipts and by  
 
"The Administration intends to work with  Congress on a bipartisan 
basis to enact long-term  Social Security reform in 1999."  
 
8 Discussion and Analysis  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  15  
 
15 
 Page 16 17 
 
2029 the combined trust funds assets,  primarily investments in 
Treasury secu-rities,  will likely be exhausted. With no  change in 
the program, in 2012 the trust  funds are expected to begin using 
inter-est  on their investments to cover the  cash shortfall and to 
pay benefits. Start-ing  in 2019, they would begin redeem-ing  their 
investments in Treasury  securities to provide the needed cash. In  
2029 trust fund assets would be ex-hausted;  at that time, tax 
revenues  would be sufficient to pay approxi-mately  75 percent of 
the benefits due. In  these consolidated financial statements  
(which eliminate intragovernmental as-sets  and liabilities), the 
OASDI cash  shortfall would result in a decrease in  cash and/ or an 
increase in amounts bor-rowed  from the public.  After a year of 
public discussion in  1998, the Administration intends to  work with 
Congress on a bipartisan ba-sis  to enact long-term Social Security 
re-form  in 1999. Acting sooner rather than  later to address the 
long-term financing  needs of the program will make the re-quired  
changes less disruptive and en-sure  that Social Security works as 
well  for future generations as it has for past  generations. 
Additional information  about the Social Security program can  be 
found in the stewardship section of  these financial statements.  
 
Financial condition of the medicare  trust funds  
 
Two trust funds have been estab-lished  to finance the Medicare 
program.  The Medicare Part A Hospital Insur-ance  (HI) Trust Fund 
is financed by a  2.9 percent tax on wages and salaries re-quired  
to be paid equally by employees  
 
and employers. The Medicare Part B  Supplementary Medical Insurance 
(SMI)  Trust Fund receives premium payments  on behalf of Medicare 
beneficiaries who  
 
have elected coverage. These premiums  covered approximately 25 
percent of  the fund's costs in fiscal 1997. The re-mainder  of the 
costs is funded by Con-gressional  appropriations.  
 
The 1997 trustee's report projected  that the HI trust funds' assets 
were ex-pected  to be depleted by 2001. How-ever,  the Balanced 
Budget Act of 1997,  which was enacted after the trustee's re-port  
was issued, contained provisions  that reduce the growth of the 
programs'  costs. As a result of the Balanced Budget  Act of 1997, 
the HI trust fund assets are  not expected to be depleted until 
2010.  That legislation also established a bipar-tisan  commission 
to assess and recom-mend  structural changes to ensure  Medicare's 
long term viability. The  Commission is required to issue its re-
port  by March 1999. The accompanying  chart presents the end of 
year HI trust  fund balances. Additional information  about the 
Medicare program can be  found in the stewardship section of  these 
financial statements.  
 
Other commitments  The Federal Government has signifi-cant  
commitments associated with Fed-eral  insurance and loan programs. 
These  programs include bank deposit insur-ance,  national flood 
insurance, federal  crop insurance, and a range of other in-surance  
commitments that total over  $2,774 billion. In addition, the U. S.  
Government has guaranteed a substan-tial  portion of this country's 
housing,  agriculture and education loans. Al-though  the face value 
of these guaran- 
 
"The Federal Government has  significant commitments associated with 
Federal  insurance and loan programs."  
 
Discussion and Analysis 9  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  16  
 
16 
 Page 17 18 
 
tees was in excess of $712 billion as of  September 30, 1997. The 
amounts re-ported  for insurance and loan commit-ments  represent 
the most conservative  possible assumptions of maximum risk  
exposure. These amounts are not future  claims on Federal resources. 
However,  the risk of future outlays associated  with such 
commitments could be sub-stantial.  Additional details about the  U. 
S. Government's future commit-ments  are presented in the notes to 
the  financial statements.  
 
Management initiatives Since passage of the CFOs Act in  1990 and 
its expansion in 1994, much  has been accomplished. There is now a  
comprehensive set of generally accepted  accounting standards in 
place. For the  first time in its history, the U. S. Govern-ment  
has prepared and subjected to  audit consolidated financial 
statements  covering all its vast and complex pro-grams  and 
activities.  The 24 agencies sub-ject  to the CFOs Act  are issuing 
audited  agency-wide finan-cial  statements. Gov-ernment  
 
corporations subject  to the Government  Corporation and  Control 
Act also are  issuing audited finan-cial  statements. While these 
accomplish-ments  are significant, they are just a be-ginning.  
 
The Administration has designated fi-nancial  management as one of 
the Presi-dent's  priority management objectives.  The 
Administration has expressed its  commitment to assuring the 
integrity of  Federal financial information and gain-ing  an 
unqualified opinion on the 1999  
 
Consolidated Financial Statements  of the U. S. Government. For the 
Ad-ministration  to achieve these objectives,  agencies must improve 
the quality of  their financial information.  
 
Reflecting the further progress that  is needed to produce reliable 
financial  statements, auditors were unable to ren-der  an opinion 
on the consolidated fi-nancial  statements of the U. S.  Government 
because accurate informa-tion  about the amount and value of cer- 
 
tain assets, liabilities, and costs was lack-ing.  Actions to 
correct these weaknesses  have been identified and are being imple-
mented.  For example, plans at Defense  include completing a new 
accounting  systems architecture, reviewing inven-tory  accounting 
processes, and develop-ing  a department wide property  
accountability system. OMB, Treasury,  and GAO are working with the 
major  credit agencies to improve reporting of  loans and loan 
guarantees.  In addition, Treasury plans to step  up its efforts 
with agencies' to ensure ef-fective  cash disbursement reconcili-
ations  by providing frequent analysis of  cash reciept and 
disbursement differ-ences  so that they can be promptly re-solved.  
 
Treasury and OMB are coordinating  efforts to resolve the problems 
agencies  are having in eliminating transactions  between Federal 
agencies. Treasury and  OMB will strengthen guidance and re-
quirements  for  agencies to capture  information needed  to 
reconcile bal-ances  with their  Federal trading  partners. Treasury  
will also begin the  modification of its  systems to support  agency 
efforts.  In an effort to  determine the full extent of improper  
payments that occur in major Federal  programs, the OMB is working 
with  the GAO, Inspectors General and af-fected  Federal agencies in 
identifying at  risk programs and designing a cost effec-tive  
approach to assessing the extent of  improper payments and 
appropriate re-mediation  measures. Audits of Federal  programs 
pursuant to the Single Audit  Act Amendments of 1996 and OMB Cir-
cular  A-133, "Audits of States, Local  governments, and Non-Profit 
Organiza-tions,"  will be the principal mechanism  for assessing the 
extent of improper pay-ments.  
 
Finally, Treasury will increase its for-mal  and informal training 
of agency fi-nancial  management personnel. The  training will 
address common errors  identified in agency information used in  the 
preparation of the U. S. Govern- 
 
"The Administration has designated financial  management as one of 
the President's priority  management objectives."  
 
10 Discussion and Analysis  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  17  
 
17 
 Page 18 19 
 
ment's 1997 consolidated financial state-ments.  Year 2000 
Conversion  The Year 2000 problem presents the  most sweeping and 
urgent information  technology challenge faced by public  and 
private organiza-tions  since the begin-ning  of the informa-tion  
technology era.  For the past several  decades, informa-tion  
systems have  typically used two  digits to represent  the year, 
such as  "98" for 1998, in or-der  to conserve elec-tronic  data and  
storage space and re-duce  operating  costs. In this format,  2000 
is indistinguishable from 1900 be-cause  both are represented as 
"00". As a  result, if not modified, computer sys-tems  or 
applications that use dates or  perform date/ time sensitive 
calculations  may generate incorrect results beyond  1999.  The 
Administration has devoted a  great deal of time and attention to 
this  issue. OMB requires Federal agencies to  report quarterly on 
their progress in ad-dressing  the issue of year 2000 conver-sion.  
More recently, the President has  established a council on Year 2000 
Con-version  led by an Assistant to the Presi-dent.  This person 
will oversee Federal  preparations, speak for the United  States in 
national and international fo-rums,  and coordinate with governments  
at all levels.  
 
The U. S. Government's strategy for  resolving the Year 2000 problem 
has  five phases: awareness, assessment, reno-vation,  validation, 
and implementation.  The milestone for completion of work  for the 
renovation phase is targeted for  September 1998. Other milestones 
are  January 1999 for  validation and  March 1999 for im-
plementation.  Prior-ity  is being given to  the 7,850 "mission  
critical" systems. As  of February 15,  1998, OMB esti-mated  that 
35 per-cent  have been  fixed, about 45 per-cent  still need to be  
repaired, 15 percent  will be replaced and  5 percent will be re-
tired.  OMB is monitoring agency pro-gress  and taking actions 
necessary to en-sure  milestones are met. The latest cost  estimate 
for corrective actions, provided  by agencies to OMB, is nearly $5 
billion.  
 
Additional Information  Additional details about the informa-tion  
contained in these financial state-ments  can be found in the 
financial  statements of the individual agencies  listed in the 
Appendix. In addition, re-lated  U. S. Government publications  such 
as the "Budget of the United States  Government', the "Treasury 
Bulletin,"  the "Monthly Treasury Statement of Re-ceipts  and 
Outlays of the United States  Government," and the Trustee's reports  
for the Social Security and Medicare pro-grams  may be of interest.  
 
"The Year 2000 problem presents the most  sweeping and urgent 
information technology  challenge faced by public and private 
organizations  since the beginning of the information  technology 
era."  
 
Discussion and Analysis 11  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  18  
 
18 
 Page 19 20 
 
12 Discussion and Analysis  Consolidated Financial Statements of the 
United States Government, Fiscal 1997  19  
 
19 
 Page 20 21 
 
Comptroller General  of the United States  
 
Washington, D. C. 20548  
 
B-279169  March 31, 1998  The President  The President of the Senate  
The Speaker of the House of Representatives  
 
The Chief Financial Officers (CFO) Act, as expanded by the 
Government  Management Reform Act, mandates important reforms in 
federal financial  management to promote greater accountability in 
managing the finances of our  national government. Among these 
reforms are requirements for the preparation  and audit of 
individual financial statements for the federal government's 24 
largest  departments and agencies and the annual submission of 
consolidated financial  statements for the U. S. government. GAO is 
required to audit the consolidated  statements, and our first report 
is enclosed.  
 
These reforms are leading to marked improvements in federal 
financial  management. Several major agencies have made good 
progress in producing more  reliable financial information about 
their operations. However, as outlined in our  report, improvements 
in other areas of government financial operations have yet to  be 
made and critical governmentwide accounting issues still need to be 
addressed.  The federal government can achieve the fiscal 
accountability called for by the CFO  Act, but strong leadership, 
commitment, and additional concerted effort will be  necessary.  
 
We appreciate the cooperation and assistance we received from the 
Chief Financial  Officers and Inspectors General throughout 
government, as well as Department of  Treasury and Office of 
Management and Budget officials, in carrying out our  responsibility 
to audit the government's consolidated financial statements. We look  
forward to continuing to work with these officials to achieve the 
CFO Act's  financial management reform goals.  
 
James F. Hinchman  Acting Comptroller General  of the United States  
 
General Accounting Office Report 13  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  20  
 
20 
 Page 21 22 
 
United States  General Accounting Office  Washington, D. C. 20548  
 
Accounting and Information  Management Division  
 
B-279169  The President  The President of the Senate  The Speaker of 
the House of Representatives  
 
The Chief Financial Officers Act, as expanded by the Government 
Management Reform  Act, requires the Secretary of the Treasury, in 
coordination with the Director of the Office  of Management and 
Budget, to annually submit to the President and the Congress audited  
consolidated financial statements of the U. S. government beginning 
with those for fiscal  year 1997. GAO is required to audit these 
statements.  
 
In summary, significant financial systems weaknesses, problems with 
fundamental  recordkeeping, incomplete documentation, and weak 
internal controls, including  computer controls, prevent 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 and effectively and efficiently manage its operations. 
Major problems included  the federal government's inability to  
 
properly account for and report billions of dollars of property, 
equipment, materials,  and supplies;  
 
properly estimate the cost of most federal credit programs and the 
related loans  receivable and loan guarantee liabilities;  
 
estimate and report material amounts of environmental and disposal 
liabilities and  related costs;  
 
determine the proper amount of various reported liabilities, 
including postretirement  health benefits for military and federal 
civilian employees, veterans compensation  benefits, accounts 
payable, and other liabilities;  
 
accurately report major portions of the net costs of government 
operations;  determine the full extent of improper payments that 
occur in major programs and that  are estimated to involve billions 
of dollars annually;  
 
properly account for billions of dollars of basic transactions, 
especially those between  governmental entities;  
 
14 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  21  
 
21 
 Page 22 23 
 
ensure that the information in the consolidated financial statements 
is consistent  with agencies' financial statements;  
 
ensure that all disbursements are properly recorded; and  
effectively reconcile the change in net position reported in the 
financial  statements with budget results.  
 
Such deficiencies prevented us from being able to form an opinion on 
the  reliability of the accompanying financial statements. 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. Additionally, (1) serious computer control weaknesses 
expose the  government's financial information to inappropriate 
disclosure, destruction,  modification, or fraud and (2) material 
control weaknesses affect the government's  tax collection 
activities. Further, tests for compliance with selected provisions 
of  laws and regulations related to financial reporting disclosed 
material instances of  noncompliance discussed later in this report.  
 
Our audit of the federal government's consolidated financial 
statements and the  Inspectors General (IG) audits of major 
component agencies' financial statements  for fiscal year 1997 have 
resulted in (1) an identification and analysis of  deficiencies in 
the government's recordkeeping and control systems and (2)  
recommendations to correct them. 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.  
 
Considerable effort is already underway to make such improvements. 
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. 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 underway.  
 
This report provides our (1) disclaimer of opinion on the 
government's fiscal year  1997 consolidated financial statements, 
(2) report on internal controls, and (3)  report on compliance with 
selected provisions of laws and regulations related to  financial 
reporting. It also presents information on (1) the Year 2000 
computing  problem, (2) issues affecting the government's long-term 
financial condition, and  (3) actions underway to improve financial 
reporting across the federal government.  The objectives, scope, and 
methodology of our work are discussed in the appendix  
 
B-279169  General Accounting Office Report 15  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  22  
 
22 
 Page 23 24 
 
to this report. We provided a draft of this report to senior 
Department of the Treasury  and Office of Management and Budget 
(OMB) officials, who expressed their  commitment to address the 
deficiencies this report outlines. Our work was done in  accordance 
with generally accepted government auditing standards.  
 
DISCLAIMER OF OPINION  Because we were unable to determine the 
reliability of significant portions of the  accompanying 
consolidated financial statements for the reasons described above, 
we  are unable to, and we do not, express an opinion on the 
accompanying consolidated  financial statements for fiscal year 
1997. However, we were able to determine that  amounts reported for 
environmental and disposal liabilities and liabilities for veterans  
compensation benefits are understated by material amounts.  
 
Additionally, certain agencies have not, at this date, finalized 
their individual financial  statements for fiscal year 1997. It is 
possible that additional recordkeeping and auditing  procedures will 
result in changes in those agency statements. Based on the audit  
procedures we have performed, we are satisfied that any such changes 
will not  significantly affect our findings and conclusions in this 
report.  
 
Because of the government's serious systems, recordkeeping, 
documentation, and  control deficiencies, amounts reported in the 
consolidated financial statements and  related notes do not provide 
a reliable source of information for decision-making by the  
government or the public. These deficiencies also diminish the 
reliability of any  information contained in the accompanying 
Management's Discussion and Analysis  and any other financial 
management information including budget information and  information 
used to manage the government day-to-day which is taken from the 
same  data sources as the consolidated financial statements.  
 
Material Deficiencies  The following sections describe material 
deficiencies we identified and discuss their  effect on the 
financial statements and the management of government operations.  
 
Property, Plant and Equipment and Inventories and Related Property 
The federal  government one of the world's largest holders of 
physical assets does not have  accurate information about the amount 
of assets held to support its domestic and global  operations. 
Hundreds of billions of dollars of the more than $1.2 trillion of 
these  reported assets are not adequately supported by financial 
and/ or logistical records.  These include (1) operating materials 
and supplies comprised largely of ammunition,  defense repairable 
items (such as navigational computers, landing gear, and  
transmissions), and other military supplies and (2) buildings, 
military equipment, and  various government-owned assets in the 
hands of private sector contractors.  
 
B-279169  16 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  23  
 
23 
 Page 24 25 
 
Because the government does not have complete and reliable 
information to support its  asset holdings, it could not 
satisfactorily verify the existence of all reported assets,  
substantiate the amounts at which they were valued, or determine 
whether all of its  assets were included in its financial 
statements. For example, certain recorded military  property had, in 
fact, been sold or disposed of in prior years or could not be  
located and an estimated $9 billion of known military operating 
materials and  supplies were not reported. These problems impair the 
government's ability to (1)  know the location and condition of all 
its assets, including those used for military  deployment, (2) 
safeguard them from physical deterioration, theft, or loss, (3) 
prevent  unnecessary storage and maintenance costs or purchase of 
assets already on hand, and  (4) determine the full costs of 
government programs that use the assets.  
 
Loans Receivable and Loan Guarantee Liabilities Most federal credit 
agencies  responsible for federal lending programs were unable to 
properly report the cost of  these programs. Federal credit programs 
include direct loans and loan guarantees for  farms, rural 
utilities, low and moderate income housing, small business, 
veterans'  mortgages, and student loans. As of the end of fiscal 
year 1997, the government  reported $156 billion of loans receivable 
and $37 billion of liabilities for estimated  losses on defaulted 
guaranteed loans. However, the net loan amounts expected to be  
collected and guarantee amounts expected to be paid could not be 
reasonably estimated  because of a lack of historical data or other 
evidence. In addition, some agencies did  not have adequate 
information to support the validity of their outstanding direct 
loans  or to track the specific loans that they have an obligation 
to guarantee. Until federal  credit agencies correct these serious 
data deficiencies, information supplied by them  about the cost of 
their credit programs, including information to support annual 
budget  requests for these programs, should be used with caution in 
making future budgetary  decisions, managing program costs, and 
measuring the performance of credit activities.  
 
Environmental Liabilities Liabilities for disposal of hazardous 
waste and  remediation of environmental contamination, reported at 
$212 billion, were materially  understated primarily because an 
estimate has not been developed for major weapons  systems, such as 
aircraft, missiles, ships and submarines, and for ammunition. 
Properly  stating these liabilities could assist in determining 
priorities for cleanup activities and  allow for appropriate 
consideration of future budgetary resources needed to carry out  
these activities.  
 
Liabilities The systems and data were not available to accurately 
estimate  significant portions of the more than $2.2 trillion 
reported as federal employee and  veterans benefits liabilities. For 
example, to estimate the $218 billion reported as  military 
postretirement health benefit liabilities, the government used 
unaudited budget  information because the necessary cost data were 
not available. Also, the federal  government cannot provide adequate 
assurance about the reliability of historical claim  information at 
the insurance carrier-level used to estimate the $159 billion 
reported for  
 
B-279169  General Accounting Office Report 17  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  24  
 
24 
 Page 25 26 
 
civilian postretirement health benefit liabilities. Additionally, 
the estimated liability  for veterans compensation benefits is 
materially understated because it does not  include estimates for 
anticipated changes in disability ratings and for incurred  claims 
not yet reported. In addition, some agencies do not maintain 
adequate  records and controls or have systems to ensure the 
accuracy and completeness of  data used to calculate estimates of a 
reported $98 billion of accounts payable and a  reported $169 
billion of other liabilities such as those for litigation.  
 
These problems significantly affect the determination of the full 
cost of the  government's current operations, as well as the extent 
of actual liabilities. Further,  commitments and contingencies were 
not properly reported because many amounts  represent the maximum 
risk exposure rather than the amount of loss that is  reasonably 
possible and certain commitments are not reported.  
 
Costs of Government Operations The government was unable to support 

significant portions of the more than $1.6 trillion reported as the 
total net costs of  government operations. The previously discussed 
material deficiencies in reporting  assets and liabilities and the 
lack of effective reconciliations, as discussed below,  also affect 
reported net costs. Further, we were unable to determine whether the  
amounts reported in the individual net cost categories reported in 
the Statement of  Net Cost and in the subfunction detail following 
the statement were properly  classified. Without accurate cost 
information, the federal government is limited in  its ability to 
control and reduce costs, assess performance, evaluate programs, and  
set fees to recover costs where required.  
 
The government is also unable to determine the full extent of 
improper  payments that is, payments made for other than valid, 
authorized purposes. In this  regard, estimates of improper payments 
in major federal programs, such as  Medicare, total in the billions 
of dollars annually. The full extent of such payments,  however, is 
unknown because many agencies have not estimated the magnitude of  
improper payments in their programs. The reasons for improper 
payments range  from mistakes to fraud and abuse. Such payments are 
likely to continue until  agencies implement better systems and 
controls.  
 
Unreconciled Transactions To make the consolidated financial 
statements  balance, Treasury recorded a net $12 billion item on the 
Statement of Changes in  Net Position, which it labeled unreconciled 
transactions. This out-of-balance  amount is the net of more than 
$100 billion of unreconciled transactions both  positive and 
negative amounts which Treasury attributes to the government's  
inability to properly identify and eliminate transactions between 
federal  government entities and to agency adjustments that affected 
net position.  
 
B-279169  18 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  25  
 
25 
 Page 26 27 
 
Agencies' accounts can be out of balance with each other, for 
example, when one or the  other of the affected agencies does not 
properly record a transaction with another agency  or the agencies 
record the transactions in different time periods. These out-of-
balance  conditions can be detected and corrected by instituting 
procedures for reconciling  transactions between agencies. 
Generally, such reconciliations are not performed. These  
unreconciled transactions result in material misstatements of 
assets, liabilities, revenues,  and/ or costs.  
 
Preparation of Consolidated Financial Statements The federal 
government cannot  ensure that the information in the consolidated 
financial statements is consistent with  agency financial 
statements. Treasury relies on agencies to submit data needed to 
prepare  the federal government's consolidated financial statements. 
Such data consists of  approximately 2,000 individual reporting 
components, each having many account  balances. However, several 
agencies were unable to provide assurance that amounts  submitted to 
Treasury agreed with their agency financial statements. In addition, 
many  agencies needed to make significant subsequent adjustments to 
their submissions in an  effort to properly classify amounts in the 
consolidated financial statements. We found  further misstatements, 
which Treasury corrected, totalling several hundred billion dollars  
in agency-submitted information primarily because (1) agencies 
submitted incorrectly  coded financial data that contributed to the 
unreconciled transactions described above, (2)  agencies recorded 
similar transactions in different general ledger accounts, and (3) 
certain  amounts were materially misallocated to net cost 
categories.  
 
These problems are compounded by the substantial volume of 
information submitted,  limitations in the federal government's 
current general ledger account structure, and the  significant 
amount of other information that Treasury must gather to prepare the  
consolidated financial statements. As a result, additional 
misstatements in the  government's consolidated financial statements 
could exist.  
 
Cash Disbursement Activity Several major agencies are not 
effectively reconciling  disbursements. These reconciliations are a 
key control similar in concept to individuals  reconciling personal 
checkbooks with a bank's records each month. However, there were  
(1) billions of dollars of unresolved gross differences between 
agencies' and Treasury  records of cash disbursements as of the end 
of fiscal year 1997 and (2) large amounts of  unresolved differences 
arbitrarily written off by some agencies without adequately  
determining whether their records may, in fact, have been correct. 
As a result, the  government is unable to ensure that all 
disbursements are properly recorded. Therefore,  its financial 
statements could contain significant misstatements.  
 
Reconciling the Change In Net Position with Budget Results The 
government did  not have a process to obtain information to 
effectively reconcile the reported change in  net position of $3 
billion and the reported budget deficit of $22 billion. The 
reconciling  items comprising the difference are typically the 
result of timing differences in the  
 
B-279169  General Accounting Office Report 19  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  26  
 
26 
 Page 27 28 
 
recognition and measurement of revenue and costs. Under budgetary 
accounting, the  budget deficit reflects outlays and receipts that 
generally are measured on a cash basis.  For financial statement 
reporting purposes, costs are reported when incurred rather  than 
when paid. Federal decisionmakers use budgetary accounting to 
control the use  of funds and for fiscal planning. Once the federal 
government produces reliable  consolidated financial statements, an 
effective reconciliation would provide additional  assurance of the 
reliability of budget results.  
 
MATERIAL CONTROL WEAKNESSES  While the purpose of our work was not 
to express, and we do not express, an opinion  on internal controls, 
we found pervasive material weaknesses 1 in internal controls  
across government that contribute to these deficiencies. These 
weaknesses, such as the  lack of effective reconciliations and 
poorly designed systems, result in ineffective  controls over (1) 
safeguarding the federal government's assets from unauthorized  
acquisition, use, or disposition, (2) ensuring that transactions are 
executed in  accordance with laws governing the use of budget 
authority and with other relevant  laws and regulations, and (3) 
ensuring the reliability of financial statements.  
 
Individual agency financial statement audit reports describe the 
affect of such  weaknesses on specific agencies and identify 
additional internal control weaknesses,  some of which are material 
to individual agencies. We also found that (1) widespread  and 
serious computer control weaknesses affect virtually all federal 
agencies and  significantly contribute to many material deficiencies 
discussed above and (2) material  control weaknesses affect the 
government's tax collection activities. The scope of our  evaluation 
of internal controls was limited by the deficiencies noted 
throughout this  report.  
 
Computer Control Weaknesses  Widespread computer control 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. 
Significant information security  weaknesses in systems that handle 
the government's unclassified information have  been reported in 
each of the major federal agencies. The most serious reported  
problem is inadequately restricted access to sensitive data. In 
today's highly  computerized and interconnected environment, such 
weaknesses are vulnerable to  exploitation by outside intruders as 
well as authorized users with malicious intent.  
 
1 A material weakness is a condition in which the design or 
operation of one or more  of the internal control components does 
not reduce to a relatively low level the risk  that errors or 
irregularities in amounts that would be material to the financial  
statements may occur and not be detected promptly by employees in 
the normal course  of performing their duties.  
 
B-279169  20 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  27  
 
27 
 Page 28 29 
 
The consequences of computer control weaknesses could be devastating 
and  costly for instance, placing billions of dollars of payments 
and collections at risk  of fraud and impairing military operations. 
In addition to these potential  consequences at Treasury and 
Defense, identified weaknesses at agencies such as the  Department 
of Health and Human Service's Health Care Financing Administration  
and the Social Security Administration place sensitive medical and 
other personal  records at risk of disclosure.  
 
Because computer control weaknesses are pervasive across government, 
in February  1997, we added information security to our list of 
federal high-risk areas. 2 The  problem persists, in large part, 
because agency managers have not fully instituted a  framework for 
assessing risk and ensuring that necessary policies and controls are 
in  place and remain effective on an ongoing basis. Over the past 2 
years, we and the  IGs have issued more than 70 reports that 
identify computer control weaknesses in  the federal government and 
made recommendations to address them.  
 
Tax Collection Activities  The federal government has material 
weaknesses in controls related to its tax  collection activities, 
which affect its ability to efficiently and effectively account for  
and collect the government's revenue. 3 This situation requires 
extensive reliance on  ad hoc programming and analysis and material 
audit adjustments to prepare basic  financial information. For 
example, the government currently does not obtain  information 
necessary to identify tax collections by every type of tax at the 
time of  collection. As a result, the government cannot separately 
report revenue for three of  the four largest revenue sources Social 
Security, Hospital Insurance, and  individual income taxes. Because 
of this, the government had to report these three  tax types in the 
same line item on the Consolidated Statement of Changes in Net  
Position. Additionally, excise tax revenues are distributed to the 
relevant trust funds  based on assessments rather than, as required 
by the Internal Revenue Code, on  collections.  
 
2 High-Risk Series: An Overview (GAO/ HR-97-1, February 1997) and 
High-Risk  Series: Information Management and Technology (GAO/ HR-
97-9, February 1997).  
 
3 Financial Audit: Examination of IRS' Fiscal Year 1997 Custodial 
Financial  Statements (GAO/ AIMD-98-77, February 26, 1998).  
 
B-279169  General Accounting Office Report 21  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  28  
 
28 
 Page 29 30 
 
Serious weaknesses also affect the federal government's ability to 
effectively  manage its taxes receivable and other unpaid 
assessments. 4 The lack of appropriate  subsidiary systems to track 
the status of taxpayer accounts affects the government's  ability to 
make informed decisions about collection efforts. This weakness, for  
example, has resulted in the government pursuing and collecting, 
from individual  taxpayers, taxes that had already been paid. 
Additionally, the federal government is  vulnerable to loss of tax 
revenue due to weaknesses in controls over disbursements  for tax 
refunds. The government does not perform fundamental verification  
procedures to ensure the validity of amounts claimed by taxpayers as 
overpayments  prior to making disbursements for refunds. 
Consequently, it does not have effective  controls to prevent the 
inappropriate payment of refunds, increasing its exposure to  lost 
revenue.  
 
NONCOMPLIANCE WITH  LAWS AND REGULATIONS  
 
Our objective was not to, and we do not, express an opinion on 
overall compliance  with laws and regulations. Tests for compliance 
with selected provisions of laws and  regulations related to 
financial reporting disclosed that, as discussed earlier, the  
federal government makes improper payments in major programs such as 
Medicare.  Additionally, as described below, we noted material 
noncompliance related to  financial management system requirements. 
However, our work would not  necessarily disclose all material 
noncompliance. Further, the scope of our tests was  limited by the 
inability to audit the financial statements. Other instances of  
noncompliance, some of which are material to individual federal 
agencies, are  reported in the individual agency financial statement 
audit reports.  
 
The Federal Financial Management Improvement Act of 1996 requires 
auditors  performing financial audits to report whether agencies' 
financial management  systems comply substantially with federal 
accounting standards, financial systems  requirements, and the 
government's standard general ledger at the transaction level.  We 
reported in October 1997 5 that prior audit results and agency self-
reporting all  point to significant challenges that agencies must 
meet to fully implement these  requirements. The significant 
financial management deficiencies discussed  throughout this report 
underscore the challenge.  
 
4 Other unpaid assessments consist of amounts for which (1) neither 
the taxpayer nor  a court has affirmed that the amounts are owed and 
(2) the government does not  expect further collections due to 
factors such as the taxpayer's death, bankruptcy, or  insolvency.  
 
5 Financial Management: Implementation of the Federal Financial 
Management  Improvement Act of 1996 (GAO/ AIMD-98-1, October 1, 
1997).  
 
B-279169  22 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  29  
 
29 
 Page 30 31 
 
The majority of federal agencies' financial management systems are 
not designed to meet  current accounting standards and systems 
requirements and cannot provide reliable  financial information for 
managing government operations and holding managers  accountable. 
Auditors' reports for fiscal year 1997 agency financial audits are 
disclosing  the continuing poor shape in which agencies find their 
financial systems. As of the date of  this report, only four agency 
auditors have reported that their agency's financial systems  comply 
with the act's requirements.  
 
YEAR 2000 COMPUTING CRISIS  The Year 2000 computing crisis is the 
most sweeping and urgent information technology  challenge facing 
public and private sector organizations. 6 The federal government is  
extremely vulnerable due to its widespread dependence on computer 
systems to process  financial transactions and management 
information, deliver vital public services, and  carry out its 
operations. This challenge is made more difficult by the age and 
poor  documentation of the government's existing systems and its 
lackluster track record in  modernizing systems to deliver expected 
improvements and meet promised deadlines.  
 
Consequently, we surfaced the Year 2000 computing crisis as a high-
risk area across  government in February 1997. Unless this issue is 
successfully addressed, serious  consequences could occur. For 
example,  
 
payments to veterans with service-connected disabilities could be 
severely delayed if  the system that issues them either halts or 
produces checks so erroneous that it must be  shut down and checks 
processed manually;  
 
the Social Security Administration process to provide benefits to 
disabled persons  could be disrupted if interfaces with state 
systems fail;  
 
federal systems used to track student loans could produce erroneous 
information on  loan status, such as indicating that a paid loan was 
in default;  
 
Internal Revenue Service (IRS) tax systems could be unable to 
process returns, thereby  jeopardizing revenue collection and 
delaying refunds; and  
 
the military services could find it extremely difficult to 
efficiently and effectively  equip and sustain its forces around the 
world.  
 
6 For the past several decades, information systems have typically 
used two digits to  represent the year, such as "98" for 1998, in 
order to conserve electronic data storage and  reduce operating 
costs. In this format, however, 2000 is indistinguishable from 1900  
because both are represented as "00." As a result, if not modified, 
computer systems or  applications that use dates or perform date-or 
time-sensitive calculations may generate  incorrect results beyond 
1999.  
 
B-279169  General Accounting Office Report 23  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  30  
 
30 
 Page 31 32 
 
In the past year, we have issued over 20 reports outlining actions 
underway in a wide  range of federal activities to address this 
challenge and providing numerous  recommendations for additional 
improvements needed. Moreover, the President recently  created a 
Council on Year 2000 Conversion, led by an Assistant to the 
President, to  oversee federal agencies' Year 2000 efforts, speak 
for the United States in national and  international forums, and 
coordinate with governments at all levels, as well as with the  
private sector. While some progress has occurred, a great deal of 
additional effort is  required to prevent serious disruptions in 
government operations and in financial  transactions and reporting. 
7 We will continue to monitor this situation and make needed  
recommendations.  
 
FINANCIAL STATEMENT AND BUDGET DECISIONS:  ADDING THE LONG-TERM 
PERSPECTIVE  
 
When the government is able to produce them, reliable consolidated 
financial statements  will be a valuable tool for analyzing the 
government's financial condition. They will also  help inform budget 
deliberations by providing additional information beyond that  
provided in the budget on the long-term cost implications for a wide 
range of government  programs. The largely cash-based budget and the 
financial statements offer different  perspectives which, when 
combined, can provide a fuller view of the costs of agency  programs 
and of the government's commitments.  
 
A view of the long-term sustainability of fiscal policies can also 
be helpful to  decisionmakers considering the government's financial 
position and making decisions  about resource allocation. Such a 
picture requires projections of spending and revenues  into the 
future. In this context, the sovereign power to tax and the implied 
commitments  of social insurance programs such as Social Security 
and Medicare must be  considered in addition to those items that are 
quantified in the financial statements. For  example, if the 
combined Social Security trust funds' disbursements exceed receipts, 
as  currently estimated to occur in 2012, the government's financing 
needs will increase.  Since 1992, in a series of long-term 
simulations, we have analyzed various fiscal policy  alternatives 
and their long-term sustainability. 8  
 
7 Year 2000 Computing Crisis: Strong Leadership and Effective 
Public/ Private  Cooperation Needed to Avoid Major Disruptions (GAO/ 
T-AIMD-98-101). 

 
8 The most recent of these reports are Budget Issues: Long-Term 
Fiscal Outlook  (GAO/ T-AIMD/ OCE-98-83, February 25, 1998) and 
Budget Issues: Analysis of  Long-Term Fiscal Outlook (GAO/ AIMD/ 
OCE-98-19, October 22, 1997). 

 
B-279169  24 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  31  
 
31 
 Page 32 33 
 
FINANCIAL MANAGEMENT  IMPROVEMENTS UNDERWAY  
 
The executive branch recognizes the extent and severity of the 
financial management  deficiencies discussed in this report and that 
addressing them will require concerted  improvement efforts across 
government. Financial management has been designated one  of the 
President's priority management objectives, with the goal of having 
performance  and cost information in a timely, informative, and 
accurate way, consistent with federal  accounting standards. Also, 
the administration has made a commitment to complete  audits and 
gain unqualified opinions for all CFO Act agencies and the 
government as a  whole.  
 
To help achieve this goal, strategies are being established 
involving specific agencies. For  example, plans at the Department 
of Defense include completing a new accounting  systems 
architecture, reviewing inventory accounting processes, and 
developing a  departmentwide property accountability system. 
Treasury and OMB are developing plans  to improve the accuracy and 
timeliness of governmentwide accounting and reporting.  
 
OMB is also working with individual agencies to address problems 
precluding  unqualified audit opinions, which will require the 
active involvement of individual  agency IGs as well. We will 
continue to focus on financial systems and internal control  
deficiencies at particular agencies. For example, we have issued a 
series of reports 9 on  the factors to be considered and the data 
that must be available to meet accounting  standards for Defense's 
environmental and disposal liabilities. Also, we plan to further  
evaluate Defense's property and logistical systems to recommend 
additional corrective  actions to address weaknesses in accounting 
for major asset categories on the financial  statements. We are also 
working with the major credit agencies to improve reporting of  
loans and loan guarantees.  
 
9 Financial Management: Factors to Consider in Estimating 
Environmental Liabilities  for Removing Hazardous Materials in 
Nuclear Submarines and Ships  (GAO/ AIMD-97-135R, August 7, 1997), 
Financial Management: DOD's Liability for  Aircraft Disposal Can Be 
Estimated (GAO/ AIMD-98-9, November 20, 1997), Financial  
Management: DOD's Liability for the Disposal of Conventional 
Ammunition Can Be  Estimated (GAO/ AIMD-98-32, December 19, 1997), 
and Financial Management:  DOD's Liability for Missile Disposal Can 
Be Estimated (GAO/ AIMD-98-50R, January  7, 1998).  
 
B-279169  General Accounting Office Report 25  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  32  
 
32 
 Page 33 34 
 
B-279169  In addition, the coordinated efforts of Treasury and OMB 
will be required to identify and  provide solutions for certain 
governmentwide deficiencies, such as the inability to  properly 
identify and eliminate transactions between federal entities. We 
will continue to  provide suggestions for resolving governmentwide 
problems and to monitor progress in  overcoming them.  
 
Philip T. Calder  Chief Accountant  
 
March 20, 1998  
 
26 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  33  
 
33 
 Page 34 35 
 
OBJECTIVES, SCOPE, AND METHODOLOGY  The federal government is 
responsible for  preparing the annual consolidated financial 
statements accurately and in conformity  with the basis of 
accounting described in note 1;  
 
establishing, maintaining, and assessing the internal control 
structure to provide  reasonable assurance that the broad control 
objectives of the Federal Managers'  Financial Integrity Act 10 are 
met, which include (1) safeguarding assets against loss  from 
unauthorized acquisition, use, or disposition, (2) ensuring the 
execution of  transactions in accordance with laws governing the use 
of budget authority and with  other laws and regulations that could 
have a direct and material effect on the  consolidated financial 
statements or that are listed in OMB's audit guidelines 11 and  
could have a material effect on the consolidated financial 
statements, and (3)  recording, processing, and summarizing 
transactions to permit the preparation of  reliable financial 
statements and to maintain accountability for assets; and  
 
complying with applicable laws and regulations.  Our objective was 
to audit the federal government's fiscal year 1997 consolidated  
financial statements.  
 
The Government Management Reform Act (GMRA) expanded on the 
requirements of the  CFO Act by requiring that the IGs of 24 major 
federal agencies annually audit  agencywide financial statements 
prepared by these agencies. 12 Our work was performed  in close 
coordination and cooperation with the IGs to achieve our joint audit 
objectives.  This work included separate GAO audits of certain 
material agency components as  discussed below. A significant 
portion of our work was performed at the Departments of  the 
Treasury, Defense, and Health and Human Services, and the Social 
Security  Administration. These agencies comprise a major portion of 
the amounts reported in the  federal government's consolidated 
financial statements. At other federal agencies, we  focused largely 
on accounts that are material to the consolidated financial 
statements. We  
 
10 The Federal Managers' Financial Integrity Act requires agency 
managers to evaluate  and report annually to the President and the 
Congress on the adequacy of their internal  controls and accounting 
systems and what is being done to correct the problems.  
 
11 OMB Bulletin 93-06, Audit Requirements for Federal Financial 
Statements, January 8,  1993.  
 
12 GMRA authorized OMB to designate agency components that also 
would receive a  financial statement audit.  
 
APPENDIX APPENDIX  General Accounting Office Report 27  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  34  
 
34 
 Page 35 36 
 
performed sufficient audit work to provide our report on the 
consolidated financial  statements, internal controls, and 
compliance with laws and regulations.  
 
We separately audited the following material agency components  We 
audited and expressed an unqualified opinion on the IRS custodial 
financial  statements for fiscal year 1997. These financial 
statements reported over $l. 6 trillion of  tax revenue, $142 
billion of tax refunds, and $28 billion of net federal taxes  
receivable. 13  
 
We audited and expressed an unqualified opinion on the Schedule of 
Federal Debt  Managed by Treasury's Bureau of the Public Debt. 14 
This schedule reported (1) $3.8  trillion of federal debt held by 
the public comprising individuals, corporations, state or  local 
governments, the Federal Reserve System, and foreign governments and 
central  banks, (2) $1.6 trillion of federal debt held by federal 
entities, such as the Social  Security trust funds, and (3) $246 
billion of interest on federal debt held by the public.  
 
We performed audit procedures on cash balances maintained and 
internal controls  over the cash receipts and disbursements 
processed by Treasury on behalf of the  federal government.  
 
We provided the results of our work at Treasury to the Treasury 
Office of Inspector  General for consideration in its audit of 
Treasury's fiscal year 1997 departmentwide  financial statements.  
 
We audited and expressed unqualified opinions on the December 31, 
1997, financial  statements of the Bank Insurance Fund and on the 
December 31, 1996, financial  statements for all of the funds 
administered by the Federal Deposit Insurance  Corporation (FDIC). 
15 We also performed additional audit procedures on FDIC's  balances 
at September 30, 1997.  
 
APPENDIX APPENDIX  
 
13 Financial Audit: Examination of IRS' Fiscal Year 1997 Custodial 
Financial Statements  (GAO/ AIMD-98-77, February 26, 1998).  
 
14 Financial Audit: Examination of the Bureau of the Public Debt's 
Fiscal Year 1997  Schedule of Federal Debt (GAO/ AIMD-98-65, 
February 27, 1998).  
 
15 Financial Audit: Bank Insurance Fund's 1997 Financial Statements 
(B-279515, March  25, 1998) and Financial Audit: Federal Deposit 
Insurance Corporation's 1996 and 1995  Financial Statements (GAO/ 
AIMD-97-111, June 30,1997).  
 
28 General Accounting Office Report  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  35  
 
35 
 Page 36 37 
 
We also made significant preparations for the fiscal year 1997 audit 
work, including the  following.  
 
At the Department of the Treasury, we conducted audits of IRS's 
financial statements  since fiscal year 1992 and conducted the 
initial financial statement audits of the U. S.  Customs Service.  
 
At the Department of Health and Human Services, we worked closely 
with the IG in  testing Medicare and Medicaid expenditures for 
fiscal year 1996, which resulted in the IG  reporting an estimated 
$23 billion of improper Medicare fee-for-service payments.  
 
At the Department of Defense, we conducted initial financial audits 
at the military  services over a period of several years. Also, 
leading up to the fiscal year 1997 audit, we  assessed progress in 
resolving weaknesses, including those related to disbursements,  
inventories, and property and equipment.  
 
At the Social Security Administration, we focused our efforts on key 
areas such as  benefit expenditures, computer controls, and 
actuarial projections. 

 
At these and other agencies, we reviewed the fiscal year 1996 
financial statement  audits performed by the IGs or their 
contractors and, for certain agencies, assisted in the  development 
of audit plans for fiscal year 1997 audits.  
 
Agency-level financial statements and audit reports for the agencies 
covered by the CFO  Act provide additional information about the 
operations of each of these entities. For  example, these audits 
have identified numerous internal control and accounting systems  
weaknesses and noncompliance, many of which are material to the 
respective agencies or  components. Further, as of the completion of 
our field work, several agencies received  unqualified opinions on 
fiscal year 1997 financial statements. These agencies are the:  
 
Social Security Administration.  National Aeronautics and Space 
Administration.  Nuclear Regulatory Commission.  Department of 
Energy.  General Services Administration.  Department of Labor.  
Small Business Administration.  Environmental Protection Agency.  
 
APPENDIX APPENDIX  General Accounting Office Report 29  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  36  
 
36 
 Page 37 38 
 
United States Government  Consolidated Financial Statements  for the 
year ended September 30, 1997  
 
Balance sheet  
 
This statement shows the operating  assets of the Government that 
were ac-quired  under fiscal 1997, and prior year  budgets; and 
which remain available as  resources to supply Government goods  and 
services in the future. It also shows  the Government's operating 
liabilities  including debt held by the public. It in-cludes  some 
liabilities that have not yet  been funded by appropriations. The  
net position shown in the statement re-flects  operating assets less 
liabilities.  
 
The balance sheet does not include  values for certain assets or 
future re-sponsibilities  under social insurance pro-grams  such as 
Social Security and  Medicare. Excluded assets include land  not 
used in general operations, natural  resources and assets held 
solely for  their historical, cultural or artistic sig-nificance.  
The balance sheet also does  not reflect the Government's power to  
tax. Deferred maintenance is not  shown this year but will be 
disclosed in  future years after agencies implement  
 
the new accounting standard requiring  such information.  The 
stewardship reporting section  provides information on the Govern-
ment's  future responsibilities for social  insurance and on the 
Government's  land not used in general operations. An  explanation 
of the nature of the social  insurance trust funds is included in  
Note 16 together with information  about the receipts, disbursements 
and  assets of the major social insurance  trust funds. The 
stewardship reporting  section will be expanded in future  years to 
disclose additional information  required by recently approved 
account-ing  standards.  The line item "commitments and  
contingencies" is displayed to inform  the reader that a note 
disclosure is pre-sented,  relating to certain existing con-ditions,  
situations or sets of  circumstances involving uncertainty as  to 
possible gain or loss. The amounts  stated there are in terms of 
maximum  theoretical risk exposure. However, it  is not likely that 
the maximum loss  will be incurred.  
 
30 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  37  
 
37 
 Page 38 39 
 
United States Government Consolidated Balance Sheet  as of September 
30, 1997  (In billions of dollars)  Assets:  Cash and other monetary 
assets (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 
92.7  Accounts receivable . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 35.2  Loans receivable 
(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . 156.2  Taxes receivable (Note 4) . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1  
Inventories and related property (Note 5) . . . . . . . . . . . . . 
. . . . . . . . . . . . 209.4  Property, plant and equipment (Note 
6). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017.0  
Other assets (Note 7) . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . 62.9  Total assets . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . 1,601.5  
 
Liabilities and net position:  Accounts payable (Note 8) . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7  
Federal debt securities held by the public (Note 9) . . . . . . . . 
. . . . . . . . . 3,768.2  Federal employee and veteran benefits 
payable (Note 10). . . . . . . . . . 2,243.7  Environmental 
liabilities (Note 11). . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . 211.7  Benefits due and payable (Note 12) . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . 77.7  Loan 
guarantee liabilities (Note 3) . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . 36.7  Other liabilities (Note 13) . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . 168.8  Total liabilities . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,604.5  
 
Commitments and contingencies (Note 14)  Net position . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . -5,003.0  Total liabilities and net position . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
1,601.5  
 
The accompanying notes are an integral part of these financial 
statements.  
 
Consolidated Financial Statements 31  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  38  
 
38 
 Page 39 40 
 
Statement of net cost  This statement shows the net cost  of 
Government operations for fiscal  1997, which is funded by taxation 
or  through Federal borrowing. The state-ment  reflects the cost 
incurred to carry  out the national priorities as deter-mined  by 
law.  
 
Cost is divided among major func-tions,  which are the same as in 
the  budget except that the allocation of  cost to the functions is 
based on ac-counting  standards. Thus, cost are re-ported  on an 
accrual basis and allocated  differently than in the budget. For ex-
ample,  the cost of pensions and retiree  health benefits are 
allocated among all  the functions that employ workers  rather than 
as a subfunction in the in-come  security function. A description  
of each of the functions and the compo-nent  of net cost for the 
activities in-cluded  in such function is located  immediately 
following the statement.  
 
The statement contains the follow-ing  three components for each 
function:  
 
The gross cost of Government opera-tions;  the revenues earned from 
the pub-lic  for goods and services; and the net  cost of Government 
operations, which is  the gross cost less the revenue earned.  
 
Gross cost  Gross cost includes the full cost of  the functions. 
These costs may be di-rectly  traced, assigned on a cause and ef-
fect  basis or reasonably allocated to the  function.  
 
Earned revenue  These are revenues that the U. S.  Government has 
earned by providing  goods and services to the public at a  price.  
 
Net cost  The net cost of Government opera-tions  is the gross cost 
less the related  revenues.  
 
32 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  39  
 
39 
 Page 40 41 
 
United States Government Consolidated Statement of Net Cost  for the 
year ended September 30, 1997  (In billions of dollars) Gross cost 
Earned revenue Net cost  National defense . . . . . . . . . . . . . 
. . . . . . . . . . . . 251.9 18.4 233.5  Human resources:  
Education, training, employment and social services. . . . . . . . . 
. . . . . . . . . . . . . . 46.6 2.2 44.4  
 
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . 125.5 1.2 124.3  Medicare . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . 207.7 20.5 187.2  Income security. . . 
. . . . . . . . . . . . . . . . . . . . . . . . 187.9 8.8 179.1  
Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . 364.1 -364.1  Veterans benefits and services. . . . . . . . . . 
. . . . 36.1 2.2 33.9  Total human resources . . . . . . . . . . . . 
. . . . . . . 967.9 34.9 933.0  
 
Physical resources:  Energy. . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . 18.0 12.8 5.2  National resources and 
environment . . . . . . . . 29.1 1.9 27.2  Commerce and housing 
credit . . . . . . . . . . . . . 86.7 72.4 14.3  Transportation . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 2.4 35.0  
Community and regional development . . . . . . 12.2 1.9 10.3  Total 
physical resources . . . . . . . . . . . . . . . . . . 183.4 91.4 
92.0  
 
Net interest:  Treasury securities held by the public . . . . . . . 
246.1 -. 0 246.1  
 
Other functions:  International affairs. . . . . . . . . . . . . . . 
. . . . . . . . . 24.8 5.3 19.5  General science, space and 
technology. . . . . 16.8 0.1 16.7  Agriculture . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . 15.1 2.5 12.6  
Administration of justice. . . . . . . . . . . . . . . . . . . . 
27.1 1.9 25.2  General government . . . . . . . . . . . . . . . . . 
. . . . . 28.0 3.3 24.7  Total other functions . . . . . . . . . . . 
. . . . . . . . . . 111.8 13.1 98.7  
 
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . 1,761.1 157.8 1,603.3  The accompanying notes are an 
integral part of these financial statements.  
 
Consolidated Financial Statements 33  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  40  
 
40 
 Page 41 42 
 
Net cost functional classification  The statement of net cost 
presents  information about the cost of the Gov-ernment's  major 
functions. The objec-tives  of each of the functions are  described 
below.  
 
National defense The cost of national defense in-cludes  
 
the costs for providing military  forces to (1) deter war; (2) be 
prepared  to engage in war; and (3) preserve the  peace and security 
of the United States,  the Territories, Commonwealth, its pos-
sessions  and any area occupied by the  United States. Such costs 
also include  training, equipping and compensating  the armed 
forces; developing, acquir-ing,  utilizing and disposing of weapon  
systems; conducting research and devel-opment  to maintain 
technological supe-riority  over potential adversaries, and  
improving cost and performance of  weapon systems; and other defense 
re-lated  activities.  
 
National defense includes changes in  estimated environmental 
liabilities. The  revised estimates resulted in a net de-crease  of 
$47.7 billion in environ-mental  liabilities during fiscal 1997.  
The accompanying table depicts the  changes in estimate by category.  
 
Human resources  
 
Education, training, employment  and social services  
 
The objectives of the education,  training, employment and social 
serv-ices  function are to promote the exten-sion  of knowledge and 
skills, enhance  employment and employment opportu-nities,  protect 
workplace standards and  provide services to the needy.  
 
Health  The cost of health is for promoting  physical and mental 
health, including  the prevention of illness and accidents,  and the 
Medicaid program. The Medi-care  program is the largest Federal  
health program, but by law it is in a  separate subfunction for 
budget pur-poses.  Also excluded from the health  subfunction is 
Federal health care for  military personnel and veterans.  
 
Medicare  Medicare is composed of Federal  hospital insurance and 
Federal supple-mentary  medical insurance. This func-tion  is not 
further subdivided into  subfunctions. For more information on  
Medicare, see the note on stewardship  
 
Changes to fiscal 1996 estimates  (In billions of dollars)  
 
Environmental management and  legacy wastes . . . . . . . . . 43.3  
Pipeline facilities . . . . . . . . . 2.7  Active facilities . . . . 
. . . . . . 1.4  High-level waste and spent nuclear fuel . . . . . . 
. -0.1  
 
Other changes in estimates . . . . . . . . . . . . 0.4  Total 
changes in estimates . . . . . . . . . . . . 47.7  
 
Education, training, employment and social services  (In billions of 
dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Elementary, 
secondary and vocational education . . . . . . . . . . . . . 14.5 -
14.5  
 
Higher education . . . . . . . . . . . . . . . . . . 7.1 2.2 4.9  
Research and general education aids . . . . . . . . . . . . . . . . 
. . . 1.9 -1.9  
 
Training and employment . . . . . . . . . . . 4.9 -4.9  Other labor 
services . . . . . . . . . . . . . . . . 0.9 -0.9  Social services . 
. . . . . . . . . . . . . . . . . . . . 16.3 -16.3  Cost not 
allocated to subfunctions . . . 1.0 -. 0 1.0  Total education, 
training, employment and social services . . 46.6 2.2 44.4  
 
34 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  41  
 
41 
 Page 42 43 
 
responsibility in the stewardship report-ing  section and Note 16.  
 
Income security  This includes the cost of providing  payments to 
persons for whom no cur-rent  service is rendered. Included are  
disability, unemployment, welfare and  similar programs, except for 
Social Se-curity  and income security for veter-ans.  Also included 
are (1) the food  stamp, special milk and child nutrition  programs; 
(2) unemployment compensa-tion  and workers' compensation;  (3) 
public assistance cash payments; (4)  
 
benefits to the elderly and to coal min-ers;  and (5) low-and 
moderate-income  housing benefits. The cost of Federal  pensions and 
retiree health benefits are  allocated to other functions.  
 
Social Security  The cost of Social Security is for  payments to 
eligible beneficiaries of the  Old Age and Survivors Insurance and  
Disability Insurance programs, which  are collectively referred to 
as "Social Se-curity."  The Social Security program is  
 
Health  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Health care 
services . . . . . . . . . . . . . . . . 120.8 4.5 116.3  Health 
research and training . . . . . . . . 2.6 0.7 1.9  Consumer and 
occupational health and safety. . . . . . . . . . . . . . . . . 2.0 
0.1 1.9  
 
Cost not allocated to subfunctions . . . 0.1 -4.1 4.2  Total health 
. . . . . . . . . . . . . . . . . . . . . . 125.5 1.2 124.3  
 
Income security  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Unemployment 
compensation. . . . . . . 24.4 1.2 23.2  Housing assistance . . . . 
. . . . . . . . . . . . . 27.4 -27.4  Food and nutritional 
assistance . . . . . . 36.4 -36.4  General retirement and disability 
insurance. . . . . . . . . . . . . . . . 15.5 3.5 12.0  
 
Other income security . . . . . . . . . . . . . . 73.2 2.9 70.3  
Cost not allocated to subfunctions . . . 11.0 1.2 9.8  Total income 
security . . . . . . . . . . . . . 187.9 8.8 179.1  
 
Veterans benefits and services  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Income security for 
veterans. . . . . . . . . 8.3 0.9 7.4  Veterans education, training 
and rehabilitation . . . . . . . . . . . . . . . . 1.8 -1.8  
 
Hospital and medical care for veterans . . . . . . . . . . . . . . . 
. . . . . . . . . 16.3 0.5 15.8  Veterans housing . . . . . . . . . 
. . . . . . . . . 0.5 0.6 -0.1  Other veterans benefits and services 
. 1.6 0.2 1.4  Cost not allocated to subfunctions . . . 7.6 -. 0 7.6  
Total veterans benefits and services . . . . . . . . . . . . . . . . 
. . . 36.1 2.2 33.9  
 
Consolidated Financial Statements 35  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  42  
 
42 
 Page 43 44 
 
the single largest Federal program and  is funded primarily by 
payroll taxes.  For more information on Social Se-curity,  see the 
note on stewardship re-sponsibility  in the stewardship  reporting 
section and Note 16.  
 
Veterans benefits and services  These programs provide benefits  and 
services, the eligibility for which is  related to prior military 
service. In-cluded  are veteran's compensation, life  insurance, 
pensions, burial benefits, edu-cation,  training, medical care, 
veterans  housing and administrative expenses of  the Department of 
Veterans Affairs.  
 
Physical resources  
 
Energy  The objective is to promote an ade-quate  supply and 
appropriate use of en-ergy  to serve the needs of the economy.  
 
Natural resources and environment  These costs are incurred for 
develop-ing,  managing and maintaining the na-tion's  natural 
resources and  
 
environment. Excluded are the cost for  community water supply 
programs, ba-sic  sewer systems and waste treatment  plants, all of 
which are part of commu-nity  or regional development programs.  
 
Commerce and housing credit  These costs relate to the promotion  
and regulation of commerce, housing,  and deposit insurance 
industries, which  pertain to (1) collection and dissemina-tion  of 
social and economic data; (2)  general purpose subsidies to business  
and individuals including credit subsi-dies  to housing; and (3) the 
Postal Serv-ice  fund.  
 
Transportation  Most of these costs relate to grants  to States and 
others for local or na-tional  transportation of passengers and  
property. These costs include: (1) con-struction  of facilities; (2) 
purchase of  equipment; (3) research, testing and  evaluation; and 
(4) operating subsidies  for transportation facilities (such as air-
ports  and railroads).  
 
Energy  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Energy supply . . . 
. . . . . . . . . . . . . . . . . . 15.4 11.8 3.6  Energy 
conservation. . . . . . . . . . . . . . . . 0.5 -0.5  Emergency 
energy preparedness . . . . 0.2 0.3 -0.1  Energy information, policy 
and regulation . . . . . . . . . . . . . . . . . . . . . . . 0.7 -
0.7  
 
Cost not allocated to subfunctions . . . 1.2 0.7 0.5  Total energy . 
. . . . . . . . . . . . . . . . . . . . 18.0 12.8 5.2  
 
Natural resources and environment  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Water resources . . 
. . . . . . . . . . . . . . . . . 6.8 0.1 6.7  Conservation and land 
management 6.1 0.9 5.2  Recreational resources . . . . . . . . . . . 
. . 2.6 0.2 2.4  Pollution control and abatement . . . . . 6.8 0.3 
6.5  Other natural resources . . . . . . . . . . . . . 2.5 0.2 2.3  
Cost not allocated to subfunctions . . . 4.3 0.2 4.1  Total natural 
resources and environment. . . . . . . . . . . . . . . . . . . . 
29.1 1.9 27.2  
 
36 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  43  
 
43 
 Page 44 45 
 
Community and regional  development  
 
These costs relate to the develop-ment  of physical facilities or 
financial  infrastructures designed to promote vi-able  community 
economies. Transporta-tion  facilities developed as integral  parts 
of community development pro-grams  are also included. Aid to busi-
nesses  is not usually included in this  function unless such aid 
promotes the  economic development of depressed ar-eas  and is not 
designed to promote par-ticular  lines of business for their own  
sake.  
 
Net interest Interest costs are primarily the  amounts accrued on 
Treasury securities  held by the public. Interest payments  
 
on these securities are made by the  Treasury's Bureau of Public 
Debt.  
 
Other functions  International affairs  This function includes the 
cost of  maintaining peaceful relations, com-merce  and travel 
between the United  States and the rest of the world, and  promoting 
international security and  economic development abroad.  
 
General science, space and  technology  
 
This function includes the research  conducted by the National 
Science  Foundation, all space programs con-ducted  by the National 
Aeronautics  and Space Administration (NASA) and  
 
Community and regional development  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Community 
development. . . . . . . . . . . 4.9 -4.9  Area and regional 
development . . . . . 2.1 0.5 1.6  Disaster relief and insurance . . 
. . . . . . . 4.6 1.4 3.2  Cost not allocated to subfunctions . . . 
0.6 -. 0 0.6  Total community and regional development. . . . . . . 
. . . . . . . . . . . . 12.2 1.9 10.3  
 
Commerce and housing credit  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Mortgage credit . . 
. . . . . . . . . . . . . . . . . 3.0 5.5 -2.5 

U. S. Postal Service . . . . . . . . . . . . . . . . . . 56.9 58.4 -
1.5  Deposit insurance . . . . . . . . . . . . . . . . . . -2.5 5.9 
-8.4 

Other advancement of commerce. . . 5.5 14.1 -8.6  Cost not allocated 
to subfunctions . . . 23.8 -11.5 35.3  Total commerce and housing 
credit 86.7 72.4 14.3  
 
Transportation  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Ground 
transportation . . . . . . . . . . . . . . 24.6 1.7 22.9  Air 
transportation . . . . . . . . . . . . . . . . . . 6.6 0.1 6.5 

Water transportation . . . . . . . . . . . . . . . -0.5 0.6 -1.1  
Other transportation. . . . . . . . . . . . . . . . 0.2 -0.2  Cost 
not allocated to subfunctions . . . 6.5 -. 0 6.5  Total 
transportation . . . . . . . . . . . . . . . 37.4 2.4 35.0  
 
Consolidated Financial Statements 37  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  44  
 
44 
 Page 45 46 
 
general science research supported by  the Department of Energy.  
 
Agriculture  These costs are for promoting the  economic stability 
of agriculture and  the nation's capability to maintain and  
increase agricultural production.  
 
Administration of justice  These costs include programs to pro-vide  
judicial services, police protection,  
 
law enforcement (including civil  rights), rehabilitation and 
incarceration  of criminals, and the general mainte-nance  of 
domestic order. It includes the  provision of court-appointed 
counsel  or other legal services for individuals.  It excludes the 
cost of the legislative  branch and police or guard activities to  
protect Federal property. The cost of  National Guard personnel and 
military  personnel who are called upon occasion-ally  to maintain 
public safety and the  cost of military police are included un-
General  
 
science, space and technology  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  General science and 
basic research . 3.8 -3.8  Space flight, research and supporting 
activities. . . . . . . . . . . . . . . 12.3 0.1 12.2  
 
Cost not allocated to subfunctions . . . 0.7 -. 0 0.7  Total general 
science, space and technology . . . . . . . . . . . . . . . . 16.8 
0.1 16.7  
 
Agriculture  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Farm income 
stabilization . . . . . . . . . . . 10.6 2.2 8.4  Agricultural 
research and service. . . . . 3.5 0.3 3.2  Cost not allocated to 
subfunctions . . . 1.0 -. 0 1.0  Total agriculture . . . . . . . . . 
. . . . . . . . . 15.1 2.5 12.6 

 
International affairs  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  International 
development and humanitarian assistance . . . . . . . . . . . 10.7 
3.1 7.6  
 
International security assistance . . . . . . 2.2 -2.2  Conduct of 
foreign affairs . . . . . . . . . . . 5.1 0.3 4.8  Foreign 
information and exchange activities . . . . . . . . . . . . . . . . 
. . . . . . . . ---International  
 
financial programs. . . . . . 3.8 1.2 2.6  Cost not allocated to 
subfunctions . . . 3.0 0.7 2.3  Total international affairs. . . . . 
. . . . . . 24.8 5.3 19.5  
 
38 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  45  
 
45 
 Page 46 47 
 
General government  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Legislative 
functions . . . . . . . . . . . . . . . . 1.2 -1.2  Executive 
direction and management. . . . . . . . . . . . . . . . 0.3 -0.3  
 
Central fiscal operations . . . . . . . . . . . . 8.3 2.2 6.1  
General property and records management. . . . . . . . . . . . . . . 
. . . . . 10.1 0.3 9.8  
 
Central personnel management . . . . . 0.2 -0.2  General purpose 
fiscal assistance . . . . 0.3 -0.3  Other general government. . . . 
. . . . . . 0.9 0.1 0.8  Cost not allocated to subfunctions . . . 
6.7 0.7 6.0  Total general government . . . . . . . . . 28.0 3.3 
24.7  
 
der the national defense function rather  than this function.  
 
General government  These costs include the general over-head  of 
the Federal Government, in- 
 
cluding legislative and executive activi-ties,  and provision of 
central fiscal, per-sonnel  and property activities. All  activities 
reasonably or closely associ-ated  with other functions are included  
in those functions rather than general  government.  
 
Administration of justice  (In billions of dollars)  
 
Subfunctions Gross cost Earned revenue Net cost  Federal law 
enforcement activities . . . 13.2 1.1 12.1  Federal litigative and 
judicial activities . . . . . . . . . . . . . . . . . 5.9 -5.9  
 
Federal correctional activities. . . . . . . . 3.3 0.3 3.0  Criminal 
justice assistance . . . . . . . . . . . 1.3 0.4 0.9  Cost not 
allocated to subfunctions . . . 3.4 0.1 3.3  Total administration of 
justice. . . . . . . 27.1 1.9 25.2  
 
Consolidated Financial Statements 39  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  46  
 
46 
 Page 47 48 
 
Statement of changes  in net position  
 
The statement of changes in net posi-tion reports the beginning net 
position,  the items that caused net position to change during the 
reporting period and  the ending net position. It shows the net cost 
of Government operations, reve-nues  generated principally by the 
Gov-ernment's sovereign power to tax, levy  duties, and assess fines 
and penalties, as well as any adjustments and unrecon-ciled  
transactions that affect the net posi-tion.  
 
Net cost of Government operations  Net cost of Government operations 
is the cost of operations reported in the  
 
statement of net cost.  
 
Revenues: financing sources  from non-exchange revenue  
 
The main financing source for the net cost of operations is non-
exchange  
 
revenue, which consists of taxes and other revenue that the Federal 
Govern-ment  generates under its governmental powers or receives by 
donation.  
 
Other earned revenue  Other earned revenues are exchange revenues 
from the public with virtually  
 
no cost associated with these earnings. These items include revenues 
from spec-trum  auctions and rents and royalties on the outer 
continental shelf lands.  
 
Unreconciled transactions  Unreconciled transactions are adjust-
ments made to balance the change in net  
 
position.  
 
Net position beginning of period  The amount is the net position re-
ported as of the beginning of the fiscal  
 
year.  
 
Net position end of period  This is the amount reported as net po-
sition on the current year's balance sheet.  
 
40 Consolidated Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  47  
 
47 
 Page 48 49 
 
United States Government Consolidated Statement of Changes in Net 
Position  for the year ended September 30, 1997  (In billions of 
dollars)  
 
Net cost of Government operations. . . . 1,603.3  Less:  Financing 
sources from non-exchange revenues:  
 
Individual income tax and tax withholdings . . . . . . . . . . . . . 
. . . . . . 1,247.5  
 
Corporation income taxes . . . . . . . . . . . 179.8  Unemployment 
taxes . . . . . . . . . . . . . . . . 27.8  Excise taxes . . . . . . 
. . . . . . . . . . . . . . . . . . 55.8  Estate and gift taxes. . . 
. . . . . . . . . . . . . . 19.7  Customs duties . . . . . . . . . . 
. . . . . . . . . . . 20.0  Miscellaneous . . . . . . . . . . . . . 
. . . . . . . . . 26.1  Total non-exchange revenues. . . . . . . 
1,576.7  Other earned revenues . . . . . . . . . . . . . . 11.6  
Excess of costs over revenues before unreconciled transactions. . . 
. -15.0  
 
Unreconciled transactions affecting the change in net position (Note 
15) . 12.4  
 
Change in net position. . . . . . . . . . . . . . . -2.6  Net 
position-beginning of period. . . . . -5,000.4  Net position-end of 
period . . . . . . . . . . -5,003.0  The accompanying notes are an 
integral part of these financial statements.  
 
Consolidated Financial Statements 41  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  48  
 
48 
 Page 49 50 
 
42 Consolidated Financial Statements  Consolidated Financial 
Statements of the United States Government, Fiscal 1997  49  
 
49 
 Page 50 51 
 
United States Government  Notes to the Financial Statements  for the 
year ended September 30  
 
Note 1. Summary of significant accounting policies  
 
A. Reporting entity The consolidated financial state-ments  include 
the financial status and ac-tivity  of the executive, legislative 
and  judicial branches of the U. S. Govern-ment,  including those 
Government cor-porations  that are part of the Federal  Government. 
The Appendix contains a  list of significant U. S. Government enti-
ties  included and entities excluded from  these consolidated 
financial statements.  For the purposes of this document,  "Federal 
Government" refers to the  U. S. Government. The fiscal year of the  
U. S. Government ends September 30.  Material intragovernmental 
transactions  have been eliminated in consolidation,  except as 
described in Note 15.  
 
B. Basis of accounting The consolidated financial state-ments  
 
have been prepared in accordance  with Form and Content guidance 
speci-fied  by the Office of Management and  Budget (OMB) and the 
Statements of  Federal Financial Accounting Standards  (SFFAS). 
Under this basis of account-ing,  expenses generally are recognized  
when incurred and non-exchange reve-nues  are recognized on a 
modified cash  basis of accounting. Remittances of non-exchange  
revenues are recognized when  received and related receivables are 
rec-ognized  when measurable and legally  collectible. Refunds and 
related offsets  of non-exchange revenues are recog-nized  when 
measurable and legally pay-able.  Exchange revenues are recognized  
when earned. This basis of accounting  differs from the basis of 
accounting used  for budgetary reporting. Beginning in  fiscal 1998, 
four additional accounting  standards will be effective regarding 
ac-counting  for property, plant and equip-ment,  managerial cost 
accounting,  revenue and other financing sources,  and supplementary 
stewardship report-ing.  The impact of these standards on  the 
consolidated financial statements is  currently being reviewed.  
 
C. Direct loans and loan guarantees  Direct loans obligated and loan 
guar-antees  committed after September 30,  1991, are recorded based 
on the present  value of net cash flows estimated over  the life of 
the loan or guarantee. Direct  loans made prior to October 1, 1991,  
may be recorded under the present  value method or the allowance for 
loss  method (the outstanding principal re-duced  by an allowance 
for uncollectible  amounts when it is more likely than  not that the 
loans will not be collected  in full). Liabilities related to loan 
guaran-tees  committed prior to October 1,  1991, may be recorded 
under the pre-sent  value method or the allowance for  loss method 
(the amount the agency esti-mates  will more likely than not require  
a future cash outflow to pay default  claims).  
 
D. Taxes receivable  "Taxes receivable" primarily consist  of 
uncollected tax assessments, penalties  and interest, where 
taxpayers have  agreed that the amounts are owed or a  court has 
determined that the assess-ments  are owed. Unpaid assessments  
where (1) neither taxpayers nor a court  have agreed that the 
amounts are owed  (compliance assessments); and (2) the  Government 
does not expect further  collections due to factors such as the tax-
payer's  death, bankruptcy or insolvency  (write-offs) are not 
included in the finan-cial  statements. Taxes receivable are re-
ported  net of an allowance for the  estimated portion of the taxes 
receivable  deemed to be uncollectible.  
 
E. Inventories and related property  
 
Inventories generally are valued at  historical cost or at an 
approximation  thereof. Historical cost methods include  first-in-
first-out, weighted average and  moving average. The value of 
inventory  held for repair is reduced by the esti-mated  repair 
cost. Excess, obsolete and  
 
Notes to the Financial Statements 43  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  50  
 
50 
 Page 51 52 
 
unserviceable inventories are valued at  estimated net realizable 
values.  
 
F. Property, plant and equipment  
 
"Property, plant and equipment"  (PP& E) are recorded using purchase  
price, replacement cost, standard cost  and other acceptable 
methods. Defense  weapons systems, which comprise most  of the PP& 
E, are not currently depreci-ated.  Depreciation and amortization 
ex-pense,  which applies to other PP& E,  except land and limited 
duration land  rights and construction in progress, are  generally 
recognized using the straight-line  method over the assets estimated  
useful lives. The Government Manage-ment  Reform Act does not 
require the  legislative and judicial branches to re-port  their 
financial information to  Treasury, therefore most PP& E in use  by 
those entities is not included in these  consolidated financial 
statements.  
 
G. Retirement programs  "Pension expense and retirement  health 
benefits" and related liabilities  are recorded during the time that 
em-ployee  services are rendered. The liabili-ties  for defined 
benefit pension plans  and retirement health benefits are re-corded  
at estimated actuarial present  value of future benefits, less the 
esti-mated  actuarial present value of normal  cost contributions 
made by, and for cov-ered  employees.  
 
"Normal cost" is the portion of the  actuarial present value of 
projected bene-fits  allocated, under the actuarial  method, as 
expense for employee serv-ices  rendered in the current year. Actu-
arial  gains and losses (and prior and past  service cost, if any) 
are recognized im-mediately  in the year they occur, with-out  
amortization.  
 
H. Environmental liabilities  "Environmental liabilities" are re-
corded  at the estimated current cost to  remediate hazardous waste 
and environ-mental  contamination, assuming the use  of current 
technology. Remediation con-sists  of removal, treatment and/ or 
safe  containment. Where technology does  not exist to clean up 
hazardous waste,  only the estimable portion of the liabil- 
 
ity, typically safe containment, is re-corded.  I. Contingencies  
Liabilities are recognized on the bal-ance  sheet when:  
 
 a past transaction or event has oc-curred; and  
 
 a future outflow or other sacrifice of resources is probable and 
measurable.  The estimated contingent liability  may be a specific 
amount or a range of  amounts. If some amount within the  range is a 
better estimate than any other  amount within the range, that amount  
is recognized. If no amount within the  range is a better estimate 
than any other  amount, the minimum amount in the  range is 
recognized.  
 
Contingent liabilities that do not  meet the above criteria for 
recognition,  but for which there is a reasonable possi-bility  that 
a loss has been incurred are  disclosed in Note 14.  
 
For the fiscal year ended September  30, 1997, the amount of loss 
contingen-cies  was not available therefore, the  amounts stated 
here represent the maxi-mum  theoretical risk exposure. How-ever,  
it is not likely that the maximum  loss will be incurred.  
 
J. Social insurance  A liability for social insurance pro-grams  
(Social Security, Medicare, Unem-ployment  Insurance, Railroad  
Retirement and Black Lung) is recog-nized  for any unpaid amounts 
due as of  the reporting date. No liability is recog-nized  for 
future payments not yet due.  See "stewardship responsibilities" in 
the  stewardship reporting section for fur-ther  information.  
 
K. Related party transactions  The Federal Reserve Banks (FRBs),  
which are not part of the reporting en-tity,  serve as the Federal 
Government's  depositary and fiscal agent. They proc-ess  Federal 
payments and deposits to  Treasury's account and service Federal  
debt securities. FRBs owned $440 bil-lion  of Federal debt 
securities held by  the public as of September 30, 1997.  FRB 
earnings that exceed statutory  amounts of surplus established for 
the  Federal banks are paid to the Federal  
 
44 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  51  
 
51 
 Page 52 53 
 
Government and are recognized as non-exchange  revenue and totaled 
$19.6 bil-lion  for the year ended September 30,  1997. The primary 
source of these earn-ings  is from interest earned on Federal  debt 
securities held by the FRBs.  
 
FRBs issue Federal Reserve Notes,  which are the circulating 
currency of  the United States. These notes are collat-eralized  by 
specific assets owned by the  FRBs, typically U. S. Government secu-
rities.  Federal Reserve Notes are backed  by the full faith and 
credit of the  United States Government.  
 
The Federal Government does not  guarantee payment of the 
liabilities of  Government-sponsored enterprises such  as the 
Federal National Mortgage Asso-ciation  of the Federal Home Loan 
Mort-gage  Association, which also are  excluded from the reporting 
entity.  
 
Note 2. Cash and other monetary assets  
 
Cash  Cash in the amount of $45.7 billion, consists of: (1) U. S. 
Treasury balances  held at the Federal Reserve banks, net of 
outstanding checks; (2) U. S. Treasury  balances in special 
depositaries that hold the proceeds of certain tax payments  known 
as the U. S. Treasury Tax and Loan Note accounts; (3) funds held 
out-side  of Treasury and the Federal Re-serve by authorized fiscal 
officers or  agents; (4) monies held by Government collecting and 
disbursing officers, agen-cies'  undeposited collections, uncon- 
 
firmed deposits and cash transfers; and (5) time deposits at 
financial institutions.  The U. S. Government maintains for-mal  
arrangements with numerous banks  to maintain time deposits known as  
compensating balances. These balances  compensate the banks for 
services pro-vided  to the Federal Government, such  as maintaining 
zero-balance accounts  for the collection of public monies.  
 
Gold  Gold is valued at the statutory price  of $42.2222 per fine 
troy ounce. As of  September 30, 1997, the number of fine  troy 
ounces was 260,914,524.931. In the  fiscal year ended September 30, 
1996,  gold was valued using market value,  which represented the 
price reported  for gold on the London Fixing. The  market value of 
gold as of the reporting  date is $332.10 per fine troy ounce.  Gold 
has been pledged as collateral for  gold certificates issued to the 
Federal Re-serve  banks totaling $11.0 billion (see  Note 13).  
 
Domestic monetary assets  "Domestic monetary assets" are  composed 
of liquid assets other than  cash that are based on the U. S. dollar 
in-cluding  coins, silver bullion and other  coinage metals. These 
items totaled $0.4  billion.  
 
International monetary assets  "International monetary assets" are  
composed of liquid assets that are de-nominated  on a basis other 
than the  U. S. dollar. Special Drawing Rights  (SDRs) are 
international reserve assets  created by the International Monetary  
Fund (IMF), which have a U. S. dollar  equivalent of $10.0 billion 
calculated on  a weighted average of exchange rates for  the 
currencies of selected IMF member  countries. The value of a SDR was  
$1.36521, as of September 30, 1997.  SDRs have been pledged as 
collateral  for borrowing from the Federal Reserve  banks. This 
liability totals $9.2 billion  and is included in Note 13. These 
assets  also include the U. S. reserve position in  the IMF, which 
has a U. S. dollar equiva-lent  of $14.0 billion, and foreign cur-
rency  and other monetary assets  denominated in foreign currency. 
Inter-national  monetary assets have a U. S. dol-lar  equivalent of 
$35.6 billion.  
 
Cash and other monetary assets as of September 30  (In billions of 
dollars)  Cash before outstanding checks . . . . . 49.6  
 
Outstanding checks . . . . . . -3.9  Cash. . . . . . . . . . . . . . 
. . . . 45.7  Gold . . . . . . . . . . . . . . . . . . 11.0  
Domestic monetary assets . . . . . . . . . . . . . . . . 0.4  
 
International monetary assets . . . . . . . 35.6  Total cash and 
other monetary assets. . . . . . 92.7  
 
Notes to the Financial Statements 45  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  52  
 
52 
 Page 53 54 
 
Note 3. Loans receivable  and loan guarantee liabilities  
 
Loans receivable  The Federal Government is the na-tion's  largest 
source of credit and under-writer  of risk. In 1990, the Federal  
Credit Reform Act was enacted to im-prove  the Government's 
budgeting and  management of credit programs. The  primary focus of 
the Act is to provide  an accurate measure of the long-term  costs 
of both direct loans and loan guar-antees  and to recognize these 
costs at  the time when the loan is made.  
 
The Direct Student Loan program,  established in 1994, offers four 
types of  education loans: Stafford, Unsubsidized  Stafford, PLUS 
for parents and Consoli-dation.  Evidence of financial need is re-
quired  for a students to receive  subsidized Stafford loans. The 
other  three loan programs are available to bor-rowers  at all 
income levels. These loans  usually mature 9-13 years after the stu-
dent  is no longer enrolled and are unse-cured.  
 
Rural electrification and telecommu-nications  loans are for the 
construction  and operation of generating plants, elec-tric  
transmission, and distribution lines  or systems. These loans carry 
an aver-age  maturity of greater than 20 years  and are usually 
secured.  
 
The major programs funded through  the Rural Housing Insurance Fund 
Pro-gram  account are: very low and low-to-moderate  income home 
ownership  loans and guarantees, very low income  housing repair 
loans, domestic farm la-bor  housing loans, housing site loans  and 
credit sales of acquired property.  Loan programs are limited to 
rural ar-eas  that include towns, villages and  other places that 
are not part of an ur-ban  area. The majority of these loans  mature 
in excess of 25 years and are se-cured  by the property of the 
borrower.  
 
Economic assistance loans provide  economic assistance to selected 
coun-tries  in support of U. S. efforts to pro-mote  stability and 
U. S. security  interests in strategic regions of the  world.  
 
Loan guarantees  The Federal Housing Administra-tion (FHA) provides 
mortgage insur-ance  
 
to encourage lenders to make credit available to expand home owner-
ship.  FHA predominately serves bor-rowers that the conventional 
market  does not adequately serve: first time home buyers, 
minorities, lower-income  families and residents of under-served ar-
eas.  The Federal Family Education Loan (FFEL) program, formerly 
known as 

the Guaranteed Student Loan program, was established in 1965. Like 
the Direct  Student Loan program, it also offers  
 
Loans receivable as of September 30  
 
(In billions of dollars) Gross receivables  Allowance  losses 1  
(pre-1992)  
 
Allowance  for subsidy  (post-1991)  Net  receivables  
 
Student loan programs . . . . . 42.0 14.6 0.1 27.3  Rural 
electrification and telecommunications. . . . . . 28.3 4.8 -23.5  
 
Rural housing insurance . . . . 20.9 7.4 -13.5  Economic assistance 
loans . 12.5 5.1 -7.4  Agriculture credit insurance fund . . . . . . 
. . . . 10.7 1.5 0.6 8.6  
 
Other loans receivable . . . . . 102.2 18.0 8.3 75.9  Total loans 
receivable. . . . . 216.6 51.4 9.0 156.2  
 
1 Includes related interest  
 
46 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  53  
 
53 
 Page 54 55 
 
four types of loans: Stafford, Unsubsi-dized Stafford, PLUS for 
parents and  Consolidation. Veteran housing benefits provide par-
tial  guarantee of residential mortgage loans issued to eligible 
veterans and serv-icemen  by private lenders. The guaran-tee allows 
veterans and servicemen to  purchase a home without a substantial 
down payment.  Other loan guarantees include Small Business 
Administration loans to minor-ity  businesses, Export-Import Bank 
loans to promote U. S. exports, and the  Farm Service Agency for 
farm owner-ship and emergency and disaster loans.  
 
Note 4. Taxes receivable  
 
"Net taxes receivable" are based on  projections of collectibility 
from a statis-tical  sample.  
 
Note 5. Inventories  and related property  
 
"Inventories and related properties"  consist of the following 
categories, net  of allowance:  
 
 "Operating materials and supplies," which are comprised of tangible 
per-sonal  
 
property purchased for use in normal operations.  
 
 "Stockpile materials," which are stra-tegic and critical materials 
held due  to statutory requirements for use in national defense, 
conservation or na-tional  emergencies.  
 "Inventory held for sale," which is tangible personal property held 
for  
 
sale net of allowances.  
 
Inventories and related property  as of September 30  (In billions 
of dollars)  Operating materials and supplies. . . . . . . . . . . . 
161.8  
 
Stockpile materials. . . . . . . . 41.8  Inventory held for sale. . 
. . . 1.7  Foreclosed property . . . . . . 1.3  Commodities . . . . 
. . . . . . . . 0.4  Seized monetary instruments . . . . . . . . . . 
. . . 0.2  
 
Forfeited property . . . . . . . . 0.2  Other related property . . . 
. 2.0  Total inventories and related property . . . 209.4 Taxes 
receivable 

 
as of September 30  
 
(In billions of dollars)  Gross Federal tax receivables. . . . . . . 
. . 90.2  
 
Allowance for doubtful amounts. . . . 62.1  Federal tax receivables, 
net . . . . . . . . . . . . . . . . . . 28.1  
 
Loan guarantees as of September 30  (In billions of dollars)  Face  
value of  guaranteed  loans  Amount  guaranteed  
 
Loan  guarantee  liability  
 
Federal Housing Administration . . . . . 454.5 447.0 13.1  Federal 
Family Education . . . . . . . . . . 99.0 99.0 9.9  Veteran housing 
benefits. . . . . . . . . . . 198.0 69.4 4.1  All other loan 
guarantees . . . . . . . . . . 125.3 97.0 9.6  
 
Total loan guarantees . . . . . . . . . . . . 876.8 712.4 36.7  
 
Notes to the Financial Statements 47  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  54  
 
54 
 Page 55 56 
 
 "Foreclosed property," which in-cludes assets received in 
satisfaction  of a loan receivable or as a result of  payment of a 
claim under a guaran-teed  or insured loan (excluding com-modities  
acquired under price  support programs).  
 
 "Commodities," which are items of commerce or trade having an ex-
change  
 
value used to stabilize or sup-port  market prices.  
 
 "Seized monetary instruments," which include only monetary instru-
ments.  
 
Other seized property, includ-ing  real property and tangible  
personal property, are accounted for  in agency property management 
re-cords  until the property is forfeited,  returned or otherwise 
liquidated.  
 
 "Forfeited property," which is com-prised of (1) monetary 
instruments,  
 
intangible property, real property  and tangible personal property 
ac-quired  through forfeiture proceed-ings;  (2) property acquired 
by the  Government to satisfy a tax liability;  and (3) unclaimed 
and abandoned  merchandise.  
 
 "Other related property," which in-cludes all other related 
property not  
 
included above (such as property ac-quired  through military base 
clos-ings).  
 
Note 6. Property, plant  and equipment  Certain types of fixed 
assets are not  reported as "property, plant and equip-ment"  or 
elsewhere on the balance  sheet. These include natural resources,  
stewardship land, monuments, museum  collections and library 
collections.  FASAB standards are addressing the is-sue  of these 
unreported assets. Future  consolidated financial statements may  
report them as supplementary steward-ship  information. Land not 
used in con-nection  with the production of goods  and services is 
disclosed in the steward-ship  reporting section under steward-ship  
land. In future financial statements,  values will be removed from 
the bal-ance  sheet for national defense "prop-erty,  plant and 
equipment" and the  stewardship reporting section of the fi-nancial  
statements will be expanded to  include information about these 
assets.  
 
Note 7. Other assets  
 
Property, plant and equipment as of September 30  (In billions of 
dollars)  Cost or  other  basis  
 
Accumulated  depreciation/  amortization Net  
 
Buildings, structures and facilities . . 281.5 64.2 217.3  Military 
equipment . . . . . . . . . . . . . . 637.1 1.6 635.5  Furniture, 
fixtures and equipment . . 110.7 33.7 77.0  Assets under capital 
lease . . . . . . . . 6.6 0.3 6.3  Leasehold improvements. . . . . . 
. . . 1.4 0.4 1.0  Automated data processing software . . . . . . . 
. . . . . 2.0 1.0 1.0  
 
Land . . . . . . . . . . . . . . . . . . . . . . . . . . 22.4 -22.4 

Construction in progress . . . . . . . . . . 56.5 -56.5  Total 
property, plant and equipment. . . . . . . . . . . . . . . 1,118.2 
101.2 1,017.0  
 
Other assets as of September 30  (In billions of dollars)  Advances 
and prepayments . . . . . . . . . . 24.2  
 
Securities and investments . . . . . . . . . . . 11.4  
 
Other. . . . . . . . . . . . . . . . . . 27.3  Total other assets. . 
. . . . . 62.9  
 
48 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  55  
 
55 
 Page 56 57 
 
"Other assets" consist of advances  and prepayments, securities and 
invest-ments  and other assets of the U. S. Gov-ernment  not 
otherwise classified.  Securities are shown at cost net of unam-
ortized  premiums and discounts.  
 
Note 8. Accounts payable "Accounts payable" are amounts  owed for 
accrued interest on the public debt, goods and other property 
ordered  
 
and received, and for services rendered by other than employees.  
Note 9. Federal debt securities held by the public  
 
Definitions of debt are as follows:  
 "Gross Federal debt" includes Fed-eral Government debt, whether is-
sued  
 
by Treasury (public debt) or by other agencies (agency debt). Gross 

 
Federal debt securities held by the public as of September 30  (In 
billions of dollars) Average interest rate  Treasury securities:  
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . 3,439.8 6.668% Non-marketable securities. . . . . . . . . 
. . . . . . . . . . . . . . . 1,967.7 7.235%  
 
Non-interest bearing debt . . . . . . . . . . . . . . . . . . . . . 
. . . 5.6 Total Treasury securities . . . . . . . . . . . . . . . . 
. . . . . . . . . 5,413.1  Plus: Unamortized premium on Treasury 
securities. . . . . . . . . . . . . . . . . . . . . . . . . 20.2  
Less: Unamortized discount on Treasury' securities . . . . . . . . . 
. . . . . . . . . . . . . . 78.2  Total Treasury securities, net of 
unamortized premiums and discounts. . . . 5,355.1  
 
Agency securities:  Tennessee Valley Authority . . . . . . . . . . . 
. . . . . . . . . . . . 27.4 U. S. Postal Service . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 3.9  
 
All other agencies. . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . 1.9  Less: Unamortized net discounts . . . . . . . . . . 
. . . . . . . . . 0.5  Total agency securities . . . . . . . . . . . 
. . . . . . . . . . . . . . 32.7  Total Federal debt . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . 5,387.8  Less: 
Intragovernmental holdings, net of unamortized premiums  
 
and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . 1,619.6  Total Federal debt securities held by the public . . . 
. . . . . . . . . . . . . . . . . . . . . 3,768.2  
 
Types of marketable securities  Bills: Short-term obligations issued 
with a term of 1 year or less. Notes: Medium-term obligations issued 
with a term of at least 1 year, but not more than 10 years.  
 
Bonds: Long-term obligations of more than 10 years.  
 
Accounts payable as of September 30  (In billions of dollars)  
Department of the Treasury . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . 46.6 Department of Defense. . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . 17.4  
 
U. S. Postal Service . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . 4.8 Department of Veterans Affairs 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1  
National Aeronautics and Space Administration. . . . . . . . . . . . 
. . . 3.0 Office of Personnel Management . . . . . . . . . . . . . . 
. . . . . . . . . . . . . 2.8  Department of Agriculture . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Department 
of Health and Human Services. . . . . . . . . . . . . . . . . . . 
2.5  All other departments . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . 15.0  Total accounts payable . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7  
 
Notes to the Financial Statements 49  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  56  
 
56 
 Page 57 58 
 
Federal debt is either held by the public or by U. S. Government 
enti-ties.  
 "Debt held by the public" includes Federal debt held outside the U. 
S.  Government by individuals, corpora-tions,  State or local 
governments, the  Federal Reserve System, and foreign  governments 
and central banks.  
 
 "Intragovernmental holdings" are comprised of Federal debt held by 

 
Government trust funds, revolving  funds and special funds.  
 
"Federal debt held by the public"  amounted to $3,768.2 billion at 
the end  of fiscal 1997. The table on debt held by  the public 
reflects information on bor-rowing  to finance Government opera-
tions.  Debt is shown at face value with  unamortized premiums added 
and un-amortized  discounts subtracted.  
 
Intragovernmental holdings repre-sent  that portion of the total 
Federal  debt securities held as investments by  Federal entities, 
including major trust  
 
funds. For more information on trust  funds see Note 16. 
Intragovernmental  holdings have been eliminated in con-solidation  
for financial statement presen-tation  purposes.  
 
Securities that represent debt held  by the public are primarily 
issued by  the Department of the Treasury and in-clude:  
 
 Interest bearing marketable securi-ties: bills, notes and bonds.  
 Interest bearing non-marketable secu-rities: foreign government 
series,  State and local government series, do-mestic  series and 
savings bonds.  
 
 Non-interest bearing debt: matured and other debt.  
 
As of September 30, 1997, most Fed-eral  debt ($ 5,328 billion) was 
subject to  a statutory limit (31 U. S. C. 3101),  which was $5,950 
billion. The debt sub-ject  to the limit includes debt held by  the 
public and intragovernmental hold-ings,  less most debt of Federal 
agencies,  the Federal Financing Bank debt and  
 
Intragovernmental holdings: Federal debt securities held as 
investment by Government accounts  as of September 30  (In billions 
of dollars)  
 
Holdings over $100 billion:  Social Security Administration, Old Age 
and Survivors Insurance . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . 567.5  
 
Office of Personnel Management, Civil Service Retirement and 
Disability . . . . . . . . . . . . . . . . . . . . . . . . 422.1  
Department of Defense, Military Retirement. . . . . . . . . . . . . 
. . . . . . . 126.0  Department of Health and Human Services, 
Hospital Insurance Fund. . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . 116.6  
 
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . 1,232.2  Holdings over $15 
billion:  Social Security Administration, Disability Insurance Trust 
Fund . . . . . 63.6 Department of Labor, Unemployment. . . . . . . . 
. . . . . . . . . . . . . . . . .  61.9 Federal Deposit Insurance 
Corporation funds . . . . . . . . . . . . . . . . . .  37.4 
Department of Health and Human Services,  
 
Supplemental Medical Insurance . . . . . . . . . . . . . . . . . . . 
. . . . . . . . 34.5  Department of Transportation, Highway Trust 
Fund . . . . . . . . . . . . . . 22.3  Railroad Retirement Board. . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
19.2  Office of Personnel Management, Employees Life Insurance . . . 
. . 18.0  
 
Department of the Treasury, Exchange Stabilization Fund . . . . . . 
. . 15.5 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . 272.4  
 
Other programs and funds . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . 102.8 Subtotal . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
1,607.4  Plus: Unamortized net premiums. . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . 12.2  
 
Total intragovernmental holdings . . . . . . . . . . . . . . . . . . 
. . . . . . . 1,619.6  
 
50 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  57  
 
57 
 Page 58 59 
 
miscellaneous debt, and the unamor-tized  net premiums on 
intragovernmen-tal  holdings, plus unamortized net  discounts on 
public issues of Treasury  notes and bonds (other than zero-cou-pon  
bonds).  
 
Note 10. Federal employee  and veteran benefits payable  
 
The Federal Government offers its  employees, both civilian and 
military,  retirement benefits, life and health insur-ance,  and 
other benefits.  
 
The Federal Government adminis-ters  more than 40 pension plans. The  
largest are administered by OPM for ci-vilian  employees and by the 
Depart-ment  of Defense (DOD) for military  personnel. The Federal 
Government  has both defined benefit and defined  contribution 
pension plans, although  the largest are defined benefit plans.  
 
Civilian employees  Pensions  The largest civilian pension plan is  
administered by OPM and covers ap-proximately  90 percent of all 
Federal  
 
Change in actuarial accrued pension liability and components of 
related expense  
 
(In billions of dollars) Civilian employees Military 1 employees  
Actuarial accrued pension liability, as of September 30, 1996 . . . 
. . . . . . . . . . . . . . . . . . 911.3 625.8  
 
Pension expense:  Normal costs . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . 19.7 11.1  Interest on unfunded 
liability . . . . . . . . . . . . . . . . . . . . 63.0 40.1  
 
Actuarial gains (-)/ losses . . . . . . . . . . . . . . . . . . . . 
. . . -10.5 -5.0  Total pension expense. . . . . . . . . . . . . . . 
. . . . . . . . . 72.2 46.2  Benefits paid . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . -41.3 -30.3  Actuarial accrued 
pension liability, as of September 30, 1997 . . . . . . . . . . . . 
. . . . . . 942.2 641.7  
 
1 OPM only.  
 
Federal employee and veteran benefits payable  as of September 30  
 
(In billions of dollars)  
 
Civilian employees:  Pensions . . . . . . . . . . . . . . . . 977.2  
Health benefits. . . . . . . . . . . 158.9  
 
Other benefits . . . . . . . . . . . 29.2  Total Federal employee 
benefits. . . . . . . . . . . . . . . 1,165.3  
 
Military employees:  Pensions . . . . . . . . . . . . . . . . 641.7  
Compensation and burial benefits . . . . . . . . . . 197.4  
 
Health benefits. . . . . . . . . . . 218.0  Other benefits . . . . . 
. . . . . . 21.3  Total military benefits . . . . 1,078.4  Total 
Federal employee and veteran  benefits payable . . . . . 2,243.7  
 
Significant assumptions used in determining the pension liability 
and the related expense include:  Civilian  employees  Military  
employees  Rate of interest . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . 7.00% 6.50% Rate of inflation. . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . 4.00% 3.50%  
 
Projected salary increases. . . . . . . . . . . . . . . . . . . . 
4.25% 4.00%  
 
Notes to the Financial Statements 51  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  58  
 
58 
 Page 59 60 
 
civilian employees. It includes two com-ponents  of defined 
benefits: the Civil  Service Retirement System (CSRS) and  the 
Federal Employee's Retirement Sys-tem  (FERS). The basic benefit 
compo-nents  of CSRS and FERS are financed  and operated through the 
Civil Service  Retirement and Disability Fund  (CSRDF). CSRDF monies 
are generated  primarily from employees, agency con-tributions,  
payments from the general  fund and interest on investments in Fed-
eral  debt securities (see Note 16, under  CSRDF, for further 
discussion).  
 
The Federal Retirement Thrift In-vestment  Board is an independent 
Gov-ernment  agency that operates the Thrift  Savings Plan. The 
fund's assets are  owned by the Federal employees and re-tirees  
covered by CSRS and FERS. For  this reason, the fund is excluded 
from  the consolidated financial statements  and the fund's holdings 
of Federal debt  
 
are considered part of the Federal debt  held by the public rather 
than Federal  debt held by the Government. FERS  employees may 
contribute up to 10 per-cent  of their base pay to the plan,  which 
is matched by the Government  up to 5 percent. CSRS employees may  
contribute up to 5 percent of their base  pay with no Government 
match.  
 
The Thrift Savings Plan's total in-vestment,  as of September 30, 
1997, was  $51.5 billion. Investments include U. S.  Government non-
marketable securities  ($ 24.8 billion), which are included in to-
tal  Federal debt securities held by the  public in the balance 
sheet.  
 
Health benefits  Civilian retirees pay the same insur-ance  premium 
as active employees un-der  the Federal Employee Health  Benefits 
Program (FEHBP). These pre-miums  cover only a portion of the  
 
Significant assumptions used in determining the post-retirement 
health benefits liability and the related expense include:  Civilian  
employees  Military  employees  
 
Rate of interest. . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . 7.00% 6.75%  Rate of health care inflation . . . . . . . . . 
. . . . . . . . . 7.00% 2.50-8.00%  
 
Change in accrued post-retirement health benefits liability and 
components of related expense  (In billions of dollars) Civilian 
employees Military employees  Actuarial post-retirement health 
benefits liability, as of September 30, 1996 . . . . . . . . . . 
148.6 210.3  
 
Post-retirement health benefits expense:  Normal costs . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 5.5 5.2  Interest on 
unfunded liability . . . . . . . . . . . . . . . . 10.5 14.3  
 
Actuarial gains (-)/ losses . . . . . . . . . . . . . . . . . . --
4.9  Total post-retirement health benefit expense . . . . . . . . . 
. . . . . . . . . 16.0 14.6  
 
Claims paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. -5.7 -6.9  Actuarial accrued post-retirement health benefits 
liability,  as of September 30,1997 . . . . . . . . . . . . . . . 
158.9 218.0  
 
52 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  59  
 
59 
 Page 60 61 
 
costs. Although the Government contri-bution  for the premiums of 
active em-ployees  in FEHBP is paid by the  employing agency, the 
Government  contribution for civilian retirees is  funded through 
appropriations.  
 
Other benefits  The Federal Employees Group Life  Insurance program 
is largely funded by  employee contributions. The employees  life 
insurance program finances pay-ments  to private insurance companies  
for Federal employee's group life insur-ance  and is administered by 
OPM.  
 
Military employees  (including veterans)  
 
Pensions  The DOD Military Retirement Trust Fund accumulates funds 
in order  
 
to finance liabilities of DOD under mili-tary retirement and 
survivor benefit pro-grams.  The fund provides retirement benefits 
for military personnel and their  survivors.  The military 
retirement system ap-plies to the Army, Navy, Marine Corps  
 
and Air Force. The system is a funded, non-contributory, defined 
benefit plan.  It includes non-disability retired pay, dis-ability 
retired pay, retired pay for re-serve  service and survivor annuity 
programs.  
 
Compensation and burial benefits  Veterans compensation is payable 
as a disability benefit or a survivor's bene-fit.  
 
Entitlement to compensation de-pends on the veteran's disabilities 

incurred in, or aggravated during active military service, death 
while on duty or  
 
death resulting from service connected disabilities, if not in 
active duty.  Burial benefits include a burial and  plot or 
interment allowance payable for  a veteran who, at the time of 
death, was  entitled to receive compensation, pen-sion  or whose 
death occurred in a VA  facility.  
 
Health benefits  Military retirees and their depend-ents  are 
entitled to health care in mili-tary  medical facilities if the 
facility can  provide the needed care. Until they  reach age 65, 
military retirees and their  dependents also are entitled to health  
care financed by the Civilian Health  and Medical Programs of the 
Uni-formed  Services (CHAMPUS). No pre-mium  is charged for CHAMPUS  
financed care, but there are deductible  and copayment requirements. 
After  they reach 65 years of age, military retir-ees  are entitled 
to Medicare.  
 
The costs for military retiree health  care include costs of 
buildings, equip-ment,  education and training, staffing,  
operations and maintenance of military  medical treatment 
facilities. They also  consist of claims paid by CHAMPUS  and the 
administration of the program.  
 
Other benefits  VA insurance includes the follow-ing  programs: 
United States Govern-ment  Life Insurance, National Service  Life 
Insurance, Veterans Insurance and  Indemnities, Veterans Special 
Life Insur-ance,  Veterans Reopened Insurance,  Service Disabled 
Veterans Insurance  and Servicemen's Group Life Insurance.  
 
The National Service Life Insurance  was established in 1940 for the 
World  War II servicemen and veterans and re-mained  open until 
1951. Of the original  22 million policies issued, approxi-mately  2 
million remain. Under this  program the maximum coverage is lim-ited  
to $10,000.  
 
Veterans Special Life Insurance was  established in 1951 for 
servicemen who  served in the Korean War and the post-Korean  period 
through 1957. Approxi-mately  800,000 policies were issued of  
which, 252,300 remain.  
 
Veterans compensation and burial benefits payable  as of September 
30  
 
(In billions of dollars)  Veterans. . . . . . . . . . . . . . . . 
158.5  Survivors . . . . . . . . . . . . . . . . 37.1  
 
Burial benefits . . . . . . . . . . . 1.8  Total veterans 
compensation  and burial benefits payable. . . . . . . . . . . . . . 
. 197.4  
 
Notes to the Financial Statements 53  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  60  
 
60 
 Page 61 62 
 
Note 11. Environmental liabilities  During World War II and the Cold  
War, the United States developed a mas-sive  industrial complex to 
research, pro-duce  and test nuclear weapons. The  nuclear weapons 
complex included nu-clear  reactors, chemical processing build-ings,  
metal machining plants,  laboratories and maintenance facilities.  
The resulting environmental liabilities  are the costs associated 
with removing,  containing and/ or disposing of hazard-ous  waste 
from the properties. "Envi-ronmental  liabilities," as used in this  
report, applies only to cleanup costs  from Federal operations known 
to re-sult  in hazardous waste, which the Fed-eral  Government is 
required by Federal,  State or local statutes, and/ or regula-tions  
that have been approved as of the  balance sheet date regardless of 
the effec-tive  date of cleanup.  
 
The DOD is responsible for cleaning  up and disposing of hazardous 
materials  in facilities it operates or has operated  and has 
recorded a $27.8 billion liability  for these costs. DOD has not 
currently  recorded any liability for national de-fense  assets 
(primarily disposal of  weapon systems like aircraft, ships and  
submarines) and ammunitions (primar-ily  hazardous materials).  
 
"Environmental management and  legacy wastes" include costs for 
environ- 
 
mental restoration, nuclear material and  facility stabilization, 
and waste treat-ment,  storage and disposal activities at  each 
installation. It also includes costs  for related activities such as 
landlord re-sponsibilities,  program management  and legally 
prescribed grants for partici-pation  and oversight by Native Ameri-
can  tribes, and regulatory agencies.  "Active facilities" represent 
anticipated  remediation costs for those facilities  that are 
conducting ongoing operations  but will ultimately require 
stabilization,  deactivation and decommissioning.  
 
Projects with no current feasibility  remediation approach are 
excluded  from the estimate. Significant projects  not included are:  
 
 Nuclear explosion test areas (such as the Nevada test site).  
 
 Large surface water bodies (such as the Clinch and Columbia 
rivers).  
 Most ground water (even with treat-ment, future use will be 
restricted).  
 
 Some special nuclear material (such as uranium hexafluoride).  
 
Note 12. Benefits due and payable  
 
Benefits due and payable as of September 30  (In billions of 
dollars)  Federal Old-Age and Survivors Insurance . . . . . 28.1  
 
Federal Hospital Insurance  (Medicare, Part A) . . . . . 16.9  
 
Grants to States for Medicaid . . . . . . . . . . 14.1  
 
Federal Supplemental Medical Insurance  (Medicare, Part B). . . . . 
. 10.5  
 
Federal Disability Insurance . . . . . . . . . . . . . 6.2  
 
Other benefits due and payable . . . . . . 1.9  Total benefits due 
and payable. . . . . 77.7  
 
Environmental liabilities as of September 30  (In billions of 
dollars)  Environmental management and  legacy waste . . . . . . . . 
. . 141.3  
 
Defense: clean-up costs . . 27.8  Active facilities . . . . . . . . 
. . 20.7  Pipeline facilities . . . . . . . . . 8.8  High-level 
waste . . . . . . . . . 6.7  Other environmental liabilities . . . . 
. . . . . . . . . . . 6.4  
 
Total environmental liabilities . . . . . . . . . . . . . . 211.7  
 
54 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  61  
 
61 
 Page 62 63 
 
These amounts are benefits owed to  the recipients or medical 
service provid-ers  of the above programs as of the fis-cal  yearend 
but not yet paid. For a  description of the programs, see the sup-
plemental  information in Section 4, un-der  Social Security and 
Medicare.  "Other Benefits due and payable" in-clude  unemployment 
benefits, Black  Lung benefits and Railroad Retirement  pension 
benefits.  
 
Note 13. Other liabilities  
 
"Deferred revenue" is revenue re-ceived  but not yet earned. 
"Contingent  liabilities" are the estimated value of  probable 
losses. "Exchange Stabiliza-tion  Fund" includes SDR certificates 
is-sued  to the Federal Reserve banks and  allocations from the 
International Mone-tary  Fund. "Insurance program" liabili-ties  
include bank deposit insurance,  guarantees of pension benefits, 
life insur-ance,  medical insurance and insurance  against damage to 
property (home,  crops and airplanes) caused by perils  such as 
flooding and other natural disas-ters,  war-risk and insolvency. 
"Accrued  wages and benefits" are the estimated li-ability  for 
salaries and wages of civilian  and commissioned officers that have  
been earned but are unpaid, and  amounts of funded annual leave and  
 
other employee benefits that have been  earned but are unpaid. 
"Advances from  others" are amounts received for goods  and services 
to be furnished. "Other" li-abilities  include gold certificates 
issued  to the Federal Reserve banks, other actu-arial  liabilities, 
deposit funds and sus-pense  accounts.  
 
Note 14. Commitments and contingencies  
 
The Federal Government's commit-ments  and contingencies include 
long-term  leases, loan and credit guarantees,  and deposit and 
pension insurance.  They do not include commitments for  long-term 
procurements.  FASAB standards require disclosure  of contingencies 
when a loss is consid-ered  to be more likely than not, but less  
than probable, and when the amount of  possible loss can be 
reasonably esti-mated,  or when the loss is probable but  the amount 
is not measurable.  For the fiscal year ended September  30, 1997, 
the amount of possible loss  contingencies was not available for 
con-solidation.  Therefore, the amounts  stated here represent the 
maximum  theoretical risk exposure. However, it is  not likely that 
the maximum loss will  be incurred.  In fiscal 1998, contingencies 
will be  reported using the basis prescribed by  FASAB Statement No. 
5.  The U. S. Government is also subject  to other contingencies, 
including litiga-tion,  that arise in the normal course of  
operations. Although there can be no as-surance  as to the ultimate 
disposition of  these matters, it is management's  opinion, based 
upon information  currently available, that the expected  outcome of 
these matters, individually  or in the aggregate, except for the 
fol-lowing  litigation, will not have a mate-rial  adverse affect on 
the consolidated  financial statements.  The U. S. Court of Federal 
Claims  has not yet imposed any damage awards  against the United 
States in any of the  125 supervisory goodwill cases. How-ever,  
while it is likely that the United  States will have to pay some 
amount of  damages on the claims, the ultimate  costs cannot be 
reasonably estimated at  this time.  
 
Other liabilities as of September 30  (In billions of dollars)  
Deferred revenue. . . . . . . . 27.2  Contingent liabilities. . . . 
. . 16.9  Exchange Stabilization Fund . . . . . . . 15.9  
 
Insurance programs . . . . . . 14.6  Accrued wages and benefits . . 
. . . . . . . . 12.8  
 
Advances from others . . . . 6.8  Other . . . . . . . . . . . . . . 
. . . . 74.6  
 
Total other liabilities . . . . . 168.8  
 
Notes to the Financial Statements 55  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  62  
 
62 
 Page 63 64 
 
Commitments and contingencies as of September 30  (In billions of 
dollars)  
 
Commitments  Long-term leases:  General Services Administration. . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . 13.6  U. S. 
Postal Service. . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . 2.9  
 
Other long-term leases . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . 4.9  Total commitments . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4  
 
Contingencies  Insurance:  FDIC bank insurance fund. . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . 2,028.0  FDIC 
savings association insurance fund . . . . . . . . . . . . . . . . . 
. . . . 684.3  Department of Veteran Affairs. . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . 24.0  National Credit Union 
Administration . . . . . . . . . . . . . . . . . . . . . . . . 2.8  
Department of Transportation . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . 2.0  
 
Other insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . 32.7  Total insurance . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. 2,773.8  
 
Government loan and credit guarantees:  Department of Housing and 
Urban Development . . . . . . . . . . . . . 447.1  Department of 
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . 99.0  Department of Veteran Affairs. . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . 69.4  Small Business 
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . 25.2  Export-Import Bank . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 22.1  Department of 
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . 17.5  
 
Other Government loan and credit guarantees. . . . . . . . . . . . . 
. . 32.1  Total Government loan and credit guarantees . . . . . . . 
. . . . . . . 712.4  
 
Unadjudicated claims:  Department of Transportation . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 80.9  Department of 
Health and Human Services . . . . . . . . . . . . . . . . . . 0.9  
 
Other unadjudicated claims . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . 25.9  Total unadjudicated claims . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . 107.7  
 
Other contingencies:  Department of Housing and Urban Development . 
. . . . . . . . . . . . 8.3  Other contingencies . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.5  Total 
other contingencies . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . 137.8  Total contingencies. . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . 3,731.7  
 
Total commitments and contingencies . . . . . . . . . . . . . . . . 
. . . 3,753.1  
 
56 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  63  
 
63 
 Page 64 65 
 
Note 15. Unreconciled transactions affecting  the change in net 
position  The reconciliation of the "change in  net position" 
requires that the differ-ence  between ending and beginning net  
position equals the excess of cost over  revenues plus or minus 
prior period ad-justments.  The unreconciled transac-tions  needed 
to bring the change in net  position into balance net to $12.4 bil-
lion.  The three primary factors affecting  this out-of-balance 
situation are (1)  agency misclassification of intragovern-mental  
transactions; (2) changes in valu-ation  of balance sheet assets and  
liabilities, which were not identified by  agencies as prior period 
adjustments;  and (3) timing differences and errors in  the 
reporting of transactions.  
 
The identification and reporting of  these unreconciled transactions 
are a pri-ority  project of the financial commu-nity  within the 
Federal Government.  
 
Note 16. Dedicated collections  The term "trust fund," as used in  
this report and in Federal budget ac-counting,  is frequently 
misunderstood.  In the private sector, "trust" refers to  funds of 
one party held by a second  party (the trustee) in a fiduciary 
capac- 
 
ity. In the Federal budget, the term  "trust fund" means only that 
the law re-quires  the funds be accounted for sepa-rately  and used 
only for specified  purposes and that the account was desig-nated  
as a "trust fund." A change in law  may change the future receipts 
and the  terms under which the fund's resources  are spent.  
 
The "trust fund assets" represent all  sources of receipts and 
amounts due the  trust fund regardless of source. This in-cludes  
"related governmental transac-tions,"  which are transactions 
between  two different entities within the Federal  Government (for 
example, monies re-ceived  by one entity of the Government  from 
another entity of the Govern-ment).  
 
The "intragovernmental assets" are  comprised of investments in 
Federal  debt securities, related accrued interest  and fund balance 
with Treasury. These  amounts are eliminated in preparing  these 
consolidated financial statements.  
 
The "consolidated assets" represent  only the amounts due from 
individuals  and other entities outside the U. S. Gov-ernment.  This 
means that all related  governmental transactions are removed  to 
give a view of the U. S. Government's  position as a whole.  
 
The majority of the funds' assets are  invested in intragovernmental 
Federal  
 
Dedicated collections as of September 30  mnn Assets  (In billions 
of dollars) Receipts Disburse-ments Trust fund Less: Intragov-
ernmental Consoli-dated  Federal Old Age and Survivors Insurance 
Trust Fund . . . . . . . . . . . 387.5 318.4 577.5 577.5 - 
 
Federal Disability Trust Fund . . . . . . 60.3 46.6 64.6 64.6 -
Hospital Insurance  Trust Fund (Medicare, Part A) . . . 128.3 137.7 
118.9 118.9 -Supplementary Medical Insurance  (Medicare, Part B) . . 
. . . . . . . . . . . . 81.0 73.5 35.1 35.1 -Unemployment Trust Fund 
. . . . . . . 32.6 24.4 63.1 63.1 - 
 
Hazardous Substance Superfund . . . . . . . . . . . . . . . . . . . 
0.7 1.4 5.6 5.6 - Highway Trust Fund . . . . . . . . . . . . . 25.3 
24.5 22.3 22.3 -Airport and Airway Trust Fund . . . . 4.7 5.8 6.5 
6.5 - 
 
Civil Service Retirement and Disability Fund . . . . . . . . . . . . 
70.4 72.7 430.9 430.6 0.3  Military Retirement Fund. . . . . . . . . 
26.2 46.1 143.2 143.2 - 
 
Notes to the Financial Statements 57  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  64  
 
64 
 Page 65 66 
 
debt securities. These securities will re-quire  redemption if a 
fund's disburse-ments  exceed its receipts. Redeeming  these 
securities will increase the Govern-ment's  financing needs and 
require in-creased  borrowing from the public.  
 
By law, certain expenses (costs) re-lated  to the administration of 
the above  funds are not charged to the funds and  are financed by 
other financing sources.  
 
Federal Old Age and  Survivors Insurance Trust Fund  
 
The fund provides assistance and pro-tection  against the loss of 
earnings due  to retirement or death. The assistance is  in the form 
of money payments or  medical care. The Federal Old Age and  
Survivors Trust Fund is administered  by the Social Security 
Administration  (SSA).  
 
The Federal Old Age and Survivors  Insurance Fund is financed 
primarily by  payroll taxes. The fund also receives ad-ditional  
income from interest earnings  on Federal debt securities, Federal 
agen-cies'  payments for the Social Security  benefits earned by 
military and Federal  civilian employees, and Treasury pay-ments  
for a portion of income taxes  paid on Social Security benefits.  
 
Federal Disability Trust Fund  The Federal Disability Trust Fund  
provides assistance and protection  against the loss of earnings due 
to a  wage earner's disability. The assistance  is in the form of 
money payments or  medical care. The Federal Disability  Trust Fund 
is administered by SSA.  
 
The Federal Disability Trust Fund,  like the Federal Old Age and 
Survivors  Insurance Trust Fund, is financed pri-marily  by payroll 
taxes. The fund also  receives additional income from interest  
earnings on Federal debt securities, Fed-eral  agencies' payments 
for the Social Se-curity  benefits earned by military and  Federal 
civilian employees, and a por-tion  of income taxes paid on Social 
Secu-rity  benefits.  
 
Federal Hospital Insurance  Trust Fund  
 
The Hospital Insurance Trust Fund  finances the Hospital Insurance 
Pro-gram,  which funds the cost of hospital  and related care for 
individuals age 65  
 
or older who meet certain insured  status requirements, and for 
eligible dis-abled  people. The program is adminis-tered  by the 
Department of Health and  Human Services (HHS).  
 
The Hospital Insurance Trust Fund  (also known as Medicare, Part A) 
is fi-nanced  primarily by payroll taxes. It  also receives 
additional income from in-terest  earnings on Federal debt securi-
ties,  Federal agencies' payments for the  Social Security benefits 
earned by mili-tary  and Federal civilian employees, and  a portion 
of income taxes paid on Social  Security benefits.  
 
Federal Supplemental  Medical Insurance Trust Fund  
 
The Supplemental Medical Insurance  Trust Fund (also known as 
Medicare,  Part B) provides supplementary medical  insurance for 
eligible participants to  cover medical expenses not covered by  
Medicare, Part A. The program is ad-ministered  by HHS.  
 
The Supplemental Medical Insurance  Trust Fund is funded by 
appropria-tions,  premiums charged to enrollees  and interest earned 
on investments in  Federal debt securities.  
 
Unemployment Trust Fund  The Unemployment Trust Fund pro-tects  
workers who lose their jobs  through no fault of their own. Unem-
ployment  insurance is a unique Fed-eral/  State partnership based 
on Federal  law, which is executed through State  law by State 
officials. The program is ad-ministered  by the Department of Labor.  
 
The Unemployment Trust Fund is  funded primarily by taxes on employ-
ers.  However, it also has income from  interest earned on 
investments in Fed-eral  debt securities and appropriations  have 
supplemented its income during pe-riods  of high and extended 
unemploy-ment.  
 
Hazardous Substance Superfund  The Hazardous Substance Super-fund  
was authorized to address public  health and environmental threats 
from  spills of hazardous materials and from  sites contaminated 
with hazardous sub-stances.  The fund is administered by the  
Environmental Protection Agency.  
 
58 Notes to the Financial Statements  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  65  
 
65 
 Page 66 67 
 
The Hazardous Substance Superfund  is financed by excise taxes 
collected on  petroleum and chemicals, environ-mental  taxes from 
all corporations with  income in excess of $2 million and inter-est  
earned on investments in Federal  debt securities.  
 
Highway Trust Fund  The Highway Trust Fund was estab-lished  to 
promote domestic interstate  transportation, moving people and  
transporting goods. The fund provides  Federal grants to States for 
highway con-struction  and related transportation pur-poses.  The 
Highway Trust Fund is  administered by the Department of  
Transportation.  The Highway Trust Fund is fi-nanced  entirely by 
earmarked taxes on  gasoline and other fuels, certain tires, ve-
hicle  and truck use, and by interest  earned on investments in 
Federal debt  securities.  
 
Airport and Airway Trust Fund  The Airport and Airway Trust Fund  
provides for airport improvement, main-tenance  of the facilities 
and equipment,  research and also for a portion of the op-erations.  
The Airport and Airway Trust  Fund is administered by the Depart-
ment  of Transportation.  The Airport and Airway Trust Fund  is 
financed by taxes received from trans-portation  of persons and 
property in  the air, fuel used in non-commercial air-craft,  
international departure taxes and  by interest earned on investments 
in  Federal debt securities.  
 
Civil Service Retirement  and Disability Fund  
 
CSRDF covers two Federal civilian  retirement systems: CSRS, for 
employ-ees  hired before 1984 and FERS, for em-ployees  hired after 
1983.  CSRDF is financed by Federal civil-ian  employees' 
contributions, agencies'  contributions on behalf of the employ-ees,  
appropriations and interest earned  on investments in Federal debt 
securi-ties.  
 
Military Retirement Trust Fund  The Military Retirement Trust Fund  
provides retirement benefits for Army,  Navy, Marine Corps and Air 
Force per-sonnel  and their survivors. The fund is  financed by DOD 
contributions, appro- 
 
priations and interest earned on invest-ments  in Federal debt 
securities.  
 
Note 17. Fiduciary trust funds  The fiduciary trust funds differ 
from  other dedicated collections reported in  Note 16, in that the 
Federal Govern-ment  holds fiduciary funds on behalf of  some other 
entity (for example, individ-ual,  tribes and foreign governments).  
No person or group of persons has a di-rect  ownership interest in 
the monies  held by the trust funds reported in  Note 16.  
 
The U. S. Federal Government has a  fiduciary responsibility for 
several de-posit  and trust funds. The Department  of the Interior 
has responsibility for the  assets held in trust on behalf of Ameri-
can  Indian Tribes and individuals. The  fiduciary funds are held in 
accounts for  approximately 315 tribes, 317,000 indi-vidual  Indian 
accounts and other funds,  including the Alaska Native Escrow  Fund. 
The assets held in trust for Na-tive  Americans are owned by the 
trust  beneficiaries and are not Federal assets.  Therefore, these 
amounts are not re-flected  in the consolidated balance sheet  or 
statement of net costs.  
 
Fiduciary trust fund balances pre-sented  below do not include trust 
land  managed by the U. S. Government.  
 
U. S. Government as trustee for Indian fiduciary trust funds  
statement of changes in trust fund balances  as of September 30 
(unaudited)  
 
(In billions of dollars)  Receipts . . . . . . . . . . . . . . . 1.2  
Disbursements. . . . . . . . . . . 1.0  Receipts in excess of 
disbursements . . . . . . . 0.2  
 
Trust fund balances, beginning of year . . . . . . 2.7  Trust fund 
balances, end of year. . . . . . . . . . . . 2.9  
 
Notes to the Financial Statements 59  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  66  
 
66 
 Page 67 68 
 
60 Notes to the Financial Statements  Consolidated Financial 
Statements of the United States Government, Fiscal 1997  67  
 
67 
 Page 68 69 
 
United States Government  Consolidated Stewardship Reporting  for 
the year ended September 30, 1997 (Unaudited)  
 
The stewardship reporting section  of this report provides 
information on  certain resources entrusted to the Fed-eral  
Government and certain responsi-bilities  assumed by it. These 
resources  and responsibilities do not meet the cri-teria  for 
assets and liabilities that are re-quired  to be reported in the 
financial  statements but are important to under-standing  the 
operations and financial  condition of the Federal Government.  The 
section this year includes informa-tion  on land not used in general 
opera-tions  and on major social insurance  programs: Social 
Security and Medicare  parts A and B. The scope of this sec-tion  
will be expanded in the future.  The information on social insurance  
is supplemented by Note 16. Social in-surance  is financed through 
trust funds,  and Note 16 provides general informa-tion  about the 
nature of dedicated col-lections  and trust funds in the Federal  
Government and specific information  about the receipts, 
disbursements and  assets of the largest funds with dedi-cated  
collections.  
 
Stewardship land Stewardship land is land owned by  
 
the Federal Government not used in,  or held for use in, general 
government  services. Therefore, excluded from stew-ardship  lands 
are lands used as part of  general government operations (e. g.  
 
military bases and the Tennessee Valley  Authority), and lands 
administered by  the Bureau of Indian Affairs held in  trust on 
behalf of the Indians.  
 
The majority of stewardship land is  "public domain" land  that is, 
large ar-eas  of territory acquired by the nation  between 1781 and 
1867. All areas of  the nation other than the lands belong-ing  to 
the original 13 colonies and the  state of Texas were acquired as 
public  domain. During this time, the Federal  Government acquired 
land equal to  79.4 percent of the current acreage of  the United 
States, spending a total of  $85.1 million.  
 
Bureau of Land Management  The Bureau of Land Management  (BLM) is 
responsible for managing a va-riety  of land types. BLM subdivides  
their management responsibility into  five primary land types: (1) 
rangeland;  (2) forest land; (3) riparian and wet-lands; (4) aquatic 
areas and (5) other  
 
habitat and wastelands.  Rangeland is land on which the na-tive 
vegetation is predominately 

 
grasses, grass-like plants, forbs, or  shrubs suitable for grazing 
or browsing  use. Rangelands include lands revege-tated  either 
naturally or artificially to  provide a forage cover that is managed  
like native vegetation. Rangelands in-United  
 
States Government stewardship land as of September 30 (In millions 
of acres)  
 
Totals  
 
Predominate land use  U. S. Forest  Service  National  Park Service  
 
U. S. Fish  and Wildlife  Service  
 
Bureau of  Land  Manage-ment Total by  type of use  Percent of  
total  Bureau of Land  Management land. . 259.0 259.0 41% National 
wildlife  
 
refuge. . . . . . . . . . . . . 67.4 67.4 11%  National parks . . . 
. . . . 49.4 49.4 8% National forest . . . . . . . 153.3 153.3 25%  
 
National grassland . . . 3.8 3.8 1%  Wilderness area . . . . . . 
34.7 28.0 20.7 5.0 88.4 14%  
 
Total acres . . . . . . . . . 191.8 77.4 88.1 264.0 621.3 100%  
 
Stewardship Reporting 61  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  68  
 
68 
 Page 69 70 
 
clude natural grasslands, savannahs,  shrublands, most deserts, 
tundra, al-pine  communities, coastal marshes and  wet meadows. 
Rangelands total 165  million acres, including 5 million acres  in 
the Alaska Reindeer Range.  Forest land encompasses approxi-mately  
11 million acres. About 7 mil-lion  acres are in Alaska, with 4  
million more in the 11 western states.  These forested lands are of 
great vari-ety  and include black and white  spruce in Alaska; 
aspen, lodgepole pine, ponderosa pine, interior Douglas  
 
fir, and associated species of the Inter-mountain  West; the pinyon-
juniper  woodlands of the Great Basin and  Southwest; and the 
Douglas fir, hem-lock,  and cedar forests of western Ore-gon  and 
northern California.  Riparian areas are lands adjacent to  creeks, 
streams, lakes, and rivers total-ing  183,000 miles in length and 7 
mil-lion  acres in area. These areas,  containing scarce water and 
vegetation  in the otherwise arid western United  States, are 
important to fish and wild-life  species, as well as to livestock.  
Since they filter the water flowing through them, riparian-wetland 
areas  
 
can effect the health of the entire wa-tersheds.  Wetlands are areas 
inundated  or saturated by surface or ground  water at a frequency 
and duration suffi-cient  to support vegetation that is typi-cally  
adapted for life in saturated soil.  Wetlands include bogs, marshes, 
shal-lows,  muskegs, wet meadows, estuaries  and riparian areas. 
Wetlands total 16  million acres.  
 
Aquatic areas are areas of water  flow or standing water that 
include  about 4 million acres of lakes and reser-voirs.  These 
waters contain a wide vari-ety  of aquatic species that range from 
rare resident species, such as the desert  
 
pupfish to endangered and threatened  anadromous species, such as 
steelhead  and chinook salmon.  
 
Wastelands are areas that generally  do not provide forage in 
sufficient  amounts to sustain wildlife or grazing  animals. This 
land category includes  such areas as mountain tops, glaciers,  
barren mountains, sand dunes, playas,  hot, dry deserts and other 
similar areas  totaling 20 million acres.  
 
U. S. Forest Service  The U. S. Forest Service has the re-
sponsibility  for the management of  
 
191.8 million acres of Federally owned  lands for the sustained use 
of outdoor  recreation, range, timber, watershed,  and the 
management of wildlife and fish.  Forest land contains 155 named na-
tional  forests. Within the national for-ests,  livestock grazing 
for cattle, horses,  sheep and goats was permitted on over  103.4 
million acres of rangeland. The  Forest Service sold 4.0 billion 
board-feet  of lumber and supervised the harvest of  3.3 billion 
board-feet of lumber in the  fiscal 1997 and reforested 0.3 million  
acres primarily with genetically im-proved  seedlings.  Wilderness 
land contains 34.7 mil-lion  acres in 44 states, Puerto Rico and  
the U. S. Virgin Islands, and is served by  33,000 miles of trails.  
The Forest Service also manages 20  named grasslands on 3.8 million 
acres  and about 4,348 miles of the wild and  scenic river system.  
 
U. S. Fish and Wildlife Service The U. S. Fish and Wildlife Service 

 
has the responsibility for the manage-ment  of 88.1 million acres of 
Federally  owned lands held primarily for wildlife  conservation. It 
has four goals: (1) to  preserve, restore, and enhance in their  
natural ecosystems all species of animals  and plants that are 
endangered or threat-ened  with becoming endangered; (2) to  
perpetuate the migratory bird resource;  (3) to preserve a natural 
diversity and  abundance of fauna and flora and (4) to  provide and 
understanding and apprecia-tion  of fish and wildlife ecology, and 
to  provide refuge visitors a safe, whole-some  and enjoyable 
recreational experi-ence  oriented toward wildlife.  The U. S. Fish 
and Wildlife Service  subdivides its management responsibil-ity  
into the following categories:  
 
 National wildlife refuges 512 sites on 67.4 million acres and  
 
 Wilderness areas 362 sites on 20.7 mil-lion acres.  The service 
also manages eight wild  and scenic rivers totaling 1,390 miles in  
length.  
 
National Park Service The National Park Service has the re-
sponsibility  
 
for the management of 77.4  million acres of Federally owned lands,  
including 13.1 million acres designated  as wilderness, the purpose 
of which is to conserve the scenery, nature, historic  
 
objects and the wildlife therein for the  
 
62 Stewardship Reporting  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  69  
 
69 
 Page 70 71 
 
enjoyment of the public and future gen-erations.  Other types of 
park areas include:  national rivers, parkways, national lake-
shores,  historic parks, scenic trails, wild  and scenic rivers, 
military parks, re-serves,  battlefields and other parks.  
 
Stewardship responsibilities  Social Security  The Social Security 
Act was enacted  in 1935 and included, among other ele-ments,  
programs providing benefits for  retirement.  
 
Two trust funds have been estab-lished  by law to account for the 
OASI  and the DI programs. OASI pays retire-ment  and survivors 
benefits and DI  pays benefits after a worker becomes  disabled.  
 
Revenue to OASDI consists of taxes on earnings that are paid by 
employ-ees,  
 
their employers and the self-em-ployed.  OASDI also receives revenue  
from the taxation of part of Social Secu-rity  benefits. Revenues 
that are not  needed to pay current benefits or ad-ministrative  
expenses are invested in  special issue U. S. Government securi-ties  
guaranteed as to both principal and  interest and backed by the full 
faith  and credit of the U. S. Government.  
 
The Board of Trustees of the OASI  and DI Trust Funds provides the 
Presi-dent  and the Congress with short-range  (10 year) and long-
range (75-year) actu-arial  estimates of each trust fund in its  
annual report. Because of the inherent  uncertainty in estimates for 
as long as  75 years into the future, SSA Trustees  use three 
alternative sets of economic  and demographic assumptions to show  a 
range of possibilities. Assumptions  are made about many economic, 
demo-graphic,  and programmatic factors, in-cluding  gross domestic 
product,  earnings, the Consumer Price Index, un-employment,  
fertility, immigration, mortality, and disability incidents and  
 
termination. The assumptions used in  the table below, generally 
referred to as  the intermediate assumption, reflect the  best 
estimate of expected future experi-ence.  
 
The present values of actuarial esti-mates  have been computed as of 
the be-ginning  of the valuation period,  September 30, 1997. The 
expenditures  consist of the sum of the present value  of all 
estimated payments during the 75- year valuation period, and the 
contribu-tions  consist of the sum of the present  value of all 
estimated non-interest in-come  during the period. The estimates  
have been prepared on the basis of the  financing method regarded by 
both the  Congress and the trustees of the trust  funds as the 
appropriate one to use for  social insurance programs namely that  
future workers will be covered by the  program as they enter the 
labor force.  Under current legislation and using  intermediate 
assumptions, the DI trust  fund and the OASI trust fund are pro-
jected  to be exhausted in 2015 and 2031  respectively. Combined 
OASDI expen-ditures  will exceed current tax income  beginning in 
2012, and they will exceed  total current income (including current  
interest income) for calendar years  
 
Summary of acreage (In millions of acres)  Type of park area Acreage  
National parks . . . . . . . 49.4 National preserves . . . 21.4  
 
National recreation  areas . . . . . . . . . . . . . 3.3  National 
monuments. . . . . . . . 1.7  
 
National seashores . . . 0.5  Other park areas. . . . . 1.1  
 
Total acres. . . . . . . . . 77.4  
 
Social Security present value (PV) actuarial estimates for the  
period of 75 years into the future, beginning September 30, 1997 (In 
trillions of dollars)  
 
OASI DI OASDI  PV of actuarial contributions to the year 2072. . . . 
15.3 2.5 17.8 

PV of actuarial expenditures to the year 2072 . . . 18.2 3.1 21.3  
 
PV of future resources needed . . . . . . . . . . . . . . . . 2.9 
0.6 3.5  Net assets of Social Security  (as of September 30, 1997) . 
. . . . . . . . . . . . . . . . . 0.6 0.1 0.7  
 
Stewardship Reporting 63  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  70  
 
70 
 Page 71 72 
 
2019 and later. Thus, current tax in-come  plus a portion of annual 
interest  income will be needed to meet expen-ditures  for the years 
2012 through  2018. Thereafter, in addition to cur-rent  tax income 
and current interest in-come,  a portion of the principal (i. e.,  
combined OASDI assets) will be  needed each year until the trust 
fund  assets are totally exhausted in 2029. At  that point, current 
tax income will be  sufficient to pay approximately 75 per-cent  of 
the benefits due.  
 
Medicare Revenue to Federal Hospital Insur-ance  
 
Trust Fund (HI Medicare, Part  A) consists of taxes on earnings that  
are paid by employees, their employ-ers,  and the self-employed. HI 
also re-ceives  revenue from part of the  taxation of Social 
Security benefits and  from interest on its investments. Reve-nues  
that are not needed to pay cur-rent  benefits or administrative  
expenses are invested in special issue  U. S. Government securities 
guaran-teed  as to both principal and interest  and backed by the 
full faith and credit of the U. S. Government.  
 
HI (Medicare, Part A) has an actuar-ial  deficit of $1,845.3 billion 
as com-puted  25 years (to calendar year 2022)  into the future. It 
includes the book  value of assets as of September 30,  1997, and 
the present value of various  program income items expected to be  
received through the year 2022, less:  (1) the present value of 
outlays  through the year 2022, (2) claims in- 
 
curred to October 1, 1997, but unpaid  as of that date, and (3) any 
administra-tive  expenses related to those claims.  Under current 
legislation, incorporating  the changes from the Balanced Budget  
Act, and using intermediate assump-tions  from the 1997 trustees 
report,  Medicare, Part A is projected to be ex-hausted  in 2010.  
 
The Federal Supplementary Medical  Insurance Trust Fund (SMI 
Medicare,  Part B) benefits and administrative ex-penses  are 
financed by monthly premi-ums  paid by Medicare beneficiaries and  
additional contributions by the Federal  Government. The Omnibus 
Budget Rec-onciliation  Act of 1990 set specific  monthly premium 
levels for five calen-dar  years beginning in 1991. The  monthly 
premium in calendar year 1997  covered 25 percent of the SMI pro-
gram's  estimated 1997 cost.  
 
The Federal Supplementary Medical  Insurance Trust Fund (SMI 
Medicare,  Part B) has a surplus of $29,237 billion  which 
represents the amount of the esti-mated  book value of the trust 
fund as-sets  as of September 30, 1997, less  unpaid benefits and 
related administra-tive  expenses.  
 
The Federal Accounting Standards  Advisory Board is considering 
adding  three other social insurance programs  for presentation in 
future consolidated statements as stewardship responsibili-ties:  
 
the Railroad Retirement Trust  Fund, the Black Lung Trust Fund and  
the Unemployment Insurance Program.  
 
Medicare, Part A, present value estimates for the period of  25 
years into the future, beginning September 30 (In billions of 
dollars)  
 
PV of actuarial contributions to the year 2022 . . . . . . . . . . . 
. . . . 2,432.8  PV of actuarial expenditures to the year 2022 . . . 
. . . . . . . . . . . . 4,278.1  
 
PV of future resources needed. . . . . . . . . . . . . . . . . . . . 
. . . . . . . . 1,845.3  Assets in Medicare Trust Fund . . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . 118.9  
 
Medicare Part B, estimates as of September 30 (In billions of 
dollars)  
 
Total trust fund assets . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . 35.1  Total unpaid benefits . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0  
 
Excess of Trust Fund assets over unpaid benefits . . . . . . . . . . 
. . 29.1  
 
64 Stewardship Reporting  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  71  
 
71 
 Page 72 73 
 
United States Government  Consolidated Supplemental Information  for 
the year ended September 30, 1997  
 
Reconciliation of the changes in net position to the deficit on the 
budgetary basis  for the year ended September 30 (Unaudited)  
 
(In billions of dollars)  
 
Change in net position . . . . . . . . . . . . . . . . . . . . . . . 
. . . -2.6  Timing and other differences in the recognition or  
measurement of revenue:  
 
Earned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . -102.0  Non-exchange revenue. . . . . . . . . . . . . . . 
. . . . . . . . . . -3.2  Other earned revenue . . . . . . . . . . . 
. . . . . . . . . . . . . . . -11.6  
 
Timing and other differences in the recognition or  measurement of 
cost:  
 
Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . -18.6  Human resources. . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . -34.3 Physical resources . . . . . . 
. . . . . . . . . . . . . . . . . . . . . . . . 123.3  
 
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . . . . 2.1 Other functions . . . . . . . . . . . . . . . 
. . . . . . . . . . . . . . . . . 37.4  
 
Non-recurring items:  Unreconciled transactions affecting the change  
in net position . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . . . . . -12.4  
 
Deficit (-) for the year on the budgetary basis . . . . . . -21.9  
 
Supplemental Table and Appendix 65  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  72  
 
72 
 Page 73 74 
 
Appendix: List of significant U. S. Government entities  included 
and entities excluded from these  Consolidated Financial Statements  
 
These financial statements include  the executive, legislative and 
judicial  branches of the Federal Government.  Excluded from this 
consolidated finan-cial  statement are privately owned  Government 
sponsored enterprises  such as the Federal Home Loan Banks  and the 
Federal National Mortgage As-sociation.  The Federal Reserve System  
is also excluded because organizations  and functions pertaining to 
monetary  policy are traditionally separate from  and independent of 
the other central  Government organizations and func-tions.  
 
Significant entities included in this consolidation  Executive 
Office of the President  Office of Management and Budget  Department 
of Agriculture  Department of Commerce  Department of Defense  
Department of Education  Department of Energy  Department of Health 
and  Human Services  Department of Housing and  Urban Development  
Department of the Interior  Department of Justice  Department of 
Labor  Department of State  Department of the Air Force  Department 
of the Army  Department of the Navy  Department of the Treasury  
Department of Transportation  Department of Veterans Affairs  U. S. 
Postal Service  Agency for International Development  Central 
Intelligence Agency  Commodity Credit Corporation  
 
Commodity Futures Trading  Commission  Corporation for Public 
Broadcasting  Environmental Protection Agency  Export-Import Bank of 
the United States  Farm Credit Administration  Federal 
Communications Commission  Federal Deposit Insurance Corporation  
Federal Emergency Management Agency  Federal Trade Commission  
General Services Administration  National Aeronautics and  Space 
Administration  National Archives and  Records Administration  
National Credit Union Administration  National Science Foundation  
National Transportation Safety Board  Office of Personnel Management  
Pension Benefits Guaranty Corporation  Securities and Exchange 
Commission  Small Business Administration  Smithsonian Institution  
Social Security Administration  Tennessee Valley Authority  U. S. 
Nuclear Regulatory Commission  U. S. Army Corps of Engineers  U. S. 
Information Agency  Other boards and commissions  Library of 
Congress  Government Printing Office  General Accounting Office  
Congressional Budget Office  Other legislative and judicial (cash  
transactions only)  
 
Significant entities excluded from this consolidation  
 
Federal Reserve Banks  Board of Governors  of the Federal Reserve 
System  Farm Credit System  Thrift Savings Plan  Federal Home Loan 
Banks  Financing Corporation  Freddie Mac  Fannie Mae  Sallie Mae  
Resolution Funding Corporation  Army and Air Force Exchange Service  
Navy Exchange Service Command  Marine Corps Exchange  
 
66 Supplemental Table and Appendix  
 
Consolidated Financial Statements of the United States Government, 
Fiscal 1997  73  
 
73 
 Page 74 75 
 
 
74  
 
74 
 Page 75 76 
 
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