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
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. It was created by converting a PDF file to text **
** in order to make the document indexable and retrievable **
** using GPO's WAIS search capabilities. The conversion process **
** is imperfect. This resulting ASCII file does not accurately **
** reproduce the format, arrangement, or sequence of the **
** original printed document.
** **
** Please see the PDF (Portable Document Format) file for a **
** complete electronic file of the printed document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
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
Ordering Information The first copy of each GAO report and
testimony is free. Additional copies are $2 each. Orders should be
sent to the following address, accompanied by a check or money
order made out to the Superintendent of Documents, when necessary.
VISA and MasterCard credit cards are accepted, also. Orders for 100
or more copies to be mailed to a single address are discounted 25
percent. Orders by mail: U. S. General Accounting Office P. O. Box
37050 Washington, DC 20013 or visit: Room 1100 700 4th St. NW
(corner of 4th and G Sts. NW) U. S. General Accounting Office
Washington, DC
Orders may also be placed by calling (202) 512-6000 or by using fax
number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues
a list of newly available reports and testimony. To receive
facsimile copies of the daily list or any list from the past 30
days, please call (202) 512-6000 using a touchtone phone. A recorded
menu will provide information on how to obtain these lists. For
information on how to access GAO reports on the INTERNET, send an e-
mail message with "info" in the body to:
info@ www. gao. gov or visit GAO's World Wide Web Home Page at:
http:// www. gao. gov
*** End of document. ***