Financial Audit: Issues Regarding Reconciliations of Fund Balances with
Treasury Accounts (Letter Report, 10/14/98, GAO/AIMD-99-3).

Pursuant to a legislative requirement, GAO reviewed federal agencies'
efforts to reconcile their fund balances with Treasury accounts in the
U.S. government's fiscal year (FY) 1997 consolidated financial
statements, focusing on the: (1) overall effectiveness of agencies'
reconciliation processes; and (2) agencies' satisfaction with the
Department of the Treasury's role in providing assistance and systems
support in their reconciliation efforts.

GAO noted that: (1) auditors found reconciliation problems at 10 of 22
agencies covered by the Chief Financial Officers Act of 1990; (2) the
agencies with reconciliation problems disbursed about 47 percent of the
total federal dollars disbursed in FY 1997, and had billions of dollars
in unreconciled differences outstanding at year-end; (3) these agencies
were either not timely in reconciling their fund balances with Treasury
accounts, or they were merely adjusting their accounts to match the
amounts reported by Treasury; (4) these adjustments were made without
adequately researching the causes of the differences and thus without
knowing which number, if any, was correct; (5) auditors reported that,
in general, the underlying causes of agency reconciliation problems were
lack of effective internal control procedures, insufficiently trained
staff to perform reconciliations, or a lack of management emphasis on
performing reconciliations; (6) these reconciliation problems could
affect the government's ability to effectively monitor the execution of
the budget; (7) also, the lack of effective reconciliation of
disbursements contributes to the overall inability of the federal
government to accurately measure the full cost of its programs and
increases the risk of fraud, waste, and mismanagement; (8) agencies
depend on Treasury for support in fulfilling their reconciliation
responsibilities; (9) several agencies reported problems with Treasury's
reconciliation processes and the assistance it provides agencies in
carrying out these processes; (10) specifically, these agencies cited
problems with: (a) Treasury not providing them with adequate levels of
detail on transactions processed; (b) the Treasury automated system they
use extensively for reconciliations; and (c) Treasury's assistance in
areas such as written guidance and training related to the
reconciliation process; and (11) GAO found that Treasury has taken some
steps that attempt to improve the reconciliation process and is
considering other actions to improve its assistance to agencies.

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

 REPORTNUM:  AIMD-99-3
     TITLE:  Financial Audit: Issues Regarding Reconciliations of Fund 
             Balances with Treasury Accounts
      DATE:  10/14/98
   SUBJECT:  Technical assistance
             Financial statement audits
             Treasury accounts
             Fund audits
             Auditing procedures
             Inspectors general
             Reporting requirements
             Internal controls
             Interagency relations
             Accounting procedures
IDENTIFIER:  Government On-Line Accounting Link System
             Treasury On-Line Payment and Collection System
             Y2K
             
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Cover
================================================================ COVER


Report to the Secretary of the Treasury

October 1998

FINANCIAL AUDIT - ISSUES REGARDING
RECONCILIATIONS OF FUND BALANCES
WITH TREASURY ACCOUNTS

GAO/AIMD-99-3

Agency Reconciliations of Fund Balances

(919199)


Abbreviations
=============================================================== ABBREV

  BCA -
  CFO -
  FMS -
  GOALS -
  IPA -
  OMB -
  OPAC -
  TFM -

Letter
=============================================================== LETTER


B-279987

October 14, 1998

The Honorable Robert E.  Rubin
The Secretary of the Treasury

Dear Mr.  Secretary: 

As we and other auditors have previously reported, agencies have had
long-standing problems reconciling their Fund Balances with Treasury
accounts.  In recognition of this problem, during our preparation for
the audit of the fiscal year 1997 Consolidated Financial Statements
of the U.S.  Government, we issued a letter, dated June 24, 1997, to
alert agency Inspectors General and Chief Financial Officers of our
concerns about large unreconciled differences and improper agency
adjustments.\1 However, as indicated in our March 1998 audit report
on the fiscal year 1997 consolidated financial statements, several
major agencies were still not effectively reconciling their records
with the Department of the Treasury's records of cash
disbursements.\2

In our March report, we noted that there were billions of dollars in
unreconciled differences outstanding as of September 30, 1997, and
that some agencies had arbitrarily written off large amounts of
unresolved differences without adequate support.  Thus, agency
reconciliation problems was one of several material deficiencies
included in our March report and contributed to our inability to
render an opinion on the U.S.  government's fiscal year 1997
consolidated financial statements. 

Treasury designed various procedures and controls--called the
reconciliation process--aimed primarily at ensuring the reliability
of receipt and disbursement data reported by agencies.  This monthly
reconciliation process--similar in concept to individuals reconciling
personal checkbooks with a bank's records each month--is a
fundamental accounting practice used by agencies and Treasury and a
key internal control over federal receipts and disbursements. 
Treasury, through its Financial Management Service (FMS), also
provides assistance to agencies in the monthly reconciliation of
their Fund Balances with Treasury accounts by providing written
guidance, training, and day-to-day assistance. 

Because most assets, liabilities, revenues, and expenses stem from or
result in cash transactions, errors in the receipt or disbursement
data affect the accuracy of various U.S.  government financial
reports, including budget execution reports.  Information in these
reports are designed to be used by agency managers and the Congress
in making program funding decisions and monitoring program progress. 
We recently noted in a July 1998 report on year-end spending that
there were significant differences between data reported in (1) final
budget execution reports (Standard Form 133) to the Office of
Management and Budget (OMB), (2) the prior year column of the
President's Fiscal Year 1999 Budget, and (3) Treasury's Fiscal Year
1997 Annual Report.\3 These differences could be caused by agencies'
failure to report and reconcile budget execution data, as well as
ineffective agency reconciliations of Fund Balances with Treasury
accounts.  However, the extent to which these reconciliation problems
affect the differences between the data in the reports is unclear. 
Other factors, such as the timing of when data is reported, would
also contribute to such differences. 

As part of the audit of the fiscal year 1997 U.S.  government's
consolidated financial statements, we monitored and evaluated the
overall effectiveness of agencies' reconciliation processes for Fund
Balances with Treasury accounts.  We also surveyed agencies'
satisfaction with Treasury's role in providing assistance and systems
support in their reconciliation efforts.  This report provides the
results of that work. 


--------------------
\1 Financial Audit:  Reconciliation of Fund Balances with Treasury
(GAO/AIMD-97-104R, June 24, 1997). 

\2 Financial Audit:  1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, March 1998). 

\3 Year-End Spending:  Reforms Underway But Better Reporting and
Oversight Needed (GAO/AIMD-98-185, July 31, 1998). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Auditors found reconciliation problems at 10 of 22 agencies covered
by the Chief Financial Officers Act of 1990 (CFO Act).\4 The agencies
with reconciliation problems disbursed about 47 percent of the total
federal dollars disbursed in fiscal year 1997, and had billions of
dollars in unreconciled differences outstanding at year-end.  These
agencies were either not timely in reconciling their Fund Balances
with Treasury accounts, or they were merely adjusting their accounts
to match the amounts reported by Treasury.  These adjustments were
made without adequately researching the causes of the differences and
thus without knowing which amount, if any, was correct. 

Auditors reported that, in general, the underlying causes of agency
reconciliation problems were lack of effective internal control
procedures, insufficiently trained staff to perform reconciliations,
and/or a lack of management emphasis on performing reconciliations. 
These reconciliation problems could affect the government's ability
to effectively monitor the execution of the budget.  Also, the lack
of effective reconciliations of disbursements contributes to the
overall inability of the federal government to accurately measure the
full cost of its programs and increases the risk of fraud, waste, and
mismanagement. 

Agencies depend on Treasury for support in fulfilling their
reconciliation responsibilities.  Several agencies reported problems
with Treasury's reconciliation processes and the assistance it
provides agencies in carrying out these processes.  Specifically,
these agencies cited problems with (1) Treasury not providing them
with adequate levels of detail on transactions processed, (2) the
Treasury automated system they use extensively for reconciliations,
and (3) Treasury's assistance in areas such as written guidance and
training related to the reconciliation process.  We found that
Treasury has taken some steps that attempt to improve the
reconciliation process and is considering other actions to improve
its assistance to agencies. 


--------------------
\4 The CFO Act, as expanded by the Government Management Reform Act
of 1994, requires the issuance of annual audited financial statements
for the 24 executive agencies specified in the law and for the
federal government as a whole.  However, the audit reports for 2 of
the 24 agencies were not issued in time for us to include their
results in this report. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Agencies record their budget spending authorizations in asset
accounts called Fund Balances with Treasury accounts, and increase or
decrease these accounts as they collect or disburse funds.  Even
though Treasury serves as the central banker for most agencies,
unlike commercial banking institutions, it does not maintain
independent accounting records of each agency's Fund Balances with
Treasury accounts.  Instead, Treasury relies on monthly data reported
by agencies for its records of agencies' collections and
disbursements and Fund Balances with Treasury account balances. 

FMS designed the reconciliation process primarily to help ensure the
reliability of receipt and disbursement data reported by agencies. 
FMS also developed the automated systems used in the reconciliation
process.  The primary system used by agencies in transaction
processing and in their monthly reporting to Treasury is the
Government On-line Accounting Link System (GOALS).  Also, the On-line
Payment and Collections (OPAC) application used by agencies for
processing and reconciling interagency transactions and CA$HLINK, the
cash collections system, are used in the reconciliation process. 

Treasury policies require each agency to submit monthly Statements of
Transactions (Standard Form 224) or Statements of
Accountability/Transactions (Standard Forms 1218/1219 and 1220/1221)
to report agency collection and disbursement activity along with
other financial information.  Also, Treasury requires each agency to
submit a Year-End Closing Statement (FMS Form 2108) showing the funds
unobligated under each appropriation and fund account that are
included in an agency's Fund Balances with Treasury account.  The
balances in the Year-End Closing Statement, however, would not
reflect any unreconciled differences.  Thus, the accuracy of the
appropriation and fund account balances reported on the FMS Form 2108
depends on whether an agency has properly reconciled its Fund
Balances with Treasury accounts.  Further, the balances reported on
FMS Form 2108 and related transactions reported on Standard Form 224
are used to prepare the Treasury's Fiscal Year 1997 Annual Report and
should agree with the corresponding balances and transactions
reported by agencies on their final Standard Form 133 budget
execution reports to OMB. 

The reconciliation process begins when Treasury compares agency
reported receipts and disbursements to amounts reported by
independent sources, such as Federal Reserve Banks.  Treasury then
reports the details of any discrepancies identified to agencies in a
monthly Statement of Differences report (FMS Form 6652).  Also
monthly, Treasury sends the Undisbursed Appropriation Account Ledgers
(FMS Form 6653) and the Receipt Account Ledger and Trial Balance (FMS
Form 6655) showing the monthly activity in each appropriation account
including disbursements and receipts, as well as noncash
transactions, such as additional allocated budget authority and
reprogramming or budget rescissions.  Agencies are responsible for
investigating and resolving differences reported on the monthly
Statement of Differences reports and differences between their fund
account records and Treasury's Undisbursed Appropriation and Receipt
Account ledgers.  Once differences are resolved, agencies must record
any necessary adjustments to their Fund Balances with Treasury
accounts and report these adjustments to Treasury. 

Treasury sends agencies Statement of Differences reports monthly
until the differences are cleared.  Also, Treasury sends a reminder
letter to an agency if it has not reconciled a difference of over $1
million within 3 months.  In addition, Treasury sends a reminder
letter if an agency has not reconciled a difference of over $100,000
within 5 months.  Throughout fiscal year 1997 and up until April
1998, differences that remained outstanding for 6 months were
aggregated by month and each month's net amount was transferred to
Budget Clearing Accounts (BCA) by Treasury.\5 After the transfer,
monthly Statement of Differences reports and reminder letters were no
longer sent to agencies.  Instead, the net transfers and net BCA
balances were reported monthly to agencies on the Undisbursed
Appropriation Account Ledger (FMS Form 6653).  Treasury also sent
agencies a quarterly BCA reminder letter. 

In response to the range of serious weaknesses identified in the
audits of agencies' fiscal year 1997 financial statements and the
U.S.  government's consolidated financial statements, the President
issued a memorandum dated May 26, 1998, to the Heads of Executive
Agencies directing them to take corrective action on audit findings. 
Specifically, the President directed agencies to address reported
accounting system weaknesses and problems with fundamental accounting
practices. 

The President also directed OMB to monitor agencies' progress towards
correcting these identified weaknesses to enable the administration
to achieve its goal of obtaining an unqualified audit opinion on the
U.S.  government's fiscal year 1999 consolidated financial
statements.  Agencies were required to submit a plan to OMB by July
31, 1998, that included milestones for resolving their reported
weaknesses.  Agencies must also file quarterly reports documenting
their progress in resolving these weaknesses.  The directive requires
OMB to periodically report on the results of its monitoring efforts
to the Vice President. 


--------------------
\5 In order to continue to provide agencies with the supporting
details that were lost when Treasury transferred the 6-month-old
unresolved differences to the BCA, Treasury discontinued transferring
those differences.  Agencies were expected to resolve remaining BCA
balances by September 30, 1998.  All unresolved differences occurring
after April 1998 will be reported to agencies on "Statement of
Differences" reports until the differences are resolved.  In
addition, Treasury changed its criteria on the 3-month reminder
letters from $1 million to $50,000, and sends another reminder letter
for any difference greater than 5 months old. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

In order to meet the objectives of monitoring and evaluating the
overall effectiveness of federal agencies' and Treasury's
reconciliation processes, we

  -- determined if agency auditors reported any reconciliation
     problems by reviewing the fiscal year 1997 audit reports and
     management letters issued at the time of our review on 22 of the
     federal agencies covered by the CFO Act,

  -- selected the 10 agencies with the largest disbursements in
     fiscal year 1997 (called major agencies in this report) and the
     agency with the largest receipts.  We obtained detailed
     information from their auditors on the agencies' procedures and
     practices for reconciling Fund Balances with Treasury accounts. 
     These agencies accounted for approximately 92 percent of total
     federal disbursements and 94 percent of total federal receipts
     in fiscal year 1997,

  -- determined if agencies were having any problems with the
     Treasury-designed procedures and computer systems used by
     agencies to reconcile their Fund Balances with Treasury
     accounts.  We obtained this information through interviews with
     the 10 major agency auditors and our review and analysis of an
     October 1997 Treasury study conducted by the independent
     accounting firm (IPA) Price Waterhouse (now
     PricewaterhouseCoopers),\6 and

  -- obtained information on Treasury's day-to-day assistance to
     agencies, written guidance, and training efforts related to
     supporting the reconciliation process.  We obtained this
     information through our interviews with the 10 major agency
     auditors and Treasury officials, our review and analysis of the
     October 1997 Treasury study, and our review of Treasury's
     written procedures. 

We were able to use the results of the Treasury study because its
objectives were similar to ours and its scope and methodology
complemented ours.  The study assessed the extent and impact of
reconciliation problems identified in the audits of the fiscal year
1996 financial statements of the agencies covered by the CFO Act. 
When fiscal year 1996 audit results were not available, the IPA used
fiscal year 1995 audit results.  The study also included a survey of
10 agencies to obtain agency officials' views on Treasury's
reconciliation process.  Two of the 10 agencies included in the study
were the same as the major agencies we included in our work. 

The IPA also analyzed Treasury's processes used for recording,
reporting, and reconciling transactions related to Fund Balances with
Treasury accounts.  We limited our use of the Treasury study results
to those areas covered in our audit of the reconciliation process. 
We did not independently verify the Treasury study findings, nor do
we discuss all of the findings in this report. 

We requested comments on a draft of this report from the Secretary of
the Treasury or his designee.  On September 28, 1998, the Assistant
Fiscal Assistant Secretary provided us with oral comments.  These
comments are summarized in the "Agency Comments" section of this
report.  We performed our work from November 1997 through August 1998
in Hyattsville, Maryland, and Washington, D.C.  Our work was
performed in accordance with generally accepted government auditing
standards. 


--------------------
\6 Department of the Treasury Financial Management Service
OPAC/Reconciliation Process Review, Final Report (October 31, 1997). 


   MANY AGENCIES ARE NOT
   EFFECTIVELY RECONCILING THEIR
   FUND BALANCES WITH TREASURY
   ACCOUNTS
------------------------------------------------------------ Letter :4

Agency auditors reported problems with Fund Balances with Treasury
account reconciliations at 10 of the 22 CFO agencies.\7 In general,
we found, and our findings are further supported by Treasury's study,
that these agencies did not have effective reconciliation procedures,
lacked sufficiently trained staff, and/or lacked management emphasis
on performing reconciliations.  These 10 agencies represent about 47
percent of the total dollars disbursed by the federal government in
fiscal year 1997.  Auditors did not report any reconciliation
problems at the 12 other CFO agencies for which audits had been
completed. 

For 8 of the 10 agencies with reported reconciliation problems, the
auditors reported the problems as material weaknesses.\8 For the two
other agencies, auditors reported reconciliation problems that they
did not consider to be material weaknesses. 

In order to effectively reconcile their Fund Balances with Treasury
accounts, agencies must timely research and resolve any differences
between their records and what Treasury has reported on Statement of
Differences (FMS Form 6652) and Undisbursed Appropriation and Receipt
Account Ledgers (FMS Forms 6653 and 6655, respectively).  However, we
found in our audit of the federal government's consolidated financial
statements that there were billions of dollars of unreconciled gross
differences between agencies' and Treasury's records of disbursements
as of the end of fiscal year 1997.  We also found that large amounts
of unreconciled differences were arbitrarily written off by some
agencies in order to match their records with Treasury's reported
balances.  Agencies took these actions without adequately determining
whether, in fact, their records may have been correct.  Some examples
of the problems found at agencies follow. 

  -- One major agency had about $4.4 billion in unresolved
     differences between records of the checks it issued and
     Treasury's records of checks that had cleared the Federal
     Reserve Banks.  The auditors attributed these differences to the
     agency's ineffective procedures for monitoring and correcting
     the discrepancies Treasury identified.  This was one of the
     reasons the auditor rendered a disclaimer of opinion on the
     agency's fiscal year 1997 financial statements. 

  -- Another major agency had $179 million in net unreconciled
     differences at year-end.\9 Most of these net differences--about
     $138 million--had been carried over from prior years because the
     agency had difficulty identifying and resolving differences
     between its accounting records and cash transactions reported by
     Treasury.  The auditor reported two underlying reasons for the
     reconciliation problems, which are that (1) the agency did not
     have written procedures reflecting current Treasury requirements
     for reconciliation of Fund Balances with Treasury accounts and
     (2) the agency did not have effective policies and procedures
     for tracking, researching, and clearing old unresolved
     differences recorded in its Budget Clearing Accounts. 

  -- The auditor of another major agency determined that the agency
     routinely adjusted its records to match Treasury records (in
     effect forcing its records to balance with the amounts in
     Treasury's records).  During fiscal year 1997, this agency had
     made net increases to its Fund Balances with Treasury accounts
     for disbursements and receipts of about $1 billion and $174
     million, respectively, without adequately researching and
     reconciling the differences.  According to the agency auditor,
     this agency had been making these types of adjustments since
     1992.  Although the auditor found that the agency had policies
     and procedures suitable for accomplishing proper
     reconciliations, the agency had not effectively implemented
     them.  As a result, the auditor was unable to conclude as to the
     accuracy of the over $37 billion in this agency's Fund Balances
     with Treasury accounts as of September 30, 1997. 

  -- For its fiscal year 1997 financial statements, another major
     agency made about $7 billion in net adjustments.  At the time
     the agency made the adjustments to match its records with
     Treasury, it had not researched the differences and determined
     whether adequate documentation existed to support the
     adjustments.  The auditor pursued this matter of unsupported
     adjustments with the agency.  In response, the agency researched
     the differences and was able to support all but $500 million of
     the adjustments it had made. 

OMB has been tasked by the President to monitor agencies' actions to
correct the problems identified in audits of agencies' fiscal year
1997 financial statements.  As part of this effort, OMB has received
agency plans and is assessing the adequacy of the plans to correct
agency problems. 


--------------------
\7 These 10 agencies included 6 of the major agencies we reviewed. 

\8 A material weakness is a reportable condition in which the design
or operation of the internal controls does not reduce to a relatively
low level the risk that losses, noncompliance, or misstatements in
amounts that would be material in relation to the financial
statements may occur and not be detected within a timely period by
employees in the normal course of performing their duties. 

\9 Agency auditors often reported unreconciled differences as net
amounts rather than in terms of their aggregate absolute values.  The
roll-up and netting of charges and credits can significantly
understate the total differences and resulting potential
misstatements.  For example, governmentwide BCA activity, reported
for the 12 months ended March 31, 1997, calculated in aggregate
values was about 20 times greater than the net value. 


   SOME AGENCIES NOTED PROBLEMS
   WITH TREASURY'S RECONCILIATION
   PROCESSES AND ASSISTANCE
------------------------------------------------------------ Letter :5

On the basis of our interviews with agency auditors and review of
Treasury's study, we noted that many agencies expressed satisfaction
with Treasury's reconciliation processes and assistance.  However,
other agencies cited that Treasury's reports lacked sufficient
details on issued checks and on transactions recorded in the BCA.  In
addition, agencies expressed problems with Treasury's GOALS reporting
system.  Further, agencies mentioned a lack of adequate Treasury
assistance in the areas of (1) written guidance on detailed
reconciliation procedures, (2) availability of knowledgeable
personnel to help with reconciliation problems, and (3) training. 
According to Treasury, it has already taken certain steps to improve
its reconciliation processes and assistance to the agencies. 


      TREASURY'S REPORTS AND
      AUTOMATED REPORTING SYSTEM
---------------------------------------------------------- Letter :5.1

We noted, on the basis of our interviews and review of Treasury's
study, the following concerns related to Treasury reports and
automated systems. 

  -- One major agency that made over 15 percent of the total fiscal
     year 1997 disbursements had problems reconciling the previously
     mentioned $4.4 billion in differences between its records and
     Treasury records of checks issued.  Agency officials stated that
     the Treasury Check Issued Detail report did not provide enough
     information for this agency to research and resolve the
     differences.  For example, the report does not identify whether
     differences are due to discrepancies between what the agency
     reported on its monthly Statements of Accountability (Standard
     Form 1218/1219) for disbursements and (1) computer tape amounts
     of the checks issued (Standard Form 1179) prepared by its
     disbursing offices or (2) the bank's records of the actual
     amounts of the checks paid.  Since the report was not received
     in an electronic format, the agency had difficulty sorting,
     distributing, and analyzing the data.  As a result, this agency
     found that it could not readily identify the source or cause of
     the differences. 

  -- This same agency also told us that Treasury's monthly
     Appropriation Account Ledger reports for the BCA do not include
     the transaction details needed to research differences. 
     According to agency officials, the details that make up the BCA
     balances are not readily available.  Thus, the agency had to
     perform additional research to identify the individual
     differences and related transactions before it could start to
     research the causes of the differences. 

Treasury has acknowledged problems with the BCA reports and has
changed its procedures for charging BCA accounts.  As previously
mentioned, effective in April 1998, Treasury discontinued the process
of charging differences to agency BCA accounts.  Instead, Treasury
will continue to send individual Statement of Differences reports to
agencies until the difference is cleared.  Treasury also includes the
supporting detail with the initial Statement of Differences report. 
While this continuous reporting of differences helps emphasize the
need for timely reconciliation, it is still up to the agency to take
the necessary actions to resolve the differences in a timely manner. 

  -- Some other major agencies were experiencing problems with
     Treasury's GOALS system.  For example, personnel at one major
     agency said that the Treasury software it used to interface
     GOALS with the agency's general ledger system was very old and
     outdated.  Also, several of the agencies surveyed as part of the
     Treasury study expressed frustration over having to manually
     input their receipt and disbursement data into GOALS.  They also
     cited the slow data transmission speed as an example of the
     outdated technology currently used in GOALS.  Overall, 30
     percent of the agencies surveyed in the Treasury study were
     dissatisfied with GOALS. 

Although Treasury has recognized that current GOALS technology is
outdated and is developing requirements to update the GOALS system in
response to this problem, it faces competing demands associated with
the Year 2000 computer conversion issues and significant challenges
associated with the nonstandardized agency systems across the federal
government. 


      TREASURY'S ASSISTANCE TO
      AGENCIES
---------------------------------------------------------- Letter :5.2

Treasury's primary written guidance--the Treasury Financial Manual
(TFM)--does not adequately address agency needs.  On the basis of our
review of the TFM, we found that it does not clearly explain
agencies' roles and responsibilities in the overall reconciliation
process, and does not contain step-by-step guidance that some
agencies say they need to effectively and efficiently reconcile their
Fund Balances with Treasury accounts.  In the Treasury study,
agencies noted that the TFM does not explain the relationship between
Treasury reporting of Fund Balances with Treasury account activity
and agency accounting or provide "how-to" information.  According to
the study, there is an expectation among the agencies that Treasury
should provide more specific guidance in these areas. 

The Treasury study also noted a problem with Treasury's day-to-day
assistance.  For example, the study reported that 7 of the 10
agencies surveyed said that Treasury personnel were not always
knowledgeable or responsive when the agency called for assistance
with specific reconciliation problems.  Most of these agencies
suggested that Treasury assign dedicated agency contacts to assist
them with reconciliation issues. 

We noted that agency auditors cited the lack of adequately trained
staff at their respective agencies as one of the causes of Fund
Balances with Treasury account reconciliation problems.  The Treasury
study noted that although Treasury offered an array of training to
agencies, agencies apparently were not always taking advantage of
this training.  During fiscal year 1997, Treasury initiated an effort
to provide on-site training to the staff of agencies having
reconciliation problems.  However, Treasury officials informed us
that they could only provide training to staff at a few agencies
because of limited staff resources and overall budget constraints. 


   CONCLUSION
------------------------------------------------------------ Letter :6

Reconciliations of Fund Balances with Treasury accounts continues to
be a significant problem that (1) increases the risks of fraud,
waste, and mismanagement, (2) could affect the government's ability
to effectively monitor the execution of the budget, and (3) affects
the ability to accurately measure the full cost of the federal
government's programs.  To overcome this persistent problem will
require a greater commitment of agencies' and Treasury's management,
as well as adequately trained staff and effective automated financial
systems. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of the Treasury direct the
Commissioner of FMS to work with agencies and provide sufficient
resources to

  -- develop reports that provide agencies with the detailed data
     they need to perform effective and efficient reconciliations,

  -- develop supplemental written guidance, including step-by-step
     procedures for reconciliations, targeted to agencies with
     reconciliation problems to assist them in clearly understanding
     their responsibilities,

  -- ensure that agencies experiencing reconciliation problems
     receive assistance from knowledgeable Treasury staff and any
     necessary training required, and

  -- develop training courses for agencies' use in training personnel
     who are involved in reconciling Fund Balances with Treasury
     accounts. 

We recognize that competing demands associated with Year 2000
computer conversion issues should take precedence in making system
modifications.  Considering this priority, we recommend that
enhancements be made to the GOALS system as soon as it is practical
in order to provide agencies with the technology needed to promote
efficient and effective reconciliations. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

Treasury agreed with our findings and recommendations.  Treasury
stated its intention to implement corrective actions and
appropriately emphasized the importance of each agency's
responsibility to ensure that its Fund Balances with Treasury account
reconciliations are performed promptly and accurately.  We will
evaluate Treasury and agency actions to address these matters during
our audit of the U.S.  government's fiscal year 1998 consolidated
financial statements.  Treasury FMS staff also provided certain
technical comments, which have been incorporated as appropriate. 


---------------------------------------------------------- Letter :8.1

This report contains recommendations to you.  The head of a federal
agency is required by 31 U.S.C.  720 to submit a written statement on
actions taken on these recommendations to the Senate Committee on
Governmental Affairs and the House Committee on Government Reform and
Oversight within 60 days of the date of the report.  A written
statement also must be sent to the House and Senate Committees on
Appropriations with the agency's first request for appropriations
made more than 60 days after the date of the report. 

We are sending a copy of this report to the Director of OMB because
of OMB's responsibility to monitor agency progress in resolving
reported financial management weaknesses.  We are also sending copies
of this report to the Commissioner of the Financial Management
Service; the Department of the Treasury Deputy Inspector General; the
Chairmen and Ranking Minority Members of the Senate Committee on
Appropriations, Senate Subcommittee on Treasury and General
Government, Senate Committee on Finance, Senate Committee on
Governmental Affairs, and Senate Committee on the Budget; House
Committee on Appropriations, House Subcommittee on Treasury, Postal
Service, and General Government, House Committee on Ways and Means,
House Committee on Government Reform and Oversight, House
Subcommittee on Government Management, Information and Technology,
and House Committee on the Budget; and other interested congressional
committees.  Copies will be made available to others upon request. 

If you or members of your staff have any questions about this report,
please call me on (202) 512-2600 or Gary Engel, Associate Director,
on (202) 512-3406.  Other major contributors are listed in appendix
I. 

Sincerely yours,

Gene L.  Dodaro
Assistant Comptroller General


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:1

Christine A.  Robertson, Assistant Director
Paula M.  Rascona, Senior Auditor
W.  David Grindstaff, Assistant Director and Technical Advisor


   ATLANTA FIELD OFFICE
--------------------------------------------------------- Appendix I:2

Suzanne Murphy, Auditor-in-Charge
Jerry K.  Marvin, Senior Auditor
Carolyn Voltz, Auditor

*** End of document. ***