Federal Accounting and Reporting: Framework for Assessing the Reliability
of Budget Execution Data Is Not Yet Fully Implemented (Letter Report,
10/06/2000, GAO/GAO-01-43).

To provide a means to assess the reliability of budget execution data in
the President's Budget, beginning with fiscal year (FY) 1998, agencies
were required to prepare a Statement of Budgetary Resources (SBR) as one
of their primary financial statements. GAO's review of 22 major
budgetary accounts at 10 agencies, constituting approximately 77 percent
of FY 1999 net outlays, showed that the federal accounting and reporting
framework was properly implemented for 14 accounts constituting 67
percent of the total outlays reviewed. In addition to the assurances
over the budget execution data that were provided by the successful
implementation of the framework at these agencies, the preparation and
audit of the SBR has yielded other benefits at these and other agencies.
However, problems in implementing the framework have been an impediment
to determining the reliability of budget execution information for the
remainder of the accounts reviewed. Although GAO found that some audit
improvements could be made, its review of the financial statement audits
covering the 22 major budgetary accounts showed that they were generally
adequate.

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

 REPORTNUM:  GAO-01-43
     TITLE:  Federal Accounting and Reporting: Framework for Assessing
	     the Reliability of Budget Execution Data Is Not Yet
	     Fully Implemented
      DATE:  10/06/2000
   SUBJECT:  Financial statement audits
	     Internal controls
	     Financial management systems
	     Reporting requirements
	     Accounting standards
	     Accounting procedures
	     Financial records
	     Federal agency accounting systems
	     Budget outlays
	     Presidential budgets

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GAO-01-43

A

Report to the Chairman, Committee on the Budget, House of Representatives

October 2000 FEDERAL ACCOUNTING AND REPORTING

Framework for Assessing the Reliability of Budget Execution Data Is Not Yet
Fully Implemented

GAO- 01- 43

Lett er

October 6, 2000 The Honorable John R. Kasich Chairman, Committee on the
Budget House of Representatives

Dear Mr. Chairman, In the fiscal year 1999 and prior- year audits of the U.
S. government's financial statements, we have reported 1 that certain
significant financial systems weaknesses, problems with fundamental
recordkeeping,

incomplete documentation, and weak internal controls, including computer
controls, have prevented the government from accurately reporting a large
portion of its assets, liabilities, and costs. We have reported that these
deficiencies affect the reliability of the agencies'

financial statements and much of the underlying financial information. These
deficiencies also affect the government's ability to accurately measure the
full cost and financial performance of programs and assets, effectively and
efficiently manage its operations, and ensure compliance with applicable
laws and regulations.

Until recently, because the federal financial accounting and reporting
framework did not require the inclusion of budgetary balances, 2 the impact
of these problems on budgetary reporting was not clear. To provide a means
to assess the reliability of budget execution data in the President's
Budget, beginning with fiscal year 1998, agencies were required to prepare a
Statement of Budgetary Resources (SBR) as one of their primary financial

1 Financial Audit: 1999 Financial Report of the United States Government
(GAO/ AIMD- 00- 131, March 31, 2000). 2 Until implementation of the
Statement of Budgetary Resources (SBR), agencies' financial statements such
as the Balance Sheet, Statement of Net Position, and Statement of Net Cost
included only proprietary accounting, a process that supports accrual
accounting, which is consistent with requirements of the Chief Financial
Officers (CFO) Act of 1990 (31 U. S. C.

3515). The SBR and the President's Budget are compiled based on budgetary
accounting, which was created to aid in controlling the use of budget
authority, consistent with the requirements of fiscal laws such as the Anti-
Deficiency Act [31 U. S. C. 1501, 1108 (c)].

statements. The SBR serves as a tool to link audited budget execution 3
information reported in audited agency financial statements to information
reported in the “actual” column in the Program and Financing (P&
F) Schedules of the President's Budget. Accordingly, users of financial
statements should be able to better assess the reliability of these amounts
in the President's Budget. This letter responds to your request that we

assess to what extent that goal has been achieved. Specifically, you
requested that we review the preparation and audit of the fiscal year 1999
SBR in selected agencies and

describe how the federal financial accounting and reporting framework
outlined in the federal accounting concepts statements and standards as well
as related audit requirements will help assess the reliability of the budget
execution data, 4 determine whether the framework is being properly
implemented, and

determine what the results of the fiscal year 1999 agency audits tell us
about the reliability of the amounts reported in the “actual”
column of the fiscal year 2001 President's Budget.

To fulfill these objectives, we focused on 22 major budgetary accounts 5
selected for the 10 agencies/ departments with the highest fiscal year 1999
net outlays as reported in the fiscal year 2001 President's Budget. We 3
Budget execution refers to the last phase of the federal budget process. It
is the phase in which resources that were made available by the Congress are
used over the fiscal year. Agencies use the SF- 133, Report on Budget
Execution, to submit budget execution

information to the Office of Management and Budget (OMB). The SBR form and
content is based on information reported in the SF- 133. Instructions,
general ledger accounts, and line items in the SF- 133 and the SBR are
generally the same and should result in minimal or no differences in the
information reported. OMB Circular A- 34, Instructions on Budget Execution,
provides a crosswalk from the SF- 133 to the P& F Schedule in the
President's

Budget. Additional information on this subject can be found in appendix II.
4 The reliability of budget execution data, the subject of this report, is
one aspect of the budgetary integrity objective as described in the
“Background” section.

5 OMB guidance requires that a combined or consolidated SBR be prepared and
that information aggregated for the SBR be disaggregated for each of the
reporting entity's major budget accounts and presented as supplementary
information. The major budgetary accounts selected for our review were
obtained from the agencies' SBR supplementary information. Major budgetary
accounts as reported in an agency's SBR can include one or more
appropriations included in the President's Budget. For example, the
Department of Transportation's (DOT) Federal Aviation Administration (FAA)
SBR shows a major budgetary column titled “Operations,” which
includes the Airport and Airway Trust Fund operations account and FAA's
general fund operations account.

reviewed the components of the accounting and reporting framework as
described in the Federal Accounting Standards Advisory Board (FASAB)
concepts and accounting standards, specifically focusing on the SBR and how
it can be linked to the “actual” column in the P& F Schedules of
the President's Budget. We also reviewed documentation and interviewed
agency audit staff to assess whether agencies followed accounting standards
and guidance in preparing the SBR, and we reviewed information in the P& F
Schedules of the fiscal year 2001 President's Budget for consistency with
the SBR. In addition, we reviewed the selected agencies' and/ or components'
audit reports and selected audit working papers to determine what the audit
reports said about the reliability of the financial statements as a whole
and whether there were specific comments about the SBR. We conducted our
work from March 13 through August 15, 2000,

in accordance with generally accepted government auditing standards. We
provided summary data to each of the agencies covered by this review and
obtained comments on a draft of this report from the Office of Management
and Budget (OMB) as well as from agencies in which we identified preparation
or audit issues. Additional information on our objectives, scope, and
methodology is in appendix I. Results in Brief One of the key objectives of
the federal financial accounting and reporting framework is budgetary
integrity- public accountability for the collection

and use of taxpayer funds. As a means to achieve this objective, the
framework requires agencies to prepare a Statement of Budgetary Resources
(SBR), which provides information about the status of budgetary resources,
obligations, and outlays for major budgetary

accounts. When properly prepared and audited, the SBR provides the means to
assess the reliability of certain budget execution data presented in the
President's Budget by linking audited data from the SBR to the
“actual” column of the agencies' P& F Schedules included in the
Budget. As

this information is used in assessing the results of prior- year agency
activities and making decisions about future funding, the reliability of the
information is key. In addition, as outlays reported in the P& F Schedules
are used in determining the amount of the annual federal budget surplus or
deficit, the successful implementation of the framework provides a means to
help assess the reliability of that calculation as well.

Our review of 22 major budgetary accounts at 10 agencies, constituting
approximately 77 percent of fiscal year 1999 net outlays, showed that the
federal accounting and reporting framework was properly implemented for 14
accounts constituting 67 percent of the total outlays reviewed. For these
accounts, the agencies or their components received a clean, or

“unqualified,” audit opinion 6 on their fiscal year 1999
financial statements, and we were able to successfully link amounts in the
SBRs to the P& F Schedules in the President's Budget. These agencies did not
have significant differences between amounts in the SBR and the President's
Budget, or if differences existed, they were explained in the financial
statements as required by accounting standards, and did not indicate that

amounts in the President's Budget were significantly misstated. Thus, the
successful implementation of the framework for these accounts resulted in
the determination that the budget execution data included in the
“actual” column in the P& F Schedules of the President's Budget
were reliable. In addition to the assurances over the budget execution data
that were provided by the successful implementation of the framework at
these agencies, the preparation and audit of the SBR has yielded other
benefits at these and other agencies. We found instances where the audit
process identified millions of dollars in obligations that were no longer
needed and internal control weaknesses related to the processing and
recording of budgetary amounts. As a result of the auditors' findings,
agencies took actions to correct these amounts and to remedy identified
control weaknesses. These actions should help improve the reliability of
budget execution data reported in the future by these agencies.

However, problems in implementing the framework have been an impediment to
determining the reliability of budget execution information for the
remainder of the accounts reviewed. The major impediments encountered
included (1) data quality problems, which affected the overall financial
statements of the agencies, including the SBR, and precluded any

auditors' determination of the reliability of the amounts presented and (2)
lack of disclosure of significant differences between the SBR and the P& F
Schedules, resulting in the inability to link the two sets of numbers and
therefore to determine whether the P& F numbers were reliable. Contributing
to the latter problem was a lack of recognition by some 6 A clean, or
unqualified, audit opinion means that information presented in the financial

statements as a whole is fairly presented in accordance with generally
accepted accounting principles.

agencies of differences in reporting requirements for budget execution data
in the SBR and for the actuals in the President's Budget P& F Schedules. OMB
officials stated that they are currently revising their guidance related to
budgetary reporting, and we are providing specific recommendations for what
those revisions should address. In addition, in one case, auditors found
evidence of incorrect and/ or unsupported budgetary account information in
the SBR. However, because of data limitations, the auditors were unable to
complete their procedures and thus could not determine the full extent of
the errors or misstatements.

While we found that some audit improvements could be made, our review of the
financial statement audits covering 7 the 22 major budgetary accounts showed
that they were generally adequate. In at least one case, the auditors
developed a strategy that was used to help ensure that adequate procedures
to audit the SBR were consistently performed and documented. As more
agencies are able to prepare reliable financial statements, including the
SBR, the ability to determine and offer assurances concerning the
reliability of the budget execution data in the President's Budget will be
expanded. However, significant improvements in financial management at
several major agencies are necessary before this goal can be achieved.

In their comments on a draft of this report, officials from OMB and agencies
included in this review generally concurred with our findings and
conclusions. Clarifying comments they provided were incorporated into our
report where appropriate.

Background The federal financial accounting and reporting framework
developed by the Federal Accounting Standards Advisory Board 8 (FASAB)
comprises the statements of accounting concepts and standards that guide the
federal government's efforts to achieve financial accountability. The first
reporting

objective of the framework is “budgetary integrity.” Budgetary
integrity as defined by FASAB's accounting concepts means that federal
financial 7 Based on the concept of materiality, individual budgetary
accounts are audited in relation to the financial statements as a whole and
may not be individually audited.

8 FASAB was established in 1990 by the Secretary of the Treasury, the
Director of OMB, and the Comptroller General. FASAB issues accounting
standards for federal government financial statement reporting to address
the financial information needs of the Congress,

executive agencies, and other users of federal financial information.

reporting should assist in fulfilling the government's duty to be publicly
accountable for monies raised through taxes and other means and for their
expenditure in accordance with related laws and regulations. In particular,
FASAB's Statement of Federal Financial Accounting Concepts states that
federal financial reporting should provide information that helps users
determine

how budgetary resources have been obtained and used, and whether their
acquisition and use were in accordance with legal authorization, and the
status of budgetary resources.

An additional aspect of the budgetary integrity objective, which is not the
focus of this report, is to help users determine how information on the use
of budgetary resources relates to information on the cost of program
operations and whether information on the status of budgetary resources is
consistent with other accounting information on assets and liabilities. This
part of the objective can be achieved through the preparation and audit of

the Statement of Financing. The reconciliation of proprietary and budgetary
information in the Statement of Financing shows the relationship between
budgetary resources obligated by the entity during the period and the net
cost of operations. However, since the SBR is the

financial statement that introduces budgetary accounting in the agency's
financial statements and also provides the linkage to the President's
Budget, this report focused on the objectives of the framework related to
the preparation of the SBR.

In reaching the goal of budgetary integrity as defined by reporting
standards, the SBR is an important component of the federal financial
accounting and reporting framework. The preparation of the SBR

(including related disclosures) provides an opportunity to link budget
execution data reported in the agencies' financial statements to that
reported in the agencies' P& F Schedules in the President's Budget. Because
the SBR is required to be audited, the linkage of the SBR to the P& F
Schedule can provide assurance over the reliability of the budget execution
amounts reported in the P& F Schedules.

The inclusion of the SBR as one of the primary financial statements requires
the statement to be audited as part of the yearly financial statement audits
required by the Chief Financial Officers (CFO) Act of 1990

as amended by the Government Management Reform Act of 1994. Several of the
CFO Act's requirements are aimed at improving the financial

information available to the Congress, agency managers, and other users of
the financial information. 9 OMB implemented the audit provisions of the CFO
Act as amended in its audit guidance issued for auditors of federal

agencies. 10 OMB audit guidance requires auditors to test and report whether
(1) agencies' financial statements are fairly presented in all material
respects, in conformity with applicable federal accounting standards; (2)
internal controls are properly designed to provide reasonable assurance that
financial reporting and compliance objectives are met; and (3) agencies
comply with laws and regulations that have a

direct and material effect on the financial statements and with other
governmentwide policies identified by OMB. Accounting and

The federal financial accounting and reporting framework, comprising the
Reporting Framework statements of financial accounting concepts and
standards that guide federal accounting, has as its first reporting
objective “budgetary integrity.” Design Helps Achieve

In reaching that goal, the SBR is an important component of the Budgetary
Integrity framework. The preparation of the SBR (including related
disclosures), its Objective

linkage to the President's Budget data, and the audit of the statement
provide the means for assessing the reliability of budget execution data
reported in the agency's financial statements and in the
“actual” column of the President's Budget P& F Schedules.
Reliable “actual” data in the President's Budget can help ensure
that oversight officials have accurate and complete information with which
to assess how agencies are spending

their funds. In addition, through this process, it is possible to assess the
reliability of outlays, which is key to determining the amount of the
federal budget surplus or deficit.

9 The CFO Act, as amended, requires federal agencies covered by this act to
improve their financial management activities relating to the programs and
operations of the agency. CFO agencies are required to (1) develop and
maintain integrated financial systems, (2) prepare and submit audited
financial statements, (3) reconcile financial information to budget reports,
and (4) ensure that accounting and financial management systems comply with
applicable accounting principles and standards to provide for complete,
reliable, consistent, and timely information needed to manage agency
operations. 10 OMB Bulletin No. 98- 08, Audit Requirements for Federal
Financial Statements, establishes the minimum requirements for audits of
federal financial statements.

Figure 1: Overview of How the Accounting and Reporting Framework Helps
Assess the Reliability of Budget Execution Data

Budget formulation Congressional appropriations

Budget execution Treasury FACTS II

OMB MAX SF- 133 Data

Data P& F schedule

“actuals” in Reconcile/ disclosure

President's Budget SBR Financial audit

Source: Developed by GAO based on information described below.

During budget formulation, OMB presents the President's Budget to the
Congress for consideration. After its deliberation, the Congress
appropriates funds for federal agencies' programs and operations. Once funds
are appropriated, agencies execute the budget, recording in budgetary and
proprietary 11 accounting systems the amounts they obligate

and expend to operate their programs throughout the year. At the end of the
year, budget execution data is submitted through Treasury's Federal 11
Budgetary accounting measures and controls the use of resources according to
the purpose for which budget authority was enacted and also tracks the use
of each appropriation for specified purposes in separate budget accounts
through the various stages of the budget execution process. Budgetary and
proprietary information are complementary, and both types of information are
essential when monitoring the financial execution of the agency's budget in
relation to actual expenditures, as required by the CFO Act.

Agencies' Centralized Trial Balance System II (FACTS II) 12 and reported in
the President's Budget in the “actual” or prior- year column of
the P& F Schedule. 13 The SBR is prepared by the agencies as part of their
annual financial statements. 14 Agencies are required to reconcile amounts
shown in the SBR and the P& F Schedules and disclose the reasons for any
significant differences in the notes to the financial statements. The SBR is
audited as part of the agencies' yearly financial statement audits. The
agency reconciliation and the auditor's report are helpful in understanding

the reliability of amounts reported in the President's Budget actuals, and
they support FASAB's objective to help provide relevant and reliable
information to support the budgetary process. Appendix II provides more
detailed information on the SBR and how it is designed to link to the P& F
Schedule of the President's Budget.

Audit Process Provides Subjecting the SBR to the rigors of a properly
performed audit provides

Mechanism to Assess users of the federal government financial statements
with a mechanism to help assess the reliability of budgetary data presented
in the “actual” Budget Execution Data

column of the President's Budget P& F Schedule. Government auditing
Reliability

standards 15 require the auditors of federal financial statements to (1)
report whether financial statements as a whole are fairly presented in
accordance with generally accepted accounting standards, (2) assess whether
internal controls are adequately designed to achieve financial reporting and
compliance objectives, and (3) test compliance with laws and regulations 12
FACTS II is a Treasury- run system that agencies use to submit one set of
financial data that fulfills the needs of the SF- 133, Report on Budget
Execution, the FMS 2108, Year End Closing Statement, and much of the initial
set of data that will appear in the “prior year”

column of the P& F Schedule of the President's Budget. 13 OMB Circular No.
A- 11, Preparation and Submission of Budget Estimates, is the guidance used
by agencies to report information in the President's Budget. Agencies input
information into the President's Budget Schedules using OMB's MAX system as
required by Circular A- 11. 14 OMB Bulletin 97- 01, Form and Content of
Agency Financial Statements, is the guidance used by agencies to prepare the
SBR. Per OMB's guidance, the SBR illustrates in condensed form the
information that Circular A- 34, Instructions on Budget Execution, requires
to be reported on the SF- 133, Report on Budget Execution. Further
information on the relation of the SBR to the SF- 133 is provided in
appendix II.

15 Comptroller General's Government Auditing Standards, 1994 Revision. For
financial statement audits, generally accepted government auditing standards
(GAGAS) incorporate the American Institute of Certified Public Accountants
(AICPA) audit standards.

that could have a direct and material effect on the financial statements and
report on instances of noncompliance. As mentioned earlier, OMB incorporates
these standards in its audit guidance for federal auditors. For example,
testing whether agencies comply with applicable laws and

regulations requires auditors to test whether transactions are executed in
accordance with laws governing the use of budget authority and other laws
such as the Federal Financial Management Improvement Act (FFMIA) of 1996,
which requires, among other things, that agencies' financial

management systems comply substantially with federal financial management
systems requirements, 16 federal accounting standards, and the U. S.
Government Standard General Ledger at the transaction level.

Assessing the reliability of budget execution data reported in the SBR
requires auditors to test the amounts and their accuracy. 17 For example,
for testing of obligated balances, the auditors must determine that:

Obligations making up the balances are valid obligations at the end of the
year. Typical audit procedures may include but not be limited to examining
obligation documents to ensure that the obligation

remains valid, and determining that the obligation has not already been
liquidated or

canceled. Valid obligations that exist are included in the balances. Typical
audit

procedures may include but not be limited to examining obligating documents
(e. g., purchase orders, contracts) to determine whether they were recorded
as obligations, and

examining outlays to determine whether they had been recorded as
obligations. The obligation amounts are accurately and properly recorded.

Similar objectives and procedures are expected for all significant balances
in the SBR. 16 OMB Circular A- 127, Financial Management Systems, references
the series of publications titled Federal Financial Management Systems
Requirements issued by the Joint Financial Management Improvement Program
(JFMIP) as the primary source of governmentwide requirements for financial
management systems. JFMIP is a cooperative undertaking of OMB, the
Department of the Treasury, the Office of Personnel Management, and GAO
working with operating agencies to improve financial management practices
throughout the government.

17 Audit procedures vary significantly depending on agency systems,
procedures, and controls as well as the significance of the reported
balances.

In addition, assessing management's controls over the processing, recording,
and summarization of financial statement data requires auditors to evaluate
whether the agency has controls in place to provide reasonable

assurance that losses, noncompliance with laws and regulations, or
misstatements material in relation to the financial statements would be
prevented or detected. As they relate to obligations reported in the SBR,
controls over the initial recording of obligations, should be evaluated by
auditors, as should the monitoring of obligated balances to determine
whether they remain valid as of the end of the fiscal year.

The results of a properly performed audit of the financial statements,
including the SBR, provide valuable information about the reasonableness of
budget execution data presented in the SBR and in the President's Budget.
For example, when a properly performed audit results in an unqualified audit
opinion, this means that the basic financial statements and accompanying
notes are fairly presented in all material respects in accordance with
applicable accounting standards. Therefore, this provides

reasonable assurance that the budget execution data in the SBR are
reasonably stated, and if amounts in the SBR can be successfully reconciled
to the P& F Schedules of the President's Budget, the audit provides a means
to assess the reliability of the amounts in the President's Budget as well.
However, even though an unqualified audit opinion may be achieved, because
of the use of materiality guidelines in determining the scope of the
financial audit, complete assurance over all amounts presented is not
provided by the audit. In addition, unqualified opinions do not guarantee
that agencies have the financial systems needed to dependably produce
reliable financial information. Modern systems and good internal controls
are essential to reach the goal of useful, relevant,

reliable data to support decision- making on a day- to- day basis. When the
audit results in a “disclaimer” of opinion, this means that the
auditor is unable to obtain satisfaction that the financial statements are
fairly presented due to material uncertainties or severe limitations on the
scope of the audit. This, in turn, means that no assurance over the
reliability of the budget execution data in the SBR can be provided from the
audit and, therefore, no assurance regarding the amounts in the President's

Budget can be offered. Even when an unqualified opinion is obtained, because
of timing differences between the submission of budget execution data to the
President's Budget and the issuance of audited financial statements,
adjustments to correct budgetary balances may be included in the SBR but

not be reflected in the President's Budget. For this reason, information in
the President's Budget should be used in conjunction with audited SBR
results to obtain the most updated and reliable information.

Successful Successful implementation of the framework was achieved for 14 of
the 22 Implementation of the

major budgetary accounts reviewed, thus providing a basis to conclude on the
reliability of a large segment of the budget execution data reported in
Framework Was the P& F Schedules of the President's Budget. For these
accounts, the Achieved for the agencies or their components received an
unqualified audit opinion on

Majority of the their fiscal year 1999 financial statements, and we were
able to successfully reconcile amounts in the SBR to amounts in the
“actual” column in the P& F

Budgetary Accounts Schedules. In addition, these agencies did not have
significant differences Reviewed

between the amounts in the SBR and the P& F Schedules, or if differences
existed, they were explained in the financial statements as required by
federal accounting standards and did not indicate that amounts in the P& F
Schedules were significantly misstated.

The following are examples of successful implementation of the framework:
Auditors for the Health Care Financing Administration (HCFA) of the

Department of Health and Human Services found that financial statement
balances including the SBR were fairly stated. Our comparison of the amounts
in the SBR and the President's Budget for four of its budgetary accounts
reviewed showed insignificant or no differences between the amounts
reported.

Auditors for the Department of Labor (DOL) found that financial statement
balances including the SBR were fairly stated, and we were able to
successfully reconcile amounts in the SBR major budgetary

column to information on the corresponding column in the P& F Schedules. Our
comparison of the amounts in the SBR and the President's Budget for the
Unemployment Trust Fund showed a $75.6 billion difference, which was
explained by the agency in the financial statement notes as required by
accounting standards. This difference was mainly the result of the agency's
inclusion of its entire trust fund balance in the SBR while for the P& F
Schedule of the

President's Budget, OMB regards prior- year trust fund balances and any
unused portion of the current year's collections as amounts unavailable

for obligation. 18 OMB includes these additional balances in the President's
Budget in a separate schedule titled “Unavailable Collections.”
19 For these budgetary accounts, users of budgetary information can have

assurance that the summary amounts for budgetary resources, obligations, and
outlays included in the President's Budget are reasonably stated. See
appendix III for a list of other major budgetary accounts for which the
accounting and reporting framework was successfully implemented.

Other Benefits Resulted In addition to the assurances over the budgetary
actuals that were provided

from the Implementation of by the successful implementation of the framework
at many agencies, the

the Framework preparation and audit of the SBR has yielded benefits at these
and other agencies. In some instances, the audit process identified millions
of dollars in obligations that were no longer valid and internal control
weaknesses

related to the processing and recording of budgetary amounts. As a result of
the auditors' findings, agencies took action to remedy identified weaknesses
and also implemented corrective plans to address these deficiencies in the
future and to improve the presentation and reliability of budgetary data in
the financial statements. For example: In fiscal year 1998, the Department
of Transportation (DOT) Office of

Inspector General (OIG) was unable to substantiate amounts in the SBR and
accordingly did not express an opinion on the financial statements. 20
Subsequently, during fiscal year 1999, 21 the OIG performed

18 This difference between the SBR and the P& F Schedule resulted from
differences in the interpretation of OMB's guidance. According to OMB, the
presentation of trust fund balances in the SBR is being resolved with DOL
and other affected agencies, and this difference should not occur in the
future. 19 OMB's guidance for the preparation of the SF- 133 and the SBR
requires agencies to exclude from total budgetary resources certain amounts
OMB considers unavailable for obligation. For example, OMB regards prior-
year trust fund balances and current unused collections as
“collections unavailable for obligation” and excludes or reduces
these amounts in the P& F Schedule of the President's Budget. DOL included
its trust fund balance information in the SBR in calculating total resources
available but properly explained this difference in the notes to the
financial statements.

20 The inability to support SBR balances was reported by DOT's OIG as one of
several factors that contributed to its inability to render an audit opinion
in fiscal year 1998. 21 Office of Inspector General's Audit Report, Inactive
Obligations, Department of Transportation (Report No. FE- 1999- 131,
September 27, 1999).

supplemental work and found $672 million of recorded obligations that were
no longer needed. For this agency, the existence of unneeded obligations in
budgetary accounts means that the Congress and agency management have an
inaccurate picture about the use and availability of federal resources that
may be available for obligation. 22 The auditors reported that these
unneeded obligations existed because regular reviews of obligations were not
being performed as required. As a result of these findings, DOT initiated
actions to improve controls over the

review and validation of obligations, and adjusted or deobligated the
balances to eliminate unneeded amounts. In the fiscal year 1999 audit of the
Food and Nutrition Service (FNS)

financial statements, auditors discovered a duplicate adjustment for $16
million that resulted in an understatement of obligations reported in the
President's Budget. 23 As a result of this audit finding, FNS officials told
us they modified their controls to prevent similar recording errors in the
future.

Although some agencies continue to be challenged in the preparation of
reliable auditable financial statements, as discussed below, the preparation
of the SBR as part of the agency's financial statements has raised
management awareness about deficiencies in internal controls and reporting
of budgetary data. As indicated above, in several cases agencies have taken
steps to address these deficiencies, which will help improve the

reliability of future budget execution data. Framework Was Not

The accounting and reporting framework was not properly implemented Properly
Implemented

for 8 of the 22 major budgetary accounts reviewed. For these accounts, the
budgetary integrity objective was not fully accomplished for the following
for the Remainder of

reasons. the Major Budgetary

Data quality problems that affected the overall financial statements of
Accounts Reviewed

the agencies, including the SBR, precluded any auditor's determination about
the reliability of the amounts presented. For one agency we 22 DOT's Highway
Trust Fund account is an indefinite appropriation, which means that

unneeded obligations can be deobligated, and the funds become available for
new obligations without further action from the Congress. 23 FNS officials
stated that due to the timing of the adjustment a correction on the SF- 133
was not permitted by OMB.

reviewed, auditors also found instances in which SBR amounts were incorrect
and/ or not supported. In addition, although some audit improvements could
be made, the audits reviewed were generally adequate. There was a lack of
disclosure of differences between the SBR and the

P& F Schedules, which broke the linkage between the two sets of numbers.
This means that the amounts presented in the two documents could not be
readily reconciled, which precluded users of the

documents from being able to determine the reliability of the actuals
presented in the President's Budget. Data Quality Problems For five major
budgetary accounts (for three agencies or their

components), data quality problems, such as inadequate financial systems and
long- standing internal control weaknesses, affected the agencies' financial
statements, including the SBR, and precluded the auditors' determination of
the reliability of the amounts presented. In addition, for one agency,
auditors found through their testing that SBR amounts were incorrect or not
supported. For example:

The U. S. Department of Agriculture (USDA) auditors reported that they were
unable to express an opinion on the agency's financial statements because
the agency was unable to provide sufficient, competent evidence to support
numerous material line items on its financial statements. 24 For example,
auditors were unable to substantiate the “Fund Balances with
Treasury” balance totaling over $38 billion because the agency's
reconciliation procedures were not sufficient and

unexplained differences between department records and Treasury records,
first identified in the fiscal year 1992 audit, went uncorrected, in some
instances for more than 10 years. The out of balance amount as of September
30, 1999, was about $5 billion. Significant unexplained or unreconciled
differences in an agency's fund balance information with

Treasury could result in misstatements in the financial statements and in
certain data, such as obligations and outlays provided by the agency for
inclusion in the President's Budget. This is because Treasury processes

almost all federal receipts and outlays, and unreconciled differences may
indicate the existence of incorrect agency accounting records. 24 Office of
Inspector General Financial and IT Operations Audit Report, Consolidated
Financial Statements for Fiscal Year 1999, Department of Agriculture (Report
No. 50401- 35FM, February 2000).

The Department of Housing and Urban Development (HUD) auditors reported that
they were unable to express an opinion on the agency's financial statements
due to material internal control weaknesses that affected the agency's
ability to prepare auditable financial statements in a timely manner. 25 For
example, material internal control weaknesses in the implementation of HUD's
new core financial management system

and its inability to comply with the U. S. Government Standard General
Ledger (SGL) resulted in numerous rejected or incorrectly posted
transactions that had to be manually researched and corrected. In addition,
the transition of the systems was done without the development of an
automated program to help reconcile the general ledger cash accounts to
Treasury's figures. As a result, the reconciliation process to identify
discrepancies fell behind, and HUD made numerous adjustments to its general
ledger fund balances with Treasury account to make agency amounts agree with
Treasury records without a proper reconciliation process to ensure that
Treasury balances were correct. Auditors stated that significant unexplained
differences remained with the fund balance with Treasury reconciliation when
they ceased their audit work and issued a disclaimer of opinion. 26 As with
USDA,

significant unreconciled differences in HUD's fund balance information with
Treasury could result in misstatements in the financial statements and in
certain data, such as obligations and outlays provided by the

agency for inclusion in the President's Budget. The Department of Defense
(DOD) auditors were unable to render an opinion on the agency's financial
statements, including the SBR,

because DOD was unable to support balances in the financial statements. In
addition, through their testing, DOD auditors found that certain obligated
balances were not correct, certain disbursements were not properly recorded,
and fund balances with Treasury remained unreliable, among other
deficiencies. 27 In their testing of obligated balances, auditors found
evidence of unsupported obligations and poor 25 Office of Inspector
General's Report, Attempt to Audit the Fiscal Year 1999 Financial
Statements, Department of Housing and Urban Development (Report No. 00- FO-
177- 0003, March 1, 2000). 26 HUD received an unqualified audit opinion in
fiscal year 1998. HUD stated that since the fiscal year 1999 audit, it has
completed the reconciliation of its fiscal year 1999 Fund Balance with
Treasury accounts and has determined that there is no need to restate its
fiscal year 1999 financial statements, subject to OIG's ongoing audit
review.

27 Department of Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).

internal controls over obligations as illustrated by the following examples.
Audit results showed that for the Air Force Working Capital Fund,

$211 million out of approximately $1 billion in obligations tested (700 out
of 2, 526 transactions) were incorrect, inadequately supported, or not
supported. The Army Audit Agency found that internal controls over the

recording of obligations were not adequate to ensure that amounts reported
in the Army's General Fund Statement of Budgetary Resources for fiscal year
1999 were accurate. In a sample of 60 transactions, the auditors found that
21 could not be supported. The Department of the Navy identified its
unliquidated and invalid

obligations as a material management control problem. Disbursements were not
properly matched to specific obligations recorded in DOD's records.

Frequent adjustments were made to recorded payments to record the payment to
another appropriation account, including canceled appropriations. During
fiscal year 1999, data showed that almost one of every three dollars in
contract payment transactions was for adjustments to previously recorded
payments-$ 51 billion in

adjustments out of $157 billion in transactions. Many of these adjustments
were made to original entries that were recorded years earlier and to
accounts already canceled.

These and other data quality problems at DOD resulted in unauditable
financial statements, meaning that audit assurance over the reliability of
budgetary amounts in the SBR and thus, the “actual” column of
the

President's Budget P& F Schedules could not be provided. In addition, the
inability to support significant budgetary balances, including disbursements
and obligation balances; related internal control weaknesses, such as a
failure to properly match disbursements to obligations; and the frequent
adjustments to payment records suggest that amounts included for these
budgetary accounts in the “actual” column of the President's
Budget are misstated. However, since auditors were unable

to complete their audits because of the poor condition of DOD's accounting
records, the full extent of misstatements could not be determined.

Improved Disclosures For three major budgetary accounts (for three agencies
or agency Needed for Differences components) where the agencies' financial
statements, including the SBR, Between the SBR and

were determined to be fairly stated by the auditors and we determined that
budgetary information was reliable, we found significant differences
President's Budget

between amounts in the SBR and the P& F Schedules 28 that were not explained
in the notes to the financial statements as required by federal accounting
standards. Although we determined that budgetary amounts could be reconciled
to the SBR and that the differences were justified, the absence of
disclosures explaining these differences precludes users from being able to
understand them and their effect on the amounts presented in the P& F
Schedules.

Although some differences in budgetary amounts between the SBR and the
“actual” column of the P& F Schedule were caused by differences
in interpretation of OMB guidance, as noted below, others were expected due

to differences in OMB's guidance used to prepare the SBR and to report
budget execution information in the President's Budget “actual”
columns, as the following examples illustrate. The Social Security
Administration (SSA) Federal Old- Age Survivors Insurance Trust Fund
reported in its SBR $1,068.9 billion in total budgetary resources, while the
President's Budget P& F Schedule

reflected $341.4 billion in total budgetary resources available. This $727.5
billion difference is mainly the result of the agency's inclusion of its
entire trust fund balance in the SBR to recognize the trust funds total
assets, 29 while in the P& F Schedule of the President's Budget, OMB regards
prior- year trust fund balances and any unused portion of the current year's
collection as amounts unavailable for spending and includes these balances
in the President's Budget in a separate schedule titled “Unavailable
Collections,” as mentioned earlier. However, the lack of a cross-
reference precludes users from tracking amounts between the SBR and the P& F
Schedule of the President's Budget. SSA did not disclose differences in its
financial statements in part because its

financial statements were issued before the President's Budget issuance 28
OMB Circular A- 34, Instructions on Budget Execution, states that budget
execution data reported in the SF- 133, the SBR, and data presented in the
“actual” column of the President's Budget P& F Schedule should
generally be the same.

29 As mentioned earlier, according to OMB, the presentation of trust fund
balances in the SBR is being resolved with SSA, and this difference should
not occur in the future.

date, and therefore, actual differences between the two documents could not
be determined. DOT's Federal- Aid Highways account in the Highway Trust Fund
SBR

reflected $15.4 billion less in total budgetary resources available for
obligation than what was reported in the President's Budget. This occurred
because OMB guidance used to prepare the SBR requires agencies to exclude
amounts not available for obligation from their total budgetary resources,
and DOT adjusted its total budgetary resources to

reflect the reduction. This exclusion is called a limitation on obligations.
30 However, the President's Budget P& F Schedule did not reflect this
reduction and reported this amount as part of the unobligated balances
available. The agency did not adequately explain

this difference in the notes to the financial statements. The Food Stamp
Program of USDA's Food and Nutrition Service

reported $14.7 billion more total budgetary resources available in the SBR
than in the President's Budget. This difference is due mainly to differences
between OMB's reporting requirements for the SBR and for
“actual” amounts in the President's Budget. Instructions for the
SF- 133 and accordingly the SBR, require the inclusion of available
budgetary authority for expired budgetary accounts, while instructions for
amounts to be included in the President's Budget exclude the budget
authority amounts for expired accounts. The agency did not adequately

explain this difference in the notes to the financial statements. Without an
explanation for these reporting differences, a reader of the SBR might
conclude that an additional $14.7 billion was available for future
obligation, when in reality, this amount can only be used for very limited
purposes. 31

OMB is aware of the differences reported above, and OMB officials told us
that they are currently revising the guidance for the form and content of
federal agencies' financial statements, and other budget- execution- related
guidance, such as Circular A- 34, to address these differences. OMB's goal
is to minimize differences between the SBR; SF- 133, Report on Budget 30 A
limitation on obligations is a restriction on the amount of budgetary
resources that can

be obligated or committed for a specific purpose. 31 The SBR balances
include information on expired accounts for up to 5 years as required by OMB
guidance. Obligated balances for any of those five years may be used to
liquidate obligations properly chargeable to that fiscal year. The
unobligated balances remain

available to make legitimate obligation adjustments, i. e., to record
previously unrecorded obligations and to make upward adjustments in
previously underrecorded obligations. At the end of the fifth year, the
expired account is cancelled. (31 U. S. C. 1551- 1553).

Execution; and the “actual” column in the President's Budget P&
F Schedules, as well as in the cases where differences exist by design, 32
to improve the disclosure of these differences. Since OMB's revised guidance
is currently being developed, it is too early for us to determine whether
revisions will resolve the differences identified during our work. In
addition to the accounts discussed above, the USDA's Commodity Credit
Corporation (CCC) Fund account had significant undisclosed differences
resulting from the agency's use of different sources of data to input
information into the President's Budget and the SBR and from adjustments
made to the SBR that were received too late to be reflected in the
President's Budget. Data quality problems also existed for this account, and
we were unable to reconcile the SBR to the P& F Schedule.

The CCC officials could not explain significant differences found between
amounts in the SBR and the “actual” column of the President's
Budget for CCC's Fund account. For example, the unobligated beginning- of-
year balance showed $9. 7 billion more in the President's Budget than in the
SBR. Also, obligations incurred were reported at $4.9 billion more in the

President's Budget. CCC officials attributed most of these differences to
the use of proprietary accounts (accrual basis reporting), instead of
budgetary accounts, 33 when reporting to OMB. 34 Also, numerous adjustments
were posted to correct various SBR line items subsequent to submission of
data to the President's Budget. However, the overall effect of these
adjustments could not be determined because CCC's financial

statements were not prepared in time for the fiscal year 1999 audit of
USDA's consolidated financial statements.

32 For example, budget authority for expired accounts is included in the SBR
but excluded from the P& F Schedule. 33 As explained earlier in the report,
proprietary and budgetary accounting are complementary, but both types of
information and the timing of the recognition of transactions and events are
necessarily different because they serve different purposes.

34 CCC budget officials stated that they used proprietary accounts to submit
budget execution information because their budget accounting system does not
provide the level of detail necessary to input information into the
President's Budget. CCC officials also stated that for fiscal year 2000, CCC
is implementing a new accounting system that will provide the level of
detail necessary to input budgetary account information into the President's
Budget.

Agency Audits Were While we found that some improvements could be made, our
review of the Generally Adequate, financial statement audits covering 22
major budgetary accounts showed

that procedures performed to audit SBR balances were generally adequate. but
Some

Auditors at DOL 35 developed a strategy that ensured that audit team
Improvements Could members acquired sufficient evidence to support their
opinion on the SBR. Be Made

The DOL auditors produced an audit guide that included steps for (1)
obtaining an understanding of applicable budgetary accounts, (2) reviewing
appropriation provisions, (3) testing controls over compliance with
appropriation provisions, and (4) tracing and vouching transactions to test
budgetary accounting. Training was provided to audit team members on the
audit guide and covered the structure of the SBR and its relationship

to the SF- 133. As a result of this preparation, the auditors had
sufficient, credible evidence and audit coverage to support their opinion on
the SBR.

In other cases, we noted that better documentation of the audit approach and
procedures performed would improve the audit process. For example, working
papers for the audit of one budgetary account we reviewed did not include
audit programs or other documentation, such as audit summary

memos, indicating that tests were performed for significant SBR line items
and describing the test results. Therefore, we could not tell whether the
procedures performed were adequate. For two audits, it was difficult to
determine how auditors linked tests performed on proprietary accounts to
budgetary accounts. These tests were used to provide assurance over certain
SBR balances. Government auditing standards 36 require that auditors obtain
sufficient competent evidential matter through inspection,

observation, inquiries, and confirmations to afford a reasonable basis for
an opinion regarding the financial statements under audit. These standards
also state that audit working papers should contain sufficient information
to enable an experienced auditor having no previous connection with the
audit to ascertain what evidence supports the auditors' significant
conclusions and judgments.

The lack of evidence of sufficient audit procedures increases the risk that,
if significant errors exist in agency financial statements, including the
SBR, they will not be detected by the auditor and will lead to an
inappropriate audit opinion. We have communicated these issues to the
relevant auditors 35 M. D. Oppenheim & Company, P. C., Certified Public
Accountants, were responsible for auditing the SBR at DOL.

36 Comptroller General's Government Auditing Standards, 1994 revision.

and provided them with model audit procedures to test significant SBR line
items. Conclusion As more agencies are able to prepare reliable financial
statements,

including the SBR, the ability to determine and offer assurances concerning
the reliability of the budget execution data in the President's Budget will
be expanded. However, significant improvements in financial management at
several major agencies are necessary before this goal can be achieved. In

addition, until differences resulting from implementation and reporting
guidance are resolved, and agencies are able to properly reconcile and
explain differences between the SBR and P& F Schedule amounts, linkage
between amounts in the agency's audited financial statements and the
President's Budget cannot be achieved, thus preventing an assessment of the
reliability of the amounts in the President's Budget. We have

communicated the issues identified in this report to the appropriate
agencies and/ or their auditors, and we will continue to monitor efforts to
improve the preparation and audit of the SBR. In addition, we have discussed
these issues with OMB, which is currently revising both the guidance for the
form and content of federal agencies' financial statements and other budget-
execution- related guidance to address these differences.

Recommendations As OMB considers improvements in reporting under the SBR, we
recommend that the Director of the Office of Management and Budget do the
following. Modify guidance related to the form and content of agency
financial statements as well as guidance in Circular A- 34, Instructions on
Budget Execution, to address the differences between the presentation of

budgetary amounts in the SBR and the “actual” column in the P& F
Schedule of the President's Budget as discussed in this report. The items
that should be addressed are expired budget authority, limitations on
obligations, and trust fund presentation of amounts that OMB considers
unavailable for obligation.

Revise guidance related to agencies' explanation and disclosure of
differences in summary totals between the SBR and the President's Budget
actuals to provide more specific instructions on how these amounts should be
reconciled. At a minimum, revised guidance should

require the agency to provide enough information to allow users to
understand the nature and amount of these differences. Agency Comments
Agency officials, including officials from OMB, generally concurred with

our findings and conclusions. OMB and several other agencies made clarifying
comments that were incorporated into our report where appropriate.

We are sending copies of this report to the Honorable John M. Spratt, Jr.,
Ranking Minority Member of the House Committee on the Budget; the Honorable
Jacob J. Lew, the Director of the Office of Management and

Budget; and other interested parties. Copies will be available to others
upon request. If you have any questions regarding this report, please
contact me at (202) 512- 9508 or John C. Fretwell, Assistant Director, at
(202) 512- 9382. Key contributors to this assignment were Elizabeth
Martinez, Denise Fantone, and Maria Zacharias.

Sincerely yours, Linda M. Calbom Director, Financial Management and
Assurance

Appendi Appendi xes x I

Objectives, Scope, and Methodology We were asked to review the preparation
and audit of the fiscal year 1999 SBR in selected agencies and describe how
the federal financial accounting and reporting framework

outlined in the federal accounting concepts statements and standards as well
as related audit requirements will help assess the reliability of the budget
execution data, determine whether the framework is being properly
implemented, and determine what the results of the fiscal year 1999 agency
audits tell us

about the reliability of the amounts reported in the “actual”
column of the fiscal year 2001 President's Budget. To fulfill these
objectives, we focused on 22 major budgetary accounts selected for the 10
agencies/ departments with the highest fiscal year 1999 net outlays as
reported in the fiscal year 2001 President's Budget. A complete list of
these major budgetary accounts and agencies is included in in appendix III.

The agencies included in our review were: Department of the Treasury, Social
Security Administration, Department of Health and Human Services, Department
of Defense, U. S. Department of Agriculture, Office of Personnel Management,
Department of Transportation, Department of Veterans Affairs, Department of
Housing and Urban Development, and

Department of Labor. We took the following steps in conducting our review.
To describe how the framework's design helps assess the reliability of
budget execution data, we reviewed the components of the accounting

and reporting framework as described in the FASAB concepts and accounting
standards, specifically focusing on the SBR and how it can be linked to the
“actual” column in the P& F Schedule of the President's Budget.
To determine whether the accounting framework was properly

implemented, we reviewed documentation and interviewed agency audit staff to
assess whether agencies followed accounting standards and guidance in
preparing the SBR, and

selected major budgetary accounts that together constituted approximately 75
percent 1 of each of the 10 agencies' total net outlays and compared fiscal
year 1999 information reported in their

respective SBRs to corresponding “actual year” information in
the P& F Schedules of the fiscal year 2001 President's Budget to determine
if the information was consistent. For this report, we focused on
differences that significantly affected total budgetary resources and
outlays rather than differences that existed between

the two documents at the individual line item level. To determine what the
results of the fiscal year 1999 financial statement audit tell us about the
reliability of the amounts reported in the President's Budget, we reviewed
the selected agencies' and/ or components' 2 audit reports and selected
audit working papers to determine what the auditors' opinion said about the
reliability of the financial

statements as a whole and whether there were specific comments about the
SBR, what the auditors' reports said about internal controls that affect the
SBR, whether the auditors made other comments related to budgetary

integrity, and whether auditors performed the work in accordance with
generally accepted government auditing standards.

We provided summary data to each of the agencies covered by this review and
obtained comments on a draft of this report from those agencies where we
identified preparation or audit issues. Comments were considered and
incorporated where appropriate. We also discussed these issues with OMB
officials and incorporated their comments as appropriate.

1 We previously reviewed the Department of Defense (DOD) implementation of
the SBR requirements and reported on the results of that review in a recent
testimony, Department of Defense: Progress in Financial Management Reform
(GAO/ T- AIMD/ NSIAD- 00- 163, May 9, 2000). We used the results of that
work in this report, and accordingly limited our DOD work for this report to
one additional appropriation.

2 Agency components are separately identified units that had separate fiscal
year 1999 financial statements and audits. For example, the Food and
Nutrition Service and the Forest Service components of the U. S. Department
of Agriculture had separate audited financial statements.

SBR Preparation and Linkage to the President's Budget Program and Financing

Appendi x II

Schedule Until the implementation of the SBR in fiscal year 1998, agencies
were not required to include budgetary information in their financial
statements; thus, there was no linkage between an agency's financial results
presented in the statements and the agency's budgetary information reported
in the “actual” column of the President's Budget Program &
Finance (P& F) Schedule. The SBR form and content was designed to provide
information

on budget execution amounts, including budgetary resources, availability of
resources, and how obligated resources have been used. 1 As part of the
preparation of the SBR, agencies are also required to disclose significant
differences between amounts in the SBR and amounts reported as actuals in
the President's Budget P& F Schedule to ensure a linkage between

budgetary amounts in the audited financial statements and information in the
President's Budget.

Preparation of the SBR The inclusion of the SBR in the financial statements
required the inclusion Adds Perspective to the of budgetary amounts as part
of the financial statements. The major

Financial Statements components of the SBR are (1) Budgetary Resources (2)
Status of

Budgetary Resources, and (3) Outlays. Budgetary resources. This section
shows total budgetary resources

made available to the agency for obligation during the reporting period. It
consists of new budget authority (i. e., appropriations, borrowing
authority, and

contract authority); unobligated amounts available from prior reporting
periods; transfers available from prior- year balances; reimbursements and
other income (i. e., spending authority from

offsetting collections); and adjustments (i. e., recoveries of prior- year
obligations). Status of budgetary resources. This section displays the
disposition

of the budgetary resources that were made available. Totals for this section
and for the Budgetary Resources sections must agree. It consists of
obligations incurred during the year, 1 The Office of Management and Budget
(OMB) issues form and content guidance for federal agency financial
statements including the SBR. The SBR follows the structure outlined in the
Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, Entity and
Display, using the definitions from the Statement of Federal Financial
Accounting Standards (SFFAS) No. 7, Accounting for Revenue and Other
Financing Sources and Concepts for Reconciling Budgetary and Financial
Accounting.

unobligated balances at the end of the period that remain available, and
unobligated balances at the end of the period that are unavailable. Outlays.
This section shows the relation between the Obligations and

Outlays. It displays the payments made to liquidate obligations, net of
offsetting collections. Obligations are usually liquidated by means of cash
payments (outlays) such as currency, checks, or electronic fund transfers.
This section also reconciles outlays with obligations incurred and the
change in obligated balances during the year. It consists of obligations
incurred during the year, net obligations transferred, beginning and ending
obligated balances, and outlays.

The SBR Provides Linkage The SBR form and content was based on an existing
budgetary report, the

Between Budget Execution SF- 133, Report on Budget Execution. 2 The SF- 133
is used by federal Data Reported in the

agencies to submit budget execution information to OMB and Treasury.
Agency's Financial

General ledger accounts and instructions to prepare the SBR and the
Statements and the

SF- 133 are generally the same and should result in minimal or no
differences in the information reported in the two documents. In addition,
President's Budget

agencies use information on the SF- 133 and other reports 3 to input
budgetary information into the “actual” column of the
President's Budget P& F Schedule during the budget submission process. This
means that amounts in the SBR can be linked to amounts in the
“actual” columns of the P& F Schedules. 4 However, because
guidance for preparing the SBR and the

actuals in the President's Budget may differ for certain line items, and
because the timing of submission of budgetary information for the
President's Budget may be earlier than the audit completion dates,

2 Per OMB Bulletin 97- 01, Form and Content of Agency Financial Statements,
agencies are to report budgetary information in the SBR based on budget
terminology, definitions, and guidance issued in OMB Circular A- 34,
Instructions on Budget Execution. The SBR includes in condensed form
information that Circular A- 34 requires that agencies report in the SF133 .
The SF- 133 is one of the budgetary reports submitted to OMB and Treasury to
provide budget execution information by appropriation account for the fiscal
year. OMB uses budgetary information sent by agencies and Treasury to
prepare certain line items in the President's Budget.

3 The Year- End Closing Statement (FMS 2108) form is also used to input
information into the “actual” column of the P& F Schedule. 4 OMB
Circular A- 34 provides a crosswalk from the SF- 133 to the P& F Schedule,
which is helpful when reconciling amounts reported.

differences may exist between the two documents. Differences between amounts
in the SBR and the actuals in the P& F Schedules can occur because of
differences in treatment of certain items in the two documents, such as
amounts unavailable for obligation and expired accounts. For example,
expired budget authority is excluded from the President's Budget but
included in the SBR. 5 Because differences may exist, federal accounting
standards require agencies to explain significant differences

between the information presented in the SBR and information described as
“actual” in the President's Budget in notes to the financial
statements. 6

The following example (see page 32) for the Medicaid Grants to States
Appropriation for the Health and Human Services, Health Care Financing
Administration (HCFA), shows how selected information in the agency's fiscal
year 1999 SBR corresponds to selected information in the “1999
actual” column of the fiscal year 2001 President's Budget P& F
Schedule.

5 OMB guidance for the preparation of the SF- 133, and thus the SBR,
requires the agency to include information on expired accounts for up to 5
years. However, guidance for reporting amounts in the “actual”
column of the P& F Schedule in the President's Budget requires certain
expired account information to be excluded from the P& F Schedule. 6 SSFAS
No. 7, Accounting for Revenue and Other Financing Sources and Concepts for
Reconciling Budgetary and Financial Accounting.

Figure 2: Illustration of the Linkage Between the Statement of Budgetary
Resources and the “Actual” Column in the Program and Financing
Schedule of the President's Budget

1 2

3

Source: Fiscal year 1999 Health Care Financing Administration Financial
Report - Combining Statement of Budgetary Resources (Supplementary Section).

HEALTH CARE FINANCING ADMINISTRATION

Federal Funds

General and Special Funds: GRANTS TO STATES FOR MEDICAID

* Detail

of 73. 10 1

2 Detail of 22. 00

3 *

Detail of 73. 20

Note: Minor differences with the SBR are due to rounding. Source: Budget of
the United States Government, Fiscal Year 2001- Appendix

Summary of Results by Major Budgetary

Appendi x II I Account Significant differences FY 1999

Financial not Outlays a Framework statement

disclosed in (dollars in

successfully not financial

Agency Major budgetary account millions)

implemented auditable

statements Social Security Federal Old Age and Survivors Insurance
Administration Trust Fund $ 337, 916 X b

Department of the Interest Expense on the Public Debt Treasury Outstanding
353, 511 X

Department of Health Payments to Health Care Trust Funds 69, 589 X and Human
Services Federal Supplementary Medical Insurance

Trust Fund 80, 518 X Federal Hospital Insurance Trust Fund 130, 759 X Grants
to States for Medicaid 108, 042 X Department of Defense Aircraft
Procurement, Navy 6, 024 X U. S. Department of Food Stamp Program 19, 005 X
Agriculture Special Supplemental Nutrition Program for

X Women, Infants, and Children (WIC) 3, 942 Child Nutrition Programs 8, 878
X

Commodity Credit Corporation Fund 19, 300 X X Department of

Federal- Aid Highways 22, 742 X Transportation Federal Transit Authority
Grants c 5,777 X

Federal Aviation Administration Operations c 5,576 X Office of Personnel
Civil Service Retirement and Disability Fund 43, 932 X Management Department
of Medical Care 17, 846 X

Veterans Affairs Compensation, Pension, and Burial Benefits c 21, 148 X
Department of Housing Section 8 Rental Assistance c 14, 958 X and Urban
Development Community Development Block Grants 4, 804 X

Public and Indian Housing Loans and Grants c 4,328 X Federal Housing
Administration c 3,778 X Department of Labor Unemployment Trust Fund c 24,
870 X

Total $1,307, 243 a The amount of net outlays is provided as a point of
reference.

b While unobligated trust fund balances included in the agency's SBR are not
included in the President's Budget P& F Schedule, the budget does include
these balances in another schedule titled “Unavailable
Collections.” c These lines represent more than one appropriation
account in the President's Budget.

(913894) Lett er

GAO United States General Accounting Office

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Contents Letter 3 Appendixes Appendix I: Objectives, Scope, and Methodology
26

Appendix II: SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule 28

Appendix III: Summary of Results by Major Budgetary Account 34 Figures
Figure 1: Overview of How the Accounting and Reporting

Framework Helps Assess the Reliability of Budget Execution Data 10 Figure 2:
Illustration of the Linkage Between the Statement of

Budgetary Resources and the “Actual” Column in the Program and
Financing Schedule of the President's Budget 32

Abbreviations

CCC Commodity Credit Corporation CFO Act Chief Financial Officers Act DOD
Department of Defense DOL Department of Labor DOT Department of
Transportation FACTS II Federal Agencies' Centralized Trial Balance System
II FASAB Federal Accounting Standards Advisory Board FFMIA Federal Financial
Management Improvement Act FNS Food and Nutrition Service HCFA Health Care
Financing Administration HUD Department of Housing and Urban Development OIG
Office of Inspector General OMB Office of Management and Budget P& F Program
and Financing Schedule SBR Statement of Budgetary Resources SFFAC Statement
of Federal Financial Accounting Concepts SFFAS Statement of Federal
Financial Accounting Standards SGL Standard General Ledger SSA Social
Security Administration USDA U. S. Department of Agriculture

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule

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Appendix II SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule

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Appendix II SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule

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Appendix II SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule

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Appendix II SBR Preparation and Linkage to the President's Budget Program
and Financing Schedule

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Appendix III

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