Financial Audit: Process for Preparing the Consolidated Financial
Statements of the U.S. Government Needs Improvement (30-OCT-03,
GAO-04-45).
For the past 6 years, since GAO began auditing the consolidated
financial statements of the U.S. government (CFS), GAO has been
unable to express an opinion on them because of material
weaknesses in internal control and financial reporting.
Contributing to GAO's inability to express an opinion has been
the federal government's lack of adequate systems, controls, and
procedures to properly prepare its consolidated financial
statements. The purpose of this report is to discuss in greater
detail weaknesses in financial reporting procedures and internal
control over the process for preparing the CFS that GAO
identified and to recommend improvements to address those
weaknesses.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-45
ACCNO: A08791
TITLE: Financial Audit: Process for Preparing the Consolidated
Financial Statements of the U.S. Government Needs Improvement
DATE: 10/30/2003
SUBJECT: Accounting procedures
Accounting standards
Financial disclosure
Financial management systems
Financial records
Financial statements
Internal controls
Financial statement audits
Policies and procedures
Treasury Central Accounting and
Reporting System
Treasury Federal Agencies Centralized
Trial Balance System
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GAO-04-45
United States General Accounting Office
GAO
Report to the Secretary of the Treasury
and the Director of the Office of Management and Budget
October 2003
FINANCIAL AUDIT
Process for Preparing the Consolidated Financial Statements of the U.S.
Government Needs Improvement
a
GAO-04-45
Highlights of GAO-04-45, a report to the Secretary of the Treasury and the
Director of the Office of Management and Budget
For the past 6 years, since GAO began auditing the consolidated financial
statements of the U.S. government (CFS), GAO has been unable to express an
opinion on them because of material weaknesses in internal control and
financial reporting. Contributing to GAO's inability to express an opinion
has been the federal government's lack of adequate systems, controls, and
procedures to properly prepare its consolidated financial statements.
The purpose of this report is to discuss in greater detail weaknesses in
financial reporting procedures and internal control over the process for
preparing the CFS that GAO identified and to recommend improvements to
address those weaknesses.
GAO makes 44 recommendations to address weaknesses identified, including a
recommendation that Treasury, in coordination with the Office of
Management and Budget (OMB), design its new compilation process to
directly link information from federal agencies' audited financial
statements to amounts reported in the CFS. GAO also makes 16
recommendations that address CFS disclosures required by U.S. generally
accepted accounting principles. Treasury and OMB stated that many of our
recommendations will improve the usefulness and accuracy of the CFS, but
disagreed with recommendations in two areas.
www.gao.gov/cgi-bin/getrpt?GAO-04-45.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gary T. Engel at (202)
512-3406 or [email protected].
October 2003
FINANCIAL AUDIT
Process for Preparing the Consolidated Financial Statements of the U.S.
Government Needs Improvement
GAO found deficiencies in the compilation and reporting process in the
following areas:
o controls over the compilation process,
o unreconciled transactions affecting the change in net position,
o reconciliation of intragovernmental activity and balances,
o elimination of intragovernmental activity and balances,
o reconciliation of net operating costs and unified budget surplus (or
deficit),
o statements of changes in cash balance from unified budget and other
activities,
o defining and documenting of the reporting entity, and
o conformity with U.S. generally accepted accounting principles.
Another key deficiency in the compilation and reporting process for the
CFS was the failure of the Department of the Treasury's process for
compiling the CFS to directly link information from federal agencies'
audited financial statements to amounts reported in the CFS (see figure
below). Without this direct link, the information in the CFS may not be
reliable. The lack of a direct link also affects the efficiency and
effectiveness of the CFS audit. Treasury is designing a new compilation
process that it expects to directly link this information beginning with
the fiscal year 2004 CFS.
GAO identified three additional areas related to the compilation and
reporting process for the CFS that warrant the attention of Treasury and
the Office of Management and Budget: (1) management representation
letters, (2) legal representation letters, and (3) information on treaties
and other international agreements.
Lack of Direct Link between Audited Agency Financial Statements and the
CFS
Contents
Letter
Results in Brief
Scope and Methodology
Directly Linking Audited Agency Financial Statements to the CFS
Controls over the Compilation Process
Unreconciled Transactions Affecting the Change in Net Position
Reconciliation of Intragovernmental Activity and Balances
Elimination of Intragovernmental Activity and Balances
Reconciliation of Net Operating Cost and Unified Budget Surplus (or
Deficit)
Statements of Changes in Cash Balance from Unified Budget and
Other Activities
Defining the Reporting Entity
Conformity with U.S. Generally Accepted Accounting Principles
Other Weaknesses Identified
Agency Comments and Our Evaluation
1 1 3 3 5 7 8 10
11
14 16 18 19 24
Appendixes
Appendix I:
Appendix II:
Disclosure Issues 28
Loans Receivable and Loan Guarantee Liabilities 28
Inventories and Related Property 29
Property, Plant, and Equipment 32
Federal Employee and Veteran Benefits Payable 32
Environmental and Disposal Liabilities 33
Other Liabilities 33
Commitments and Contingencies 35
Collections and Refunds of Federal Revenue 36
Dedicated Collections 36
Indian Trust Funds 37
Social Insurance 37
Nonfederal Physical Property 39
Human Capital 39
Research and Development 40
Deferred Maintenance 40
Risk Assumed 41
Comments from Department of the Treasury and the Office
of Management and Budget 42
GAO Comment 44
Contents
Figure Figure 1: Lack of Direct Link between Audited Agency Financial
Statements and CFS 4
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separately.
A
United States General Accounting Office Washington, D.C. 20548
October 30, 2003
The Honorable John W. Snow
The Secretary of the Treasury
The Honorable Joshua B. Bolten
Director, Office of Management and Budget
In March 2003, we issued our disclaimer of opinion on the consolidated
financial statements for the U.S. government (CFS) for the fiscal years
ended September 30, 2002 and 2001. For the past 6 years, certain material
weaknesses in internal control and in financial reporting resulted in
conditions that prevented us from expressing an opinion on the CFS.
Specifically, we have reported that the federal government did not have
adequate systems, controls, and procedures to properly prepare its
consolidated financial statements. Many of these weaknesses in internal
control that contributed to our disclaimer of opinion were identified
during
the audit of federal agencies' financial statements by the agency
financial
statement auditors and reported in detail with recommendations to the
agencies in separate reports. However, some of the internal control
weaknesses were identified during our tests of the U.S. Department of the
Treasury's (Treasury) process for preparing the CFS. Such weaknesses
impaired the federal government's ability to fully ensure that the CFS is
consistent with the underlying audited agency financial statements,
properly balanced, and in conformity with U.S. generally accepted
accounting principles. Consequently, these weaknesses also contributed to
our inability to render an opinion on the CFS.
The purpose of this report is to discuss in greater detail weaknesses we
identified during our fiscal year 2002 audit regarding financial reporting
procedures and internal control over the process for preparing the CFS.
We have discussed each of these weaknesses with your staff during this
past audit, and some of the weaknesses have been communicated for a
number of years.
Results in Brief The deficiencies in the compilation and reporting
processes involve the following nine areas: (1) directly linking audited
agency financial statements to the CFS, (2) controls over the compilation
process, (3) unreconciled transactions affecting the change in net
position, (4) reconciliation of intragovernmental activity and balances,
(5) elimination of intragovernmental activity and balances,
(6) reconciliation of net operating costs and unified budget surplus (or
deficit), (7) statements of changes in cash balance from unified budget
and other activities, (8) defining and documenting of the reporting
entity, and (9) conformity with U.S. generally accepted accounting
principles.
We also identified and discuss in this report certain issues related to
(1) management representation letters, (2) legal representation letters,
and (3) information on treaties and other international agreements that
will require actions by Treasury and the Office of Management and Budget
(OMB). Other issues related to these three areas need to be addressed by
federal agencies and their auditors. We plan to separately communicate to
agency Chief Financial Officers (CFO) and Inspectors General the details
of our concerns regarding these issues.
This report includes 44 recommendations to address weaknesses we
identified. It also includes recommendations related to 16 disclosures
identified in appendix I that are required by U.S. generally accepted
accounting principles. We are recommending that these 16 disclosures that
are not included in the most recent CFS either be included or that the
rationale for their exclusion be documented.
Treasury and OMB stated that many of our recommendations will improve the
usefulness and accuracy of the CFS and that they have already incorporated
many of them into their new system and processes that are being developed
for preparing the fiscal year 2004 CFS. However, Treasury and OMB
disagreed with our recommendations related to unreconciled transactions
affecting net position and the Statement of Changes in Cash Balance from
Unified Budget and Other Activities.
In response to their concerns and recognizing that there are various ways
to correct an identified weakness, we modified our recommendation related
to unreconciled transactions affecting net position to be less
prescriptive as to the action to take, but retained the intent of our
proposed recommendation. Treasury and OMB also disagreed with what they
perceived as our recommendation to use agency data to prepare the
Statement of Changes in Cash Balance from Unified Budget and Other
Activities. They disagreed with that approach because they stated that it
would be time consuming and costly, and they prefer to obtain the
information from Treasury's central accounting system rather than from
agencies' financial statements. This is not what we recommended. Instead,
because we found unexplained material differences between Treasury's
records and some agencies' financial statements, we
recommended that Treasury collect certain information already reported in
federal agencies' audited financial statements and develop procedures that
ensure consistency of the significant line items on the Statement of
Changes in Cash Balance from Unified Budget and Other Activities with the
agency-reported information.
Scope and Methodology
As part of our audit of the fiscal years 2002 and 2001 CFS, we evaluated
Treasury's financial reporting procedures and related internal control. In
our report, which is included in the fiscal year 2002 Financial Report of
the United States Government,1 we reported material deficiencies relating
to Treasury's financial reporting procedures and internal control. These
material deficiencies contributed to our disclaimer of opinion on the CFS
and also constitute material weaknesses in internal control, which
contributed to our adverse opinion on internal control. We performed
sufficient audit work to provide the disclaimer of opinion and issued our
audit report, dated March 20, 2003, in accordance with U.S. generally
accepted government auditing standards. This report is based on the audit
work we performed for the fiscal years 2002 and 2001 CFS.
We requested comments on a draft of this report from the Secretary of the
Treasury and the Director of OMB or their designees. Treasury's and OMB's
comments are reprinted in appendix II, discussed in the Agency Comments
and Our Evaluation section of this report, and incorporated in the report
as applicable.
Directly Linking Audited Agency Financial Statements to the CFS
Treasury's current process for compiling the CFS does not directly link
information from federal agencies' audited financial statements to amounts
reported in the CFS, and therefore cannot fully ensure that the
information in the CFS is consistent with the underlying information in
federal agencies' audited financial statements and other financial data
(see fig. 1). Treasury, as the preparer of the CFS, currently collects
approximately 2,400 trial balances through the Federal Agencies'
Centralized Trial Balance System (FACTS I) from federal agencies and
information from the Treasury
1The fiscal year 2002 Financial Report of the United States Government was
issued by the Department of the Treasury on March 31, 2003, and is
available through GAO's Web site at www.gao.gov and Treasury's web site at
www.fms.treas.gov/fr/index.html.
Central Accounting and Reporting System (STAR) to compile the financial
statements.
Figure 1: Lack of Direct Link between Audited Agency Financial Statements
and CFS
The Federal Accounting Standards Advisory Board's (FASAB) Statement of
Federal Financial Accounting Concepts No. 4, Intended Audience and
Qualitative Characteristics for the Consolidated Financial Report of the
United States Government, states that the consolidated financial report
should be a general purpose report that is aggregated from agency reports
and that it should tell users where to find information in other formats,
both aggregated and disaggregated, such as individual agency reports,
agency websites, and the President's Budget.
Without directly linking financial information from agencies' audited
financial statements, the information in the CFS may not be reliable. The
lack of direct linkage also affects the efficiency and effectiveness of
the audit of the CFS. In addition, the reliability of certain information
in Management's Discussion and Analysis, Stewardship Information, and
Supplemental Information may be affected.
As Treasury is designing its new compilation process, which it expects to
implement beginning with the fiscal year 2004 CFS, we recommend that the
Secretary of the Treasury direct the Fiscal Assistant Secretary, working
in
coordination with the Controller of OMB's Office of Federal Financial
Management, to
o design the new compilation process to directly link information from
federal agencies' audited financial statements to amounts reported in all
the applicable CFS and related footnotes, and
o consider the other applicable recommendations in this report when
designing and implementing the new compilation process.
Controls over the Compilation Process
We identified specific areas of internal control in Treasury's process for
preparing the CFS that need to be strengthened. Internal control should
provide, among other things, reasonable assurance that financial reporting
is reliable. GAO's Standards for Internal Control in the Federal
Government2 defines the minimum level of quality acceptable for internal
control in the federal government and provides the standards against which
internal control is to be evaluated. These standards state that internal
controls should include, among other items, (1) segregation of duties, (2)
appropriate documentation of transactions and internal control, and (3)
reviews by management at the functional or activity level. We found many
controls in place, but we identified three areas that need to be improved.
Although Treasury is developing a new system and procedures for preparing
the CFS, the need for adequate internal control remains important and
needs to be considered during the development process.
Segregation of Duties Segregation of duties is the practice of dividing
the steps in a critical function among different individuals in order to
reduce the risk of error or fraud, thus preventing a single individual
from having full control of a transaction or event. FACTS I and the
Financial Management Service's Hyperion database are used to compile the
CFS. We found that Treasury's systems administrators responsible for
processing the FACTS I data have the capability to enter, change, and
delete data within FACTS I and the Hyperion database without any
supervisory review. They are also able to post adjustments to the CFS
without formal approval. Lack of proper segregation of duties for critical
functions leaves the CFS vulnerable to
2U.S. General Accounting Office, Internal Control: Standards for Internal
Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.:
November 1999).
errors and could result in incomplete and inaccurate summarization of data
within these financial statements.
Documentation of Transactions and Internal Control
While Treasury has documented some portions of its process for compiling
the CFS, it has not fully documented its policies and procedures for
preparing the CFS report. Agency management is responsible for developing
detailed policies, procedures, and practices to fit agency operations and
ensuring that internal control is built into and is an integral part of
operations. Although GAO's Standards for Internal Control in the Federal
Government calls for clear documentation of policies and procedures, we
found that Treasury has not fully implemented this key control activity.
Without documented policies and procedures, staff could follow
inconsistent standards and practices or not follow them at all. This
potential for inconsistency increases the risk that errors in the
compilation process could go undetected and could result in an incomplete
and inaccurate summarization of data within the CFS, creating a financial
report that is not an accurate representation of the financial position of
the U.S. government.
Management Review We found that Treasury management did not review
transactions within several key compilation processes. Transactions and
other significant events should be authorized and executed only by persons
acting within the scope of their authority. Appropriate reviews by
management of key decisions and data are vital controls to ensure that
only authorized actions occur. For example, Treasury's FACTS I system
allows for master appropriation files, the files that list all federal
agencies by appropriation code, to be updated by review accountants
without supervisory approval. Also, there is no requirement for
supervisory review of changes made to agency data as a result of issues
identified during the "agency data analysis process" performed by
Treasury. In some instances, supervisory reviews were required, but any
reviews that may have been performed were not documented. For example,
there was no documentation of supervisory review of changes to the
Hyperion system software and chart of accounts used to compile the data
for the CFS. Records of changes and reviews of the changes made to the
templates used to create the CFS were also inadequate.
Inadequate supervisory review and inadequate documentation of changes and
reviews could allow data that go into the CFS to be manipulated or changed
without any supervisory control or review, resulting in the
possibility that agency data could be changed or incorrectly compiled in
the CFS.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, in connection with Treasury's current compilation
process and the development of Treasury's new compilation system and
process, to
o segregate the duties of individuals who have the capability to enter,
change, and delete data within FACTS I and the Hyperion database and post
adjustments to the CFS;
o develop and fully document policies and procedures for the consolidated
financial statement preparation process so that they are proper, complete,
and consistently applied among staff members; and
o require and document reviews by management of all procedures that
result in data changes to the CFS.
Unreconciled Transactions Affecting the Change in Net Position
The net position reported in the CFS is derived by subtracting liabilities
from assets, rather than through balanced accounting entries. In other
words, the CFS is "plugged" to make it balance. To make the fiscal year
2002 CFS balance, Treasury recorded a net $17.1 billion decrease to net
operating cost on the Statement of Operations and Changes in Net Position,
which it labeled "Unreconciled Transactions Affecting the Change in Net
Position." Treasury does not identify and quantify all components of this
unreconciled activity.
Treasury attributes these net unreconciled transaction amounts to (1)
improper recording of intragovernmental transactions by federal agencies,
(2) transactions affecting assets and liabilities not being identified
properly by federal agencies as prior period adjustments, and (3) timing
differences and errors in reporting transactions. Treasury stated in its
November 2001 report on its CFS improvement project3 that in order to
properly reconcile net position, federal agencies would need to split net
position between intragovernmental and public components, including ending
balances and the year's activity. Currently, OMB requires federal
3U.S. Department of the Treasury, Consolidated Financial Report
Improvement Project: Recommendations to the Consolidation Process
(Washington D.C.: Nov. 15, 2001).
agencies to identify intragovernmental assets and liabilities on their
audited balance sheets but does not require the intragovernmental portion
of net position to be identified. Without a process in place to identify
and quantify all components of the activity in the net position line item,
revenues, costs, assets, and liabilities may be misstated, thereby
affecting the reliability of the CFS.
As Treasury is designing its new financial statement compilation process
to begin with the fiscal year 2004 CFS, we recommend that the Secretary of
the Treasury direct the Fiscal Assistant Secretary, working in
coordination with the Controller of OMB's Office of Federal Financial
Management, to
o develop reconciliation procedures which will aid in understanding and
controlling the net position balance as well as eliminate the plugs
previously associated with compiling the CFS; and
o use balanced accounting entries to account for the change in net
position rather than simple subtraction of liabilities from assets.
Reconciliation of Intragovernmental Activity and Balances
Federal agencies are unable to fully reconcile intragovernmental activity
and balances. OMB and Treasury require CFO Act agencies to reconcile
selected intragovernmental activity and balances with their "trading
partners"4 and to report on the extent and results of intragovernmental
activity and balances reconciliation efforts. The Inspectors General
reviewed these reports and communicated the results of their reviews to
OMB, Treasury, and us. A substantial number of the CFO Act agencies did
not fully perform the required reconciliations for fiscal year 2002,
citing reasons such as (1) failure of trading partners to provide needed
data, (2) limitations and incompatibility of agency and trading partner
systems, and (3) human resource issues. For fiscal year 2002, amounts
reported for federal agency trading partners for certain intragovernmental
accounts were significantly out of balance. A lack of standardization in
transaction processing and a lack of sufficient communication between
trading partners contribute significantly to federal agencies' inability
to fully reconcile intragovernmental activity and balances. Without
improvement in this area, Treasury cannot properly eliminate
intragovernmental activity
4Trading partners are U.S. government agencies, departments, or other
components included in the CFS that do business with each other.
and balances and, as a result, assets, liabilities, revenue, and costs
reported in the CFS may not be fairly stated.
Federal agencies are required to consistently and fully account for,
reconcile, and report intragovernmental activity and balances across the
federal government. To address certain issues that have contributed to the
out-of-balance condition for intragovernmental activity and balances, OMB
has established a set of standard business rules, OMB Memorandum M-03-01,
Business Rules for Intragovernmental Transactions, for governmentwide
transactions among trading partners; the memorandum requires quarterly
reconciliations of intragovernmental activity and balances, beginning with
fiscal year 2003. Treasury Financial Manual, section 4030, also requires
reconciliation of intragovernmental activity and balances. Further,
Treasury has begun a process to help federal agencies better perform their
reconciliations, by providing each agency with detailed trading partner
information. Also, Treasury is planning to require federal agencies,
beginning with fiscal year 2004, to report in Treasury's new closing
package intragovernmental activity and balances by trading partner.
As OMB continues to make strides to address issues related to
intragovernmental transactions, we recommend that the Director of the
Office of Management and Budget direct the Controller of the Office of
Federal Financial Management to
o develop policies and procedures that document how OMB will enforce the
business rules provided in OMB Memorandum M-03-01, Business Rules for
Intragovernmental Transactions, and
o require that significant differences noted between business partners be
resolved and the resolution be documented.
We also recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of the
Office of Management and Budget, to implement the plan to require federal
agencies to report in Treasury's new closing package, beginning with
fiscal year 2004, intragovernmental activity and balances by trading
partner and indicate amounts that have not been reconciled with trading
partners and amounts, if any, that are in dispute.
Elimination of Intragovernmental Activity and Balances
During our audits, we found the following:
o Intragovernmental activity and balances are "dropped" or "offset" in
the preparation of the CFS rather than eliminated through balanced
accounting entries.
o Certain intragovernmental activity and balances, primarily related to
appropriations, are not being properly considered in the consolidation
process.
o No reconciliation is performed for the change in intragovernmental
assets and liabilities for the fiscal year, including the amount and
nature of all changes in intragovernmental assets or liabilities not
attributable to cost and revenue activity recognized during the fiscal
year, such as differences due to purchases that are capitalized as
inventory or equipment and revenue that is deferred.
Consolidated financial statements are intended to present the results of
operations and financial position of the components that make up the
reporting entity as if the entity were a single enterprise. Therefore,
when preparing the CFS, intragovernmental activity and balances between
federal agencies must be eliminated. As mentioned above, federal agencies'
problems in handling their intragovernmental transactions impair
Treasury's ability to properly eliminate these transactions, and
significant differences in intragovernmental accounts have been
identified. Without an effective process, intragovernmental activity and
balances are not fully accounted for and eliminated in the process used to
prepare the CFS. As a result, the federal government's ability to
determine the impact of these differences on the amounts reported in the
CFS is impaired and, consequently, the CFS may be misstated.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with OMB's Controller of the
Office of Federal Financial Management, to
o design procedures that will account for the difference in
intragovernmental assets and liabilities throughout the compilation
process by means of formal consolidating and elimination accounting
entries;
o develop solutions for intragovernmental activity and balance issues
relating to federal agencies' accounting, reconciling, and reporting in
areas other than those OMB now requires be reconciled, primarily areas
relating to appropriations; and
o reconcile the change in intragovernmental assets and liabilities for
the fiscal year, including the amount and nature of all changes in
intragovernmental assets or liabilities not attributable to cost and
revenue activity recognized during the fiscal year. Examples of these
differences would include capitalized purchases such as inventory or
equipment and deferred revenue.
Reconciliation of Net Operating Cost and Unified Budget Surplus (or
Deficit)
Treasury did not have an adequate process to identify and report items
needed to reconcile the U.S. government's fiscal year 2002 net operating
cost of $364.9 billion to the fiscal year 2002 unified budget deficit,
which was reported as $157.7 billion. The Reconciliation of Net Operating
Cost and Unified Budget Surplus (or Deficit) (hereafter referred to as the
reconciliation statement) is expected to explain certain differences that
occur because the CFS are prepared on the accrual basis in accordance with
U.S. generally accepted accounting principles. Under accrual accounting,
transactions are reported when the event or transaction is recognizable
under U.S. generally accepted accounting principles rather than when cash
is received and paid. By contrast, federal budgetary reporting is, with
certain exceptions, on the cash basis, in accordance with accepted budget
concepts and policies. Statement of Federal Financial Accounting Standards
(SFFAS) No. 24, Selected Standards for the Consolidated Financial Report
of the United States Government, effective in fiscal year 2002, requires
the reconciliation statement as part of the CFS.
In our audit of the reconciliation statement, we found that Treasury was
unable to identify all the transactions needed to properly reconcile the
statement. Treasury's process for compiling the reconciliation statement
involved the use of two independent sources of information-FACTS data from
federal agencies' general ledger systems for the net operating cost and
most of the reconciliation statement items and Treasury's central
accounting and reporting system (STAR) primarily for the unified budget
surplus/deficit amounts. The reconciliation statement begins with the net
operating cost amount reported in the Statement of Operations and Changes
in Net Position (derived through FACTS data). As noted above, this amount
includes a net $17.1 billion labeled as "unreconciled transactions," which
was needed to balance the consolidated Balance
Sheet. Because the net operating cost amount includes this plug, which
does not correspond to any budget activity, the $17.1 billion should have
been included as a reconciling item in the reconciliation statement, but
it was not. In addition, a $1 billion "net amount of all other
differences" (another plug) was also needed in the reconciliation
statement to balance net operating cost to the unified budget deficit.
Treasury was unable to adequately identify and explain the gross
components of such amounts.
Treasury's process for preparing the reconciliation statement also did not
ensure completeness of reporting or ascertain the consistency of all the
amounts reported in the reconciliation statement with the related balance
sheet line items, related notes, or federal agency financial statements.
We performed an analysis to determine whether all applicable components
reported in the other statements (and related note disclosures) included
in the CFS were properly reflected in the reconciliation statement. We
found about $21 billion of net changes in various line item account
balances on the balance sheet that were not explained on either the
reconciliation statement or the Statement of Changes in Cash Balance from
Unified Budget Surplus and Other Activities. For example, the
reconciliation statement reported depreciation expense ($20.5 billion) and
total capitalized fixed assets ($40.9 billion) as the components of the
net change in property, plant, and equipment. Although these activities
accounted for a net increase of $20.4 billion, the balance sheet reflected
a smaller net increase, $18 billion; Treasury was unable to explain the
remaining $2.4 billion of the net change. In addition, while we found that
the source of the line item "principal repayments of precredit reform
loans" that is reported on the reconciliation statement was from STAR,
Treasury was unable to link this amount of $8.2 billion to any related
agency financial statements or the consolidated Balance Sheet and related
notes.
Lastly, Treasury did not establish a reporting materiality threshold for
purposes of collecting and reporting information in the reconciliation
statement. For example, some items were reported simply as a net
"increase/decrease" without considering how material, both quantitatively
and qualitatively, the gross changes were.5 We noted, for instance, that
in the "components of the budget surplus (deficit) not part of net
operation cost" section of the statement, there is a reconciling item
titled "increase in
5An item's omission or error is considered material if the surrounding
circumstances make it probable that the judgment of a reasonable person
relying on the information would have been changed or influenced by the
inclusion or correction of the item.
inventory" rather than accounting for "purchases of inventory" as a
"component of the budget surplus (deficit) not part of net operation cost"
and separately reporting the "sales, use, or disposal of inventory" in the
"components of net operating cost not part of the budget surplus (or
deficit)." Treasury was unable to demonstrate whether material,
informative amounts were netted, and pertinent information may therefore
not be disclosed.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary to develop and implement a process that adequately
identifies and reports items needed to reconcile its net operating cost
and unified budget surplus (or deficit). Treasury should
o report "net unreconciled differences" included in the net operating
results line item as a separate reconciling activity in the reconciliation
statement,
o develop policies and procedures to ensure completeness of reporting and
document how all the applicable components reported in the other
consolidated financial statements (and related note disclosures included
in the CFS) were properly reflected in the reconciliation statement, and
o establish reporting materiality thresholds for determining which agency
financial statement activities to collect and report at the governmentwide
level to assist in ensuring that the reconciliation statement is useful
and conveys meaningful information.
In addition, if Treasury chooses to continue using information both from
federal agencies' financial statements and from the STAR system, we
recommend that Treasury
o demonstrate how the amounts from STAR reconcile to federal agencies'
financial statements and
o identify and document the cause, if any significant differences are
noted.
Statements of Changes in Cash Balance from Unified Budget and Other
Activities
Treasury was unable to demonstrate how significant amounts reported in the
Statement of Changes in Cash Balance from Unified Budget and Other
Activities were related to the underlying federal agencies' financial
statements. The Statement of Changes in Cash Balance from Unified Budget
and Other Activities is expected to explain how the annual unified budget
surplus or deficit relates to the change in the U.S. government's
operating cash. SFFAS No. 24, effective in fiscal year 2002, requires the
Statement of Changes in Cash Balance from Unified Budget and Other
Activities as part of the CFS.
For fiscal year 2002, the Statement of Changes in Cash Balance from
Unified Budget and Other Activities reported a unified budget deficit of
$157.7 billion, derived as the difference between reported actual unified
budget receipts of $1,853.3 billion and actual unified budget outlays of
$2,011 billion. Both line items were material to this statement and were
compiled from federal agencies' monthly reports to Treasury in the STAR
system.
Treasury was unable to explain material differences, totaling $231 billion
(absolute) and $166 billion (net), between the actual unified budget net
outlays reported on this statement and the outlays reported on selected
individual federal agencies' audited Combined Statement of Budgetary
Resources. For example, we found one federal agency that reported net
outlays for fiscal year 2002 as $479 billion on its audited Combined
Statement of Budgetary Resources, while Treasury's records showed $375
billion for fiscal year 2002 for this agency. This agency had received an
unqualified auditor opinion on its financial statements.
OMB Bulletin 01-09, Form and Content of Agency Financial Statements, 6
states that outlays in federal agencies' Combined Statement of Budgetary
Resources should agree with the net outlays reported in the budget of the
U.S. government. In addition, SFFAS No. 7, Accounting for Revenue and
Other Financing Sources and Concepts for Reconciling Budgetary and
Financial Accounting, requires explanation of any material differences
between the information required to be disclosed (including outlays) and
the amounts described as "actual" in the budget of the U.S. government.
6Office of Management and Budget, Form and Content of Agency Financial
Statements, OMB-01-09 (Washington, D.C.: Sept. 25, 2001). This bulletin is
OMB's official guidance for the form and content of federal agencies'
financial statements.
Treasury believes its records for net outlays are reliable and accurate;
however, many federal agencies are reporting different net outlays and
receiving clean opinions on their financial statements.
Treasury was unable to adequately explain the over $24 billion net
difference between actual unified budget receipts of $1,853.3 billion and
total operating revenue of $1,877.7 billion reported in the Statements of
Operations and Changes in Net Position. While these amounts are not
expected to equal (for example, operating revenues include accrued
amounts, and budget receipts are reported on the cash basis), there is a
relationship between operating revenues reported on the Statement of
Operations and Changes in Net Position and unified budget receipts
reported on the Statement of Changes in Cash Balance from Unified Budget
and Other Activities. Therefore, the expectation is that differences
between these amounts should be explainable.
Treasury was also not able to provide support for how the line items in
the "other activities" section of this statement, totaling $13.5 billion,
related to either the underlying Balance Sheet or related notes
accompanying the CFS.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of OMB's
Office of Federal Financial Management, to develop and implement a process
to ensure that the Statement of Changes in Cash Balance from Unified
Budget and Other Activities properly reflects the activities reported in
federal agencies' audited financial statements. Treasury should
o document the consistency of the significant line items on this
statement to agencies' audited financial statements;
o request, through its closing package, that federal agencies provide the
net outlays reported in their Combined Statement of Budgetary Resources
and explanations for any significant differences between net outlay
amounts reported in the Combined Statement of Budgetary Resources and the
budget of the U.S. government;
o investigate the differences between net outlays reported in federal
agencies' Combined Statement of Budgetary Resources and Treasury's records
in the STAR system to ensure that the proper amounts are reported in the
Statement of Changes in Cash Balance from Unified Budget and Other
Activities;
o explain and document the differences between the operating revenue
amount reported on the Statement of Operations and Changes in Net Position
and unified budget receipts reported on the Statement of Changes in Cash
Balance from Unified Budget and Other Activities; and
o provide support for how the line items in the "other activities"
section of this statement relate to either the underlying Balance Sheet or
related notes accompanying the CFS.
Defining the Reporting Entity
The CFS includes certain financial information for the executive,
legislative, and judicial branches, to the extent that federal agencies
within those branches have provided Treasury such information. However,
there are undetermined amounts of assets, liabilities, and revenues that
are not included, and the government did not provide evidence or disclose
in the CFS that such financial information was immaterial.
Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, Entity
and Display, provides guidance on defining reporting entities. Under SFFAC
No. 2, a reporting entity for general purpose financial statements would
"meet all of the following criteria: (1) there is a management responsible
for controlling and deploying resources, producing outputs and outcomes,
executing the budget or a portion thereof . . ., and held accountable for
the entity's performance; (2) the entity's scope is such that its
financial statements would provide a meaningful representation of
operations and financial condition; and (3) there are likely to be users
of the financial statements who are interested in and could use the
information in the statements to help them make resource allocation and
other decisions and hold the entity accountable for its deployment and use
of resources." SFFAC No. 2 also calls for the notes to financial
statements to provide disclosures that are necessary to make the financial
statements more informative and not misleading, such as a brief
description of the reporting entity. The statement also provides criteria
for including components in a reporting entity. As examples of the
application of such criteria, SFFAC No. 2 specifically discusses the
Federal Reserve System and government-sponsored enterprises and the
reasons for FASAB's conclusion that these entities would not be considered
components of the U.S. government reporting entity.
In accordance with SFFAC No. 2, if the government could provide evidence
that the financial information not included in the CFS is immaterial,7
then the CFS reporting entity could be described as the "U.S. government"
and would conform materially to the criteria set forth in SFFAC No. 2.
However, the fiscal year 2002 CFS reporting entity excluded certain
entities without providing evidence or clearly explaining the reason.
An appendix to the CFS listed 13 entities that were excluded from the CFS
reporting entity and specifically explained the reason for excluding one
of those entities-the Federal Reserve System. However, the appendix did
not explain the reason for excluding the other entities listed as
excluded, such as government-sponsored enterprises and military exchanges.
While exclusion of those entities may be appropriate, some users of the
CFS may be confused if the reason for excluding entities is not clearly
disclosed in the CFS.
We understand the inherent challenges in getting complete information for
all three branches of the U.S. government. However, not including required
information for all components included in a reporting entity or not
clearly explaining the reason for excluding certain entities could mislead
some users of the financial statements.
Without evidence of the amounts of information excluded and any related
disclosures, in particular, evidence that what was excluded was immaterial
to the CFS, we could not have ample assurance regarding the unknown
amounts, and, under auditing standards, this issue could impede a future
opinion on the CFS.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of OMB's
Office of Federal Financial Management to do the following:
o Perform an assessment to define the reporting entity, including its
specific components, in conformity with the criteria issued by FASAB. Key
decisions made in this assessment should be documented, including
7To assess the materiality of any issue, the indicative criteria discussed
in SFFAC No. 2 state that (1) the materiality of the entities and their
relationship with one another should be considered, (2) materiality should
not be measured solely in dollars, and (3) potential embarrassment to any
of the entities' stakeholders should also be considered. Thus, a bias
toward expansiveness and comprehensiveness would be justified,
particularly if it could contribute to maintenance of fiscal control.
the reason for including or excluding components and the basis for
concluding on any issue. Particular emphasis should be placed on
demonstrating that any financial information that should be included, but
is not included, is immaterial.
o Provide in the financial statements all the financial information
relevant to the defined reporting entity, in all material respects. Such
information would include, for example, the reporting entity's assets,
liabilities, and revenues.
o Disclose in the financial statements all information that is necessary
to inform users adequately about the reporting entity. Such disclosures
should clearly describe the reporting entity and explain the reason for
excluding any components that are not included in the defined reporting
entity.
Conformity with U.S. Generally Accepted Accounting Principles
Treasury lacks an adequate process to ensure that the financial
statements, related notes, stewardship, and supplemental information in
the CFS are presented in conformity with U.S. generally accepted
accounting principles. SFFAS No. 24 states that FASAB standards apply to
all federal agencies, including the U.S. government as a whole, unless
provision is made for different accounting treatment in a current or
subsequent standard.
Specifically, we found that Treasury did not (1) timely identify
applicable generally accepted accounting principles requirements, (2) make
timely modifications to agency data calls to obtain information needed,
(3) assess, qualitatively and quantitatively, the materiality of omitted
disclosures,8 or (4) document decisions reached with regard to omitted
disclosures and the rationale for such decisions. We identified numerous
disclosures that were not in conformity with applicable standards. These
needed disclosures are described in appendix I. We did note that Treasury
is requesting certain information in its planned closing package for
fiscal year 2004 that may address some of the needed disclosures.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary to establish a formal process that will allow the
8See footnote 5.
financial statements, related notes, stewardship, and supplemental
information in the CFS to be presented in conformity with U.S. generally
accepted accounting principles. The process should
o timely identify generally accepted accounting principles requirements,
o make timely modifications to Treasury's closing package requirements to
obtain information needed,
o assess, qualitatively and quantitatively, the impact of the omitted
disclosures, and
o document decisions reached and the rationale for such decisions.
With respect to the 16 required disclosures identified in appendix I that
were not included in the CFS, we recommend that each of these disclosures
be included in the CFS or the rationale for excluding any of them be
documented.
Other Weaknesses Identified
During our audit we found certain issues related to (1) management
representation letters, (2) legal representation letters, and (3)
information on major treaties and other international agreements that will
require certain actions by Treasury and OMB. Other issues related to these
same three areas will need to be addressed by federal agencies and their
auditors to facilitate Treasury's and OMB's preparation of the CFS. We
plan to separately communicate to agency Chief Financial Officers and
Inspectors General the details of our concerns for such issues. We have
summarized our findings below and are providing recommendations to help
address the issues that require action by Treasury and OMB.
Management Representation Letters and the Related Summaries of Unadjusted
Misstatements
For each agency financial statement audit, generally accepted auditing
standards require that agency auditors obtain written representations from
agency management as part of the audit. In turn, Treasury and OMB are to
receive all the required management representation letters and the related
summaries of unadjusted misstatements from the federal agencies. This is
important because generally accepted auditing standards require Treasury
and OMB to provide us, as their auditor, a management representation
letter for the CFS, and their letter depends on the information within
agencies' management representation letters. However, we found that
Treasury and OMB did not have policies or procedures to adequately review
and analyze federal agencies' management representation letters.
In a management representation letter, management typically acknowledges
its responsibility for its financial statements and its belief that the
financial statements are presented in conformity with U.S. generally
accepted accounting principles; the completeness of financial information
in the statements; recognition, measurement, and disclosure; and
subsequent events. Without performing an adequate review and analysis of
federal agencies' management representations letters, Treasury and OMB
management may not be fully informed of matters that may affect their
representations made with respect to the audit of the CFS.
As part of our audit of the CFS, we received and reviewed 30 federal
agencies' management representation letters.9 We found that (1) 2 letters
had discrepancies between what the auditor found and what the agency
represented in its management representation letter, (2) 8 letters were
not signed by the appropriate level of management, (3) 25 letters did not
disclose the materiality threshold used by management in determining items
to be included in the letter, (4) 4 letters omitted certain
representations that are ordinarily included, (5) 2 letters did not
include a schedule of unadjusted misstatements or affirm in their
representation letter that there were no uncorrected misstatements, and
(6) 15 schedules of unadjusted misstatements did not provide complete
information about the misstatements that were identified. Only 1 of the 30
letters we reviewed had none of the deficiencies noted above.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of OMB's
Office of Federal Financial Management, to establish written policies and
procedures for preparing the governmentwide management representation
letter to help ensure that it is properly prepared and contains sufficient
representations. Specifically, these policies and procedures should
require
o an analysis of the agency management representations to determine if
discrepancies exist between what the agency auditor reported and the
representations made by the agency, including the resolution of such
discrepancies;
9We requested 24 federal agency management representation letters. We
received an additional 6 letters that we also included in our review.
o a determination that the agency management representation letters have
been signed by the highest-level agency officials that are responsible for
and knowledgeable about the matters included in the agency management
representation letters;
o an assessment of the materiality thresholds used by federal agencies in
their respective management representation letters;
o an assessment of the impact, if any, of federal agencies' materiality
thresholds on the management representations made at the governmentwide
level;
o an evaluation and assessment of the omission of representations
ordinarily included in agency management representation letters; and
o an analysis and aggregation of the agencies' summary of unadjusted
misstatements to determine the completeness of the summaries and to
ascertain the materiality, both individually and in the aggregate, of such
unadjusted misstatements to the CFS taken as a whole.
Legal Representation Letters and Related Management Schedules in Reporting
Contingency Losses
For each agency financial statement audit, generally accepted auditing
standards require that agency auditors obtain written legal
representations as part of the audit. Legal representation letters, along
with related management schedules,10 are essential to properly reporting
legal contingency losses in federal agencies' financial statements.
Inadequate information in the legal representation letters could weaken
the accuracy and reliability of federal agency financial statements and
the CFS.
We reviewed 34 federal agencies' legal representations letters and related
management schedules to assess the adequacy of the letters and related
schedules.11 We found that the adequacy of some legal letters was
questionable. For example, we found that 2 letters did not express an
opinion of how the expected outcome of virtually all of the two agencies'
10Office of Management and Budget, Audit Requirements for Federal
Financial Statements, OMB-01-02 (Washington, D.C.: Oct. 16, 2000),
requires agency chief financial officers to prepare a management schedule
that documents how the information obtained in the legal counsel's
response was considered in preparing the financial statements.
11We requested 24 federal agency legal representation letters. We received
an additional 10 letters that we also included in our review.
cases would be resolved, and that 5 agencies did not provide the related
management schedules.
In some cases, the lack of adequate information may have resulted from
legal counsel's desire to protect the confidentiality of lawyer-client
communications, the difficulty in predicting the outcome of potential and
pending litigation with any assurance, and/or legal counsel's desire to
avoid the possibility of prejudicing the outcome of the litigation to the
client's detriment. While these are understandable reasons, without
adequate legal contingency information, management of Treasury and OMB may
not be fully informed of matters that may affect the legal representations
made with respect to the audit of the CFS.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of OMB's
Office of Federal Financial Management, to help ensure that agencies
provide
o adequate information in their legal representation letters regarding
the expected outcome of the cases and
o related management schedules.
Information on Major Treaties and Other International Agreements
The CFS note disclosures did not include any information on major treaties
and other international agreements12 to which the federal government is a
party. These treaties and other international agreements address various
issues including, but not limited to, trade, commerce, security, and arms
that may involve financial obligations or give rise to loss contingencies.
Treaties and other international agreements may lead to commitments or
contingencies and therefore should be included in the CFS, in accordance
with OMB Bulletin No. 01-09 and SFFAS No. 5, Accounting for Liabilities
12The term treaty in its technical usage in the United States denotes
international agreements made by the President with the advice and consent
of the Senate in accordance with Article II, section 2, of the
Constitution of the United States. In addition to such treaties,
authorized representatives of the federal government may, pursuant to
existing law or treaties, enter into other international agreements that
are governed by international law. The entering into and record keeping of
such international agreements by federal agencies are governed by the
Case-Zablocki Act, 1 U.S.C. section 112b, and implementing State
Department regulations, 22 C.F.R. Part 181 (2002).
of the Federal Government, as amended by SFFAS No. 12, Recognition of
Contingent Liabilities Arising from Litigation. The degree of certainty as
to whether there will be a cost now or in the future, along with the
ability to quantify it in advance, determines the appropriate accounting
treatment.
Treaties and other international agreements were not included in the notes
to the CFS because Treasury and the federal agencies had yet to perform
the necessary work to determine the nature and magnitude of those in force
as of September 30, 2002. The State Department publishes a document
annually called Treaties in Force. The most recent edition of Treaties in
Force, released in August 2002, lists treaties and other international
agreements of the United States that were in force on January 1, 2002.
However, according to State Department staff, this document is incomplete
because federal agencies do not always provide complete information on
treaties and international agreements when a request for data is made. Not
having information on major treaties and other international agreements in
the CFS resulted in incomplete disclosures of the possible exposure to
loss or obligations of the U.S. government.
We recommend that the Secretary of the Treasury direct the Fiscal
Assistant Secretary, working in coordination with the Controller of OMB's
Office of Federal Financial Management, to establish written policies and
procedures to help ensure that major treaty and other international
agreement information is properly identified and reported in the CFS.
Specifically, these policies and procedures should require that agencies
o develop a detailed schedule of all major treaties and other
international agreements that obligate the U.S. government to provide
cash, goods, or services, or that create other financial arrangements that
are contingent on the occurrence or nonoccurrence of future events (a
starting point for compiling these data could be the State Department's
Treaties in Force);
o classify all such scheduled major treaties and other international
agreements as commitments or contingencies;
o disclose in the notes to the CFS amounts for major treaties and other
international agreements that have a reasonably possible chance of
resulting in a loss or claim as a contingency;
o disclose in the notes to the CFS amounts for major treaties and other
international agreements that are classified as commitments and that may
require measurable future financial obligations; and
o take steps to prevent major treaties and other international agreements
that are classified as remote from being recorded or disclosed as probable
or reasonably possible in the CFS.
Agency Comments and Our Evaluation
In written comments on a draft of this report, which are reprinted in
appendix II, Treasury and OMB stated that our report identified many
recommendations that will improve the usefulness and accuracy of the CFS
and that they have already incorporated many of them into their new system
and processes that are being developed for preparing the fiscal year 2004
CFS. However, Treasury and OMB disagreed with our recommendations related
to unreconciled transactions affecting net position and the Statement of
Changes in Cash Balance from Unified Budget and Other Activities. They
also stated that they would consider the other recommendations in our
report as they continue the design and implementation of the new process
for preparing the CFS.
On the first matter, Treasury and OMB disagreed with our proposed
recommendation that federal agencies submit to Treasury an analysis of
their net position that separates intragovernmental and public
transactions. The purpose of this recommendation was to help Treasury
understand and control the U.S. government's net position, as well as to
eliminate the plugs associated with compiling the CFS. In response to our
draft report, Treasury and OMB stated that Treasury had decided not to
require agencies to split net position between intragovernmental and
public transactions as Treasury had originally planned and reported in its
CFS Improvement Project Report because it was unable to develop a
procedure that agencies could use to provide this split. In addition,
Treasury and OMB stated that this split would not identify certain items
known to affect the unreconciled net position transactions. However,
because Treasury has not identified and quantified all the components of
the unreconciled transactions, a procedure is still needed that will
adequately reconcile net position and assist Treasury in identifying and
eliminating the plugs needed to balance the CFS. Our proposed
recommendation in the draft report that we provided for comment was one
option for Treasury to resolve the uncertainties regarding the reliability
of these data. We recognize there are other ways to gain these assurances.
Therefore, we have modified our recommendation to recommend that Treasury
develop reconciliation
procedures to aid in understanding and controlling the net position
balance.
Regarding the second matter, Treasury and OMB stated that we had suggested
that federal agency data be used to prepare receipts and outlays used in
the Statement of Changes in Cash Balance from Unified Budget and Other
Activities. They stated that they disagree with this approach because it
would be time-consuming and costly to gather such information. Treasury
and OMB have stated that the Statement of Changes in Cash Balance from
Unified Budget and Other Activities is prepared from information derived
from Treasury's Central Accounting System rather than from agencies'
financial statements.
We were not calling for Treasury to use federal agencies' financial
statements to prepare the Statement of Changes in Cash Balance from
Unified Budget and Other Activities. Instead, we recommended that Treasury
collect certain information already reported in federal agencies' audited
financial statements and develop procedures that ensure consistency of the
significant line items on the Statement of Changes in Cash Balance from
Unified Budget and Other Activities with the agency-reported information.
As we stated in our report, Treasury has expressed the belief that the
information it maintains in its system is materially reliable. However,
federal agencies also believe their amounts are materially reliable and
their auditors have rendered unqualified audit opinions on their financial
statements. We found unexplained material differences between Treasury's
records and some agencies' financial statements. We provided a schedule of
these differences to Treasury and requested explanations for the material
differences. As discussed in our report, Treasury was unable to explain
material differences, totaling $231 billion (absolute) and $166 billion
(net), between the actual unified budget net outlays reported on this
statement and the net outlays reported on selected individual federal
agencies' audited Combined Statement of Budgetary Resources.
As stated in our report, OMB Bulletin 01-09, Form and Content of Agency
Financial Statements, states that outlays in federal agencies' Combined
Statement of Budgetary Resources should agree with the net outlays
reported in the budget of the U.S. government. In some cases, we found
that net outlay amounts reported in federal agencies' audited financial
statements differed from the amounts included in the CFS and budget of the
U.S. government for these agencies. For example, Treasury did not provide
us with an explanation of why its own audited Combined
Statement of Budgetary Resources reported net outlays of $479 billion for
fiscal year 2002, while the amount included in the CFS relating to net
outlays for the Department of Treasury was only $375 billion for fiscal
year 2002.
Ensuring that the significant line items on the Statement of Changes in
Cash Balance from Unified Budget and Other Activities are consistent with
agencies' audited financial statements is an important expectation. As
stated in our report, SFFAS No. 7, Accounting for Revenue and Other
Financing Sources and Concepts for Reconciling Budgetary and Financial
Accounting, requires agencies to provide an explanation for any material
differences between the information required to be disclosed (including
outlays) in their financial statements and the amounts described as
"actual" in the budget of the U.S. government. Also, many of the amounts
reported in the Statement of Changes in Cash Balance from Unified Budget
and Other Activities are intended to be the same as the amounts reported
in the budget of the U.S. government. As such, we continue to believe that
the process we proposed would be the most efficient manner for Treasury,
as the preparer of the CFS, to obtain the necessary assurance on the
significant amounts reported in the Statement of Changes in Cash Balance
from Unified Budget and Other Activities.
Treasury and OMB also suggested that we not address the recommendations in
our report related to management representation letter and legal
representation letter issues to Treasury. Generally accepted auditing
standards require Treasury and OMB to provide us, as their auditor, a
management representation letter for the CFS, and their letter depends on
the information within agencies' management representation letters.
However, we found that Treasury and OMB did not have policies or
procedures to adequately review and analyze federal agencies' management
representation letters. As such, we continue to believe that both Treasury
and OMB need to work together to address the recommendations we made in
this area.
In regard to legal representation letters, we identified problems with
certain agencies' letters that could weaken the accuracy and reliability
of federal agencies' financial statements and the CFS. OMB, in its role of
providing guidance to agencies and their auditors regarding agencywide
financial statements, and Treasury, in its role as preparer of the CFS,
both play an important part in ensuring that legal representation letters
provide adequate information to enable the proper reporting of legal
contingency losses in federal financial statements. As such, we continue
to believe that
both Treasury and OMB need to work together to address the recommendations
we made in this area as well.
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. You should submit your statement to the
Senate Committee on Governmental Affairs and the House Committee on
Government Reform within 60 days of the date of this letter. A written
statement must also be sent to the House and Senate Committees on
Appropriations with the agencies' first request for appropriations made
more than 60 days after the date of the report.
We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Governmental Affairs; the Subcommittee
on Financial Management, the Budget, and International Security, Senate
Committee on Governmental Affairs; the House Committee on Government
Reform; and the Subcommittee on Government Efficiency and Financial
Management, House Committee on Government Reform. In addition, we are
sending copies to the Fiscal Assistant Secretary of the Treasury and OMB's
Controller of the Office of Federal Financial Management. Copies will be
made available to others upon request. This report is also available at no
charge on GAO's Web site, at www.gao.gov.
We acknowledge and appreciate the cooperation and assistance provided by
Treasury and OMB during our audit. If you or your staff have any questions
or wish to discuss this report, please contact Jeffrey C. Steinhoff,
Managing Director, Financial Management and Assurance, on (202) 512-2600
or Gary T. Engel, Director, Financial Management and Assurance, on (202)
512-3406.
David M. Walker Comptroller General of the United States
Appendix I
Disclosure Issues
This enclosure includes 16 disclosures identified that are required by
U.S. generally accepted accounting principles to either be included in the
CFS or the rationale for their exclusion documented. However, they were
neither included nor was their exclusion documented.
Loans Receivable and Loan Guarantee Liabilities
The note disclosure for loans receivable and loan guarantee liabilities
departed from the following disclosure requirements of Statements of
Federal Financial Accounting Standards (SFFAS) No. 3, Accounting for
Inventory and Related Property, and SFFAS No. 18, Amendments to Accounting
Standards for Direct Loans and Loan Guarantees.
SFFAS No. 3, paragraph 91, requires the reporting entity to disclose the
following:
o valuation basis for foreclosed property;
o changes from the prior year's accounting methods, if any;
o restrictions on the use/disposal of property;
o balances by categories (i.e., pre-1992 and post-1991 foreclosed
property);
o number of properties held and average holding period by type or
category; and
o number of properties for which foreclosure proceedings are in process
at the end of the period for foreclosed assets acquired in full or partial
settlement of a direct or guaranteed loan.
SFFAS No. 18, paragraph 9, states that credit programs should reestimate
the subsidy cost allowance for outstanding direct loans and the liability
for outstanding loan guarantees. There are two kinds of reestimates: (a)
interest rate reestimates and (b) technical/default reestimates. Entities
should measure and disclose each program's reestimates in these two
components separately.
SFFAS No. 18, paragraph 10, requires the reporting entity to display in
the notes to the financial statements a reconciliation between the
beginning and ending balances of the subsidy cost allowance for
outstanding direct
Appendix I Disclosure Issues
loans and the liability for outstanding loan guarantees reported in the
entity's balance sheet.
SFFAS No. 18, paragraph 11, requires disclosure of
o the total amount of direct or guaranteed loans disbursed for the
current reporting year and the preceding reporting year;
o the subsidy expense by components, recognized for the direct or
guaranteed loans disbursed in those years; and
o the subsidy reestimates by components for those years.
SFFAS No. 18, paragraph 11, also requires disclosure, at the program
level, of the subsidy rates for the total subsidy cost and its components
for the interest subsidy costs, default costs (net of recoveries), fees
and other collections, and other costs estimated for direct loans and loan
guarantees in the current year's budget for the current year's cohorts.
SFFAS No. 18, paragraph 11, further requires the reporting entity to
disclose, discuss, and explain events and changes in economic conditions,
other risk factors, legislation, credit policies, and subsidy estimation
methodologies and assumptions that have had a significant and measurable
effect on subsidy rates, subsidy expense, and subsidy reestimates.
Inventories and The note disclosure for inventories and related property
departed from the following disclosure requirements of SFFAS No. 3,
Accounting for
Related Property Inventory and Related Property.
Inventory and Operating Materials and Supplies
When inventory or operating materials and supplies are declared excess,
obsolete, or unserviceable, SFFAS No. 3, paragraph 30, requires the
difference between the carrying amount and the expected net realizable
value to be recognized as a loss or gain and either separately reported or
disclosed.
Paragraphs 35 and 50 require the following disclosures about inventory and
operating materials and supplies:
o general composition;
Appendix I Disclosure Issues
o changes from the prior year's accounting methods, if any;
o restrictions on the sale of inventory and the use of operating
materials and supplies; and
o changes in the criteria for categorizing inventory and operating
materials and supplies.
Stockpile Material Paragraph 56 requires the following disclosures about
stockpile material:
o basis for valuing stockpile material, including valuation method and
any cost flow assumptions;
o changes from the prior year's accounting methods, if any;
o restrictions on the use of stockpile material;
o balances in each category of stockpile material (i.e., stockpile
material held and held for sale);
o criteria for grouping stockpile material held for sale; and
o changes in criteria for categorizing stockpile material held for sale.
Paragraph 55 requires the disclosure of any difference between the
carrying amount (i.e., purchase price or cost) of stockpile material held
for sale and the estimated selling price of such assets.
Seized Material Paragraph 66 requires the following disclosures about
seized property:
o valuation method;
o changes from the prior year's accounting methods, if any; and
o analysis of change in seized property (including dollar value and
number of seized properties) that are on hand at the beginning of the
year, seized during the year, disposed of during the year, and on hand at
the end of the year, as well as known liens or other claims against the
property. This information should be presented by type of seizure and
method of disposition when material.
Appendix I Disclosure Issues
Forfeited Property Paragraph 78 requires the following disclosures about
forfeited property:
o valuation method;
o analysis of the changes in forfeited property by type and dollar amount
that includes (1) number of forfeitures on hand at the beginning of the
year, (2) additions, (3) disposals and method of disposition, and (4)
end-of-year balances;
o restriction on the use of disposition of the property; and
o if available, an estimate of the value of property to be distributed to
other federal, state, and local agencies in future reporting periods.
Goods Held under Price Support and Stabilization Programs
Paragraph 98 requires that if a contingent loss is not recognized because
it is less than probable or it is not reasonably measurable, then
disclosure of the contingency shall be made if it is at least reasonably
possible that a loss may occur.
Paragraph 109 requires the following disclosures for goods held under
price support and stabilization programs:
o basis for valuing commodities, including valuation method and cost flow
assumptions;
o changes from the prior year's accounting methods;
o restrictions on the use, disposal, or sale of commodities; and
o analysis of the change in dollar amount and volume of commodities,
including those (1) on hand at the beginning of the year, (2) acquired
during the year, (3) disposed of during the year by method of disposition,
(4) on hand at the end of the year, (5) on hand at year-end and estimated
to be donated or transferred during the coming period, and (6) received as
a result of surrender of collateral related to nonrecourse loans
outstanding. The analysis should also show the dollar value and volume of
purchase agreement commitments.
Appendix I Disclosure Issues
Property, Plant, and Equipment
The note disclosure for property, plant, and equipment (PP&E) departed
from the following disclosure requirements of SFFAS No. 6, Accounting for
Property, Plant, and Equipment; SFFAS No. 10, Accounting for Internal Use
Software; and SFFAS No. 16, Amendments to Accounting for Property, Plant,
and Equipment:
SFFAS No. 6, paragraph 45, states that the following disclosures should be
included:
o the estimated useful lives for each major class;
o capitalization thresholds, including any changes in thresholds during
the period; and
o restrictions on the use or convertibility of general PP&E.
SFFAS No. 10, paragraph 35, requires the following disclosures for
internal use software:
o the cost, associated amortization, and book value;
o the estimated useful life for each major class of software; and
o the method of amortization.
SFFAS No. 16, paragraph 9, requires an appropriate PP&E note disclosure to
explain that "physical quantity" information for the multiuse heritage
assets is included in supplemental stewardship reporting for heritage
assets.
Federal Employee and Veteran Benefits Payable
The note disclosure for federal employee and veteran benefits payable was
not complete and properly reported because the liability for military
pensions and the note disclosure related to the "change in actuarial
accrued pension liability and components of related expenses" for the
military retirement fund do not agree with information presented in the
Department of Defense's (DOD) financial statements. The note disclosure
included in the CFS does not include a line for the valuation of plan
amendments that occurred during the year. DOD correctly reported plan
amendments separately in its financial statements; however, the
Appendix I Disclosure Issues
mechanism was not available through FACTS submission for DOD to report
plan amendments separately to the Department of the Treasury.
Environmental and
Disposal Liabilities
The note disclosure for environmental and disposal liabilities departed
from the requirements of SFFAS No. 6 in two instances. The note disclosure
on environmental liabilities was not complete and properly reported
primarily because DOD was unable to fully implement elements of U.S.
generally accepted accounting principles and OMB guidance. Specifically,
the disclosures should do the following:
o Estimate and recognize cleanup costs associated with general PP&E at
the time the PP&E is placed in service. In addition, a liability should be
recognized for the portion of the estimated total cleanup cost that is
attributable to that portion of the physical capacity used or that portion
of the estimated useful life that has passed since the general PP&E was
placed in service. As Treasury indicated in its note disclosures, DOD was
unable to fully implement these two elements of U.S. generally accepted
accounting principles. However, the note disclosure did not explain how
these limitations prevented DOD from properly estimating its environmental
liability. Linking the environmental liability to weaknesses in the DOD
property, plant, and equipment systems would have made the CFS more useful
to the reader.
o Include material changes in total estimated cleanup costs due to
changes in laws, technology, or plans. When preparing the CFS, Treasury
should consider whether the reader would be interested in understanding
why the liability changed and include the explanation in the note
disclosure.
Other Liabilities The note disclosure for other liabilities departed from
the following disclosure requirements for capital leases and life
insurance liabilities:
Capital Leases Financial Accounting Standards Board, Statement of
Financial Accounting Standards (SFAS) No. 13, Accounting for Leases,
paragraph 16, requires the following disclosures on capital leases:
o future minimum lease payments as of the date of the latest balance
sheet presented, in the aggregate and for each of the 5 succeeding fiscal
Appendix I Disclosure Issues
years, with separate deductions from the total for the amount representing
executory costs, including any profit thereon, included in the minimum
lease payments, and for the amount of the imputed interest necessary to
reduce the net minimum lease payments to present value;
o a summary of assets under capital lease by major asset category and the
related total accumulated amortization; and
o a general description of the lessee's leasing arrangements, including
but not limited to (1) the basis on which contingent rental payments are
determined, (2) the existence and terms of renewal or purchase options and
escalation clauses, and (3) restrictions imposed by lease agreements, such
as those concerning dividends, additional debt, and further leasing.
Life Insurance Liabilities The note disclosure for other liabilities
departed from the following disclosure requirements of SFFAS No. 5,
Accounting for Liabilities of the Federal Government, with respect to life
insurance liabilities:
o Paragraph 117 states that all federal reporting entities with whole
life insurance programs should follow the standards as prescribed in the
private sector standards when reporting the liability for future policy
benefits. The applicable private sector standards are SFAS No. 60,
Accounting and Reporting by Insurance Enterprises; SFAS No. 97, Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration Contracts
and for Realized Gains and Losses from the Sale of Investments; and SFAS
No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and
by Insurance Enterprises for Certain Long-Duration Participating
Contracts; and American Institute of Certified Public Accountants
Statement of Position 95-1,
Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises.
o SFFAS No. 5, paragraph 121, requires that all components of the
liability for future policy benefits (i.e., the net-level premium reserve
for death and endowment policies and the liability for terminal dividends)
should be separately disclosed in a footnote with a description of each
amount and an explanation of its projected use and any other potential
uses (e.g., reducing premiums, determining and declaring dividends
Appendix I Disclosure Issues
available, or reducing federal support in the form of appropriations
related to administrative cost or subsidies).
Commitments and Contingencies
Certain disclosed information on major commitments and contingencies in
the notes to the CFS was inconsistent with disclosed information in
individual agencies' financial statements. Examples of such
inconsistencies are as follows:
o Treasury did not disclose $114 billion in the notes to the CFS for war
risk insurance. DOT provided temporary war risk insurance to U.S. air
carriers whose coverage was canceled following the terrorist attacks on
September 11, 2001. DOT disclosed $114 billion of war risk insurance in
its notes to the financial statements, but Treasury did not disclose
similar information in the notes to the CFS. Also, this information was
included by DOT in the Treasury FACTS database. The risk of loss involving
this type of insurance is unknown, but another terrorist attack against
the United States could result in major claims.
o Treasury improperly disclosed $4.5 billion in unadjudicated claims for
Commerce in the notes to the CFS. In its financial statements, Commerce
disclosed that the exact amount of these claims against the U.S.
government is unknown and the range of loss, which may exceed $4.5 billion
as of September 30, 2002, cannot be estimated. Because Commerce had
disclosed that it could not estimate the loss from unadjudicated claims,
which was proper, Treasury should not have disclosed an amount in the
notes to the CFS. Disclosing information in the CFS that is inconsistent
with information in an agency's financial statements may confuse users of
the CFS or lead them to reach a wrong conclusion.
Treasury did not disclose sufficient information regarding the nature of
certain major commitments and contingencies in the notes to the CFS. For
example, Treasury did not clearly disclose in the notes to the CFS
information regarding a possible capital investment requirement of TVA.
The Environmental Protection Agency (EPA) had taken judicial and
administrative actions against TVA that could require TVA to invest an
estimated $3 billion to purchase equipment in order to comply with the
Clean Air Act and conform to EPA's pollution control requirements. TVA is
challenging this action. Treasury disclosed this $3 billion in the notes
as an "administrative order against TVA" without providing the additional
detail that the order represents a capital investment for compliance with
the
Appendix I Disclosure Issues
Clean Air Act and pollution control. The lack of such a detailed
discussion about what the contingency represents could be misleading to
readers of the CFS.
Collections and Refunds of Federal Revenue
The disclosure for collections and refunds of federal revenue departed
from the following disclosure requirements of FASAB's SFFAS No. 7,
Concepts for Reconciling Budgetary and Financial Accounting:
o Paragraph 64, among other things, requires collecting entities to
disclose the basis of accounting when the application of the general rule
results in a modified cash basis of accounting. The CFS incorrectly states
that the nonexchange revenues are reported on a modified cash basis of
accounting when actually they are reported on a cash basis.
o Paragraph 69.2 requires collecting entities to provide in the other
accompanying information any relevant estimates of the annual tax gap that
become available as a result of federal government surveys or studies. The
tax gap is defined as taxes or duties due from noncompliant taxpayers or
importers. Amounts reported should be specifically defined (e.g., whether
the tax gap includes or excludes estimates of taxes due on illegally
earned revenue). Appropriate explanations of the limited reliability of
the estimates also should be provided. Cross-references should be made to
portions of the tax gap due from identified noncompliance assessments and
preassessment work in process.
Dedicated Collections The note disclosure for dedicated collections
departed from the disclosure requirements of SFFAS No. 7, Part I,
Accounting for Revenue and Other Financing Sources, paragraph 85, by not
including the following:
o condensed information about assets and liabilities showing investments
in Treasury securities, other assets, liabilities due and payable to
beneficiaries, other liabilities, and fund balance;
o condensed information on net cost and changes to fund balance, showing
revenues by type (exchange/nonexchange), program expenses, other expenses,
other financing sources, and other changes in fund balance; and
Appendix I Disclosure Issues
o any revenues, other financing sources, or costs attributable to the
fund under accounting standards but not legally allowable as credits or
charges to the fund.
Indian Trust Funds The note disclosure for Indian trust funds departed
from the following disclosure requirements of SFFAS No. 7, Part I,
Accounting for Revenue and Other Financing Sources, paragraph 85, by not
including the following:
o a description of each fund's purpose, how the administrative entity
accounts for and reports the fund, and its authority to use those
collections;
o the sources of revenue or other financing for the period and an
explanation of the extent to which they are inflows of resources to the
government or the result of intragovernmental flows;
o condensed information about assets and liabilities showing investments
in Treasury securities, other assets, liabilities due and payable to
beneficiaries, and other liabilities;
o condensed information on net cost and changes to fund balance, showing
revenues by type (exchange/nonexchange), program expenses, other expenses,
other financing sources, and other changes in fund balance; and
o any revenues, other financing sources, or costs attributable to the
fund under accounting standards, but not legally allowable as credits or
charges to the fund.
Social Insurance The disclosure for social insurance departed from the
following requirements of SFFAS No. 17, Accounting for Social Insurance:
o Paragraph 31 requires the program descriptions for Hospital Insurance
and Supplementary Medical Insurance and an explanation of trends revealed
in Chart 11: Estimated Railroad Retirement Income (Excluding Interest) and
Expenditures 2002-2076.
Appendix I Disclosure Issues
o Paragraph 24 requires a description of statutory or other material
changes, and the implications thereof, affecting the Medicare and
Unemployment Insurance programs after the current fiscal year.
o Paragraph 25 requires the significant assumptions used in making
estimates and projections regarding the Black Lung and Unemployment
Insurance programs.
o Paragraph 32(1)(b) requires the total cash inflow from all sources,
less net interest on intragovernmental borrowing and lending and the total
cash outflow to be shown in nominal dollars for the Hospital Insurance
program.
o Paragraph 32(1)(a) requires the narrative to accompany the cash flow
data for Unemployment Insurance. This narrative should include the
identification of any year or years during the projection period when cash
outflow exceeds cash inflow, without interest, on intragovernmental
borrowing or lending. In addition, the presentation should include an
explanation of material crossover points, if any, where cash outflow
exceeds cash inflow and the possible reasons for this.
o Paragraphs 27(3)(h) and 27(3)(j) require the estimates of the fund
balances at the respective valuation dates of the social insurance
programs (except Unemployment Insurance) to be included for each of the 4
preceding years. Only 1 year is shown.
o Paragraph 32(4) requires individual program sensitivity analyses for
projection period cash flow in present value dollars and annual cash flow
in nominal dollars. The CFS includes only present value sensitivity
analyses for Social Security and Hospital Insurance. Paragraph 32(4)
states that, at a minimum, the summary should present Social Security,
Hospital Insurance, and Supplementary Medical Insurance separately.
o Paragraph 27(4)(a) requires the individual program sensitivity analyses
for Social Security and Hospital Insurance to include an analysis of
assumptions regarding net immigration.
o Paragraph 27(4)(a) requires the individual program sensitivity analysis
for Hospital Insurance to include an analysis of death rates.
Appendix I Disclosure Issues
o The actuarial present value information for the Railroad Retirement
Board should not include financial interchange income (intragovernmental
income from Social Security).
Nonfederal Physical Property
The information included in Stewardship Information for nonfederal
physical property departed from the following disclosure requirements of
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 87:
o The annual investment, including a description of federally owned
physical property transferred to state and local governments, must be
disclosed. This information should be provided for the year ended on the
balance sheet date as well as for each of the 4 preceding years. If data
for additional years would provide a better indication of investment,
reporting of the additional years' data is encouraged. Reporting should be
at a meaningful category or level.
o A description of major programs involving federal investments in
nonfederal physical property, including a description of programs or
policies under which noncash assets are transferred to state and local
governments, is to be provided.
Human Capital The information in stewardship information for human
capital departed from the disclosure requirements of SFFAS No. 8,
Supplementary Stewardship Reporting, paragraph 94, by not including the
following:
o a narrative description and the full cost of the investment in human
capital for the year being reported on as well as the preceding 4 years
(if full cost data are not available, outlay data can be reported);
o the full cost or outlay data for investments in human capital at a
meaningful category or level (e.g., by major program, agency, or
department); and
o a narrative description of major education and training programs
considered federal investments in human capital.
Appendix I Disclosure Issues
Research and
Development
The information in stewardship information for research and development
departed from the disclosure requirements of SFFAS No. 8, Supplementary
Stewardship Reporting, paragraph 94, by not including the following:
o The annual investment1 made in the year ended on the balance sheet date
as well as in each of the 4 years preceding that year must be reported. If
data for additional years would provide a better indication of investment,
reporting of the additional years' data is encouraged. In those unusual
instances when entities have no historical data, only current reporting
year data need be reported. Reporting must be at a meaningful category or
level-for example, a major program or department.
o A narrative description of major research and development programs is
to be included.
Deferred Maintenance The required supplemental information for deferred
maintenance departed from the following disclosure requirements of SFFAS
No. 6, Accounting for Property, Plant, and Equipment, paragraphs 83 and
84:
o Method of measuring deferred maintenance for each major class of PP&E
should be included.
o If the condition assessment survey method of measuring deferred
maintenance is used, the following should be presented for each major
class of PP&E: (1) description of requirements or standards for acceptable
operating condition, (2) any changes in the condition requirements or
standards, and (3) asset condition and a range estimate of the dollar
amount of maintenance needed to return the asset to its acceptable
operating condition.
o If the total life-cycle cost method is used, the following should be
presented for each major class of PP&E: (1) the original date of the
maintenance forecast and an explanation for any changes to the
1As defined in this standard, "annual investment" includes more than the
annual expenditure reported by character class for budget execution. Full
cost shall be measured and accounted for in accordance with SFFAS No. 4,
Managerial Cost Accounting Standards for the Federal Government.
Appendix I Disclosure Issues
forecast, (2) prior year balance of the cumulative deferred maintenance
amount, (3) the dollar amount of maintenance that was defined by the
professionals who designed, built, or managed the PP&E as required
maintenance for the reporting period, (4) the dollar amount of maintenance
actually performed during the period, (5) the difference between the
forecast and actual maintenance, (6) any adjustments to the scheduled
amounts deemed necessary by the managers of the PP&E, and (7) the ending
cumulative balance for the reporting period for each major class of asset
experiencing deferred maintenance.
o If management elects to disclose critical and noncritical amounts, the
disclosure is to include management's definition of these categories.
Risk Assumed The note disclosure for stewardship responsibilities
departed from disclosure requirements of SFFAS No. 5, paragraph 106,
related to the risk assumed for federal insurance and guarantee programs.
Risk assumed information is important for all federal insurance and
guarantee programs (except social insurance, life insurance, and loan
guarantee programs) and is generally measured by the present value of
unpaid expected losses net of associated premiums, based on the risk
inherent in the insurance or guarantee coverage in force. Paragraph 106
states that when financial information pursuant to FASB's standards on
federal insurance and guarantee programs conducted by government
corporations is incorporated in general purpose financial reports of a
larger federal reporting entity, the entity should report as required
supplementary information2 what amounts and periodic change in those
amounts would be reported under the "risk assumed" approach.
2In July 2003, SFFAS No. 25 reclassified "risk assumed" from Required
Supplementary Stewardship Information to Required Supplementary
Information.
Appendix II
Comments from Department of the Treasury and the Office of Management and
Budget
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Appendix II
Comments from Department of the Treasury
and the Office of Management and Budget
See comment.
Appendix II
Comments from Department of the Treasury
and the Office of Management and Budget
GAO Comment Treasury and OMB did not schedule a meeting or provide us with
any technical comments on this report.
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