    Understanding Similarities and Differences Between Accrual and
    Cash Deficits (01-DEC-06, GAO-07-117SP).

    Two key measures that have been used as indicators of the
    government's annual fiscal condition are the unified budget
    deficit measured primarily on a cash basis and the net operating
    cost measured on an accrual basis for financial statement
    purposes. The unified budget deficit has historically been the
    focus of budget debates and media reports in part because it
    closely approximates the government's short-term borrowing needs.
    Cash accounting can also be useful for controlling spending in
    the current year. However, the cash measure of fiscal condition,
    which is similar to keeping a checkbook, by nature excludes
    information about the long-term consequences of today's policy
    decisions and operations. Indeed, understanding our nation's
    long-term fiscal outlook is important because, as GAO's long-term
    simulations show, current fiscal policy is unsustainable. The
    accrual measure primarily provides more information on the
    longer-term implications of today's policy decisions and
    operations by showing certain costs incurred today but not
    payable for years to come, such as civilian and military pensions
    and retiree health care. While cash and accrual measures each
    serve different purposes, they present complementary information
    and can be used together to provide a more comprehensive picture
    of the government's fiscal condition today and over time. The
    goal of this primer is to improve understanding of the accrual
    deficit by describing (1) how it is similar and different from
    the more commonly reported cash budget deficit, (2) the key
    drivers behind changes in accrual deficits relative to cash
    budget deficits, and (3) how the two measures complement each
    other and give a fuller picture of the government's overall
    fiscal condition.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-117SP
        ACCNO:   A64004
      TITLE:     Understanding Similarities and Differences Between
    Accrual and Cash Deficits
         DATE:   12/01/2006
      SUBJECT:   Accountability
    	     Auditing standards
    	     Budget cuts
    	     Budget deficit
    	     Budget outlays
    	     Deficit reduction
    	     Economic analysis
    	     Federal funds
    	     Fiscal policies
    	     Future budget projections
    	     Payments
    	     Strategic planning

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    GAO-07-117SP

    Accrual and Cash Deficits [1]GAO-07-117SP

    GAO-07-117SP Accrual and Cash Deficits

    United States Government Accountability Office

    Understanding Similarities and Differences between
    Accrual and Cash Deficits

    December 2006

    [2]GAO-07-117SP

    Preface

    Two key measures  that have been  used as indicators  of the  government's
    annual fiscal condition are the unified budget deficit measured  primarily
    on a cash basis and  the net operating cost  measured on an accrual  basis
    for  financial  statement  purposes.   The  unified  budget  deficit   has
    historically been the focus  of budget debates and  media reports in  part
    because it  closely  approximates the  government's  short-term  borrowing
    needs.1 Cash accounting can also be useful for controlling spending in the
    current year.  However, the  cash measure  of fiscal  condition, which  is
    similar to keeping a checkbook,  by nature excludes information about  the
    long-term consequences of today's policy decisions and operations. Indeed,
    understanding our nation's long-term fiscal outlook is important  because,
    as  GAO's   long-term  simulations   show,   current  fiscal   policy   is
    unsustainable.2 The accrual measure primarily provides more information on
    the longer-term implications of today's policy decisions and operations by
    showing certain costs incurred  today but not payable  for years to  come,
    such as civilian and military pensions and retiree health care.

    While cash  and  accrual  measures each  serve  different  purposes,  they
    present complementary information and  can be used  together to provide  a
    more comprehensive picture of the government's fiscal condition today  and
    over time. The  goal of  this primer is  to improve  understanding of  the
    accrual deficit by describing (1) how it is similar and different from the
    more commonly reported  cash budget  deficit, (2) the  key drivers  behind
    changes in accrual deficits relative to cash budget deficits, and (3)  how
    the two measures complement  each other and give  a fuller picture of  the
    government's overall fiscal condition.

    Throughout this report, we primarily  used data from the Financial  Report
    of the  United  States Government,  referred  to  in this  report  as  the
    Financial Report, which is prepared by the Department of the Treasury,  in
    coordination with  the  Office of  Management  and Budget.3  However,  the
    reader is cautioned  not to  focus on the  precise amount  of the  accrual
    deficit, its  components,  or  their  change from  year  to  year  because
    significant issues  regarding  the  reliability and  presentation  of  the
    federal government's financial information still need to be addressed. GAO
    is responsible for auditing the  consolidated financial statements of  the
    U.S. government, but  we have been  unable to express  an opinion on  them
    because  the  government   could  not  demonstrate   the  reliability   of
    significant portions of the financial  statements or that the  reconciling
    differences between accrual and cash  deficits were complete. The  primary
    reasons for this disclaimed opinion are described in this primer.

    The Financial Report  can be  found on  the Department  of the  Treasury's
    website at [3]http:// [4]www.fms.treas.gov/fr/index.html . Information  on
    the most  recent  President's  budget  can  be  found  on  the  Office  of
    Management  and  Budget's  website  at   [5]http://www.whitehouse.gov/omb/
    [6]budget/ .

    This primer  is  structured in  a  question  and answer  format.  The  key
    questions are shown at the top of each page. To find the answers, flip  to
    the page with your question highlighted. For easy reference, key terms are
    defined in the glossary located in appendix I--these glossary terms appear
    in bold type the first  time they are used  in the text. Many  definitions
    come from A Glossary of Terms  Used in the Federal Budget Process.4  Other
    related GAO products are listed at the end of this report.

    Unless otherwise  indicated,  the years  referred  to in  the  primer  are
    federal fiscal years, which run from October 1 through September 30.

    This report was prepared under the direction of Susan J. Irving, Director,
    Federal Budget Analysis,  Strategic Issues,  who may be  reached at  (202)
    512-9142 or [7]irvings@gao.gov if there are any questions. Gary T.  Engel,
    Director, Financial Management and Assurance, and his staff also  provided
    key assistance. He may be reached at (202) 512-8815 or [8]engelg@gao.gov .
    Contact points  for  our Offices  of  Congressional Relations  and  Public
    Affairs may be  found on  the last  page of  this report.  Copies of  this
    report are  available upon  request. In  addition, this  document will  be
    available at no charge on the GAO Web site at [9]http://www.gao.gov .

    [10]Preface

    How Are Cash and Accrual Deficits Measured?

    [11]The Unified Budget Deficit--The Net Cash Deficit

    [12]Net Operating Cost--The Accrual Deficit

    [13]What Purpose Does Each Measure Serve?

    How Are Cash and Accrual Deficits Similar? How Are They Different?

    [14]How Are Cash and Accrual Deficits Similar?

    [15]How Are Cash and Accrual Deficits Different?

    [16]How Do You Get to the Cash Deficit from the Accrual Deficit?

    [17]What Drives Changes in Cash and Accrual Deficits from Year to Year?

    [18]What Areas Explain the Largest Differences between Cash and Accrual
    Deficits?

    [19]How Are Military Employee  Benefits Recorded in  the Cash and  Accrual
    Deficits?

    [20]How Are Civilian Employee  Benefits Recorded in  the Cash and  Accrual
    Deficits?

    [21]How  Is  Veterans  Compensation  Recorded  in  the  Cash  and  Accrual
    Deficits?

    [22]How Are Environmental  Liabilities Recorded  in the  Cash and  Accrual
    Deficits?

    [23]How Are Insurance Programs Recorded in the Cash and Accrual Deficits?

    [24]How Are Capital Assets Recorded in the Cash and Accrual Deficits?

    How Can Accrual and Cash Measures Complement Each Other?

    [25]Other Measures Are Also Needed  to Understand the Government's  Fiscal
    Condition

    [26]Some Federal Programs Use Both Cash and Accrual Measures in the Budget

    but More Could Be Done

    [27]Appendix I: Glossary of Key Terms

    [28]Appendix II: Budget Outlays Measured on an Accrual Basis

    [29]Appendix III: Obligational Accounting

    [30]Related GAO Products

    Ordering Information

    [31]Contacts

    Image Sources
    Front cover: GAO.
    Inside front cover: GAO.

    Abbreviations

    CFS consolidated financial statements of the United States government
                                             CSRS Civil Service Retirement System
                                                        DOD Department of Defense
                                                         DOE Department of Energy
                                          FERS Federal Employee Retirement System
                Financial Report Financial Report of the United States Government
                                    GAAP generally accepted accounting principles
                                              OMB Office of Management and Budget
                                            NFIP National Flood Insurance Program
                                        PBGC Pension Benefit Guaranty Corporation
                                              PP&E property, plant, and equipment
                                              Treasury Department of the Treasury
                                                VA Department of Veterans Affairs

    How Are Cash and Accrual Deficits Measured?

    The Unified Budget Deficit--The Net Cash Deficit

    The federal budget5  is the  government's primary  financial planning  and
    control6 tool. It  helps establish  national spending  priorities and  the
    allocation of resources. It also  helps ensure that the government  spends
    taxpayers' money in accordance with applicable laws. The President submits
    his forward-looking budget to Congress each February and the Department of
    the Treasury (Treasury) reports  the budget results  in October after  the
    end of the fiscal year.

    The unified budget deficit  (or surplus) is  the federal budget's  "bottom
    line." It  represents the  actual  amount by  which total  outlays  exceed
    receipts (or  receipts  exceed  outlays), including  any  Social  Security
    surplus. For  the  budget  deficit, receipts  and  outlays  are  primarily
    measured on  a cash  basis7 --that  is,  they are  recorded when  cash  is
    received or  paid, similar  to  keeping a  checkbook. Because  the  budget
    deficit is primarily measured on a cash basis, it is hereafter called  the
    cash budget deficit or simply cash deficit.

    The unified budget is a  comprehensive measure of all federal  activities,
    including those that are on-budget  and off-budget. The on-budget  deficit
    includes all  budgetary accounts  other than  those designated  by law  as
    off-budget. The  off-budget accounts  are the  Postal Service  and  Social
    Security trust funds. In fiscal year 2005, the unified budget deficit  was
    $319 billion as  reported in  the Financial  Report of  the United  States
    Government, hereafter  referred  to  as  the  Financial  Report.8  It  was
    composed of a $494 billion on-budget deficit, a Postal Service surplus  of
    $2 billion and a Social Security surplus of $173 billion.

    Net Operating Cost--The Accrual Deficit

    Similar to  a corporation's  annual report,  the Financial  Report is  the
    federal government's annual  general-purpose report  of accountability  to
    the American public on its finances.  Some primary goals of the  Financial
    Report are to provide a comprehensive overview of the cost9 of the federal
    government's operations,  the  sources  used  to  finance  them,  and  the
    implications  of   long-term  obligations   and  commitments.10   However,
    significant  issues  regarding  the  reliability  and  reporting  of  this
    financial information still need to be addressed. The Financial Report  is
    prepared by Treasury, in  coordination with the  Office of Management  and
    Budget (OMB). GAO is responsible  for auditing the consolidated  financial
    statements of  the  United  States  government  (CFS).  OMB  requires  the
    Financial Report to  be published  in December  following the  end of  the
    fiscal year. For example, the Financial Report for fiscal year 2005, which
    ended on September 30, 2005, was published in December 2005.

    The net  operating  cost  (or  net operating  revenue)  is  found  in  the
    Financial Report. Net  operating cost  (or net operating  revenue) is  the
    amount by which expenses exceed revenue (or revenue exceeds expenses). For
    this measure, expenses  are recorded  on an accrual  basis--in the  period
    when goods  are used  or services  are performed  as opposed  to when  the
    resulting cash payments are made.11 In some cases, expenses are  estimates
    of amounts  that  will  be  outlays  in the  future  and  thus  depend  on
    assumptions for interest  rates, inflation, and  wage growth, among  other
    things.

    Most revenues in  the Financial  Report are  recorded on  a modified  cash
    basis.12 This  means they  are essentially  recorded when  collected,  but
    there is an accrual adjustment for some taxes due that have not been  paid
    by the taxpayer and refunds  due to taxpayers that  have not been paid  by
    the government.  A modified  cash  basis of  accounting  is used  in  part
    because of inherent limitations estimating  the amount of revenue  arising
    from underlying events (e.g., taxpayers may not know their taxable  income
    until after the underlying event, they  may not file returns on their  due
    dates, or they may underpay).

    For simplicity,  the net  operating  cost (or  net operating  revenue)  is
    hereafter called the accrual deficit (or surplus).

    What Purpose Does Each Measure Serve?

    The cash  basis of  accounting  has traditionally  been used  for  federal
    budgeting for several reasons. Because cash can be tracked throughout  the
    year it can be useful for controlling spending in the current year.  Also,
    because the time between the occurrence of a transaction that commits  the
    government to make  a payment and  the cash  flow to make  the payment  is
    relatively short  for  many  program  areas,  the  cash  measure  provides
    adequate information about the government's  total commitment at the  time
    budget decisions are  made for  these programs. Finally  and perhaps  most
    notably, the  cash budget  deficit closely  approximates the  government's
    short-term borrowing  needs and  so  is a  widely used  and  traditionally
    accepted measure of the government's effect on current financial markets.

    There are several  areas, however,  in which  outlays measured  on a  cash
    basis do not provide  complete information about the  total amount of  the
    government's obligation upfront when decisions are made. For some of these
    program areas, the budget records outlays on an accrual basis. Perhaps the
    best known  of  these  are credit  programs--loans  and  loan  guarantees.
    Appendix II  provides  more information  on  which programs'  outlays  are
    measured on an accrual basis and how they affect the cash budget deficit.

    Accrual measures  are useful  for  understanding the  government's  annual
    operating cost, including costs incurred  today but not payable for  years
    to come.  As  such,  it  adds a  longer-term  focus  to  the  government's
    financial  picture   by   providing  more   information   on   longer-term
    consequences of  today's policy  decisions and  operations. Under  federal
    accounting standards, the long-term costs for social insurance  (primarily
    Medicare and Social  Security) are  not included in  the accrual  deficit.
    However, the Statement of Social Insurance provides information about  the
    future costs of these programs.13

    Finally, financial  accounting standards  are intended  to result  in  the
    provision of  financial  information  that will  be  useful  for  decision
    making. Once  the  information  reported in  the  financial  statement  is
    auditable, it  would  provide  integrity to  related  information  in  the
    budget,  including  actual  receipts  and  outlays,  if  the  amounts  are
    materially consistent and reliable.

    How Are Cash and Accrual Deficits Similar?
    How Are They Different?

    The  cash  and  accrual  deficits   are  based  on  the  same   underlying
    activities--the differences arise due to the  timing of when the costs  of
    certain activities  are recognized.  For the  accrual deficit,  costs  are
    recognized when goods  are used or  services are performed.  For the  cash
    deficit, costs are recorded when cash payments are made for goods received
    or services performed. For  many program areas,  the timing difference  is
    small but for  others the  timing differences  can amount  to billions  of
    dollars each year. For example, in 2005, the reported accrual deficit  was
    $760 billion--more than twice the size of the $319 billion cash deficit.

    Not only are some of the differences caused by timing large, but they  can
    cause the  cash  and  accrual  deficits to  send  different  signals.  For
    example, accrual  and  cash measures  have  sent different  signals  about
    whether the government is  in surplus or deficit.  Figure 1 shows that  in
    2001 the budget was running a cash surplus but the accrual measure  showed
    a large deficit.

    Figure 1: The Cash and Accrual Measures of Fiscal Surplus and Deficit

    13The Statement of Social Insurance has been included in the required
    supplemental stewardship section of the Financial Report and will be
    incorporated into the primary financial statements for fiscal year 2006.

    Source: Treasury.

    Note: Data from unaudited Financial Reports. In some years, the budget
    deficit reported in the Financial Report differs from the final deficit
    number published in the President's budget. For example, the 2005
    Financial Report issued in December 2005 reported a $319 billion cash
    budget deficit. However, the final deficit number published in the
    President's budget 2 months later was slightly lower--$318 billion.

    The two measures can  also send different signals  about the direction  in
    which the government's fiscal condition is heading. For example,  although
    both measures were in deficit in  2005, the cash budget deficit  decreased
    from the previous year while the accrual deficit increased. This leads  to
    questions of how the two measures are similar, how they're different,  and
    what drives changes in the two measures.

    How Are Cash and Accrual Deficits Similar?

    Since revenue  is primarily  recorded  on a  modified  cash basis  in  the
    financial  statements,  there  is  very  little  difference  between  cash
    receipts and accrued revenue.14

    On the spending side,  many programs are  also recorded similarly  because
    the time between the occurrence of the underlying transaction and the cash
    flow is  relatively short.  So, for  some program  areas such  as  federal
    employee salaries and  grants there is  little difference between  accrual
    and cash measures.  Figure 2  below illustrates this  point using  federal
    salaries.

    Figure 2: Cost of Federal Salaries Reflected Similarly in Accrual and Cash
    Deficits

    For federal salaries, the time between  when salaries are earned and  when
    they are paid is short--a little over a week. Under accrual accounting, an
    expense for federal salaries is  recognized when the salaries are  earned.
    Under cash accounting an outlay is recorded in the following week when the
    salary is paid. At year's end, there is little difference between the cash
    and accrual measure of  salaries because both  include salary payments  or
    expenses for roughly 52 weeks of work.

    However, the cash and accrual measures  may not include the exact same  52
    weeks of salary. Because  the accrual deficit includes  an expense as  the
    salary is earned, regardless of when paid in cash, it will include the  52
    weeks of salary  earned in  the current  year. However,  the cash  deficit
    includes cash payments for salaries earned in the prior year and  excludes
    cash payments for  salaries earned in  the last week  of the current  year
    that will be paid in the next year.

    Source: GAO.

    14The budget uses the term "receipts" while the financial statements use
    "revenue." Both have the same meaning.

    Cash and accrual measures are also  similar in that they both exclude  the
    value of

    o future payments for certain contingencies and financial commitments and

    o future benefits for entitlement programs, including social insurance.

    Neither contingencies nor financial commitments are reflected in the  cash
    deficit  until  the   government  makes  the   cash  payment.  Only   some
    contingencies  are  reflected  in  the  accrual  deficit--those  that  are
    assessed as "probable" as to the likelihood of loss and can be  reasonably
    measured. However, many  contingencies are  not reflected  in the  accrual
    deficit in part  because it is  difficult to anticipate  the amount to  be
    paid. Contingencies assessed as "reasonably possible" as to the likelihood
    of loss, or assessed as "probable" as  to the likelihood of loss but  that
    cannot be reasonably measured, are not included in the accrual deficit but
    are disclosed in the  notes to the financial  statements. For example,  in
    fiscal year  2005,  possible estimated  losses  of $1.2  billion  to  $7.9
    billion from  administrative claims  and legal  actions were  assessed  as
    "reasonably possible" and therefore not  included in the accrual  deficit.
    Also, the potential costs associated with future natural disasters are not
    recorded in the accrual deficit even though the public anticipates and has
    received large amounts of assistance following natural disasters. Finally,
    financial commitments, such as contracted goods or services that have  not
    yet been delivered,  are not  recorded in  the accrual  deficit until  the
    goods or services  are delivered  but are disclosed  in the  notes to  the
    financial statements.15

    While both  the cash  and  accrual deficits  include payments  to  current
    beneficiaries  for  entitlement  programs,  including  social   insurance,
    neither the cash nor  accrual deficit reflects  the serious future  fiscal
    challenges of  Social  Security,  Medicare,  and  other  social  insurance
    programs. Future scheduled benefits and estimated receipts are included in
    the Statement of  Social Insurance.16  However future benefits  are not  a
    liability under federal accounting standards.17

    15Even though they are not reflected in the cash budget deficit, the
    budget records an obligation, or legal liability, under obligational
    accounting at the time the government enters into a contract. See app. III
    for more information on the differences in when transactions are recorded
    under obligational accounting compared to accrual and cash accounting.

    16 The Statement of Social Insurance has been included in the required
    supplemental stewardship information section of the Financial Report.
    Beginning with fiscal year 2006, the statement will be incorporated into
    the primary financial statements and audited. Information on the effect of
    large social insurance programs on the budget can be found in
    [35]GAO-06-1077R .

    17A liability is recorded for unpaid amounts due at the end of the fiscal
    year. This is similar to how other countries budget and account for social
    insurance. See GAO, Accrual Budgeting: Experiences of Other Nations and
    Implications for the United States, [36]GAO/AIMD-00-57 (Washington, D.C.:
    Feb. 18, 2000).

    How Are Cash and Accrual Deficits Different?

    The differences between cash and  accrual deficits are almost entirely  on
    the spending side since revenues are recorded similarly in the budget  and
    financial statements.  Differences  arise  when a  cost  is  accrued  (and
    affects the accrual deficit)  in 1 fiscal year  but paid (and affects  the
    cash deficit) in another fiscal year.

    While there  are  a  number  of areas  in  the  federal  government  where
    differences  exist,  the  six  listed   below  account  for  the   largest
    differences between accrual and cash deficits:

    o civilian employee benefits,

    o military employee benefits,

    o veterans compensation,

    o environmental liabilities (e.g., cleanup and disposal),

    o insurance programs, and

    o capital assets.

    For all of these areas except  capital assets, the key difference  between
    the accrual and cash measures is the annual change in the liability.  Each
    year as expenses are accrued, those  that are not paid (and not  reflected
    in the budget) increase the government's liability. As such, the liability
    represents unpaid expenses. The change in the liability from year to  year
    is generally equal to  accrued expenses less cash  payments made to  cover
    expenses. Figure 3 illustrates this point using federal employee  benefits
    other than salaries.

    Figure 3: Difference between Accrual and Cash Measures of Federal Employee
    Benefits

    The  accrual  deficit  includes  an  accrued  expense  for  each   current
    employee's pension and other retirement benefits, which are earned  during
    the employee's working  years but not  paid until sometime  in the  future
    when the employee retires.

    The cash budget deficit does not include retirement benefits earned today,
    but it  does  reflect  payments  made to  current  retirees.  (These  cash
    payments reflect past expenses.)

    The difference between the accrued retirement benefits recognized and cash
    payments made during  the year is  generally the change  in the  liability
    from year to year.  It is also  the amount of  the difference between  the
    accrual and cash measures due to employee benefits.

    Source: GAO.

    o The first  statement shows how  much it  costs on the  accrual basis  of
    accounting to operate

    Capital assets  are  treated  differently. When  capital  assets  such  as
    structures and equipment  are purchased,  the budget  recognizes the  full
    cost up front in order to provide decision makers with the information and
    incentives to make  efficient decisions  at the  only time  that they  can
    control the cost.18 Specifically, the cost of a capital asset is  recorded
    as an outlay and  included in the  cash budget deficit  when the asset  is
    paid for.  However, under  the accrual  basis of  accounting used  in  the
    financial statements, the cost of the  asset is initially recorded on  the
    balance sheet. The  cost of  the asset is  then spread  over its  expected
    useful life to match the asset's  cost with its use. Therefore, each  year
    the  accrual  deficit  only  reflects  1  year's  worth  of  cost,  called
    depreciation expense. Figure 4 below illustrates this point.

    Figure 4: Difference between Accrual and Cash Measures of Capital Assets

    Let's assume that the  federal government purchased  a building this  year
    for $50 million  and expected  the building  to be  used for  the next  50
    years. The cash  budget deficit would  reflect the $50  million cost  this
    year. The accrual  deficit would  only reflect a  $1 million  depreciation
    expense (assuming  a straight-line  depreciation method)a  in the  current
    year. The remaining cost  of the asset would  be reflected in the  accrual
    deficit over the next 49 years at an annual expense of $1 million.

    Source: GAO.

    aThe straight-line depreciation method assumes the asset will provide an
    equal amount of benefit each year. The annual depreciation expense is
    calculated by dividing the purchase price of the asset (less its estimated
    salvage or residual value) by the estimated useful life of the asset.

    18For capital assets, budget authority for the asset's cost must generally
    be provided up front before the asset can be purchased.

    How Do You Get to the Cash Deficit from the Accrual Deficit?

    The Financial Report  includes a  statement called  Reconciliation of  Net
    Operating Revenue  (or  Cost) and  Unified  Budget Surplus  (or  Deficit),
    hereafter called the "reconciliation statement," that provides a crosswalk
    between the net operating  cost (accrual deficit)  and the unified  budget
    deficit  (cash  budget  deficit).  Figure   5  below  shows  the   general
    relationship underlying the reconciliation statement and how to get to the
    cash budget deficit from the accrual deficit.

    Figure 5: Moving from the Accrual Deficit to the Cash Budget Deficit
    (Using Fiscal Year 2005 Numbers to Illustrate)

    1The unified budget deficit is net of any Social Security surplus. See p.
    1 for more information.

    2GAO,  The Nation's Long-Term Fiscal Outlook: September 2006 Update,
    [32]GAO-06-1077R (Washington, D.C.: Sept. 15, 2006).

    3For a guide to understanding the Financial Report see GAO, Understanding
    the Primary Components of the Annual Financial Report of the United States
    Government, [33]GAO-05-958SP (Washington, D.C.: September 2005).

    4GAO, A Glossary of Terms Used in the Federal Budget Process,
    [34]GAO-05-734SP (Washington, D.C.: September 2005). Other terms are based
    on the Federal Accounting Standards Advisory Board's (FASAB) Statements of
    Federal Financial Accounting Standards, Current Text, vol. 2 (Washington,
    D.C.: June 30, 2004).

    5For purposes of this primer, the "federal budget" is used broadly to
    include not only planning but also the end fiscal result of that plan
    (i.e., the fiscal effect of spending and revenue laws in effect for any
    given fiscal year).

    6The federal government uses obligational accounting to track and control
    the use of funds. However, in the context of the government's fiscal
    condition, Congress and the public tend to focus on the cash deficit--and
    more recently the accrual deficit. Because of the attention to these two
    measures, this primer focuses on them. More information on obligational
    accounting is in app. III.

    7Credit programs and certain interest payments are not measured on a cash
    basis in the budget. For more information see app. II.

    8The final deficit number published in the President's budget was slightly
    lower--$318 billion. However, the Financial Report reconciles the cash and
    accrual measures of fiscal condition, so we will use the number reported
    therein.

    9The term "cost" can have different meanings depending on the context in
    which it is used. Throughout this report, cost is used in a general sense
    to mean the value of resources used to produce a program, provide a
    service, or achieve an objective.

    10Unless otherwise noted, the term "commitments" is used in this report to
    mean potential draws on future resources that flow not only from the law
    but also from public expectations.

    11Accrual accounting, which is also used by private business enterprises
    for financial reporting, is generally the basis for U.S. generally
    accepted accounting principles (GAAP) for federal government entities.
    However, for some revenue, a modified cash basis of accounting is used and
    is also considered as GAAP.

    12While most revenue, including taxes, duties, and fines, are recorded on
    a modified cash basis, revenues from providing goods and services to the
    public at a price (e.g., user fees, premiums) are recorded on an accrual
    basis.

    Figure 6 summarizes the reconciliation statements contained in the CFS for
    fiscal years 2001-2005. In the  figure, annual changes in liabilities  can
    be either positive or negative:

    o If  accrued  expenses  exceed cash  payments,  liabilities  increase  (a
    positive change). A positive change  represents accrued expenses that  are
    in the accrual deficit but not the cash budget deficit.

    o If  cash  payments  exceed accrued  expenses,  liabilities  decrease  (a
    negative change). A negative change represents cash payments that are  not
    included in  the accrual  deficit  but are  included  in the  cash  budget
    deficit.

    Figure 6: Crosswalk between Accrual and Cash Deficits/Surpluses

    Notes: Data reported in the unaudited Financial Reports for fiscal years
    2001-2005.

    aThe change in insurance liabilities was not included in the
    reconciliation statement prior to the Financial Report for 2005. The 2005
    reconciliation statement included comparative data for both 2004 and 2005.

    bThe final deficit number published in the President's budget was slightly
    lower--$318.3 billion.

    While the  reconciliation  statement  is  useful  for  illustrating  which
    program areas  explain  large differences  between  the cash  and  accrual
    measures in each year, too much focus should not be placed on the  amounts
    shown for items  listed in  the reconciliation  statement--nor the  actual
    amount of the accrual deficit itself--for  a number of reasons, which  are
    discussed below.

    First, as of 2005, Treasury has not been able to identify all items needed
    to reconcile the  accrual and cash  deficits. As a  result, certain  items
    that would cause  the accrual and  cash deficits to  be different are  not
    itemized in the reconciliation statement.  To make the statement  balance,
    Treasury  includes   an   entry--labeled   "net  amount   of   all   other
    differences"--that is needed to force the statement into balance (i.e.,  a
    "plug"). In 2005, this entry was $13.2 billion (or 3 percent of the  total
    difference between the accrual and cash budget deficits).19

    Second, we identified material  weaknesses relating to  some of the  areas
    listed   in   the   reconciliation   statement--namely   capital   assets,
    environmental liabilities, and military postretirement health  benefits.20
    Errors in the reported  expenses for these areas  could lead to errors  in
    the amount of  the accrual  deficit itself.  For example,  the failure  to
    report a depreciation expense  for a certain capital  asset would tend  to
    result in an  understatement of  the accrual  deficit while  overreporting
    depreciation expense would overstate the accrual deficit.

    Finally, the accrual deficit itself includes an amount needed to force the
    CFS into balance (i.e.,  a "plug"). The  accrual deficit should  typically
    equal the annual change in net  position, which is the difference  between
    the assets  and  liabilities  reported  in  the  balance  sheet.  However,
    Treasury could not completely reconcile the difference between ending  and
    beginning of  year  net  position  and thus  included  an  amount  labeled
    "unreconciled transactions affecting the change in net position" to  force
    the CFS into balance. Also, as part of our audit of the CFS, we identified
    a number of issues, including problems relating to the compilation of  the
    CFS and  the reconciliation  of  intragovernmental activity  and  balances
    between federal agencies.21

    19For more information on the issues GAO identified with the
    reconciliation statement and related recommendations see GAO, Financial
    Audit: Process for Preparing the Consolidated Financial Statements of the
    U.S. Government Needs Improvement, [37]GAO-04-45 (Washington, D.C.: Oct.
    30, 2003).

    20See pp. 15-26 for information on weaknesses in the reported expenses of
    these program areas.

    21For a list of GAO's recommendations addressing these and other
    weaknesses in the financial statements, see GAO, Financial Audit:
    Significant Internal Control Weaknesses Remain in Preparing the
    Consolidated Financial Statements of the U.S. Government, [38]GAO-06-415
    (Washington, D.C.: Apr. 21, 2006).

    What Drives Changes in Cash and Accrual Deficits from Year to Year?

    In  recent  years,  both  cash   and  accrual  measures  show  a   general
    deterioration in the government's fiscal condition. This deterioration was
    due to both tax and spending legislation, sometimes in response to outside
    events, such as the attacks of September 11, 2001 and the ensuing economic
    slowdown, operations in Iraq and  Afghanistan, and Hurricanes Katrina  and
    Rita,  which  together  affected  the  government's  operating  costs  and
    revenue.

    Some changes in the cash  deficit from year to year  can be and have  been
    due to changes in dates when cash is scheduled to be paid or received. For
    example, when October 1 falls on  a weekend, certain federal payments  due
    on that  date,  such as  salaries  for  military employees,  are  paid  in
    September. This  shifts the  cash outlay  into the  previous fiscal  year.
    However, because  these benefits  are recorded  as expenses  when due  and
    payable, the  shift in  the  payment date  would  not affect  the  accrual
    deficit. In  contrast, Congress  sometimes changes  the due  date for  tax
    payments, which can  shift cash receipts  from one year  to the next.  For
    example,  Congress  changed  the  corporate  tax  payment  due  date  from
    September 15, 2001, to October 1, 2001, resulting in a shift of about  $23
    billion in revenue  from fiscal year  2001 to 2002.  Because revenues  are
    generally recorded when collected in  both the cash and accrual  deficits,
    the change in  the tax due  date would  affect both the  cash and  accrual
    deficits.

    However, the  accrual deficit  has also  been driven  by three  additional
    factors:

    o legislation that obligates future government resources,

    o changes in methods or assumptions for estimating long-term  liabilities,
    and

    o changes in federal accounting standards.

    For  example,  enacting  a  law  that  expands  future  federal   employee
    retirement benefits or insurance  programs would be reflected  immediately
    in the accrual deficit but would not affect the cash budget deficit  until
    future years when the benefits are paid. Indeed, the largest change in the
    accrual deficit  in recent  years occurred  between 2000  and 200122  when
    legislation was  passed that  extended TRICARE--health  care benefits  for
    military  employees--to  Medicare-eligible  military  retirees  and  their
    beneficiaries. This change alone increased  the estimated value of  future
    benefit payments and  the accrual deficit  by over $290  billion in  2001.
    However, because these benefits will not  be paid until future years,  the
    cost was not reflected in the cash budget deficit.

    22The accrual measure went from a surplus of $40 billion in 2000 to a
    deficit of $515 billion in 2001--a swing of about $555 billion.

    Second, whereas the  cash measure is  sensitive to changes  in dates  when
    cash is scheduled to be paid  or received, accrual measures are  sensitive
    to changes in assumptions--such as future salary increases, changes to the
    general price  level, interest  rates,  and technology--used  to  estimate
    future payments. For  example, some  future payments  are discounted  into
    present value terms  using nominal interest  rate assumptions. Changes  in
    interest rates can and have  caused changes--and sometimes large  ones--in
    expenses and the accrual deficit. For example, the change in interest rate
    assumptions drove wide swings in  the liability for veterans  compensation
    in recent  years.  This  liability  increased by  $105  billion  in  2003,
    decreased by $30 billion  in 2004, and then  increased by $228 billion  in
    2005. From 2003 to  2004, the Department of  Veterans Affairs (VA)  raised
    its long-term interest rate assumption from 4.91 to 5.23 percent. In 2005,
    VA reduced its long-term interest rate to 4.74 percent.

    Finally, changes  in federal  accounting standards  can also  drive  large
    changes in  the accrual  deficit without  any effect  on the  cash  budget
    deficit. For  example, beginning  in fiscal  year 2003,  a new  accounting
    standard was  adopted  that  required national  defense  equipment  to  be
    capitalized--that is,  included  on the  balance  sheet--and  depreciated.
    Prior to 2003, the purchases  of national defense equipment were  expensed
    in the  year they  were bought  and  the assets  were not  capitalized  or
    depreciated.23 A  primary  reason  for  the  increase  in  the  amount  of
    capitalized assets  reported in  the reconciliation  statement from  $40.9
    billion in  2002 to  $102.0  billion in  2003  was the  capitalization  of
    national defense equipment purchased in  2003. Also primarily as a  result
    of national defense equipment being capitalized, the depreciation  expense
    more than tripled from $20.5 billion in 2002 to $71.2 billion in 2003.

    While a lot of variation in the  accrual deficit may lead some to  believe
    the measure is  less reliable  than the  cash measure,  the changes  often
    result  from  improvements  in   government  estimation  methods  or   the
    implementation of  new accounting  standards. This  suggests that  caution
    must be  taken  when  interpreting year-to-year  changes  in  the  accrual
    deficit. Sometimes a change in the  accrual deficit may not mean a  change
    in fiscal condition, but  rather a change in  the government's methods  of
    measuring its condition. As the reliability issues we raised in our audits
    are  addressed,  the  accrual  deficit  will  become  a  more   meaningful
    complement to the cash measure.

    23National defense equipment was considered stewardship property, plant,
    and equipment and reported as required supplemental stewardship
    information to the financial statements..

    In the following pages,  we provide more detailed  information on the  six
    areas that  explain  the  largest differences  between  accrual  and  cash
    deficits. As we stated before, the six areas are

    o military employee benefits,

    o civilian employee benefits,

    o veterans compensation,

    o environmental liabilities (e.g., cleanup and disposal),

    o insurance programs, and

    o capital assets.

    We explain how each area's costs are reflected under the two measures  and
    how the  numbers  in the  reconciliation  statement are  developed.  Also,
    because changes in the  accrued liability for these  programs can lead  to
    changes in the accrual  deficit without any  corresponding changes to  the
    cash budget deficit, we explain what  drives the accrual measures of  each
    area and  the key  events or  changes  in assumptions  that led  to  large
    changes in their liabilities from fiscal years 2001 to 2005.

    Military Employee Benefits

    How Are Military Employee Benefits Recorded in the Cash and Accrual
    Deficits?

    Military employee benefits include retirement benefits, such as  pensions,
    health benefits,  and  insurance, for  military  personnel who  remain  on
    active duty for  20 years or  more. The cash  budget deficit reflects  the
    payments made  to  retired  military  in the  current  year  but  not  the
    estimated long-term  costs.24 However,  the  accrual deficit  reflects  an
    expense for the estimated  long-term cost of  military pensions and  other
    retirement benefits during the years the service members are working.  The
    expense reflects services rendered in  the current year, accrued  interest
    on the  outstanding  liability,  and  adjustments  for  any  pension  plan
    amendments or deviations between actual experience and assumptions used to
    estimate past expenses.

    Table 1 shows the accrued  liabilities--or the actuarial present value  of
    the expected cost of military employee benefits that is unpaid at the  end
    of the  reporting  year--and  the  corresponding  year-to-year  change  in
    liabilities from 2001 to 2005.

    Note: Data from unaudited Financial Reports for 2001 to 2005.

    The change in liability from the previous year (in the highlighted row  of
    table 1)  represents  the  primary difference  between  accrual  and  cash
    measures of  military  employee  benefits.  The  change  in  liability  is
    generally equal to expenses accrued for current workers less cash  outlays
    to pay  current  retirees' benefits,  which  were expensed  in  the  past.
    Therefore a positive change in  the liability represents accrued  expenses
    in excess of cash outlays. Because accrued expenses enter into the accrual
    deficit as a negative, one must add the change in liability to the accrual
    deficit to get to the cash deficit.

    24The Department of Defense (DOD) makes contributions for some retirement
    benefits but the payments are intragovernmental--that is, they are
    recorded as outlays by DOD and receipts by the military retirement trust
    funds.  Since no cash actually leaves the government, such contributions
    do not affect the governmentwide cash deficit. See app. II for more
    information.

    What Drives Changes in Military Employee Benefit Liabilities?

    Changes in the  military employee benefit  liabilities have accounted  for
    large swings in the  accrual deficit without  any corresponding change  in
    the cash  budget deficit.  The  largest change  in the  military  employee
    benefit liability during the period of 2001 to 2005 was due to a change in
    law. In 2001, the  liability for military  employee benefits increased  by
    $406.8 billion. A large part  of the increase--over $290  billion--stemmed
    from  the  initial  nonrecurring  effect  of  the  2001  National  Defense
    Authorization  Act  (Pub.  L.  No.  106-398).  This  legislation  extended
    TRICARE--health care benefits for military employees--to Medicare-eligible
    military  retirees  and  their  beneficiaries.  Prior  to  2001,  military
    retirees who were eligible for Medicare relied on Medicare benefits.

    The change  in liability  has also  varied from  year to  year because  of
    differences between actual experience and what was originally assumed. For
    example, from 2004 to  2005, the change in  the military health  liability
    was $108.6 billion. According  to the Department  of Defense (DOD),  about
    $60 billion of this change  reflects higher-than-assumed health care  cost
    growth.

    It should  be  noted  that  DOD  was  unable  to  provide  support  for  a
    significant portion  of the  reported military  retiree health  liability.
    DOD's auditors found that  DOD's systems could  not accurately report  the
    costs of  health  care provided  by  DOD facilities  or  develop  reliable
    projections of future health  care costs and  the military retiree  health
    liability.

    Civilian Employee Benefits

    How Are Civilian Employee Benefits Recorded in the Cash and Accrual
    Deficits?

    Civilian employees earn  pension and  other retirement  benefits over  the
    course of their working years, but  these benefits are not paid until  the
    employee retires.  Currently,  pensions  represent  the  largest  civilian
    employee benefit,  and postretirement  health  benefits are  a  relatively
    small but growing share of civilian employee benefits. In the cash budget,
    the payments  made  to  retired  employees are  recorded  as  outlays  and
    reflected in the cash budget deficit. Any contributions made by  employees
    are recorded as receipts and offset  part of the cash outlays.25  However,
    the accrual deficit reflects an annual expense for the estimated long-term
    cost of  these benefits  each year  as  the employee  renders his  or  her
    services. The  annual  expense  includes the  pension,  health,  or  other
    benefits accrued for current workers, accrued interest on the  outstanding
    liability, and adjustments for  any changes to  assumptions or the  plans'
    benefits and  any deviations  between actual  experience and  assumptions.
    Contributions made by employees towards pension, health, or other benefits
    are recorded as earned revenue, which offset part of the expense.26

    The reported civilian employee  benefit liabilities--or the present  value
    of the benefits  that have  been earned  but not paid  at the  end of  the
    reporting year--and the changes in liabilities are shown in table 2.

    Note: Data from unaudited Financial Reports for 2001 to 2005.

    25Agencies also make contributions for some accrued pension benefits but
    the payments are intragovernmental--that is, they are recorded as outlays
    by one agency and receipts by the civil service retirement and disability
    trust fund. Since no cash actually leaves the government, such
    contributions do not affect the governmentwide cash deficit. See app. II
    for more information. Most civilian agencies are not required to make
    contributions for future health and life insurance benefits.

    26Agency contributions are also recorded as earned revenue but since these
    contributions are intragovernmental, they are netted out in the CFS.

    The change in the liability from the previous year (in the highlighted row
    of table 2)  is the  primary difference between  what is  recorded in  the
    accrual  deficit  and  the  cash  budget  deficit  for  civilian  employee
    benefits. The  change  in liability  is  generally equal  to  the  accrued
    expense less payments made  to current retirees  during the current  year.
    Therefore a positive change in  the liability represents accrued  expenses
    in excess of cash outlays. Because accrued expenses enter into the accrual
    deficit as a  negative, the change  in liability is  added to the  accrual
    deficit to get to the cash deficit.

    What Drives Changes in Civilian Employee Benefit Liabilities?

    Changes in civilian  employee benefit liabilities  can affect the  accrual
    deficit with  no corresponding  change  to the  cash budget  deficit.  The
    accrued  benefit  expense  depends  on  assumptions  and  projections  for
    salaries, years of service, interest rates, inflation, and other  economic
    and demographic variables. As  such, deviations between actual  experience
    and these assumptions can lead to  large changes in the civilian  employee
    benefit liability and the accrual deficit itself. For example, the  change
    in liability attributed to pensions in 2002--$16.9 billion--was lower than
    in  2001--$41.0  billion--because  actual  pay  raises  given  to  federal
    employees and the  cost of living  allowance given to  retirees were  both
    less than previously assumed. As  a result, the previous year's  liability
    was reduced because of these deviations from the assumptions.  Conversely,
    the change in liability attributed to pensions in 2003--$60.6 billion--was
    significantly larger than 2002 because actual pay raises were larger  than
    assumed.

    Most of the  year-to-year changes in  the postretirement health  liability
    were also due  to differences  between actual  experience and  assumptions
    about health care costs and utilization. Health care cost trends have been
    more  volatile  than  factors  underlying  estimates  of  pension  benefit
    liabilities (e.g.,  wage growth  and cost  of living  allowances);  hence,
    estimates of postretirement health liabilities  can be more volatile  than
    pension liability estimates.

    Veterans Compensation

    How Is Veterans Compensation Recorded in the Cash and Accrual Deficits?

    The veterans  compensation program  provides eligible  veterans and  their
    survivors with benefits to compensate  for the loss of potential  earnings
    due to  service-connected disability  or death.  The cash  budget  deficit
    reflects compensation  payments  made  in  the  current  year  to  current
    veterans but  not the  estimated costs  of future  benefits. However,  the
    accrual deficit  reflects  an  expense  for  future  payments  to  current
    veterans  already  receiving  benefits,  veterans  that  aren't  currently
    receiving benefits  but will  in the  future, and  a portion  of those  in
    active military service assumed by the VA to become eligible for  benefits
    in the future.

    Table 3 shows the reported veterans compensation liability--or the present
    value of the estimated cost of future benefit payments earned but not paid
    at the end  of the year--and  the corresponding change  in each year  from
    2001 to 2005.

    Note: Data from unaudited Financial Reports for 2001 to 2005.

    The  difference  between  the  cash  and  accrual  measures  of   veterans
    compensation is the  change in  the liability from  year to  year (in  the
    highlighted row of  table 3).  The change  in the  liability is  generally
    equal to  accrued  compensation  expense  plus  accrued  interest  on  the
    outstanding liability  less benefits  paid  to current  beneficiaries.  As
    such, a positive change in  the liability represents accrued expenses  (in
    excess of cash payments). Because accrued expenses enter into the  accrual
    deficit as a negative, one must add the change in liability to the accrual
    deficit to get to the cash budget deficit.

    What Drives Changes in Veterans Compensation Liabilities?

    Changes in  the veterans  compensation liability  can affect  the  accrual
    deficit with  no  corresponding change  to  the cash  budget  deficit.  VA
    estimates the compensation liability using  assumptions for the number  of
    beneficiaries, life  expectancy, future  cost of  living adjustments,  and
    interest rates,  among other  things, and  the liability  is sensitive  to
    changes in these assumptions.

    Indeed, the veterans compensation liability experienced wide  fluctuations
    in recent years driven by changes in assumptions. The liability  increased
    by $105.6 billion in  2003, decreased by $30.0  billion in 2004, and  then
    increased by $197.8 billion in 2005. These large swings resulted not  from
    changes to benefit provisions, laws,  or regulations, but from changes  in
    the assumptions used--primarily for interest rates--to estimate the  value
    of future  benefits.  Beginning  in 2004,  VA  used  current  market-based
    interest rates--rather than historical averages--on Treasury securities to
    discount future payments into present value terms for presentation in  the
    financial  statements.  Interest  rates   can  be--and  have   been--quite
    volatile,  which  can  lead  to  volatility  in  the  reported  liability.
    Increases in the interest rate used to discount the liability would reduce
    the liability whereas decreases  in the interest  rate would increase  the
    liability. For example, from 2003  to 2004, rates on longer-term  Treasury
    securities increased from 4.91 to 5.23  percent, leading to a $30  billion
    reduction in VA's liability. Conversely, for the next year, VA reduced its
    long-term interest  rate assumption  from  5.23 percent  in 2004  to  4.74
    percent in 2005. Reducing the interest  rate resulted in a higher  present
    value estimate of future benefit payments and thus a greater liability.

    Environmental Liabilities

    How Are Environmental Liabilities Recorded in the Cash and Accrual
    Deficits?

    Federal,  state,  or  local  laws  and  regulations  require  the  federal
    government to clean up hazardous and radioactive waste resulting from  its
    operations (e.g., nuclear submarines and nuclear weapons). While the  cash
    deficit reflects cleanup  costs when they  are paid, accounting  standards
    require agencies to recognize  in their financial  statements each year  a
    portion of  the estimated  probable and  measurable environmental  cleanup
    costs associated  with assets  as they  are used  operations, even  though
    cleanup will not actually occur for many years. In addition, agencies  are
    required to  include  estimates  to  clean  up  and  dispose  of  existing
    contamination and waste  resulting from nuclear  weapon production  during
    World War II and the Cold War--also called "legacy waste." These estimates
    make up the  majority of  the Department of  Energy's (DOE)  environmental
    liabilities.

    Each year a  portion of the  estimated total cleanup  costs for  operating
    assets is to  be recognized  as an expense.  Accounting standards  require
    that this allocation be based on a systematic and rational method, such as
    the expected  life of  the asset  and  the amount  of capacity  used  each
    period. So, for example, a nuclear submarine may have an estimated  useful
    life of  10 years  and estimated  cleanup costs  of $80  million. Under  a
    straight-line allocation method, the expense and liability accrued in each
    year of its life would be $8  million. This $8 million would be  reflected
    in the accrual deficit for that year  but not the cash budget deficit.  In
    contrast, any increase to the estimated  cost of cleaning up legacy  waste
    must be recognized in full in the  period it is identified. Table 4  shows
    reported environmental liabilities from 2001 to 2005 and the change in the
    liability each year.27 The change in the liability from the previous  year
    (in the highlighted row of table 4) represents

    Note: Data from unaudited Financial Reports for 2001 to 2005.

    27For assets in operation, cleanup costs are recognized over the expected
    life of the asset and thus the reported liability does not include the
    full cleanup cost until the end of the asset's life.

    accrued expenses in the current year less payments for current year
    cleanup activities, which were expensed in the past:

    o If accrued  expenses exceed  cash payments, liabilities  increase and  a
    positive change is shown (see 2001 and 2005).

    o If cash  payments exceed  accrued expenses, liabilities  decrease and  a
    negative change is shown (see 2002, 2003, and 2004).

    To move from the accrual deficit  to the cash deficit requires  adjustment
    for these accrued expenses and cash payments. Because accrued expenses (in
    excess of cash  payments) enter into  the accrual deficit  as a  negative,
    they must be  added to the  accrual deficit in  order to get  to the  cash
    deficit. Conversely,  cash  payments in  excess  of accrued  expenses  are
    subtracted from the accrual deficit to get to the cash deficit.

    What Drives Changes in Environmental Liability Estimates?

    Estimates of cleanup costs are inherently uncertain. Estimates must assume
    the use of current technology and  involve making a number of  assumptions
    about the level of restoration of the site; detailed projections about the
    schedule of  funding and  cleanup activities;  and inflation.  Costs  (and
    hence the liability) may also change if  there is a change in the laws  or
    regulations determining the level of restoration. For example, restoration
    to "pristine condition"  would have a  higher cost than  restoration to  a
    point deemed to "pose no near-term health risks."

    The changes in DOE's  estimated environmental liability  in 2002 and  2003
    illustrate the role assumptions play  in these estimates. DOE reduced  its
    environmental liability  estimate  by  $28.7 billion  in  2002  and  $26.2
    billion in 2003 primarily  by assuming it could  accelerate the timing  of
    cleanup activities, which would lead to cost savings. However, we reported
    in 2005  that while  some progress  had been  made under  its  accelerated
    approach, it is not likely DOE will achieve its projected cost  reductions
    in part because the plan depends on technological improvements and changes
    in regulatory requirements that may not occur as planned.28

    While the accrual  deficit reflects more  long-term environmental  cleanup
    costs than  does the  cash  deficit, it  does  not include  all  long-term
    cleanup costs and  some of  the costs recorded  may not  be reliable.  For
    example, if no technology exists to clean  up the site, the costs are  not
    measurable and agencies  do not  accrue expenses  for the  site. Also,  we
    identified some issues with  DOD's environmental liability estimates.  For
    example, DOD's  estimates  have not  reflected  major changes  to  federal
    accounting standards that became effective in 2003. Also, the Navy had not
    been estimating and  reporting all  costs for disposing  of spent  nuclear
    fuel produced by its nuclear ships and submarines.29

    28GAO, Nuclear Waste: Better Performance Reporting Needed to Assess DOE's
    Ability to Achieve the Goals of the Accelerated Cleanup Program,
    [39]GAO-05-764 (Washington, D.C.: July 29, 2005).

    29GAO, Environmental Liabilities: Long-Term Fiscal Planning Hampered by
    Control Weaknesses and Uncertainties in the Federal Government's
    Estimates, [40]GAO- [41]06-427 (Washington, D.C.: Mar. 31, 2006).

    Insurance

    How Are Insurance Programs Recorded in the Cash and Accrual Deficits?

    The federal government insures individuals and firms against a variety  of
    risks, such  as  loss  of  deposits from  bank  failures,  crop  failures,
    property damages from flood, and loss of pension benefits. Although  there
    are  many  federal  insurance  programs,  only  two--the  National   Flood
    Insurance Program  (NFIP) and  the  Pension Benefit  Guaranty  Corporation
    (PBGC)30--are separately listed in the Financial Report for 2005.

    Budget reporting  for insurance  programs focuses  on annual  cash  flows.
    Outlays are recorded when  claims are paid  and collections for  insurance
    programs--such as premiums--are recorded in the budget when received.  For
    example, in 2005,  NFIP paid about  $3.3 billion in  claims and  collected
    about $2.1 billion in premiums. Its net effect on the cash budget  deficit
    was a net outlay of about $1.2 billion.

    In contrast, the Financial Report records expenses or losses for estimated
    insurance claims when events  have occurred or are  probable to occur  and
    can be  reasonably  estimated. Accordingly,  losses  are recognized  as  a
    liability in  the  balance  sheet  when claims  have  not  been  paid  and
    generally represent a  difference between the  cash and accrual  deficits.
    Whether or  not  the  increase  in  insurance  liability  constitutes  the
    majority of the difference between  the accrual and cash deficits  depends
    on the type  of federal insurance  program that has  been reported in  the
    CFS. Table 5 shows the reported liabilities as of the end of 2004 and 2005
    and the change in liability from the previous year.

    Notes: Data from unaudited Financial Report for 2005, PBGC 2004 Annual
    Report, and Department of Homeland Security Performance and Accountability
    Report 2005. Insurance programs were not specifically reported in the
    reconciliation statement prior to 2005. Because the Financial Report for
    2005 only includes information on fiscal years 2004 and 2005, we did not
    include information prior to 2004 in table 5.

    aTotal for PBGC and NFIP only; does not equal total reported in CFS.

    30Although PBGC's financial activity and balances are shown in the
    Financial Report, under current law PBGC's liabilities may be paid only
    from PBGC's assets and not from the General Fund of the Treasury or assets
    of the government generally.

    For NFIP,  the difference  between the  accrual and  cash deficit  is  the
    change in insurance  liabilities, which reflects  claims approved but  not
    paid and estimated claims for events  that have occurred. The increase  in
    the NFIP liability from 2004 to 2005 accounted for $22 billion of the  $31
    billion increase in insurance  liabilities for the  year. This means  that
    the accrual deficit was $22 billion  greater than the cash budget  deficit
    due to changes in NFIP's liability.  Because the accrued expense for  NFIP
    enters into the accrual deficit as a negative, the change in the liability
    must be added back to the accrual deficit to get to the cash deficit.

    PBGC is somewhat  different than  NFIP and other  insurance programs.  For
    PBGC, the difference between the cash  and accrual measures is not  simply
    the change in the liability from the previous year. The difference between
    the cash and accrual deficits attributable to PBGC is also due to  changes
    in the value of  plan assets, whereas assets  are not an important  factor
    for NFIP's reconciliation.  The difference  between the  cash and  accrual
    deficits attributable to PBGC is  composed primarily of (1) losses  (i.e.,
    the difference between the present value of estimated future benefits  and
    plan assets) that are recorded in  the Financial Report for completed  and
    probable pension plan terminations and (2) cash benefit payments that  are
    recognized in the budget. The loss represents the amount PBGC estimates it
    will ultimately be  responsible for.  Because losses are  included in  the
    accrual deficit as a negative they  are added back to the accrual  deficit
    to get to  the cash deficit.  This total loss  amount is not  specifically
    identified in the reconciliation statement.

    What Drives Changes in Insurance Programs?

    The change in the NFIP liability  each year is driven by external  factors
    such as natural disasters that produce floods and damage property. In  the
    2 years shown  in table  5, flood  insurance had  the largest  single-year
    effect on the insurance liability and the accrual deficit. The $22 billion
    increase in the flood insurance liability  in 2005 was primarily a  result
    of Hurricane  Katrina. Many  insurance claims  from individuals  who  lost
    property from flooding as a result of Hurricane Katrina were not yet  paid
    at the end of the fiscal year.31

    The economic  health and  benefit obligations  of companies  that  sponsor
    defined-benefit pension plans  are the primary  drivers of accrued  losses
    recognized by PBGC.  PBGC estimates the  loss for pension  plans that  are
    probable to be terminated  in the near  future by assessing  macroeconomic
    conditions that  can  influence firms  and  investments and  the  specific
    performance of particular companies. In 2004 PBGC recognized losses due to
    probable  plan  terminations  of  $14.4  billion,  primarily  due  to  the
    struggling airline  industry.  The  loss  also  includes  adjustments  for
    deviations  between  actual  experience  and  PBGC's  estimates  and   the
    underlying assumptions.  As  mentioned  above,  the  loss  represents  the
    primary difference between the cash and accrual deficits but is not  equal
    to the change in liability in table 5.32

    31GAO identifies a list of high-risk federal programs that warrant
    attention by both Congress and the administration. NFIP was added to the
    list for 2006. See GAO's High-Risk Program, [42]GAO-06-497T (Washington,
    D.C.: Mar. 15, 2006).

    32PBGC's Single-Employer Insurance Program has been listed on GAO's
    High-Risk List since 2003. See [43]GAO-06-497T .

    Capital

    How Are Capital Assets Recorded in the Cash and Accrual Deficits?

    The federal government acquires a wide  variety of capital assets for  its
    own use including land,  structures, equipment, vehicles, and  information
    technology. The differing treatment of  capital assets between the  budget
    and the financial  statements is  part of the  reconciliation between  the
    accrual deficit  and the  cash budget  deficit. Table  6 below  shows  the
    components of the reconciliation statement attributable to capital assets.

    Note: Data from unaudited Financial Reports for 2001 to 2005.

    To determine the accrual deficit (or  the annual cost of operations),  the
    financial  statements  recognize  the  expense  for  a  capital  asset  by
    spreading its  cost  over its  expected  useful  life. This  is  known  as
    depreciation expense and increases  the accrual deficit  each year of  the
    asset's life. Depreciation  is not recognized  in the cash  deficit so  it
    must be added back to the accrual deficit to get to the cash deficit.

    In addition,  capital assets  may  be sold  or  destroyed or  revalued  to
    reflect the true value  of the asset. For  a sale, the difference  between
    the amount that is received for the asset upon disposal and the book value
    of the asset is recognized  in the accrual deficit  but not in the  budget
    deficit.33 The budget deficit reflects a cash receipt for the full  amount
    of the sale. Similarly, if an asset is destroyed or revalued to reflect  a
    better estimate of its  value, this is recognized  in the accrual  deficit
    but not  the cash  deficit.  Disposals and  revaluations can  increase  or
    decrease the accrual deficit  and must be  accounted for when  reconciling
    between the accrual and cash measures.

    33The book value is the amount paid less depreciation already recognized.

    In the budget, outlays made to  purchase capital assets are recorded on  a
    cash basis. Outlays  are recorded  when capital  assets are  paid for  and
    therefore the cost of the asset  increases the cash budget deficit in  the
    year that the outlay is made. The cash cost of accrued expenses (in excess
    of  assets--called  "capitalized  fixed   assets"  in  table  6--must   be
    subtracted from the accrual deficit to get to the cash budget deficit.

    What Drives Changes in Depreciation Expense and Capitalized Assets?

    Changes in  accounting  standards such  as  what assets  are  included  in
    capitalized assets  or how  assets are  depreciated can  cause changes  in
    accrual measures. For example, prior to 2003, the depreciation of national
    defense equipment (e.g.,  ships, aircraft, combat  vehicles, and  weapons)
    was  not  reflected  in  the  accrual  deficit  because  national  defense
    equipment was reported as part of "stewardship assets," which were not  on
    the balance sheet, and thus not  depreciated. Beginning in 2003, a  change
    in accounting standards required that DOD's national defense equipment  be
    recorded as capitalized assets on  the balance sheet and depreciated.  The
    primary reason for  the increase  in the depreciation  expense from  $20.5
    billion in 2002 to  $71.2 billion in  2003 was the  addition of these  DOD
    assets. It is important  to note that the  change in accounting  standards
    changed what was reported on the  balance sheet and not what was  actually
    owned by the government.

    Prior to the accounting change relating to national defense equipment, the
    cost of purchasing such equipment  was not included in the  reconciliation
    statement because it  was reflected in  both the accrual  and cash  budget
    deficits. Under the  accounting change,  the cost  of purchasing  national
    defense equipment is  now capitalized  and therefore not  included in  the
    accrual deficit,  while  such  costs  are still  included  in  the  budget
    deficit.  The  capitalization  of  purchases  of  DOD's  national  defense
    equipment was  a primary  contributor  to an  increase  in the  amount  of
    capitalized assets  reported in  the reconciliation  statement from  $40.9
    billion in 2002 to $102.0 billion in 2003.34

    Although the addition of national  defense equipment to the balance  sheet
    accounted for  a large  part of  the increase  in capitalized  assets  and
    depreciation expense, too  much focus should  not be placed  on the  exact
    size of  the  increase. As  we  have reported  in  the past,  the  federal
    government can  not  satisfactorily  determine  that  capital  assets  are
    properly reported  in  the CFS.  A  majority  of capital  assets  are  the
    responsibility of the DOD  and it has not  maintained adequate systems  or
    sufficient records to provide reliable information on these assets.

    34The increase in outlays for capitalized assets reported in the
    reconciliation statement only reflects assets that were purchased in 2003.
    The total increase in the balance sheet as a result of adding national
    defense equipment that was purchased in previous years was much greater..

    How Can Accrual and Cash Deficit Measures Complement Each Other?

    Neither the accrual  nor the  cash budget  deficit alone  provides a  full
    picture of the government's  fiscal condition or  the cost of  government.
    For example, the cash deficit provides information on borrowing needs  and
    current cash flow. The accrual deficit provides information on the current
    cost of government, but it does not  tell one how much the government  has
    to borrow  in the  current year  to finance  government activities.  Also,
    accrual deficits provide more information on the longer-term  consequences
    of current government activities but by nature do not include  information
    about the  timing  of  payments  and receipts,  which  can  be  important.
    Therefore, just as  investors need income  statements, statements of  cash
    flow, and balance sheets to  understand a business's financial  condition,
    both cash  and  accrual  measures  are  important  for  understanding  the
    government's financial  condition.  Cash  and  accrual  measures  together
    provide a more complete  picture of the  government's fiscal stance  today
    and over time; however, additional measures of the long-term  implications
    of existing programs and tax policies are needed to have a fully  complete
    picture.

    Other Measures Are Also Needed to Understand the Government's Fiscal
    Condition

    Beyond accrual and  cash budget  deficits, there are  even more  measures,
    statements, and information that are used  or could be used to more  fully
    understand the government's fiscal condition, including

    o projected cash flows of large spending and tax programs,

    o summary present value measures of large spending and tax programs,

    o reports on the nation's fiscal exposures,

    o governmentwide financial statements of fiscal sustainability, and

    o a summary annual report.

    Some of  this  information is  currently  available, but  more  should  be
    developed or made more transparent.  For example, the long-term cash  flow
    is projected for Social Security and Medicare. These cash flow projections
    help in understanding the expected timing of future payments and  receipts
    and hence the potential effect of these programs on future borrowing needs
    and financial markets. Summary  present value measures are  a way to  show
    the long-term expected cost  of current or proposed  policies in a  single
    number. These  are  also  available  for  Social  Security  and  Medicare.
    However, projected cash flows and summary present value measures are still
    needed for other major spending  and tax programs--both existing  programs
    and new programs or benefits being considered by Congress.

    Measures or statements that illustrate the future cost of government as  a
    whole would also be  beneficial. For example, we  have suggested that  OMB
    report   on   the   nation's   fiscal   exposures--the   wide   range   of
    responsibilities,  programs,  and  activities   that  may  explicitly   or
    implicitly expose the  federal government to  future spending. This  would
    include reporting  liabilities, obligations,  commitments,  contingencies,
    and implicit promises embedded in current policy or public expectations.35
    Some of  these,  such as  environmental  cleanup and  disposal  costs  and
    postretirement benefits,  are  reported  in the  financial  statements  as
    liabilities. Others, such as financial commitments, certain contingencies,
    and future social insurance benefits  are not reported as liabilities  but
    are reported  elsewhere  in  the Financial  Report.36  Pulling  all  these
    together into one presentation would  improve transparency and may  prompt
    more  explicit   deliberation  of   the  government's   long-term   fiscal
    commitments.

    An even  more comprehensive  statement illustrating  the long-term  fiscal
    sustainability of the government as a whole, including future tax receipts
    and the cost of providing basic government services such as education  and
    defense, might also  be useful.  Improved reporting would  also involve  a
    summary annual report that summarizes in a clear, concise, and transparent
    manner key financial and performance information embodied in the Financial
    Report. Such a report  could be useful to  both Congress and the  American
    people.

    Some Federal Programs Use Both Cash and Accrual Measures in the Budget but
    More Could Be Done

    Some federal programs use both  cash- and accrual-based measures but  more
    can be  done.  For example,  agencies  pay  the cost  of  accrued  pension
    benefits for some civilians  (i.e., those hired  since 1984) and  military
    personnel (i.e.,  those in  service after  October 1,  1984) as  they  are
    earned. While the  accrued cost is  not reflected in  the budget's  bottom
    line (i.e., the cash deficit),37 information  on the full cost of  current
    services  is  available  to  decision  makers  responsible  for   resource
    allocation. However, the full cost of all pensions (i.e., employees  hired
    before 1984), retiree health, environmental liabilities, and insurance are
    still not recognized in the budget when the commitments are made.

    35GAO, Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs
    and Uncertainties, [44]GAO-03-213 (Washington, D.C.: Jan. 24, 2003).

    36Information on the long-term costs of social insurance programs has been
    included in the required supplemental stewardship information section of
    the Financial Report and a Statement of Social Insurance will be
    incorporated into the primary financial statements for the first time for
    fiscal year 2006.

    37See app. II for more information.

    Accrual measures  can be  used  to a  greater  extent to  inform  decision
    making. Although long-term estimates, including those used in the  accrual
    deficit, are  inherently uncertain,  cash measures  alone do  not  provide
    information about the  longer-term consequences of  today's decisions.  We
    have previously suggested38 that Congress consider expanding the selective
    use of accrual-based  measures in  the budget  to program  areas where  it
    would enhance spending control  and provide more  information on the  full
    cost at the  time decisions to  commit the government  are made (i.e.,  up
    front).39 We identified  several alternative approaches  for Congress  and
    the Executive Branch  to consider  that would improve  the recognition  of
    long-term costs in  the budget.  For example, accrual  budgeting could  be
    adopted  for  programs  that  currently  do  not  capture  the   long-term
    commitment entered into by the government such as:

    o employee pension programs,

    o retiree health programs for federal employees,

    o federal insurance programs, and

    o environmental clean up.

    The bottom line  is that  having one measure  without the  other does  not
    provide complete information about the government's fiscal condition.  The
    government--just like businesses  and individuals--should  not ignore  the
    balance in its checking account or its longer-term financial picture.

    38See GAO, Budget Issues: Budgeting for Federal Insurance Programs,
    [45]GAO/AIMD-97-16 (Washington, D.C.: Sept. 30, 1997), Long-Term
    Commitments: Improving the Budgetary Focus on Environmental Liabilities,
    [46]GAO-03-219 (Washington, D.C.: Jan. 24, 2003), and [47]GAO/AIMD-00-57 .

    39For purchases of capital assets, we do not recommend the use of accrual
    accounting for budget decisions because it would sacrifice up-front
    control of budgetary resources. Recording depreciation rather than the
    purchase cost would delay budget recognition of the resource commitment.

                         Appendix II: Budget Outlays Recorded on an Accrual Basis

    Outlays in the cash budget deficit are primarily measured on a cash basis.
    However, there are some areas, such as federal credit programs,  pensions,
    insurance, and environmental liabilities, where cash measurement does  not
    reveal the full extent  of the government's commitment  up front when  the
    commitment is made. In some of these areas, the budget records outlays  on
    an accrual basis rather than  cash. The accrual-based outlays for  program
    areas shown  in  table 7  affect  the  bottom line  cash  budget  deficit.
    However, accrual-based outlays for other program areas shown in table 8 do
    not affect the  bottom line cash  budget deficit because  the outlays  are
    paid by one agency to another (i.e., intragovernmental) and so offset each
    other. Only payments that flow from or to entities outside the  government
    affect the cash budget deficit.

    aSome outlays from the Department of the Treasury to pay interest on
    special Treasury securities held by some federal trust funds are also
    recorded on an accrual basis but they are intragovernmental and do not
    affect the cash deficit.

    aFERS is the retirement system for civilian employees hired after 1983.
    The Civil Service Retirement System (CSRS) provides defined benefits to
    most federal employees hired before 1984. Currently, federal agencies pay
    only about 40 percent of the pension costs for CSRS-covered employees.

    bUnder the Floyd D. Spence National Defense Authorization Act of Fiscal
    Year 2001 (Pub. L. No. 106-398), the Secretary of Defense was required to
    make contributions into the Medicare-Eligible Retiree Health Care Fund.
    However, beginning in 2006, DOD stopped making contributions because the
    Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005
    (Pub. L. No. 108-375) directed the Department of the Treasury to make the
    annual contribution instead of DOD.

    For additional  information on  program areas  where the  budget does  not
    recognize their total commitment up front, see GAO reports titled  Accrual
    Budgeting: Experiences of  Other Nations and  Implications for the  United
    States, [48]GAO/AIMD-00-57 (Washington,  D.C.: Feb. 18,  2000) and  Fiscal
    Exposures:  Improving  the   Budgetary  Focus  on   Long-Term  Costs   and
    Uncertainties, [49]GAO- [50]03-213 (Washington, D.C.: Jan. 24, 2003).

                                            Appendix III: Obligational Accounting

    In addition to cash and accrual accounting, Congress and federal  agencies
    also track funds  using obligational accounting--a  separate and  distinct
    administrative control through  which federal  agencies control,  monitor,
    and report on the status of the funds at their disposal.

    Obligational accounting differs from cash  and accrual accounting by  when
    transactions are  recorded.  For example,  an  agency can  incur  a  legal
    liability (i.e.,  a  claim  that  may  be  legally  enforced  against  the
    government) in a variety of ways, such as by signing a contract, grant, or
    cooperative agreement, or by  operation of law. When  an agency creates  a
    legal liability, it "obligates"  itself to pay  and records an  obligation
    against available funds. Recording  the obligation effectively sets  aside
    those funds for the actual cash outlay. Under cash and accrual accounting,
    the recognition of  the legal liability  doesn't show up  until later.  No
    transaction is recorded  under accrual, or  proprietary accounting,  until
    the entity  accepts the  goods  or services,  at  which point  an  account
    payable and related expense  will be recorded.  Under cash accounting,  an
    outlay is recorded when the obligation is liquidated.

    The federal budget and budget process largely use obligational accounting.
    The obligational  system of  accounting is  rooted in  the  Antideficiency
    Act.1 It is  through this  obligational accounting  that federal  agencies
    ensure compliance with the fiscal laws that Congress has enacted including
    the Antideficiency Act,  the "recording  statute," and  the "purpose"  and
    "time" statutes.  Thus,  if an  agency  controls its  obligations,  it  is
    unlikely to overspend its appropriations.

    A detailed discussion  of obligations and  obligational accounting can  be
    found in  GAO's Glossary  of Terms  Used in  the Federal  Budget  Process,
    [51]GAO-05-734SP (Washington, D.C.:  September 2005),  appendix III,  page
    120.

    1The Antideficiency Act prohibits an officer or employee of the United
    States government from: obligating or spending in excess or in advance of
    an appropriation, accepting voluntary services except in emergencies, and
    obligating or spending in excess of amounts apportioned or in excess of
    amounts permitted by agency regulations that subdivide amounts
    apportioned.

    Related GAO Products

    The Nation's Long-Term Fiscal Outlook: September 2006 Update.
    [52]GAO-06-1077R . Washington, D.C.: September 15, 2006.

    Financial Audit: Significant Internal Control Weaknesses Remain in
    Preparing the Consolidated Financial Statements of the U.S. Government.
    [53]GAO-06-415 . Washington, D.C.: April 21, 2006.

    Environmental Liabilities: Long-Term Fiscal Planning Hampered by Control
    Weaknesses and Uncertainties in the Federal Government's Estimates.
    [54]GAO-06-427 . Washington, D.C.: March 31, 2006.

    A Glossary of Terms Used in the Federal Budget Process. [55]GAO-05-734SP .
    Washington, D.C.: September 2005.

    Understanding the Primary Components of the Annual Financial Report of the
    United States Government. [56]GAO-05-958SP . Washington, D.C.: September
    2005.

    Financial Audit: Process for Preparing the Consolidated Financial
    Statements of the U.S. Government Needs Improvement. [57]GAO-04-45 .
    Washington, D.C.: October 30, 2003.

    Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and
    Uncertainties. [58]GAO-03-213 . Washington, D.C.: January 24, 2003.

    Long-Term Commitments: Improving the Budgetary Focus on Environmental
    Liabilities. [59]GAO-03-219 . Washington, D.C.: January 24, 2003.

    Accrual Budgeting: Experiences of Other Nations and Implications for the
    United States. [60]GAO/AIMD-00-57 . Washington, D.C.: February 18, 2000.

    Budget Issues: Budgeting for Federal Insurance Programs.
    [61]GAO/AIMD-97-16 . Washington, D.C.: September 30, 1997.

    Budget Issues: Budgeting for Federal Capital. [62]GAO/AIMD-97-5 .
    Washington, D.C.: November 12, 1996.

    (450495)

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    http://www.gao.gov/cgi-bin/getrpt?GAO-07-117SP

    United States Government Accountability Office

    Understanding Similarities and Differences between
    Accrual and Cash Deficits

    December 2006

    GAO-07-117SP

    References

    Visible links
    1. http://www.gao.gov/cgi-bin/getrpt?GAO-07-117SP
    2. http://www.gao.gov/cgi-bin/getrpt?GAO-07-117SP
    3. http://www.fms.treas.gov/fr/index.html
    4. http://www.fms.treas.gov/fr/index.html
    5. http://www.whitehouse.gov/omb/budget/
    6. http://www.whitehouse.gov/omb/budget/
    7. file:///home/webmaster/infomgt/d07117sp.htm#mailto:irvings@gao.gov
    8. file:///home/webmaster/infomgt/d07117sp.htm#mailto:engelg@gao.gov
    9. http://www.gao.gov
      32. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1077R
      33. http://www.gao.gov/cgi-bin/getrpt?GAO-05-958SP
      34. http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP
      35. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1077R
      36. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-57
      37. http://www.gao.gov/cgi-bin/getrpt?GAO-04-45
      38. http://www.gao.gov/cgi-bin/getrpt?GAO-06-415
      39. http://www.gao.gov/cgi-bin/getrpt?GAO-05-764
      40. http://www.gao.gov/cgi-bin/getrpt?GAO-06-427
      41. http://www.gao.gov/cgi-bin/getrpt?GAO-06-427
      42. http://www.gao.gov/cgi-bin/getrpt?GAO-06-497T
      43. http://www.gao.gov/cgi-bin/getrpt?GAO-06-497T
      44. http://www.gao.gov/cgi-bin/getrpt?GAO-03-213
      45. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-16
      46. http://www.gao.gov/cgi-bin/getrpt?GAO-03-219
      47. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-57
      48. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-57
      49. http://www.gao.gov/cgi-bin/getrpt?GAO-03-213
      50. http://www.gao.gov/cgi-bin/getrpt?GAO-03-213
      51. http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP
      52. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1077R
      53. http://www.gao.gov/cgi-bin/getrpt?GAO-06-415
      54. http://www.gao.gov/cgi-bin/getrpt?GAO-06-427
      55. http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP
      56. http://www.gao.gov/cgi-bin/getrpt?GAO-05-958SP
      57. http://www.gao.gov/cgi-bin/getrpt?GAO-04-45
      58. http://www.gao.gov/cgi-bin/getrpt?GAO-03-213
      59. http://www.gao.gov/cgi-bin/getrpt?GAO-03-219
      60. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-57
      61. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-16
      62. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-5
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