Financial Audit: Material Weaknesses in Internal Control over the
Processes Used to Prepare the Consolidated Financial Statements  
of the U.S. Government (17-JUN-08, GAO-08-748). 		 
                                                                 
For the past 11 years, since GAO's first audit of the		 
consolidated financial statements of the U.S. government (CFS),  
certain material weaknesses in internal control and in selected  
accounting and financial reporting practices have prevented GAO  
from expressing an opinion on the CFS. GAO has consistently	 
reported that the U.S. government did not have adequate systems, 
controls, and procedures to properly prepare the CFS. GAO's	 
December 2007 disclaimer of opinion on the fiscal year 2007	 
accrual basis consolidated financial statements included a	 
discussion of continuing control deficiencies related to the	 
preparation of the CFS. The purpose of this report is to (1)	 
provide details of continuing material weaknesses, (2) recommend 
improvements, and (3) provide the status of corrective actions	 
taken to address GAO's previous 81 recommendations related to the
preparation of the CFS. 					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-748 					        
    ACCNO:   A82404						        
  TITLE:     Financial Audit: Material Weaknesses in Internal Control 
over the Processes Used to Prepare the Consolidated Financial	 
Statements of the U.S. Government				 
     DATE:   06/17/2008 
  SUBJECT:   Accounting procedures				 
	     Accounting standards				 
	     Audit reports					 
	     Auditing standards 				 
	     Budget deficit					 
	     Cost accounting					 
	     Federal agencies					 
	     Federal records management 			 
	     Financial analysis 				 
	     Financial disclosure				 
	     Financial management				 
	     Financial records					 
	     Financial statement audits 			 
	     Financial statements				 
	     Government information				 
	     Internal controls					 
	     Reporting requirements				 
	     Reports management 				 
	     Cost awareness					 
	     Cost estimates					 
	     Cost growth					 
	     Corrective action					 

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GAO-08-748

   

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Report to the Secretary of the Treasury and the Director of the Office 
of Management and Budget: 

United States Government Accountability Office: 
GAO: 

June 2008: 

Financial Audit: 

Material Weaknesses in Internal Control over the Processes Used to 
Prepare the Consolidated Financial Statements of the U.S. Government: 

GAO-08-748: 

GAO Highlights: 

Highlights of GAO-08-748, a report to the Secretary of the Treasury and 
the Director of the Office of Management and Budget. 

Why GAO Did This Study: 

For the past 11 years, since GAOï¿½s first audit of the consolidated 
financial statements of the U.S. government (CFS), certain material 
weaknesses in internal control and in selected accounting and financial 
reporting practices have prevented GAO from expressing an opinion on 
the CFS. GAO has consistently reported that the U.S. government did not 
have adequate systems, controls, and procedures to properly prepare the 
CFS. GAOï¿½s December 2007 disclaimer of opinion on the fiscal year 2007 
accrual basis consolidated financial statements included a discussion 
of continuing control deficiencies related to the preparation of the 
CFS. The purpose of this report is to (1) provide details of continuing 
material weaknesses, (2) recommend improvements, and (3) provide the 
status of corrective actions taken to address GAOï¿½s previous 81 
recommendations related to the preparation of the CFS. 

What GAO Found: 

GAO identified continuing and new control deficiencies during its audit 
of the fiscal year 2007 CFS that relate to the federal governmentï¿½s 
processes used to prepare the CFS. These control deficiencies 
contribute to material weaknesses in internal control regarding the 
U.S. governmentï¿½s inability to (1) adequately account for and reconcile 
intragovernmental activity and balances between federal agencies; (2) 
ensure that the CFS was consistent with the underlying audited agency 
financial statements, properly balanced, and in conformity with U.S. 
generally accepted accounting principles; and (3) identify and either 
resolve or explain material differences that exist between certain 
components of the budget deficit reported in the Department of the 
Treasuryï¿½s records, used to prepare the Reconciliation of Net Operating 
Cost and Unified Budget Deficit and Statement of Changes in Cash 
Balance from Unified Budget and Other Activities, and related amounts 
reported in federal agenciesï¿½ financial statements and underlying 
financial information and records. 

The control deficiencies GAO identified during its tests of the 
processes used to prepare the fiscal year 2007 CFS involved the 
following areas: 

* documenting a key standard operating procedure for preparing the CFS; 
* reporting in conformity with U.S. generally accepted accounting 
principles; 
* reconciling distributed offsetting receipts; 
* maintaining adequate control over spreadsheets used in preparing the 
CFS; 
* monitoring internal control over the processes used to prepare the 
CFS; 
* using interim financial information in the CFS preparation process, 
and; 
* various other control deficiencies that were identified in previous 
yearsï¿½ audits but remained in fiscal year 2007 (see app. I). 

Of the 81 open recommendations GAO reported in July 2007 regarding the 
processes used to prepare the CFS, 35 were closed and 46 remained open 
as of December 10, 2007, the date of our report on our audit of the 
fiscal year 2007 CFS. GAO will continue to monitor the status of 
corrective actions taken to address the 10 new recommendations and the 
new remaining balance of 56 open recommendations during its fiscal year 
2008 audit of the CFS. 

What GAO Recommends: 

GAO is making 10 new recommendations to address control deficiencies 
identified during the fiscal year 2007 CFS audit. The Department of the 
Treasury and the Office of Management and Budget generally agreed with 
the findings and recommendations in this report. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-748]. For more 
information, contact Gary Engel, (202) 512-3406, [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Scope and Methodology: 

Standard Operating Procedures for Preparing the CFS: 

Conformity with GAAP: 

Reconciling Distributed Offsetting Receipts: 

Control over Spreadsheets Used to Prepare the CFS: 

Monitoring Internal Control over the CFS Preparation Process: 

Use of Interim Financial Information to Compile the CFS: 

Agency Comments: 

Appendix I: Status of Treasury's and OMB's Progress in Addressing GAO's 
Prior Year Recommendations for Preparing the CFS: 

Appendix II: Comments from the Department of the Treasury: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Status of Treasury's and OMB's Progress in Addressing GAO's 
Prior Year Recommendations for Preparing the CFS (as of Dec. 10, 2007): 

Abbreviations: 

CFOC: Chief Financial Officers' Council: 

CFS: consolidated financial statements of the U.S. government: 

DOD: Department of Defense: 

FASAB: Federal Accounting Standards Advisory Board: 

FASB: Federal Accounting Standards Board: 

GAAP: Generally Accepted Accounting Principles: 

GFRS: Governmentwide Financial Report System: 

IDRC: Intragovernmental Dispute Resolution Committee: 

Justice: Department of Justice: 

OMB: Office of Management and Budget: 

SBR: Statement of Budgetary Resources: 

SCONP: Statement of Changes in Operations and Net Position: 

SF: Standard Form: 

SFAS: Statement of Financial Accounting Standards: 

SFFAS: Statement of Federal Financial Accounting Standard: 

SOP: Standard Operating Procedure: 

STAR: Treasury's Central Accounting and Reporting System: 

TFM: Treasury Financial Manual: 

Treasury: Department of the Treasury: 

TVA: Tennessee Valley Authority: 

[End of section] 

United States Government Accountability Office: Washington, DC 20548: 

June 17, 2008: 

The Honorable Henry M. Paulson, Jr. 
The Secretary of the Treasury: 

The Honorable Jim Nussle Director: 
Office of Management and Budget: 

In our report dated December 10, 2007,[Footnote 1] we disclaimed an 
opinion on the consolidated financial statements of the U.S. government 
(CFS) for the fiscal years ended September 30, 2007 and 2006,[Footnote 
2] except for the 2007 Statement of Social Insurance, which received an 
unqualified opinion.[Footnote 3] For the past 11 years, certain 
material weaknesses in financial reporting and other limitations on the 
scope of our work have resulted in conditions that prevented us from 
expressing an opinion on the federal government's accrual basis 
consolidated financial statements.[Footnote 4] We have reported that 
the federal government did not have adequate systems, controls, and 
procedures for preparing the CFS. On behalf of the federal government, 
the Department of the Treasury (Treasury), in coordination with the 
Office of Management and Budget (OMB), prepares the CFS. Many of the 
material weaknesses[Footnote 5] in internal control that have 
contributed to our continuing disclaimers of opinion were identified by 
auditors during their audits of federal agencies' financial statements 
and were reported in detail with recommendations to the agencies in 
separate reports. Additional material weaknesses were identified during 
our tests of the federal government's processes used to prepare the 
CFS. 

The purpose of this report is to (1) discuss the details of the 
material weaknesses we identified during our audit of the fiscal year 
2007 CFS relating to internal control over the processes used to 
prepare the CFS, (2) recommend improvements to address these 
weaknesses, and (3) provide the status of corrective actions taken by 
Treasury and OMB to address the 81 recommendations detailed in our 
previous reports (see app. I). We have discussed each of the new 
control deficiencies identified during our fiscal year 2007 audit with 
your staff and have incorporated their comments as appropriate. 

Results in Brief: 

We identified continuing and new control deficiencies during our audit 
of the fiscal year 2007 CFS that relate to the federal government's 
processes used to prepare the CFS. These control deficiencies 
contribute to material weaknesses in internal control relating to the 
federal government's inability to (1) adequately account for and 
reconcile intragovernmental activity and balances between federal 
agencies; (2) ensure that the CFS was consistent with the underlying 
audited agency financial statements, properly balanced, and in 
conformity with U.S. generally accepted accounting principles (GAAP); 
and (3) identify and either resolve or explain material differences 
that exist between certain components of the budget deficit reported in 
Treasury's records, used to prepare the Reconciliation of Net Operating 
Cost and Unified Budget Deficit and Statement of Changes in Cash 
Balance from Unified Budget and Other Activities, and related amounts 
reported in federal agencies' financial statements and underlying 
financial information and records. 

These material weaknesses in internal control contributed to our 
inability to render an opinion on the accrual basis consolidated 
financial statements. During our tests of the processes used to prepare 
the fiscal year 2007 CFS, we found that: 

* Treasury had not fully documented its practices in its "Standard 
Operating Procedures for Preparing the Financial Report of the U.S. 
Government"; 

* Treasury had not established a process for adequately documenting its 
(1) timely assessment of the relevance, usefulness, or materiality of 
information reported by the federal agencies for use at the 
governmentwide level; (2) consideration of relevant accounting 
standards other than those issued by the Federal Accounting Standards 
Advisory Board (FASAB); and (3) final decisions regarding the inclusion 
or exclusion of federal agencies' disclosure information in the 
existing notes to the CFS; 

* Treasury and OMB had not established effective processes and 
procedures for reconciling distributed offsetting receipt amounts 
included in the net outlay calculation of federal agencies' Statements 
of Budgetary Resources (SBR) and the amounts included in the 
computation of the budget deficit in the CFS; 

* Treasury had not established adequate control over the spreadsheets 
it uses to summarize and array financial data for presentation in the 
CFS; 

* Treasury and OMB had not established processes for monitoring and 
assessing the effectiveness of internal control over the preparation of 
the CFS; and; 

* Treasury had not established procedures necessary to obtain and use 
interim agency financial information to ensure that it could provide 
the final fiscal year 2007 accrual basis consolidated financial 
statements and certain supporting documentation in time for us to 
complete all of our planned audit procedures related to the compilation 
of these financial statements. 

This report includes 10 new recommendations to address control 
deficiencies we identified during our audit of the fiscal year 2007 
CFS. Appendix I of this report reflects the status of corrective 
actions taken by Treasury and OMB as of the date of our fiscal year 
2007 CFS audit report (Dec. 10, 2007), to address 81 open 
recommendations from our previous reports.[Footnote 6] Our work showed 
that 35 recommendations were closed and 46 recommendations contained in 
our previous reports remained open. Therefore, a total of 56 
recommendations were open as of the end of our fiscal year 2007 CFS 
audit. We will continue to monitor the status of corrective actions to 
address our open recommendations during our fiscal year 2008 audit of 
the CFS. 

In commenting on a draft of this report, OMB and Treasury stated that 
they generally agreed with the new findings and related recommendations 
in this report. 

Scope and Methodology: 

As part of our audit of the fiscal years 2007 and 2006 CFS, we 
evaluated the federal government's financial reporting procedures and 
related internal control, and we followed up on the status of 
corrective actions taken by Treasury and OMB to address open 
recommendations relating to the processes used to prepare the CFS that 
were in our previous reports. In our audit report on the fiscal year 
2007 CFS, which is included in the fiscal year 2007 Financial Report of 
the United States Government, we discussed the material weaknesses 
related to the federal government's processes used to prepare the CFS. 
These material weaknesses contributed to our disclaimer of opinion on 
the accrual basis consolidated financial statements and also 
contributed to our adverse opinion on internal control. We performed 
sufficient audit procedures to provide the disclaimer of opinion on the 
accrual basis consolidated financial statements in accordance with U.S. 
generally accepted government auditing standards. This report provides 
the details of the material weaknesses we identified in performing our 
fiscal year 2007 audit procedures related to the processes used to 
prepare the CFS and our recommendations to correct these weaknesses, as 
well as the status of corrective actions taken by Treasury and OMB to 
address recommendations in our previous reports. 

We requested comments on a draft of this report from the Director of 
OMB and the Secretary of the Treasury or their designees. OMB provided 
oral comments, which are described in the Agency Comments section of 
this report. Treasury's comments are reprinted in appendix II and are 
also described in the Agency Comments section. 

Standard Operating Procedures for Preparing the CFS: 

Over the past several years, Treasury has developed and documented 
numerous standard operating procedures (SOP) for preparing the CFS, 
which have substantially addressed GAO's recommendation for Treasury to 
develop and document policies and procedures for preparing the CFS. 
However, one of Treasury's SOPs entitled "Standard Operating Procedures 
for Preparing the Financial Report of the U.S. Government" is 
incomplete. For example, certain steps Treasury performs to prepare the 
CFS are not documented in this SOP and, for the key practices that are 
documented, the SOP is unclear as to who is responsible for performing 
the procedures. In connection with its role as preparer of the CFS, 
Treasury management is responsible for developing and documenting 
detailed policies, procedures, and practices for preparing the CFS and 
ensuring that internal control is built into and is an integral part of 
the related process. GAO's Standards for Internal Control in the 
Federal Government calls for clear documentation of policies and 
procedures.[Footnote 7] Without adequately documented policies and 
procedures, standards and practices may not be consistently followed or 
followed 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. 

Recommendation for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to enhance and fully document all practices 
referred to in the SOP entitled "Standard Operating Procedures for 
Preparing the Financial Report of the U.S. Government" to better ensure 
that practices are proper, complete, and can be consistently applied by 
staff members. 

Conformity with GAAP: 

For many years, we have reported that Treasury had not established a 
formal process to ensure that the financial statements, related notes, 
stewardship information and supplemental information in the CFS were 
presented in conformity with GAAP. Over the past several years, 
Treasury has developed a formal process that has significantly improved 
its ability to timely identify GAAP requirements, modify its closing 
package requirements to obtain information needed, assess the effect of 
omitted disclosures, and document decisions reached and the rationale 
for such decisions. However, there continue to be some instances where 
disclosures are not presented in conformity with GAAP. A contributing 
factor to the continued instances of nonconformity with GAAP is that 
the process Treasury developed to compile the CFS does not include 
adequately documenting its (1) timely assessment of the relevance, 
usefulness, or materiality of information reported by the federal 
agencies for use at the governmentwide level, (2) consideration of 
relevant accounting standards other than those issued by FASAB, 
[Footnote 8] and (3) final decisions regarding the inclusion or 
exclusion of federal agencies' disclosure information in the existing 
notes to the CFS. 

As part of the process Treasury developed, it created a checklist 
containing FASAB requirements for use as a tool to help determine if 
disclosures in the CFS are in conformity with GAAP. Due to the way the 
checklist was designed, Treasury primarily used it as a planning tool 
to ensure that it requested in the closing package the data that 
Treasury would need from federal agencies to report in compliance with 
GAAP. Although this is a useful and important first step, we found that 
Treasury's checklist was limited by its design and was not used by 
staff to help ensure that the published CFS was in conformity with GAAP 
in all material respects. As a result, the checklist did not adequately 
assist Treasury in ensuring that all GAAP required disclosures were 
adequately disclosed in the CFS or documenting why certain disclosures 
were excluded. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to enhance its checklist or design an alternative 
and use it to adequately and timely document Treasury's (1) assessment 
of the relevance, usefulness, or materiality of information reported by 
the federal agencies for use at the governmentwide level; (2) 
consideration of relevant accounting standards other than those issued 
by FASAB; and (3) final decisions regarding the inclusion or exclusion 
of federal agencies' disclosure information in the existing notes to 
the CFS. 

Reconciling Distributed Offsetting Receipts: 

The federal government reports a unified budget deficit [Footnote 9] 
(budget deficit) in the Reconciliation of Net Operating Cost and the 
Unified Budget Deficit and in the Statement of Changes in Cash Balance 
from Unified Budget and Other Activities. The budget deficit is 
calculated by subtracting actual budget outlays from actual budget 
receipts.[Footnote 10] Budget outlays consist of federal agencies' 
outlay amounts, that is, gross outlays net of offsetting collections 
and distributed offsetting receipts[Footnote 11] at the agency level, 
and undistributed offsetting receipts[Footnote 12] at the 
governmentwide level. Federal agencies also report net outlays in their 
SBRs.[Footnote 13] Both the net outlays as a component of the budget 
deficit reported in the CFS and as reported in the federal agencies' 
SBRs should generally match the budget outlays reported in the Budget 
of the United States Government. 

For several years, we have reported material unreconciled differences 
between the total net outlays reported in selected federal agencies' 
SBRs and Treasury's central accounting records used to compute the 
budget deficit reported in the CFS.[Footnote 14] OMB and Treasury have 
continued to work with federal agencies to reduce these material 
unreconciled differences. However, in fiscal year 2007, billions of 
dollars of unreconciled differences still existed in this and other 
components of the budget deficit. One way OMB has been working with 
federal agencies has been to require the agencies, beginning with the 
first quarter in fiscal year 2007, to submit to OMB an analysis and 
reconciliation, based on certain criteria, of any material differences 
between the federal agency's quarterly unaudited SBR and the agency's 
related quarterly Standard Form (SF) 133 Report on Budget Execution and 
Budgetary Resources (SBR to SF 133 reconciliations). Agencies' SF 133s 
are submitted to Treasury and serve as the main source for the CFS 
budget reporting and reconciliation. Material unreconciled differences 
remained at the end of fiscal year 2007 between the agencies' SBRs and 
their related SF 133s. OMB conducted further analysis on the agencies' 
quarterly SBR to SF 133 reconciliations and determined that many of 
these differences related to the recording of distributed offsetting 
receipts. Although distributed offsetting receipts are included in the 
net outlay calculation in federal agencies' SBRs, as well as in the 
computation of the budget deficit in the CFS, they are not included as 
part of the SF 133s, and as such are not being identified and addressed 
by the agencies in the quarterly reconciliation process. 

OMB is aware that the reporting of distributed offsetting receipts 
contributes to many of the material differences in net outlays and is 
currently determining how to reconcile distributed offsetting receipts 
included in the net outlay calculation of federal agencies' SBRs and 
the amounts included in the computation of the budget deficit in the 
CFS. Until the federal government has effective processes and 
procedures in place for identifying and resolving material differences 
between the total net outlays reported in federal agencies' SBRs and 
the records used to prepare the CFS, the actual extent of such 
differences and their effect on the CFS will be unknown. 

Recommendation for Executive Action: 

We recommend that the Director of OMB direct the Controller of OMB's 
Office of Federal Financial Management, in coordination with Treasury's 
Fiscal Assistant Secretary, to develop formal processes and procedures 
for identifying and resolving any material differences in distributed 
offsetting receipt amounts included in the net outlay calculation of 
federal agencies' SBRs and the amounts included in the computation of 
the budget deficit in the CFS. 

Control over Spreadsheets Used to Prepare the CFS: 

Treasury developed the Governmentwide Financial Report System (GFRS) to 
collect federal agencies' audited financial statement information to 
prepare the CFS. Federal agencies enter their audited financial 
information into GFRS, and Treasury exports the data into a database 
and then into various spreadsheets in order to compile the CFS. 
Treasury did not maintain adequate control over the spreadsheets used 
to summarize and array financial data for presentation in the CFS. 
Specifically, Treasury's processes and procedures for management and 
control of the spreadsheets were largely undocumented. In addition, 
Treasury had not established adequate controls to ensure that certain 
key spreadsheets were (1) protected from inadvertent change and (2) 
documented to facilitate detection and tracking of changes to key 
formulas and data. Further, the column headings within many 
spreadsheets were either not labeled or the labels were not aligned 
with the data contained in the column. GAO's Standards for Internal 
Control in the Federal Government calls for controls to be in place to 
safeguard financial information and help reduce the risk of errors, 
misuse, or unauthorized alteration.[Footnote 15] In addition, vendor 
documentation also provides guidance on maintaining and protecting 
spreadsheet integrity[Footnote 16]. OMB Circular No. A-127 requires 
that appropriate internal control be applied to all financial 
management system inputs, processing, and output.[Footnote 17] It also 
requires that financial management systems and associated instructions 
for maintenance and use be clearly documented in sufficient detail to 
permit an individual with appropriate background knowledge to obtain a 
comprehensive understanding of the entire operation of the system. 
[Footnote 18] Inadequate spreadsheet controls increase Treasury's risk 
that its financial reporting data will be inaccurate, and that these 
inaccuracies will not be prevented or detected in a timely manner. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary to establish effective internal control to ensure 
the spreadsheets used to compile the CFS are (1) protected from 
inadvertent change and (2) documented to facilitate detection and 
tracking of changes to key formulas and data. Further, we recommend 
that columns within key spreadsheets be labeled and properly aligned to 
reflect the data contained within. 

Monitoring Internal Control over the CFS Preparation Process: 

Treasury, in coordination with OMB, has not established processes for 
monitoring and assessing the effectiveness of internal control over the 
processes used to prepare the CFS. According to OMB Circular No. A-123, 
management has a fundamental responsibility to develop and maintain 
effective internal control.[Footnote 19] Effective internal control 
provides reasonable assurance that significant weaknesses in the design 
or operation of internal control, that could adversely affect the 
entity's ability to meet its objectives, would be prevented or detected 
in a timely manner. In addition, periodic reviews, reconciliations, or 
comparisons of data should be included as part of the regular assigned 
duties of personnel. Periodic assessments should be integrated as part 
of management's continuous monitoring of internal control, which should 
be ingrained in the entity's operations. If an effective continuous 
monitoring program is in place, it can leverage the resources needed to 
maintain effective internal controls throughout the year. In addition, 
GAO's Standards for Internal Control in the Federal Government states 
that internal control is a major part of managing an organization and 
should include monitoring.[Footnote 20] Without effective monitoring 
and assessment of internal control, there is a risk that errors in the 
compilation process could go undetected and could result in an 
incomplete and inaccurate summarization of data within the CFS. 

Recommendation for Executive Action: 

We recommend that the Secretary of the Treasury direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB's 
Office of Federal Financial Management, to develop and implement 
effective processes for monitoring and assessing the effectiveness of 
internal control over the processes used to prepare the CFS. 

Use of Interim Financial Information to Compile the CFS: 

As indicated in our most recent audit report on the CFS, and since 
fiscal year 2003, there have been limitations on the scope of our work 
that contribute to our disclaimer of opinion on the accrual basis 
consolidated financial statements. Since fiscal year 2003, Treasury and 
OMB began accelerating the time frame for preparation of the CFS. 
Consequently, GAO in turn has accelerated the time frame to issue our 
reports on the audits of the CFS. 

For fiscal year 2007, we reported that Treasury was unable to provide 
the final accrual basis consolidated financial statements and certain 
supporting documentation in time for us to complete all of our planned 
auditing procedures related to the compilation of these financial 
statements. We also reported that personnel at Treasury's Financial 
Management Service had excessive workloads that required an 
extraordinary amount of effort and dedication to compile the CFS and 
that quarterly compilations were not performed at the governmentwide 
level. This leads to almost all the compilation effort being performed 
during a condensed time period at the end of the year. 

Federal agencies are required to produce unaudited quarterly financial 
statements and remit them to OMB;[Footnote 21] however, Treasury does 
not use these quarterly financial statements or request any other 
interim financial information that would enable it to perform some of 
the compilation effort before the end of the year. For example, if a 
federal agency changed the manner in which it was reporting certain 
information in its financial statements, by obtaining and utilizing the 
agency's quarterly financial statements, Treasury would be aware of 
this change and could evaluate any effect this might have on the CFS 
during the year rather than during the condensed time period at the end 
of the year. 

Until such time that interim financial information is obtained and 
utilized in some capacity to assist Treasury in overcoming the existing 
resource and time constraints, we believe that Treasury will continue 
to face significant challenges in being able to provide accrual basis 
consolidated financial statements and supporting documentation in time 
for us to complete our planned auditing procedures. 

Recommendation for Executive Action: 

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 
alternative solutions to performing almost all of the compilation 
effort at the end of the year, including obtaining and utilizing 
interim financial information from federal agencies. 

Agency Comments: 

OMB Comments: 

In oral comments on a draft of this report, OMB stated that it 
generally agreed with the new findings and related recommendations in 
this report. 

Treasury Comments: 

In written comments on a draft of this report, which are reprinted in 
appendix II, Treasury stated that it agrees with the new findings and 
related recommendations. 

This report contains recommendations to the Secretary of the Treasury 
and the Director of OMB. The head of a federal agency is required by 31 
U.S.C. ï¿½ 720 to submit a written statement on actions taken on these 
recommendations. You should submit your statement to the Senate 
Committee on Homeland Security and Governmental Affairs and the House 
Committee on Oversight and Government Reform within 60 days of the date 
of this report. A written statement must also be sent to the House and 
Senate Committees on Appropriations with the agency's first request for 
appropriations made more than 60 days after the date of the report. 

We are sending copies of this report to the Chairmen and Ranking 
Members of the Senate Committee on Homeland Security and Governmental 
Affairs; the Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security, Senate 
Committee on Homeland Security and Governmental Affairs; the House 
Committee on Oversight and Government Reform; and the Subcommittee on 
Government Management, Organization, and Procurement, House Committee 
on Oversight and Government Reform. In addition, we are sending copies 
to the Fiscal Assistant Secretary of the Treasury, the Deputy Director 
for Management of OMB, and the Acting Controller of OMB's 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 [hyperlink, http://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 me on (202) 
512-3406 or [email protected]. Key contributors to this report are listed 
in appendix III. 

Signed by: 

Gary T. Engel: 
Director Financial Management and Assurance: 

[End of section] 

Appendix I: Status of Treasury's and OMB's Progress in Addressing GAO's 
Prior Year Recommendations for Preparing the CFS: 

This appendix includes recommendations that were open at the beginning 
of our fiscal year 2007 audit from five of our previous reports: 

* Financial Audit: Process for Preparing the Consolidated Financial 
Statements of the U.S. Government Needs Improvement, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-45] (Washington, D.C.: 
Oct. 30, 2003); 

* Financial Audit: Process for Preparing the Consolidated Financial 
Statements of the U.S. Government Needs Further Improvement, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-866] (Washington, D.C.: 
Sept. 10, 2004); 

* Financial Audit: Process for Preparing the Consolidated Financial 
Statements of the U.S. Government Continues to Need Improvement, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-407] 
(Washington, D.C.: May 4, 2005); 

* Financial Audit: Significant Internal Control Weaknesses Remain in 
Preparing the Consolidated Financial Statements of the U.S. Government, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-415] 
(Washington, D.C.: Apr. 21, 2006); and: 

* Financial Audit: Significant Internal Control Weaknesses Remain in 
the Preparation of the Consolidated Financial Statements of the U.S. 
Government, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-805] 
(Washington, D.C.: July 23, 2007). 

Recommendations that were closed in prior reports are not included in 
this appendix. This appendix includes the status of the recommendations 
according to the Department of the Treasury (Treasury) and the Office 
of Management and Budget (OMB) as well as our own assessments. 
Explanations are included in the status of recommendations per GAO when 
Treasury and OMB disagreed with our recommendation or the status of a 
recommendation. 

Of the 81 recommendations relating to the processes used to prepare the 
consolidated financial statements of the U.S. government (CFS) that are 
listed in this appendix, 35 were closed and 46 remained open as of 
December 10, 2007, the date of our report on the audit of the fiscal 
year 2007 CFS. 

Table 1: Status of Treasury's and OMB's Progress in Addressing GAO's 
Prior Year Recommendations for Preparing the CFS (as of Dec. 10, 2007): 

GAO-04-45; (results of the fiscal year 2002 audit): 

Count: 1; 
No.: 02-2; 
Recommendation: The Secretary of the Treasury should 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 develop and fully document policies and procedures for the 
CFS preparation process so that they are proper, complete, and 
consistently applied by staff members; 
Status of recommendation: Per Treasury and OMB: Treasury further 
revised and documented all of its major policies and procedures for the 
fiscal year 2007 compilation process to ensure the propriety, accuracy, 
and consistency of application; 
Status of recommendation: Per GAO: Closed. Over the past several years, 
Treasury has developed and documented numerous policies and procedures 
for preparing the CFS. As such, Treasury has substantially addressed 
this recommendation. However, one key standard operating procedure 
(SOP) needs to be completed. See the body of this report for a 
discussion of this SOP and related recommendation. 

Count: 2; 
No.: 02-4; 
Recommendation: As Treasury is designing its new financial statement 
compilation process to begin with the fiscal year 2004 CFS, the 
Secretary of the Treasury should direct the Fiscal Assistant Secretary, 
in coordination with the Controller of OMB, to develop reconciliation 
procedures that will aid in understanding and controlling the net 
position balance as well as eliminate the plugs previously associated 
with compiling the CFS; 
Status of recommendation: Per Treasury and OMB: To eliminate or explain 
adjustments to net position, Treasury has continued to eliminate, at 
the consolidated level, intragovernmental activity and balances using 
formal balanced accounting entries (via Reciprocal Categories) and has 
continued its analysis of transactions that contribute to the unmatched 
transactions and balances adjustment. Treasury's analysis of the 
reciprocal category for the General Fund (RC29) is still continuing and 
in fiscal year 2007, Treasury began to extract certain General Fund 
transactions into new reciprocal categories to facilitate agency 
reconciliation; 
Status of recommendation: Per GAO: Open. Treasury has made progress 
towards developing reconciliation procedures that aid in understanding 
the net position balance. 

Count: 3; 
No.: 02-5; 
Recommendation: As Treasury is designing its new financial statement 
compilation process to begin with the fiscal year 2004 CFS, the 
Secretary of the Treasury should direct the Fiscal Assistant Secretary, 
in coordination with the Controller of OMB, to use balanced accounting 
entries to account for the change in net position rather than simple 
subtraction of liabilities from assets; 
Status of recommendation: Per Treasury and OMB: The process mentioned 
in No. 02-4 no longer involves the simple subtraction of liabilities 
from assets, as was previously done, but instead takes into account the 
intragovernmental balances and activities to compute the change in net 
position; 
Status of recommendation: Per GAO: Closed. Treasury's process no longer 
simply subtracts liabilities from assets to account for the change in 
net position. 

Count: 4; 
No.: 02-6; 
Recommendation: As OMB continues to make strides to address issues 
related to intragovernmental transactions, the Director of OMB should 
direct the Controller of OMB to develop policies and procedures that 
document how OMB will enforce the business rules provided in OMB 
Memorandum M-07-03, Business Rules for Intragovernmental Transactions; 
Status of recommendation: Per Treasury and OMB: The business rules were 
revised in fiscal year 2006 to expand and enhance the standard 
practices for how federal agencies do business with each other. The 
revised rules are published in Treasury Financial Manual (TFM) Bulletin 
2007-03; OMB, Treasury, and the Chief Financial Officers' Council 
(CFOC) are distributing, quarterly, a "Watchlist" of the largest dollar 
imbalances between two federal agencies, or federal agencies not 
reporting a trading partner, or both. Federal agencies on the 
"Watchlist" meet with OMB and Treasury to discuss the root causes of 
the imbalances and come to resolution on how to mitigate the root 
causes. At the same time, OMB, Treasury, and the CFOC are continuing 
their efforts toward establishing the Intragovernmental Dispute 
Resolution Committee (IDRC), as referenced in the business rules. The 
IDRC will be a vehicle for resolving accounting disputes between 
federal agencies. The dispute resolution process is also predicated on 
the principle that federal agencies have implemented the business rules 
and will require the disputing federal agencies to provide evidence of 
compliance with the business rules during arbitration; 
Status of recommendation: Per GAO: Open. 

Count: 5; 
No.: 02-7; 
Recommendation: As OMB continues to make strides to address issues 
related to intragovernmental transactions, the Director of OMB should 
direct the Controller of OMB to require that significant differences 
noted between business partners be resolved and the resolution be 
documented; 
Status of recommendation: Per Treasury and OMB: OMB will continue to 
work with individual federal agencies to resolve imbalances that are 
referred to OMB on a case-by-case basis. As part of OMB's standard 
practice, resolutions reached will be communicated to all parties. As 
noted above, OMB, Treasury, and the CFOC are documenting the imbalances 
identified on the "Watchlist" and subsequent resolutions. OMB, 
Treasury, and the CFOC will continue to work toward establishing the 
IDRC, as referenced in the business rules, and it will be used as a 
vehicle for federal agencies to resolve their accounting disputes. The 
IDRC will incorporate a standard practice of documenting all 
resolutions and communicating the resolutions to all parties involved; 
Status of recommendation: Per GAO: Open. 

Count: 6; 
No.: 02-9; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
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; 
Status of recommendation: Per Treasury and OMB: Treasury has designed 
formal consolidating and eliminating procedures to account for these 
differences and has implemented them. See the status for recommendation 
No. 02-4; 
Status of recommendation: Per GAO: Open. Treasury was unable to provide 
GAO with evidence of formal consolidating and eliminating accounting 
entries in fiscal year 2007. 

Count: 7; 
No.: 02-10; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
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; 
Status of recommendation: Per Treasury and OMB: During fiscal year 
2007, Treasury made available to federal agencies information from its 
Central Accounting and Reporting System (STAR) related to 
appropriations, transfers, and fund balance with Treasury for their use 
in reconciling this data; 
Status of recommendation: Per GAO: Open. Treasury and OMB did not 
provide federal agencies instructions on how to reconcile and report to 
Treasury any differences between their records and Treasury's central 
accounting records. Further, as noted by Treasury in the status of 
recommendation No. 02-4, Treasury's analysis of the reciprocal category 
for the General Fund is ongoing. 

Count: 8; 
No.: 02-11; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
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; 
Status of recommendation: Per Treasury and OMB: The current 
reconciliation of intragovernmental activity accounts for differences 
caused by asset capitalization and agency advances or deferred revenue. 
Given current intragovernmental differences, asset capitalization and 
recognition of advances and deferred revenue may be incorrect. However, 
the current reconciliation analysis is expected to correctly report 
this activity once intragovernmental differences are materially 
resolved. See also the status of recommendation No. 02-4; 
Status of recommendation: Per GAO: Open. 

Count: 9; 
No.: 02-12; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost and 
unified budget surplus (or deficit). Treasury should report "net 
unreconciled differences" included in the net operating results line 
item as a separate reconciling activity in the reconciliation 
statement; 
Status of recommendation: Per Treasury and OMB: Treasury's position is 
that unmatched transactions and balances cannot be placed with 
certainty either as a component of the Statement of Net Cost or as a 
component of the Statement of Operations and Changes in Net Position 
(SOCNP) and has chosen to reflect these unmatched transactions and 
balances in the SOCNP until these differences are resolved. However, 
based on its analyses of these unmatched transactions and balances, as 
disclosed in the supplementary information section of the fiscal year 
2007 CFS, Treasury believes that these unmatched transactions and 
balances are primarily caused by unreconciled transactions that affect 
the amounts reported on an accrual basis of accounting (net operating 
cost) and, therefore, these unmatched transactions and balances should 
not be included as a separate reconciling item on this statement, 
because it is the reconciliation of the federal government's activity 
between two different bases of accounting (accrual vs. cash); 
Status of recommendation: Per GAO: Open. Although Treasury was unsure 
if the plug (reported in fiscal year 2007 as "unmatched transactions 
and balances") was a component of the Statement of Net Cost or a 
component of the SOCNP, Treasury chose to reflect the plug in the SOCNP 
as a component of net operating cost. Therefore, the net operating cost 
included in the Reconciliation of Net Operating Cost and Unified Budget 
Deficit includes the "unmatched transactions and balances" plug and 
Treasury is unsure how much of this plug should be included as a 
separate reconciling activity. 

Count: 10; 
No.: 02-13; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost and 
unified budget surplus (or deficit). Treasury should 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; 
Status of recommendation: Per Treasury and OMB: Treasury will continue 
to improve the completeness and consistency of the information in this 
reconciliation statement and will continue to resolve significant 
inconsistencies, if any, to the applicable and related components 
reported in the other basic financial statements, and in the related 
note disclosures, included in the CFS; 
Status of recommendation: Per GAO: Open. While Treasury has made 
progress in developing certain SOPs, it has not fully developed 
policies and procedures to ensure the completeness of reporting of 
information on the reconciliation statement and to document how all 
applicable components reported elsewhere in the CFS are properly 
reflected in the reconciliation statement. 

Count: 11; 
No.: 02-14; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement a process that adequately 
identifies and reports items needed to reconcile net operating cost and 
unified budget surplus (or deficit). Treasury should 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; 
Status of recommendation: Per Treasury and OMB: Treasury will establish 
a reporting materiality threshold related to this statement, to improve 
the usefulness and understandability of the information included in 
this statement; 
Status of recommendation: Per GAO: Open. 

Count: 12; 
No.: 02-15; 
Recommendation: If Treasury chooses to continue using information from 
both federal agencies' financial statements and STAR, Treasury should 
demonstrate how the amounts from STAR reconcile to federal agencies' 
financial statements; 
Status of recommendation: Per Treasury and OMB: Treasury has elected to 
continue the use of information from STAR and will identify the 
material areas where STAR data should reconcile to federal agencies' 
financial statements; 
Status of recommendation: Per GAO: Open. Once Treasury identifies 
material areas, it will need to demonstrate how the amounts from STAR 
for these areas reconcile to federal agencies' financial statements. 

Count: 13; 
No.: 02-16; 
Recommendation: If Treasury chooses to continue using information from 
both federal agencies' financial statements and from STAR, Treasury 
should identify and document the cause of any significant differences, 
if any are noted; 
Status of recommendation: Per Treasury and OMB: Treasury has elected to 
continue to use information from STAR. Treasury will document the cause 
of significant differences as possible during fiscal year 2008. See 
also status of recommendation No. 02-15; 
Status of recommendation: Per GAO: Open. 

Count: 14; 
No.: 02-17; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 document the consistency of the significant 
line items on this statement to federal agencies' audited financial 
statements; 
Status of recommendation: Per Treasury and OMB: Treasury has elected to 
continue to use information from STAR. Treasury will document the 
consistency of the significant line items on this statement to federal 
agencies' audited financial statements as possible during fiscal year 
2008. See also status of recommendation No. 02-15; 
Status of recommendation: Per GAO: Open. 

Count: 15; 
No.: 02-18; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 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; 
Status of recommendation: Per Treasury and OMB: In accordance with the 
net outlays corrective action plan, OMB requires federal agencies to 
provide explanations for significant differences between the unaudited 
quarterly Statement of Budgetary Resources and the quarterly SF-133 
(budget execution document). This requirement is intended to assist 
federal agencies in identifying and mitigating discrepancies between 
the two reports throughout the fiscal year rather than only at year-
end. The number of federal agencies with significant discrepancies has 
decreased in the last couple of years, and OMB continues to work with 
federal agencies toward further reductions; 
Status of recommendation: Per GAO: Closed. OMB has made significant 
progress in explaining and resolving significant differences between 
net outlay amounts reported in federal agencies' Statement of Budgetary 
Resources and the budget of the U.S. government. As such, OMB has 
substantially addressed this recommendation as well as recommendation 
Nos. 02-19, 03-4, and 03-5. However, some differences do remain. See 
the body of this report for further recommendations as OMB continues to 
work with federal agencies to reconcile quarterly SF 133 data. 

Count: 16; 
No.: 02-19; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 investigate the differences between net 
outlays reported in federal agencies' Combined Statement of Budgetary 
Resources and Treasury's records in STAR to ensure that the proper 
amounts are reported in the Statement of Changes in Cash Balance from 
Unified Budget and Other Activities; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-18; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-18. 

Count: 17; 
No.: 02-20; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 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; 
Status of recommendation: Per Treasury and OMB: Treasury will continue 
with its efforts begun in fiscal year 2007 to reconcile budgetary 
receipts to net operating revenue; 
Status of recommendation: Per GAO: Open. 

Count: 18; 
No.: 02-21; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 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; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury was able to provide additional support for the "other 
activities" section from the information provided by the underlying 
agency financial records; 
Status of recommendation: Per GAO: Closed. 

Count: 19; 
No.: 02-22; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
perform an assessment to define the reporting entity, including its 
specific components, in conformity with the criteria issued by the 
Federal Accounting Standards Advisory Board (FASAB). Key decisions made 
in this assessment should be documented, including 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; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury implemented its policies and procedures to define and document 
the reporting entity and made corresponding changes to the reporting 
entity disclosure in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Open. Although Treasury began 
developing criteria to assess exclusion of certain entities, the 
reporting entity has not been adequately defined. In addition, 
documentation of decisions by the Fiscal Assistant Secretary and the 
Controller of OMB is needed regarding inclusion or exclusion of certain 
entities. 

Count: 20; 
No.: 02-23; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
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; 
Status of recommendation: Per Treasury and OMB: Treasury implemented 
changes to the reporting entity in accordance with its related policies 
and procedures. See status of recommendation No. 02-22; 
Status of recommendation: Per GAO: Open. See status of recommendation 
No. 02-22. 

Count: 21; 
No.: 02-24; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
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; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-23; 
Status of recommendation: Per GAO: Open. See status of recommendation 
No. 02-22. 

Count: 22; 
No.: 02-25; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to establish a formal process that will allow the 
financial statements, related notes, and stewardship and supplemental 
information in the CFS to be presented in conformity with generally 
accepted accounting principles (GAAP). The process should timely 
identify GAAP requirements; 
Status of recommendation: Per Treasury and OMB: Treasury enhanced the 
formal process established in fiscal year 2005 and performed an 
analysis of fiscal year 2007 required agency financial statement and 
note disclosures and included the appropriate disclosures in the fiscal 
year 2007 CFS; 
Status of recommendation: Per GAO: Closed. Over the past several years, 
Treasury has established a formal process that has significantly 
improved its ability to present the CFS, including related notes, and 
stewardship and supplemental information, in conformity with GAAP. As 
such, Treasury has substantially addressed this recommendation as well 
as recommendation Nos. 02-26, 02-27, and 02-28. Despite Treasury's 
efforts, there continue to be some instances where disclosures are not 
presented as required by the standards. See the body of this report for 
a more detailed discussion of these matters and related 
recommendations. 

Count: 23; 
No.: 02-26; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to establish a formal process that will allow the 
financial statements, related notes, and stewardship and supplemental 
information in the CFS to be presented in conformity with GAAP. The 
process should make timely modifications to Treasury's closing package 
requirements to obtain information needed; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-25; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-25. 

Count: 24; 
No.: 02-27; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to establish a formal process that will allow the 
financial statements, related notes, and stewardship and supplemental 
information in the CFS to be presented in conformity with GAAP. The 
process should assess, qualitatively and quantitatively, the effect of 

the omitted disclosures; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-25; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-25. 

Count: 25; 
No.: 02-28; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to establish a formal process that will allow the 
financial statements, related notes, and stewardship and supplemental 
information in the CFS to be presented in conformity with GAAP. The 
process should document decisions reached and the rationale for such 
decisions; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-25; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-25. 

Count: 26; 
No.: 02-29; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 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; 
Status of recommendation: Per Treasury and OMB: Treasury and OMB will 
continue to revise their policies and procedures in order to improve 
internal control over this process; 
Status of recommendation: Per GAO: Open. 

Count: 27; 
No.: 02-30; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 a 
determination that the agency management representation letters have 
been signed by the highest-level agency officials who are responsible 
for and knowledgeable about the matters included in the agency 
management representation letters; 
Status of recommendation: Per Treasury and OMB: Treasury and OMB 
revised their policies and procedures to address this finding in fiscal 
year 2007; 
Status of recommendation: Per GAO: Closed. 

Count: 28; 
No.: 02-31; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 an 
assessment of the materiality thresholds used by federal agencies in 
their respective management representation letters; 
Status of recommendation: Per Treasury and OMB: Treasury and OMB 
revised their policies and procedures to address this finding in fiscal 
year 2007; 
Status of recommendation: Per GAO: Closed. 

Count: 29; 
No.: 02-32; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 an 
assessment of the effect, if any, of federal agencies' materiality 
thresholds on the management representations made at the governmentwide 
level; 
Status of recommendation: Per Treasury and OMB: Treasury and OMB 
revised their policies and procedures to address this finding in fiscal 
year 2007; 
Status of recommendation: Per GAO: Closed. 

Count: 30; 
No.: 02-33; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 an 
evaluation and assessment of the omission of representations ordinarily 
included in agency management representation letters; 
Status of recommendation: Per Treasury and OMB: Treasury and OMB will 
continue to revise their policies and procedures in order to improve 
internal control over this process; 
Status of recommendation: Per GAO: Open. 

Count: 31; 
No.: 02-34; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 an analysis 
and aggregation of federal 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; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury updated the SOP for the aggregation and analysis of federal 
agencies' summary of unadjusted misstatements. Treasury also tracked 
federal agencies' submissions of this information and prepared a CFS-
level summary that showed that federal agencies' unadjusted 
misstatements were immaterial in the aggregate to the CFS; 
Status of recommendation: Per GAO: Open. Treasury provided its SOP to 
GAO for review. Our review indicated that additional changes were 
needed, which were communicated to Treasury. After the issuance of our 
audit report on the fiscal year 2007 CFS, Treasury provided us with its 
revised SOP. 

Count: 32; 
No.: 02-35; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
help ensure that federal agencies provide adequate information in their 
legal representation letters regarding the expected outcomes of the 
cases; 
Status of recommendation: Per Treasury and OMB: During fiscal year 
2007, OMB and Treasury continued to work with federal agencies to 
ensure that adequate information was provided in the legal 
representation letters regarding the expected outcomes of the cases; 
Status of recommendation: Per GAO: Open. OMB did not ensure that all 
federal agencies reported adequate information relating to expected 
outcomes of the cases. 

Count: 33; 
No.: 02-37; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 federal agencies 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); 
Status of recommendation: Per Treasury and OMB: To ensure a reasonable 
approach, OMB will analyze the appropriateness of reporting "treaties" 
before developing specific corrective actions. OMB has, however, 
analyzed the State Department's Treaties in Force and concluded that 
while it provides a comprehensive listing of treaties and international 
agreements, it is not the appropriate document from which to derive 
potential commitments or contingencies of the U.S. government. For 
fiscal year 2008, OMB will again look at Treaties in Force and has 
sought advice from GAO regarding this issue. OMB will continue working 
to develop a reasonable approach for this disclosure; 
Status of recommendation: Per GAO: Open. 

Count: 34; 
No.: 02-38; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 federal agencies classify all such 
scheduled major treaties and other international agreements as 
commitments or contingencies; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-37; 
Status of recommendation: Per GAO: Open. 

Count: 35; 
No.: 02-39; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 federal agencies 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; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-37; 
Status of recommendation: Per GAO: Open. 

Count: 36; 
No.: 02-40; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 federal agencies 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; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-37; 
Status of recommendation: Per GAO: Open. 

Count: 37; 
No.: 02-41; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, 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 federal agencies 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; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-37; 
Status of recommendation: Per GAO: Open. 

Count: 38; 
No.: 02-42; 
Recommendation: As Treasury is designing its new compilation process, 
which it expects to implement beginning with the fiscal year 2004 CFS, 
the Secretary of the Treasury should direct the Fiscal Assistant 
Secretary, in coordination with the Controller of OMB, to design the 
new compilation process to directly link information from federal 
agencies' audited financial statements to amounts reported in all the 
applicable consolidated financial statements and related footnotes; 
Status of recommendation: Per Treasury and OMB: Treasury used its 
revised CFS compilation process, the Governmentwide Financial Reporting 
System (GFRS), first implemented in fiscal year 2004, to provide more 
direct linkage from the agency audited financial statements to the CFS 
principal statements. With regard to note disclosures, GFRS note 
references (linkages) were supplemented by additional documentation 
describing in more detail the links between the CFS and agency note 
disclosures; 
Status of recommendation: Per GAO: Closed. Treasury has made 
substantial progress in addressing this recommendation as demonstrated 
by its ability to show that amounts in the Statement of Social 
Insurance were consistent with the underlying federal agencies' audited 
financial statements and that the Balance Sheet and the Statement of 
Net Cost were consistent with federal agencies' financial statements 
prior to eliminating any applicable intragovernmental activity and 
balances. However, some of the principal consolidated financial 
statements and notes are still not directly linked to the underlying 
federal agencies' financial statements. As Treasury was designing the 
closing package process, we recommended that Treasury ensure that the 
closing package would demonstrate that all of the principal 
consolidated financial statements and footnotes are consistent with the 
underlying information in federal agencies' audited financial 
statements and other financial data. See status of recommendation No. 
03-11. 

Count: 39; 
No.: 02-43; 
Recommendation: As Treasury is designing its new compilation process, 
which it expects to implement beginning with the fiscal year 2004 CFS, 
the Secretary of the Treasury should direct the Fiscal Assistant 
Secretary, in coordination with the Controller of OMB, to consider the 
other applicable recommendations in this report when designing and 
implementing the new compilation process; 
Status of recommendation: Per Treasury and OMB: Treasury considered all 
applicable recommendations in the design, implementation, and 
subsequent revisions of GFRS; 
Status of recommendation: Per GAO: Closed. 

Count: 40; 
No.: 02-91; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for capital 
leases meets the requirements of Federal Accounting Standards Board 
(FASB), Statement of Financial Accounting Standards (SFAS) No. 13, 
Accounting for Leases, paragraph 16, which requires 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 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; 
Status of recommendation: Per Treasury and OMB: Based on analysis in 
fiscal year 2007, of this specific lease-related information, Treasury 
concluded that the amounts were immaterial to the CFS and therefore no 
related disclosures were included in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 41; 
No.: 02-92; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for capital 
leases meets the requirements of FASB, SFAS No. 13, Accounting for 
Leases, paragraph 16, which requires a summary of assets under capital 
lease by major asset category and the related total accumulated 
amortization; 
Status of recommendation: Per Treasury and OMB: Based on analysis in 
fiscal year 2007, of this specific lease-related information, Treasury 
concluded that the amounts were immaterial to the CFS and therefore no 
related disclosures were included in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 42; 
No.: 02-93; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for capital 
leases meets the requirements of FASB, SFAS No. 13, Accounting for 
Leases, paragraph 16, which requires 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; 
Status of recommendation: Per Treasury and OMB: Based on analysis in 
fiscal year 2007, of this specific lease-related information, Treasury 
concluded that the amounts were immaterial to the CFS and therefore no 
related disclosures were included in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 43; 
No.: 02-96; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure on major 
commitments and contingencies is consistent with disclosed information 
in individual federal agencies' financial statements; 
Status of recommendation: Per Treasury and OMB: The required 
information for these items was disclosed in Note 18, Contingencies, 
and Note 19, Commitments, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 44; 
No.: 02-102; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for dedicated 
collections meets the requirements of Statement of Federal Financial 
Accounting Standard (SFFAS) No. 7, Part I, Accounting for Revenue and 
Other Financing Sources, paragraph 85, which requires inclusion of 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; 
Status of recommendation: Per Treasury and OMB: In fiscal years 2007 
and 2006 dedicated collections information was immaterial to the CFS 
and, therefore, were not disclosed in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 45; 
No.: 02-104; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for Indian trust 
funds meets the requirements of SFFAS No. 7, Part I, Accounting for 
Revenue and Other Financing Sources, paragraph 85, which requires 
disclosure of 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; 
Status of recommendation: Per Treasury and OMB: The required 
information for these items was disclosed in Note 21, Indian Trust 
Funds, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. Although all information 
required to be disclosed by SFFAS No. 7 was not presented in the note 
disclosure for Indian trust funds, Treasury assessed the effect of the 
omitted disclosures and documented its rationale for such decisions. 

Count: 46; 
No.: 02-106; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for Indian trust 
funds meets the requirements of SFFAS No. 7, Part I, Accounting for 
Revenue and Other Financing Sources, paragraph 85, which requires 
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; 
Status of recommendation: Per Treasury and OMB: The required 
information for these items was disclosed in Note 21, Indian Trust 
Funds, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-104. 

Count: 47; 
No.: 02-107; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for Indian trust 
funds meets the requirements of SFFAS No. 7, Part I, Accounting for 
Revenue and Other Financing Sources, paragraph 85, which requires 
disclosure of 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; 
Status of recommendation: Per Treasury and OMB: The required 
information for these items was disclosed in Note 21, Indian Trust 
Funds, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-104. 

Count: 48; 
No.: 02-129; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for stewardship 
responsibilities related to the risk assumed for federal insurance and 
guarantee programs meets the requirements of SFFAS No. 5, Accounting 
for Liabilities of the Federal Government, paragraph 106, which 
requires that when financial information pursuant to FASB 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 information what amounts and periodic change in those 
amounts would be reported under the "risk assumed" approach; 
Status of recommendation: Per Treasury and OMB: This required 
information was requested from federal agencies for disclosure in the 
required supplementary information (risk assumed) section of the fiscal 
year 2007 CFS. Further discussions with federal agencies will take 
place in fiscal year 2008 to ensure proper and complete disclosure of 
this information; 
Status of recommendation: Per GAO: Open. 

GAO-04-866; (results of the fiscal year 2003 audit): 

Count: 49; 
No.: 03-4; 
Recommendation: The Director of OMB should direct the Controller of 
OMB, in coordination with Treasury's Fiscal Assistant Secretary, to 
work with federal agencies so that the differences between net outlays 
federal agencies report in their Statement of Budgetary Resources and 
the net outlay records Treasury uses to prepare the Statement of 
Changes in Cash Balance are reconciled; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation; No. 02-18; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-18. 

Count: 50; 
No.: 03-5; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to determine and address the effects that any of 
the differences between net outlays federal agencies report in their 
Statement of Budgetary Resources and Treasury's net outlay records may 
have on the CFS; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 02-18; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 02-18. 

Count: 51; 
No.: 03-6; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop a process that will allow full reporting 
of the changes in cash balance of the U.S. government. Specifically, 
the process should provide for reporting on the change in cash reported 
on the consolidated balance sheet, which should be linked to cash 
balances reported in federal agencies' audited financial statements; 
Status of recommendation: Per Treasury and OMB: Treasury intends to 
disclose the change in cash as reported on the Balance Sheet on the 
Statement of Changes in Cash Balance. Treasury will continue its 
analysis of the reconciling items from the unified budget deficit to 
the overall change in cash balance to ensure their accuracy, 
completeness, and consistency with federal agencies' financial 
information. See also status of recommendation No. 02-17; 
Status of recommendation: Per GAO: Open. 

Count: 52; 
No.: 03-8; 
Recommendation: The Director of OMB should direct the Controller of 
OMB, in coordination with Treasury's Fiscal Assistant Secretary, to 
work with the Department of Justice (Justice) and certain other 
executive branch federal agencies to ensure that these federal agencies 
report or disclose relevant criminal debt information in conformity 
with GAAP in their financial statements and have such information 
subjected to audit; 
Status of recommendation: Per Treasury and OMB: An interagency task 
force has been established under the direction of the Attorney General 
and has developed a strategic plan for improving criminal debt 
collection and has provided the plan to Congress. The task force 
includes representatives from Justice, Treasury, OMB, and the 
Administrative Office of the U.S. Courts. OMB will work with Justice to 
develop a reasonable approach for the reporting or disclosure of this 
information; 
Status of recommendation: Per GAO: Open. 

Count: 53; 
No.: 03-9; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to include relevant criminal debt information in 
the CFS or document the specific rationale for excluding such 
information; 
Status of recommendation: Per Treasury and OMB: Treasury will include 
criminal debt information in the CFS as it becomes available. See 
status of recommendation No. 03-08; 
Status of recommendation: Per GAO: Open. 

Count: 54; 
No.: 03-11; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
modify Treasury's plans for the new closing package to (1) require 
federal agencies to directly link their audited financial statement 
notes to the CFS notes and (2) provide the necessary information to 
demonstrate that all of the five principal consolidated financial 
statements are consistent with the underlying information in federal 
agencies' audited financial statements and other financial data; 
Status of recommendation: Per Treasury and OMB: Treasury continues to 
use its revised CFS compilation process, GFRS, to provide direct 
linkage from the agency audited financial statements to the CFS 
principal statements. See also status of recommendation No. 02-17; With 
regard to note disclosures, GFRS note references (linkages) have been 
supplemented by additional documentation describing in more detail the 
links between the CFS and agency note disclosures; 
Status of recommendation: Per GAO: Open. Treasury has showed progress 
by demonstrating that amounts in the Statement of Social Insurance were 
consistent with the underlying federal agencies' audited financial 
statements and that the Balance Sheet and the Statement of Net Cost 
were consistent with federal agencies' financial statements prior to 
eliminating intragovernmental activity and balances. However, 
Treasury's closing package process did not ensure that the information 
in the remaining three principal financial statements and notes were 
fully consistent with the underlying information in federal agencies' 
audited financial statements and other financial data. 

Count: 55; 
No.: 03-22; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the information in stewardship 
information for research and development meets the requirements of 
SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 99, which 
requires the reporting entity to include a narrative discussion of the 
major results achieved by the program along the lines of basic 
research, applied research, and development; 
Status of recommendation: Per Treasury and OMB: The required 
information on stewardship investments related to the reporting on 
major results achieved by selected basic research, applied research, or 
development program(s), was disclosed in the Stewardship Investments 
section of the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

GAO-05-407; (results of the fiscal year 2004 audit): 

Count: 56; 
No.: 04-2; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to require and maintain appropriate supporting 
documentation for all journal vouchers recorded in the CFS; 
Status of recommendation: Per Treasury and OMB: Treasury will follow 
its SOP that includes maintaining documentation for all recorded 
journal vouchers, including notification and approval of changes from 
affected federal agencies. Except in certain circumstances described 
below, Treasury will seek approval from federal agencies before making 
data changes. However, because of year-end time constraints, Treasury 
will make changes without agency contact or approval under the 
following circumstances: (1) adjustments to agree closing packages to 
financial statements, (2) adjustments to ensure consistency of GAAP 
between federal agencies, and (3) adjustments to conform an agency to 
GAAP; 
Status of recommendation: Per GAO: Open. Treasury did not have 
appropriate supporting documentation for all transactions recorded in 
the CFS. Recording transactions in the financial statements without 
adequate underlying support increases the risk that inappropriate 
adjustments to balances in the financial statements could be made. We 
believe that Treasury should contact federal agencies to resolve any 
discrepancies between federal agencies' audited closing packages and 
audited financial statements and discuss any other situations that 
require adjustments to federal agencies' audited closing package data 
because Treasury could incorrectly adjust federal agencies' audited 
information. 

Count: 57; 
No.: 04-3; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to require that Treasury employees contact and 
document communications with federal agencies before recording journal 
vouchers to change agency audited closing package data; 
Status of recommendation: Per Treasury and OMB: Treasury's policy 
related to the notification of federal agencies before making needed 
data changes is described in status of recommendation No. 04-2. 
Treasury agrees that changes to closing package information should be 
accurate and fully supported. Where agency clarification is needed 
related to complex disclosures, Treasury will continue to document 
these discussions to ensure that the CFS is consistent with agency 
financial statements and note disclosures; 
Status of recommendation: Per GAO: Open. See status of recommendation 
No. 04-2. 

Count: 58; 
No.: 04-4; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to require and document management reviews of all 
procedures that result in data changes to the CFS; 
Status of recommendation: Per Treasury and OMB: Treasury further 
revised its procedures to ensure management reviews of data changes to 
the CFS; 
Status of recommendation: Per GAO: Open. Certain of Treasury's 
procedures were not effective for fiscal year 2007. 

Count: 59; 
No.: 04-6; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to assess the infrastructure associated with the 
compilation process and modify it as necessary to achieve a sound 
internal control environment; 
Status of recommendation: Per Treasury and OMB: Treasury made various 
improvements to its infrastructure during fiscal year 2007, including 
streamlining the compilation process to automate the production of 
certain items, continuing its recruitment of qualified personnel, and 
providing them with appropriate training related to the CFS compilation 
process and associated internal controls, revising its policies and 
procedures to improve documentation of management reviews and 
approvals, and continuing cross-training on significant key compilation 
processes; 
Status of recommendation: Per GAO: Open. For fiscal year 2007, as had 
been the case for fiscal year 2006, Treasury was unable to provide the 
final accrual basis consolidated financial statements and certain 
supporting documentation in time for us to complete all of our planned 
auditing procedures related to the compilation of these financial 
statements. In our view, a major contributing factor is that Treasury 
did not have enough personnel with specialized financial reporting 
experience to help ensure reliable financial reporting by the reporting 
date. 

Count: 60; 
No.: 04-15; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for federal 
employee and veteran benefits payable meets the requirements of SFFAS 
No. 5, Accounting for Liabilities of the Federal Government, paragraph 
110, table 9, which states that all components of the liability for 
future policy benefits 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; 
Status of recommendation: Per Treasury and OMB: This required 
information was disclosed in Note 11, Federal Employees and Veteran 
Benefits Payable, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 61; 
No.: 04-19; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that federal agencies designate in the 
note disclosure for cash and other monetary assets any amounts reported 
for the "other cash" line items that are restricted with respect to the 
federal government taken as a whole; 
Status of recommendation: Per Treasury and OMB: This required 
information was requested from federal agencies for inclusion in Note 
2, Cash and Other Monetary Assets, in the fiscal year 2007 CFS. Further 
discussions with federal agencies will take place in fiscal year 2008 
to ensure proper and complete disclosure of this information; 
Status of recommendation: Per GAO: Open. 

Count: 62; 
No.: 04-20; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the note disclosure for other 
liabilities meets the requirements of SFFAS No. 5, paragraph 114, which 
requires the reporting of indicators of the range of uncertainty around 
insurance-related estimates and the sensitivity of the estimates to 
changes in major assumptions; 
Status of recommendation: Per Treasury and OMB: The required 
information was requested from federal agencies for disclosure in the 
required supplementary information (risk assumed) section of the fiscal 
year 2007 CFS. Further discussions with federal agencies will take 
place in fiscal year 2008 to ensure proper and complete disclosure of 
this information; 
Status of recommendation: Per GAO: Open. 

GAO-06-415; (results of the fiscal year 2005 audit): 

Count: 63; 
No.: 05-2; 
Recommendation: The Director of OMB should direct the Controller of the 
Office of Federal Financial Management, in coordination with the 
Treasury Fiscal Assistant Secretary, to develop an alternative solution 
for obtaining audit assurance related to the Federal Deposit Insurance 
Corporation's funds, National Credit Union Administration, and Farm 
Credit System Insurance Corporation, which includes the requirement for 
adequate audit procedures to be performed over significant information 
included in the CFS for these federal agencies; 
Status of recommendation: Per Treasury and OMB: OMB agrees with the 
recommendation and is committed to working with Treasury and the 
pertinent federal agencies to develop an alternative solution for 
obtaining audit assurance over the significant information included in 
the CFS for these federal agencies; 
Status of recommendation: Per GAO: Open. 

Count: 64; 
No.: 05-3; 
Recommendation: The Director of OMB should direct the Controller of the 
Office of Federal Financial Management to consider not waiving the 
closing package audit requirement for any verifying agency in future 
years, such as Tennessee Valley Authority (TVA); 
Status of recommendation: Per Treasury and OMB: OMB generally agrees 
with the recommendation; however, it will continue to weigh the costs 
against benefits of global requirements during extenuating 
circumstances; 
Status of recommendation: Per GAO: Open. For fiscal year 2007, TVA did 
not meet the closing package requirements. OMB did not waive the 
closing package requirements for any verifying agency in fiscal year 
2007, however, OMB did not ensure that TVA met the closing package 
requirements. 

Count: 65; 
No.: 05-4; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop policies and procedures for monitoring internal control to help 
ensure that (1) audit findings are promptly evaluated; (2) proper 
actions are determined in response to audit findings and 
recommendations, such as a documented plan of action with milestones 
for short-term and long-range solutions; and (3) all actions that 
correct or otherwise resolve the audit findings are completed within 
established time frames; 
Status of recommendation: Per Treasury and OMB: OMB concurs with the 
recommendation and is committed to improving the corrective action 
plans and monitoring progress against those plans; 
Status of recommendation: Per GAO: Open. 

Count: 66; 
No.: 05-5; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop an executable plan of action and milestones for short-term and 
long-range solutions for certain internal control weaknesses we have 
previously reported regarding the processes used to prepare the CFS; 
Status of recommendation: Per Treasury and OMB: OMB developed 
corrective action plans and will monitor the progress; 
Status of recommendation: Per GAO: Closed. Treasury and OMB have 
developed corrective action plans for certain internal control 
weaknesses we have previously reported regarding the processes used to 
prepare the CFS. GAO will continue to monitor the implementation of 
these plans. 

Count: 67; 
No.: 05-6; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the TFM and any other guidance to 
federal agencies provide clear instructions for providing reliable data 
to Treasury for restricted cash; 
Status of recommendation: Per Treasury and OMB: With regard to 
restricted cash, in fiscal year 2007, Treasury reviewed agency cash 
amounts designated as restricted to determine what, if any, 
restrictions applied at the governmentwide level. Treasury implemented 
changes based on this review to the restricted cash disclosures during 
fiscal year 2007 and disclosed these restricted cash amounts in Note 2, 
Cash and Other Monetary Assets, in the fiscal year 2007 CFS. Further 
discussions with federal agencies will take place in fiscal year 2008 
to ensure proper and complete disclosure of this information; 
Status of recommendation: Per GAO: Open. Treasury did not provide clear 
instructions to federal agencies for providing reliable data related to 
restricted cash. 

Count: 68; 
No.: 05-8; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to ensure that the TFM and any other guidance to 
federal agencies provide clear instructions for providing reliable data 
to Treasury for summaries of unadjusted misstatements; 
Status of recommendation: Per Treasury and OMB: Treasury updated the 
TFM in fiscal year 2007 related to the guidance to federal agencies 
concerning agency management representations and related summaries of 
unadjusted misstatements and will continue to revise them as necessary 
during fiscal year 2008; 
Status of recommendation: Per GAO: Open. Treasury's updates to the TFM 
for fiscal year 2007 did not provide clear instructions to federal 
agencies for providing reliable data related to summaries of unadjusted 
misstatements. 

Count: 69; 
No.: 05-10; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
provide clear guidance to federal agencies as to when the "confirmed 
reporting" category in the intragovernmental reconciliation report 
should be selected; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury revised its quarterly intragovernmental reporting process to 
provide clearer guidance to federal agencies related to their 
intragovernmental confirmations as well as to require that federal 
agencies prepare corrective action plans for continuing "confirmed" 
differences; 
Status of recommendation: Per GAO: Closed. In addition to providing 
clearer guidance to federal agencies, Treasury also developed a process 
for obtaining clarification from federal agencies for inconsistent or 
incomplete explanations provided in the "confirmed reporting" category 
by requesting that federal agencies prepare corrective action plans for 
these differences. 

Count: 70; 
No.: 05-11; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB, to 
develop an effective process for obtaining clarification from federal 
agencies for inconsistent or incomplete explanations provided in all 
material difference categories; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 05-10; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 05-10. 

GAO-07-805; (results of the fiscal year 2006 audit): 

Count: 71; 
No.: 06-1; 
Recommendation: The Director of OMB and Secretary of the Treasury 
should direct the Controller of the Office of Federal Financial 
Management and Fiscal Assistant Secretary, respectively, to develop 
formal processes and procedures for identifying and either resolving or 
explaining any material differences in undistributed offsetting receipt 
amounts between Treasury's central accounting records and information 
reported in agency financial statements and underlying agency financial 
information and records; 
Status of recommendation: Per Treasury and OMB: Treasury has policies 
and procedures for identifying and either resolving or explaining any 
material differences in undistributed offsetting receipt amounts 
between Treasury's central accounting records and information reported 
in agency financial statements and underlying agency financial 
information and records, and will revise these policies and procedures 
as necessary during fiscal year 2008; 
Status of recommendation: Per GAO: Open. Treasury's procedures remained 
incomplete as of December 10, 2007. 

Count: 72; 
No.: 06-2; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop formal processes and procedures for 
ensuring that intragovernmental activity and balances, including 
intragovernmental interest, are fully eliminated in the calculation of 
the budget deficit; 
Status of recommendation: Per Treasury and OMB: Treasury does have 
formal processes and procedures for ensuring that intragovernmental 
activity and balances, including intragovernmental interest, are fully 
eliminated in the calculation of the budget deficit, and will revise 
these policies and procedures as necessary during fiscal year 2008; 
Status of recommendation: Per GAO: Open. Treasury's procedures remained 
incomplete as of December 10, 2007. 

Count: 73; 
No.: 06-3; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, in coordination with the Controller of OMB's 
Office of Federal Financial Management, to develop processes and 
procedures for collecting all the necessary information that would 
enable the proper reporting of unexpended budget balances in the CFS; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury developed processes and procedures for collecting all the 
necessary information to enable the proper reporting of unexpended 
budget balances in the CFS; 
Status of recommendation: Per GAO: Closed. During fiscal year 2007, 
Treasury changed its disclosure for unexpended budget balances in the 
CFS by reporting the fiscal years 2006 and 2005 actual amounts rather 
than reporting fiscal year 2006 actual amounts and estimating the 
fiscal year 2007 amounts. 

Count: 74; 
No.: 06-4; 
Recommendation: The Director of OMB should direct the Controller of 
OMB's Office of Federal Financial Management to continue to work with 
federal agencies to resolve internal control issues regarding 
differences and the lack of effective reconciliation between the 
unexpended budget balances reported in federal agencies' financial 
statements and amounts reported in federal agencies' SF-133s; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 06-3; 
Status of recommendation: Per GAO: Closed. See status of recommendation 
No. 06-3. 

Count: 75; 
No.: 06-5; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to develop and implement processes and procedures 
for identifying and either resolving or explaining the differences that 
exist between operating cash reported in certain federal agencies' 
financial statements and the operating cash balance reported in the 
CFS; 
Status of recommendation: Per Treasury and OMB: With regard to 
operating cash, in fiscal year 2007, Treasury removed "operating cash" 
as a reporting category as such a category is not required by GAAP. 
Instead, Treasury ensured that agency cash amounts were categorized as 
either restricted or nonrestricted cash amounts, as only these two 
categories are required by GAAP. Treasury disclosed agency cash amounts 
in the two required cash categories in Note 2, Cash and Other Monetary 
Assets, in the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 76; 
No.: 06-6; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, working in coordination with the Controller of 
OMB's Office of Federal Financial Management, to establish effective 
processes and procedures to ensure that appropriate information 
regarding litigation and claims is included in the governmentwide legal 
representation letter; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
OMB informally discussed with GAO possible solutions for addressing 
this issue. As a result of these discussions, OMB started working with 
Justice on possible solutions. For fiscal year 2008, OMB will continue 
working with Justice to establish effective processes and procedures so 
that appropriate information regarding litigation and claims is 
included in the governmentwide legal representation letter. Finally, 
OMB will also continue its communications with GAO; 
Status of recommendation: Per GAO: Open. 

Count: 77; 
No.: 06-7; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary, working in coordination with the Controller of 
OMB's Office of Federal Financial Management, to develop a process for 
obtaining sufficient information from federal agencies to enable 
Treasury and OMB to adequately monitor federal agencies' efforts to 
reconcile intragovernmental activity and balances with their trading 
partners. This information should include (1) the nature and a detailed 
description of the significant differences that exist between trading 
partners' records of intragovernmental activity and balances, (2) 
detailed reasons why such differences exist, (3) details of steps taken 
or being taken to work with federal agencies' trading partners to 
resolve the differences, and (4) the potential outcome of such steps; 
Status of recommendation: Per Treasury and OMB: During fiscal year 
2007, Treasury continued a process for obtaining sufficient information 
from federal agencies to enable Treasury and OMB to adequately monitor 
federal agencies' efforts to reconcile intragovernmental activity and 
balances with their trading partners. This information included (1) the 
nature and a detailed description of the significant differences that 
exist between trading partners' records of intragovernmental activity 
and balances, (2) detailed reasons why such differences exist, (3) 
details of steps taken or being taken to work with federal agencies' 
trading partners to resolve the differences, and (4) the potential 
outcome of such steps; 
Status of recommendation: Per GAO: Open. Treasury and OMB's process did 
not provide them with sufficient information to adequately monitor 
federal agencies' efforts to reconcile intragovernmental activity and 
balances with their trading partners. 

Count: 78; 
No.: 06-8; 
Recommendation: The Director of OMB should direct the Controller of the 
Office of Federal Financial Management, in coordination with the 
Treasury Fiscal Assistant Secretary, to establish additional procedures 
to ensure that federal agencies prepare their closing packages and have 
them audited in accordance with the requirements specified in the 
closing package instructions; 
Status of recommendation: Per Treasury and OMB: OMB will continue to 
work with federal agencies to ensure closing packages are prepared 
properly and audited in accordance with the requirements; 
Status of recommendation: Per GAO: Closed. During fiscal year 2007, 
federal agencies prepared closing packages and had them audited in 
accordance with the requirements. The procedures OMB established should 
be used every year to ensure that federal agencies continue to follow 
these requirements. 

Count: 79; 
No.: 06-9; 
Recommendation: The Director of OMB should direct the Controller of the 
Office of Federal Financial Management to work with the significant 
agency that did not provide in its closing package the required 
information that Treasury uses to allocate costs in the governmentwide 
Statement of Net Cost to ensure that such information is reported by 
the agency in future years; 
Status of recommendation: Per Treasury and OMB: See status of 
recommendation No. 06-8; 
Status of recommendation: Per GAO: Closed. During fiscal year 2007, OMB 
ensured the significant agency provided the information required by 
Treasury. 

Count: 80; 
No.: 06-10; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to establish procedures to ensure that the CFS 
includes required consolidated totals in the Statement of Social 
Insurance or document the specific rationale for excluding such 
disclosure; 
Status of recommendation: Per Treasury and OMB: In fiscal year 2007, 
Treasury established procedures to ensure that the CFS included 
consolidated totals in the Statement of Social Insurance included in 
the fiscal year 2007 CFS; 
Status of recommendation: Per GAO: Closed. 

Count: 81; 
No.: 06-11; 
Recommendation: The Secretary of the Treasury should direct the Fiscal 
Assistant Secretary to disclose the balance of foreign currencies held 
at fiscal year end in the Cash and Other Monetary Assets footnote to 
the CFS; 
Status of recommendation: Per Treasury and OMB: With regard to foreign 
currency balances, in fiscal year 2007, Treasury requested this 
information from federal agencies and presented these balances in Note 
2, Cash and Other Monetary Assets, in the fiscal year 2007 CFS. Further 
discussions with federal agencies will take place in fiscal year 2008 
to ensure proper and complete disclosure of this information; 
Status of recommendation: Per GAO: Open. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix II: Comments from the Department of the Treasury: 

Assistant Secretary: 
Department Of The Treasury: 
Washington, D.C. 

June 10, 2008: 

Mr. Gary T. Engel: 
Director, Financial Management and Assurance: 
Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Engel: 

Thank you for the opportunity to comment on the Government 
Accountability Office's (GAO) draft report on the Fiscal Year (FY) 2007 
audit report, GAO-08-748, Material Weaknesses in Internal Control Over 
the Processes Used to Prepare the Consolidated Financial Statements of 
the US. Government. 

During FY 2007, we made considerable improvements, leading to the 
closure of 35 of 81 recommendations outstanding from previous CFS audit 
reports. In addition, the procedural and automated changes to our 
reporting processes implemented during the year not only improved the 
internal controls related to the preparation of the CFS, but also 
enabled us to make the CFS more meaningful and usable to its readers. 
While significant advancements were made in the preparation process, we 
concur with GAO that the process should be continually improved, and we 
look forward to working with your office in identifying and 
implementing such process improvements. 

The FY 2007 draft report identifies 10 new findings and their related 
recommendations for improving the CFS process. We agree with GAO on 
these findings and recommendations. Regarding the recommendation to use 
agencies' quarterly financial information to compile the CFS, we need 
to work with OMB, with input from GAO staff, to determine the 
appropriate path forward for using this interim financial information 
in the CFS process. We will also explore other alternative solutions to 
facilitate the CFS preparation process. 

We will continue to work with the agencies and OMB to address the 
material weakness related to intragovernmental differences. Although 
Treasury cannot solve this problem on its own, we will continue to 
provide assistance to the agencies in timely reconciling this activity 
and thereby reducing the out-of-balance condition. 

Thank you, again, for the opportunity to review and comment on the 
draft report. We look forward to working with you and your staff in 
making the CFS more meaningful and usable to its readers. 

Sincerely, 

Signed by: 
Kenneth E. Carfine: 
Fiscal Assistant Secretary: 

cc: Daniel Werfel, OMB: 

[End of section] 

Appendix III GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Gary Engel, (202) 512-3406 or [email protected]: 

Acknowledgments: 

In addition to the above contact, the following individuals made key 
contributions to this report: Lynda Downing, Assistant Director; Mickie 
Gray; David Hayes; Sharon Kittrell; Dragan Matic; Maria Morton; and 
Taya Tasse. 

[End of section] 

Footnotes: 

[1] The fiscal year 2007 Financial Report of the United States 
Government includes our audit report and was issued by the Department 
of the Treasury (Treasury) on December 17, 2007, and is available 
through GAO's Web site at [hyperlink, 
http://www.gao.gov/financial.html] and Treasury's Web site at 
[hyperlink, http://www.fms.treas.gov/fr/index.html]. 

[2] The consolidated financial statements for the fiscal years ended 
September 30, 2007 and 2006 consist of the Statements of Net Cost, 
Statements of Operations and Changes in Net Position, Reconciliations 
of Net Operating Cost and Unified Budget Deficit, Statements of Changes 
in Cash Balance from Unified Budget and Other Activities, Balance 
Sheets, and the Statements of Social Insurance, including the related 
notes to these financial statements. 

[3] We disclaimed an opinion on the fiscal year 2006 consolidated 
financial statements, including the Statement of Social Insurance. 

[4] As used in this report, accrual basis consolidated financial 
statements refer to all of the consolidated financial statements and 
notes, except for those related to the Statement of Social Insurance. 

[5] A material weakness is a significant deficiency, or combination of 
significant deficiencies, that results in more than a remote likelihood 
that a material misstatement of the financial statements will not be 
prevented or detected. A significant deficiency is a control 
deficiency, or combination of control deficiencies, that adversely 
affects the entity's ability to initiate, authorize, record, process, 
or report financial data reliably in accordance with generally accepted 
accounting principles such that there is more than a remote likelihood 
that a misstatement of the entity's financial statements that is more 
than inconsequential will not be prevented or detected. A control 
deficiency exists when the design or operation of a control does not 
allow management or employees, in the normal course of performing their 
assigned functions, to prevent or detect misstatements on a timely 
basis. 

[6] GAO, Financial Audit: Significant Internal Control Weaknesses 
Remain in the Preparation of the Consolidated Financial Statements of 
the U.S. Government, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
07-805] (Washington, D.C.: July 23, 2007). 

[7] GAO, Internal Control: Standards for Internal Control in the 
Federal Government, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-00-21.3.1] (Washington, D.C.: November 1999). These 
standards define the minimum level of quality acceptable for internal 
control in government and provide the basis against which internal 
control is to be evaluated. 

[8] The American Institute of Certified Public Accountants' hierarchy 
of GAAP in Statement of Auditing Standards No. 91, The Federal GAAP 
Hierarchy, governs what constitutes GAAP for U.S. government reporting 
entities. The hierarchy lists the priority sequence of sources that an 
entity looks to for accounting and reporting guidance [hyperlink, 
http://www.fasab.gov/accepted.html]. 

[9] Unified budget deficit is the amount by which the government's on- 
budget and off-budget outlays (budget outlays) exceed the sum of its on-
budget and off-budget receipts (budget receipts) for a given period, 
usually a fiscal year. Off-budget refers to those budgetary accounts 
(either federal or trust funds) designated by law as excluded from 
budget totals. Conversely, on-budget refers to all budgetary accounts 
other than those designated by law as off-budget. 

[10] The budget deficit, receipt, and outlay amounts are reported in 
Treasury's Monthly Treasury Statement and the annual Budget of the 
United States Government. 

[11] Distributed offsetting receipts are collections by the federal 
government that are offset against outlays at the agency or subfunction 
level. 

[12] Undistributed offsetting receipts are deducted from total outlays 
for the government as a whole rather than from a single agency or 
subfunction in order to avoid distortion of agency or subfunction 
totals. Certain offsetting receipts that are undistributed in both 
agency and functional tables include collections of employer share of 
employee retirement payments. Interest received by federal trust funds 
is undistributed in the agency tables but distributed in the functional 
tables. 

[13] The SBR provides information about how budgetary resources were 
made available (i.e., appropriations, contract authority, spending 
authority from offsetting collections, etc.) as well as the status of 
such resources (obligated or unobligated). It also provides information 
regarding obligated balances at the end of, and outlays for, the fiscal 
year. 

[14] See GAO's audit report on its audit of the federal government's 
fiscal year 2007 financial statements that was incorporated in the 2007 
Financial Report of the U.S. Government published by Treasury. Also, 
see GAO, Financial Audit: Process for Preparing the Consolidated 
Financial Statements of the U.S. Government Needs Improvement, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-45] (Washington, 
D.C.: Oct. 30, 2003). 

[15] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] 

[16] Spreadsheet Compliance in the 2007 Microsoft Office System, April 
2006. 

[17] OMB Circular No. A-127, Financial Management Systems (Washington, 
D.C.: July 23, 1993), ï¿½7(j), Internal Controls. The financial 
management systems shall include a system of internal controls that 
ensure resource use is consistent with laws, regulations, and policies; 
resources are safeguarded against waste, loss, and misuse; and reliable 
data are obtained, maintained, and disclosed in reports. Appropriate 
internal controls shall be applied to all system inputs, processing, 
and outputs. Such system-related controls form a portion of the 
management control structure required by OMB Circular No. A-123. 

[18] OMB Circular No. A-127, ï¿½7(i), Documentation. Agency financial 
management systems and processing instructions shall be clearly 
documented in hard copy or electronically in accordance with (a) the 
requirements contained in the Federal Financial Management Systems 
Requirements documents published by the Office of Federal Financial 
Management or (b) other applicable requirements. All documentation 
(software, system, operations, user manuals, operating procedures, 
etc.) shall be kept up-to-date and be readily available for 
examination. System user documentation shall be in sufficient detail to 
permit a person, knowledgeable of the agency's programs and of systems 
generally, to obtain a comprehensive understanding of the entire 
operation of each system. Technical systems documentation such as 
requirements documents, systems specifications, and operating 
instructions shall be adequate to enable technical personnel to operate 
the system in an effective and efficient manner. 

[19] OMB Circular No. A-123, Management's Responsibility for Internal 
Control (Washington, D.C.: Dec. 21, 2004). 

[20] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1]. 
These standards define the minimum level of quality acceptable for 
internal control in the federal government and provide the basis 
against which internal control is to be evaluated. 

[21] OMB Circular No. A-136, Financial Reporting Requirements 
(Washington, D.C.: June 29, 2007). Agencies shall submit unaudited 
interim financial statements to OMB 21 days after the end of each of 
the first three quarters of the fiscal year. 

[End of section] 

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