oversight

Management Report: Improvements Needed in Controls over the Preparation of the U.S. Consolidated Financial Statements

Published by the Government Accountability Office on 2012-06-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Agency Officials




June 2012
             MANAGEMENT
             REPORT
             Improvements Needed
             in Controls over the
             Preparation of the
             U.S. Consolidated
             Financial Statements




GAO-12-529
                                               June 2012

                                               MANAGEMENT REPORT
                                               Improvements Needed in Controls over the
                                               Preparation of the U.S. Consolidated Financial
                                               Statements
Highlights of GAO-12-529, a report to agency
officials




Why GAO Did This Study                         What GAO Found
Treasury, in coordination with OMB, is         During its audit of the fiscal year 2011 consolidated financial statements of the
primarily responsible for preparing the        U.S. government (CFS), GAO identified new and continuing control deficiencies
Financial Report, which contains the           in the Department of the Treasury’s (Treasury) and the Office of Management
CFS. Since GAO’s first audit of the            and Budget’s (OMB) processes used to prepare the CFS. These control
fiscal year 1997 CFS, certain material         deficiencies contributed to material weaknesses in internal control over the
weaknesses and other limitations on            federal government’s ability to
the scope of GAO’s work have
prevented GAO from expressing an               •   adequately account for and reconcile intragovernmental activity and balances
opinion on the CFS, exclusive of the               between federal entities;
Statement of Social Insurance (SOSI).          •   ensure that the federal government’s accrual-based consolidated financial
Also, GAO was unable to express                    statements were consistent with the underlying audited entities’ financial
opinions on the 2011 and 2010 SOSI                 statements, properly balanced, and in conformity with U.S. generally
and the 2011 Statement of Changes in               accepted accounting principles; and
Social Insurance Amounts because of            •   identify and either resolve or explain material differences between
significant uncertainties, primarily
                                                   (1) components of the budget deficit that are used to prepare certain
related to the achievement of projected
                                                   information in the CFS and (2) related amounts reported in federal entities’
reductions in Medicare cost growth,
reflected in these statements.
                                                   financial statements and underlying financial information and records.

As part of the fiscal year 2011 CFS            GAO identified new control deficiencies involving the need to
audit, GAO identified material                 •   develop or revise and implement written procedures for appropriate Treasury
weaknesses and other control                       and OMB officials to (1) review and approve the drafts of the Financial
deficiencies in the processes used to              Report of the United States Government (Financial Report) before they are
prepare the CFS. The purpose of this
                                                   provided to GAO and (2) better ensure that key federal entity personnel are
report is to (1) provide details on new
                                                   actively involved in the process for preparing and reviewing the Financial
control deficiencies GAO identified
                                                   Report;
related to the preparation of the CFS,
(2) recommend improvements, and                •   enhance procedures for timely review, approval, and use of the CFS
(3) provide the status of corrective               disclosure checklist;
actions taken to address GAO’s prior           •   develop procedures for pursuing indications that financial information
recommendations in this area that                  provided by federal entities for inclusion in the CFS may not be in conformity
remained open at the end of the fiscal             with applicable accounting standards;
year 2010 audit.                               •   enhance Treasury’s intragovernmental data validation process; and
                                               •   enhance procedures for timely identifying, notifying, and obtaining closing
What GAO Recommends                                packages from federal entities as they first become significant to the
GAO is making 10 recommendations                   Financial Report.
—9 to Treasury and 1 to OMB—to
address new control deficiencies. In           In addition, GAO found that various other control deficiencies identified in
commenting on GAO’s draft report,              previous years’ audits with respect to the CFS preparation continued to exist.
Treasury and OMB generally                     Specifically, of the 50 open recommendations from GAO’s prior reports regarding
concurred with GAO’s findings.                 control deficiencies in the CFS preparation process,12 were closed and 38
                                               remained open as of December 12, 2011, the date of GAO’s report on its audit of
                                               the fiscal year 2011 CFS. GAO will continue to monitor the status of corrective
                                               actions taken to address the 10 new recommendations as well as the 38 open
                                               recommendations from prior years as part of its fiscal year 2012 CFS audit.

View GAO-12-529. For more information,
contact Gary Engel at (202) 512-3406 or
engelg@gao.gov.

                                                                                       United States Government Accountability Office
Contents


Letter                                                                                   1
              Scope and Methodology                                                      3
              Review and Approval of the Financial Report                                4
              Timely Review and Approval of the Financial Reporting Disclosure
                Checklist                                                                6
              Review of Federal Entities’ Financial Information for Inclusion in
                the CFS                                                                  8
              Treasury’s Intragovernmental Data Validation Process                       9
              Timely Submission of Audited Closing Packages by Newly
                Identified Significant Federal Entities                                11
              Status of Recommendations from Prior Reports                             12
              Agency Comments                                                          12

Appendix I    Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior
              Year Recommendations for Preparing the CFS                               14



Appendix II   Comments from the Department of the Treasury                              33




              Page i                                  GAO-12-529 U.S. CFS Management Report
Abbreviations

AGA                        Association of Government Accountants
CFO                        chief financial officer
CFS                        consolidated financial statements of the U.S.
                            government
FASAB                      Federal Accounting Standards Advisory Board
FEVBP                      Federal Employee and Veteran Benefits Payable
Financial Report           Financial Report of the United States Government
FMS                        Financial Management Service
FRD                        Financial Reports Division
GAAP                       generally accepted accounting principles
GFRS                       Governmentwide Financial Report System
IRAS                       Intragovernmental Reporting and Analysis
                             System
Justice                    Department of Justice
MD&A                       Management’s Discussion and Analysis
OFAS                       Office of the Fiscal Assistant Secretary
OMB                        Office of Management and Budget
SFFAS                      Statement of Federal Financial Accounting
                             Standards
SOP                        standard operating procedure
SOSI                       Statement of Social Insurance
STAR/CARS                  Treasury’s central accounting and reporting system
Treasury                   Department of the Treasury
TVA                        Tennessee Valley Authority


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Page ii                                          GAO-12-529 U.S. CFS Management Report
United States Government Accountability Office
Washington, DC 20548




                                   June 27, 2012

                                   The Honorable Timothy F. Geithner
                                   Secretary of the Treasury

                                   The Honorable Jeffrey Zients
                                   Acting Director
                                   Office of Management and Budget

                                   In our report dated December 12, 2011, 1 we disclaimed an opinion on the
                                   consolidated financial statements of the U.S. government (CFS) for the
                                   fiscal years ended September 30, 2011 and 2010, 2 except for the 2009,
                                   2008, and 2007 Statements of Social Insurance (SOSI), which received
                                   unqualified opinions. 3 Since GAO’s first audit of the fiscal year 1997 CFS,
                                   certain material weaknesses in internal control over 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-based consolidated financial statements. 4 These include material
                                   weaknesses that relate to the federal government’s processes used to
                                   prepare the CFS. Such material weaknesses involve the federal
                                   government’s inability to


                                   1
                                    The 2011 Financial Report of the United States Government includes our report and was
                                   issued by the Department of the Treasury on December 23, 2011, and is available through
                                   GAO’s website at http://www.gao.gov/financial.html and Treasury’s website at
                                   http://www.fms.treas.gov/fr/index.html.
                                   2
                                    The CFS for the fiscal years ended September 30, 2011 and 2010, 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, the 2011,
                                   2010, 2009, 2008, and 2007 Statements of Social Insurance, and the 2011 Statement of
                                   Changes in Social Insurance Amounts, including the related notes to these financial
                                   statements.
                                   3
                                    Because of significant uncertainties (discussed in Note 26 to the consolidated financial
                                   statements), primarily related to the achievement of projected reductions in Medicare cost
                                   growth reflected in the 2011 and 2010 SOSI, we were unable to, and did not, express
                                   opinions on the 2011 and 2010 SOSI as well as on the 2011 Statement of Changes in
                                   Social Insurance Amounts. We were, however, able to render unqualified opinions on the
                                   2009, 2008, and 2007 SOSI.
                                   4
                                    As used in this report, accrual-based consolidated financial statements refer to all of the
                                   consolidated financial statements and notes, except for those related to the SOSI and the
                                   Statement of Changes in Social Insurance Amounts.




                                   Page 1                                            GAO-12-529 U.S. CFS Management Report
•   adequately account for and reconcile intragovernmental activity and
    balances between federal entities;
•   ensure that the federal government’s accrual-based consolidated
    financial statements were consistent with the underlying audited
    entities’ financial statements, properly balanced, and in conformity
    with U.S. generally accepted accounting principles; and
•   identify and either resolve or explain material differences between
    (1) certain components of the budget deficit reported in the
    Department of the Treasury’s (Treasury) central accounting records
    that are used to prepare the Reconciliation of Net Operating Cost and
    Unified Budget Deficit, the Statement of Changes in Cash Balance
    from Unified Budget and Other Activities, and the Fiscal Projections
    for the U.S. Government (included in Supplemental Information) and
    (2) related amounts reported in federal entities’ financial statements
    and underlying financial information and records.

Treasury, in coordination with the Office of Management and Budget
(OMB), prepares the CFS on behalf of the federal government. 5 Several
of the material weaknesses 6 in internal control over financial reporting
that have contributed to our continuing disclaimers of opinion on the
federal government’s accrual-based consolidated financial statements
were identified by other auditors during their audits of individual federal
entities’ financial statements and were reported in detail with
recommendations to the entities in separate reports.

The purpose of this report is to provide (1) detailed information on new
control deficiencies identified during our fiscal year 2011 audit that relate
to the processes used to prepare the CFS, (2) 10 recommendations to
address these new control deficiencies, and (3) the status of corrective
actions taken by Treasury and OMB to address the 50 recommendations
relating to the processes used to prepare the CFS detailed in our
previous reports that remained open at the end of the fiscal year 2010


5
  The Government Management Reform Act of 1994 has required such reporting, covering
the executive branch of government, beginning with financial statements prepared for
fiscal year 1997. 31 U.S.C. 331(e).
6
  A material weakness is a deficiency, or combination of deficiencies, in internal control,
such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. A
deficiency in internal control 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 and correct misstatements on a timely basis.




Page 2                                            GAO-12-529 U.S. CFS Management Report
              audit. We closed 12 of the 50 recommendations at the end of the fiscal
              year 2011 audit. We closed 4 of these recommendations based on
              Treasury’s progress to date and opened new recommendations that are
              better aligned with the current status of the remaining internal control
              deficiencies related to these areas. Appendix I provides a summary of the
              status of actions taken to address the open recommendations from our
              previous reports as of December 12, 2011, the date of our report on the
              audit of the fiscal year 2011 CFS.


              As part of our audit of the fiscal years 2011 and 2010 CFS, we
Scope and     considered the federal government’s financial reporting procedures and
Methodology   related internal control. Also, we determined the status of corrective
              actions taken by Treasury and OMB to address open recommendations
              relating to the processes used to prepare the CFS detailed in our
              previous reports. Based on the scope of our work and the effects of the
              other limitations on the scope of our audit noted throughout our audit
              report on the fiscal year 2011 CFS, our internal control work would not
              necessarily identify all deficiencies in internal control, including those that
              might be material weaknesses or significant deficiencies. 7 We have
              communicated each of the new control deficiencies to your staff. We
              performed our audit of the fiscal years 2011 and 2010 CFS in accordance
              with U.S. generally accepted government auditing standards. We believe
              that our audit provided a reasonable basis for our conclusions in this
              report.

              We requested comments on a draft of this report from the Acting Director
              of OMB and the Secretary of the Treasury or their designees. OMB
              provided oral comments, which are summarized in the Agency Comments
              section of this report. Treasury’s Fiscal Assistant Secretary provided
              written comments on June 7, 2012, which are reprinted in their entirety in
              appendix II and are also summarized in the Agency Comments section.




              7
               A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
              that is less severe than a material weakness, yet important enough to merit attention by
              those charged with governance.




              Page 3                                              GAO-12-529 U.S. CFS Management Report
                      Over the past several years, Treasury and OMB have improved the
Review and Approval   process for preparing the Financial Report of the United States
of the Financial      Government (Financial Report) 8 and have addressed several of the
Report                issues underlying prior years’ recommendations, including our
                      recommendation regarding the preparation and review of the
                      Management’s Discussion and Analysis and Citizen’s Guide sections of
                      the Financial Report. However, we continued to identify numerous
                      incorrect amounts and inconsistent and incomplete disclosures in the
                      draft 2011 Financial Report, including the consolidated financial
                      statements, and the Notes and Supplemental Information sections of the
                      Financial Report. These errors, inconsistencies, and omissions occurred
                      more frequently in the relatively new and in more complex areas of the
                      Financial Report. For example, several note disclosures in the draft
                      Financial Report related to social insurance, the Troubled Asset Relief
                      Program, Government-Sponsored Enterprises, and federal employee and
                      veteran benefits were inconsistent with related disclosures in federal
                      agencies’ Performance and Accountability Reports or Agency Financial
                      Reports, and in some cases were not accurate or complete. The errors,
                      inconsistencies, and omissions were not identified through Treasury’s and
                      OMB’s processes for preparing and reviewing the draft Financial Report.
                      We communicated these matters to Treasury and OMB officials who
                      revised the Financial Report, as appropriate.

                      While Treasury maintains standard operating procedures for preparing,
                      reviewing, and approving the Financial Report, the extent of errors,
                      inconsistencies, and omissions we identified is evidence of deficiencies in
                      Treasury’s process for preparing and reviewing the draft Financial Report,
                      particularly with respect to relatively new areas and in more complex
                      areas. Treasury procedures did not provide for key federal entity
                      personnel with technical expertise in the relatively new and the more
                      complex areas to be actively involved in the preparation and review
                      process of the Financial Report. More active involvement of such key
                      federal entity personnel can help prevent or detect and correct incorrect


                      8
                       The Financial Report comprises the consolidated financial statements, related notes,
                      stewardship information, supplemental information, and other accompanying information,
                      including the Citizen’s Guide and Management’s Discussion and Analysis. The Citizen’s
                      Guide presents information regarding the financial position and condition of the U.S.
                      government and discusses key financial topics. The Management’s Discussion and
                      Analysis assists in (1) communicating management’s insights about the reporting entity,
                      (2) increasing the understandability and usefulness of the financial report, and
                      (3) providing information about the reporting entity and its operations and challenges.




                      Page 4                                          GAO-12-529 U.S. CFS Management Report
                      amounts and inconsistent and incomplete disclosures. Further, Treasury’s
                      procedures for preparing and reviewing the Financial Report did not
                      require review and approval of drafts of the Financial Report by
                      appropriate higher-level Treasury officials of the Office of the Fiscal
                      Assistant Secretary before they were provided to GAO for audit. 9 Also,
                      although OMB had certain informal procedures for its Office of Federal
                      Financial Management’s review and approval of drafts of the Financial
                      Report before they were provided to GAO, it had not documented these
                      procedures. Documented procedures that clearly delineate the roles and
                      responsibilities of the appropriate Treasury and OMB officials can help to
                      provide an effective review process.

                      According to Standards for Internal Control in the Federal Government,
                      one of the key objectives of an organization’s internal control over
                      financial reporting is to provide reasonable assurance as to the reliability
                      of its financial reporting, including its financial statements. 10 Without
                      effectively implemented preparation, review, and approval processes for
                      drafts of the Financial Report, Treasury and OMB are at risk of presenting
                      information that is incorrect, inconsistent, or incomplete.


Recommendations for   We recommend that the Acting Director of OMB direct the Controller of
Executive Action      OMB to develop and implement written procedures specifying the steps
                      required for effectively reviewing and approving the drafts of the Financial
                      Report before they are provided to GAO, to include clear delineation of
                      the review and approval roles and responsibilities of designated
                      appropriate higher-level officials in OMB’s Office of Federal Financial
                      Management, including the Controller of OMB.

                      We also recommend that the Secretary of the Treasury direct the Fiscal
                      Assistant Secretary to revise and implement Treasury’s procedures



                      9
                        The Secretary of the Treasury, in coordination with the Director of OMB, is required to
                      annually submit financial statements of the U.S. government to the President and the
                      Congress. The Office of the Fiscal Assistant Secretary and the Office of Federal Financial
                      Management are the respective offices within Treasury and OMB that have primary
                      responsibility for performing this function.
                      10
                        GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
                      (Washington, D.C.: November 1999). These standards define the minimum level of quality
                      acceptable for internal control in the government and provide the basis against which
                      internal control is to be evaluated.




                      Page 5                                           GAO-12-529 U.S. CFS Management Report
                       related to preparing and reviewing the drafts of the Financial Report
                       before they are provided to GAO, to include clear delineation of the
                       review and approval roles and responsibilities of designated appropriate
                       higher-level officials in the Office of the Fiscal Assistant Secretary,
                       including the Fiscal Assistant Secretary.

                       We further recommend that the Secretary of the Treasury direct the Fiscal
                       Assistant Secretary, working in coordination with the Controller of OMB,
                       to develop and implement procedures to provide for the active
                       involvement of key federal entity personnel with technical expertise in
                       relatively new areas and more complex areas in the preparation and
                       review process of the Financial Report.


                       For many years, we have reported that Treasury had not established a
Timely Review and      formal process to reasonably assure that the CFS, including the related
Approval of the        notes, were presented in conformity with generally accepted accounting
                       principles (GAAP). 11 Over the past several years, Treasury has
Financial Reporting    developed procedures utilizing a financial reporting disclosure checklist
Disclosure Checklist   (CFS disclosure checklist) that is intended to significantly improve
                       Treasury’s ability to timely identify GAAP requirements, assess the effect
                       of any omitted disclosures, and document decisions reached with regard
                       to the omission of any disclosures and the rationale for such decisions.
                       However, during our audit of the fiscal year 2011 CFS, we determined
                       that Treasury’s assessment and documentation regarding the reporting of
                       certain financial information required by GAAP continued to be impaired.
                       Specifically, we found that Treasury officials did not complete and
                       document their required review and approval of the CFS disclosure
                       checklist within the time frames established by Treasury’s policies and
                       procedures.

                       In response to our prior recommendation, Treasury developed
                       procedures, including use of its CFS disclosure checklist, to help
                       determine that all disclosures required by GAAP are included in the CFS.
                       Several years ago, Treasury established a standard operating procedure
                       (SOP), entitled “The FR Disclosure List,” to update the CFS disclosure
                       checklist to reflect new disclosures that are required to be included in the


                       11
                          The Federal Accounting Standards Advisory Board is the body designated by the
                       American Institute of Certified Public Accountants as the source of generally accepted
                       accounting principles for federal reporting entities.




                       Page 6                                           GAO-12-529 U.S. CFS Management Report
                      CFS. In fiscal year 2011, Treasury further enhanced the SOP to include
                      procedures for periodically updating the CFS disclosure checklist and
                      documenting preparer sign-offs and managerial approvals. Specifically,
                      the fiscal year 2011 enhancement to the SOP requires the CFS
                      disclosure checklist to be revised annually, as necessary, to incorporate
                      any (1) new and amended disclosure requirements effective for the
                      current year’s reporting and (2) additional information necessary to
                      address GAO audit recommendations related to financial disclosure. The
                      SOP was also modified to require a final review and sign-off on the CFS
                      disclosure checklist by the Financial Reports Division (FRD) Director in
                      Treasury’s Financial Management Service (FMS) by December 5, 2011,
                      to help provide reasonable assurance that the disclosures are in
                      conformity with GAAP. 12 However, we found that the final review and
                      approval by the FRD Director was not completed and documented by
                      December 5, 2011, as required by the SOP. We also noted that the SOP
                      did not require Treasury to use the CFS disclosure checklist to assist in
                      preparing the format draft that Treasury prepares in advance of the year-
                      end consolidation. Using the CFS disclosure checklist to assist in
                      preparing the format draft could assist Treasury in completing the final
                      checklist on a timely basis.

                      As a result, Treasury was limited in its ability to rely on the CFS
                      disclosure checklist to reasonably assure that the CFS was prepared in
                      conformity with GAAP as intended by the SOP. Specifically, the lack of
                      timely review and approval of the CFS disclosure checklist limited
                      Treasury’s ability to reasonably assure that all GAAP-required disclosures
                      are included in the CFS.


Recommendations for   To help to provide reasonable assurance that the information reported in
Executive Action      the CFS is complete, accurate, and in conformity with GAAP, the
                      Secretary of the Treasury should direct the Fiscal Assistant Secretary to
                      (1) establish a mechanism to ensure that Treasury’s CFS disclosure
                      checklist is reviewed and approved by the date in Treasury’s policies and
                      procedures and (2) revise the SOP to include requirements for using the
                      CFS disclosure checklist to prepare the format draft of the CFS and to


                      12
                        Treasury’s SOP is modified annually to include new due dates for updating the CFS
                      disclosure checklist to correspond with the current fiscal year CFS reporting requirements.
                      In fiscal year 2011, Treasury required the CFS disclosure checklist to be reviewed and
                      approved by December 5, 2011.




                      Page 7                                           GAO-12-529 U.S. CFS Management Report
                       update the CFS disclosure checklist as necessary when subsequent
                       drafts of the CFS are prepared.


                       Over the past several years, Treasury has made progress in developing,
Review of Federal      documenting, and implementing numerous improvements to its SOPs
Entities’ Financial    intended to enhance internal control over the process for preparing the
                       CFS. However, in fiscal year 2011, we identified a control deficiency
Information for        involving Treasury’s review of audited closing packages. 13 In connection
Inclusion in the CFS   with Treasury’s role as preparer of the CFS, Treasury management is
                       responsible for developing and documenting detailed policies and
                       procedures for preparing the CFS and ensuring that appropriate internal
                       control is built into and is an integral part of the CFS compilation process.
                       Standards for Internal Control in the Federal Government calls for clear
                       documentation of policies and procedures.

                       Treasury’s SOP entitled “Data Analysis” includes procedures for Treasury
                       staff to compare financial information submitted by federal entities
                       through their audited closing packages to the entities’ audited financial
                       statements for consistency and to work with the entities to correct any
                       material inconsistencies identified by Treasury. However, Treasury’s SOP
                       did not include steps to pursue instances where the information provided
                       to Treasury contains indications that federal entities’ financial information
                       submitted through the closing package, even if consistent with the
                       entities’ audited financial statements, may not be in conformity with
                       GAAP. Steps to pursue these instances would be particularly relevant
                       when a new federal accounting standard is implemented to reasonably
                       assure appropriate and consistent application across government. For
                       example, as part of its fiscal year 2011 CFS compilation process,
                       Treasury did not identify federal entities’ potential GAAP exceptions
                       related to Statement of Federal Financial Accounting Standards No. 33,
                       Pensions, Other Retirement Benefits, and Other Postemployment
                       Benefits: Reporting the Gains and Losses from Changes in Assumptions
                       and Selecting Discount Rates and Valuation Dates, which was first
                       implemented in fiscal year 2010. As part of our fiscal year 2011 audit, we



                       13
                          The closing package methodology links federal entities’ audited consolidated
                       department-level financial statements to the CFS. Verifying entities’ chief financial officers
                       must verify the consistency of the closing package data with these entities’ audited
                       financial statements. In addition, for most verifying entities, the full closing package is
                       required to be audited.




                       Page 8                                             GAO-12-529 U.S. CFS Management Report
                     raised concerns that the financial information presented at the
                     governmentwide level, which was provided by federal entities, may not be
                     in conformity with GAAP. However, there was not sufficient time for
                     Treasury to pursue and resolve our concerns. As a result, Treasury was
                     unable to reasonably assure that such Federal Employee and Veteran
                     Benefits Payable information in the fiscal year 2011 CFS was presented
                     in conformity with GAAP. Inadequate policies and procedures increase
                     the risk that errors in the compilation process could go undetected and
                     result in misstatements in the financial statements or incomplete and
                     inaccurate disclosure of information within the Financial Report.


Recommendation for   To help to provide reasonable assurance that financial information is
Executive Action     properly reported in the CFS, we recommend that the Secretary of the
                     Treasury direct the Fiscal Assistant Secretary to enhance the SOP
                     entitled “Data Analysis” to include required steps for pursuing any
                     instances where the information provided to Treasury contains indications
                     that financial information provided by federal entities for inclusion in the
                     CFS may not be in conformity with GAAP, particularly with respect to any
                     recent changes in GAAP.


                     The Treasury Financial Manual section entitled “Agency Reporting
Treasury’s           Requirements for the Financial Report of the United States Government”
Intragovernmental    requires federal entities to report intragovernmental balances quarterly to
                     Treasury and work with their trading partners to reconcile and resolve
Data Validation      intragovernmental differences. Treasury developed the Intragovernmental
Process              Reporting and Analysis System (IRAS) to begin to address the long-
                     standing weakness we reported regarding the federal government’s
                     inability to adequately account for and reconcile intragovernmental activity
                     and balances. Using IRAS, Treasury generates reports on a quarterly
                     basis to assist federal entities in identifying, reconciling, and resolving
                     intragovernmental differences with their trading partners prior to year-end
                     reporting. Further, Treasury personnel use IRAS reports to monitor
                     entities’ progress in reconciling their intragovernmental differences both
                     quarterly and at year-end. Treasury’s SOP entitled “Intragovernmental
                     Quarterly Reporting Process and Analysis” includes IRAS validation
                     procedures for Treasury personnel to validate the IRAS reports for
                     accuracy prior to providing them to federal entities. However, during our
                     fiscal year 2011 audit, we found control deficiencies over the design and
                     implementation of the IRAS data validation process.




                     Page 9                                   GAO-12-529 U.S. CFS Management Report
Specifically, during our fiscal year 2011 audit, we found that one
individual at Treasury, who was the developer of IRAS, also had several
other incompatible roles and responsibilities, including serving as the
IRAS administrator as well as a review accountant for one of the federal
entities included in the IRAS process. In these various roles, his
responsibilities included uploading the federal entities’ reported
intragovernmental data into IRAS, using IRAS to process the data and
generate the IRAS reports, and monitoring his assigned entity’s progress
in reconciling and resolving the intragovernmental differences with its
trading partners. As such, his roles included responsibilities for much of
the process for identifying, reconciling, and resolving intragovernmental
differences.

Standards for Internal Control in the Federal Government calls for
segregation of duties among different people in order to reduce the risk of
error or fraud, thus preventing a single individual from having full control
of a transaction or event. Treasury noted that it reduced the risk of error
through the required quarterly IRAS validation process, which provides for
the IRAS administrator to verify randomly selected federal entities’
submitted data for consistency and completeness with IRAS reports. The
process also calls for the IRAS team leader to review and approve the
IRAS administrator’s testing documentation prior to the distribution of
IRAS reports to the federal entities. In addition, the process includes
completing a checklist to document that these procedures have been
performed. If properly designed and effectively implemented, this process
could reduce the risk of error caused by inadequate segregation of duties.
However, we found that although the IRAS validation process calls for
testing of randomly selected federal entities’ data with IRAS reports for
consistency and completeness, this procedure did not require testing of
the federal entity that the administrator was responsible for under his
review accountant’s role. Further, we found that since the IRAS validation
checklist has been in place—the third and fourth quarters of fiscal year
2011—the completed checklists did not always include the IRAS team
leader’s signature to document that the required review took place. We
also noted that the data from IRAS were provided to federal entities for
use prior to the validations, increasing the risk of entities receiving
inaccurate reports.

These deficiencies in the design and implementation of the IRAS
validation process impair Treasury’s assurance that it has reduced the
risk of error in the IRAS reports that Treasury and federal entities depend
on to help identify and reconcile intragovernmental differences between
federal entities and their trading partners.


Page 10                                  GAO-12-529 U.S. CFS Management Report
Recommendations for      To help to provide reasonable assurance that appropriate controls are in
Executive Action         place to reduce the risk of errors in IRAS reports, we recommend that the
                         Secretary of the Treasury direct the Fiscal Assistant Secretary to
                         (1) enhance the IRAS validation procedures, at a minimum, to include
                         specific steps for testing intragovernmental data of the administrator’s
                         assigned entity and (2) establish a mechanism for ensuring that all steps
                         in the required validation process are completed, documented, and
                         reviewed prior to the distribution of IRAS reports.


                         Treasury’s SOP entitled “Significant Federal Entities Identification”
Timely Submission of     includes procedures for Treasury to annually 14 assess whether federal
Audited Closing          entities that were previously determined nonsignificant, have become
Packages by Newly        significant to the Financial Report. The SOP also includes procedures for
                         Treasury, in coordination with OMB, to help provide reasonable
Identified Significant   assurance that any newly identified significant entities comply with the
Federal Entities         reporting requirements for significant entities. Treasury’s assessments
                         are based on prior year financial information. In addition, the SOP
                         requires federal entities identified as significant to the Financial Report to
                         submit a closing package to Treasury that includes audited special
                         purpose financial statements that have been appropriately reclassified in
                         accordance with CFS reporting requirements for inclusion in the Financial
                         Report.

                         In fiscal year 2011, we found that Treasury’s and OMB’s processes were
                         not effective in ensuring timely submission of audited closing packages by
                         entities newly identified as significant to the Financial Report because of
                         deficiencies in the design of Treasury’s related policies and procedures.
                         Specifically, we found that Treasury’s SOP did not include procedures to
                         (1) identify any federal entities that became significant to the Financial
                         Report during the fiscal year but were not identified as significant in the
                         prior fiscal year and (2) obtain audited closing packages from newly
                         identified entities in the year they are determined to be significant,
                         including timely written notification to newly identified significant entities.
                         Without these procedures, Treasury is unable to reasonably assure that it
                         has appropriate audit assurance over financial information for all federal
                         entities that are significant to the Financial Report.


                         14
                           Prior to fiscal year 2011, Treasury’s SOP called for biennial assessments for entities
                         with a fiscal year end and for triennial assessments for entities with a calendar year end.
                         In fiscal year 2011, Treasury revised this SOP to require annual assessments.




                         Page 11                                            GAO-12-529 U.S. CFS Management Report
Recommendations for   To help to provide reasonable assurance that Treasury timely receives
Executive Action      the audited closing package from those federal entities that are newly
                      identified as being significant to the Financial Report, we recommend that
                      the Secretary of the Treasury direct the Fiscal Assistant Secretary,
                      working in coordination with the Controller of OMB, to enhance the SOP
                      entitled “Significant Federal Entities Identification” to include procedures
                      for (1) identifying any entities that become significant to the Financial
                      Report during the fiscal year but were not identified as significant in the
                      prior fiscal year and (2) obtaining audited closing packages from newly
                      identified significant entities in the year they become significant, including
                      timely written notification to newly identified significant entities.


                      Of our 50 recommendations from our prior reports regarding control
Status of             deficiencies in the CFS preparation process that were open at the end of
Recommendations       the fiscal year 2010 audit, we were able to close 12 during our fiscal year
                      2011 audit, generally as a result of corrective actions taken by Treasury.
from Prior Reports    The other 38 recommendations remained open as of December 12, 2011,
                      the date of our report on the audit of the fiscal year 2011 CFS.

                      Appendix I summarizes the status as of December 12, 2011, for the 50
                      open recommendations from our prior years’ reports. Specifically,
                      appendix I includes the status according to Treasury and OMB, as well as
                      our own assessments where appropriate. The status of recommendations
                      per GAO includes explanatory comments on Treasury’s and OMB’s
                      information. We will continue to monitor Treasury’s and OMB’s progress
                      in addressing our recommendations as part of our fiscal year 2012 CFS
                      audit.



Agency Comments
OMB Comments          In oral comments on a draft of this report, OMB generally concurred with
                      the findings in this report.


Treasury Comments     In written comments on a draft of this report, Treasury concurred with our
                      findings and noted that the agency has made significant progress in
                      enhancing its policies and procedures for the CFS preparation since the
                      issuance of the fiscal year 2011 audit report. Also, Treasury stated that it
                      expects to implement additional recommendations by the end of fiscal
                      year 2012, and that it will use our findings to continue to improve the


                      Page 12                                   GAO-12-529 U.S. CFS Management Report
central accounting and compilation activities associated with the CFS. In
addition, Treasury stated that it has given great management attention
and staff resources to resolving material intragovernmental differences
along with developing or improving process controls within FMS and the
federal agencies. Treasury also stated that its strategy includes the use of
multiple focus groups that have identified both short- and long-term
solutions through analysis of material differences and working closely with
agencies to identify root causes of differences. Further, Treasury stated
that it has developed General Fund accounts that will provide Treasury
with the capability to reconcile to federal agency financial reporting data.


This report contains recommendations to you. The head of a federal
agency is required by 31 U.S.C. 720 to submit a written statement on
actions taken on our recommendations to the Senate Committee on
Homeland Security and Governmental Affairs and to the House
Committee on Oversight and Government Reform not later than 60 days
after the date of this report. A written statement must also be sent to the
Senate and House Committees on Appropriations with the agency’s first
request for appropriations made more than 60 days after the date of this
report.

We are sending copies of this report to interested congressional
committees, the Fiscal Assistant Secretary of the Treasury, and the
Controller of OMB’s Office of Federal Financial Management. In addition,
this report is available at no charge on the GAO website at
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 at (202)
512-3406 or engelg@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report.




Gary T. Engel
Director
Financial Management and Assurance




Page 13                                  GAO-12-529 U.S. CFS Management Report
Appendix I: Status of Treasury’s and OMB’s
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS


Progress in Addressing GAO’s Prior Year
Recommendations for Preparing the CFS

                                                                                                                    a
                                                                                        Status of recommendation
Count      No.        Recommendation                                    Per Treasury and OMB               Per GAO
GAO-04-45 (results of the fiscal year 2002 audit)
1          02-4       As the Department of the Treasury (Treasury)      To eliminate or explain adjustments Open.
                      is designing its new financial statement          to net position, Treasury eliminates,
                      compilation process to begin with the fiscal      at the consolidated level,
                      year 2004 consolidated financial statements       intragovernmental activity and
                      of the U.S. government (CFS), the Secretary       balances using formal balanced
                      of the Treasury should direct the Fiscal          accounting entries (via Reciprocal
                      Assistant Secretary, in coordination with the     Categories) and analyzes
                      Controller of the Office of Management and        transactions that contribute to the
                      Budget (OMB), to develop reconciliation           unmatched transactions and
                      procedures that will aid in understanding and     balances adjustment i.e., the plug.
                      controlling the net position balance as well as   Major contributors to the plug are
                      eliminate the plugs previously associated with    transactions with the General Fund
                      compiling the CFS.                                (within Reciprocal Category 29).
                                                                        A Treasury task group is currently
                                                                        developing the Schedule of
                                                                        General Fund Authority, with the
                                                                        goal to enter audited data for fiscal
                                                                        year 2013 into the Governmentwide
                                                                        Financial Report System (GFRS)
                                                                        and to remove General Fund
                                                                        transactions from the plug. In the
                                                                        interim, Treasury will separately
                                                                        identify certain General Fund
                                                                        transactions by providing agencies
                                                                        with monthly STAR/CARS (Central
                                                                        Accounting Reporting System) data
                                                                        to facilitate reconciliation on a
                                                                        quarterly basis. In addition,
                                                                        Treasury has revised the guidance
                                                                        related to the appropriate use of
                                                                        “Trading Partner 99” (General
                                                                        Fund). This guidance will be issued
                                                                        in fiscal year 2012, to be effective
                                                                        in fiscal year 2013.
                                                                        Also throughout fiscal year 2012,
                                                                        Treasury will continue to identify
                                                                        and resolve, via communications
                                                                        to, and assistance from, agencies,
                                                                        material differences related to
                                                                        fiduciary, employee benefits,
                                                                        buy/sell and transfer activity
                                                                        through the continued efforts of
                                                                        Treasury focus groups to identify
                                                                        and mitigate root causes and
                                                                        implement short- and long-term
                                                                        solutions.




                                           Page 14                                           GAO-12-529 U.S. CFS Management Report
                                  Appendix I: Status of Treasury’s and OMB’s
                                  Progress in Addressing GAO’s Prior Year
                                  Recommendations for Preparing the CFS




                                                                                                             a
                                                                               Status of recommendation
Count   No.    Recommendation                                 Per Treasury and OMB                Per GAO
2       02-6   As OMB continues to make strides to address    Treasury has taken the lead role for Closed.
               issues related to intragovernmental            resolving intragovernmental
               transactions, the Director of OMB should       disputes and major differences
               direct the Controller of OMB to develop        between trading partners. In fiscal
               policies and procedures that document how      year 2011, Treasury published the
               OMB will enforce the business rules provided   updated Intragovernmental
               in OMB Memorandum M-07-03, Business            Business Rules, which include
               Rules for Intragovernmental Transactions.      dispute resolution procedures for
                                                              trading partner agencies to follow.
                                                              Treasury’s dispute resolution
                                                              process includes a new
                                                              Intragovernmental Dispute
                                                              Resolution Request Form to be
                                                              certified by federal entity chief
                                                              financial officers (CFO). Treasury
                                                              as the enforcer of the updated
                                                              business rules, working with OMB
                                                              as necessary, will work with
                                                              agencies, to help ensure the
                                                              effectiveness of the dispute
                                                              resolution process during each
                                                              fiscal year and will document the
                                                              resolutions.
3       02-7   As OMB continues to make strides to address See the status for recommendation Closed.
               issues related to intragovernmental          No. 02-6.
               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.




                                  Page 15                                           GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                                a
                                                                                  Status of recommendation
Count   No.     Recommendation                                    Per Treasury and OMB                Per GAO
4       02-9    The Secretary of the Treasury should direct       Treasury has designed and          Open.
                the Fiscal Assistant Secretary, in coordination   implemented formal consolidating
                with the Controller of OMB, to design             and eliminating procedures with
                procedures that will account for the difference   regard to intragovernmental assets
                in intragovernmental assets and liabilities       and liabilities, but some issues
                throughout the compilation process by means       remain. During fiscal year 2012,
                of formal consolidating and elimination           Treasury is revising existing
                accounting entries.                               guidance and policies, and
                                                                  developing new guidance and
                                                                  policies as needed, for these
                                                                  remaining issues. Upon
                                                                  implementation of the revised
                                                                  guidance and policies by the
                                                                  agencies, Treasury’s consolidation
                                                                  and elimination accounting entries
                                                                  should effectively account for the
                                                                  difference in intragovernmental
                                                                  assets and liabilities. Final
                                                                  resolution is contingent on fully
                                                                  resolving material
                                                                  intragovernmental differences. See
                                                                  the status for recommendation No.
                                                                  02-4.
5       02-10   The Secretary of the Treasury should direct     See the status for recommendation Open.
                the Fiscal Assistant Secretary, in coordination No. 02-4.
                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.
6       02-11   The Secretary of the Treasury should direct       Treasury’s consolidating              Open.
                the Fiscal Assistant Secretary, in coordination   procedures request information
                with the Controller of OMB, to reconcile the      from the agencies related to asset
                change in intragovernmental assets and            capitalization and agency advances
                liabilities for the fiscal year, including the    or deferred revenue to assist in
                amount and nature of all changes in               ensuring the proper reporting of this
                intragovernmental assets or liabilities not       activity. During fiscal year 2012,
                attributable to cost and revenue activity         Treasury will finalize guidance
                recognized during the fiscal year. Examples       related to intragovernmental
                of these differences would include capitalized    capitalized purchases to be
                purchases, such as inventory or equipment,        effective in fiscal year 2013. See
                and deferred revenue.                             the status of recommendation No.
                                                                  02-4 and No. 02-9.




                                     Page 16                                            GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                              a
                                                                                  Status of recommendation
Count   No.     Recommendation                                   Per Treasury and OMB                Per GAO
7       02-12   The Secretary of the Treasury should direct      These unmatched transactions and Open.
                the Fiscal Assistant Secretary to develop and    balances will be reflected only in
                implement a process that adequately              the Statements of Operations and
                identifies and reports items needed to           Changes in Net Position until
                reconcile net operating cost and unified         intragovernmental differences are
                budget surplus (or deficit). Treasury should     materially resolved. At that point,
                report “net unreconciled differences” included   unresolved reconciling items, if any,
                in the net operating results line item as a      needed to reconcile net operating
                separate reconciling activity in the             cost to the unified budget deficit
                reconciliation statement.                        can be separately identified in the
                                                                 reconciliation statements. See the
                                                                 status of recommendation No. 02-
                                                                 13.
8       02-13   The Secretary of the Treasury should direct      During fiscal year 2012, Treasury is Open.
                the Fiscal Assistant Secretary to develop and    refining its methodology for
                implement a process that adequately              reconciling operating revenue to
                identifies and reports items needed to           budgetary receipts (a component of
                reconcile net operating cost and unified         the unified budget deficit), in
                budget surplus (or deficit). Treasury should     collaboration with agencies, and is
                develop policies and procedures to ensure        in the process of readying the
                completeness of reporting and document how       methodology for review and
                all the applicable components reported in the    comment from all agencies and
                other consolidated financial statements (and     GAO.
                related note disclosures included in the CFS)    In addition, during fiscal year 2012,
                were properly reflected in the reconciliation    Treasury will work with OMB to
                statement.                                       further identify and define all
                                                                 sources of budgetary receipts
                                                                 reported to STAR/CARS. Treasury
                                                                 will take into account GAO review
                                                                 comments, if any, during
                                                                 finalization of the methodology for
                                                                 the CFS and the resolution of
                                                                 unresolved differences.
                                                                 Lastly, a group formed by the
                                                                 Association of Government
                                                                 Accountants (AGA group) is
                                                                 performing an independent review
                                                                 of the compilation of the
                                                                 reconciliation statement and cash
                                                                 statement and will provide short-
                                                                 and long-term solutions for
                                                                 improving the completeness of
                                                                 these statements and consistency
                                                                 with underlying agency financial
                                                                 statement data. Treasury will
                                                                 consider AGA group’s
                                                                 recommendations in revising its
                                                                 reconciliation methodology.




                                     Page 17                                          GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                                 a
                                                                                  Status of recommendation
Count   No.     Recommendation                                    Per Treasury and OMB                 Per GAO
9       02-14   The Secretary of the Treasury should direct       During fiscal year 2012, as            Open.
                the Fiscal Assistant Secretary to develop and     Treasury works on its reconciliation
                implement a process that adequately               methodology, it will request more
                identifies and reports items needed to            information from agencies related
                reconcile net operating cost and unified          to certain items in the reconciliation
                budget surplus (or deficit). Treasury should      statement due to their reporting of
                establish reporting materiality thresholds for    certain activity on a net basis
                determining which agency financial statement      instead of on a disaggregated
                activities to collect and report at the           basis.
                governmentwide level to assist in ensuring        Based on the results of this work,
                that the reconciliation statement is useful and   Treasury will determine what
                conveys meaningful information.                   additional information is needed
                                                                  from the agencies. Once all
                                                                  disaggregated information is
                                                                  obtained, Treasury can implement
                                                                  its reporting materiality policy to
                                                                  provide more meaningful and
                                                                  useful information in the CFS. See
                                                                  also the status of recommendation
                                                                  No. 02-13.
10      02-15   If Treasury chooses to continue using             Treasury has chosen to use          Open.
                information from both federal agencies’           information from STAR/CARS and
                financial statements and Treasury’s central       has identified material areas where
                accounting and reporting system (STAR),           STAR/CARS data does not
                Treasury should demonstrate how the               reconcile to federal agencies’
                amounts from STAR reconcile to federal            financial statements. Treasury will
                agencies’ financial statements.                   continue to work on its
                                                                  reconciliation methodology during
                                                                  fiscal year 2012 to further resolve
                                                                  these reconciliation issues. In
                                                                  addition, the reconciliation
                                                                  methodology will be revised
                                                                  pending implementation of the AGA
                                                                  group’s recommendations. See
                                                                  also the status of recommendation
                                                                  No. 02-13.
11      02-16   If Treasury chooses to continue using            See the status of recommendation      Open.
                information from both federal agencies’          No. 02-13.
                financial statements and from STAR,
                Treasury should identify and document the
                cause of any significant differences, if any are
                noted.




                                     Page 18                                            GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                                  a
                                                                                   Status of recommendation
Count   No.     Recommendation                                    Per Treasury and OMB                  Per GAO
12      02-17   The Secretary of the Treasury should direct       Treasury has chosen to use          Open.
                the Fiscal Assistant Secretary, in coordination   information from STAR/CARS.
                with the Controller of OMB, to develop and        During fiscal year 2012, Treasury
                implement a process to ensure that the            will continue to work on its
                Statement of Changes in Cash Balance from         reconciliation statement
                Unified Budget and Other Activities properly      methodology which also affects
                reflects the activities reported in federal       related line items on the cash
                agencies’ audited financial statements.           statement. Once fully developed,
                Treasury should document the consistency of       the reconciliation methodology will
                the significant line items on this statement to   also provide consistency of
                federal agencies’ audited financial               significant line items on the cash
                statements.                                       statement to the underlying federal
                                                                  agencies’ audited financial
                                                                  statements. In addition, the
                                                                  reconciliation methodology will be
                                                                  revised pending implementation of
                                                                  the AGA group’s recommendations.
                                                                  See also the status of
                                                                  recommendation No. 02-13 and
                                                                  No. 02-15.
13      02-20   The Secretary of the Treasury should direct       Treasury will refine its reconciliation Open.
                the Fiscal Assistant Secretary, in coordination   methodology for reconciling
                with the Controller of OMB, to develop and        budgetary receipts to net operating
                implement a process to ensure that the            revenue during fiscal year 2012.
                Statement of Changes in Cash Balance from         Treasury will again work with the
                Unified Budget and Other Activities properly      agencies that contribute to the
                reflects the activities reported in federal       largest unreconciled differences to
                agencies’ audited financial statements.           identify the causes of the
                Treasury should explain and document the          differences and to resolve them.
                differences between the operating revenue         Treasury will take into account
                amount reported on the Statement of               GAO comments, if any, as it
                Operations and Changes in Net Position and        finalizes the reconciliation
                unified budget receipts reported on the           methodology for resolving these
                Statement of Changes in Cash Balance from         differences, as well as consider the
                Unified Budget and Other Activities.              AGA group’s recommendations
                                                                  related to the compilation of the
                                                                  reconciliation statement and cash
                                                                  statement.




                                     Page 19                                             GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                              a
                                                                                  Status of recommendation
Count   No.     Recommendation                                    Per Treasury and OMB               Per GAO
14      02-22   The Secretary of the Treasury should direct       During fiscal year 2012, Treasury   Open.
                the Fiscal Assistant Secretary, in coordination   will address some of the issues
                with the Controller of OMB, to perform an         raised by FASAB’s Reporting Entity
                assessment to define the reporting entity,        Task Force and Treasury is
                including its specific components, in             supporting and participating in the
                conformity with the criteria issued by the        task force’s efforts to help gain
                Federal Accounting Standards Advisory             clarity and finality on this issue.
                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.
15      02-23   The Secretary of the Treasury should direct     See the status of recommendation     Open.
                the Fiscal Assistant Secretary, in coordination No. 02-22.
                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.
16      02-24   The Secretary of the Treasury should direct     See the status of recommendation     Open.
                the Fiscal Assistant Secretary, in coordination No. 02-22.
                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.




                                     Page 20                                           GAO-12-529 U.S. CFS Management Report
                                      Appendix I: Status of Treasury’s and OMB’s
                                      Progress in Addressing GAO’s Prior Year
                                      Recommendations for Preparing the CFS




                                                                                                                 a
                                                                                    Status of recommendation
Count   No.     Recommendation                                      Per Treasury and OMB                Per GAO
17      02-35   The Secretary of the Treasury should direct         During fiscal year 2011, with few    Open.
                the Fiscal Assistant Secretary, in coordination     exceptions, the agencies provided
                with the Controller of OMB, to help ensure          Treasury and OMB adequate
                that federal agencies provide adequate              information in their legal
                information in their legal representation letters   representation letters regarding the
                regarding the expected outcomes of the              expected outcomes of the cases.
                cases.                                              Treasury and OMB will work with
                                                                    the few agencies to provide all
                                                                    required information in fiscal year
                                                                    2012. Treasury has already held a
                                                                    “lessons learned” meeting related
                                                                    to the fiscal year 2011 process and
                                                                    will work during the year with the
                                                                    Department of Justice (Justice),
                                                                    OMB and GAO and the agencies to
                                                                    determine if further changes in
                                                                    policy and/or guidance (e.g., OMB
                                                                    Memorandum 01-02) is needed for
                                                                    all agencies to provide the required
                                                                    information regarding the expected
                                                                    outcomes of legal cases in their
                                                                    legal representations.




                                      Page 21                                            GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                                  a
                                                                                   Status of recommendation
Count   No.     Recommendation                                    Per Treasury and OMB                    Per GAO
18      02-37   The Secretary of the Treasury should direct       Agencies are currently required to      Open. Until a
                the Fiscal Assistant Secretary, in coordination   report contingencies in their           comprehensive analysis
                with the Controller of OMB, to establish          financial statements and notes          of major treaty and other
                written policies and procedures to help           pursuant to generally accepted          international agreement
                ensure that major treaty and other                accounting principles (GAAP)            information has been
                international agreement information is            guidance. In addition, OMB Circular     performed, Treasury and
                properly identified and reported in the CFS.      A-136, specifically references the      OMB are precluded from
                Specifically, these policies and procedures       inclusion of treaties and               determining if additional
                should require that federal agencies develop      international agreements within         disclosure is required by
                a detailed schedule of all major treaties and     “Commitments and Contingencies.”        GAAP in the CFS, and
                other international agreements that obligate      Further, agencies include specific      we are precluded from
                the U.S. government to provide cash, goods,       representations with respect to         determining whether the
                or services, or that create other financial       material liabilities or contingencies   omitted information is
                arrangements that are contingent on the           in their management                     material.
                occurrence or nonoccurrence of future events      representations. In addition, the
                (a starting point for compiling these data        financial statements of most
                could be the State Department’s Treaties in       significant entities and many other
                Force).                                           federal entities received unqualified
                                                                  audit opinions. However, no
                                                                  additional analysis of treaties has
                                                                  been performed to reasonably
                                                                  ensure that all of the federal
                                                                  government’s treaties are
                                                                  considered in agency analyses or
                                                                  that agencies are consistently
                                                                  analyzing treaties for recognition or
                                                                  disclosure. Treasury will annually
                                                                  review agency financial statements,
                                                                  audit reports and management
                                                                  representation letters for any
                                                                  references to treaties and
                                                                  international agreements, and if
                                                                  deemed material will disclose in the
                                                                  CFS.
19      02-38   The Secretary of the Treasury should direct     See the status of recommendation          Open. See the status of
                the Fiscal Assistant Secretary, in coordination No. 02-37.                                recommendation
                with the Controller of OMB, to establish                                                  No. 02-37.
                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.




                                     Page 22                                             GAO-12-529 U.S. CFS Management Report
                                    Appendix I: Status of Treasury’s and OMB’s
                                    Progress in Addressing GAO’s Prior Year
                                    Recommendations for Preparing the CFS




                                                                                                            a
                                                                                 Status of recommendation
Count   No.     Recommendation                                Per Treasury and OMB                 Per GAO
20      02-39   The Secretary of the Treasury should direct     See the status of recommendation   Open. See the status of
                the Fiscal Assistant Secretary, in coordination No. 02-37.                         recommendation
                with the Controller of OMB, to establish                                           No. 02-37.
                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.
21      02-40   The Secretary of the Treasury should direct     See the status of recommendation   Open. See the status of
                the Fiscal Assistant Secretary, in coordination No. 02-37.                         recommendation
                with the Controller of OMB, to establish                                           No. 02-37.
                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.
22      02-41   The Secretary of the Treasury should direct     See the status of recommendation   Open. See the status of
                the Fiscal Assistant Secretary, in coordination No. 02-37.                         recommendation
                with the Controller of OMB, to establish                                           No. 02-37.
                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.




                                    Page 23                                          GAO-12-529 U.S. CFS Management Report
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS




                                                                                                                         a
                                                                                          Status of recommendation
Count      No.        Recommendation                                     Per Treasury and OMB                    Per GAO
23         02-129     The Secretary of the Treasury should direct        This information was requested          Open. Treasury’s
                      the Fiscal Assistant Secretary to ensure that      from federal agencies for disclosure    reporting in this area is
                      the note disclosure for stewardship                in the fiscal year 2011 CFS.            not complete. The CFS
                      responsibilities related to the risk assumed for   Treasury will work with agencies to     should include all major
                      federal insurance and guarantee programs           improve the consistency of this         federal insurance
                      meets the requirements of Statement of             disclosure in the fiscal year 2012      programs in the risk
                      Federal Financial Accounting Standards             CFS and will also monitor the work      assumed reporting and
                      (SFFAS) No. 5, Accounting for Liabilities of       of the FASAB task force that is         analysis. Also, since
                      the Federal Government, paragraph 106,             reviewing the reporting for risk        future events are
                      which requires that when financial information     assumed.                                uncertain, risk assumed
                      pursuant to Financial Accounting Standards                                                 information should
                      Board standards on federal insurance and                                                   include indicators of the
                      guarantee programs conducted by                                                            range of uncertainty
                      government corporations is incorporated in                                                 around expected
                      general purpose financial reports of a larger                                              estimates, including
                      federal reporting entity, the entity should                                                indicators of the
                      report as required supplementary information                                               sensitivity of the estimate
                      what amounts and periodic change in those                                                  to changes in major
                      amounts would be reported under the “risk                                                  assumptions.
                      assumed” approach.
GAO-04-866 (results of the fiscal year 2003 audit)
24         03-6       The Secretary of the Treasury should direct        Treasury will analyze cash              Open. Treasury has not
                      the Fiscal Assistant Secretary to develop a        transactions, and work with its         established and
                      process that will allow full reporting of the      Cash Policy area to achieve             implemented effective
                      changes in cash balance of the U.S.                complete and consistent reporting       processes and
                      government. Specifically, the process should       of cash transactions, to provide full   procedures for identifying
                      provide for reporting on the change in cash        reporting of the changes in the         and reporting all items
                      reported on the consolidated balance sheet,        cash balance of the U.S.                needed to prepare the
                      which should be linked to cash balances            government.                             Statement of Changes in
                      reported in federal agencies’ audited financial                                            Cash Balance from
                      statements.                                                                                Unified Budget and Other
                                                                                                                 Activities.
25         03-8       The Director of OMB should direct the              OMB, working with Treasury,          Open.
                      Controller of OMB, in coordination with            Justice, and certain other agencies,
                      Treasury’s Fiscal Assistant Secretary, to work     will continue working to address
                      with the Department of Justice (Justice) and       this recommendation.
                      certain other executive branch federal
                      agencies to ensure that these federal
                      agencies report or disclose relevant criminal
                      debt information in conformity with generally
                      accepted accounting principles (GAAP) in
                      their financial statements and have such
                      information subjected to audit.
26         03-9       The Secretary of the Treasury should direct        Treasury will disclose criminal debt Open.
                      the Fiscal Assistant Secretary to include          information in the CFS if material
                      relevant criminal debt information in the CFS      as reflected in the agencies’
                      or document the specific rationale for             financial statements. See the status
                      excluding such information.                        of recommendation No. 03-8.




                                           Page 24                                               GAO-12-529 U.S. CFS Management Report
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS




                                                                                                                        a
                                                                                          Status of recommendation
Count      No.        Recommendation                                     Per Treasury and OMB                   Per GAO
27         03-11      The Secretary of the Treasury should direct        Treasury’s current CFS compilation     Open. Treasury’s
                      the Fiscal Assistant Secretary, in coordination    process provides for direct linkage    process for compiling the
                      with the Controller of OMB, to modify              from the 35 significant federal        CFS generally
                      Treasury’s plans for the new closing package       agencies audited financial             demonstrated that
                      to (1) require federal agencies to directly link   statements to most of the CFS          amounts in the
                      their audited financial statement notes to the     principal statements and to the        Statement of Social
                      CFS notes and (2) provide the necessary            related note disclosures. However,     Insurance and the
                      information to demonstrate that all of the five    additional work is needed related to   Statement of Changes in
                      principal consolidated financial statements        the two budgetary principal            Social Insurance
                      are consistent with the underlying information     financial statements. Treasury will    Amounts were consistent
                      in federal agencies’ audited financial             take into account GAO comments,        with the underlying
                      statements and other financial data.               if any, as it develops its             federal entities’ financial
                                                                         reconciliation methodology during      statements and that the
                                                                         fiscal year 2012. Treasury will also   Balance Sheet and the
                                                                         consider the AGA group’s               Statement of Net Cost
                                                                         comments and recommendations           were also consistent with
                                                                         to improve the compilation of the      the 35 significant federal
                                                                         reconciliation statement and cash      entities’ financial
                                                                         statement. See the status of           statements prior to
                                                                         recommendation No. 02-13 and           eliminating
                                                                         No. 02-15.                             intragovernmental activity
                                                                                                                and balances. However,
                                                                                                                Treasury’s process did
                                                                                                                not ensure that the
                                                                                                                information in the
                                                                                                                remaining three principal
                                                                                                                financial statements was
                                                                                                                fully consistent with the
                                                                                                                underlying information in
                                                                                                                the 35 significant federal
                                                                                                                entities’ audited financial
                                                                                                                statements and other
                                                                                                                financial data.
GAO-05-407 (results of the fiscal year 2004 audit)
28         04-3       The Secretary of the Treasury should direct        During fiscal year 2012, Treasury      Open.
                      the Fiscal Assistant Secretary to require that     will fully implement and enforce its
                      Treasury employees contact and document            procedures to document
                      communications with federal agencies before        communications to the agencies in
                      recording journal vouchers to change agency        the supporting documentation for
                      audited closing package data.                      journal vouchers.




                                           Page 25                                              GAO-12-529 U.S. CFS Management Report
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS




                                                                                                                      a
                                                                                        Status of recommendation
Count      No.        Recommendation                                   Per Treasury and OMB                Per GAO
29         04-6       The Secretary of the Treasury should direct      During fiscal year 2011, with the     Open.
                      the Fiscal Assistant Secretary to assess the     assistance of its contractor,
                      infrastructure associated with the compilation   Treasury continued to make
                      process and modify it as necessary to            improvements to its internal control
                      achieve a sound internal control environment.    infrastructure. Treasury updated,
                                                                       and will revise and improve, its
                                                                       standard operating procedures
                                                                       (SOP) to document that key
                                                                       controls are in place at all critical
                                                                       areas of the CFS preparation
                                                                       process. Treasury will monitor and
                                                                       assess its efforts to determine its
                                                                       progress in achieving a sound
                                                                       internal control environment.
                                                                       Also, during fiscal year 2011,
                                                                       Treasury restructured the
                                                                       management of the organization
                                                                       responsible for the CFS compilation
                                                                       process to provide additional
                                                                       oversight and accountability over
                                                                       the year-end CFS process.
                                                                       In addition, during fiscal year 2012,
                                                                       Treasury plans to obtain additional
                                                                       personnel, via details from other
                                                                       agencies, with financial reporting
                                                                       expertise, to assist with
                                                                       enhancements and improvements
                                                                       to internal controls.
GAO-06-415 (results of the fiscal year 2005 audit)
30         05-3       The Director of OMB should direct the            For fiscal year 2011, OMB did not    Closed.
                      Controller of the Office of Federal Financial    waive the closing package audit
                      Management to consider, in order to provide      requirements for any verifying
                      audit assurance over federal agencies’           agency. In addition, over the last 3
                      closing packages, not waiving the closing        fiscal years, TVA progressively
                      package audit requirements for any verifying     moved closer to submitting its
                      agency in future years, such as Tennessee        closing package by the required
                      Valley Authority (TVA).                          financial reporting deadline and is
                                                                       now submitting the closing package
                                                                       timely.
GAO-07-805 (results of the fiscal year 2006 audit)
31         06-6       The Secretary of the Treasury should direct      Treasury, in coordination with OMB Open.
                      the Fiscal Assistant Secretary, working in       and Justice, will work during fiscal
                      coordination with the Controller of OMB’s        year 2012 to establish effective
                      Office of Federal Financial Management, to       processes and procedures to
                      establish effective processes and procedures     require that appropriate information
                      to ensure that appropriate information           regarding litigation and claims is
                      regarding litigation and claims is included in   included in the governmentwide
                      the governmentwide legal representation          legal representation letter.
                      letter.




                                           Page 26                                           GAO-12-529 U.S. CFS Management Report
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS




                                                                                                                          a
                                                                                          Status of recommendation
Count      No.        Recommendation                                     Per Treasury and OMB                     Per GAO
32         06-7       The Secretary of the Treasury should direct        During fiscal year 2012, Treasury        Open. Treasury furthered
                      the Fiscal Assistant Secretary, working in         will continue its intragovernmental      its commitment to resolve
                      coordination with the Controller of OMB’s          collection, analysis, and reporting      differences in
                      Office of Federal Financial Management, to         process as enhanced in fiscal year       intragovernmental activity
                      develop a process for obtaining sufficient         2011, for obtaining sufficient           and balances, for
                      information from federal agencies to enable        information from federal agencies        example, by expanding
                      Treasury and OMB to adequately monitor             to enable Treasury and OMB to            focus groups’ monitoring
                      federal agencies’ efforts to reconcile             adequately monitor federal               and outreach efforts that
                      intragovernmental activity and balances with       agencies’ efforts to reconcile           involved quarterly
                      their trading partners. This information should    intragovernmental activity and           analysis and ongoing
                      include (1) the nature and a detailed              balances with their trading partners.    collaboration with entities
                      description of the significant differences that    The information obtained includes        to resolve
                      exist between trading partners’ records of         (1) the nature and a detailed            intragovernmental
                      intragovernmental activity and balances,           description of the significant           differences.
                      (2) detailed reasons why such differences          differences that exist between           However, we found that a
                      exist, (3) details of steps taken or being taken   trading partners’ records of             significant number of
                      to work with federal agencies’ trading             intragovernmental activity and           CFOs continue to cite
                      partners to resolve the differences, and           balances, (2) detailed reasons why       differing accounting
                      (4) the potential outcome of such steps.           such differences exist, (3) details of   methodologies,
                                                                         steps taken or being taken to work       accounting errors, and
                                                                         with federal agencies’ trading           timing differences for
                                                                         partners to resolve the differences,     material differences with
                                                                         (4) the potential outcome of such        their trading partners.
                                                                         steps, and (5) additional                Some CFOs indicated
                                                                         information related to their             that they did not know
                                                                         intragovernmental differences that       the reason for the
                                                                         would allow Treasury to correct          differences.
                                                                         these differences within GFRS.
                                                                         This effort was successful during
                                                                         fiscal year 2011 in reducing the
                                                                         amount, both on a net and absolute
                                                                         value basis, of the total amount of
                                                                         intragovernmental differences.
GAO-08-748 (results of the fiscal year 2007 audit)
33         07-1       The Secretary of the Treasury should direct     Treasury will document all of its           Open.
                      the Fiscal Assistant Secretary to enhance and current practices for preparing the
                      fully document all practices referred to in the CFS in the SOP.
                      standard operating procedure (SOP) entitled
                      “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.




                                           Page 27                                               GAO-12-529 U.S. CFS Management Report
                                    Appendix I: Status of Treasury’s and OMB’s
                                    Progress in Addressing GAO’s Prior Year
                                    Recommendations for Preparing the CFS




                                                                                                                 a
                                                                                   Status of recommendation
Count   No.    Recommendation                                    Per Treasury and OMB                    Per GAO
34      07-2   The Secretary of the Treasury should direct       Treasury addressed many of              Closed. Over the past
               the Fiscal Assistant Secretary to enhance         GAO’s concerns related to the           few years, Treasury has
               Treasury’s checklist or design an alternative     checklist during fiscal year 2011,      taken several actions to
               and use it to adequately and timely document      specifically the inclusion of           address this
               Treasury’s assessment of the relevance,           disclosure items related to the         recommendation. To
               usefulness, or materiality of information         principal financial statements and      provide
               reported by the federal agencies for use at       management’s discussion and             recommendations that
               the governmentwide level.                         analysis.                               are better aligned with
                                                                                                         the current status of
                                                                                                         remaining deficiencies
                                                                                                         related to this area, we
                                                                                                         have (1) closed this
                                                                                                         recommendation based
                                                                                                         on Treasury’s significant
                                                                                                         progress and (2) included
                                                                                                         in this report under
                                                                                                         “Timely Review and
                                                                                                         Approval of the Financial
                                                                                                         Reporting Disclosure
                                                                                                         Checklist” new
                                                                                                         recommendations for
                                                                                                         corrective actions for the
                                                                                                         remaining deficiencies.
35      07-5   The Director of OMB should direct the             Treasury will work with OMB to          Open.
               Controller of OMB’s Office of Federal             perform this analysis and to
               Financial Management, in coordination with        develop policies and procedures,
               Treasury’s Fiscal Assistant Secretary, to         as part of developing its
               develop formal processes and procedures for       reconciliation methodology, to
               identifying and resolving any material            resolve these differences. OMB
               differences in distributed offsetting receipt     and Treasury, as applicable, will
               amounts included in the net outlay calculation    continue their efforts to implement
               of federal agencies’ Statement of Budgetary       the completed methodology.
               Resources and the amounts included in the         Treasury will also be working with
               computation of the budget deficit in the CFS.     OMB to further identify and define
                                                                 all sources of distributed offsetting
                                                                 receipts reported to STAR/CARS.
36      07-9   The Secretary of the Treasury should direct       Treasury is in the process of           Open.
               the Fiscal Assistant Secretary, in coordination   reviewing its documentation of
               with the Controller of OMB’s Office of Federal    internal control procedures, as
               Financial Management, to develop and              completed during fiscal year 2011,
               implement effective processes for monitoring      to determine what internal control
               and assessing the effectiveness of internal       design gaps remain and what
               control over the processes used to prepare        further controls are needed related
               the CFS.                                          to new or revised procedures. See
                                                                 also the status of recommendation
                                                                 No. 04-6.




                                    Page 28                                              GAO-12-529 U.S. CFS Management Report
                                          Appendix I: Status of Treasury’s and OMB’s
                                          Progress in Addressing GAO’s Prior Year
                                          Recommendations for Preparing the CFS




                                                                                                                     a
                                                                                       Status of recommendation
Count      No.        Recommendation                                 Per Treasury and OMB                  Per GAO
37         07-10      The Secretary of the Treasury should direct    Treasury is leading a subgroup with Open.
                      the Fiscal Assistant Secretary, working in     governmentwide participation on
                      coordination with the Controller of OMB’s      the OMB Circular No. A-136
                      Office of Federal Financial Management, to     subcommittee to determine what
                      develop and implement alternative solutions    information can be obtained during
                      to performing almost all of the compilation    the third and fourth quarters of
                      effort at the end of the year, including       fiscal year 2012 to facilitate the
                      obtaining and utilizing interim financial      year-end CFS preparation process.
                      information from federal agencies.             Depending on the results of this
                                                                     effort, Treasury will consider what
                                                                     additional requirements related to
                                                                     third quarter information in fiscal
                                                                     year 2013 are needed to facilitate
                                                                     the year-end compilation effort.
GAO-09-387 (results of the fiscal year 2008 audit)
38         08-01      The Secretary of the Treasury should direct    During fiscal year 2012, Treasury       Open.
                      the Fiscal Assistant Secretary to design,      will evaluate the adequacy of the
                      document, and implement policies and           payroll tax amounts reported in the
                      procedures to identify and eliminate           Monthly Treasury Statement by
                      intragovernmental payroll tax amounts at the   discussing the methodology for
                      governmentwide level when compiling the        preparing this amount with the
                      CFS.                                           providing agency. If deemed
                                                                     adequate, policies and procedures
                                                                     will be modified to reflect the results
                                                                     of the analysis and document how
                                                                     this amount is identified and used
                                                                     when compiling the CFS.




                                          Page 29                                           GAO-12-529 U.S. CFS Management Report
                                           Appendix I: Status of Treasury’s and OMB’s
                                           Progress in Addressing GAO’s Prior Year
                                           Recommendations for Preparing the CFS




                                                                                                                            a
                                                                                          Status of recommendation
Count      No.        Recommendation                                    Per Treasury and OMB                      Per GAO
39         08-02      The Secretary of the Treasury should direct       The Office of the Fiscal Assistant        Closed. Over the past
                      the Fiscal Assistant Secretary, in coordination   Secretary (OFAS) first implemented        few years, Treasury, in
                      with the Controller of OMB, to develop,           SOPs concerning the preparation           coordination with OMB,
                      document, and implement processes and             of the MD&A and Citizen’s Guide           has taken several actions
                      procedures for preparing and reviewing the        for the fiscal year 2009 Financial        to address this
                      Management’s Discussion and Analysis              Report. Since that time, instances        recommendation. To
                      (MD&A) and “The Federal Government’s              of inaccuracies, inconsistency, and       provide
                      Financial Health: A Citizen’s Guide to the        incompleteness have been                  recommendations that
                      Financial Report of the United States             consistently lower than in prior          are better aligned with
                      Government” sections of the Financial Report      years. OFAS will update its SOPs          the current status of
                      of the U.S. Government (Financial Report) to      as needed to reflect new reporting        remaining deficiencies
                      help assure that information reported in these    requirements and/or process               related to this area, we
                      sections is complete, accurate, and               improvements.                             have (1) closed this
                      consistent with related information reported                                                recommendation based
                      elsewhere in the Financial Report.                                                          on Treasury’s and OMB’s
                                                                                                                  significant progress, and
                                                                                                                  (2) included in this report
                                                                                                                  under “Review and
                                                                                                                  Approval of the Financial
                                                                                                                  Report” new
                                                                                                                  recommendations for
                                                                                                                  corrective actions for the
                                                                                                                  remaining deficiencies.


40         08-03      The Secretary of the Treasury should direct       During fiscal year 2011, Treasury         Closed.
                      the Fiscal Assistant Secretary, in coordination   and OMB established and
                      with the Controller of OMB, to establish and      documented the criteria to identify
                      document criteria to be used in identifying       all federal entities that are
                      federal entities as significant to the CFS for    significant to the CFS.
                      purposes of obtaining assurance over the
                      information being submitted by those entities
                      for the CFS.
41         08-04      The Secretary of the Treasury should direct       During fiscal year 2011, Treasury         Open. During fiscal year
                      the Fiscal Assistant Secretary, in coordination   used the significant entity criteria to   2011, Treasury did not
                      with the Controller of OMB, to develop and        assess which entities are                 properly implement its
                      implement policies and procedures for             considered significant to the CFS,        procedures for assessing
                      assessing and documenting, on an annual           and will perform this assessment          which entities meet its
                      basis, which entities meet the criteria           on an annual basis.                       criteria for identifying
                      established for identifying federal entities as                                             federal entities as
                      significant to the CFS.                                                                     significant to the CFS.


GAO-10-757 results of the fiscal year 2009 audit)
42         09-03      The Secretary of the Treasury should direct       During fiscal year 2011, Treasury    Closed.
                      the Fiscal Assistant Secretary to enhance the     complied with its enhanced
                      SOP entitled “Analyzing Agency                    procedures for analyzing the impact
                      Restatements” to include procedures for           of entities’ restatements on the
                      analyzing the overall impact of entities’         CFS, documenting its analysis and
                      restatements on the CFS and documenting           related conclusions, and correctly
                      the analysis and related conclusion.              incorporating the impact of the
                                                                        entities’ restatements into the CFS.




                                           Page 30                                               GAO-12-529 U.S. CFS Management Report
                                     Appendix I: Status of Treasury’s and OMB’s
                                     Progress in Addressing GAO’s Prior Year
                                     Recommendations for Preparing the CFS




                                                                                                               a
                                                                                  Status of recommendation
Count   No.     Recommendation                                   Per Treasury and OMB                Per GAO
43      09-04   The Secretary of the Treasury should direct      Treasury will fully implement its     Open.
                the Fiscal Assistant Secretary to develop,       procedures for identifying,
                implement, and document procedures for           analyzing, compiling, and reporting
                identifying, analyzing, compiling, and           all related party transactions at the
                reporting all significant accounting policies    governmentwide level in fiscal year
                and related party transactions at the            2012 by verifying the related party
                governmentwide level.                            information received in the closing
                                                                 packages to the agencies’
                                                                 underlying audited financial
                                                                 statements, and will document this
                                                                 verification procedure. In addition,
                                                                 Treasury will monitor the work of
                                                                 FASAB’s Reporting Entity Task
                                                                 Force as it relates to related party
                                                                 disclosures.
44      09-06   The Secretary of the Treasury should direct      In fiscal year 2012, Treasury will   Open.
                the Fiscal Assistant Secretary to enhance the    comply with its enhanced             .
                SOP entitled “Statement of Social Insurance,     Statement of Social Insurance SOP
                Social Insurance Note, and Required              to document that all the social
                Supplementary Information” to implement and      insurance information in the CFS is
                document procedures for assuring the             consistent with the agencies’ social
                accuracy of staff’s work related to preparing    insurance information.
                the social insurance information for the CFS.
45      09-08   The Secretary of the Treasury should direct      In fiscal year 2011, Treasury      Closed.
                the Fiscal Assistant Secretary to implement      improved the implementation and
                and document procedures for assuring the         documentation of its procedures to
                accuracy of staff’s work related to preparing    help assure completeness and
                the Schedule of Differences.                     accuracy of documenting the
                                                                 inconsistencies between the
                                                                 amounts provided by the agencies.
46      09-10   The Secretary of the Treasury should direct      During fiscal year 2012 Treasury    Open.
                the Fiscal Assistant Secretary to implement      will improve the implementation
                and document procedures for assuring the         and documentation of its
                accuracy of staff’s work related to performing   procedures to address remaining
                analytical procedures.                           GAO issues related to assuring the
                                                                 accuracy of staff’s work related to
                                                                 performing analytical procedures,
                                                                 specifically strengthening the
                                                                 explanations for all significant
                                                                 variances found during the year-
                                                                 end analyses.




                                     Page 31                                           GAO-12-529 U.S. CFS Management Report
                                          Appendix I: Status of Treasury’s and OMB’s
                                          Progress in Addressing GAO’s Prior Year
                                          Recommendations for Preparing the CFS




                                                                                                                            a
                                                                                             Status of recommendation
Count      No.        Recommendation                                         Per Treasury and OMB                 Per GAO
GAO-11-525 (results of the fiscal year 2010 audit)
47         10-01      The Secretary of the Treasury should direct            During fiscal year 2011, Treasury    Closed. Treasury has
                      the Fiscal Assistant Secretary to enhance the          enhanced and implemented the         taken several actions to
                      applicable SOPs to include required steps for          applicable SOPs to verify the        address this
                      assuring conformity with SFFAS No. 33 and              conformity with SFFAS No. 33 and     recommendation. To
                      the consistency of amounts between the                 the consistency of amounts           provide
                      Statement of Net Cost and the Federal                  between the Statement of Net Cost    recommendations that
                      Employee and Veteran Benefits Payable                  and FEVBP note disclosure.           are better aligned with
                      (FEVBP) note disclosure.                                                                    the current status of
                                                                                                                  remaining deficiencies
                                                                                                                  related to this area, we
                                                                                                                  have (1) closed this
                                                                                                                  recommendation based
                                                                                                                  on Treasury’s significant
                                                                                                                  progress and (2) included
                                                                                                                  in this report under
                                                                                                                  “Review of Federal
                                                                                                                  Entities’ Financial
                                                                                                                  Information for Inclusion
                                                                                                                  in the CFS” a new
                                                                                                                  recommendation for
                                                                                                                  corrective actions for the
                                                                                                                  remaining deficiencies.
48         10-02      The Secretary of the Treasury should direct            See the status of recommendation     Closed. See the status of
                      the Fiscal Assistant Secretary to implement            No. 10-01.                           recommendation
                      and document procedures for assuring                                                        No. 10-01.
                      conformity with SFFAS No. 33 and the
                      consistency of amounts between the
                      Statement of Net Cost and the FEVBP note
                      disclosure.
49         10-03      The Director of OMB should direct the                  During fiscal year 2011, OMB         Closed.
                      Controller of OMB to enhance its procedures            reported this information on the
                      for preparing the appendixes to include                newly released Performance.gov
                      required steps to assure the accuracy and              website and no longer included this
                      consistency of the accompanying information            in the Other Accompanying
                      presented in the appendixes to the Financial           Information section of the Financial
                      Report related to the federal government’s             Report.
                      financial management.
50         10-04      The Director of OMB should direct the                  See the status of recommendation     Closed.
                      Controller of OMB to enhance its procedures            No. 10-03.
                      for preparing the appendixes to include
                      required steps to maintain documentation
                      supporting the accompanying information
                      presented in the appendixes to the Financial
                      Report related to the federal government’s
                      financial management.
                                          Sources: GAO, Treasury, and OMB.
                                          a
                                           The status of the recommendations listed in app. I is as of December 12, 2011, the date of our report
                                          on the audit of the fiscal year 2011 CFS.




                                          Page 32                                                  GAO-12-529 U.S. CFS Management Report
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of the Treasury



of the Treasury




             Page 33                                     GAO-12-529 U.S. CFS Management Report
           Appendix II: Comments from the Department
           of the Treasury




(198705)
           Page 34                                     GAO-12-529 U.S. CFS Management Report
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                      Washington, DC 20548




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