oversight

Financial Audit: Bureau of the Public Debt's Fiscal Years 2012 and 2011 Schedules of Federal Debt

Published by the Government Accountability Office on 2012-11-08.

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

                United States Government Accountability Office

GAO             Report to the Secretary of the Treasury




                FINANCIAL AUDIT
November 2012




                Bureau of the Public
                Debt’s Fiscal Years
                2012 and 2011
                Schedules of Federal
                Debt




GAO-13-114
                                             November 2012

                                             FINANCIAL AUDIT
                                             Bureau of the Public Debt's Fiscal Years 2012 and
                                             2011 Schedules of Federal Debt
Highlights of GAO-13-114, a report to the
Secretary of the Treasury




Why GAO Did This Study                       What GAO Found
GAO is required to audit the                 In GAO’s opinion, the Bureau of the Public Debt’s (BPD) Schedules of Federal
consolidated financial statements of         Debt for fiscal years 2012 and 2011 were fairly presented in all material respects,
the U.S. government. Because of the          and BPD maintained effective internal control over financial reporting relevant to
significance of the federal debt held by     the Schedule of Federal Debt as of September 30, 2012. GAO’s tests of BPD’s
the public to the government-wide            compliance in fiscal year 2012 with selected provisions of laws related to the
financial statements, GAO audits             Schedule of Federal Debt disclosed no instances of noncompliance.
BPD’s Schedules of Federal Debt
annually to determine whether, in all        As of September 30, 2012 and 2011, federal debt managed by BPD totaled
material respects, (1) the schedules
                                             $16,059 billion and $14,781 billion, respectively. GAO has audited the Schedule
are reliable and (2) BPD management
                                             of Federal Debt since fiscal year 1997. Over this period, total federal debt has
maintained effective internal control
over financial reporting relevant to the
                                             increased by 197 percent. Also during this period, the statutory debt limit was
Schedule of Federal Debt. Further,           raised 13 times, from $5,950 billion to its current level of $16,394 billion.
GAO tests compliance with selected
provisions of laws related to the            Total Federal Debt Outstanding, September 30, 1997, through September 30, 2012
Schedule of Federal Debt.
Federal debt managed by BPD
consists of Treasury securities held by
the public and by certain federal
government accounts, referred to as
intragovernmental debt holdings. Debt
held by the public essentially
represents the amount the federal
government has borrowed to finance
cumulative cash deficits.
Intragovernmental debt holdings
represent balances of Treasury
securities held by federal government
accounts—primarily federal trust funds
such as Social Security and
Medicare—that typically have an
obligation to invest their excess annual
receipts (including interest earnings)
over disbursements in federal
securities.
In commenting on a draft of this report,
                                             During fiscal year 2012, delays in raising the statutory debt limit occurred prior to
BPD’s Commissioner concurred with            the January 2012 increase in the limit, with the Department of the Treasury
GAO's conclusions.                           (Treasury) deviating from its normal debt management operations and taking
                                             certain extraordinary actions within its legal authorities to avoid exceeding the
                                             debt limit. As part of the process established by the Budget Control Act of 2011,
                                             the statutory debt limit was increased by $1,200 billion effective after close of
                                             business on January 27, 2012. In July 2012, GAO reported on extraordinary
                                             actions Treasury took during 2011 and January 2012 to manage federal debt
                                             when delays in raising the debt limit occurred and the effect of delayed increases
                                             on Treasury borrowing costs. As with its February 2011 report, GAO also noted
                                             in its July 2012 report that Congress should consider ways to better link
View GAO-13-114. For more information,       decisions about the debt limit with decisions about spending and revenue to
contact Gary T. Engel at (202) 512-3406 or
engelg@gao.gov.                              avoid potential disruptions to the Treasury market and to help inform the fiscal
                                             policy debate in a timely way.

                                                                                         United States Government Accountability Office
Contents


Letter                                                                                                                      1

Independent Auditor’s Report                                                                                                7
                                 Opinion on the Schedules of Federal Debt                                                   8
                                 Opinion on Internal Control                                                                8
                                 Compliance with Selected Provisions of Laws                                                9
                                 Other Information                                                                          9
                                 Objectives, Scope, and Methodology                                                         9
                                 Agency Comments                                                                           12

Overview, Schedules, and Notes                                                                                             13
                                 Overview on Federal Debt Managed by the Bureau of the Public Debt                         13
                                 Schedules of Federal Debt                                                                 22
                                 Notes to the Schedules of Federal Debt                                                    23


Appendix I                       Management’s Report on Internal Control over Financial
                                 Reporting Relevant to the Schedule of Federal Debt                                        29



Appendix II                      Comments from the Bureau of the Public Debt                                               30




                                 Abbreviations
                                 BCA            Budget Control Act of 2011
                                 BPD            Bureau of the Public Debt
                                 ESF            Exchange Stabilization Fund
                                 GDP            gross domestic product


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                                 Page i                                               GAO-13-114 Schedules of Federal Debt
United States Government Accountability Office
Washington, DC 20548




                                   November 8, 2012

                                   The Honorable Timothy F. Geithner
                                   Secretary of the Treasury

                                   Dear Mr. Secretary:

                                   The accompanying auditor’s report presents the results of our audits of
                                   the Schedules of Federal Debt Managed by the Bureau of the Public Debt
                                   for the fiscal years ended September 30, 2012 and 2011. The Schedules
                                   of Federal Debt present the beginning balances, increases and
                                   decreases, and ending balances for (1) Federal Debt Held by the Public
                                   and Intragovernmental Debt Holdings, (2) the related Accrued Interest
                                   Payables, and (3) the related Net Unamortized Premiums and Discounts
                                   managed by the Department of the Treasury’s (Treasury) Bureau of the
                                   Public Debt (BPD).

                                   The auditor’s report contains our (1) unqualified opinions on the
                                   Schedules of Federal Debt for the fiscal years ended September 30, 2012
                                   and 2011; (2) opinion that BPD maintained, in all material respects,
                                   effective internal control over financial reporting relevant to the Schedule
                                   of Federal Debt as of September 30, 2012; and (3) conclusion that our
                                   tests of BPD’s compliance with selected provisions of laws related to the
                                   Schedule of Federal Debt disclosed no instances of reportable
                                   noncompliance.

                                   As of September 30, 2012 and 2011, federal debt managed by BPD
                                   totaled $16,059 billion and $14,781 billion, respectively, primarily for
                                   borrowings to fund the federal government’s operations. As shown on the
                                   Schedules of Federal Debt, these balances consisted of approximately
                                   (1) $11,270 billion as of September 30, 2012, and $10,127 billion as of
                                   September 30, 2011, of debt held by the public and (2) $4,789 billion as
                                   of September 30, 2012, and $4,654 billion as of September 30, 2011, of
                                   intragovernmental debt holdings.

                                   Debt held by the public essentially represents the amount the federal
                                   government has borrowed from the public to finance cumulative cash
                                   deficits. When a cash surplus occurs, the annual excess funds can be
                                   used to reduce debt held by the public. In other words, annual cash
                                   deficits or surpluses generally approximate the annual net change in the
                                   amount of federal government borrowing from the public. Debt held by the
                                   public represents federal debt issued by Treasury and held by investors


                                   Page 1                                      GAO-13-114 Schedules of Federal Debt
outside of the federal government, including individuals, corporations,
state or local governments, the Federal Reserve, and foreign
governments. The majority of debt held by the public consists of
marketable Treasury securities, such as bills, notes, bonds, and Treasury
Inflation-Protected Securities that are sold through auctions and can be
resold by whoever owns them. Treasury also issues a smaller amount of
nonmarketable securities, such as savings securities and State and Local
Government Series securities.

As we have noted in previous years, Treasury reporting shows that
foreign ownership of Treasury securities represents a significant portion
of debt held by the public. As of June 30, 2012, the reported amount of
Treasury securities held by foreign and international investors
represented an estimated 48 percent of debt held by the public. This
percentage is slightly higher than the 46 percent as of June 30, 2011, and
remains considerably higher than the estimated 30 percent of debt held
by the public as of June 30, 2001. Treasury estimates that the amount of
Treasury securities held by foreign and international investors has
increased from $983 billion as of June 30, 2001, to $5,311 billion as of
June 30, 2012—an increase of $4,328 billion. Estimates of foreign
ownership of Treasury securities are derived from information reported
under the Treasury International Capital reporting system not from the
financial system used to prepare the Schedule of Federal Debt. These
estimates are not reported on the Schedules of Federal Debt and as such
we do not audit these amounts. 1

Intragovernmental debt holdings represent federal debt owed by Treasury
to federal government accounts—primarily federal trust funds such as
Social Security and Medicare—that typically have an obligation to invest
their excess annual receipts (including interest earnings) over
disbursements in federal securities. Most federal government accounts
invest in special nonmarketable Treasury securities that represent legal
obligations of the Treasury and are guaranteed for principal and interest
by the full faith and credit of the U.S. government. The federal
government uses the federal government accounts’ invested cash
surpluses to assist in funding other federal government operations. Unlike
debt held by the public, intragovernmental debt holdings are not shown as



1
 Treasury, Major Foreign Holders of Treasury Securities, accessed November 1, 2012,
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt.




Page 2                                            GAO-13-114 Schedules of Federal Debt
balances on the federal government’s consolidated financial statements
because they represent loans from one part of the federal government to
another. Under U.S. generally accepted accounting principles, when the
federal government’s financial statements are consolidated, those
offsetting balances are eliminated.

Debt held by the public and intragovernmental debt holdings are very
different. Debt held by the public represents a burden on today’s
economy as borrowing from the public absorbs resources available for
private investment and may put upward pressure on interest rates. In
addition, interest on debt held by the public is paid in cash and represents
a burden on current taxpayers. Moreover, the interest paid on this debt
may reduce budget flexibility because, unlike most of the budget, it
cannot be controlled directly. In contrast, intragovernmental debt holdings
typically do not require cash payments from the current budget or
represent a burden on the current economy. In addition, from the
perspective of the budget as a whole, Treasury’s interest payments to
federal government accounts are entirely offset by the income received
by such accounts. However, this intragovernmental debt and related
interest reflects a burden on taxpayers and the economy in the future.
Specifically, when federal government accounts redeem Treasury
securities to obtain cash to fund expenditures, Treasury usually borrows
from the public to finance these redemptions. 2

We have audited the Schedule of Federal Debt since fiscal year 1997.
Over this period, total federal debt has increased by 197 percent. Also
during this period, the statutory debt limit was raised 13 times, from
$5,950 billion to $16,394 billion. During the last 4 fiscal years, total federal
debt has increased by $6,048 billion, or 60 percent, from $10,011 billion
as of September 30, 2008, to $16,059 billion as of September 30, 2012.
The rapid growth in federal debt during this period presented debt
management challenges for Treasury. 3 The economic downturn along
with the federal government’s response to it contributed to this rapid
buildup in federal debt held by the public. As a result, the increases to


2
 For more information regarding the federal debt, see GAO, Federal Debt: Answers to
Frequently Asked Questions, accessed November 1, 2012,
www.gao.gov/special.pubs/longterm/debt.
3
 For more information, see GAO, Debt Management: Treasury Was Able to Fund
Economic Stabilization and Recovery Expenditures in a Short Period of Time, but Debt
Management Challenges Remain, GAO-10-498 (Washington, D.C.: May 18, 2010).




Page 3                                             GAO-13-114 Schedules of Federal Debt
total federal debt over the past 4 fiscal years represent the largest dollar
increases over a 4-year period in history. During fiscal year 2012 alone,
total federal debt increased by $1,278 billion. Of the fiscal year 2012
increase, $1,143 billion was from the increase in debt held by the public
and $135 billion was from the increase in intragovernmental debt
holdings. Notably, the statutory debt limit was raised on seven different
occasions during the last 4 fiscal years, increasing by about 54 percent,
from $10,615 billion to its current level of $16,394 billion. As of September
30, 2012, debt subject to the limit totaled $16,027 billion. 4

During fiscal year 2012, Treasury faced an additional challenge of
managing federal debt close to the statutory debt limit. Delays in raising
the statutory debt limit occurred prior to the January 2012 increase in the
limit, with Treasury deviating from its normal debt management
operations and taking certain extraordinary actions within its legal
authorities from January 4, 2012, through January 27, 2012, to avoid
exceeding the debt limit. These actions included suspending investments
to the Government Securities Investment Fund of the Federal Employees’
Retirement System (G-Fund) 5 and the Exchange Stabilization Fund
(ESF). 6 As part of the process established by the Budget Control Act of
2011 (BCA), the statutory debt limit was increased by $1,200 billion to its
current level of $16,394 billion effective after close of business on
January 27, 2012. 7 Subsequent to the January 2012 increase in the
statutory debt limit, Treasury fully restored the G-Fund to the position it
would have been in had the suspensions of debt not occurred. Treasury
also invested the uninvested principal for January 2012 to the ESF.
However, Treasury did not restore interest losses to the ESF because it
lacks legislative authority to do so. Additionally, as a result of
extraordinary actions taken in fiscal year 2011 to manage federal debt


4
 Debt subject to the limit is primarily comprised of total federal debt managed by BPD, as
reported on the Schedule of Federal Debt, less unamortized discounts on Treasury bills
and Zero Coupon Treasury bonds.
5
 The G-Fund contains contributions made by federal employees toward their retirement as
part of the Thrift Savings Plan program.
6
The ESF is used to help provide a stable system of monetary exchange rates.
7
 On August 2, 2011, Congress and the President enacted the Budget Control Act of 2011
(Pub. L. No. 112-25), which established a process that resulted in debt limit increases in
three increments—$400 billion effective on August 2, 2011, $500 billion effective after
close of business on September 21, 2011, and $1,200 billion effective after close of
business on January 27, 2012.




Page 4                                               GAO-13-114 Schedules of Federal Debt
within the statutory debt limit, Treasury restored interest losses to the Civil
Service Retirement and Disability Fund 8 and the Postal Service Retiree
Health Benefits Fund 9 on December 30, 2011, in accordance with the
legal authorities provided to the Secretary of the Treasury. In July 2012,
we reported on the extraordinary actions Treasury took during 2011 and
January 2012 to manage federal debt when delays in raising the debt limit
occurred and the effect of delayed increases on Treasury borrowing
costs. As with our February 2011 report, we also noted in our July 2012
report that Congress should consider ways to better link decisions about
the debt limit with decisions about spending and revenue to avoid
potential disruptions to the Treasury market and to help inform the fiscal
policy debate in a timely way. 10

Federal financing needs remain high, in part due to the persistent effects
of the economic downturn and its impact on the federal deficit. The
reported federal deficit for fiscal year 2012 was $1,089 billion, down from
the fiscal year 2011 reported federal deficit of $1,297 billion.
Correspondingly, debt held by the public increased from roughly 68
percent of gross domestic product (GDP) at the end of fiscal year 2011 to
roughly 73 percent at the end of fiscal year 2012. The pace at which
federal debt held by the public increases over the next several years
depends largely on whether current laws, such as spending limits
pursuant to the BCA 11 and the expiration of certain tax cuts enacted in
2001 and 2003, take effect. Over the longer term, debt held by the public
as a share of GDP is expected to grow as a result of the structural
imbalance between revenue and spending driven by rising health care
costs and demographics. Increasing numbers of baby-boom generation


8
 The Civil Service Retirement and Disability Fund contains contributions made by federal
government agencies and their civilian employees toward retirement benefits.
9
 The Postal Service Retiree Health Benefits Fund contains contributions made by the
United States Postal Service toward its retirees’ health benefits.
10
  For more information, see GAO, Debt Limit: Analysis of 2011-2012 Actions Taken and
Effect of Delayed Increase on Borrowing Costs, GAO-12-701 (Washington, D.C.: July 23,
2012).
11
  The BCA (Pub. L. No. 112-25) enacted caps on discretionary spending for fiscal years
2012 through 2021. In addition, the BCA specified additional limits on discretionary
spending and automatic reductions in direct spending that would take effect if lawmakers
did not enact legislation originating from the Joint Select Committee on Deficit Reduction
that would reduce projected deficits by at least $1.2 trillion. Because no such legislation
was enacted, those procedures are now scheduled to go into effect.




Page 5                                                GAO-13-114 Schedules of Federal Debt
members are becoming eligible for Social Security retirement benefits
and for Medicare. In addition, although health care spending growth
recently slowed, it has been growing faster than the overall economy and
is expected to continue to grow at an increased rate as more members of
the baby-boom generation retire and become eligible for federal health
programs. The aging of the population and rising health care costs will
continue to put upward pressure on spending and, absent action to
address the growing imbalance between spending and revenue, the
federal government faces an unsustainable growth in debt. 12


We are sending copies of this report to interested congressional
committees, the Commissioner of the Bureau of the Public Debt, the
Inspector General of the Department of the Treasury, the Acting Director
of the Office of Management and Budget, and other agency officials. In
addition, the report is available at no charge on the GAO website at
http://www.gao.gov.

If you have any questions concerning 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.

Sincerely yours,




Gary T. Engel
Director
Financial Management
  and Assurance




12
 For more information, see GAO, The Federal Government’s Long-Term Fiscal Outlook:
Spring 2012 Update, GAO-12-521SP (Washington, D.C.: April 2012).




Page 6                                          GAO-13-114 Schedules of Federal Debt
United States Government Accountability Office
Washington, DC 20548

                                                          Independent Auditor’s Report

                                   To the Commissioner of the Bureau of the Public Debt

                                   In connection with fulfilling our requirement to audit the consolidated
                                   financial statements of the U.S. government, we have audited the
                                   Schedules of Federal Debt Managed by the Bureau of the Public Debt
                                   (BPD) because of the significance of the federal debt to the federal
                                   government’s consolidated financial statements. 1

                                   This auditor’s report presents the results of our audits of the Schedules of
                                   Federal Debt Managed by BPD for the fiscal years ended September 30,
                                   2012 and 2011. The Schedules of Federal Debt present the beginning
                                   balances, increases and decreases, and ending balances for (1) Federal
                                   Debt Held by the Public and Intragovernmental Debt Holdings, (2) the
                                   related Accrued Interest Payables, and (3) the related Net Unamortized
                                   Premiums and Discounts managed by the Department of the Treasury’s
                                   (Treasury) BPD. 2

                                   In our audits of the Schedules of Federal Debt Managed by BPD for the
                                   fiscal years ended September 30, 2012 and 2011, we found

                                   •   the Schedules of Federal Debt are presented fairly, in all material
                                       respects, in conformity with U.S. generally accepted accounting
                                       principles;
                                   •   BPD maintained, in all material respects, effective internal control over
                                       financial reporting relevant to the Schedule of Federal Debt as of
                                       September 30, 2012; and
                                   •   no reportable noncompliance in fiscal year 2012 with selected
                                       provisions of laws we tested related to the Schedule of Federal Debt.




                                   1
                                     31 U.S.C. § 331(e)(2). As a bureau within the Department of the Treasury, federal debt
                                   and related activity and balances managed by BPD are also significant to the consolidated
                                   financial statements of the Department of the Treasury (see 31 U.S.C. § 3515(b)).
                                   2
                                    Debt held by the public represents federal debt issued by Treasury and held by investors
                                   outside of the federal government, including individuals, corporations, state or local
                                   governments, the Federal Reserve, and foreign governments. Intragovernmental debt
                                   holdings represent federal debt owed by Treasury to federal government accounts,
                                   primarily federal trust funds such as Social Security and Medicare.




                                   Page 7                                              GAO-13-114 Schedules of Federal Debt
                       The following sections discuss in more detail (1) these conclusions; (2)
                       other information included with the Schedules of Federal Debt; (3) our
                       audit objectives, scope, and methodology; and (4) BPD’s comments on a
                       draft of this report.


                       The Schedules of Federal Debt including the accompanying notes
Opinion on the         present fairly, in all material respects, in conformity with U.S. generally
Schedules of Federal   accepted accounting principles, the balances as of September 30, 2012,
                       2011, and 2010 for Federal Debt Managed by BPD; the related Accrued
Debt                   Interest Payables and Net Unamortized Premiums and Discounts; and
                       the related increases and decreases for the fiscal years ended
                       September 30, 2012 and 2011.


                       BPD maintained, in all material respects, effective internal control over
Opinion on Internal    financial reporting relevant to the Schedule of Federal Debt as of
Control                September 30, 2012, that provided reasonable assurance that
                       misstatements, losses, or noncompliance material in relation to the
                       Schedule of Federal Debt would be prevented or detected and corrected
                       on a timely basis. Our opinion on internal control is based on criteria
                       established under 31 U.S.C. § 3512(c), (d), commonly known as the
                       Federal Managers’ Financial Integrity Act (FMFIA).

                       We identified deficiencies in BPD’s system of internal control that we
                       consider not to be material weaknesses or significant deficiencies. 3 We
                       have communicated these matters to management and, where
                       appropriate, will report on them separately. In late fiscal year 2011,
                       Treasury began consolidating the data centers and related operations of
                       BPD and Treasury’s Financial Management Service. Given the significant
                       role that certain information systems have in managing federal debt, it will
                       be important that BPD management assesses risks associated with the



                       3
                         A material weakness is a deficiency, or a 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
                       significant deficiency is a deficiency, or 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. 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 8                                                  GAO-13-114 Schedules of Federal Debt
                         consolidation and ensures that internal control over the information
                         systems in these data centers is effectively designed and implemented.


                         Our tests of BPD’s compliance in fiscal year 2012 with selected
Compliance with          provisions of laws related to the Schedule of Federal Debt disclosed no
Selected Provisions of   instances of noncompliance that would be reportable under U.S.
                         generally accepted government auditing standards. The objective of our
Laws                     audit was not to provide an opinion on overall compliance with laws and
                         regulations. Accordingly, we do not express such an opinion.


                         BPD’s other information, which consists of the Overview on Federal Debt
Other Information        Managed by the Bureau of the Public Debt, contains a wide range of
                         information, some of which is not directly related to the Schedules of
                         Federal Debt. This information is presented for purposes of additional
                         analysis and is not a required part of the Schedules of Federal Debt. Our
                         audit was conducted for the purpose of forming an opinion on the
                         Schedules of Federal Debt. We did not audit and do not express an
                         opinion or provide any assurance on the other information.


                         BPD management is responsible for (1) preparing the Schedules of
Objectives, Scope,       Federal Debt in conformity with U.S. generally accepted accounting
and Methodology          principles; (2) preparing and presenting other information included with
                         the audited Schedules of Federal Debt and auditor’s report, and ensuring
                         the consistency of that information with the audited Schedules of Federal
                         Debt; (3) establishing and maintaining effective internal control over
                         financial reporting, and evaluating its effectiveness; and (4) complying
                         with applicable laws and regulations. BPD management evaluated the
                         effectiveness of BPD’s internal control over financial reporting relevant to
                         the Schedule of Federal Debt as of September 30, 2012, based on the
                         criteria established under FMFIA. BPD management’s assertion based on
                         its evaluation is included in appendix I.

                         We are responsible for planning and performing the audit to obtain
                         reasonable assurance and provide our opinion about whether (1) the
                         Schedules of Federal Debt are presented fairly, in all material respects, in
                         conformity with U.S. generally accepted accounting principles and (2)
                         BPD management maintained, in all material respects, effective internal
                         control over financial reporting relevant to the Schedule of Federal Debt
                         as of September 30, 2012. We are also responsible for (1) testing
                         compliance with selected provisions of laws and regulations that have a


                         Page 9                                      GAO-13-114 Schedules of Federal Debt
direct and material effect on the Schedule of Federal Debt and (2)
applying certain limited procedures to the other information included with
the Schedules of Federal Debt.

In order to fulfill these responsibilities, we

•   examined, on a test basis, evidence supporting the amounts and
    disclosures in the Schedules of Federal Debt;
•   assessed the accounting principles used and any significant estimates
    made by BPD management;
•   evaluated the overall presentation of the Schedules of Federal Debt;
•   obtained an understanding of BPD and its operations, including its
    internal control over financial reporting relevant to the Schedule of
    Federal Debt;
•   considered BPD’s process for evaluating and reporting on internal
    control over financial reporting relevant to the Schedule of Federal
    Debt based on the criteria established under FMFIA;
•   assessed the risk of (1) material misstatement in the Schedule of
    Federal Debt and (2) material weaknesses in BPD’s internal control
    over financial reporting relevant to the Schedule of Federal Debt;
•   evaluated the design and operating effectiveness of BPD’s internal
    control over financial reporting relevant to the Schedule of Federal
    Debt based on the assessed risk;
•   tested BPD’s internal control over financial reporting relevant to the
    Schedule of Federal Debt;
•   tested compliance in fiscal year 2012 with the (1) statutory debt limit
    (31 U.S.C. §§ 3101(b), as amended, and 3101A) and (2) suspension
    of investments from the Government Securities Investment Fund (G-
    Fund) (5 U.S.C. § 8438(g));
•   read the other information included with the Schedules of Federal
    Debt in order to identify material inconsistencies, if any, with the
    audited Schedules of Federal Debt; and
•   performed such other procedures as we considered necessary in the
    circumstances.




Page 10                                          GAO-13-114 Schedules of Federal Debt
Internal control over financial reporting relevant to the Schedule of
Federal Debt is a process effected by those charged with governance,
management, and other personnel, the objectives of which are to provide
reasonable assurance that (1) transactions are properly recorded,
processed, and summarized to permit the preparation of the Schedule of
Federal Debt in conformity with U.S. generally accepted accounting
principles and (2) transactions related to the Schedule of Federal Debt
are executed in accordance with laws governing the use of budget
authority and other laws and regulations that could have a direct and
material effect on the Schedule of Federal Debt.

We did not evaluate all internal controls relevant to operating objectives
as broadly established under FMFIA, such as those controls relevant to
preparing statistical reports and ensuring efficient operations. We limited
our internal control testing to testing controls over financial reporting. Our
internal control testing was for the purpose of expressing an opinion on
the effectiveness of internal control over financial reporting and may not
be sufficient for other purposes. Consequently, our audit may not identify
all deficiencies in internal control over financial reporting that are less
severe than a material weakness. Because of inherent limitations, internal
control may not prevent or detect and correct misstatements due to error
or fraud, losses, or noncompliance. We also caution that projecting any
evaluation of effectiveness to future periods is subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate.

We did not test compliance with all laws and regulations applicable to
BPD. We limited our tests of compliance to selected provisions of laws
that have a direct and material effect on the Schedule of Federal Debt for
the fiscal year ended September 30, 2012. We caution that
noncompliance may occur and not be detected by these tests and that
such testing may not be sufficient for other purposes.

We performed our audit in accordance with U.S. generally accepted
government auditing standards. We believe our audit provides a
reasonable basis for our opinions and other conclusions.




Page 11                                      GAO-13-114 Schedules of Federal Debt
                  In commenting on a draft of this report, BPD’s Commissioner concurred
Agency Comments   with our conclusions. BPD’s comments are reprinted in their entirety in
                  appendix II.




                  Gary T. Engel
                  Director
                  Financial Management
                    and Assurance

                  November 1, 2012




                  Page 12                                   GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes
                    Overview, Schedules, and Notes




          Overview on Federal Debt Managed by the Bureau of the Public Debt




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




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Overview, Schedules, and Notes




Page 20                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 21                          GAO-13-114 Schedules of Federal Debt
          Overview, Schedules, and Notes




Schedules of Federal Debt




          Page 22                          GAO-13-114 Schedules of Federal Debt
           Overview, Schedules, and Notes




Notes to the Schedules of Federal Debt




           Page 23                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 24                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 25                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 26                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 27                          GAO-13-114 Schedules of Federal Debt
Overview, Schedules, and Notes




Page 28                          GAO-13-114 Schedules of Federal Debt
Appendix I: Management’s Report on Internal
          Appendix I: Management’s Report on Internal Control over
          Financial Reporting Relevant to the Schedule of Federal Debt



Control over Financial Reporting Relevant to
the Schedule of Federal Debt




                       Page 29                                           GAO-13-114 Schedules of Federal Debt
Appendix II: Comments from the Bureau of
the Public Debt




(198702)
              Page 30         GAO-13-114 Schedules of Federal Debt
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