oversight

Financial Audit: Bureau of the Fiscal Service's Fiscal Year 2018 Schedules of the General Fund

Published by the Government Accountability Office on 2019-05-15.

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

             United States Government Accountability Office
             Report to the Fiscal Assistant Secretary,
             Department of the Treasury




             FINANCIAL AUDIT
May 2019




             Bureau of the Fiscal
             Service’s Fiscal Year
             2018 Schedules of the
             General Fund




GAO-19-185
                                                May 2019

                                                FINANCIAL AUDIT
                                                Bureau of the Fiscal Service’s Fiscal Year 2018
                                                Schedules of the General Fund
Highlights of GAO-19-185, a report to the
Fiscal Assistant Secretary, Department of the
Treasury




Why GAO Did This Study                          What GAO Found
GAO audits the consolidated financial           Certain significant deficiencies in internal control over financial reporting and
statements of the U.S. government.              other limitations on the scope of GAO’s work resulted in conditions that
Because of the significance of the              prevented GAO from expressing an opinion on the Schedules of the General
General Fund of the United States               Fund as of and for the fiscal year ended September 30, 2018. Such scope
(General Fund) to the government-               limitations also prevented GAO from obtaining sufficient appropriate audit
wide financial statements, GAO                  evidence to provide a basis for an opinion on the effectiveness of the Bureau of
audited the fiscal year 2018 Schedules          the Fiscal Service’s (Fiscal Service) internal control over financial reporting
of the General Fund, which are                  relevant to the Schedules of the General Fund as of September 30, 2018. In
managed by Fiscal Service, to
                                                addition, such scope limitations limited tests of compliance with selected
determine whether, in all material
                                                provisions of applicable laws, regulations, contracts, and grant agreements for
respects, (1) the schedules are fairly
presented and (2) Fiscal Service
                                                fiscal year 2018.
management maintained effective                 Fiscal Service was unable to timely provide sufficient appropriate evidence to
internal control over financial reporting       support certain information reported in the accompanying Schedules of the
relevant to the Schedules of the                General Fund. The underlying scope limitations are the basis for GAO’s
General Fund. Further, GAO tested               disclaimer of opinion on the Schedules of the General Fund. These limitations
compliance with selected provisions of          primarily related to (1) the inability to readily identify and trace General Fund
applicable laws, regulations, contracts,        transactions to determine whether they were complete and properly recorded in
and grant agreements related to the
                                                the correct general ledger accounts and line items within the Schedules of the
Schedules of the General Fund.
                                                General Fund, (2) inadequate Fiscal Service procedures to determine the effect
The General Fund is the reporting               of differences between General Fund’s records and the amounts reported by
entity responsible for accounting for           certain federal agencies on the Schedules of the General Fund, and (3) Fiscal
the cash activity of the U.S.                   Service’s inability to timely provide sufficient appropriate audit evidence to
government. In fiscal year 2018, the            support the beginning balance of the Liability for Fund Balance with Treasury.
General Fund reported $14.2 trillion of         GAO also identified two significant deficiencies contributing to the first two scope
cash inflows, including debt issuances          limitations discussed above. As a result of these limitations, readers are
and taxes collected, and $14.0 trillion         cautioned that amounts reported in the Schedules of the General Fund and
of cash outflows, including debt                related notes may not be reliable.
repayments and Social Security and
health care benefit payments. It also           Further, GAO identified two additional significant deficiencies in Fiscal Service’s
reported $21.6 trillion of federal debt         internal control over financial reporting relevant to the Schedules of the General
securities held and managed by the              Fund related to deficiencies in (1) information systems controls and (2) Fiscal
Department of the Treasury as of                Service’s risk assessment and monitoring controls. In addition, GAO identified
September 30, 2018.                             three other control deficiencies, which it does not consider to be material
                                                weaknesses or significant deficiencies.
What GAO Recommends
                                                GAO recognizes that the fiscal year 2018 Schedules of the General Fund reflect
GAO is making 12 recommendations
to improve Fiscal Service’s internal
                                                the significant efforts of Fiscal Service over the past several years to develop the
control over financial reporting relevant       infrastructure to support the Schedules of the General Fund. Fiscal Service’s
to the Schedules of the General Fund.           actions have substantially improved its ability to report on the General Fund,
                                                including the government-wide cash inflows and outflows.
In commenting on a draft of this report,
Fiscal Service concurred with the
results of GAO’s audit.


View GAO-19-185. For more information,
contact J. Lawrence Malenich at (202) 512-
3406 or malenichj@gao.gov.

                                                                                         United States Government Accountability Office
Contents


Letter                                                                                                         1



Independent Auditor’s Report                                                                                   7
                                    Report on the Schedules of the General Fund                               8
                                    Report on Internal Control over Financial Reporting                      11
                                    Report on Compliance with Laws, Regulations, Contracts, and
                                      Grant Agreements                                                       13
                                    Agency Comments                                                          14

Schedules of the General Fund of the United States                                                           15



Notes to the Schedules of the General Fund of the United States                                              17



Appendix I                          Internal Control Deficiencies                                            37



Appendix II                         Comments from the Bureau of the Fiscal Service                           55




                                    Page i                               GAO-19-185 Schedules of the General Fund
Abbreviations

BETC                       Business Event Type Code
CARS                       Central Accounting and Reporting System
CFS                        consolidated financial statements
DVS                        Direct Voucher System
FBWT                       Fund Balance with Treasury
Fiscal Service             Bureau of the Fiscal Service
FMFIA                      Federal Managers’ Financial Integrity Act
General Fund               General Fund of the United States
GTAS                       Government-wide Treasury Account Symbol
                           Adjusted Trial Balance System
IRS                        Internal Revenue Service
ITS.gov                    International Treasury Services
LFBWT                      Liability for Fund Balance with Treasury
OMB                        Office of Management and Budget
PAM                        Payment Automation Manager
RTN                        Routing Transit Number
SDAS                       Summary Debt Accounting System
SFD                        Schedule of Federal Debt
TAS                        Treasury Account Symbol
Treasury                   Department of the Treasury


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Page ii                                         GAO-19-185 Schedules of the General Fund
                       Letter




441 G St. N.W.
Washington, DC 20548




                       May 15, 2019

                       Mr. David Lebryk
                       Fiscal Assistant Secretary
                       Department of the Treasury

                       Dear Mr. Lebryk:

                       The accompanying independent auditor’s report presents the results of
                       our audit of the fiscal year 2018 Schedules of the General Fund
                       (Schedules of the General Fund) managed by the Bureau of the Fiscal
                       Service (Fiscal Service). This is the first year an audit was performed on
                       the Schedules of the General Fund. In summary, we found the following:

                       •   Certain significant deficiencies in internal control over financial
                           reporting and other limitations on the scope of our work resulted in
                           conditions that prevented us from expressing an opinion on the
                           Schedules of the General Fund as of and for the fiscal year ended
                           September 30, 2018. 1
                       •   Such scope limitations prevented us from obtaining sufficient
                           appropriate audit evidence to provide a basis for an opinion on the
                           effectiveness of the Fiscal Service’s internal control over financial
                           reporting relevant to the Schedules of the General Fund as of
                           September 30, 2018.
                       •   Such scope limitations limited tests of compliance with selected
                           provisions of applicable laws, regulations, contracts, and grant
                           agreements for fiscal year 2018.
                       The General Fund of the United States (General Fund) is the entity
                       responsible for reporting on the central activities fundamental to funding
                       the federal government. The General Fund consists of assets and
                       liabilities used to finance the daily and long-term operations of the U.S.

                       1
                        A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
                       over financial reporting that is less severe than a material weakness, yet important enough
                       to merit attention by those charged with governance. A material weakness is a deficiency,
                       or combination of deficiencies, in internal control over financial reporting, 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 1                                             GAO-19-185 Schedules of the General Fund
government. The fiscal year 2018 Schedules of the General Fund reflect
the significant efforts of Fiscal Service over the past several years to
develop the infrastructure to support the Schedules of the General Fund.
These efforts, including actions taken during fiscal year 2018, are
discussed below.

More specifically, the General Fund is the reporting entity responsible for
accounting for the cash activity of the U.S. government. In fiscal year
2018, the General Fund, whose management has been delegated to the
Department of the Treasury’s (Treasury) Fiscal Service, reported
$14.2 trillion of cash inflows, including debt issuances and taxes
collected, and $14.0 trillion of cash outflows, including debt repayments
and Social Security and health care benefit payments. It also reported
$21.6 trillion of federal debt securities held and managed by the Treasury
as of September 30, 2018, consisting of federal debt securities held by
the public and federal debt securities held by the government accounts.
Further, the General Fund accounts for the annual budget deficit (budgets
receipts less budget outlays). Finally, the General Fund interacts with
other federal agencies through its reporting of assets and liabilities due
from and to other federal agencies. 2

Fiscal Service was delegated responsibility by Treasury for preparing the
Financial Report of the United States Government, also known as the
consolidated financial statements (CFS) of the United States. Fiscal
Service anticipates that the preparation and audit of the General Fund’s
Schedule of the Operations of the General Fund will enable it to fully
account for and eliminate General Fund intragovernmental activity and
balances with other reporting entities in the CFS. In connection with our
fiscal year 2018 audit of the government-wide CFS, 3 we reported that the
federal government’s inability to adequately account for
intragovernmental activity and balances between federal entities,
including material unreconciled differences related to transactions
between the General Fund and federal agencies, represented a material
weakness in internal control over financial reporting.



2
 In the context of the General Fund, federal agencies are defined as federal reporting
entities that receive authority to incur obligations and make payments from the General
Fund.
3
 GAO, Financial Audit: Fiscal Years 2018 and 2017 Consolidated Financial Statements of
the U.S. Government, GAO-19-294R (Washington, D.C.: Mar. 28, 2019).




Page 2                                          GAO-19-185 Schedules of the General Fund
Also, Fiscal Service anticipates that preparation and audit of the General
Fund’s Schedule of Changes in Cash Balance from Budget and Other
Activities will significantly contribute to resolving a separate material
weakness we reported in connection with our fiscal year 2018 CFS audit
related to Reconciliations of Net Operating Cost and Budget Deficit and
Changes in Cash Balance from Budget and Other Activities
(Reconciliation Statements). Specifically, Fiscal Service expects these
efforts to help reasonably assure that the information in these statements
is complete and consistent with the underlying information in the audited
agencies’ financial statements and other financial data.

The fiscal year 2018 Schedules of the General Fund consist of two
schedules—the Schedule of the Operations of the General Fund and the
Schedule of Changes in Cash Balance from Budget and Other Activities.

Schedule of the Operations of the General Fund

The Schedule of the Operations of the General Fund presents the cash
balance and cash activity for the year, General Fund assets and liabilities
that are held and managed by the Treasury, other intragovernmental
assets and liabilities, and net equity of the General Fund. The Cash held
by Treasury section of this schedule reflects the cash activity of the U.S.
government as well as its fiscal year-end cash balance. The largest
inflows of cash are collections from debt issuances and taxes, while the
largest outflows are debt repayments and Social Security and health care
benefit payments. For fiscal year 2018, the Schedule of the Operations of
the General Fund reported $14.2 trillion of cash inflows and $14.0 trillion
of cash outflows. These amounts include cash activity related to debt
issuances and repayments and tax collections that GAO audited as part
of the fiscal year 2018 Schedules of Federal Debt and the Internal
Revenue Service’s fiscal year 2018 financial statements audits.
Specifically, for fiscal year 2018, the Schedules of Federal Debt reported
borrowings from the public totaling $10.1 trillion and repayments of debt
held by the public totaling $9.0 trillion. 4 Tax collections by the Internal
Revenue Service in fiscal year 2018 totaled $3.5 trillion. 5 In addition to the

4
 See GAO, Financial Audit: Bureau of the Fiscal Service’s Years 2018 and 2017
Schedules of Federal Debt, GAO-19-113 (Washington, D.C.: Nov. 8, 2018), for GAO’s
audit of and more information about the schedules of federal debt.
5
 See GAO, Financial Audit: IRS’s Fiscal Years 2018 and 2017 Financial Statements,
GAO-19-150 (Washington, D.C.: Nov. 9, 2018), for more information on tax collections
and GAO’s audit of the Internal Revenue Service’s financial statements.




Page 3                                        GAO-19-185 Schedules of the General Fund
cash activity, the Schedules of the General Fund include other significant
line items, which are discussed below.

Intragovernmental assets and liabilities are General Fund assets and
liabilities that are held and managed by Treasury and other amounts
owed by agencies to the General Fund and amounts owed by the
General Fund to agencies, respectively. The General Fund’s largest asset
is its loans and interest receivable held and managed by Treasury that is
related to the Federal Borrowings Program ($1.5 trillion as of
September 30, 2018), which facilitates loans to federal agencies that
have the legal authority to borrow funds from the U.S. Treasury. Its
largest liability is the outstanding federal debt and interest payable that is
held and managed by Treasury ($21.6 trillion as of September 30, 2018).
The General Fund’s net equity consists of the cumulative results of
General Fund’s fiscal year 2018 operations and the balance of
outstanding appropriations owed to federal agencies.

Schedule of Changes in Cash Balance from Budget and Other
Activities

The Schedule of Changes in Cash Balance from Budget and Other
Activities reports how the annual budget deficit relates to the change in
the cash held by Treasury. This schedule illustrates the government’s
cash flows relative to the budget deficit and provides the adjustments that
are needed to reconcile the budget deficit for fiscal year 2018
($779.0 billion) to the change in the Cash Held by Treasury for
Governmentwide Operations line item reported on the Schedule of the
Operations of the General Fund ($225.1 billion), including information on
the federal government’s investing and financing activities. This schedule
presents three categories of reconciling items: (1) adjustments for
noncash outlays included in the budget, (2) cash flow from activities not
included in the budget, and (3) other General Fund activity. For fiscal year
2018, interest accrued on federal debt securities during fiscal year 2018
resulted in the largest adjustment for noncash activity to the budget deficit
($268.5 billion), while the net cash flow from financing federal debt
securities resulted in the largest adjustment for cash activity not included
in the budget ($1.0 trillion).

Significant Efforts to Develop the Schedules of the General Fund

The fiscal year 2018 Schedules of the General Fund reflect the significant
efforts of Fiscal Service over the past several years to develop the
infrastructure to support the Schedules of the General Fund. In addition to


Page 4                                   GAO-19-185 Schedules of the General Fund
developing an accounting model and reporting format for the General
Fund, Fiscal Service created a method for federal agencies to identify and
report their activity with the General Fund that would facilitate agency
reconciliation of intragovernmental activity with the General Fund. Fiscal
Service subsequently established extensive guidance in the Treasury
Financial Manual for federal agencies on how to classify and record
activity with the General Fund in order to facilitate the elimination of
activity between federal agencies and thereby reduce intragovernmental
differences.

Additionally, Fiscal Service added the General Fund to its process for
quantifying intragovernmental differences reported between federal
agencies. Further, Fiscal Service developed and documented its rationale
and sources for the reconciling items currently presented on the Schedule
of Changes in Cash Balance from Budget and Other Activities. In fiscal
year 2015, Treasury consolidated the balances and activities reported by
the General Fund, as a separate federal reporting entity, in the CFS.

Prior to the audit of the fiscal year 2018 Schedules of the General Fund,
Fiscal Service focused its efforts on refining the processes and controls
related to their preparation, including enhancing standard operating
procedures for General Fund accounting and reporting processes and
establishing reconciliations to verify intragovernmental balances with
Treasury. Fiscal Service’s actions taken during fiscal year 2018 will help
improve the General Fund’s audit readiness in future years. For example,
Fiscal Service began reconciling the Payment Information Repository and
Collections Information Repository—two key systems that feed cash
activity information into the Central Accounting and Reporting System
(CARS)—with the General Fund general ledger in 2018. These
reconciliations improved Fiscal Service’s ability to verify the completeness
of cash inflows and outflows in the General Fund general ledger.

In addition, Fiscal Service has also worked extensively to facilitate and
encourage more federal agencies to provide their detailed cash inflow
and outflow classification information each day using CARS. As the
Schedules of the General Fund rely significantly on data transferred from
CARS, Fiscal Service’s actions have substantially improved its ability to
report on the General Fund, including the government-wide cash inflows
and outflows.




Page 5                                  GAO-19-185 Schedules of the General Fund
We are making 12 recommendations to improve Fiscal Service’s internal
control over financial reporting related to the Schedules of the General
Fund. In addition, we are issuing a separate LIMITED OFFICIAL USE
ONLY report that includes recommendations to address deficiencies in
information systems controls.

This report contains recommendations to the Commissioner of the
Bureau of the Fiscal Service. The head of a federal agency is required by
31 U.S.C. § 720 to submit a written statement on actions taken or
planned on our recommendations to the Senate Committee on Homeland
Security and Governmental Affairs, the House Committee on Oversight
and Reform, the congressional committees with jurisdiction over the
agency programs and activities that are the subject of our
recommendations, and GAO not later than 180 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 180 days after the date of this report.
Please provide me with your statement of actions.

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

If you or your staff have any questions concerning this report, please
contact me at (202) 512-3406 or malenichj@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,




J. Lawrence Malenich
Managing Director
Financial Management and Assurance




Page 6                                 GAO-19-185 Schedules of the General Fund
                       L




441 G St. N.W.
Washington, DC 20548




                                                  Independent Auditor’s Report

                       To the Commissioner of the Bureau of the Fiscal Service

                       In our audit of the fiscal year 2018 Schedules of the General Fund
                       (Schedules of the General Fund) managed by the Bureau of the Fiscal
                       Service (Fiscal Service), we found the following:

                       •   Certain significant deficiencies in internal control over financial
                           reporting and other limitations on the scope of our work resulted in
                           conditions that prevented us from expressing an opinion on the
                           Schedules of the General Fund as of and for the fiscal year ended
                           September 30, 2018. 1
                       •   Such scope limitations prevented us from obtaining sufficient
                           appropriate audit evidence to provide a basis for an opinion on the
                           effectiveness of Fiscal Service’s internal control over financial
                           reporting relevant to the Schedules of the General Fund as of
                           September 30, 2018.
                       •   Such scope limitations limited tests of compliance with selected
                           provisions of applicable laws, regulations, contracts, and grant
                           agreements for fiscal year 2018.
                       The following sections of this audit report discuss in more detail (1) our
                       report on the Schedules of the General Fund, which includes an
                       emphasis of matter paragraph on federal agencies’ classification of
                       transactions; (2) our report on internal control over financial reporting;
                       (3) our report on compliance with laws, regulations, contracts, and grant
                       agreements; and (4) agency comments.




                       1
                        A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
                       over financial reporting that is less severe than a material weakness, yet important enough
                       to merit attention by those charged with governance. A material weakness is a deficiency,
                       or combination of deficiencies, in internal control over financial reporting, 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 7                                             GAO-19-185 Schedules of the General Fund
                           In connection with fulfilling our requirement to audit the consolidated
Report on the              financial statements of the U.S. government, 2 we conducted an audit of
Schedules of the           the Schedules of the General Fund as of, and for the year ended,
                           September 30, 2018, because of the significance of the General Fund of
General Fund               the United States (General Fund) to the federal government’s
                           consolidated financial statements. 3 The Schedules of the General Fund
                           present (1) assets and liabilities of the General Fund, including cash
                           activity; (2) a reconciliation of the budget deficit to the change in Cash
                           Held by Treasury for Government Operations; and (3) accompanying
                           notes.

                           We conducted our audit in accordance with U.S. generally accepted
                           government auditing standards. We performed sufficient audit work to
                           provide this report on the Schedules of the General Fund. We considered
                           the limitations on the scope of our work regarding the Schedules of the
                           General Fund in forming our conclusions.


Management’s               Fiscal Service management is responsible for (1) the preparation and fair
Responsibility             presentation of the Schedules of the General Fund in accordance with
                           U.S. generally accepted accounting principles and (2) maintaining
                           effective internal control over financial reporting, including the design,
                           implementation, and maintenance of internal control relevant to the
                           preparation and fair presentation of the Schedules of the General Fund
                           that are free from material misstatement, whether due to fraud or error.


Auditor’s Responsibility   Our responsibility is to express an opinion on the Schedules of the
                           General Fund based on conducting the audit in accordance with U.S.
                           generally accepted government auditing standards. Because of the
                           matters discussed in the Basis for Disclaimer Opinion on the Schedules
                           of the General Fund below, we were unable to obtain sufficient
                           appropriate evidence to provide a basis for an audit opinion on the
                           Schedules of the General Fund.




                           2
                            Government Management Reform Act of 1994, Pub. L. No. 103-356, § 405(c), 108 Stat.
                           3410, 3416-17 (Oct. 13, 1994), codified at 31 U.S.C. § 331(e)(2).
                           3
                            GAO, Financial Audit: Fiscal Years 2018 and 2017 Consolidated Financial Statements of
                           the U.S. Government, GAO-19-294R (Washington, D.C.: Mar. 28, 2019).




                           Page 8                                        GAO-19-185 Schedules of the General Fund
Basis for Disclaimer of    Fiscal Service was unable to timely provide sufficient appropriate
Opinion on the Schedules   evidence to support certain material information reported in the
                           accompanying Schedules of the General Fund. The underlying scope
of the General Fund
                           limitations are the basis for our disclaimer of opinion on the Schedules of
                           the General Fund. As a result of these limitations, readers are cautioned
                           that amounts reported in the Schedules of the General Fund and related
                           notes may not be reliable. These scope limitations primarily relate to the
                           following.

                           Identifying and tracing transactions in the Schedules of the General
                           Fund general ledgers: We were unable to readily identify and trace
                           General Fund transactions to determine whether they were complete and
                           properly recorded in the correct general ledger accounts and line items
                           within the Schedules of the General Fund, respectively. These
                           transactions affect several material line items on the Schedules of the
                           General Fund, including cash inflows, cash outflows, and the budget
                           deficit. As a result, we were unable to complete audit procedures
                           designed to substantiate the activity reported in the affected line items on
                           the Schedules of the General Fund.

                           Evaluating and resolving differences reported on the Schedules of
                           the General Fund: We found that Fiscal Service does not have a
                           mechanism to determine the effect of certain differences on the
                           Schedules of the General Fund. Differences arise when Fiscal Service
                           reconciles the amounts in the General Fund’s records with the amounts
                           reported by certain federal agencies. Such differences, referred to as a
                           Statement of Difference, totaled a net amount of $857 million as of
                           September 30, 2018, and are included in the Liability for Fund Balance
                           with Treasury (LFBWT) and separately disclosed in Note 9 of the
                           Schedules of the General Fund. Without knowing how these differences
                           affect the different line items on the Schedules of the General Fund, there
                           is an increased risk of misstatements.

                           Supporting the liability for Fund Balance with Treasury beginning
                           balance: Fiscal Service was unable to timely provide sufficient
                           appropriate audit evidence to support the beginning balance of the
                           General Fund’s LFBWT for fiscal year 2018. The balance for LFBWT was
                           $2.0 trillion as of October 1, 2017, and represents the cumulative amount
                           of a significant volume of activity that occurred over the past several
                           decades. We requested documentation from Fiscal Service to
                           substantiate a statistically representative sample of the activity included in
                           this balance. Fiscal Service was able to provide some but not all of the
                           requested documentation in time for us to complete the fiscal year 2018


                           Page 9                                   GAO-19-185 Schedules of the General Fund
                                 audit. As such, we were unable to complete our audit procedures
                                 designed to substantiate the beginning balance of LFBWT.

                                 We also identified two significant deficiencies contributing to the first two
                                 scope limitations discussed above—identifying and tracing transactions in
                                 the Schedules of the General Fund general ledgers and evaluating and
                                 resolving differences reported on the Schedules of the General Fund.
                                 These significant deficiencies are discussed in more detail in appendix I.


Disclaimer of Opinion on         Because of the significance of the matters described in the Basis for
the Schedules of the             Disclaimer of Opinion on the Schedules of the General Fund above, we
                                 were unable to obtain sufficient appropriate audit evidence to provide a
General Fund
                                 basis for an audit opinion on the Schedules of the General Fund.
                                 Accordingly, we do not express an opinion on the Schedules of the
                                 General Fund. Also, because of the limitations on the scope of our work
                                 discussed above, additional issues may exist that were not identified and
                                 could affect the Schedules of the General Fund.


Emphasis of Matter               The following key item deserves emphasis in order to put the information
                                 contained in the Schedules of the General Fund into context. However,
                                 our disclaimer of opinion noted above is not modified with respect to this
                                 matter.

Classification of Transactions   As described in Note 1 of the Schedules of General Fund, federal
by Federal Agencies              agencies and financial institutions initiate cash activity transactions
                                 outside of the General Fund’s reporting entity structure. Fiscal Service
                                 implemented the Central Accounting and Reporting System (CARS) to
                                 capture the relevant data for these transactions. The federal agencies
                                 assign certain classifications in CARS for the transactions. This
                                 information determines how the activity is reported on the Schedules of
                                 the General Fund based on mapping rules Fiscal Service designed to
                                 generate journal entries that are posted to the General Fund general
                                 ledger. Fiscal Service provides guidance to federal agencies in the
                                 Treasury Financial Manual regarding the appropriate classifications to be
                                 used for different types of business transactions. Federal agencies are
                                 responsible for classifying transactions appropriately; as such, federal
                                 agencies maintain all of the detailed information supporting the
                                 transactions and are responsible for the related internal controls.




                                 Page 10                                  GAO-19-185 Schedules of the General Fund
                           We were engaged to audit Fiscal Service’s internal control over financial
Report on Internal         reporting relevant to the Schedules of the General Fund based on the
Control over Financial     criteria established under 31 U.S.C. § 3512(c), (d), commonly known as
                           the Federal Managers’ Financial Integrity Act (FMFIA). 4
Reporting
Management’s               Fiscal Service management is responsible for (1) maintaining effective
Responsibility             internal control over financial reporting, including the design,
                           implementation, and maintenance of internal control relevant to the
                           preparation and fair presentation of financial statements that are free from
                           material misstatement, whether due to fraud or error, and (2) evaluating
                           the effectiveness of internal control over financial reporting, based on
                           criteria established under FMFIA.


Auditor’s Responsibility   Our responsibility is to express an opinion on Fiscal Service’s internal
                           control over financial reporting relevant to the Schedules of the General
                           Fund based on conducting the audit in accordance with U.S. generally
                           accepted government auditing standards. Because of the matter
                           described in the Basis for Disclaimer of Opinion on Internal Control over
                           Financial Reporting below, we were unable to obtain sufficient
                           appropriate audit evidence to provide a basis for an audit opinion.

                           Based on the effects of the scope limitations discussed in our Report on
                           the Schedules of the General Fund above, our internal control work would
                           not necessarily identify all deficiencies in internal control, including those
                           that might be material weaknesses or significant deficiencies. Therefore,
                           material weaknesses or additional significant deficiencies may exist that
                           were not identified.


Definition and Inherent    Internal control over financial reporting relevant to the Schedules of the
Limitations of Internal    General Fund is a process effected by those charged with governance,
                           management, and other personnel, the objectives of which are to provide
Control over Financial
                           reasonable assurance that (1) transactions are properly recorded,
Reporting                  processed, and summarized to permit the preparation of the Schedules of
                           the General Fund in accordance with U.S. generally accepted accounting

                           4
                            31 U.S.C. § 3512 (c), (d) (commonly referred to as FMFIA). This act requires executive
                           agency heads to evaluate and report annually to the President and Congress on the
                           adequacy of their internal control and accounting systems and on actions to correct
                           significant problems.




                           Page 11                                        GAO-19-185 Schedules of the General Fund
                           principles, and (2) transactions are executed in accordance with
                           provisions of applicable laws, regulations, contracts, and grant
                           agreements, noncompliance with which could have a material effect on
                           the Schedules of the General Fund. Because of its inherent limitations,
                           internal control over financial reporting may not prevent, or detect and
                           correct, misstatements due to fraud or error.


Basis for Disclaimer of    The scope limitations described in the Report on the Schedules of the
Opinion on Internal        General Fund above prevented us from obtaining sufficient appropriate
                           audit evidence about whether a material weakness exists.
Control over Financial
Reporting

Disclaimer of Opinion on   Because of the significance of the matters described in the Basis for
Internal Control over      Disclaimer of Opinion on Internal Control over Financial Reporting above,
                           we were unable to obtain sufficient appropriate audit evidence to provide
Financial Reporting
                           a basis for an opinion on internal control over financial reporting.
                           Accordingly, we do not express an opinion on the effectiveness of Fiscal
                           Service’s internal control over financial reporting relevant to the
                           Schedules of the General Fund.

                           In addition to the two significant deficiencies that contributed to our
                           disclaimer of opinion on the Schedules of the General Fund, we found
                           two other significant deficiencies in internal control related to

                           •   information systems controls and
                           •   management’s risk assessment and monitoring of internal control over
                               financial reporting.
                           We discuss these significant deficiencies, and three additional control
                           deficiencies that we do not consider to be significant deficiencies or
                           material weaknesses, in more detail in appendix I.




                           Page 12                                 GAO-19-185 Schedules of the General Fund
Report on
Compliance with
Laws, Regulations,
Contracts, and Grant
Agreements
Management’s               Fiscal Service management is responsible for complying with laws,
Responsibility             regulations, contracts, and grant agreements applicable to Fiscal Service
                           as it relates to the Schedules of the General Fund.


Auditor’s Responsibility   An audit of federal financial statements includes testing compliance with
                           selected provisions of laws, regulations, contracts, and grant agreements
                           applicable to Fiscal Service that have a direct effect on the determination
                           of material amounts and disclosures in the Schedules of the General
                           Fund and performing certain other limited procedures. Accordingly, we
                           did not test compliance with all laws, regulations, contracts, and grant
                           agreements. Because of the limitations discussed below and the scope of
                           our procedures, noncompliance may occur and not be detected by these
                           tests.

                           Our objective was not to provide an opinion on compliance with laws,
                           regulations, contracts, and grant agreements. Accordingly, we do not
                           express such an opinion. Our work was performed in accordance with
                           U.S. generally accepted government auditing standards.


Results of Our Tests of    Our work to test compliance with selected provisions of applicable laws,
Compliance with Laws,      regulations, contracts, and grant agreements was limited by the scope
                           limitations described in the Report on the Schedules of the General Fund.
Regulations, Contracts,
                           U.S. generally accepted government auditing standards and Office of
and Grant Agreements       Management and Budget guidance require auditors to report on entities’
                           compliance with selected provisions of applicable laws, regulations,
                           contracts, and grant agreements.




                           Page 13                                 GAO-19-185 Schedules of the General Fund
Intended Purpose of       The purpose of this report is solely to describe the scope of our testing of
Report on Compliance      compliance with selected provisions of applicable laws, regulations,
                          contracts, and grant agreements and the results of that testing, and not to
with Laws, Regulations,
                          provide an opinion on compliance. This report is an integral part of an
Contracts, and Grant      audit performed in accordance with U.S. generally accepted government
Agreements                auditing standards in considering compliance. Accordingly, this report on
                          compliance with laws, regulations, contracts, and grant agreements is not
                          suitable for any other purpose.


                          In commenting on a draft of this report, Fiscal Service concurred with the
Agency Comments           results of our audit and stated that it looks forward to the opportunity to
                          implement the corrective actions needed to overcome the barriers to
                          auditability of the Schedules of the General Fund. Additionally, Fiscal
                          Service stated that it maintains controls to confirm the integrity of the
                          government’s cash flow. The complete text of Fiscal Service’s response is
                          reproduced in appendix II.




                          Beryl H. Davis
                          Director
                          Financial Management and Assurance

                          April 15, 2019




                          Page 14                                 GAO-19-185 Schedules of the General Fund
Schedules of the General Fund of the United
              Schedules of the General Fund of the United
              States



States




              Page 15                                       GAO-19-185 Schedules of the General Fund
Schedules of the General Fund of the United
States




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Notes to the Schedules of the General Fund
              Notes to the Schedules of the General Fund of
              the United States



of the United States




              Page 17                                         GAO-19-185 Schedules of the General Fund
Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




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Notes to the Schedules of the General Fund of
the United States




Page 36                                         GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies
                           Appendix I: Internal Control Deficiencies




                           The significant deficiencies discussed below contributed to our disclaimer
Significant                of opinion on the Schedules of the General Fund.
Deficiencies That
Contributed to Our
Disclaimer of Opinion
on the Schedules of
the General Fund
Identifying and Tracing    During our audit, we identified a significant deficiency related to
Transactions in the        identifying and tracing transactions in the Schedules of the General Fund
                           general ledgers. Specifically, this significant deficiency involves activities
Schedules of the General
                           related to the following three areas: (1) identifying journal entries,
Fund General Ledgers       (2) tracing payment schedules to payment vouchers, and (3) identifying
                           transactions in certain line items.

                           Identifying journal entries: The information the Bureau of the Fiscal
                           Service (Fiscal Service) uses to prepare the Schedules of the General
                           Fund is derived from two different general ledgers: the General Fund
                           general ledger populates the Schedule of the Operations of the General
                           Fund and the Central Summary general ledger populates the Schedule of
                           Changes in Cash Balance from Budget and Other Activities. To record
                           transactions in these general ledgers, Fiscal Service designed mapping
                           rules to translate the data in the Central Accounting and Reporting
                           System (CARS) into general ledger journal entries.

                           Fiscal Service uses a complex automated interface between CARS and
                           the general ledgers to apply these mapping rules and generate the
                           journal entries posted to the general ledgers. The mapping rules may
                           generate a significant number of journal entries, some of which are used
                           for control purposes, for each transaction. Fiscal Service has designed
                           certain controls over the interface process. For example, each month
                           Fiscal Service reconciles the federal agencies’ account balances in CARS
                           with the Liability for Fund Balance with Treasury (LFBWT) amount
                           recorded in the General Fund general ledger to ensure that the amounts
                           agree. While the automated interface records most journal entries in the
                           general ledgers, Fiscal Service records some journal entries manually
                           using available agency information.

                           Tracing payment schedules to payment vouchers: Fiscal Service
                           processes payments for most federal agencies. Federal agencies compile
                           payment requests into payment schedules and certify these schedules for


                           Page 37                                     GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




payment when they submit them to Fiscal Service for processing. To
process these payments on behalf of the federal agencies, Fiscal Service
employs different systems, such as the Payment Automation Manager
(PAM) and the International Treasury Services (ITS.gov). 1

The Federal Reserve Bank processes certain payments using the Direct
Voucher System (DVS). 2 DVS further groups payments into vouchers
based on the Routing Transit Number (RTN) and other factors. 3 In doing
so, DVS may add other payment schedules into the same voucher if they
meet specified criteria. As a result, each voucher recorded in the
Schedules of the General Fund general ledgers could potentially be
composed of several payment schedules. These payment schedules in
turn could be made up of thousands of individual payments.

Identifying transactions in certain line items: CARS serves as the
electronic system of record for the federal government’s financial data,
providing streamlined agency reporting and supporting government-wide
standardization. The system allows federal agencies that fully implement
it to classify payments, collections, and intragovernmental transactions
upon initiation, including the assignment of Treasury Account Symbols
(TAS) and Business Event Type Codes (BETC). 4 Fiscal Service
establishes the TAS and BETC attributes and provides federal agencies
guidance on how to classify transactions using them. The classification of
1
 PAM is a Fiscal Service application developed by the Federal Reserve Bank. It performs
validation checks on the certified payment files, screens the payment files for potential
improper payments and offsets, and organizes the files into payment groups for
downstream processing. ITS.gov is a Fiscal Service web-based application that processes
international payments.
2
 For fiscal year 2018, Fiscal Service had agreements with several Federal Reserve Banks
to act as fiscal agents in carrying out different activities related to transactions recorded in
the General Fund. For purposes of this report, we collectively refer to them as the Federal
Reserve Bank.
3
 DVS captures payment activity, excluding checks, processed by the Federal Reserve
Bank.
4
 A TAS is used to represent the federal agency’s individual appropriation, receipt, outlay,
and other fund account symbols as assigned by the Department of the Treasury. A BETC
is an eight-digit character code that indicates the type of activity reported, such as
payments, collections, investments, borrowings, repayments, and so forth. The TAS and
BETC information assigned to this activity is used to classify transactions into the various
sections of the Schedule of Changes in Cash Balance from Budget and Other Activities.
The TAS and BETC information also affect how amounts are reported in the General Fund
Receipt Accounts, Liability for Fund Balance with Treasury, and Equity line items on the
Schedule of the Operations of the General Fund.




Page 38                                            GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




transactions in CARS determines how they are recorded into both general
ledgers and subsequently determines how transactions are reported on
the Schedules of the General Fund based on the mapping rules. As
previously mentioned, some transactions are not recorded using these
mapping rules but are instead recorded by Fiscal Service manually.

Condition. During our audit, we were unable to readily identify and trace
General Fund of the United States (General Fund) transactions to
determine whether they were complete and properly recorded in the
correct general ledger accounts and line items within the schedules.
Specifically, as discussed below, we experienced difficulties in
(1) identifying the complete set of journal entries for certain transactions,
(2) tracing payment schedules to payment vouchers, and (3) identifying
the transactions that constitute certain line items.

•   Identifying journal entries: During our audit, we were unable to
    readily identify all the journal entries for selected transactions. The
    mapping rules may create a significant number of journal entries when
    data are transferred from CARS to the general ledgers via the
    automated interface. We requested that Fiscal Service identify all the
    journal entries related to certain transactions we had selected for
    testing, but this required extensive manual effort on its part. Fiscal
    Service was able to provide some but not all of the requested
    documentation in time for us to complete our audit procedures on the
    fiscal year 2018 audit.
•   Tracing payment schedules to payment vouchers: During our
    audit, we found that payment vouchers recorded on the general
    ledgers, most of which are included in the Cash Out line item of the
    Schedule of the Operations of the General Fund, could not be readily
    traced to certain payment schedules that the federal agencies
    certified. Specifically, Fiscal Service did not have a process in place
    that would allow it to readily provide a direct link between the payment
    schedule(s) and the payment voucher amounts recorded in the
    general ledgers. Fiscal Service was able to track and provide us
    information such as payment schedules and the TAS information for
    some of the payments using a time-consuming manual process that
    required extensive research into multiple payment systems. However,
    Fiscal Service was unable to provide all of the requested
    documentation in time for us to complete our audit procedures on the
    fiscal year 2018 audit.
•   Identifying transactions in certain line items: During our audit, we
    found that amounts recorded in certain line items were summarized



Page 39                                     GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




    and lacked sufficient details that were needed to trace the amounts to
    specific transactions. Specifically, Fiscal Service was unable to use
    data from the Central Summary general ledger to identify transactions
    reported in certain line items of the Schedule of Changes in Cash
    Balance from Budget and Other Activities, including the budget deficit.
    For example, Fiscal Service could not identify the transactions in the
    Central Summary general ledger supporting certain material line items
    on the Schedules of Changes in Cash Balance from Budget and
    Other Activities, such as the components of federal debt activity. In
    order to determine the amounts reported in these line items, Fiscal
    Service used sources external to the General Fund, such as the
    Government-wide Treasury Account Symbol Adjusted Trial Balance
    System (GTAS) and the Summary Debt Accounting System (SDAS). 5
    In addition, we found manual journal entries Fiscal Service recorded
    in certain general ledger accounts that we could not trace to other
    general ledger accounts that should have been affected by the same
    journal entries. For example, Fiscal Service records a manual journal
    entry monthly to reflect the effect of certain transactions on net equity.
    However, the amount recorded for net equity is summarized and
    cannot be readily tied to specific transactions recorded on other
    general ledger accounts. While Fiscal Service performs certain
    reconciliations between the summary amounts recorded on the
    general ledgers and the different sources of information (e.g., GTAS
    and SDAS), these reconciliations are at a summary level. As a result,
    we were unable to determine the accuracy or completeness of the
    related line item balances. As specifically related to the reconciliation
    performed for the Schedule of Changes in Cash Balance from Budget
    and Other Activities, we were unable to determine whether the
    transactions were properly included or excluded from the budget
    deficit calculation.

Criteria. Auditing standards state that the auditor’s objective is to design
and perform audit procedures that enable the auditor to obtain sufficient
appropriate audit evidence with which to draw reasonable conclusions on
which to base the auditor’s opinion. The auditor’s report must be modified
if the auditor is unable to obtain sufficient appropriate audit evidence to

5
 GTAS and SDAS are systems that Fiscal Service maintains outside of the General Fund
that are primarily used for purposes other than supporting the General Fund. Specifically,
GTAS contains monthly federal agency submissions of budget execution information and
proprietary financial reporting information for each TAS, and SDAS contains data on all
outstanding public debt and related interest.




Page 40                                         GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




conclude that the financial statements as a whole are free from material
misstatement. 6

Cause. We were unable to readily identify and trace General Fund
transactions for the following reasons:

•   Identifying journal entries: The complexity of the automated
    interface and underlying mapping rules impaired our ability to replicate
    the journal entries or perform alternative procedures using currently
    available information to determine whether transactions were
    completely and accurately recorded and reported in the appropriate
    general ledger accounts and line items within the Schedules of the
    General Fund, respectively. The process Fiscal Service designed for
    generating journal entries in the Schedules of the General Fund
    general ledgers does not create an audit trail that shows how each
    transaction was actually recorded in the general ledgers. For
    example, there was no systematic approach we could use, such as
    filtering by a unique identifier, to identify all the journal entries related
    to a specific transaction.
•   Tracing payment schedules to payment vouchers: Fiscal Service
    experienced difficulties in linking the payment schedule(s) to the
    payment voucher amounts, in part, because of the many different
    systems involved in the processing of payments and how the
    information continues to be summarized as it flows from one system
    to another. By the time a voucher is recorded in the general ledgers,
    some of the key information that would facilitate traceability is not
    carried forward during the summarization process. For example, the
    general ledgers do not include information such as the payment
    schedule number and RTN, which facilitate the tracing of the voucher
    information to the information that the federal agencies requested and
    certified.
•   Identifying transactions in certain line items: Fiscal Service did not
    design sufficient agency reporting requirements, such as a sufficient
    variety of TAS and BETC attributes in CARS, that the federal
    agencies could use to provide Fiscal Service with information, at a
    transaction level, to support financial reporting for certain line items on
    the Schedules of the General Fund. For example, federal agencies do
    not have a way to associate outflows to appropriated or
6
 Auditing Standards Board, Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, AU-C
200, and Modifications to the Opinion in the Independent Auditor’s Report, AU-C 705.




Page 41                                       GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




    nonappropriated balances when classifying transactions in CARS. As
    a result, Fiscal Service estimates the amount and records a manual
    journal entry monthly to reflect the effect on the net equity line item
    and note disclosure. However, the amounts recorded for these journal
    entries are summarized and cannot be directly linked to distinct
    transactions.
    Similarly, transactions for certain activities are netted based on the
    TAS and BETC assigned by the federal agencies and recorded to
    broadly categorized general ledger accounts at a summarized level.
    This prevents Fiscal Service from obtaining the necessary details from
    its records to identify the specific activities reported on certain line
    items on the Schedule of Changes in Cash Balance from Budget and
    Other Activities, including the budget deficit.

Effect. The effect associated with each of the deficiencies discussed
above follows:

•   Identifying journal entries: Without the ability to readily identify and
    trace General Fund transactions from initiation all the way through the
    recording in the Schedules of the General Fund general ledgers, we
    cannot determine whether transactions are completely and accurately
    recorded and reported in the appropriate general ledger accounts and
    line items within the schedules, respectively.
•   Tracing payment schedules to payment vouchers: Without
    maintaining direct links between the payment schedule(s) and the
    payment voucher(s), Fiscal Service cannot readily provide
    documentation to us to determine whether transactions agree to the
    information certified by the federal agency.
•   Identifying transactions in certain line items: Without sufficient
    TAS and BETC attributes to provide the appropriate level of detail in
    the general ledgers for certain transactions, we cannot determine
    whether certain line items on the Schedule of Changes in Cash
    Balance from Budget and Other Activities, including the deficit, are
    properly supported.

Recommendations for Executive Action. We are making the following
three recommendations to Fiscal Service:

•   The Commissioner of Fiscal Service should develop and implement a
    mechanism to reasonably assure that all the journal entries recorded
    in the Schedules of the General Fund general ledgers can be readily
    identified and traced, such as through a unique identifier, to determine


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                           Appendix I: Internal Control Deficiencies




                               the effect of a transaction on all applicable general ledger accounts
                               and line items of the Schedules of the General Fund, including the
                               budget deficit. (Recommendation 1)
                           •   The Commissioner of Fiscal Service should develop and implement a
                               mechanism to reasonably assure that payment transactions recorded
                               in the Schedules of the General Fund general ledgers capture all of
                               the key information needed, including payment schedules if
                               applicable, to readily trace transactions to the information certified by
                               the federal agency. (Recommendation 2)
                           •   The Commissioner of Fiscal Service should develop and implement
                               additional reporting requirements with related guidance for federal
                               agencies that better align with the General Fund financial reporting
                               objectives and enable Fiscal Service to capture the effect of a
                               transaction on all applicable general ledger accounts and line items of
                               the Schedules of the General Fund, including the budget deficit.
                               (Recommendation 3)

Evaluating and Resolving   Several federal agencies have not yet fully implemented CARS as their
Differences Reported on    primary system of record and, as a result, do not report and classify their
                           transactions on a daily basis. Instead, these non-CARS federal agencies
the Schedules of the
                           submit summary-level information to CARS through two forms—a
General Fund               Statement of Accountability and a Statement of Transactions—on a
                           monthly basis. However, these agencies’ daily cash activity is tracked in
                           the General Fund’s source system records based on information that the
                           Federal Reserve Bank reports. Each month, Fiscal Service reconciles the
                           data the non-CARS federal agencies report on these forms to information
                           in the General Fund’s source system records.

                           Cumulative differences, if any, are reflected in Statement of Difference
                           general ledger accounts in the General Fund’s records until the federal
                           agencies resolve their respective differences. These differences are
                           included in the LFBWT amount recorded on the Schedule of the
                           Operations of the General Fund and are separately disclosed as the
                           “Statement of Difference” on Note 9 of the Schedules of the General
                           Fund. However, these differences are not included in the calculation of
                           the budget deficit until they are resolved by the federal agencies, which
                           could take years. The Statement of Difference totaled $857 million (net)
                           as of September 30, 2018.

                           Condition. During our audit, we found that Fiscal Service does not have
                           a mechanism to determine the effect that these differences have on the
                           different line items of the Schedules of the General Fund. For example,


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                      Appendix I: Internal Control Deficiencies




                      Fiscal Service’s procedures do not include obtaining information about
                      (1) the general nature and causes of the differences or (2) the extent to
                      which the differences may result from errors within the General Fund’s
                      records.

                      Criteria. Internal control standards state that management should design
                      control activities to achieve objectives and respond to risks. 7 For financial
                      reporting, such objectives include the existence, completeness, and
                      appropriate valuation of reported amounts. 8

                      Cause. Differences arise because the information submitted by the non-
                      CARS federal agencies varies in detail and timing when compared with
                      the information in the General Fund’s source system records.

                      Effect. Until all federal agencies implement CARS or Fiscal Service
                      develops a process to determine the effect these differences have on the
                      different line items of the Schedules of the General Fund, including the
                      budget deficit, there is an increased risk of misstatements on the
                      Schedules of the General Fund.

                      Recommendation for Executive Action. We recommend that the
                      Commissioner of Fiscal Service develop and implement a process that
                      would enable Fiscal Service to obtain the information necessary to
                      effectively assess the effect of the Statement of Difference on the
                      Schedules of the General Fund for those federal agencies that have not
                      implemented CARS. (Recommendation 4)


                      In addition to the significant deficiencies discussed above that contributed
Other Significant     to our disclaimer of opinion on the Schedules of the General Fund, we
Deficiencies          found two other significant deficiencies in internal control.


Information Systems   During our audit, we identified ineffective controls over certain Fiscal
Controls              Service information systems relevant to the Schedules of the General
                      Fund. We identified 26 information systems general and application

                      7
                       GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
                      (Washington, D.C.: September 2014).
                      8
                       Auditing Standards Board, Understanding the Entity and Its Environment and Assessing
                      the Risks of Material Misstatement, AU-C 315.




                      Page 44                                       GAO-19-185 Schedules of the General Fund
Appendix I: Internal Control Deficiencies




control deficiencies related to access controls, configuration
management, segregation of duties, contingency planning, and business
process controls. The majority of the control deficiencies identified
affected payment systems. For fiscal year 2018, the General Fund
reported more than $14 trillion in cash outflows; however, debt
repayments and tax refunds collectively represent most of the payment
transactions. Debt repayments and tax refunds are reported in the
Schedules of Federal Debt (SFD) and the Internal Revenue Service’s
(IRS) fiscal years 2018 and 2017 financial statements, respectively, which
GAO audited separately. 9 Further, agencies have daily access to their
payment activity and can verify whether the General Fund’s payments
amounts match their own records. This lessens the likelihood of a
material misstatement of cash outflows on the Schedules of the General
Fund. Because of their sensitive nature, details of these deficiencies are
reported in a LIMITED OFFICIAL USE ONLY report that we issued
concurrently. 10 The information in our concurrently issued report is
sensitive and must be protected from public disclosure. Therefore, further
discussion about the information system control deficiencies we identified
is omitted from this report.

In addition to the 26 deficiencies discussed above, the General Fund
reported a liability for Federal Debt & Accrued Interest Payable held and
managed by the Department of the Treasury (Treasury) of more than
$21.6 trillion as of September 30, 2018. During our 2018 audit of the SFD,
we identified and reported a significant deficiency in SFD information
system general controls that also affects this line item. 11 Similarly, the
General Fund reported custodial tax collections and refunds as cash in
and cash out that are also reported as custodial tax collections and
refunds in IRS’s financial statements. 12 During our fiscal year 2018 audit
of IRS’s financial statements, we identified and reported a significant


9
 See GAO, Financial Audit: IRS’s Fiscal Years 2018 and 2017 Financial Statements,
GAO-19-150 (Washington, D.C.: Nov. 9, 2018), and Financial Audit: Bureau of the Fiscal
Service’s Fiscal Years 2018 and 2017 Schedules of Federal Debt, GAO-19-113
(Washington, D.C.: Nov. 8, 2018).
10
 See GAO, Management Report: Improvements Needed in the Bureau of the Fiscal
Service’s Information System Controls Related to the Schedules of the General Fund,
GAO-19-463RSU (Washington, D.C.: May 15, 2019).
11
  GAO-19-113.
12
  GAO-19-150.




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                         Appendix I: Internal Control Deficiencies




                         deficiency in IRS’s internal control over financial reporting systems that
                         also affects the General Fund.


Management’s Risk        Management uses internal control to help the organization achieve its
Assessment and           objectives. Risk assessments provide management the basis for
                         developing appropriate risk responses as it seeks to achieve those
Monitoring of Internal
                         objectives. Monitoring controls are activities that management establishes
Control over Financial   and operates to assess the quality of performance over time and promptly
Reporting                resolve the findings of audits and other reviews. For years, Fiscal Service
                         has been assessing risks and monitoring internal control over its entire
                         bureau. Beginning in fiscal year 2018, Fiscal Service assumed the
                         responsibility for internal controls over financial reporting related to the
                         Schedules of the General Fund.

                         Condition. We found that Fiscal Service did not fully assess the General
                         Fund’s risks and related internal controls for all material line items on the
                         Schedules of the General Fund or adequately monitor the effectiveness of
                         those internal controls. Specifically, we found that Fiscal Service did not
                         adequately (1) identify or test all relevant controls over material financial
                         statement line items and (2) document its test plans to reflect internal
                         control test procedures performed.

                         •   Identifying and testing all relevant controls: Fiscal Service
                             designed an internal control evaluation process that was intended to
                             identify and assess the effectiveness of key controls applicable to the
                             processes significant to compiling the financial report of the
                             Schedules of the General Fund. Its methodology includes steps for
                             assessing the significant financial reports, identifying the key business
                             processes that contribute to the significant financial reports, and
                             creating a crosswalk between the financial statement line items to the
                             processes and subprocesses. However, we found that Fiscal Service
                             did not conduct the assessment as designed. As a result, we
                             identified several significant controls within processes and
                             subprocesses that contribute to developing the Schedules of the
                             General Fund that Fiscal Service either did not (1) include in its test
                             plans because they were not part of its list of controls already
                             undergoing review as part of the internal control evaluation process or
                             (2) adequately test because the controls had not been designed to
                             respond to risks specific to the General Fund. In addition, Fiscal
                             Service did not review test results of other Treasury components to
                             determine whether any of the component internal control processes
                             covering material General Fund line items, such as Due from



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Appendix I: Internal Control Deficiencies




      Treasury, had any effect on the internal control over financial reporting
      for the General Fund.
•     Documenting test plans to reflect test procedures performed: To
      evaluate internal control, Treasury developed guidance for each of its
      components to follow based on Office of Management and Budget
      (OMB) Circular No. A-123. 13 The guidance states that work performed
      is subject to Office of the Deputy Chief Financial Officer and
      Treasury’s auditors review and that the documentation must be
      maintained at a sufficient level of detail to withstand management or
      auditor scrutiny. To address this requirement, Fiscal Service
      developed test plans to document its testing of its significant internal
      control activities to document its conclusions. However, we have
      found several instances in which Fiscal Service did not accurately
      document the internal control test plans to reflect the test procedures
      performed. For example, Fiscal Service documented that it tested
      internal controls over a report by randomly selecting three monthly
      report reconciliations. However, Fiscal Service officials confirmed that
      the test plan was not updated to reflect that the reconciliation was
      actually a quarterly procedure and that only 1 month of the three listed
      as being reviewed was actually tested, and agreed that Fiscal
      Service’s test documentation was incorrect. In another instance,
      Fiscal Service’s documentation described a quarterly Risk
      Governance Process work group as a key control to reasonably
      assure proper responses to organizational change. However, when
      we requested meeting minutes of the work group, Fiscal Service
      informed us that the work group had disbanded in 2016 and prior to
      that it was not performing the control function referenced in the
      documentation.

Criteria. Internal control standards state that management should define
objectives clearly to enable the identification for risks and define risk
tolerances. Further, management should identify, analyze, and respond to
risks related to achieving defined objectives. 14 Once an adequate internal
control system is in place, management can properly establish and
operate monitoring activities to monitor the internal control system and
evaluate the results, which aid management in identifying internal control


13
 Office of Management and Budget, Management’s Responsibility for Enterprise Risk
Management and Internal Control, OMB Circular No. A-123 (revised July 2016).
14
    GAO-14-704G.




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                   Appendix I: Internal Control Deficiencies




                   issues and remediating identified internal control deficiencies on a timely
                   basis.

                   Cause. We found that management did not adequately identify and
                   assess risks for the General Fund as an independent reporting entity in
                   order to properly evaluate significant internal controls within the General
                   Fund and adequately monitor their effectiveness.

                   Effect. Without properly considering the General Fund as a separate
                   reporting entity, Fiscal Service cannot adequately assess risks related to
                   the Schedules of the General Fund and determine whether appropriate
                   internal controls are designed and implemented. Further, without
                   establishing proper monitoring activities, management will be unable to
                   effectively identify internal control issues to evaluate and develop
                   remediation plans to address those issues in a timely manner.

                   Recommendation for Executive Action. We recommend that the
                   Commissioner of Fiscal Service design and implement procedures to
                   evaluate risks and monitor internal controls over financial reporting
                   relevant to the Schedules of the General Fund. (Recommendation 5)


                   In addition to the significant deficiencies discussed above, we identified
Other Control      the following three deficiencies in internal control, which we do not
Deficiencies       consider to be material weaknesses or significant deficiencies.


Agency-Submitted   During our audit, we identified a control deficiency related to Fiscal
Information        Service’s agency-submitted information. Specifically, this deficiency
                   involves activities related to the following two areas: (1) providing BETC
                   guidance and (2) reviewing Agency Submission Forms.

                   BETC guidance: As discussed previously, Fiscal Service uses federal
                   agencies’ classification, including TAS and BETC attributes, to record
                   transactions in the general ledger. These transactions affect the cash and
                   LFBWT activity presented within various line items throughout the
                   Schedules of the General Fund. To assist federal agencies in selecting
                   the appropriate BETC attributes, Fiscal Service provides guidance on its
                   website, including a listing and brief description of all BETCs.

                   Agency Submission Forms: In order to report other activity with the
                   General Fund that is not reported in CARS, federal agencies submit
                   information through Agency Submission Forms on a quarterly basis. The


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Appendix I: Internal Control Deficiencies




Agency Submission Form is a standardized electronic form that allows
federal agencies to specify the type of transaction, general ledger
account, amount, and other attributes. Using the information provided by
federal agencies, Fiscal Service records manual journal entries in the
General Fund general ledger that correspond with the federal agencies’
activities with the General Fund in order to eliminate intragovernmental
transactions in the consolidated financial statements of the U.S.
government. These transactions are included in the Due from Agencies -
Accrual Amounts, Due from Agencies - Other Debt, and Other Liabilities
line items on the Schedule of the Operations of the General Fund.

Condition. The condition associated with the deficiencies for each area is
as follows:

•     BETC guidance: During our audit, we identified an instance in which
      a federal agency used an incorrect BETC when classifying a
      transaction. Specifically, we identified a credit reform subsidy expense
      transaction that was classified using an incorrect BETC, which caused
      the transaction to be erroneously included in the Loan
      Disbursements/Default Payments line item of the Schedule of the
      Changes in Cash Balance from Budget and Other Activities.
•     Agency Submission Forms: During our audit, we found that Fiscal
      Service did not independently obtain and review supporting
      documentation for activity reported in the Schedules of the General
      Fund that relied solely on information included in Agency Submission
      Forms. Also, Fiscal Service did not have procedures to assess the
      overall completeness of the activity related to the Due from Agencies -
      Accrual Amounts, Due from Agencies - Other Debt, and Other
      Liabilities line items. Further, we identified an instance in which Fiscal
      Service did not adequately review a journal entry resulting from an
      Agency Submission Form for adherence to relevant accounting
      criteria.
Criteria. Internal control standards state that management should design
control activities to achieve objectives and respond to risks. 15 For financial
reporting, such objectives include the completeness and accuracy of
reported amounts. Further, the Treasury Financial Manual includes
requirements for agencies to follow a standard set of processes that
support the recording, reporting, reconciliation, and measurement of
intragovernmental activity.

15
    GAO-14-704G.




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Appendix I: Internal Control Deficiencies




Cause. The cause associated with each of the deficiencies discussed
above is as follows:

•   BETC guidance: Although Fiscal Service maintains a listing of
    BETCs on its website, this guidance does not comprehensively define
    each BETC or describe its proper use and related accounting
    implications. Further, Fiscal Service does not have a mechanism for
    evaluating the agencies’ use of BETCs for consistency with existing
    guidance.
•   Agency Submission Forms: While Fiscal Service has procedures to
    record transactions that correspond to federal agencies’ activity
    reported on Agency Submission Forms related to the General Fund,
    the procedures do not require Fiscal Service to (1) obtain and review
    supporting documentation for the reported activity or (2) assess the
    overall completeness of federal agency-reported activity with the
    General Fund. In addition, the journal voucher review process does
    not require Fiscal Service to review relevant accounting criteria that
    apply to activity reported by agencies.
Effect. The effect associated with each of the deficiencies discussed
above is as follows:

•   BETC guidance: Without sufficient guidance that defines and
    describes the proper use of BETCs available to federal agencies and
    a mechanism for evaluating agencies’ use of them, Fiscal Service is
    at increased risk that federal agencies may not properly classify their
    transactions.
•   Agency Submission Forms: By not obtaining and reviewing
    supporting documentation or requiring a review of accounting policies
    applicable to amounts reported on Agency Submission Forms, Fiscal
    Service does not have the data necessary to assess whether
    transactions included in the forms are appropriately recorded and
    reflected in the Schedules of the General Fund.
Recommendations for Executive Action. We are making the following
four recommendations to Fiscal Service:

•   The Commissioner of Fiscal Service should enhance guidance
    available to federal agencies to comprehensively define and describe
    the proper use and related accounting implications of each BETC.
    (Recommendation 6)




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                   Appendix I: Internal Control Deficiencies




                   •     The Commissioner of Fiscal Service should develop and implement a
                         mechanism for evaluating agencies’ use of BETCs based on the
                         enhanced guidance. (Recommendation 7)
                   •     The Commissioner of Fiscal Service should design and implement
                         procedures to (1) obtain and review supporting documentation for
                         reported activity included on Agency Submission Forms and
                         (2) assess the overall completeness of federal agency activity
                         reported on Agency Submission Forms. (Recommendation 8)
                   •     The Commissioner of Fiscal Service should enhance journal voucher
                         review procedures to include a review of relevant accounting criteria
                         before recording transactions based on Agency Submission Forms.
                         (Recommendation 9)

Validating LFBWT   The General Fund transacts with federal agencies that receive
Balances           appropriation authority and maintains an intragovernmental relationship
                   with these federal agencies. Fiscal Service, which manages the General
                   Fund, issues warrants to federal agencies, which reflect the amount
                   authorized to be obligated and expended from the General Fund for the
                   specified purpose and period of availability provided by law. Upon
                   receiving its warrant, a federal agency records the amount as Fund
                   Balance with Treasury (FBWT)—an asset account that reflects its
                   available budget authority—in its accounting records. In turn, the General
                   Fund records a corresponding amount in its LFBWT to provide for the
                   central accounting of appropriations. The amounts are recorded at the
                   TAS level, which includes designating the type of account and period the
                   funding is available.

                   Condition. During our audit, we found that the population of TAS
                   accounts that compose the General Fund’s LFBWT account included
                   (1) an erroneous TAS balance of approximately $9.0 billion that Fiscal
                   Service identified in fiscal year 2016, but had not corrected in its records
                   as of September 30, 2018; (2) two accounts that should have been closed
                   in the early 1990s; and (3) accounts with long-standing negative
                   balances.

                   Criteria. Internal control standards state that management should design
                   control activities to achieve objectives and respond to risks. 16 For financial
                   reporting, such objectives include the existence, completeness, and


                   16
                       GAO-14-704G.




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Appendix I: Internal Control Deficiencies




appropriate valuation of reported amounts. 17 Also, intragovernmental
balances should agree, as unresolved differences could represent
misstatements in reported amounts in the federal agency’s records as
well as in the consolidated U.S. government financial statements. Further,
the Treasury Financial Manual includes requirements for entities to follow
a standard set of processes that support the recording, reporting,
reconciliation, and measurement of intragovernmental activity. 18 It also
requires that entities involved in intragovernmental transactions reconcile
and resolve any differences between each other on a routine basis.

Cause. Agencies are responsible for reconciling their FBWT account to
General Fund records. Fiscal Service has not established procedures to
periodically review all active TAS accounts to determine whether they are
valid and the related General Fund account balances are consistent with
federal agency records. Further, while Fiscal Service has procedures in
place to monitor negative TAS balances, the procedures are limited and
do not include TAS accounts with indefinite periods of availability.

Effect. Without procedures to independently determine whether all active
Treasury accounts are valid and the related account balances are
consistent with the federal agency records, Fiscal Service cannot
determine whether LFBWT balances are properly recorded and the
reported amounts are consistent with agency records. In addition, without
procedures requiring Fiscal Service to monitor and follow up on the status
of TAS accounts with indefinite periods of availability, Fiscal Service is at
increased risk that misstatements to the Schedules of the General Fund
may occur.

Recommendations for Executive Action. We are making the following
two recommendations to Fiscal Service:

•    The Commissioner of Fiscal Service should design and implement
     procedures to periodically review all active Treasury accounts to
     determine whether they are valid and the related General Fund
     account balances are consistent with federal agency records.
     (Recommendation 10)
17
  Auditing Standards Board, Understanding the Entity and Its Environment and Assessing
the Risks of Material Misstatement.
18
  Bureau of the Fiscal Service, Treasury Financial Manual, Chapter 4700, Agency
Reporting Requirements for the Financial Report of the United States Government,
accessed March 22, 2019, https://tfm.fiscal.treasury.gov/v1/p2/c470.html.




Page 52                                       GAO-19-185 Schedules of the General Fund
                         Appendix I: Internal Control Deficiencies




                         •    The Commissioner of Fiscal Service should enhance current
                              procedures for reviewing negative balances to include Treasury
                              accounts with indefinite periods of availability. (Recommendation 11)

Recording Prior Period   Fiscal Service and federal agencies may identify and record transactions
Transactions in the      in the current year that should have been recorded in a prior fiscal year,
                         for example, to correct an error or reclassify a transaction. Generally,
General Fund General
                         such transactions are recorded based on agency consultation with Fiscal
Ledger                   Service and OMB.

                         Condition. During our audit, we identified 23 prior period transactions
                         that Fiscal Service recorded in the fiscal year 2018 Schedule of the
                         Operations of the General Fund that according to Fiscal Service officials
                         relate primarily to federal agencies’ corrections to activity or balances
                         reported in prior years. The transactions, which were not material in
                         relation to the Schedules of the General Fund as a whole, primarily
                         affected the Warrants Issued line item in Note 2, Adjustments line item in
                         Note 2, and LFBWT activity in Note 9. Recording these transactions in a
                         prior fiscal year would have affected the beginning balance for these line
                         items rather than fiscal year 2018 activity.

                         Criteria. Statement of Federal Financial Accounting Standards 21 states
                         that “prior period financial statements should only be restated for
                         corrections of errors that would have caused any statements presented to
                         be materially misstated.” 19

                         Cause. Fiscal Service’s standard operating procedures for such
                         transactions do not require an assessment of materiality to determine the
                         appropriateness of recording them as current year adjustments or
                         adjustments to beginning balances. Instead, the procedures call for
                         recording a journal entry that corresponds to the federal agency’s
                         accounting treatment of the transaction, without assessing the effect on
                         the Schedule of the Operations of the General Fund.

                         Effect. By not assessing the materiality of prior period transactions
                         recorded by federal agencies, Fiscal Service is unable to determine


                         19
                          Federal Accounting Standards Advisory Board, Reporting Corrections of Errors and
                         Changes in Accounting Principles, Amendment of SFFAS 7, Accounting for Revenue and
                         Other Financing Sources, Statement of Federal Financial Accounting Standards 21.




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whether it should restate the Schedule of the Operations of the General
Fund for prior periods.

Recommendation for Executive Action. We recommend that the
Commissioner of Fiscal Service enhance the standard operating
procedures for prior period transactions to include a requirement for
Fiscal Service to assess the materiality of transactions to determine the
appropriateness of recording them as a current year adjustment or
restating the prior period. (Recommendation 12)




Page 54                                     GAO-19-185 Schedules of the General Fund
Appendix II: Comments from the Bureau of
              Appendix II: Comments from the Bureau of the
              Fiscal Service



the Fiscal Service




(102531)
              Page 55                                        GAO-19-185 Schedules of the General Fund
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