Management Report: Improvements Needed in Controls over the Processes Treasury and OMB Used to Prepare the U.S. Consolidated Financial Statements
Fast Facts
We audit the U.S. government's consolidated financial statements annually. Ongoing weaknesses, including problems with the processes used to prepare the statements, prevent us from determining whether the statements fairly present the government's finances.
In our FY 2021 audit, we found 4 new deficiencies in the processes Treasury used to prepare the financial statements. For example, Treasury didn't have sufficient procedures to account for and report significant, unusual transactions and events. We recommended ways to address these.
Treasury addressed 2 deficiencies we previously reported and made significant progress addressing 10 others.
Highlights
What GAO Found
GAO's audit of the fiscal year 2021 consolidated financial statements of the U.S. government (CFS) identified control deficiencies in the processes the Department of the Treasury, in coordination with the Office of Management and Budget (OMB), used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control that involve the federal government's inability to
- adequately account for intragovernmental activity and balances between federal entities;
- reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and
- reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is complete, properly supported, and consistent with the underlying information in the audited entities' financial statements and other financial data.
GAO identified four new control deficiencies during the fiscal year 2021 audit in the processes Treasury used to prepare the CFS.
- Treasury did not sufficiently design and implement procedures to reasonably assure appropriate accounting and reporting for significant, unusual transactions and events, such as changes in legislation, affecting the CFS.
- Treasury did not have sufficient procedures to identify and consider the effect of all known uncorrected misstatements on each affected line item and financial statement in its analysis for determining whether the uncorrected misstatements have a material effect on the current and prior year CFS.
- Treasury did not have sufficient procedures to reasonably assure that significant accounting policies are appropriately disclosed in the CFS and, as applicable, are consistent with significant component entity audited financial statements.
- Treasury did not have sufficient policies and procedures to support disclosure decisions for the CFS related to explaining significant fluctuations or disaggregating line item components in note tables.
For control deficiencies identified in prior years, Treasury, in coordination with OMB, implemented corrective actions that resolved two of the 12 recommendations open as of the beginning of GAO's fiscal year 2021 CFS audit. As part of its fiscal year 2022 CFS audit, GAO will continue to monitor the status of corrective actions to address the five new recommendations made in this report as well as the 10 open recommendations from prior years.
Why GAO Did This Study
The Secretary of the Treasury, in coordination with the Director of OMB, prepares the Financial Report of the United States Government, which includes the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. As part of the fiscal year 2021 CFS audit, GAO identified continuing material weaknesses and other control deficiencies in the processes used to prepare the CFS.
The objective of this report is to provide (1) details on new control deficiencies GAO identified related to the processes Treasury used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions that Treasury, in coordination with OMB, has taken to address GAO's prior recommendations related to the processes used to prepare the CFS that remained open as of the completion of GAO's audit of the fiscal year 2020 CFS.
Recommendations
GAO is making five new recommendations to Treasury to address the control deficiencies identified during the fiscal year 2021 CFS audit. In commenting on GAO's draft report, Treasury concurred with the five new recommendations and noted its ongoing commitment to improving federal financial reporting. OMB generally agreed with the draft report and noted its continuing commitment to achieving sound financial management across the federal government.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Treasury |
Priority Rec.
We recommend that the Fiscal Assistant Secretary of the Treasury enhance existing policies and procedures to reasonably assure appropriate accounting and reporting for significant, unusual transactions or events, such as changes in legislation, affecting the CFS. (Recommendation 1) |
Open
As of the completion of our fiscal year 2023 audit of the consolidated financial statements of the U.S. government, this recommendation remained open. Treasury did not design or implement corrective actions that addressed our recommendation.
|
| Department of the Treasury |
Priority Rec.
We recommend that the Fiscal Assistant Secretary of the Treasury enhance Treasury's procedures for analyzing uncorrected misstatements to identify all known uncorrected misstatements, by line item and on all of the affected current year and prior year financial statements, during the CFS preparation process. (Recommendation 2) |
Open
As of the completion of our fiscal year 2023 audit of the consolidated financial statements of the U.S. government, this recommendation remained open. Treasury developed corrective actions and began implementing new policies and procedures for preparing the current year Summary of Uncorrected Misstatements (SUM). However, Treasury (1) is still working on full implementation to identify all known uncorrected misstatements and (2) did not update the SUM prepared in the prior year for uncorrected misstatements identified in the current year that relate to prior year amounts.
|
| Department of the Treasury |
Priority Rec.
We recommend that the Fiscal Assistant Secretary of the Treasury enhance Treasury's procedures for analyzing uncorrected misstatements to consider the effect of uncorrected misstatements by line item and on all of the affected current year and prior year financial statements. (Recommendation 3) |
Open
As of the completion of our fiscal year 2023 audit of the consolidated financial statements of the U.S. government, this recommendation remained open. Treasury developed corrective actions and began implementing new policies and procedures for preparing the current year Summary of Uncorrected Misstatements (SUM). However, Treasury (1) is still working on full implementation to identify all known uncorrected misstatements and (2) did not update the SUM prepared in the prior year for uncorrected misstatements identified in the current year that relate to prior year amounts.
|
| Department of the Treasury | We recommend that the Fiscal Assistant Secretary of the Treasury enhance existing procedures to reasonably assure that significant accounting policies are appropriately disclosed in CFS Note 1 and, as applicable, are consistent with significant component entity audited financial statements. (Recommendation 4) |
Closed – Implemented
During our fiscal year 2022 audit of the consolidated financial statements of the U.S. government, we determined that Treasury enhanced existing procedures and implemented new procedures that addressed our recommendation. As such, based on our audit work, we determined that this recommendation is closed.
|
| Department of the Treasury |
Priority Rec.
We recommend that the Fiscal Assistant Secretary of the Treasury enhance existing policies and procedures to support CFS disclosure decisions related to explaining significant fluctuations and disaggregating line item components in note tables. (Recommendation 5) |
Open
As of the completion of our fiscal year 2023 audit of the consolidated financial statements of the U.S. government (CFS), this recommendation remained open. Treasury developed a timeline and completed the initial steps for designing and implementing corrective actions to enhance its existing policies and procedures. However, we continued to identify note disclosures that needed additional explanations for significant fluctuations.
|