	Scope and Methodology

As part of our audit of the fiscal years 2012 and 2011 CFS, we  considered the federal government’s financial reporting procedures and  related internal control. Also, we determined the status of corrective  actions taken by Treasury and OMB to address open recommendations  relating to the processes used by them to prepare the CFS that were  detailed in our previous reports. We  have communicated each of the new control deficiencies to your staff. We  performed our audit of the fiscal years 2012 and 2011 CFS in accordance  with U.S. generally accepted government auditing standards. New Control Deficiencies Identified

During our audit of the fiscal year 2012 CFS, we identified several new  internal control deficiencies in Treasury’s and OMB’s processes used to  prepare the CFS. Specifically, we found that Treasury’s procedures were  not effectively designed to (1) reasonably assure the timely submission of  audited material line items for significant calendar year-end federal  entities, (2) determine the effect of restatements and reclassifications  submitted by significant federal entities on related line items and notes  presented in the CFS, and (3) ensure that the budget statements included  in the CFS were prepared in a reliable manner. A-136, Financial Reporting  Requirements, that may result in inconsistent and inaccurate reporting  of compliance with the Federal Financial Management Improvement Act  of 1996 (FFMIA). During our audit of the fiscal year 2012 CFS, we found that although  Treasury has made changes to its procedures and now documents its  process for preparing the CFS budget statements, Treasury had not  established and implemented effective processes and procedures to  reconcile (1) outlays and receipts as recorded in the CSGL to outlays and  receipts reported in the federal entities’ audited financial statements and  other financial data, (2) the operating results to the budget results, and   (3) changes in cash and other monetary assets to the budget results. To improve the reliability of the information presented in the CFS budget  statements, we recommend that the Secretary of the Treasury direct the  Fiscal Assistant Secretary, working in coordination with the Controller of  OMB’s Office of Federal Financial Management, to establish and  implement effective procedures for (1) reporting amounts in the CFS  budget statements that are fully consistent with the underlying information  in significant federal entities’ audited financial statements and other  financial data and (2) identifying and reporting all items needed to prepare  the CFS budget statements. OMB’s FFMIA Reporting Requirement

During our audit of the fiscal year 2012 CFS, we notified OMB of a  reporting requirement in OMB Circular No. Status of Recommendations from Prior Reports

Of our 48 recommendations from our prior reports regarding control  deficiencies in the CFS preparation process that were open at the end of  the fiscal year 2011 audit, we closed 17 recommendations during our  fiscal year 2012 audit. Thirty-one recommendations from our prior reports remained  open as of January 9, 2013, the date of our report on the audit of the  fiscal year 2012 CFS. We will continue to monitor Treasury’s and OMB’s progress  in addressing our recommendations as part of our fiscal year 2013 CFS  audit. This report contains recommendations to you. As the Department of the Treasury (Treasury)  is designing its new financial statement  compilation process to begin with the fiscal  year 2004 consolidated financial statements  of the U.S. government (CFS), the Secretary  of the Treasury should direct the Fiscal  Assistant Secretary, in coordination with the  Controller of the Office of Management and  Budget (OMB), to develop reconciliation  procedures that will aid in understanding and  controlling the net position balance as well as  eliminate the plugs previously associated with  compiling the CFS. Treasury is committed to  continuing its efforts to address  the remaining control  deficiencies in this area. The agencies will  provide corrective actions  based on these meetings.
Why GAO Did This Study

Treasury, in coordination with OMB, prepares the Financial Report of the United States Government, which contains 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 CFS, exclusive of the Statements of Social Insurance (SOSI). Also, GAO was unable to express opinions on the 2012, 2011, and 2010 SOSI and 2012 and 2011 Statements of Changes in Social Insurance Amounts because of significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, reflected in these statements. As part of the fiscal year 2012 CFS audit, GAO identified material weaknesses and other control deficiencies in the processes used to prepare the CFS. The purpose of this report is to (1) provide details on new control deficiencies GAO identified related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken by Treasury and OMB to address GAO's prior recommendations relating to the preparation of the CFS that remained open at the end of the fiscal year 2011 audit.

What GAO Found

During its audit of the fiscal year 2012 consolidated financial statements of the U.S. government (CFS), GAO identified new and continuing control deficiencies in the Department of the Treasury's (Treasury) and the Office of Management and Budget's (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control over the federal government's ability to
adequately account for and reconcile intragovernmental activity and balances between federal entities;
ensure that the federal government's accrual-based consolidated financial statements were (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in conformity with U.S. generally accepted accounting principles; and
identify and either resolve or explain material differences between (1) components of the budget deficit that are used to prepare certain information in the CFS and (2) related amounts reported in federal entities' financial statements and underlying financial information and records.
Specifically, for fiscal year 2012, GAO found that Treasury's procedures were not effectively designed to
reasonably assure the timely submission of audited material line items for significant calendar year-end federal entities,
determine the effect of restatements and reclassifications submitted by significant federal entities on related line items and notes presented in the CFS, and
ensure that the budget statements included in the CFS were prepared in a reliable manner.
GAO also notified OMB of a reporting requirement in OMB Circular No. A-136, Financial Reporting Requirements , that may result in inconsistent and inaccurate reporting of compliance with the Federal Financial Management Improvement Act of 1996.
In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the CFS preparation continued to exist. Specifically, 31 of the 48 recommendations from GAO's prior reports regarding control deficiencies in the CFS preparation process remained open as of January 9, 2013, the date of GAO's report on its audit of the fiscal year 2012 CFS. GAO will continue to monitor the status of corrective actions taken to address the 6 new recommendations as well as the 31 open recommendations from prior years as part of its fiscal year 2013 CFS audit.

What GAO Recommends

GAO is making six recommendations -- five to Treasury and one to OMB--to address the new control deficiencies identified by GAO during the fiscal year 2012 CFS audit. In commenting on GAO's draft, OMB and Treasury generally concurred on 5 of the 6 recommendations, and Treasury will consider implementation of the other recommendation.