	Scope and Methodology

As part of our audit of the fiscal years 2011 and 2010 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 to prepare the CFS detailed in our  previous reports. We  performed our audit of the fiscal years 2011 and 2010 CFS in accordance  with U.S. generally accepted government auditing standards. Recommendations for Executive Action

To help to provide reasonable assurance that the information reported in  the CFS is complete, accurate, and in conformity with GAAP, the  Secretary of the Treasury should direct the Fiscal Assistant Secretary to  (1) establish a mechanism to ensure that Treasury’s CFS disclosure  checklist is reviewed and approved by the date in Treasury’s policies and  procedures and (2) revise the SOP to include requirements for using the  CFS disclosure checklist to prepare the format draft of the CFS and to  update the CFS disclosure checklist as necessary when subsequent  drafts of the CFS are prepared. Treasury developed the Intragovernmental  Reporting and Analysis System (IRAS) to begin to address the long- standing weakness we reported regarding the federal government’s  inability to adequately account for and reconcile intragovernmental activity  and balances. However, during our  fiscal year 2011 audit, we found control deficiencies over the design and  implementation of the IRAS data validation process. Recommendations for Executive Action

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

Of our 50 recommendations from our prior reports regarding control  deficiencies in the CFS preparation process that were open at the end of  the fiscal year 2010 audit, we were able to close 12 during our fiscal year  2011 audit, generally as a result of corrective actions taken by Treasury. The other 38 recommendations remained open as of December 12, 2011,  the date of our report on the audit of the fiscal year 2011 CFS. We will continue to monitor Treasury’s and OMB’s progress  in addressing our recommendations as part of our fiscal year 2012 CFS  audit. Treasury’s  process for compiling the  CFS generally  demonstrated that  amounts in the  Statement of Social  Insurance and the  Statement of Changes in  Social Insurance  Amounts were consistent  with the underlying  federal entities’ financial  statements and that the  Balance Sheet and the  Statement of Net Cost  were also consistent with  the 35 significant federal  entities’ financial  statements prior to  eliminating  intragovernmental activity  and balances. Count 39

Recommendation  The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to develop,  document, and implement processes and  procedures for preparing and reviewing the  Management’s Discussion and Analysis  (MD&A) and “The Federal Government’s  Financial Health: A Citizen’s Guide to the  Financial Report of the United States  Government” sections of the Financial Report  of the U.S. Government (Financial Report) to  help assure that information reported in these  sections is complete, accurate, and  consistent with related information reported  elsewhere in the Financial Report. To  provide  recommendations that  are better aligned with  the current status of  remaining deficiencies  related to this area, we  have (1) closed this  recommendation based  on Treasury’s significant  progress and (2) included  in this report under  “Review of Federal  Entities’ Financial  Information for Inclusion  in the CFS” a new  recommendation for  corrective actions for the  remaining deficiencies.
Why GAO Did This Study

Treasury, in coordination with OMB, is primarily responsible for preparing the Financial Report , which contains the CFS. Since GAOs first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of GAOs work have prevented GAO from expressing an opinion on the CFS, exclusive of the Statement of Social Insurance (SOSI). Also, GAO was unable to express opinions on the 2011 and 2010 SOSI and the 2011 Statement 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 2011 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 to address GAOs prior recommendations in this area that remained open at the end of the fiscal year 2010 audit.

What GAO Found

During its audit of the fiscal year 2011 consolidated financial statements of the U.S. government (CFS), GAO identified new and continuing control deficiencies in the Department of the Treasurys (Treasury) and the Office of Management and Budgets (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control over the federal governments ability to
adequately account for and reconcile intragovernmental activity and balances between federal entities;
ensure that the federal governments accrual-based consolidated financial statements were consistent with the underlying audited entities financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and
identify and either resolve or explain material differences between (1) 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.
GAO identified new control deficiencies involving the need to
develop or revise and implement written procedures for appropriate Treasury and OMB officials to (1) review and approve the drafts of the Financial Report of the United States Government (Financial Report) before they are provided to GAO and (2) better ensure that key federal entity personnel are actively involved in the process for preparing and reviewing the Financial Report ;
enhance procedures for timely review, approval, and use of the CFS disclosure checklist;
develop procedures for pursuing indications that financial information provided by federal entities for inclusion in the CFS may not be in conformity with applicable accounting standards;
enhance Treasurys intragovernmental data validation process; and
enhance procedures for timely identifying, notifying, and obtaining closing packages from federal entities as they first become significant to the Financial Report .
In addition, GAO found that various other control deficiencies identified in previous years audits with respect to the CFS preparation continued to exist. Specifically, of the 50 open recommendations from GAOs prior reports regarding control deficiencies in the CFS preparation process,12 were closed and 38 remained open as of December 12, 2011, the date of GAOs report on its audit of the fiscal year 2011 CFS. GAO will continue to monitor the status of corrective actions taken to address the 10 new recommendations as well as the 38 open recommendations from prior years as part of its fiscal year 2012 CFS audit.

What GAO Recommends

GAO is making 10 recommendations 9 to Treasury and 1 to OMBto address new control deficiencies. In commenting on GAOs draft report, Treasury and OMB generally concurred with GAOs findings.