The material weaknesses that contributed to our disclaimer of opinion  were the federal government’s inability to    satisfactorily determine that property, plant, and equipment and  inventories and related property, primarily held by the Department of  Defense (DOD), were properly reported in the consolidated financial  statements;  implement effective credit reform estimation and related financial  reporting processes at certain federal credit agencies;  reasonably estimate or adequately support amounts reported for certain  liabilities, such as environmental and disposal liabilities, or determine  whether commitments and contingencies were complete and properly  reported;    support significant portions of the total net cost of operations, most  notably related to DOD, and adequately reconcile disbursement activity at  certain agencies;    adequately account for and reconcile intragovernmental activity and  balances between federal agencies;    ensure that the federal government’s consolidated financial statements  were (1) consistent with the underlying audited agency financial  statements, (2) properly balanced, and (3) in conformity with Generally  Accepted Accounting Principles; and,  identify and either resolve or explain material differences that exist  between certain components of the budget deficit reported in Treasury’s  records, used to prepare the Reconciliation of Net Operating Cost and  Unified Budget Deficit and Statement of Changes in Cash Balance from  Unified Budget and Other Activities, and related amounts reported in  federal agencies’ financial statements and underlying financial information  and records. Addressing Major Impediments to an Opinion on the Accrual Basis Consolidated Financial Statements

Three major impediments to our ability to render an opinion on the U.S.  government’s accrual basis consolidated financial statements continued to  be: (1) serious financial management problems at DOD, (2) the federal  government’s inability to adequately account for and reconcile  intragovernmental activity and balances between federal agencies, and   (3) the federal government’s ineffective process for preparing the  consolidated financial statements. A substantial number of the agencies did not adequately perform the  required reconciliations for fiscal years 2007 and 2006. The Nation’s Long- Term Fiscal Challenge

The nation’s long-term fiscal challenge is a matter of utmost concern. The  federal government faces large and growing structural deficits due  primarily to rising health care costs and known demographic trends. Information included in the Financial Report, such as the Statement of  Social Insurance along with long-term fiscal simulations and fiscal  sustainability reporting can help increase understanding of the federal  government’s long-term fiscal outlook. We  were able to render an unqualified opinion on the 2007 Statement of Social  Insurance—a significant accomplishment for the federal government. Conversely, the longer that action to deal with the nation’s long- term fiscal outlook is delayed, the greater the risk that the eventual  changes will be disruptive and destabilizing and future generations will  have to bear a greater burden of the cost. Simply put, the federal  government is on an imprudent and unsustainable long-term fiscal path  that is getting worse with the passage of time. However,  after 11 years of reporting at the governmentwide level, it is appropriate to  consider the need for further revisions to the current federal financial  reporting model, which could affect both consolidated and agency  reporting. While the current reporting model recognizes some of the  unique needs of the federal government, a broad reconsideration of the  federal financial reporting model could address the following types of  questions:    What kind of information is most relevant and useful for a sovereign  nation? Closing Comments

In closing, it is important that the progress that has been made in  improving federal financial management activities and practices be  sustained by the current administration as well as the new administration  that will be taking office next year. However, the federal government still  has a long way to go before realizing strong federal financial management. Federal agencies need to improve the government’s financial management  systems. Given the federal government’s current financial condition and the  nation’s long-term fiscal challenge, the need for the Congress and federal  policymakers and management to have reliable, useful, and timely  financial and performance information is greater than ever. Sound  decisions on the current and future direction of vital federal government  programs and policies are more difficult without such information. Until the problems  discussed in this testimony are effectively addressed, they will continue to  have adverse implications for the federal government and the taxpayers.
Why GAO Did This Study

The Congress and the President need to have reliable, useful and timely financial and performance information to make sound decisions on the current and future direction of vital federal government programs and policies. Unfortunately, except for the 2007 Statement of Social Insurance, GAO was again unable to provide assurance on the reliability of the consolidated financial statements of the U.S. government (CFS) due primarily to certain material weaknesses in the federal government's internal control. GAO has reported that unless these weaknesses are adequately addressed, they will, among other things, (1) hamper the federal government's ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; and (2) affect the federal government's ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities. This testimony presents the results of GAO's audit of the CFS for fiscal year 2007 and discusses the federal government's long-term fiscal outlook.

What GAO Found

For the 11th consecutive year, three major impediments prevented GAO from rendering an opinion on the federal government's accrual basis consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government's ineffective process for preparing the consolidated financial statements. In addition, financial management system problems continue to hinder federal agency accountability. Although the federal government still has a long way to go, significant progress has been made in improving federal financial management. For example, audit results for many federal agencies have improved and federal financial system requirements have been developed. In addition, GAO was able to render an unqualified opinion on the 2007 Statement of Social Insurance. Further, for the first time, the federal government issued a summary financial report which is intended to make the information in the Financial Report of the U.S. Government (Financial Report) more accessible and understandable to a broader audience. It is important that this progress be sustained by the current administration as well as the new administration that will be taking office next year and that the Congress continues its oversight to bring about needed improvements to federal financial management. Given the federal government's current financial condition and the nation's long-term fiscal challenge, the need for the Congress and federal policymakers and management to have reliable, useful, and timely financial and performance information is greater than ever. Information included in the Financial Report, such as the Statement of Social Insurance along with long-term fiscal simulations and fiscal sustainability reporting, can help increase understanding of the nation's long-term fiscal outlook. The nation's long-term fiscal challenge is a matter of utmost concern. The federal government faces large and growing structural deficits due primarily to rising health care costs and known demographic trends. Simply put, the federal government is on an imprudent and unsustainable long-term fiscal path. Addressing this challenge will require a multipronged approach. Moreover, the longer that action is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Finally, the federal government should consider the need for further revisions to the current federal financial reporting model to recognize the unique needs of the federal government. A broad reconsideration of issues, such as the kind of information that may be relevant and useful for a sovereign nation, could lead to reporting enhancements that might help provide the Congress and the President with more useful financial information to deliberate strategies to address the nation's long-term fiscal challenge.