	Scope and Methodology

As part of our audit of the fiscal years 2007 and 2006 CFS, we evaluated  the federal government’s financial reporting procedures and related  internal control, and we followed up on the status of corrective actions  taken by Treasury and OMB to address open recommendations relating to  the processes used to prepare the CFS that were in our previous reports. In our audit report on the fiscal year 2007 CFS, which is included in the  fiscal year 2007 Financial Report of the United States Government, we  discussed the material weaknesses related to the federal government’s  processes used to prepare the CFS. These material weaknesses  contributed to our disclaimer of opinion on the accrual basis consolidated  financial statements and also contributed to our adverse opinion on  internal control. This report provides the details of the material  weaknesses we identified in performing our fiscal year 2007 audit  procedures related to the processes used to prepare the CFS and our  recommendations to correct these weaknesses, as well as the status of  corrective actions taken by Treasury and OMB to address  recommendations in our previous reports. Conformity with GAAP

For many years, we have reported that Treasury had not established a  formal process to ensure that the financial statements, related notes,  stewardship information and supplemental information in the CFS were  presented in conformity with GAAP. Reconciling Distributed Offsetting Receipts

The federal government reports a unified budget deficit  (budget deficit)  in the Reconciliation of Net Operating Cost and the Unified Budget Deficit  and in the Statement of Changes in Cash Balance from Unified Budget and  Other Activities. Treasury did  not maintain adequate control over the spreadsheets used to summarize  and array financial data for presentation in the CFS. Monitoring Internal Control over the CFS Preparation Process

Treasury, in coordination with OMB, has not established processes for  monitoring and assessing the effectiveness of internal control over the  processes used to prepare the CFS. Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

This appendix includes recommendations that were open at the beginning  of our fiscal year 2007 audit from five of our previous reports:    Financial Audit: Process for Preparing the Consolidated Financial  Statements of the U.S. Government Needs Improvement, GAO-04-45  (Washington, D.C.: Oct. 30, 2003);   Financial Audit: Process for Preparing the Consolidated Financial  Statements of the U.S. Government Needs Further Improvement, GAO-04- 866 (Washington, D.C.: Sept. 10, 2004);   Financial Audit: Process for Preparing the Consolidated Financial  Statements of the U.S. Government Continues to Need Improvement,  GAO-05-407 (Washington, D.C.: May 4, 2005);   Financial Audit: Significant Internal Control Weaknesses Remain in  Preparing the Consolidated Financial Statements of the U.S.  Government, GAO-06-415 (Washington, D.C.: Apr. Of the 81 recommendations relating to the processes used to prepare the  consolidated financial statements of the U.S. government (CFS) that are  listed in this appendix, 35 were closed and 46 remained open as of  December 10, 2007, the date of our report on the audit of the fiscal year  2007 CFS.
Why GAO Did This Study

For the past 11 years, since GAO's first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and in selected accounting and financial reporting practices have prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2007 disclaimer of opinion on the fiscal year 2007 accrual basis consolidated financial statements included a discussion of continuing control deficiencies related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing material weaknesses, (2) recommend improvements, and (3) provide the status of corrective actions taken to address the 81 open recommendations related to the preparation of the CFS that GAO reported in July 2007.

What GAO Found

GAO identified continuing and new control deficiencies during its audit of the fiscal year 2007 CFS that relate to the federal government's processes used to prepare the CFS. These control deficiencies contribute to material weaknesses in internal control regarding the U.S. government's inability to (1) adequately account for and reconcile intragovernmental activity and balances between federal agencies; (2) ensure that the CFS was consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences that exist between certain components of the budget deficit reported in the Department of the 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. The control deficiencies GAO identified during its tests of the processes used to prepare the fiscal year 2007 CFS involved the following areas: documenting a key standard operating procedure for preparing the CFS, reporting in conformity with U.S. generally accepted accounting principles, reconciling distributed offsetting receipts, maintaining adequate control over spreadsheets used in preparing the CFS, monitoring internal control over the processes used to prepare the CFS, using interim financial information in the CFS preparation process, and various other control deficiencies that were identified in previous years' audits but remained in fiscal year 2007. Of the 81 open recommendations GAO reported in July 2007 regarding the processes used to prepare the CFS, 35 were closed and 46 remained open as of December 10, 2007, the date of our report on our audit of the fiscal year 2007 CFS. GAO will continue to monitor the status of corrective actions taken to address the 10 new recommendations and the new remaining balance of 56 open recommendations during its fiscal year 2008 audit of the CFS.