In our report, which is included in  the fiscal year 2004 Financial Report of the United States Government, we  reported material deficiencies relating to Treasury’s preparation of  the CFS. This report provides the details of the additional weaknesses we identified  in performing our fiscal year 2004 audit procedures and our  recommendations to correct those weaknesses, as well as the status of  corrective actions taken by Treasury and OMB to address  open recommendations contained in our prior years’ reports. As discussed in our fiscal year 2004 audit report, Treasury made progress in  laying the foundation to address certain long-standing material deficiencies  in preparing the CFS. The goal of the new system is to be able to directly link  information from federal agencies’ audited financial statements to amounts  reported in the CFS, a concept that we strongly support. Recommendations for Executive Action

In connection with Treasury’s development of its new compilation system  and process, we recommend that the Secretary of the Treasury direct the  Fiscal Assistant Secretary to  segregate the duties of individuals performing key functions in  Treasury’s processes for preparing governmentwide adjustments to the  financial statements, making changes to Excel spreadsheets that  contain audited agency financial information, and accessing federal  agencies’ closing package data in Treasury’s new system;  require and maintain appropriate supporting documentation for all  journal vouchers recorded in the CFS;  require that Treasury employees contact and document  communications with agencies before recording journal vouchers to  change agency audited closing package data;  require and document management reviews of all procedures that result  in data changes to the CFS;  configure the GFRS database to prevent Treasury personnel from  altering data submitted by federal agencies and to use separate GFRS  databases for testing and production; and  assess the infrastructure associated with the compilation process and  modify it as necessary to achieve a sound internal control environment. Conformity with U.S. Generally Accepted Accounting Principles

As we have reported in previous years, and noted again during our fiscal  year 2004 audit, Treasury lacks an adequate process to ensure that the  financial statements, related notes, stewardship information, and  supplemental information in the CFS are presented in conformity with  GAAP. However, during fiscal year 2004, Treasury did not implement our  recommendations. As a result of our prior audits, recommendations related  to 86 specific disclosures that may not have been in conformity with  applicable standards remain open. As a result of  this and certain of the material deficiencies identified during the fiscal year  2004 audit, we were unable to determine if the missing information was  material to the CFS. Also, Treasury asked that we  reconsider or modify our recommendations in three areas: (1) controls  over the compilation process, (2) consistency of Justice’s and agencies’  opinions on legal cases, and (3) directly linking audited federal agency  financial statements to the CFS. Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

This appendix includes open recommendations from two prior  GAO reports: Financial Audit: Process for Preparing the  Consolidated Financial Statements of the U.S. Government Needs  Improvement, GAO-04-45 (Oct. 30, 2003), and Financial Audit: Process  for Preparing the Consolidated Financial Statements of the  U.S. Government Needs Further Improvement, GAO-04-866 (Sept.  10, 2004). Open. The Statement of Changes in  Cash Balance reported only the  changes in the “operating” cash of the  U.S. government of $19.8 billion  rather than the change in all cash  reported on the U.S. government’s  Balance Sheet of $22.6 billion, as of  September 30, 2004.
Why GAO Did This Study

For the past 8 years, since the 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 resulted in conditions that prevented GAO from expressing an opinion on the CFS. Specifically, GAO has reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. In December 2004, GAO reported on weaknesses identified during its fiscal year 2004 audit of the CFS, including weaknesses relating to the Department of the Treasury's (Treasury) preparation of the CFS. The purpose of this report is to (1) discuss the details of the weaknesses relating to Treasury's preparation of the CFS, (2) recommend improvements to address those weaknesses, and (3) provide the status of corrective actions to address the 142 open recommendations GAO previously reported.

What GAO Found

GAO identified weaknesses during its tests of Treasury's process for preparing the fiscal year 2004 CFS. Such weaknesses in the CFS preparation process impair the U.S. government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. The weaknesses GAO identified during the fiscal year 2004 CFS audit involved directly linking audited federal agency financial statements to the CFS, controls over the compilation process, consolidated reporting guidance to agencies, intragovernmental activity and balances--explanations for material unreconciled transactions, consistency of the Department of Justice's and agencies' opinions on legal cases, and conformity with U.S. generally accepted accounting principles. During fiscal year 2004, Treasury made progress in laying the foundation to address certain long-standing material deficiencies in preparing the CFS. Foremost is the ongoing development of a new system, which is intended to directly link information from federal agencies' audited financial statements to amounts reported in the CFS. Additional actions are under way and planned. Of the 142 open recommendations that GAO reported in September 2004 regarding the process for preparing the CFS, 135 remained open as of December 6, 2004, the end of GAO's fieldwork for the fiscal year 2004 CFS audit. However, 86 of these 135 recommendations relate to specific disclosures required under U.S. generally accepted accounting principles. Treasury has taken action to begin addressing the conformity with U.S. generally accepted accounting principles issue. GAO plans to determine the status of corrective actions to address its open recommendations during its fiscal year 2005 audit of the CFS.