In order to fulfill these responsibilities, we    examined, on a test basis, evidence supporting the amounts and  disclosures in the Schedules of Federal Debt;  assessed the accounting principles used and any significant estimates   evaluated the overall presentation of the Schedules of Federal Debt;  obtained an understanding of the entity and its operations, including its  internal control relevant to the Schedule of  Federal Debt as of  September 30, 2008, related to financial reporting and compliance with  laws and regulations (including execution of transactions in accordance  with budget authority);  tested relevant internal controls over financial reporting and  compliance, and evaluated the design and operating effectiveness of  internal control relevant to the Schedule of Federal Debt as of  September 30, 2008;  considered the design of the process for evaluating and reporting on  internal control and financial management systems under the Federal  Managers’ Financial Integrity Act; and   tested compliance in fiscal year 2008 with the statutory debt limit (31  U.S.C. § 3101), the latter of which is referred to as intragovernmental debt holdings. As of September 30, 2008 and 2007, outstanding gross federal debt managed by the bureau totaled $10,011 and $8,993 billion, respectively. The increase in gross federal debt of $1,018 billion during fiscal year 2008 was due to an increase in gross intragovernmental debt  holdings of $258 billion and an increase in gross debt held by the public of $760 billion. (in billions)
Debt held by the public primarily reflects how much of the nation’s wealth has been absorbed by the Federal Government  to finance prior federal spending in excess of total federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by over 230 individual federal government  accounts with either the authority or the requirement to invest excess receipts in special U.S. Treasury securities that are  guaranteed for principal and interest by the full faith and credit of the U.S. Government. Section 3083 of this law increased the statutory debt limit from $9,815  billion to $10,615 billion. On September 18, 2008, the Bureau of the Public Debt began issuing specific cash management bills to fund the  Supplementary Financing Program (SFP). Overview, Schedules, and Notes Significant Events in Fiscal Year 2008, cont. Over the past 4 fiscal years, intragovernmental debt holdings increased by $1,130 billion,  from $3,072 billion as of September 30, 2004, to $4,202 billion as of September 30, 2008. Section 122 of the Act  increased the statutory debt limit by $700 billion to $11,315 billion. Notes to the Schedules of Federal Debt

Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt  For the Fiscal Years Ended September 30, 2008 and 2007   (Dollars in Millions)
Note 1. The Congress has  authorized the Secretary of the Treasury to borrow monies to operate the federal government within a statutory debt  limit. Interest Expense  Interest expense on Federal Debt Managed by BPD for fiscal years 2008 and 2007 consisted of the  Federal Debt Held by the Public   Net Amortization of Premiums and Discounts  Total Interest Expense on Federal Debt Held by the Public   Net Amortization of Premiums and Discounts  (1,505) (1,116)
Total Interest Expense on Intragovernmental Debt Holdings Total Interest Expense on Federal Debt Managed by BPD  The valuation of TIPS is adjusted daily over the life of the security based on the Consumer Price Index for all Urban  Consumers. This act increased the statutory debt  limit by $700 billion to $11,315 billion.
Why GAO Did This Study

GAO is required to audit the consolidated financial statements of the U.S. government. Due to the significance of the federal debt held by the public to the governmentwide financial statements, GAO audits the Bureau of the Public Debt's (BPD) Schedules of Federal Debt annually. The audit of these schedules is done to determine whether, in all material respects, (1) the schedules are reliable and (2) BPD management maintained effective internal control relevant to the Schedule of Federal Debt. Further, GAO tests compliance with a significant provision of law related to the Schedule of Federal Debt (statutory debt limit). Federal debt managed by BPD consists of Treasury securities held by the public and by certain federal government accounts, referred to as intragovernmental debt holdings. The level of debt held by the public primarily reflects how much of the nation's wealth has been absorbed by the federal government to finance prior federal spending in excess of federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds such as Social Security, that typically have an obligation to invest their excess annual receipts over disbursements in federal securities.

What GAO Found

In GAO's opinion, BPD's Schedules of Federal Debt for fiscal years 2008 and 2007 were fairly presented in all material respects, and BPD maintained effective internal control relevant to the Schedule of Federal Debt as of September 30, 2008. GAO found no instances of noncompliance in fiscal year 2008 with the statutory debt limit. As of September 30, 2008 and 2007, federal debt managed by BPD totaled about $10,011 billion and $8,993 billion, respectively. Total federal debt increased over each of the last 4 fiscal years. During the last 4 fiscal years, managing the federal debt has continued to be a challenge as evidenced by the growth of total federal debt by $2,632 billion, or 36 percent, from $7,379 billion as of September 30, 2004, to $10,011 billion as of September 30, 2008. In fiscal year 2008 alone, total federal debt increased by $1,018 billion, the single largest annual increase in history. Of this amount, about $760 billion was from the increase in debt held by the public, which included $300 billion in cash management bills issued in September 2008 under the Supplementary Financing Program initiated by Treasury. The remaining increase in federal debt of about $258 billion was from intragovernmental debt holdings. On July 30, 2008, legislation was enacted to raise the statutory debt limit from $9,815 billion to $10,615 billion. In addition, in response to the nation's growing financial crisis, on October 3, 2008, the President signed into law legislation authorizing the Secretary of the Treasury to purchase up to $700 billion in troubled assets from financial institutions. This legislation increased the statutory debt limit by $700 billion to $11,315 billion. These increases in the statutory debt limit were the fourth and fifth such occurrences since fiscal year 2004.