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 internal control relevant to the Schedule  of Federal Debt as of September 30, 2004, 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 related to the Schedule of Federal Debt as of   September 30, 2004;  considered 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 2004 with the statutory debt limit (31  U.S.C. The comments are reprinted in appendix I.

Overview, Schedules, and Notes

Federal debt managed by the Bureau of the Public Debt comprises debt held by the public and debt held by certain federal  government accounts, the latter of which is referred to as intragovernmental debt holdings. As of September 30, 2004 and 2003, outstanding gross federal debt managed by the bureau totaled $7,379 and $6,783 billion, respectively. As Figure 1 illustrates, intragovernmental debt holdings have steadily  increased since fiscal year 2000 and debt held by the public decreased in fiscal year 2001, but increased in fiscal years 2002 through  2004. However, this interest represents a claim on future budgetary resources and hence an obligation on future taxpayers. As Figure 2 illustrates, total interest expense decreased each year from fiscal year 2001 through  2003, but increased in fiscal year 2004. (in billions)
Debt held by the public 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 200 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. Delays in raising  the current debt limit of $7,384 billion have forced Treasury to enter into a debt issuance suspension period (DISP) that  involves Treasury’s departure from its normal investment and redemption procedures for certain federal government accounts. As a result, the intragovernmental debt holdings balances primarily represent the cumulative surplus of funds due to the trust funds’ cumulative annual excess of tax receipts, interest  credited, and other collections compared to spending. 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, 2004 and 2003   Note 1. The Congress has  authorized the Secretary of the Treasury to borrow monies to operate the federal government within a statutory  debt limit. Federal Debt Held by the Public  As of September 30, 2004 and 2003, Federal Debt Held by the Public consisted of the following:  Total Federal Debt Held by the Public Treasury issues marketable bills at a discount and pays the par amount of the security upon maturity. The average interest rates for fiscal years 2004 and  2003 were 5.4 percent and 5.5 percent, respectively.
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 has also been auditing 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 prepared are reliable, (2) BPD management maintained effective internal control relevant to the Schedule of Federal Debt, and (3) BPD complies with selected provisions of significant laws related to the Schedule of Federal Debt. 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 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 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 2004 and 2003 were fairly presented in all material respects and BPD maintained effective internal control related to the Schedule of Federal Debt as of September 30, 2004. GAO also found no instances of noncompliance in fiscal year 2004 with the statutory debt limit. A s of September 30, 2004 and 2003, federal debt managed by BPD totaled about $7,379 billion and $6,783 billion, respectively. At the end of fiscal year 2004, debt held by the public as a percentage of the U.S. economy is estimated at 37.5 percent, up from 33.1 percent at the end of fiscal year 2001. Further, certain trust funds (e.g., Social Security) continue to run surpluses, resulting in increased intragovernmental debt holdings. These debt holdings are backed by the full faith and credit of the U.S. government and represent a priority call on future budgetary resources. Gross federal debt has increased 27 percent between the end of fiscal years 2001 and 2004. As a result of the increasing federal debt, on October 14, 2004, Treasury entered into a debt issuance suspension period to avoid exceeding the current $7,384 billion statutory debt limit and requested the Congress take action to raise the debt limit by mid- November 2004. The total federal debt increased over each of the last 4 fiscal years. Debt held by the public decreased as a result of cash surpluses for fiscal year 2001, but increased during fiscal years 2002 through 2004, with the return of annual unified budget deficits. Intragovernmental debt holdings steadily increased during this 4-year period primarily due to excess receipts over disbursements in federal trust funds.