	Scope and Methodology

As part of our audit of the fiscal years 2013 and 2012 CFS, we  considered the federal government’s financial reporting procedures and  related internal control. Also, we determined the status of corrective  actions taken by Treasury and OMB to address open recommendations  relating to the processes used by them to prepare the CFS that were  detailed in our previous reports. Control Deficiencies Identified during Our Fiscal Year 2013 Audit

During our audit of the fiscal year 2013 CFS, we identified several new  internal control deficiencies in Treasury’s and OMB’s processes used to  prepare the CFS. Specifically, we found that (1) Treasury’s and OMB’s  corrective action plans are not adequate to reasonably assure that  internal control deficiencies involving the processes used to prepare the  CFS are efficiently and effectively addressed, (2) Treasury does not have  procedures to sufficiently document management’s conclusions and the  basis for such conclusions regarding accounting policies for the CFS, and  (3) Treasury does not have adequate procedures for verifying staff’s  preparation of the narrative within the notes to the CFS to reasonably  assure that the narrative is accurate and supported by the underlying  financial information of the significant component entities. We also  updated the description of the control deficiencies related to the long- standing material weakness regarding the federal government’s inability  to adequately account for and reconcile intragovernmental activity and  balances between federal entities. Without well-defined corrective action plans,  Treasury’s and OMB’s efforts to address the numerous issues involving  the processes used to prepare the CFS will be hampered. A summary of the significant accounting policies for the CFS  is disclosed in Note 1 to the CFS, as required by U.S. generally accepted  accounting principles. Status of Recommendations from Prior Reports

Of our 37 recommendations from our prior reports regarding control  deficiencies in the processes used to prepare the CFS that were open at  the end of the fiscal year 2012 audit, we closed 13 recommendations  during our fiscal year 2013 audit. We  closed the other 6 recommendations, which were related to  intragovernmental activity and balances, by making 4 new  recommendations in this report that are better aligned with the current  status of the remaining internal control deficiencies associated with the  federal government’s inability to adequately account for and reconcile  intragovernmental activity and balances between federal entities and  reflect certain actions taken by Treasury. Twenty-four recommendations  from our prior reports remained open as of February 19, 2014, the date of  our report on the audit of the fiscal year 2013 CFS. We will continue to monitor Treasury’s and OMB’s progress  in addressing our recommendations as part of our fiscal year 2014 CFS  audit. As the Department of the Treasury (Treasury)  is designing its new financial statement  compilation process to begin with the fiscal  year 2004 consolidated financial statements  of the U.S. government (CFS), the Secretary  of the Treasury should direct the Fiscal  Assistant Secretary, in coordination with the  Controller of the Office of Management and  Budget (OMB), to develop reconciliation  procedures that will aid in understanding and  controlling the net position balance as well as  eliminate the plugs previously associated with  compiling the CFS. Treasury is committed to  continuing its efforts to address  the remaining control  deficiencies in this area. Count 17

Recommendation  The Secretary of the Treasury should direct  the Fiscal Assistant Secretary, in coordination  with the Controller of OMB, to modify  Treasury’s plans for the new closing package  to (1) require federal agencies to directly link  their audited financial statement notes to the  CFS notes and (2) provide the necessary  information to demonstrate that all of the five  principal consolidated financial statements  are consistent with the underlying information  in federal agencies’ audited financial  statements and other financial data.
Why GAO Did This Study

Treasury, in coordination with OMB, prepares the Financial Report of the United States Government , which contains the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based CFS. As part of the fiscal year 2013 CFS audit, GAO identified material weaknesses and other control deficiencies in the processes used to prepare the CFS. The purpose of this report is to (1) provide details on the control deficiencies GAO identified related to the processes used to prepare the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken by Treasury and OMB to address GAO's prior recommendations relating to the processes used to prepare the CFS that remained open at the end of the fiscal year 2012 audit.

What GAO Found

During its audit of the fiscal year 2013 consolidated financial statements of the U.S. government (CFS), GAO identified control deficiencies in the Department of the Treasury's (Treasury) and the Office of Management and Budget's (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control over the federal government's ability to
adequately account for and reconcile intragovernmental activity and balances between federal entities;
ensure that the federal government's accrual-based consolidated financial statements were (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in conformity with U.S. generally accepted accounting principles; and
ensure the consistency of (1) information used by Treasury to compute the budget deficit reported in the consolidated financial statements, (2) Treasury's records of cash transactions, and (3) information reported in federal entity financial statements and underlying financial information and records.
Specifically, for fiscal year 2013, GAO found that
Treasury's and OMB's corrective action plans are not adequate to reasonably assure that internal control deficiencies involving the processes used to prepare the CFS are efficiently and effectively addressed,
Treasury does not have procedures to sufficiently document management's conclusions and the basis for such conclusions regarding the accounting policies for the CFS, and
Treasury does not have adequate procedures for verifying staff's preparation of the narrative within the notes to the CFS to reasonably assure that the narrative is accurate and supported by the underlying financial information of the significant component entities.
GAO also updated the description of the control deficiencies related to the long-standing material weakness regarding the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal entities. GAO closed 6 recommendations from prior GAO reports and made 4 new recommendations that are better aligned with the remaining internal control deficiencies in this area. In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the processes used to prepare the CFS continued to exist. Specifically, 24 of the 37 recommendations from GAO's prior reports regarding control deficiencies in the processes used to prepare the CFS remained open as of February 19, 2014, the date of GAO's report on its audit of the fiscal year 2013 CFS. GAO will continue to monitor the status of corrective actions taken to address the 7 new recommendations as well as the 24 open recommendations from prior years as part of its fiscal year 2014 CFS audit.

What GAO Recommends

GAO is making seven new recommendations—five to both Treasury and OMB and two to Treasury—to address the control deficiencies identified by GAO during the fiscal year 2013 CFS audit. In commenting on GAO's draft, Treasury and OMB generally concurred with GAO's recommendations.