Also, we determined the status of corrective actions by  Treasury and OMB to address open recommendations relating to the  processes used to prepare the CFS detailed in our previous reports. In our  audit report on the fiscal year 2009 CFS, which is included in the fiscal  year 2009 Financial Report of the United States Government (Financial  Report), 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-based  consolidated financial statements and our conclusion that the federal  government did not have effective internal control over financial  reporting. We performed our audit of the fiscal years 2009 and 2008 CFS in  accordance with U.S. generally accepted government auditing standards. Specifically, we found that SOPs were missing or inadequate in five  key areas: (1) restatements and changes in accounting principles, (2)  summary of significant accounting policies, (3) social insurance, (4) legal  contingencies, and (5) analytical procedures. Recommendations for Executive Action

To help assure that prior period adjustments are properly identified and  reported in the CFS, we recommend that the Secretary of the Treasury  direct the Fiscal Assistant Secretary to enhance the SOP entitled  “Analyzing Agency Restatements” to (1) fully document all procedures  related to identifying, analyzing, and reporting restated closing package  data as well as changes in accounting principles; (2) clarify who is  responsible for performing the procedures contained in the SOP; and (3)  include procedures for analyzing the overall impact of entities’  restatements on the CFS and documenting the analysis and related  conclusion. Of the 44  recommendations that are listed in appendix I, 2 were closed and 42  remained open as of February 19, 2010, the date of our report on the audit  of the fiscal year 2009 CFS. Agency Comments

		OMB Comments

In oral comments on a draft of this report, OMB stated that it concurred  with the new findings and related recommendations in this report. Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

	Recommendation

GAO-04-45 (results of the fiscal year 2002 audit)
As the Department of the Treasury  (Treasury) is designing its new financial  statement compilation process to begin  with the fiscal year 2004 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  should explain and document the  differences between the operating  revenue amount reported on the  Statement of Operations and Changes  in Net Position and unified budget  receipts reported on the Statement of  Changes in Cash Balance from Unified  Budget and Other Activities. OMB and Treasury  continue to work toward  establishing effective  processes and procedures for  identifying, resolving, and  explaining material differences  in net outlays and other  components of the deficit  between Treasury’s central  accounting records and  information reported in entity  financial statements and  underlying entity financial  information and records. However,  Treasury’s process did not  ensure that the information  in the remaining three  principal financial  statements was fully  consistent with the  underlying information in  federal entities’ audited  financial statements and  other financial data. The federal  government was unable to  provide us with adequate  legal representation  regarding the accrual-based  consolidated financial  statements for fiscal year  2009. Treasury is currently revising its internal  control procedures to formalize  monitoring and assessment of the  effectiveness of internal control over the  preparation of the CFS. The Secretary of the Treasury should  direct the Fiscal Assistant Secretary, in  coordination with the Controller of OMB,  to develop, document, and implement  processes and procedures for preparing  and reviewing the Management’s  Discussion and Analysis (MD&A) and  “The Federal Government’s Financial  Health: A Citizen’s Guide to the  Financial Report of the United States  Government” sections of the Financial  Report of the U.S. Government  (Financial Report) to help assure that  information reported in these sections is  complete, accurate, and consistent with  related information reported elsewhere  in the Financial Report.
Why GAO Did This Study

Since GAO's first audit of the fiscal year 1997 consolidated financial statements of the U.S. government (CFS), material weaknesses in internal control and other limitations on the scope of GAO's work have prevented GAO from expressing an opinion on the consolidated financial statements, other than the Statement of Social Insurance (accrual-based consolidated financial statements). The Department of the Treasury (Treasury), in coordination with the Office of Management and Budget (OMB), is responsible for preparing the CFS. As part of the fiscal year 2009 CFS audit, GAO identified material weaknesses and other control deficiencies in Treasury's processes used to prepare the CFS that warrant management's attention and corrective action. The purpose of this report is to (1) provide details on new control deficiencies GAO identified during its audit of the fiscal year 2009 CFS that related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address GAO's previous 44 recommendations in this area.

What GAO Found

During its audit of the fiscal year 2009 CFS, GAO identified continuing and new control deficiencies in the federal government's processes used to prepare the CFS. The control deficiencies GAO identified involved 1) enhancing policies and procedures for identifying and analyzing federal entities' reported restatements and changes in accounting principles; 2) establishing and documenting policies and procedures for disclosing significant accounting policies and related party transactions; 3) establishing and documenting procedures to assure the accuracy of Treasury staff's work in three areas: (1) social insurance, (2) legal contingencies, and (3) analytical procedures; and 4) various other control deficiencies identified in previous years' audits. These control deficiencies contribute to material weaknesses in internal control over the federal government's ability to (1) adequately account for and reconcile intragovernmental activity and balances between federal entities; (2) ensure that the accrual-based consolidated financial statements were consistent with the underlying audited entities' financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences between components of the budget deficit reported in Treasury's records, which are 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 entities' financial statements and underlying financial information and records. As a result of these and other material weaknesses, the federal government did not have effective internal control over financial reporting. Of the 44 open recommendations GAO reported in April 2009, 2 were closed and 42 remained open as of February 19, 2010, the date of GAO's report on its audit of the fiscal year 2009 CFS. GAO will continue to monitor the status of corrective actions taken to address the 10 new recommendations as well as the 42 open recommendations from prior years.

What GAO Recommends

GAO is making 10 new recommendations to Treasury to address control deficiencies identified during the fiscal year 2009 CFS audit related to the processes used to prepare the CFS. In commenting on GAO's draft report, Treasury and OMB stated that they concurred with GAO's findings.