	Scope and Methodology

As part of our audit of the fiscal years 2006 and 2005 CFS, we evaluated  the federal government’s financial reporting procedures and related  internal control, and we followed up on the status of Treasury and OMB  corrective actions to address open recommendations regarding the  process for preparing the CFS that were in our prior years’ reports. These material deficiencies contributed to  our disclaimer of opinion on the CFS and also constitute material  weaknesses in internal control, which contributed to our adverse opinion  on internal control. Reconciling and Reporting Undistributed Offsetting Receipts (Component of the Budget Deficit)

The federal government reports a unified budget deficit (budget deficit) in  the Reconciliation of Net Operating Cost and the Unified Budget Deficit  and in the Statement of Changes in Cash Balance from Unified Budget and  Other Activities. Subsequent to our fiscal year 2006 CFS audit, we compared the fiscal  year 2006 unobligated and obligated budget balances reported in the fiscal  year 2006 CFS to the fiscal year 2006 actual amounts reported in the  President’s Budget, issued in February 2007, and noted a material  difference. Preparing and Auditing Certain Information in Federal Agencies’ Closing Packages

OMB Bulletin No. Conformity with GAAP

As we have reported in previous years, and noted during our fiscal year  2006 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, the balance of such foreign currency was not  disclosed. Appendix I: 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 four of our prior  reports: Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Needs Improvement, GAO- 04-45 (Washington, D.C.: Oct. 30, 2003); Financial Audit: Process for  Preparing the Consolidated Financial Statements of the U.S.  Government Needs Further Improvement, GAO-04-866 (Washington, D.C.:  Sept. 10, 2004); Financial Audit: Process for Preparing the Consolidated  Financial Statements of the U.S. Government Continues to Need  Improvement, GAO-05-407 (Washington, D.C.: May 4, 2005); and Financial  Audit: Significant Internal Control Weaknesses Remain in Preparing  the Consolidated Financial Statements of the U.S. Government, GAO-06- 415 (Washington, D.C.: Apr. Of the 143 recommendations regarding the process for preparing the  consolidated financial statements of the U.S. government (CFS) that are  listed in this appendix, 70 remained open as of December 1, 2006, the end  of GAO’s fieldwork for the audit of the fiscal year 2006 CFS. Of the 73  recommendations that were closed, 53 were closed with the issuance of  Statement of Federal Financial Accounting Standards No. 32,  Consolidated Financial Report of the United States Government  Requirements: Implementing Statement of Federal Financial Accounting  Concepts 4 “Intended Audience and Qualitative Characteristics for the  Consolidated Financial Report of the United States Government.” In  fiscal year 2006, the Federal Accounting Standards Advisory Board issued  this new standard, which eliminated or lessened the disclosure  requirements for the CFS related to certain information that Treasury had  not been reporting.
Why GAO Did This Study

For the past 10 years, since GAO's 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 prevented GAO from expressing an opinion on the CFS. GAO has consistently reported that the U.S. government did not have adequate systems, controls, and procedures to properly prepare the CFS. GAO's December 2006 disclaimer of opinion on the fiscal year 2006 CFS included a discussion of continuing weaknesses related to the preparation of the CFS. The purpose of this report is to (1) provide details of continuing and new weaknesses, (2) recommend improvements, and (3) describe the status of corrective actions on 143 open recommendations related to the preparation of the CFS that GAO reported in April 2006.

What GAO Found

GAO identified continuing and new weaknesses during its audit of the federal government's process for preparing the fiscal year 2006 CFS. Such weaknesses 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 its tests of the fiscal year 2006 CFS preparation process involved the following areas: reconciling and reporting undistributed offsetting receipts (component of the budget deficit); directly linking audited federal agencies' financial statements to the CFS; reporting unexpended budget balances; reporting operating cash; reporting and disclosing legal contingencies; reconciling intragovernmental activity and balances; preparing and auditing certain information in federal agencies' closing packages; conformity with U.S. generally accepted accounting principles; and various other internal control weaknesses that were identified in previous years' audits but remained in fiscal year 2006. Of the 143 open recommendations GAO reported in April 2006 regarding the process for preparing the CFS, 70 remained open as of December 1, 2006, when GAO completed its fieldwork for the audit of the fiscal year 2006 CFS. Of the 73 recommendations that were closed, 53 were closed based on the issuance in fiscal year 2006 of Statement of Federal Financial Accounting Standards No. 32, Consolidated Financial Report of the United States Government Requirements: Implementing Statement of Federal Financial Accounting Concepts 4 "Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government." This standard eliminated or lessened the disclosure requirements for the consolidated financial statements related to certain information that the Department of the Treasury (Treasury) had not been reporting. GAO will continue to monitor the status of corrective actions to address the 11 new recommendations and the new remaining balance of 81 open recommendations during its fiscal year 2007 audit of the CFS.