Also, we determined the status of corrective  actions Treasury and OMB have taken to address open  recommendations relating to their processes to prepare the CFS, detailed  in our previous reports, that remained open at the beginning of our fiscal  year 2016 audit. We have communicated each of the control deficiencies  discussed in this report to your staff. We performed our audit in  accordance with U.S. generally accepted government auditing standards. Control Deficiencies Identified during Our Fiscal Year 2016 Audit

During our audit of the fiscal year 2016 CFS, we identified three new  internal control deficiencies in Treasury’s processes used to prepare the  CFS. Specifically, we found that (1) Treasury did not have sufficient  procedures and metrics for monitoring the federal government’s year-to- year progress in resolving intragovernmental differences at the federal  entity level, (2) Treasury did not have a sufficient process for working with  federal entities to reduce or resolve the need for significant adjustments  to federal entity data submitted for the CFS, and (3) three of Treasury and  OMB’s corrective action plans did not include sufficient information to  effectively address related control deficiencies involving processes used  to prepare the CFS. Monitoring Intragovernmental Differences

During our fiscal year 2016 CFS audit, we found that the federal  government continued to be unable to adequately account for and  reconcile intragovernmental activity and balances between federal  entities. Treasury, in  coordination with OMB, compiled a collection of corrective action plans in  a remediation plan focused on resolving material weaknesses related to  the processes used to prepare the CFS. The corrective action plans  contained in the remediation plan—which are intended to address control  deficiencies related to (1) treaties and international agreements,   (2) additional audit procedures for intragovernmental activity and  balances, and (3) the Reconciliations of Net Operating Cost and Unified  Budget Deficit and Statements of Changes in Cash Balance from Unified  Budget and Other Activities (Reconciliation Statements)—did not include  sufficient information to demonstrate that the plans, if properly  implemented, will effectively resolve such deficiencies. Status of Recommendations from Prior Reports

At the beginning of our fiscal year 2016 audit, 24 recommendations from  our prior reports regarding control deficiencies in the processes used to  prepare the CFS were open. Treasury implemented corrective actions  during fiscal year 2016 that resolved certain of the control deficiencies  addressed by our recommendations. For 7 recommendations, the  corrective actions resolved the related control deficiencies, and we closed  the recommendations. We also closed 1 additional recommendation,  related to corrective action plans, by making a new recommendation that  is better aligned with the remaining internal control deficiency in this area. While progress was made, 16 recommendations from our prior reports  remained open as of January 4, 2017, the date of our report on the audit  of the fiscal year 2016 CFS. We will continue to monitor Treasury’s and OMB’s  progress in addressing our recommendations as part of our fiscal year  2017 CFS audit. Although in its  comments Treasury neither agreed nor disagreed with our  recommendations, Treasury provided information on actions that it plans  to take to address two of the recommendations and stated with regard to  the third recommendation that its current corrective action plans were  effective. However, we continue to believe that the corrective  action plans in these three areas do not include sufficient information to  effectively address related control deficiencies involving processes used  to prepare the CFS. Treasury also described various actions taken and planned to address  long-standing material weaknesses, including improvements in  accounting for and reporting on the General Fund of the U.S.  Government activity and balances, strengthening internal controls in the  preparation of the CFS, and validating material completeness of  budgetary information included in the Financial Report of the United  States Government. OMB Comments

OMB staff in the Office of Federal Financial Management stated in an   e-mail that OMB generally agreed with the findings in the report and with  Treasury’s written response to the draft. Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

Table 1 shows the status of GAO’s prior year recommendations for  preparing the CFS. Appendix II: Comments from the Department of the Treasury
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 consolidated financial statements. As part of the fiscal year 2016 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 provide (1) details on new control deficiencies GAO identified related to the processes used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions Treasury and OMB have taken to address GAO's prior recommendations relating to the processes used to prepare the CFS that remained open at the beginning of the fiscal year 2016 audit.

What GAO Found

During its audit of the fiscal year 2016 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 that involve the federal government's inability to
adequately account for and reconcile intragovernmental activity and balances between federal entities;
reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and
reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Unified Budget Deficit and (2) Statements of Changes in Cash Balance from Unified Budget and Other Activities is complete and consistent with the underlying information in the audited entities' financial statements and other financial data.
During its audit of the fiscal year 2016 CFS, GAO identified three new internal control deficiencies.
Treasury did not have sufficient procedures and metrics for monitoring the federal government's year-to-year progress in resolving intragovernmental differences at the federal entity level.
Treasury did not have a sufficient process for working with federal entities to reduce or resolve the need for significant adjustments to federal entity data submitted for the CFS.
Three of Treasury and OMB's corrective action plans did not include sufficient information to effectively address related control deficiencies involving processes used to prepare the CFS.
In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the processes used to prepare the CFS were resolved or continued to exist. For 7 of the 24 recommendations from GAO's prior reports regarding control deficiencies in the processes used to prepare the CFS, Treasury implemented corrective actions during fiscal year 2016 that resolved the related control deficiencies, and as a result, these recommendations were closed. GAO closed 1 additional recommendation that related to corrective action plans, by making a new recommendation that is better aligned with the remaining internal control deficiency in this area. While progress was made, 16 of the 24 recommendations remained open as of January 4, 2017, the date of GAO's report on its audit of the fiscal year 2016 CFS. GAO will continue to monitor the status of corrective actions taken to address the 3 new recommendations made in this report as well as the 16 open recommendations from prior years as part of its fiscal year 2017 CFS audit.

What GAO Recommends

GAO is making three new recommendations—two to Treasury and one to both Treasury and OMB—to address the control deficiencies identified during the fiscal year 2016 CFS audit. In commenting on GAO's draft report, although Treasury neither agreed nor disagreed with GAO's recommendations, Treasury provided information on actions that it plans to take to address two recommendations, but stated that its current corrective action plans were effective for the third recommendation. GAO continues to believe that actions for this recommendation are needed as discussed in the report. OMB generally agreed with the findings in the report.