	Scope and Methodology

As part of our audit of the fiscal years 2008 and 2007 CFS, we evaluated  the federal government’s financial reporting procedures and related  internal control. These material  weaknesses contributed to our disclaimer of opinion on the accrual basis  consolidated financial statements and also contributed to our adverse  opinion on internal control. This report provides the details of the  material weaknesses identified during the fiscal year 2008 audit that relate  to the processes used to prepare the CFS and our recommendations to  correct these weaknesses, as well as the status of corrective actions by  Treasury and OMB to address recommendations from previous reports. Therefore,  when preparing the CFS, Treasury should ensure that intragovernmental  activity and balances between federal agencies are eliminated. Without  adequate policies and procedures to accurately identify and eliminate  intragovernmental payroll tax amounts in the process used to prepare the  CFS, the federal government’s ability to determine the impact of these  amounts on the CFS is impaired and, consequently, the CFS may be  misstated. However, these  procedures were not effective in helping assure that (1) information was  consistently reported in the CFS and these related sections of the  Financial Report and (2) information reported in the MD&A and Citizen’s  Guide was consistent, complete, and accurate. Recommendations for Executive Action

We recommend that the Secretary of the Treasury direct the Fiscal  Assistant Secretary, in coordination with the Controller of OMB, to   (1) establish and document criteria to be used in identifying federal  entities as significant to the CFS for purposes of obtaining assurance over  the information being submitted by those entities for the CFS and   (2) develop and implement policies and procedures for assessing and  documenting, on an annual basis, which entities met such criteria. Appendix I: Status of Treasury’s and OMB’s Progress in Addressing GAO’s Prior Year Recommendations for Preparing the CFS

This appendix includes the status of recommendations from the following  six reports that were open at the beginning of our fiscal year 2008 audit:  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);  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. We will continue to monitor Treasury’s and OMB’s progress in addressing  GAO’s recommendations. Of the 56 recommendations relating to the processes used to prepare the  consolidated financial statements of the U.S. government (CFS) that are  listed in this appendix, 16 were closed and 40 remained open as of  December 9, 2008, the date of our report on the audit of the fiscal year  2008 CFS.
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 our work have prevented GAO from expressing an opinion on the accrual basis CFS. Certain of those material weaknesses relate to inadequate systems, controls, and procedures to properly prepare the CFS. The purpose of this report is to (1) provide details of the continuing material weaknesses related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address the 56 open recommendations GAO reported for this area in June 2008.

What GAO Found

During its audit of the fiscal year 2008 CFS, GAO identified continuing and new control deficiencies in the federal government's processes used to prepare the CFS. 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 agencies; (2) ensure that the CFS was consistent with the underlying audited agency 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 the Department of the Treasury's records, 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 agencies' financial statements and underlying financial information and records. The control deficiencies GAO identified involved: (1) establishing and documenting policies and procedures for identifying and eliminating federal agencies' intragovernmental payroll tax amounts when compiling the CFS, (2) establishing and documenting policies and procedures for preparing and reviewing information included in key sections of the Financial Report of the U.S. Government, (3) establishing criteria for identifying federal entities' significance to the CFS and annually assessing which entities meet such criteria, (4) enhancing procedures for analyzing and reviewing data used when compiling the Statements of Net Cost, and (5) various other control deficiencies identified in previous years' audits. Of the 56 open recommendations GAO reported in June 2008, 16 were closed and 40 remained open as of December 9, 2008, the date of GAO's report on its audit of the fiscal year 2008 CFS. GAO will continue to monitor the status of corrective actions taken to address the 4 new recommendations as well as the 40 open recommendations from prior years.