Compliance with a Selected Provision of Law

Our tests for compliance in fiscal year 2007 with the statutory debt limit  disclosed no instances of noncompliance that would be reportable under  U.S. generally accepted government auditing standards or applicable OMB  audit guidance. In order to fulfill these responsibilities, we    examined, on a test basis, evidence supporting the amounts and  disclosures in the Schedules of Federal Debt;  assessed the accounting principles used and any significant estimates   evaluated the overall presentation of the Schedules of Federal Debt;  obtained an understanding of the entity and its operations, including its  internal control relevant to the Schedule of  Federal Debt as of  September 30, 2007, related to financial reporting and compliance with  laws and regulations (including execution of transactions in accordance  with budget authority);  tested relevant internal controls over financial reporting and  compliance, and evaluated the design and operating effectiveness of  internal control relevant to the Schedule of Federal Debt as of  September 30, 2007;  considered the process for evaluating and reporting on internal control  and financial management systems under the Federal Managers’  Financial Integrity Act; and   tested compliance in fiscal year 2007 with the statutory debt limit (31  U.S.C. The comments are reprinted in appendix I.

Overview, Schedules, and Notes

Federal debt managed by the Bureau of the Public Debt (BPD) comprises debt held by the public and debt held by certain federal  government accounts, the latter of which is referred to as intragovernmental debt holdings. As of September 30, 2007 and 2006, outstanding gross federal debt managed by the bureau totaled $8,993 and $8,493 billion, respectively. The increase in gross federal  debt of $500 billion during fiscal year 2007 was due to an increase in gross intragovernmental debt holdings of $294 billion and an  increase in gross debt held by the public of $206 billion. The increases in debt  held by the public are due primarily to total federal spending exceeding total federal revenues. However, this interest represents a claim on future budgetary resources and hence an obligation on future taxpayers. (in billions)
Debt held by the public reflects how much of the nation’s wealth has been absorbed by the federal government to finance  prior federal spending in excess of total federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by over 230 individual federal government  accounts with either the authority or the requirement to invest excess receipts in special U.S. Treasury securities that are  guaranteed for principal and interest by the full faith and credit of the U.S. Government. Projections determined that the United States would hit the statutory debt limit on October 1, 2007, and consequently,  the full senate passed this measure to raise the debt limit by $850 billion on September 27, 2007. On September 29, 2007,  Public Law 110-91 was enacted, which raised the statutory debt ceiling to $9,815 billion. As a result, total federal debt increased almost  five fold between 1982 and 1997. By law, trust funds have the  authority or are required to invest surpluses in federal securities. Notes to the Schedules of Federal Debt

Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt  For the Fiscal Years Ended September 30, 2007 and 2006   (Dollars in Millions)
Note 1. Intragovernmental Debt Holdings primarily consist of GAS securities.
Why GAO Did This Study

GAO is required to audit the consolidated financial statements of the U.S. government. Due to the significance of the federal debt held by the public to the governmentwide financial statements, GAO has also been auditing the Bureau of the Public Debt's (BPD) Schedules of Federal Debt annually. The audit of these schedules is done to determine whether, in all material respects, (1) the schedules are reliable and (2) BPD management maintained effective internal control relevant to the Schedule of Federal Debt. Further, GAO tests compliance with a significant selected provision of law related to the Schedule of Federal Debt. Federal debt managed by BPD consists of Treasury securities held by the public and by certain federal government accounts, referred to as intragovernmental debt holdings. The level of debt held by the public reflects how much of the nation's wealth has been absorbed by the federal government to finance prior federal spending in excess of federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds such as Social Security, that typically have an obligation to invest their excess annual receipts over disbursements in federal securities.

What GAO Found

In GAO's opinion, BPD's Schedules of Federal Debt for fiscal years 2007 and 2006 were fairly presented in all material respects and BPD maintained effective internal control relevant to the Schedule of Federal Debt as of September 30, 2007. GAO also found no instances of noncompliance in fiscal year 2007 with the statutory debt limit. As of September 30, 2007 and 2006, federal debt managed by BPD totaled about $8,993 billion and $8,493 billion, respectively. Total federal debt increased over each of the last 4 fiscal years. Total federal spending has exceeded total federal revenues which have resulted in increases in debt held by the public. Further, certain trust funds (e.g., Social Security) continue to run cash surpluses, resulting in increased intragovernmental debt holdings since the federal government spends these surpluses on other operating costs and replaces them with federal debt instruments. These debt holdings are backed by the full faith and credit of the U.S. government and represent a priority call on future budgetary resources. As a result, total gross federal debt has increased about 33 percent between the end of fiscal years 2003 and 2007. On September 29, 2007, legislation was enacted to raise the statutory debt limit by $850 billion to $9,815 billion. This was the third occurrence since the end of fiscal year 2003 that the statutory debt limit had to be raised to avoid breaching the statutory debt limit. During that time, the debt limit has increased by over $2.4 trillion, or about 33 percent, from $7,384 billion on September 30, 2003, to the current limit of $9,815 billion.