The Treasury Department should better evaluate and monitor the effectiveness of its internal controls that govern processes used to prepare the federal government’s annual financial report, the Government Accountability Office said.
Effective internal controls would assure that processes are reliable and prevent or detect major problems in the process design and operation, GAO said in a report released June 17.
Treasury prepares the financial statement on government activities in coordination with the Office of Management and Budget. GAO provided details in its report of material weaknesses and progress in correcting them in the Fiscal 2007 Consolidated Financial Statement of the U.S. Government (CFS) .
GAO has been unable to provide an opinion on its audit of the CFS for 2007 and for the past 11 years because of major problems in agencies’ internal controls, financial accounting and other conditions, said Gary Engel, GAO's director of financial management and assurance issues.
“We have reported that the federal government did not have adequate systems, controls and procedures for preparing the CFS,” Engel said in the report.
Auditors previously identified problems with internal controls in individual agencies’ financial statements, and GAO also found internal control weaknesses during tests of the processes for preparation of the CFS, Engel said. . GAO said Treasury’s internal control problems included:
• Adequately accounting for and reconciling balances between agencies as a product of buying and selling services among themselves.
• Making sure the CFS was consistent with agencies' underlying financial statements.
• Documenting key standard operating procedures for preparing the report.
• Using generally accepted accounting principles.
Among its recommendations, GAO said Treasury should expand use of a checklist to make sure that agencies report their data according to accounting principles. Treasury should also use the checklist when it is ready to publish the CFS to assure that the final product complies with accounting standards, Engel said.
Treasury also needs to develop an alternative to performing almost all of the compilation activities for the CFS at the end of the fiscal year, GAO found. Agencies produce their annual statements in mid-November, and Treasury publishes the consolidated government statement in mid-December.
“Personnel at Treasury’s Financial Management Service had excessive workloads that required an extraordinary amount of effort and dedication to compile the CFS,” Engel said of the 2007 and previous financial statements.
In conjunction with OMB and the Chief Financial Officers Council, Treasury has made progress in reconciling some of the intragovernmental imbalances by distributing a quarterly watch list of the largest imbalances between agencies and meeting with the agencies on how to fix the root causes. OMB, Treasury and the CFO Council are also developing an Intragovernmental Dispute Resolution Committee for resolving accounting disputes between agencies, Engel said.
Treasury has made significant advancements in financial statement preparation by implementing 35 of GAO’s 81 previous recommendations, said Kenneth Carfine, Treasury’s fiscal assistant secretary. He said the agency would continue the process improvements.
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