Government-wide Financial Reporting - AGA

Corporate Partner 

Research 

Advisory Group 

Series 

Report No. 31 July 2012 

Government-wide 

Financial Reporting

Acknowledgements 

About the Authors 

Bert T. Edwards, CGFM, CPA, CGMA, was the lead researcher for this project. An 

independent consultant since his 2010 retirement as Executive Director of the Office of 

Historical Trust Accounting at the U.S. Department of the Interior, Edwards previously 

served as CFO of the U.S. Department of State. After a successful 33-year career at 

Arthur Andersen LLP as its worldwide industry head for government, higher education 

and nonprofit industries, Edwards served as a consultant for the World Bank and 

USAID in Vietnam, Moldova, Palestine and Germany and also lectured extensively for 

the AICPA and accounting firms on government accounting and auditing issues. 

Principal contributors to this report were: Daniel J. Murrin, CGFM, CPA, from 

Ernst & Young; John R. Cherbini, CGFM, CPA, CGMA, and Carlos A. Otal, CPA, from 

Grant Thornton LLP; Ronald Longo, CGFM, CPA, and David M. Zavada, CPA, from 

Kearney & Company; Andrew C. Lewis, CGFM, CPA, CIPP/G, and Jeffrey C. Steinhoff, 

CGFM, CPA, CFE, CGMA, from KPMG LLP; Joseph L. Kull, CGFM, CPA, CGMA, from 

PwC; and Ann Davis, CGFM, CPA, as Treasury Liaison. 

Other contributors were: Werner Lippuner, CISA, CISM, and Danila Weatherly 

from Ernst & Young; and Demek M. Adams, CGFM, from Grant Thornton LLP. 

The authors would also like to acknowledge the efforts of Lynn Hoffman and 

Maryann Malesardi on this project. 

Corporate Partner Advisory Group 

Chairman: 

Hank Steininger, CGFM, CPA 

Managing Partner, Global Public Sector, 

Grant Thornton, LLP 

AGA Professional Staff: 

Relmond Van Daniker, DBA, CPA 

Executive Director 

Susan Fritzlen 

Deputy Executive Director/COO 

Lynn Hoffman 

Programs Coordinator 

Maryann Malesardi 

Director of Communications 

AGA is proud to recognize our sponsors for supporting this effort. 

AGA’s Corporate Partner Advisory Group Research Program 

One of the roles of professional 

associations like AGA is to develop new 

thinking on issues affecting those we 

represent. This new thinking is developed 

out of research and draws on the 

considerable resources and experiences 

of our members and counterparts in the 

private sector – our Corporate Partners. 

These organizations all have long-term 

commitments to supporting the financial 

management community and choose to 

partner with and help AGA in its mission 

of advancing government accountability. 

AGA has been instrumental in 

assisting the development of accounting 

and auditing standards and in 

generating new concepts for the effective 

organization and administration 

of government financial management 

functions. The Association conducts 

independent research and analysis of 

all aspects of government financial 

management. These studies make AGA 

a leading advocate for improving the 

quality and effectiveness of government 

fiscal administration and program 

performance and accountability. 

Our Thought Leadership Library 

includes more than thirty completed 

studies. These in-depth studies are 

made possible with the support of our 

Corporate Partners. Download complimentary 

reports at www.agacgfm.org/ 

researchpublications. 

2 

AGA Corporate Partner Advisory Group Research

Table of Contents 

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

1. Introduction ................................................................................................... 6 

Historical Perspective ......................................................................................... 6 

The Research ................................................................................................. 8 

Research Project Scope and Methodology ....................................................................... 8 

2. Breakdowns in the Compilation Process: Bridging Budgetary and Other Critical Information ............................. 9 

Issue ........................................................................................................ 9 

Analysis .................................................................................................... 10 

Data Flows Supporting the Compilation Process ................................................................. 11 

Bridging Unaudited Budgetary Information to Audited Balances ................................................... 13 

Identifying and Reporting the Differences Between the Unified Budget Deficit, Net Operating Cost 

and the Changes in Cash Needed to Populate the CFS Reconciliation Statements ..................................... 13 

A Related Initiative ........................................................................................... 14 

Short-Term Recommendations ................................................................................ 14 

Long-Term Recommendation .................................................................................. 16 

3. Usefulness of the Two CFS Reconciliation Statements ............................................................. 17 

Issue ....................................................................................................... 17 

Reconciliation of Net Cost Is a Critical Financial Statement Within the CFS ........................................... 17 

Improving the Statement of Changes in Cash .................................................................... 18 

Short-Term Recommendation ................................................................................. 18 

4. Structure ..................................................................................................... 19 

Overview of the As-Is Environment ............................................................................. 19 

Interviews .................................................................................................. 20 

Observations ................................................................................................ 20 

Short-Term Recommendations ................................................................................ 21 

Long-Term Recommendation .................................................................................. 22 

Appendix A: Summary of Important Actions Leading to the Current 

Consolidated Financial Statements of the U.S. Government .......................................................... 24 

Appendix B: Clarification on Data Format in Statement of Cash ....................................................... 27 

Appendix C: Interviews with State, Private-Sector and U.S. Government Financial Officials ............................... 28 

Appendix D: Abbreviations and Acronyms .......................................................................... 33 

Appendix E: AGA Treasury Review Scope and Methodology Research Project — Summary of Project Meetings ............. 35 

Government-wide Financial Reporting 3

Executive Summary 

For its audit of the 2011 federal 

government consolidated financial 

statements (CFS), the Government 

Accountability Office (GAO) reported 

that the U.S. Department of the 

Treasury’s (Treasury) process for compiling 

the CFS generally demonstrated that 

amounts reported were consistent with 

the underlying federal agencies’ audited 

financial statements. However, GAO 

reported that Treasury’s process did 

not ensure that the (1) Reconciliations 

of New Operating Cost and the Unified 

Budget Deficit and (2) Statements of 

Changes in Cash Balances from the 

Unified Budget and Other Activities 

were fully consistent with underlying 

information in audited agency financial 

statements and other financial data. 1 

This aspect of the compilation process 

significantly contributes to a recurrent 

material weakness in Treasury’s 

compilation for all 15 years GAO has 

attempted to audit the CFS. This material 

weakness is one of three major impediments 

to GAO rendering an opinion on 

the CFS. Therefore, the Association of 

Government Accountants (AGA) took on 

this research project with an objective 

of developing actionable recommendations 

that address the root cause of this 

long-standing problem. 

In its ultimate simplicity, imagine 

information flowing between each 

federal agency and Treasury’s Financial 

Management Service (FMS), which 

compiles the CFS. One set of information 

is flowing on an accrual basis and 

the other on a budgetary basis that 

is largely cash-based. Both types of 

information are reported in the CFS. 

For the most part, the accrual information 

flow between the agencies and 

Treasury, for preparation of the CFS, is 

reasonably well documented, and the 

underlying information can be reconciled 

to that in the audited agencies’ 

financial statements. The same does 

not hold true, however, for budgetary 

information included in the two financial 

statements cited in the first paragraph. 

Arguably, budgetary information is 

the most useful financial information 

government-wide and within an agency. 

Yet the continuing need for a transparent 

reconciliation process between agency 

and government-wide budgetary balances 

has inhibited the audit of probably 

the most quoted and used number in the 

CFS — the Unified Budget Deficit. 

A major improvement would be to 

compile and validate budgetary information 

in a fashion similar to the accrual 

flow. Our research identified specific 

technical recommendations that begin 

this process and, if properly designed 

and implemented, should resolve this 

component of Treasury’s compilation 

material control weakness and move the 

federal government closer to the goal 

of achieving an unqualified (“clean”) 

auditors’ opinion on the CFS. 

Equally if not more important to 

success are issues related to structure 

and organization. Several themes consistently 

came up during our research, 

particularly in our discussions with state 

and corporate officials: the importance 

of clear purpose and priority, financial 

authority and responsibility, adequate 

resources, and standardization and 

centralization. These themes remain a 

challenge to the federal government, 

and any technical solution would need 

to be combined with the type of structural 

and organizational changes we are 

recommending. 

Finally, we were struck by how far 

federal government financial management 

has come in the 20-plus years 

since enacting the Chief Financial 

Officers (CFO) Act. 2 The improvement 

has been nothing short of remarkable 

given the size and complexity of the 

federal government and how far it had 

to come. 

Given this “higher playing field,” 

continuing technological advances, 

constrained resources and the need for 

an open, transparent government, this 

is an opportune time to begin to put the 

pieces in place to define and achieve 

a future vision. The goal should be 

relatively simple — to provide reliable, 

timely and interactive information to 

4 


Executive Summary 

SUMMARY OF RECOMMENDATIONS 

Short-Term Recommendations 

manage, demonstrate accountability 

and enable an open, transparent government. 

One could easily envision an 

environment where a real-time system 

generates standardized data, providing 

reliable, citizen-driven financial reports. 

The accounting here is relatively 

straightforward, and strong leadership 

with a sharp focus and appropriate 

authority can make this type of reporting 

and underlying process routine. Highperforming 

organizations take both the 

“clean” auditors’ opinions and the lack 

of weaknesses in internal control over 

financial reporting and reliable, timely 

information for granted — and rightfully 

so, since these are critical to their survival 

and sustainability. The American 

public should demand no less from its 

government. 

• Enhance the Closing Package process to include reconciliation and 

audit of budgetary data. 

• Reconcile and audit budgetary information reported in audited 

agency financial statements with gross receipt and outlay 

information in Treasury’s central accounting system. 

• Identify, report and audit the major differences between the Unified 

Budget Deficit and Net Operating Cost, and changes in cash to 

populate the consolidated level. 

• Include all information needed to complete the reconciliation 

statements in the Treasury’s Closing Package process. 

• Perform a hard close, compile the CFS and begin the CFS audit 

process at the end of the third quarter. 

• Modify the Statement of Changes in Cash to provide additional 

gross receipt and outlay data and change the compilation process 

as needed to capture this information. 

• Re-energize the Joint Financial Management Improvement 

Program by engaging the principals and reconstituting the 

steering committee. 

• Issue a Presidential Executive Order reaffirming the importance 

of a “clean opinion” on the CFS. 

• Establish a separate organization reporting to the Fiscal Assistant 

Secretary, focused solely on supporting preparation of the CFS, and 

augment resources as needed. 

• Establish clear responsibility and time frames for corrective actions. 

Long-Term Recommendations 

• Pursue a more centralized approach to standardizing, collecting, 

analyzing and reporting financial information. 

• Establish a separate organization in the executive branch responsible 

for financial operations, systems, controls and reporting, including 

the CFS. 


1. Introduction 

Over the past 15 years, Treasury, 

in cooperation with the Office of 

Management and Budget (OMB), has 

issued the annual Financial Report of 

the U.S. Government (FR), presenting 

the financial position and condition of 

the nation. For each of those years, the 

U.S. Government Accountability Office 

(GAO) has issued a disclaimer of audit 

opinion on the CFS of the federal government, 

which is included in the FR. 

The recent economic downturn has 

focused the nation on its large budget 

deficits, continually rising debt and 

the federal government’s long-term 

fiscal sustainability. Additionally, a 

major credit rating agency has downgraded 

the bond rating of the federal 

government, which has long enjoyed 

the highest credit rating. Against this 

backdrop, it is especially important 

that the federal government be able to 

demonstrate its ability to navigate an 

annual audit of the CFS — fundamental 

to any organization — and provide the 

level of assurance that a “clean” auditors’ 

opinion represents. 

In May 2011, the Association of 

Government Accountants (AGA) undertook 

an independent research study to 

develop recommendations and a plan of 

action to address a material GAO-cited 

weakness at Treasury that contributes 

to GAO’s disclaimer of opinion on the 

federal government CFS. Specifically, 

this long-standing, unresolved issue 

pertains to the identified weaknesses in 

the current reconciliation and compilation 

processes Treasury employs to 

consolidate some 150 federal agencies’ 

financial data into the CFS. 

The research project was built 

on interviews with knowledgeable 

individuals and organizations affiliated 

with the compilation, reconciliation and 

associated audit processes. We had a 

series of meetings with Treasury, OMB, 

GAO and federal government agencies. 

We also interviewed representatives 

from three state governments (New 

York, Massachusetts and Pennsylvania) 

and the independent auditors of 

Maryland, as well as two large multinational 

corporations (IBM and Marriott) 

to learn about their practices and experiences 

gained from across the governmental 

and private sectors. Finally, we 

interviewed former Treasury Secretary 

Paul O’Neill, who led the charge for 

accelerated financial reporting at both 

Alcoa and in the federal government. 

AGA established a Research Team 

that collectively has several hundred 

years of senior leadership experience 

in government financial management, 

reporting and systems. The team 

was led by the former CFO of the U.S. 

Department of State and included 

former senior officials from Treasury, 

OMB and GAO. 

Historical Perspective 

The journey to the CFS began 

in 1950, with the enactment of the 

Budget and Accounting Procedures 

Act (BAPA). 3 In the Treasury Financial 

Manual, Part 2, Chapter 1000, 4 the following 

citation appears: 

“Per the Budget and Accounting 

Procedures Act of 1950, Treasury 

must render overall Government 

financial reports to the President, the 

Congress, and the public. Per this 

Act, each agency must provide the 

Secretary of Treasury (the Secretary) 

with reports and information relating 

to the agency’s financial condition 

and operations as the Secretary may 

require for effective performance. 

The Secretary’s responsibilities 

include the system of central 

accounting and financial reporting 

for the Government.” 

President Harry Truman, who signed 

BAPA into law, expressed his thoughts 

on the legislation: 5 

“The accounting and auditing 

provision [of BAPA] lay the foundation 

for far-reaching improvements 

and simplification. For the first time, 

clear-cut legislation is provided 

which nails down responsibility for 

accounting, auditing, and financial 

reporting in the Government. … A 

6 


Introduction 

sound system of accounting in each 

agency, appropriately integrated 

for the Government as a whole, 

is fundamental to responsible 

and efficient administration in the 

Government.” 

While BAPA resulted in important 

improvements, its promise was not 

fully realized until subsequent financial 

management reform legislation more 

than 30 years later, which is summarized 

later in the document. This reform 

legislation revitalized the focus on 

financial management and reporting and 

included a requirement to prepare the 

CFS and have them be audited by GAO. 

The federal government has taken 

a lengthy journey since the enactment 

of the Federal Managers’ Financial 

Integrity Act of 1982, 6 and a number of 

other acts throughout the intervening 

years (see Appendix A). In particular, 

since the 1990 passage of the Chief 

Financial Officers (CFO) Act, much has 

been accomplished to move the federal 

government’s financial operations and 

reporting to its current state. Widely 

heralded as the most comprehensive 

financial management improvement in 

40 years, the CFO Act ushered in a new 

era of federal government accountability. 

It significantly changed the landscape 

for federal government agency 

CFOs, moving the CFO’s role far beyond 

basic accounting responsibilities to 

that of an agency’s leader in providing 

support across a range of critical 

programs and operations. 7 But one 

achievement that remains elusive is the 

ability to prepare consolidated financial 

statements for the federal government 

as a whole that can obtain a “clean” 

auditors’ opinion from GAO. 

Among a range of requirements to 

reform federal government financial 

management practices and capabilities, 

the CFO Act required 10 selected 

federal government agencies to prepare 

audited financial statements beginning 

with fiscal year 1992. In commenting 

on the requirement for audited agency 

financial statements, GAO provided the 

following insight: 

“Most importantly, the act requires 

that financial statements be prepared 

and audited. ... Together, these 

features of the CFO Act will improve 

the reliability and usefulness of 

Agency financial information.” 8 

The requirement for audited agency 

financial statements was later made 

permanent and expanded to all 24 CFO 

Act agencies with the enactment of 

the Government Management Reform 

Act of 1994 (GMRA), 9 and the requirement 

was then expanded even further 

to other federal government agencies 

by the Accountability of Tax Dollars 

Act of 2002 (ATDA). 10 The GMRA also 

included a requirement for Treasury to 

prepare auditable CFS for the federal 

government beginning with fiscal year 

1997. Preparing the CFS was not new 

for Treasury, which was at the forefront 

of producing prototype statements 

beginning in 1973. 11 

Over the past two decades, because 

of the implementation of the CFO Act 

and the GMRA, significant change 

has occurred regarding how financial 

management is viewed in the federal 

government. Financial management is 

now an essential component of agency 

management to help ensure accountability 

and provide valuable information 

and enhanced internal controls. 

Today, the CFO leadership structure is 

focused on the issues and considers the 

future much more broadly than it did 

even five years ago. The CFO Council, 

established by the CFO Act, undertakes 

a variety of initiatives and has provided 

a forum to address issues on a government-wide 

basis. 

Even with all the progress made 

in federal financial management, 

upon completion of its CFS audit in 

December 2011 for the fiscal year 

ending September 30, 2011, GAO — for 

the 15th consecutive year — could not 

express an opinion on the consolidated 

financial statements. 12 


Introduction 

The Research 

In its role as the premier association 

for advancing government accountability, 

AGA undertook this governmentwide 

financial reporting research 

project to provide independent, 

objective insight to help Treasury and 

the federal government overcome the 

long-standing CFS preparation issues 

that impede the ability to receive an 

unqualified auditors’ opinion. 

The primary objective of the 

research project was to develop actionable 

recommendations that address the 

root causes of the long-standing material 

weakness in Treasury’s process for 

compiling the CFS that contribute to 

GAO’s disclaimer of opinion on the CFS. 

To meet our objective, we assessed the 

preparation and compilation process 

for the CFS. We specifically focused on 

these areas: 

CFS compilation process 

Usefulness of the Statement of 

Changes in Cash, which is part of 

the CFS 

Leadership and structural issues 

Research Project Scope 

and Methodology 

In his letter in the 2011 FR related to 

the CFS, the Comptroller General of the 

United States, the Honorable Gene L. 

Dodaro, stated the following: 

consolidated financial statements.” 

While Defense and Treasury are 

continuing to make strides in addressing 

the first two impediments, it should 

be noted that the scope of this research 

project is limited to the material weakness 

underlying the third impediment. 

Specifically, GAO cited the following: 

“… inadequate systems, controls, 

and procedures to ensure that the 

consolidated financial statements 

are consistent with the underlying 

audited entity financial statements, 

properly balanced, and in conformity 

with U.S. generally accepted 

accounting principles (GAAP).” 

The compilation process for and 

the content of the Statement of Social 

Insurance and Changes in Social 

Insurance within the CFS are not within 

the scope of this research project. 

The research team conducted 20 

interviews with state government 

and corporate executives, as well as a 

number of Treasury, FMS, OMB, GAO 

and federal agency officials. A summary 

of the project meetings, including 

a list of interviewees, is contained in 

Appendix E. 

“… three major impediments 

continued to prevent us from 

rendering an opinion on the federal 

government’s accrual-based 

consolidated financial statements 

over this period: (1) serious financial 

management problems at the DOD 

that have prevented its financial 

statements from being auditable, (2) 

the federal government’s inability to 

adequately account for and reconcile 

intra-governmental activity and 

balances between federal agencies, 

and (3) the federal government’s 

ineffective process for preparing the 

8 


2. Breakdowns in the Compilation 

Process: Bridging Budgetary and 

Other Critical Information 

Issue 

The government-wide CFS contains 

both accrual-basis (proprietary) and 

cash-basis budgetary financial data. 

Treasury’s compilation of the CFS 

includes a process to capture accrual 

accounts from audited agency financial 

statements and successfully link them 

to CFS line items. There is no similar 

process in place to link audited budgetary 

balances to the CFS. Similarly, no 

reliable process exists to identify and 

report all items needed to reconcile the 

Unified Budget Deficit to Net Operating 

Cost and the change in cash balance 

government-wide. The budgetary 

balances and reconciling line items 

reported in the CFS are derived primarily 

from unaudited sources at Treasury 

rather than audited agency financial 

statements. Differences between the 

Unified Budget Deficit, Net Operating 

Cost and the changes in cash government-wide 

are developed from analytical 

procedures applied by Treasury in 

preparation of the CFS. 

OMB and generally accepted 

accounting principles (GAAP) require 

agencies to report net outlays in their 

Statements of Budgetary Resources 

(SBRs). The CFS also includes two 

required statements that include 

net outlays as part of the Unified 

Budget Deficit. These statements are 

the Reconciliation of Net Operating 

Costs and Unified Budget Deficit and 

the Statement of Changes in Cash 

Balance from Unified Budget and Other 

Activities (Statement of Changes in 

Cash) (see Chapter 3 for a discussion 

of the relevance of the two CFS reconciliation 

statements). The net outlay 

information reported on audited agencies’ 

SBRs and reported in the CFS are 

intended to represent the same amount 

and be consistent with information 

presented in the budget of the federal 

government. They should also be 

consistent with information included in 

Treasury’s annual Combined Statement 

of Receipts, Outlays, and Balances 

of the U.S. Government (Combined 

Statement). 

In 1997, GAO first reported that the 

federal government: 13 

“… does not have a process to 

obtain information to effectively reconcile 

the reported change in net position 

… and the reported budget deficit.” 

GAO noted that significant differences 

existed between the total net 

outlays reported in audited agencies’ 

SBRs and the records Treasury used 

to prepare the CFS. Over the past 15 

years, the net differences between the 

total net outlays in selected agencies’ 

SBRs and the records Treasury uses to 

prepare the CFS have ranged from $28 

billion in fiscal year 2009 to $140 billion 

in fiscal year 2003, with the most recent 

net difference of $31 billion in fiscal 

year 2011. 14 

The inability to reconcile budgetary 

and accrual accounting has also been 

continuously reported over the past 15 

years. GAO has consistently noted that 

Treasury does not have a systematic 

process in place to capture audited budgetary 

information and the significant 

components or reconciling line items, 

between the Unified Budget Deficit, 

Net Operating Cost and the changes 

in cash reported in the CFS. While the 

overwhelming majority of financial 

information used to compile the CFS is 

derived from audited agency financial 

statements, budgetary receipts and 

outlays are not. They are derived from 

Net differences between the total net outlays 

in agencies’ SBRs have ranged from a low of 

$28 billion to a high of $140 billion. 


Breakdowns in the Compilation Process 

Treasury’s central accounting system, 

based on unaudited periodic agency 

reports. The lack of an audit trail 

between audited budgetary information 

reported at the agency level and budgetary 

information in the CFS reflects a 

breakdown in the compilation process 

used by Treasury. 

The information needed to reconcile 

operating results on the accrual basis 

to the budget results (Unified Budget 

Deficit) and to reconcile the Unified 

Budget Deficit with the change in cash 

balance may in some cases be derived 

from audited agency financial statements. 

However, Treasury does not 

have a systematic process in place to 

identify the reconciling items and their 

source. The information is compiled 

by ad hoc procedures applied by 

Treasury’s staff, another indication of a 

breakdown in the compilation process 

used by Treasury. 

This chapter presents the results 

of our research exploring these issues 

along with recommendations to create 

an auditable process for the roll-up of 

reliable government-wide budgetary 

and other information needed to bridge 

the current gap. 

Analysis 

Throughout the course of our 

research, our inquiries consistently led 

us to disparities between receipts and 

outlays reported at the agency and at 

government-wide levels. Specifically, 

unreconciled differences exist between 

(1) receipts and outlays that agencies 

reported in their audited financial 

statements and (2) the receipt and 

outlay components of the Unified 

Budget Deficit derived from Treasury’s 

central accounting system and reported 

in the CFS. The likely source of these 

disparities is definitional and due to 

reporting differences between the ways 

budgetary information is compiled and 

reported at the agency and government-wide 

levels. 

For example, some receipts are 

offset against agency outlays and 

reported net at the agency level, while 

other receipts are recorded only at 

the government-wide level. On the 

outlay side, the composition of agency 

budgetary accounts (Treasury Fund 

Symbols) used to compile the audited 

agency SBR may be different than the 

list of budget accounts used to report 

on the government-wide budget. 

Figure 1: Net Outlay Differences for Fiscal Year 2011 at Selected 

Agencies Between Treasury’s Central Accounting System 

(as reported in the CFS) versus Audited Agency Financial Statements (as reported in agency SBRs) 

Selected Agencies 

Net Outlays 

(Combined Statement) 

Amounts in Millions 

Net Outlays 

(SBR) 

Difference 

Department of Health and Human Services $ 891,244 $ 891,532 $ (288) 

Social Security Administration $ 784,194 $ 784,305 $ (111) 

Department of Defense $ 742,990 $ 742,794 $ 196 

Department of Treasury $ 417,410 $ 430,701 $ (13,291) 

Department of Labor $ 131,973 $ 132,969 $ (996) 

Department of Education $ 64,271 $ 66,387 $ (2,116) 

Department of Homeland Security $ 45,744 $ 46,976 $ (1,232) 

Department of Energy $ 31,372 $ 31,350 $ 22 

Department of State $ 24,334 $ 26,000 $ (1,666) 

Total $ 3,133,532 $ 3,153,014 $ (19,482) 

Note: In Figure 1, “Department of Defense” includes the following categories from the Combined Statement: Defense-Military, Army 

Corps of Engineers and Other Defense Civil Programs. 

Source: Treasury’s annual Combined Statement of Receipts, Outlays and Balances of the U.S. Government (Combined Statement) 

and Agency Financial Statements. 

10 



Net outlay differences are highlighted 

in Figure 1. Treasury’s compilation 

procedures do not include a 

process to identify, reconcile and audit 

these net differences, which are even 

greater on a gross basis. 

Over the past 15 years, much time 

and effort have been placed on improving 

the quality of financial information 

reported in both agency financial 

statements and the CFS. It is fair to say 

that the majority of the focus to date 

has been on the accrual basis accounts 

within an agency. Only one of an 

agency’s financial statements — the SBR 

— is derived solely from an agency’s 

budgetary accounts, which are primarily 

on a cash basis. Information reported 

in the SBR is aggregated at the agency 

level, and final audited numbers are not 

reported further to or used by Treasury. 

Arguably, budgetary information is the 

most useful financial information within 

an agency, yet the lack of a transparent 

reconciliation process between agency 

and government-wide balances has had 

the effect of inhibiting the audit of probably 

the most quoted and used number 

published by the federal government — 

the Unified Budget Deficit. 

Data Flows Supporting 

the Compilation Process 

Two primary data flows of accrual 

and budgetary financial data support 

the production of the CFS — the first 

flow is audited, the other is unaudited. 

The information needed to populate the 

CFS reconciliation statements referred 

to previously is derived from a combination 

of accrual and budgetary data 

flows. In Figure 2 (page 12), the audited 

flow is on the left, derived from audited 

agency financial statements. The 

unaudited flow, on the right, is derived 

from periodic agency budget execution 

reports (SF-133 and SF-224) aggregated 

in Treasury’s central accounting system. 

Also derived from this flow are 

Treasury’s Combined Statement and the 

The lack of a transparent reconciliation 

process has inhibited the audit of probably 

the most quoted and used number 

published by the federal government— 

the Unified Budget Deficit. 

Unified Budget Deficit. The red arrows 

bridging the two data flows represent 

our recommendation to reconcile and 

bridge budgetary information with 

audited agency financial statement 

balances and to identify and audit any 

other budgetary activity reported as 

part of the government-wide balances in 

Treasury’s central accounting system. 

While an audit trail has been built 

between (1) audited agency financial 

statements (Statement of Net Cost, 

Statement of Operations and Changes 

in Net Position, Balance Sheet and 

Statement of Custodial Activity) and 

(2) the CFS for many accounts and 

line items, the audit trail has not been 

completed for budgetary accounts 

that comprise receipts and outlays. In 

2002, Treasury in conjunction with OMB 

developed the Closing Package concept 

for agencies to report to the FMS for its 

preparation of the CFS. 

The Closing Package is supported 

by the Governmentwide Financial 

Reporting System (GFRS), which 

requires agencies to input audited 

information from their financial statements 

and crosswalk that information 

to line items reported in the CFS. OMB 

and Treasury require that the agency 

financial statement audits extend to 

the agency information reported in the 

GFRS to provide assurance regarding 

the crosswalking of audited information. 

This process effectively leverages 

agency audit results for the accrual 

accounts and line items contained in 

the CFS. 

Taking a closer look, Figure 2 illustrates 

three primary flows of financial 

data relevant to the CFS compilation 

process. Two of these flows are audited, 

and one is unaudited. 

The first flow, to the left, is audited 

information agencies reported in 

the Closing Package process in the 

GFRS. This information is derived 

from audited agency financial 

statements and the crosswalk of 

data into the GFRS is also audited. 

Financial information flowing 

through this process is adequately 

bridged, and an audit trail exists to 

support the flow of information. 

The second flow of information, in 

the middle, is audited, but stops at 

the agency level. Agencies currently 

produce an SBR that includes 

outlay information. As the primary 

budgetary statement, the SBR is one 

of the principal financial statements 

that agencies produce. It is audited 

as part of the annual agency financial 

audit but is not included in the 

Closing Package or the GFRS and is 

not used in compiling the CFS. 

The third flow of data is unaudited 

gross receipts and outlays reported 

by agencies in periodic reports to 

Treasury and transmitted via the 

FACTS II system. 15 These reports 

include the Report on Budget 



Figure 2: Data Flows Supporting the Government-wide CFS 

Agency Level Government-wide 

Level 

Accrual Balances 

Audited 

Audited balances, 

crosswalked and 

transmitted via the 

Closing Package/ 

GFRS process 

Government-wide Consolidated Financial Statements (CFS) 

Audited Agency 

Financial Statements 

- Balance Sheet 

- Statement of 

Net Cost 


Changes in Net 

Position 

Budgetary Balances 

Audited 

Audited balances 

in SBR are not 

crosswalked or 

transmitted in 

preparing the CFS 

Audited Net Outlay and 

Receipt Balances * 

- Agency Statement of 

Budgetary Resources 

(SBR) 


Custodial Activity 

Budgetary Balances 

Unaudited 

Recommended twostep 

reconciliation, 

reporting, and audit 

process 

Treasury Central 

Accounting System 

- Gross receipts 

- Gross outlays 

Transmitted via 

FACTS II system 

Receipts and Outlays 

Reported to Treasury 

Periodically 

(from SF-133 and 

SF-224 reports) 

Combined Statement 

of Receipts, Outlays, 

Balances 

Unified 

Budget 

Deficit 

Agency General Ledger 

= Unaudited 

= Audited 

= Red arrows denote recommended two-step reconciliation, reporting and audit 

processes. First, a reconciliation of agency to Treasury receipts and outlays, and 

second, the reporting of significant components of differences between the Unified 

Budget Deficit and Net Operating Cost and the change in cash. All information 

would be transmitted through the Closing Package process, subjecting it to audit. 

* Including receipts reported as Earned Revenue on the Statement of Net Cost 

Note: The recommendations in red are intended only to address the compilation process weakness. Other weaknesses reported by 

GAO related to intragovernmental activity and DoD financial management would need to be separately resolved. 

12 



Execution and Budgetary Resources 

(SF-133) and the Statement of 

Transactions (SF-224). They are 

entered into Treasury’s central 

accounting system, which is used 

to compile the CFS, and eventually 

generate the Unified Budget Deficit 

reported by Treasury. 

Also derived from this flow is the 

Combined Statement, 16 a report FMS 

issues annually, usually in December. 

Financial data flowing through this 

process is not reconciled to audited 

budgetary information reported by 

agencies in either the SBR or to revenue 

in the Statement of Custodial Activity, 

through which many agencies report 

significant receipts such as tax collections 

by the Internal Revenue Service 

or mineral/oil royalties collected by 

the Department of the Interior. While 

budgetary information reported in the 

SBR and periodic reports to Treasury, 

such as the SF-133 and SF-224, are reconciled 

at the agency level, a complete 

reconciliation to information contained 

in Treasury’s central accounting system 

is not performed as part of the compilation 

process. 

Taking the steps necessary to establish 

a complete foundation of audited 

information from which the balances 

in the CFS are derived is a prerequisite 

for fully addressing the current gaps in 

the compilation process. This entails 

addressing two primary gaps in the process: 

first, the gap between agency and 

government-wide budgetary information, 

and second, the gap between the 

Unified Budget Deficit, Net Operating 

Cost and the changes in cash. 

Bridging Unaudited 

Budgetary Information to 

Audited Balances 

Building a reconciliation process 

that bridges unaudited and audited 

budgetary information is a solution we 

heard in a number of our interviews. 

This would establish a transparent 

audit trail and complete foundation of 

audited accrual and budgetary information 

from which the CFS is compiled. It 

is clear that Treasury understands the 

nature of many of the differences that 

exist related to budgetary information 

between agencies and the governmentwide 

balances reported in the CFS. 

Treasury has analyzed many of the 

receipt and outlay differences and has 

significant insight into the areas as 

well as into specific agencies where 

underlying definitional and reporting 

differences exist. 

We were briefed on a number of 

past initiatives to build this bridge and 

design a process to reconcile budgetary 

information as well as document 

an audit trail between agency and CFS 

budgetary data. These past efforts 

have provided significant insight into 

the problem and have made it easier to 

pinpoint potential troublesome areas. 

For example, Treasury described reconciliation 

approaches for receipts at the 

Internal Revenue Service and at Interior. 

From both of these efforts, considerable 

insight was gained and can be leveraged 

to develop a standard reconciliation 

template for receipts and outlays. 

Further contributing to the gap 

between agency and CFS budgetary 

information is the form and content 

of the agency financial statements as 

compared to the CFS and the ease with 

which accrual and budgetary information 

reported at the agency level aligns 

with similar information reported at 

the CFS level. For example, agency 

Balance Sheets and Statements of Net 

Cost align closely with the CFS Balance 

Sheet and Statement of Net Cost, so 

it is easier to link agency information 

to CFS information. Similar alignment 

with budgetary accounts and the SBRs 

at the agency and CFS levels does not 

currently exist. For example, the SBR 

does not align with similar statements 

at the CFS level. 

Identifying and Reporting 

the Differences Between 

the Unified Budget Deficit, 

Net Operating Cost and the 

Changes in Cash Needed 

to Populate the CFS 

Reconciliation Statements 

The discussed alignment issue 

extends to other statements compiled 

only at the government-wide level. 

The CFS contains two financial statements, 

which are reconcilable in nature 

and identify the major differences 

between the Unified Budget Deficit, Net 

Operating Cost and the changes in cash 

at the government-wide level. Unlike 

other financial statements in the CFS, 

such as the Balance Sheet or Statement 

of Net Cost, these statements are not 

closely aligned with audited agencylevel 

financial statements. These alignment 

issues make these statements 

particularly challenging to produce. 

Since Unified Budget Deficit is 

reported in both statements, it is 

critical as a first step that the receipts 

and outlays comprising these two 

important totals first be reconciled to 

audited balances. While some level of 

Treasury analysis will always be needed 

to review and compile the line items on 

the two reconciliation statements, the 

compilation of the reconciliation statements 

is not supported by a reliable 

and documented compilation process. 

In concept, the gap in the compilation 

process related to these statements 

is no different from the gap identified 

related to receipts and outlays. In both 

cases, CFS balances are not linked 

back to audited information reported in 

audited agency financial statements or 

to reconciling information identified as 

part of the Closing Package process and 

separately audited. Historically, both 

reconciliation statements have been 

compiled based on analysis performed 

at Treasury level or by audit adjustments 

identified by GAO. 



Our recommendation is intended to provide 

a full accounting of gross receipts and outlays 

comprising the Unified Budget Deficit. 

Treasury is aware of most of the 

reconciling items needed to populate the 

CFS reconciliation statements as a result 

of experience gained in compiling the CFS 

over the years. Treasury has a detailed 

understanding of these items and the 

activities underlying the differences. 

But, as we have seen with the Troubled 

Asset Relief Program (TARP) and other 

newly implemented programs, new items 

can be created each year by legislation 

or new/revised policies. Developing a 

systematic process to identify and report 

these reconciling items can be built on the 

foundation that already exists and can be 

enhanced by improved communication 

between Treasury and the agencies. The 

result would be needed improvements in 

the compilation process. 

A Related Initiative 

The Governmentwide Treasury 

Account Symbol Adjusted Trial Balance 

System (GTAS) initiative was brought to 

our attention. GTAS is intended to validate 

both budgetary and accrual-based 

information reported by agencies and 

to facilitate the analysis of governmentwide 

spending. GTAS, now under development, 

could improve the integrity of 

budgetary data and facilitate a solution 

to reconciling reported differences since 

information should be more reliable. 

GTAS is similar to the FACTS II 

process in design. Scheduled to go 

into production in December 2012, 

the system is expected to improve 

the integrity of all types of financial 

information agencies report. As GTAS 

becomes more advanced, agencies will 

be required to pass more edit checks 

before their data can be submitted 

to Treasury. These edit checks are 

expected to include tests to validate 

the relationship between budgetary 

and accrual data and the completeness 

of adjusting entries. In concept, 

higher quality underlying agency data 

will enable the production of better 

quality financial statements at both the 

agency and government-wide levels 

because the underlying database will 

be the same at agencies and in GTAS. 

Pilot efforts are under way to reconcile 

agency trial balances reported in the 

GTAS to agency financial statements. 

GTAS is not intended to be a shortterm 

or long-term solution to GAO 

findings related to the compilation of 

the CFS. GTAS is not a substitute for a 

compilation process built from audited 

agency financial statements, which 

is the concept underlying the Closing 

Package approach. 

Our recommendations acknowledge 

Treasury’s success in linking audited 

agency accrual data to the CFS using the 

Closing Package approach. We seek to 

leverage that success to reconcile budgetary 

data through a similar reporting, 

reconciliation and audit process. 

Short-Term 

Recommendations 

Recommendation 2.1: Continue to 

use and enhance the Closing Package 

process in compiling the CFS to include 

the reconciliation and audit of budgetary 

data and the items needed to 

prepare the reconciliation statements. 

The Closing Package process and 

the approach of deriving reliable 

government-wide information from 

audited agency financial statements is 

a transparent and auditable compilation 

process for the overwhelming majority 

of the balances in the CFS. In an entity 

the size of the federal government with 

agencies larger and more complex than 

many states and international corporations, 

accountability, data reliability and 

credibility should always be based on 

audited financial statements. Building 

on the foundation of audited agency 

information is a critical component of a 

sound, reliable compilation process. 

The existing Closing Package/GFRS 

process provides a solution that has 

been proven successful in establishing 

an audit trail between audited agency 

financial statements and the CFS. The 

current compilation process used for 

accrual balances that leverages audited 

agency financial statements through the 

Closing Package process has allowed 

Treasury to approach a transparent 

and auditable compilation process. By 

extending this process to include the 

reconciliation and audit of budgetary 

data as well as the accumulation of 

information needed to prepare the reconciliation 

statements, Treasury will be 

within striking distance of a reliable and 

auditable overall compilation process. 

Recommendation 2.2: Establish a 

process to reconcile and audit budgetary 

information reported in audited agency 

financial statements with gross receipt 

and outlay cash flows in Treasury’s 

central accounting system. To facilitate 

a complete reconciliation, Treasury 

should provide agencies with a populated 

reconciliation template as a starting point. 

Additional agency procedures are required 

to periodically perform the reconciliation, 

given that the detailed information to successfully 

identify and resolve differences 

exists at the agency level. 

This recommendation is intended 

to provide a full accounting of gross 

receipts and outlays reported in the CFS 

comprising the Unified Budget Deficit. 

Agency budgetary information is compiled, 

reported periodically to Treasury 

and audited in aggregate annually in the 

14 



SBR. However, budgetary information 

reported in the CFS is independently 

generated from Treasury’s central 

accounting system. A process should 

be established to reconcile receipts 

and outlay information between these 

independent sources. Treasury has 

attempted to perform this reconciliation 

as part of the annual compilation 

process and on an agency pilot basis 

without broad success. However, in 

defense of Treasury’s efforts, the time, 

resources and level of detail do not 

exist at Treasury to successfully perform 

this reconciliation for each agency. 

Agencies must “own” their data and, in 

turn, “own” the reconciliation process. 

The reconciliation process should 

be facilitated by Treasury through the 

identification of Treasury Fund Symbols 

and receipt accounts that are tagged to 

agency balances in Treasury’s central 

accounting system that can be used by 

agencies to make similar comparisons 

of the Treasury Fund Symbols included 

in their SBRs. Similar comparisons of 

the composition of receipt accounts 

should also be made. A populated standard 

reconciliation template, provided 

quarterly by Treasury to each agency, 

can serve as a starting point for the 

reconciliation. The detailed reconciliation 

must be performed at the agency 

level where the information exists for 

the agency to successfully identify 

and resolve definitional and reporting 

differences. A budgetary reconciliation 

process will add transparency to differences 

in budgetary balances reported 

in the CFS and establish an audit trail 

from audited agency reported budgetary 

information to similarly aggregated 

information reported at the CFS level. 

In addition, performing this quarterly 

reconciliation will facilitate the proactive 

identification and resolution of differences 

and enhance the reliability and 

timely compilation to meet stringent CFS 

production and audit timelines at year 

end. It is important to note that controls 

exist at most agencies to reconcile 

the annual audited SBR and the actual 

column of the President’s Budget. This 

process should be leveraged to the 

extent possible in performing this reconciliation. 

However, this reconciliation 

does not always include all receipt and 

outlay accounts as a starting point and 

may not include final budgetary balances 

because of timing differences between 

the CFS and the President’s Budget. 


process to identify, report and audit the 

major differences between the Unified 

Budget Deficit, Net Operating Cost and 

the changes in cash government-wide 

to populate the CFS reconciliation 

statements. To facilitate this process, 

Treasury should consider providing 

agencies with a reconciliation template 

populated by using the relevant line 

items on the current reconciliation statements 

as part of the Closing Package. 

This recommendation is intended 

to provide Treasury with a systematic 

process to accumulate and support 

the information it uses to populate 

the reconciliation statements. The 

information needed to populate the 

“Reconciliation of Net Operating Costs 

and Unified Budget Deficit” comes from 

a combination of agency-supplied data 

and Treasury-maintained data. Audited 

agency information should be collected 

through the Closing Package process 

and leveraged to the extent possible 

(see Recommendation 2.4). 

The information needed to populate 

the Statement of Changes in Cash 

Balance will likely reside at Treasury, but 

to the extent that information is needed 

from the agencies, a second template 

should be developed to obtain the information. 

Many agencies will only populate 

a few line items on the template(s), but it 

is each agency’s responsibility to identify 

the applicable line items. To ensure 

consistency in reporting, the template(s) 

should be supplemented with guidance 

describing precisely what is to be 

included on each line. Treasury’s process 

should include a mechanism to enable 

Treasury to identify and quantify reconciling 

items that result from new or revised 

policies or legislation. As with the process 

recommended for budgetary data in 

Recommendation 2.2, this process would 

provide a transparent, documented trail 

of audited data supporting CFS budgetary 

versus GAAP differences. 

Recommendation 2.4: Include 

budgetary information and information 

needed to prepare the reconciliation 

statements in the Closing Package 

process and the GFRS to provide 

transparency and full audit coverage 

of budgetary receipts, outlays and 

differences between the Unified Budget 

Deficit, Net Operating Cost and changes 

in cash government-wide. The Closing 

Package submission should clearly 

identify those budgetary balances 

and reconciling items derived from 

audited agency financial statements 

and any other balances or reconciling 

items that need to be addressed at the 

government-wide level. 

While Recommendation 2.2 

describes a process and audit trail 

for budgetary information and 

Recommendation 2.3 suggests a 

process for accumulating reconciling 

items, Recommendation 2.4 is intended 

to add rigor by subjecting to audit the 

crosswalking of reconciled receipts, 

outlays and reconciling items as part 

of the Closing Package process. As 

discussed, the Closing Package process 

has facilitated the linkage of audited 

agency-level accrual basis information 

to the CFS. Thus, an established audit 

trail and reporting process exists for 

accrual account balances from agency 

financial statements to the CFS. We 

recommend that the results of the budgetary 

reconciliation be incorporated 

into the Closing Package process and the 

GFRS to essentially crosswalk audited 

agency-level budgetary balances to 

budgetary balances included in the CFS, 

including the Unified Budget Deficit 

balance. By including in the Closing 

Package the items needed to populate 



the reconciliation statements, these 

items will be subject to the same audit 

procedures as the accrual account balances 

currently included in the Closing 

Package. 

No similar linkage exists for budgetary 

information, namely gross receipts 

and outlays comprising the Unified 

Budget Deficit balance and items 

needed to populate the reconciliation 

statements. Some of this information 

may not be reported in agency 

financial statements, and therefore are 

not subject to audit. Presenting other 

financial information to Treasury as part 

of the Closing Package will facilitate 

the collection and audit of a complete 

accounting of receipts, outlays and 

reconciling items. 

Recommendation 2.5: Compile the 

CFS at the end of the third quarter to 

improve internal controls surrounding 

the Closing Package process and facilitate 

meeting the December 15 reporting 

deadline. 

Even if all of these process improvement 

recommendations are implemented, 

the compilation process must start earlier 

in the year and include a “trial run” at the 

end of the third quarter to reduce financial 

reporting and audit risk. This leading 

practice has been widely implemented 

by the government and private sector. 

For example, all publicly held companies 

undergo a hard close at least quarterly, 

with reports to the SEC. 

Federal agencies formerly prepared 

financial statements only at year end. 

Under this process, agencies produced 

audited financial statements six or more 

months after year end using costly 

and “heroic” efforts, not a process 

that could be described as disciplined, 

routine or reliable. 

Accelerated agency financial reporting 

transformed this process to one 

where auditors and management now 

start earlier in the year to implement, 

test and gain confidence in financial 

reporting processes and controls. This 

enables year-end reporting to be more 

routine and reliable. This same transformation 

must occur in the process 

surrounding the compilation of the CFS. 

Performing a hard close at the end of 

the third quarter, using agency financial 

statements to populate an interim 

Closing Package and working with auditors 

to perform interim procedures is 

essential to routinely producing reliable 

and timely audited, government-wide 

financial statements by mid-December. 

Long-Term 

Recommendation 

Recommendation 2.6: Continue 

to pursue and assess the feasibility, 

costs and benefits of a more centralized 

approach to standardizing, collecting, 

analyzing and reporting financial 

information. 

Over the longer term, technology 

will continue to drive greater capability 

and provide additional automated 

options. As has been the case with 

the evolution of agency-level financial 

reporting systems, manual processes 

and compensating controls have been 

replaced by more automated and 

reliable financial systems. This recommendation 

addresses these longer-term 

considerations. 

We also recognize the value of 

standardized government-wide data, 

processes and controls as a potential 

longer-term initiative from which 

reliable financial reports could emerge. 

This could facilitate the collection 

of government-wide data that could 

then be analyzed and easily accessed. 

Treasury should continue to pursue and 

assess the costs and related benefits of 

centralized accounting options. 

16 


3. Usefulness of the Two CFS 

Reconciliation Statements 

Issue 

As discussed previously, included in 

the material weakness cited by GAO is a 

breakdown in the compilation processes 

related to the two budgetary statements 

included only in the CFS — Reconciliation 

of Net Operating Cost and Unified Budget 

Deficit (Reconciliation Statement) and 

Statement of Changes in Cash Balance 

for Unified Budget and Other Activities 

(Statement of Changes in Cash). When 

reconciled to the consolidated net 

operating cost on an accrual basis and to 

changes in cash, the information regarding 

the Unified Budget Deficit provides a 

unique perspective available only at the 

consolidated federal government level. 

During the course of our research, we 

assessed the utility of this information 

and whether any changes in reporting 

should be considered. 

As stated in Chapter 2, the form and 

content of the CFS does not fully align 

with audited agency financial statements. 

In some cases, such as with the Balance 

Sheet and Statement of Net Cost, alignment 

is fairly close, so balances can be 

crosswalked through the Closing Package 

process fairly easily to balances in statements 

appearing in the CFS. However, for 

the Reconciliation of Net Operating Cost 

and Unified Budget Deficit (Reconciliation 

Statement) and Statement of Changes 

in Cash Balance for Unified Budget and 

Other Activities (Statement of Changes 

in Cash), no comparable statement exists 

at the agency level. Agencies prepare a 

footnote reconciling Net Cost to obligations 

that have some similarities and may 

crosswalk to some line items in the CFS. 

No analog for the Statement of Changes 

in Cash exists at the agency level. The 

unique nature of these two CFS “reconciliation” 

statements presents compilation 

challenges and complexities for Treasury. 

While these challenges can be overcome, 

as discussed in Chapter 2, our intent is to 

draw attention to this lack of alignment, 

assess the utility of this information, and 

address whether any changes in reporting 

should be considered. 

Reconciliation of Net Cost 

Is a Critical Financial 

Statement Within the CFS 

Reconciling the difference between 

consolidated net operating costs calculated 

on an accrual basis to the Unified 

Budget Deficit provides users with 

each perspective — both accrual and 

budgetary — a better understanding of 

the financial position and sustainability 

of the federal government. For example, 

key information can be gleaned from 

the Statement of Net Cost, such as costs 

associated with veterans and employee 

benefit programs not captured in budgetary 

reporting. Our research indicated 

interest in the Unified Budget Deficit not 

only on the budgetary basis but also on 

the accrual basis and, more important, 

the reasons for the differences between 

the two perspectives. 

Addressing the material weakness 

GAO raises (see Chapter 2) will help 

ensure that the amounts presented on a 

budgetary basis in the separate agency 

financial statements align with the 

official budget execution information in 

the Combined Statement. This reconciliation 

between accrual and budgetary 

information becomes tantamount to 

the “‘Rosetta Stone” for budgetary and 

accrual information, ensuring audit 

review and validation of accrual-based 

information, as well as budgetary information, 

may be used throughout the 

federal government and by the public 

and other key stakeholders. 

The ability to perform this reconciliation 

also opens the door to focus 

reporting on successively lower levels 

of aggregation. From a utility perspective, 

this is important because anecdotal 

evidence in the form of website visits 

indicates that disaggregated budgetary 

information is much more frequently 

viewed (and presumably used) than the 

CFS or the individual agencies’ audited 

financial statements. Thus, the ability to 

reconcile the audited accrual data to budgetary 

data brings more credibility to the 

more widely used budget information. 

Though largely beyond the scope 

of this research project, integrating 

budget execution and accrual data 


Usefulness of the Two CFS Reconciliation Statements 

plays a critical role in the development 

of information linking program costs 

and outcomes. AGA has explored the 

concept of a pyramid of financial and 

program execution information in a 

series of executive sessions held in 

conjunction with prior Professional 

Development Conferences 17 and in its 

work on Citizen-Centric Reporting. 18 AGA 

has an e-reporting project under way to 

further its efforts in this regard. 

Improving the Statement 

of Changes in Cash 

We believe the Statement of Changes 

in Cash and certain Notes to the Financial 

Statements contain information that can 

inform the discussion related to how 

federal government operations impact 

outstanding debt and the cash balance. 

However, none of our interviewees cited 

the current presentation framework or 

Statement of Changes in Cash as a data 

source for analysis of these issues. 

Consistent with the recommendations 

of its Financial Reporting Model 

Task Force, 19 we understand that the 

Federal Accounting Standards Advisory 

Board (FASAB) is considering giving the 

Statement of Changes in Cash less prominence 

and audit coverage by removing it 

as a principal CFS statement and making 

it required supplemental information. 

While analysis of alternatives to reporting 

the Statement of Changes in Cash was 

outside the scope of this research project, 

some initial thoughts are provided for 

consideration in formulating options for 

refining the Statement. 

In its original guidance, the FASAB 

was not prescriptive in defining the form 

of the Statement of Changes in Cash. 

As implemented by Treasury, the current 

presentation contains a mixture of gross 

cash flows regarding debt issuances 

and largely net information regarding 

other aspects. 

The analog for the Statement of 

Changes in Cash in the other sectors, 

commonly referred to as the Statement 

of Cash Flows, is relevant for commercial 

and nonprofit, and state and local 

entities, in that the Statement of Cash 

Flows converts accrual basis information 

into a flow of funds (cash). It provides 

useful information related to the viability 

and sustainability of the entity. The 

Statement is required by the Financial 

Accounting Standards Board (FASB) for 

the private and nonprofit sectors and by 

the Governmental Accounting Standards 

Board (GASB) for state and local governments. 

Entities are encouraged to report 

flows on a gross inflow and outflow 

basis. Also, state and local governments 

as well as private and nonprofit sectors’ 

financial reporting focus on future debt, 

lease and other future cash outflows. 

A gross cash inflow/outflow presentation 

helps make it clear that cash flows 

result not only from operations but also 

other activities, such as loans, investments, 

leases and fixed-asset acquisitions. 

In addition, current disclosures do 

not provide users of the Statement with 

anticipated refinancing activity for debt 

since there is no table of annual debt 

service repayments or repayments due 

after five years. In addition, context is 

not provided for expected repayments 

and future flows related to loan and 

investment programs, lease and capital 

asset purchase commitments, or their 

impact on outstanding debt and cash. 

We believe this information would be 

valuable to users. 

Short-Term 


Recommendation 3.1: Modify the 

Statement of Changes in Cash to include 

information on (1) cash flow from operations, 

(2) debt financing activities and 

(3) investing activities. The compilation 

process should be modified as necessary 

to capture this information. FASAB, 

Treasury and OMB should determine the 

appropriate presentation method. 

Information regarding cash flows and 

whether Treasury can fund operations 

within the operating cycle merits disclosure, 

as basic information is needed 

to understand the financial position of 

the federal government. Information on 

gross cash flows related to such matters 

as the making and collection of direct 

loans, purchase and disposal of investments 

(including activity to stabilize the 

economy) and flows needed to fund 

ongoing deficits is important to allow 

users to put results in perspective and 

understand future financing needs. 

Reconciling the Unified Budget 

Deficit to the accrual-based net operating 

cost and subjecting the process to 

review can improve the quality and reliability 

of financial information required 

to satisfy growing demands for greater 

transparency in reporting. In the case of 

the Statement of Changes in Cash, our 

research reinforced an emerging view 

being considered by the FASAB that 

changes may be warranted in where 

such information is provided — whether 

in a principal statement, footnotes or 

another location. 

18 


4. Structure 

Overview of the As-Is 

Environment 

The enactment of the CFO Act 

ushered in a new era of federal government 

accountability. It also put the 

“M” (for “Management”) in OMB by 

establishing a Presidentially appointed, 

Senate-confirmed Deputy Director for 

Management (whose role has now been 

expanded to include the title of Chief 

Performance Officer) and the Office of 

Federal Financial Management (OFFM), 

headed by a Presidentially appointed, 

Senate-confirmed Controller, who 

serves at the pleasure of the President. 

During development of the CFO 

Act, there was significant discussion 

as to whether to place the OFFM and 

the Controller in OMB, with its central 

government-wide management 

role and control of the budget, or in 

Treasury, with its financial management 

expertise and central accounting 

capabilities. It was decided that OMB 

would have the most leverage to affect 

change, given its location within the 

Executive Office of the President and 

the strong interest of the then-OMB 

Director in financial management 

reform and improved financial reporting 

at the agency and government-wide 

levels. Treasury retained its traditional 

role as the central accountant and, with 

the enactment of the GMRA, became 

the preparer of the CFS. 

In addition, to leverage the strengths 

of both OMB and Treasury, the framers 

of the CFO Act proposed to establish a 

separate office in Treasury to support the 

OFFM’s work, since resources at OMB 

were impeded by its size, location (within 

the Executive Office of the President) and 

mission — primarily a focus on budget 

formulation, policy and the control structure 

needed to implement and oversee 

management of the federal government. 

With this separate office, Treasury would 

be a partner and valuable technical 

resource to OMB and the OFFM. 

At the time, it was envisioned that this 

Treasury office would employ about 75 

people and provide the infrastructure to 

support the new CFO Act. This was seen 

as the best of both worlds — an OMB 

leadership role and a Treasury technical 

role and staffing. However, during the 

late stages of CFO Act deliberations, the 

plan for a separate Treasury office was 

dropped due to questions about who had 

responsibility for its management. 20 

The consolidation of the CFS resides 

within the Financial and Budget Reports 

Directorate of FMS’s Governmentwide 

Accounting Board, which rests six 

organizational layers below the Office 

of the Fiscal Assistant Secretary (OFAS). 

Interestingly, the President’s 2013 budget 

proposes to merge FMS with its companion 

entity within OFAS, the Bureau of 

the Public Debt. Whether the proposed 

consolidation will resolve some of the 

resource issues remains to be seen. 

The resource issue has been raised 

beginning with the CFS audit report 

for fiscal year 2004. GAO took an 

additional step in emphasizing that 

the needed systems and resources 

infrastructure is a continuing problem 

at Treasury. 21 The following language 

from GAO’s fiscal year 2004 auditors’ 

report exemplifies this recurring 

message, which was echoed in GAO’s 

report on its fiscal year 2011 audit: 22 

“Treasury did not have the infrastructure 

to address the magnitude of the 

fiscal year 2004 financial reporting 

challenges it was faced with, such 

as an incomplete financial reporting 

system, compressed time frames for 

compiling the financial information ... 

We found that personnel at Treasury’s 

Financial Management Service had 

excessive workloads that required an 

extraordinary amount of effort and 

dedication to compile the consolidated 

financial statements; however, there 

were not enough personnel with specialized 

financial reporting experience 

to ensure reliable financial reporting 

by the accelerated reporting date.” 

In carrying out its audit responsibility, 

GAO has a small core team assigned 

year round to the CFS audit. This team is 

augmented at year end with additional 

auditors who provide short-term surge 

capacity, which Treasury does not have. 


Structure 

Interviews 

The AGA Research Team undertook a 

series of interviews with four state, two 

private-sector, and OMB, FMS, Treasury 

and GAO officials to gain an understanding 

of how compilations of CFS and 

other complex entities are successfully 

accomplished. These interviews are 

summarized in Appendix E. 

Observations 

Three themes — leadership, standardization 

and discipline — consistently 

arose during our interviews with publicand 

private-sector financial managers, 

who suggested that success is achieved 

by maintaining the following: 

Top leadership as the owners of 

the initiative — words backed up 

with actions to reinforce a sense 

of urgency and to make necessary 

investments 

A well-defined statement of the 

objective and its importance 

A clear assignment of operational 

responsibility together with the 

authority to achieve the objective, 

i.e., someone in charge with the 

ability to enforce decisions across 

agencies. 

Standardized processes, data and 

systems 

Discipline in adopting business rules 

and providing needed information 

Accountability and ability to hold 

people accountable 

Neither complexity nor size was 

seen as a major issue. Arguably the federal 

government is the largest and most 

complex entity in the world; however, 

the job of preparing auditable financial 

statements is not complex at its core. 

The organizations and individuals we 

met with during our research represent 

high-ranking Fortune 500 entities able to 

overcome their own set of complexities 

and achieve reliable and timely financial 

reporting that could meet the test of 

an audit. Not once did we hear that 

one of the components or subsidiaries 

was special or different and therefore 

unable to meet the necessary reporting 

requirements or that they could not 

make the reporting entities do what was 

needed. The mandate came from the 

top, and expectations for results and a 

sense of collective urgency were drivers 

of reform. 

Our interviews also indicated that 

entities were expected to perform so the 

desired reporting requirements were 

met. The level of performance was clear 

and well-articulated, primarily defined 

by competition, especially with respect 

to the capital markets. This is particularly 

true for the states, where bond 

ratings and access to and cost of capital, 

hinge on performance and results. The 

same may be said about the private 

sector, although direct market competition 

also drives the need for reliable, 

timely data to make business decisions 

that maximize profits. It would be safe 

to say that governors and CEOs expect 

their organizations to provide timely and 

reliable financial information to their 

regulators, overseers, lenders, investors 

and the public. The inability or failure to 

provide such information would most 

likely be a death knell for the CFO and 

As a result, the need for this capacity remains 

today since neither OMB nor Treasury have 

invested sufficient resources, systems or people 

to carry out the role as the preparer of the CFS. 

CEO, if not the entity. 

Limited resources were not seen 

as an impediment, either. Because of 

the high priority placed on reporting, 

leadership committed people and funds 

to achieve results, and results were 

expected for the investment. The people 

aspect of this takes on various forms: 

Pennsylvania borrows staff during 

surge periods. 

IBM and Marriott employ “tiger 

teams.” 

Massachusetts runs continuous 

training for its finance staff and 

agencies’ staff. 

Maryland has a culture of strong 

state controllers, one having served 

for 35 years. 

Infrastructure and process-related 

investments enjoyed similar support. 

From a people perspective, perhaps 

former Treasury Secretary Paul O’Neill 

said it best by referring to the fact that 

people want to do good work — and 

want to be part of something important 

and challenging. 

In one way or another, Treasury 

has adopted some of the approaches 

mentioned during our interviews, such 

as the use of standard templates, Closing 

Packages, team resolution of differences, 

and agency and staff training activities. 

However, there continues to be the need 

for data standardization and business 

rules in key areas that impair data 

compatibility and quality as cited by IBM 

and Secretary O’Neill — as well as a clear 

mechanism for enforcing existing data 

standards and requirements as described 

in our discussions with Marriott, IBM and 

state financial officers. 

The latter is in part driven by the 

need for clear responsibility, authority 

and purpose, as well as resources to 

make changes that address the root 

cause of the remaining reporting challenges 

with a sense of urgency. These 

missing attributes could be traced to the 

early history of the CFO Act, which suggests 

the framers recognized the need 

20 


Structure 

to establish an organization in Treasury 

with sufficient resources to support 

the OFFM and the OMB Controller and 

likewise lead the financial statement 

preparation efforts. The establishment 

of this organization at an appropriate 

level within Treasury — together with 

the authority that the OMB Controller 

has under the CFO Act — would provide 

a greater capability to make and enforce 

the type of changes needed to enable 

Treasury to resolve the financial statement 

preparation findings GAO has 

reported for the past 15 years. 

There are several issues at the 

heart of the solution to the compilation 

process — some technical, others 

procedural and others organizational. 

This is still basic accounting, and one 

must believe these obstacles can be 

overcome given a clear mandate to do 

so, strong leadership and innovative 

thinking to drive the desired results and 

necessary resources. 

And perhaps therein lay the missing 

link — purpose and priority. Twenty 

years ago there was little incentive to 

have an independent audit of the federal 

government agencies, or the CFS to 

ensure that the books were in reasonable 

order, or to have a “clean” auditors’ 

opinion. But times have changed. Our 

federal government is competing for 

capital, its creditworthiness and sustainability 

have been questioned, and 

a digital world raises expectations for 

transparency and accountability. 

Audited CFS with a “clean” auditors’ 

opinion are a worldwide symbol, 

a standard that marks a certain level 

of financial management competency 

that is known, accepted and expected 

by the public. It is a minimum standard 

for anyone doing business, public or 

private. While one can debate the merits 

of financial statements, there is no 

question that the public expects such 

statements to have a “clean” auditors’ 

opinion. It is an imprimatur of good 

financial management and one step 

toward enabling good government. 

As a road map for moving forward 

from an organizational/structural 

standpoint, we offer the following 

recommendations. 

Short-Term 

Recommendations 

Recommendation 4.1: Re-energize 

the Joint Financial Management 

Improvement Program (JFMIP) by having 

the JFMIP principals resume face-toface 

meetings several times a year to 

systematically work through obstacles 

that impede progress on resolving these 

and other issues of common interest 

to the federal financial management 

community. To support this effort, the 

JFMIP steering committee, composed 

of career officials representing each of 

the principals, should be reconstituted 

to meet periodically as a resource to the 

principals in carrying out the established 

initiatives. 

The JFMIP was established by the 

Budget and Accounting Procedures 

Act of 1950 23 as a cooperative program 

under the leadership of four principals 

— the OMB Director, Secretary of the 

Treasury, the Comptroller General and 

the Director of the Office of Personnel 

Management (OPM). It was intended 

that the principals would work together 

to address issues across the federal 

government. Over the past 60 years, the 

principals did not formally interact for 

long periods, leaving career officials, 

who constituted a steering committee, 

to meet and carry out the program. 

Changing that paradigm in the early 

2000s, the principals became personally 

active, meeting face-to-face several 

times a year. Many critical decisions 

were made during that time, most 

notably being the agreement to accelerate 

reporting deadlines for agencies and 

the CFS, originally proposed by former 

Treasury Secretary Paul O’Neill. 

This changed somewhat with a 

2006 reorganization and relocation of 

JFMIP activities. This shift resulted in 

the abolishment of the steering committee, 

composed of career officials 

from OMB, Treasury, GAO and OPM, 24 

who supported the principals. Today, 

the Comptroller General, who is a 

JFMIP principal, meets regularly with 

the Controller of OFFM (who also now 

wears the hat of Acting Deputy Director 

for Management at OMB), which is 

a Presidentially appointed, Senateconfirmed 

position, and Treasury’s Fiscal 

Assistant Secretary, which is a career 

position. Their active involvement and 

the relationships they have fostered are 

important and keep with BAPA’s intent 

for the JFMIP. However, under the current 

arrangement, only one of the JFMIP 

principals is personally involved. Over 

time, this can further diminish the impact 

and visibility of the JFMIP and its principals. 

We believe that resuming periodic 

face-to-face meetings of the JFMIP 

principals would provide much-needed 

additional leadership and direction, place 

decision making clearly at the principal 

level to resolve government-wide 

financial reporting issues and enable a 

reconstituted steering committee to help 

drive necessary improvement. 

Recommendation 4.2: Issue a 

Presidential Executive Order reaffirming 

that a “clean” auditors’ opinion 

for the CFS of the federal government 

is important for public accountability, 

expectations for the executive branch 

agencies, and the authority of Treasury, 

as preparer, to establish and enforce 

reporting requirements and business 

rules related to the CFS. 

It is important to make clear that 

Treasury has the authority to establish 

and enforce reporting requirements 

for the CFS, in consultation with the 

OFFM Controller in OMB. A Presidential 

Executive Order would help eliminate 

the gap between Treasury’s responsibility 

for preparing the CFS and its 

authority to require certain information 

be provided to address the recurring 

findings from GAO about preparation 

of the CFS. The state governments and 


Structure 

private-sector companies we met with 

all had the capability to prescribe what, 

how and when information would be 

reported and the ability to hold reporting 

organizations accountable. They set 

the business rules that were followed 

across the enterprise. They prescribed 

what they needed and how and when it 

should be reported. There was discipline 

in the process, and they achieved 

positive results. 

We learned that some federal 

agencies may view additional CFS 

reporting requirements from Treasury 

as burdensome and/or may already be 

stretched so thin that they do not believe 

they are able to take on additional 

reporting. While most federal agencies 

today rightfully celebrate their own 

“clean” auditors’ opinions, the fact that 

the CFS cannot pass the rigors of an 

audit — in part because audited agency 

financial statements cannot be rolled up 

and compiled into the budgetary CFS 

statements that balance and tie into the 

agency financial statements —should 

be viewed as a common concern. There 

needs to be a cultural mindset of shared 

responsibility and government-wide perspective 

that fully supports Treasury’s 

resolution to the compilation process 

findings, because it is in everyone’s best 

interest to establish the federal government 

as an effective financial steward 

accountable to the public for reports that 

pass the auditability test. 

This is why we are calling for an 

emphatic message from the President 

that is strongly reinforced by the JFMIP 

principals. 


separate organization reporting to the 

Fiscal Assistant Secretary of the Treasury 

that will focus solely on supporting the 

preparation of the CFS and augment this 

organization’s resources as necessary. 

This separate organization would be 

adequately staffed based on a comprehensive 

analysis of workload and 

sufficient technical knowledge, skills and 

abilities to successfully prepare an auditable 

CFS. Augmented resources should 

include the following: 

Continue use of the desk officers 

who have direct responsibilities for 

managing Treasury relationships 

with an agency or agencies with 

respect to financial reporting. 

Require each agency to designate 

an official to manage that same 

relationship with Treasury who 

can be available during the crucial 

November 15 through December 15 

audit period, as well as throughout 

the year as needed by Treasury. 

Provide the new Treasury 

organization with surge capacity/ 

resources, especially during the 

December 31 and March 31 quarterly 

soft closes and during the June 

30 and September 30 hard closes. 

Whether these resources come from 

Treasury, agencies and/or short-term 

contractor support, they must have 

the capacity to perform, which GAO 

has pointed out as a current problem. 

While focusing on the CFS, this 

organization could also be a resource 

to OMB with respect to the form and 

content of agency financial statements 

and related technical issues involving 

financial reporting. The organization 

would also be expected to work closely 

and cooperatively with OMB. 

Recommendation 4.4: Establish 

clear responsibility and time frames for 

implementing corrective actions. 

Corrective actions should be realistic 

but not stretch out too long. Setting 

aggressive goals will help establish a 

necessary sense of urgency. Although 

doing so may require more resources in 

the short term, maintaining open audit 

findings over multiple years is not in 

the best interest of any organization, 

including Treasury and the agencies. 

The state governments and privatesector 

companies we interviewed made 

investments, established timelines and 

held managers accountable for results. 

Long-Term 


Recommendation 4.5: Establish 

a separate organization within the 

executive branch responsible for federal 

government financial operations, systems, 

controls and reporting, including 

preparation of the CFS and undergoing 

GAO audit. 

In the short-term Recommendation 

4.3, we recommend a separate organization 

be established now under the 

Fiscal Assistant Secretary that would 

be responsible for preparing the CFS, 

and, ostensibly, implementing the 

technical recommendations in this 

report. However, in looking holistically 

at federal financial management for the 

next 15 to 20 years, we see the need 

for an organization that can operate in 

a dynamic technology and reporting 

environment characterized by increasing 

data standardization, systems consolidation 

and heightened attention on realtime 

accountability and transparency. 

Thus for the long term, we recommend 

a separate entity that would 

embody the themes we heard consistently 

throughout our research and the 

keys to success — clarity of purpose in 

and undergoing GAO audit, clear assignment 

of operational responsibility and 

authority to enforce requirements, and 

accountability for results. The new entity 

would bring together responsibility and 

authority now split between OMB (which 

establishes financial policy) and Treasury 

(which manages the government’s 

accounting back office by maintaining the 

general ledger, paying the bills, managing 

the federal government’s cash flow 

and preparing the CFS). 

A separate organization with the requisite 

authorities would be better-positioned 

to implement changes, including 

more standardized data and more 

centralized systems, which will allow for 

improved federal government financial 

management and greater transparency 

22 


Structure 

and accountability. Standardization and 

centralization — both critical success 

factors at IBM and Marriott — can 

further enable improvements to federal 

financial management as well. Given the 

pace of technology and the productivity 

and cost advantages it offers, for 

example, one could envision within 

20 years a single accounting system 

for the federal government providing 

interactive, reliable data in a real-time 

environment. 

The new organization would be 

viewed as an unbiased, nonpartisan, 

independent organization (similar to 

GAO). Its leader — a Presidential appointee, 

confirmed by the Senate — would 

hold a fixed term (similar to GAO’s 

Comptroller General). Consistent with 

the CFO Act, the organization would be 

responsible for accounting and reporting 

on budget execution at the government-wide 

level and would serve as a 

resource to OMB, which would remain 

responsible for budget formulation and 

policy. Both groups would be expected 

to work closely and cooperatively. With 

appropriate legislation, the head of the 

new organization would be designated 

as one of the JFMIP principals. 


Appendix A: Summary of 

Important Actions Leading to the 

Current Consolidated Financial 

Statements of the U.S. Government 

The journey to the CFS began in 1950 

with the enactment of the Budget and 

Accounting Procedures Act (BAPA). 25 In 

the Treasury Financial Manual (TFM), 

Part 2, Chapter 1000, 26 the following 

citation appears: 

“Per the Budget and Accounting 

Procedures Act of 1950, Treasury 

must render overall Government 

financial reports to the President, the 

Congress, and the public. Per this 

Act, each agency must provide the 

Secretary of Treasury (The Secretary) 

with reports and information relating 

to the agency’s financial condition 

and operations as the Secretary may 

require for effective performance. 

The Secretary’s responsibilities 

include the system of central 

accounting and financial reporting 

for the Government.” 

President Harry Truman, who signed 

BAPA into law, expressed his thoughts 

on the legislation: 27 

“The accounting and auditing 

provision [of BAPA] lay the foundation 

for far-reaching improvements 

and simplification. For the first time, 

clear-cut legislation is provided 

which nails down responsibility for 

accounting, auditing, and financial 

reporting in the Government. … A 

sound system of accounting in each 

agency, appropriately integrated 

for the Government as a whole, 

is fundamental to responsible 

and efficient administration in the 

Government.” 

While BAPA resulted in important 

improvements, its promise was not fully 

realized until subsequent financial management 

reform legislation more than 

30 years later. This legislation revitalized 

the focus on financial management 

and financial reporting and included 

a requirement to prepare the CFS and 

have it audited by GAO. 

The first major event in the reform 

of federal government financial management 

was the Federal Managers’ 

Financial Improvement Act of 1982 

(FMFIA). 28 Under the FMFIA, for the first 

time, federal government agency heads 

were required to submit a report on the 

status of internal controls that ensure, 

for example, that: 

“… obligations and costs are in 

accordance with applicable law … 

funds, property and other assets are 

safeguarded against waste, loss, 

unauthorized use or misappropriation 

… revenues and expenditures 

are properly recorded …” 

If the agency head believed there 

were internal control issues, which could 

range from physical security of buildings 

to computer systems operations to 

accounting accuracy, FMFIA required a 

report of these weaknesses and actions 

to address the problems. Initial reporting 

commenced for fiscal year 1983, with 

such annual reports due 90 days 

after that fiscal year end and annually 

thereafter. 

In February 1985, GAO issued a 

comprehensive two-volume report, 

Managing the Cost of Government 

— Building an Effective Financial 

Management Structure. 29 This report, 

which established a conceptual framework 

for improving federal government 

financial reporting, controls and 

systems, laid the foundation for the 

passage of the landmark CFO Act of 

1990. It opened with an 1802 quote from 

Thomas Jefferson: 

“I think it an objective of great 

importance … to simplify our system 

of finance and to bring it within the 

comprehension of every member of 

Congress … the whole system has 

been involved in impenetrable fog. 

There is a point … on which I should 

wish to keep my eye … a simplification 

of the form of accounts … so 

as to bring everything to a single 

centre; we might hope to see the 

finances of the Union as clear and 

intelligible as a merchant’s books, so 

that every member of Congress, and 

every man of any mind in the Union, 

should be able to comprehend them 

to investigate abuses, and consequently 

to control them.” 

Since the 1990 passage of the CFO 

24 


Appendix A 

Act, much has been accomplished to 

move the federal government’s financial 

operations and reporting closer to 

Jefferson’s vision. Widely heralded 

as the most comprehensive financial 

management improvement in 40 years, 

the CFO Act ushered in a new era of 

federal government accountability. It significantly 

changed the landscape for the 

federal government agency CFO, moving 

the role far beyond basic accounting 

responsibilities to that of agency leader 

in providing support across a range of 

critical programs and operations. 30 But 

one achievement that remains elusive 

is the ability to prepare consolidated 

financial statements for the federal 

government as a whole that can obtain a 

“clean” auditors’ opinion from GAO. 

Among a range of requirements to 

reform federal government financial 

management practices and capabilities, 

the CFO Act required 10 selected federal 

government agencies to prepare audited 

financial statements beginning with 

fiscal year 1992. In commenting on the 

requirement for audited agency financial 

statements, GAO provided the following 

insight: 

“Most importantly, the act requires 

that financial statements be prepared 

and audited. … Together, these features 

of the CFO Act will improve the 

reliability and usefulness of Agency 

financial information.” 31 

The requirement for audited agency 

financial statements was later made 

permanent and expanded to all 24 CFO 

Act agencies with the enactment of the 

Government Management Reform Act 

of 1994 (GMRA) 32 and expanded even 

further to other federal government 

agencies with the Accountability of Tax 

Dollars Act of 2002 (ATDA). 33 The GMRA 

also included a requirement for Treasury 

to prepare auditable CFS for the federal 

government beginning in fiscal year 

1997. Preparing the CFS was not new 

for Treasury, which was at the forefront 

of producing prototype statements 

beginning in 1973. 34 Treasury continued 

to prepare prototype CFS until the 1994 

requirements of the GMRA mandated 

Treasury’s preparation and GAO’s audit. 

The CFO Act laid the foundation for a 

series of ensuing management reforms 

and legislation built on the concepts 

of improved accountability and better 

management practices. For example, 

we have witnessed the enactment of 

the Federal Financial Management 

Improvement Act of 1996 (FFMIA) 35 

and its focus on improving financial 

management systems, which are at 

the heart of the CFO Act. Similarly, the 

Government Performance and Results 

Act of 1993 (GPRA) mandated reporting 

on actual results agencies achieved. 36 

The Improper Payments Information 

Act of 2002 (IPIA) 37 and the Improper 

Payments Elimination and Recovery 

Act of 2010 (IPERA) 38 have spearheaded 

the war against improper payments. 

The Federal Funding Accountability 

and Transparency Act of 2006 (FFATA) 39 

and the American Recovery and 

Reinvestment Act of 2009 (ARRA) 40 have 

opened the door for unprecedented 

accountability and transparency over 

federal government spending and have 

spawned additional systems, controls, 

reporting regimens and oversight 

mechanisms. There has been important 

related information technology legislation, 

such as the Clinger-Cohen Act of 

1996, 41 the Government Information 

Security Reform Act of 2000 (GISRA) 42 

and the Federal Information Security 

Management Act of 2002 (FISMA). 43 

Over the past two decades, with the 

implementation of the CFO Act and the 

GMRA, significant change has been 

realized in how financial management 

is viewed in the federal government. 

Now considered an essential component 

of agency management, financial 

management helps ensure accountability 

and provides valuable information 

and enhanced internal controls. 

Today, the CFO leadership structure is 

focused on the issues and considers 

the future much more broadly than 

it did even five years ago. The CFO 

Council, established by the CFO Act, 

undertakes a variety of initiatives and 

has provided a forum to address issues 

on a government-wide basis. 


Appendix A 

CFOs are coming to the job with the 

proven track records in financial management 

that the CFO Act envisioned. 

CFOs now have a “seat at the table” and 

are focused on functions — not encumbered 

with a wide range of unrelated 

responsibilities. Highly qualified deputy 

CFOs also provide continuity and bring 

years of experience to the job. While not 

yet where the CFO community ultimately 

wants to be, the evolution of financial 

systems and operations has been dramatic. 

44 The number of financial systems 

has been reduced, and the integration of 

financial systems with program systems 

has increased. There has been greater 

standardization, a dramatic increase in 

shared services and much less duplication 

of effort. Technology has enabled 

greater efficiency and effectiveness, and 

financial statement audits have pinpointed 

problems that have resulted in 

changes to financial systems. Finally, a 

direct byproduct of the CFO Act was the 

establishment of the Federal Accounting 

Standards Advisory Board (FASAB). The 

FASAB has become a widely recognized 

standard-setting body and continues its 

work to institutionalize and refine federal 

government accounting standards and 

financial reporting models. 

With all the progress made in financial 

management, in December 2011, 

GAO completed its CFS audit for the fiscal 

year ending September 30, 2011. For 

the 15th consecutive year, GAO could 

not express an opinion on the CFS. 45 

GAO cited three major impediments 

that contributed to its disclaimer of opinion 

on the CFS. The material weaknesses 

cited by GAO included problems related 

to Treasury’s ability to prepare the 

consolidated financial statements using 

audited agency information. Treasury, in 

coordination with OMB, did implement 

corrective actions during fiscal year 2011 

to address internal control deficiencies 

detailed in GAO’s audit report for the 

previous fiscal year. But GAO found that 

the federal government continued to 

have inadequate systems, controls and 

Principal Impediments to an Unqualified 

(“Clean”) Auditors’ Report — 2011 

• Department of Defense — Unauditable 

• Intragovernmental Transactions and Balances 

• Compilation Process 

procedures to ensure that the CFS are 

consistent with the underlying audited 

agency financial statements, properly 

balanced and in conformity with U.S. 

generally accepted accounting principles 

(GAAP). 

The problems cited in GAO’s report 

have been vexing to the federal government 

since the outset of the GMRA 

requirement for audited CFS and have 

adversely impacted Treasury’s ability 

to prepare CFS that can withstand the 

scrutiny of an independent audit. The 

problems transcend Treasury and are a 

byproduct of financial reporting systems 

and processes across the federal 

government, impacting the ability to 

consolidate audited agency information 

at a government-wide level. This is in 

spite of three decades of investments 

at the agency level in financial systems 

modernizations, enhanced business 

process and investments in personnel. 

A lot is known about the problem, but 

solutions have been elusive despite 

hard work by Treasury, OMB and the 

150 federal government agencies whose 

financial results are incorporated into 

the CFS. 

26 


Appendix B: Clarification on Data 

Format in Statement of Cash 

As noted in Chapter 3, our discussions 

revealed little interest in the 

Statement of Changes in Cash. There are 

apparent explanations for this. 

Unlike the Statement of Cash Flows 

other standard-setters prescribe for 

the private/nonprofit and state/local 

sectors, the current Statement is a 

mixture of gross reporting of cash 

inflows and outflows — principally 

debt issued and repayments made 

on debt held by the public. Many 

other significant transaction types 

are reported only on a net basis. 

The Statement presentation differs 

substantially from the three types 

of cash flows FASB mandates 

for the private/nonprofit sectors 

(operating, investing and financing 

activities) and four types of cash 

flows GASB mandates for the state/ 

local government sector (operating, 

investing, capital asset and financing 

activities). FASB and GASB both 

encourage gross reporting. The 

Statement of Changes in Cash 

would be much more informative if 

gross cash inflows and outflows for 

GSEs, TARP and loan activities, for 

example, were disclosed. 

We recognize that developing a 

similar approach for gross cash inflow 

and outflow information in the absence 

of an agency requirement to provide 

such information in its financial statements 

presents additional challenges 

in expanding reporting issues for the 

Statement of Changes in Cash. However, 

some agencies operating lending, leasing, 

guaranteeing and similar activities 

may already have such gross and net 

cash flow data available. 

We believe that gross reporting 

significantly improves understanding 

of the federal government’s complete 

cash management activities. For some 

transaction types, the cash outflows 

may well exceed those of some of the 35 

major federal entities. 


Appendix C: Interviews with 

State, Private-Sector and U.S. 

Government Financial Officials 

In order to learn from the experiences 

of larger state governments, private-sector 

firms and former Treasury Secretary 

Paul O’Neill, who led the charge for 

accelerated financial reporting at both 

Alcoa and in the federal government, 

the team arranged interviews with top 

finance officials of these entities and with 

Secretary O’Neill. 

State Practices 

We conducted interviews with 

state controllers and/or their office 

staff or independent auditor in four 

states — Maryland, Massachusetts, New 

York and Pennsylvania. Each state has 

achieved unqualified or “clean” auditors’ 

reports and has been recognized by the 

Government Finance Officers Association 

(GFOA) 46 for excellence in financial 

reporting. Although states are required 

to publish financial statements within 

nine months of the fiscal year end under 

GASB accounting standards and GFOA’s 

Comprehensive Annual Financial Report 

(CAFR) requirements, these four states 

generally publish within six months of 

fiscal year end. The states have considerably 

more time to close, correct and 

undergo an audit in contrast to either 

federal government agencies, which 

have only 45 days after fiscal year end 

to perform these activities, or Treasury 

and GAO, which have only 30 days after 

audited agency financial statements are 

submitted to produce the audited CFS. 

These states were able to accomplish 

positive results operating in complex 

environments that have some of the 

same attributes as federal government 

agencies — entities with different fiscal 

years, multiple auditors and a myriad of 

systems and primary and component 

units, often numbering in the hundreds. 

New York, for example, has more than 

300 entities, a major joint venture in the 

Port Authority of New York and New 

Jersey, 63 public benefit corporations 

(some of which are larger than smaller 

states), two major pension funds (both 

among the largest in the country), as 

well as two university systems (State 

University of New York and the City 

University of New York). 

Though there are organizational 

differences among the four states, all 

seemed to make their processes work. 

Two of the four states had an elected 

controller; the other two controllers serve 

in appointed positions within the governor’s 

cabinet. All had responsibility for 

overseeing their state’s financial operations, 

maintaining financial records and 

producing financial reports, in addition 

to responsibilities in other areas (e.g., the 

Maryland controller also has tax collection 

and administration responsibilities). 

Budget activities, especially formulation, 

were outside the purview of the controllers’ 

offices. None of the state offices had 

direct control or authority over component 

units or agency CFOs. 

All four states used a common 

general ledger system, some having a 

central accounting system as well. All 

acknowledged, however, that many state 

agencies and components had their 

own systems to manage their activities. 

Human resource systems were cited as 

examples. New York was the only state 

in the process of implementing a new 

central accounting system, and its state 

agencies have agreed to move onto the 

new system and give up their stand-alone 

systems in an effort to reduce costs, 

increase standardization and accelerate 

reporting. 

While processes for handling 

intrastate transfers and formal closings 

varied, none of the states seemed to 

have a problem. Only the Pennsylvania 

controller’s office discussed intrastate 

transfers to any extent, noting that 

unbalanced transactions were resolved 

by having state agency staff detailed to 

the controller’s office at year end to work 

through the issues. 

Likewise, each state had a slightly 

different twist to its closing processes, 

but none reported major difficulties. 

All states had a hard close at year end 

only. For some states, trial balances 

were pulled directly from the state 

central accounting system, and for those 

balances not on the system, a reporting 

template or Agency Reporting Package 

(ARP) was used. Only New York required 

quarterly and annual ARP submissions. 

28 


Appendix C 

In two instances, the states’ closed books 

became the official financial “books of 

record.” 

All four states reported that high-level 

leadership was key to timely compliance 

and reporting. Behind such leadership, 

controllers were able to rely on “jawboning” 

and “cajoling” to keep the closing 

process on schedule. Controllers were 

not hesitant to enlist higher levels of 

authority when problems arose as failing 

to produce timely financials with an 

unqualified “clean” auditors’ opinion was 

not an option for them, their legislators, 

their governors or their outside bond 

rating agencies. 

At least one state, Pennsylvania, 

expanded the core group from seven 

to 30 people at crunch times to handle 

“Closing Packages,” CAFR reporting and 

resolving unbalanced transfers. 

Corporate Practices 

We interviewed two corporations — 

Marriott and IBM — to learn about their 

practices. These corporations experienced 

and resolved problems similar to 

those Treasury faced in complex environments, 

with multiple entities operating 

different systems, subsidiaries with 

different fiscal years, financial statements 

in non-U.S. currencies and demanding 

regulative (SEC, NYSE) pressures. Both 

are among the largest SEC-registered 

securities issuers, and as publicly held 

companies, both undergo a hard close 

each month to meet internal-management, 

shareholder and SEC reporting 

requirements. 

Marriott Corporation 

Somewhat analogous to the situation 

at Treasury, about 10 years ago 

Marriott was having difficulty balancing 

its inter-subsidiary accounts. It “froze” 

the out-of-balance accounts and started 

anew to ensure that all new transactions 

were balanced. Marriott assigned a 

group of four or five people to focus on 

resolving the out-of-balance accounts. It 

also required subsidiary CFOs to report 

to both subsidiary management and the 

corporate CFO. 

Specific accounting rules were put in 

place and strictly enforced after careful 

research to determine root causes of the 

imbalances. Generally, the rules require 

that the “credit” subsidiary (the entity 

transferring funds) is responsible for 

determining the entry, and the “debit” or 

receiving subsidiary (the entity performing 

the work or service) records the flip 

side of the transaction. 

Because there are different reporting 

periods among groups of subsidiaries 

(usually based on geography), monthly 

(four- or five-week) and quarterly 

(13-week) reporting periods are closely 

monitored to ensure that any intercompany 

accounts “turn around” so that 

related transactions show up on each 

set of records in the following reporting 

period. The problem becomes manageable 

by dealing separately with accounts 

“frozen” at a point in time, and then 

starting anew with strict rules in place 

and resolving any differences in the 

next monthly reporting period. Marriott 

also reduced the number of standard 

accounts by more than 80 percent, from 

15,000 to 2,500. According to Marriott, 

its system for balancing inter-subsidiary 

accounts was developed from leading 

practices at IBM. 

IBM 

In 1994, IBM had decentralized 

financial management with 12 different 

accounting centers, different charts 

of accounts and varied accounting 

standards, resulting in a variety of “data 

flows.” As a result, IBM had difficulty 

managing its operations and cash flow 

because operating results were not 

known until 30 days after the end of the 

month. In fact, IBM cited reasons for its 

finance re-engineering effort analogous 

to the challenges Treasury faced: 

A lack of timely, reliable data existed 

to operate the business. Obstacles 

included tension between centralized 

and decentralized leadership, data 

inconsistency and effort spent on 

“chasing data” versus analysis. 

A protracted closing cycle, 

involving several handoffs with 

a commensurate data summary 


Appendix C 

at each step, made it difficult to 

“drill down” details supporting 

summarized data. 

Financial systems lacked the desired 

flexibility for efficient reporting 

and analysis due in large part to 

differences in hardware/software and 

multiple locations. 

In short, the IBM systems were 

not positioned to support centralized 

management processes, and the systems 

were becoming too expensive to support. 

IBM began a total overhaul of financial 

management in 1994, revising substantially 

the existing accounting environment. 

This took several years, starting 

with the development of a worldwide 

chart of accounts that included codes for 

country, business unit (type of business) 

and object class. Centralized business 

rules were also developed to prescribe 

how transactions were to be accounted 

for and reported. 

In 1997, IBM began to centralize by 

reducing regional accounting centers 

while giving managers access to data 

earlier and more frequently. By 2002, 

IBM had reduced data centers, made 

local data available within seven to nine 

days, released earnings in 15 rather than 

30-plus days and balanced intercompany 

receivables and payables within 30 days. 

A key to the consolidation process 

was the use of Hyperion software, 

considered the world’s largest and most 

complex Hyperion application at the 

time. It included special report applications, 

such as identifying unbalanced 

intercompany transactions, budgeting 

(comparing budget versus actual results) 

and business planning. Special accounting 

codes facilitated balancing intercompany 

transactions, and any unbalanced 

transactions outstanding longer than 30 

days were closely monitored. 

This approach — and the processes 

therein — became known as the “IBM 

standard,” and it enjoyed continuous 

support from top-level IBM officers. 

Looking back at the past 15 to 20 years, 

IBM interviewees said this support was 

critical to reinforcing the standard and 

providing the necessary resources. In 

fact, interviewees repeatedly used the 

word “discipline” in referring to the “IBM 

standard” and the numerous U.S. and 

international acquisitions IBM makes 

annually. These acquired companies 

must implement the “IBM standard” 

within six months, and a team at IBM 

headquarters stands ready to help them 

make the transition. From a reporting 

standpoint, subsidiary CFOs report 

directly to the IBM Headquarters CFO and 

indirectly to the subsidiary CEO. 

Current IBM corporate headquarters 

staff consists of a consolidation group 

and corporate financial team, each with 

30 people, and several small groups of 

about six people for external financial 

reporting (SEC, etc.), operations analysis 

and tax accounting. The centralization 

of accounting resulted in significant 

labor cost savings while substantially 

improving controls and shortening the 

closing process. Looking to the future, 

IBM is contemplating a migration to new 

software to configure a single corporate 

data warehouse to serve as the “trusted 

source” of financial information. 

Figure 3: Key Data for Entities Interviewed — 

Fortune 500 Rank/Rank Equivalent ($ Billions) 47 

Entity 

Fortune 500 

Revenue/Ranking 

Fortune 500 

Dollar Value of 

Assets/Ranking 

Fiscal 

Year End 

Date of “Clean” 

Auditors’ Report– 

Timeframe 

Maryland 48 $47.8/#51 $39.5/#112 6/30/2011 12/15/2011 – 5.5 mos. 

Massachusetts 49 $59.2/#43 $67.7/#71 6/30/2011 1/3/2012 – 6 mos. 

New York 50 $298.2/#3 $190.1/#27 3/31/2011 7/25/2011 – 3.8 mos. 

Pennsylvania 51 $81.0/#24 $86.9/#61 6/30/2011 12/12/2011 – 5.5 mos. 

Alcoa 52 $21.0/#123 $39.3 /#113 12/31/2011 2/16/2012 – 1.5 mos. 

IBM 53 $99.9/#18 $113.5/#50 12/31/2011 2/28/2012 – 2 mos. 

Marriott 54 $11.7/#210 $9.0/#311 12/30/2011 2/16/2012 – 1.5 mos. 

30 


Appendix C 

Interviews with Federal 

Government Officials 

We conducted separate interviews 

with OMB, Treasury, FMS and GAO 

officials on the front line of federal government 

financial management and the 

consolidation issue. All focused on issues 

related to process timing, resources and 

authority. 

The timing issue relates to the 

relatively short period given to consolidate 

and perform the audit. Both 

the FMS and GAO cited the 30-day time 

frame between agency submissions 

and audited CFS as a challenge. The 

FMS noted that analysis of any issue is 

virtually impossible given the consolidation 

of 35 major entities and 115 smaller 

ones. GAO noted it has less than 20 days 

to complete its audit of the consolidation 

process and resolve any issues. 

Exacerbating the time crunch is a lack 

of resources, mostly related to the FMS. 

One is the lack of staff to assist the FMS 

in the 30-day consolidation period. FMS 

officials specifically cited the strain on 

resources in this time frame and even 

suggested some sort of “surge” capacity 

to augment FMS staff during this period. 

GAO’s staff, which includes a small core 

team that works on the audit year round, 

has usually been augmented over the 

years during the later stages of the audit. 

We were told that augmenting FMS 

staff with agency financial reporting staff 

is difficult for the following reasons: 

Treasury does not have the authority 

to compel agencies to do so. What’s 

more, requiring agency staff to be 

available to augment FMS staff 

during the 30-day window — to 

perform reconciliations and other 

tasks needed to prepare auditable 

CFS — runs counter to the FMS’s 

reluctance to add any burden to 

agencies’ financial staffs. In fact, 

both the FMS and GAO pointed out 

that the FMS did not have a “big 

stick” to get agencies to comply with 

Treasury accounting requirements 

or with OMB-mandated reporting 

requirements. 

Agency staff work long hours 

to meet the 45-day time frame 

for audited agency financial 

statements. It is not uncommon for 

key agency staff to take some time 

off after November 15 through the 

extended Thanksgiving weekend 

or to immediately shift its attention 

away from the annual closing and 

audit to deal with budget issues 

such as “pass backs” or continuing 

resolutions, which generally take 

priority over issues related to 

financial statements. 

Thus, in addition to not having a 

surge capacity, Treasury does not have a 

knowledgeable staff available to answer 

questions or provide support for information 

requests from GAO. 

OMB considers the FMS to be the 

federal government’s “central financial 

data repository.” However, OMB noted 

that issues do not always get resolved 

or communicated because of the split 

responsibilities between OMB/OFFM and 

Treasury/FMS, and between the FMS and 

the agencies. Some examples follow: 

Treasury Fund Symbols changes are 

not always publicized to affected 

users. 

OMB and FMS efforts to improve the 

integrity of budgetary data reported 

by OMB and Treasury have not yet 

resulted in improved agency financial 

statements or financial audit process. 

The FMS publishes an annual 

receipt and outlay report (Combined 

Statement) by early December 

that neither the FMS nor OMB has 

cross-checked for data accuracy and 

agreement. 

OMB has pushed the FMS for 

agency SBRs to identify Treasury 

Fund Symbols that would 

facilitate reconciliations under the 

Intragovernmental Payment and 

Account System and, previously, 

the Online Payment and Account 

System. 

Finally, OMB did not see a potential 

solution in combining some aspect of 

OMB with Treasury. OMB, which falls 

within the Office of the President and 

informs the President on budget matters, 

is largely obligations-based while 

Treasury is largely cash-based. From a 

budget perspective, there seems to be 

little interest in the CFS based on GAAP. 

Public-Sector and 

Private-Sector 

Leadership Perspective 

Our discussion with the Honorable 

Paul O’Neill reflected his experience as 

the CEO of Alcoa as well as and his public 

service, including serving in the Bureau 

of the Budget (predecessor to the current 

OMB) and more recently as Secretary of 

the Treasury. 

Within 13 months, under Secretary 

O’Neill’s leadership, Alcoa was able close 

the books in three days from the previous 

14 to 21 days. Under his leadership at 

Treasury, it became the first cabinet-level 

agency to not only close its books but 

also to produce audited financial statements 

by November 15, 2002 — 45 days 

after the fiscal year close and two years 

before the accelerated date was to take 

effect under the GMRA. He made the 

following observations: 

The mandate must come from 

the top of the organization. If the 

leader has a keen interest and 

defines expectations, it will get 

done. Otherwise, audit findings will 

remain unresolved year after year. 

A short statement by the President 

that a “clean” auditors’ opinion is 

symbolic of good government and 

that’s why we need to get it would 

provide the impetus to move this up 

on the priority list. Having a driver 

or champion like the President, and 

OMB Director and Treasury Secretary 

behind a special task force could 

make this happen. 

There must be a systematic plan of 

attack — a clear game plan. 


Appendix C 

Aggressive timelines must be 

adopted and enforced. 

Systems need to be interoperable 

and user-friendly. 

Standardization — a set of business 

rules that are understood and 

enforced through a leadership 

structure — is a critical requirement. 

Data quality must be a priority. The 

organization should gather only the 

information needed for management 

and external reporting so there 

is no information overload and 

management receives what it needs 

in a useful form. 

Auditors should conduct parallel 

testing and not wait for the financial 

statements. 

On reflecting upon the current 

organizational structure of the federal 

government financial management, with 

the split function between Treasury and 

OMB, he noted that in 1966 the Bureau 

of the Budget implemented one budget 

planning system for everyone, and this 

became the “bible” for the analytic 

budget community. The same could be 

done today for financial management 

through a collaborative effort of the 

heads of Treasury and OMB, endorsed by 

the Comptroller General. 

Secretary O’Neill spoke of the current 

split functionality of OMB (budget and 

management) and Treasury (financial 

management). He noted that the former 

Bureau of the Budget had great analytical 

minds and deep connections to 

every federal agency, both remaining 

attributes of the budget side of today’s 

OMB. Treasury, he felt, appeared more 

removed and rather focused, and rightly 

so, on debt issuance and other fiscal 

policy issues. 

He noted that, in his government 

experience, career staff members want to 

participate in meaningful initiatives that 

show the best of government. They want 

to be led by positive reinforcement and 

do value-added work. They want to be 

part of something great, something that 

is a winner. They would enjoy moving to 

more critical thinking and analytical work 

rather than just inputting, repairing and 

aggregating data. 

32 


Appendix D: 

Abbreviations and Acronyms 

AGA — Association of Government 

Accountants. 

Agency — One of the approximately 

150 separate entities of the U.S. 

Government that submit financial data 

to the FMS for the CFS. 

ARP — New York State Agency 

Reporting Package, submitted for the 

March 31 fiscal year close of the State 

to the New York Office of the State 

Comptroller. 

ARRA — American Recovery and 

Reinvestment Act of 2009 (Public Law 

111-5, February 17, 2009). 

ATDA — Accountability of Tax Dollars 

Act of 2002 (Public Law 107-289, 116 

Stat. 2049, November 7, 2002). 

BAPA — Budget and Accounting 

Procedures Act of 1950 (Public Law 

81-764, 64 Stat. 832, September 12, 

1950). 

BFM — Bureau of Financial Management 

for the Commonwealth of Pennsylvania. 

BPD — Treasury OFAS’s Bureau of the 

Public Debt. 

CAFR — Comprehensive Annual 

Financial Report, issued by state and 

local governments in the United States. 

CAS — Central Accounting System for 

the state of New York. 

CFO — Chief Financial Officer (some 

federal agencies have a different title 

for this position). 

CFO Act — The Chief Financial Officers 


Stat. 2838, November 15, 1990). 

CFS — Consolidated financial statements 

of the federal government prepared 

pursuant to accounting standards 

promulgated by the FASAB and audited 

by GAO. 

Clinger-Cohen Act — Clinger-Cohen Act 

of 1996 (Public Law 104-106, div. E, 110 

Stat. 186 and 679, February 10, 1996). 

Closing Package — Periodic, usually 

annual, summary of a subordinate 

government unit’s financial data to its 

central financial management function 

to prepare consolidated financial 

statements. 

Combined Statement — Combined 

Statement of Receipts, Outlays, and 

Budgets, prepared by the FMS. Updated 

throughout the fiscal year from SF-133s 

and SF-224s submitted by agencies, 

with a final Combined Statement issued 

in late fall for the previous fiscal year. 

CPAG — AGA’s Corporate Partners 

Advisory Group. 

CUNY — City University of New York. 

Defense — U.S. Department of Defense. 

FACTS I and II — Federal Agencies’ 

Centralized Trial-Balance System. 

FASAB — Federal Accounting 

Standards Advisory Board, the accounting 

standard-setting entity recognized 

by the federal government and 

American Institute of CPAs to promulgate 

accounting standards for the 

federal government and its agencies. 

FASB — Financial Accounting 

Standards Board, the recognized 

accounting standard-setting entity for 

publicly held, private and for not-forprofit 

entities. 

Federal government — The U.S. 

Government. 

FFMIA — Federal Financial 

Management Improvement Act of 

1996 (Public Law 104-208, div. A, Sec. 

101(f), Title V111 Stat. 3009, 3009-389, 

September 30, 1996). 

FISMA — Federal Information Security 

Management Act of 2002 (Public Law 107- 

347, 116 Stat. 2899, December 17, 2002). 

FMFIA — Federal Managers’ Financial 

Integrity Act of 1982 (Public Law 97-225, 

96 Stat. 814, September 8, 1982). 

FMS — Financial Management Service 

of the Treasury OFAS. 

FMSNY — Financial Management 

System of a New York state agency. 

FR — Annual Financial Report of the 

U.S. Government — 2011 and earlier 

FRs available at www.fms.treas.gov/fr/ 

index.html and on OMB and GAO websites. 

The 2011 FR, on pages 203–204, 

lists the websites of the 35 largest 

federal government agencies. 


Appendix D 

GAAP — Generally accepted accounting 

principles, which, for the federal 

government and its agencies, are 

promulgated by the FASAB. 

GAO — U.S. Government 

Accountability Office (formerly the 

General Accounting Office). 

GASB — Governmental Accounting 

Standards Board, the recognized 

accounting standard-setting entity for 

the approximately 90,000 U.S. state 

and local governmental units and their 

instrumentalities and components. 

GFOA — Government Financial Officers 

Association, a professional organization 

of state and local governmental 

financial officials. 

GFRS — Governmentwide Financial 

Reporting System used by the FMS 

to aggregate data from 150 reporting 

agencies to produce the CFS. 

GISRA — Government Information 

Security Reform Act of 2000 (Public Law 

106-398, October 30, 2000). 

GMRA — Government Management 

Reform Act of 1994 (Public Law 103-356, 

108 Stat. 3410, October 13, 1994). 

GPRA — Government Performance and 

Results Act of 1993 (Public Law 103-62, 

107 Stat. 285, August 3, 1993). 

GSE — Government-Sponsored 

Enterprise. 

GTAS — Governmentwide Treasury 

Account Symbol Adjusted Trial Balance 

System. Proposed system under development 

to replace FACTS I and FACTS 

II, scheduled for use in December 2012 

(end of first quarter of fiscal year 2013). 

Interior — U.S. Department of the 

Interior. 

IPERA — Improper Payments 

Elimination and Recovery Act of 2010 

(Public Law 111-204, July 22, 2010). 

IPIA — Improper Payment Information 

Act of 2002 (Public Law 107-300, 

November 26, 2002). 

JFMIP — Joint Financial Management 

Improvement Program. 

NYOSC — New York Office of the State 

Comptroller. 

NYSE — New York Stock Exchange. 

OFAS — U.S. Treasury Department 

Office of the Fiscal Assistant Secretary. 

OFFM — OMB’s Office of Federal 

Financial Management. 

OMB — U.S. Office of Management and 

Budget within the Executive Office of 

the President. 

Reconciliation Statement — 

Reconciliation of Net Operating Cost 

and Unified Budget Deficit. 

SEC — U.S. Securities and Exchange 

Commission. 

Statement of Changes in Cash — 

Statement of Changes in Cash Balance 

from Unified Budget and Other 

Activities. 

SUNY — The multi-location entities 

constituting the State University of New 

York. 

TARP — Troubled Asset Relief Program, 

U.S. Government Treasury Department 

plan to aid banks and other financial 

institutions. 

TFM — Treasury Financial Manual. 

Transparency Act — Federal Funding 

and Transparency Act of 2006 (Public 

Law 109-282, September 26, 2006). 

Treasury — U.S. Department of the 

Treasury. 

U.S. Government — The combined 

federal government’s three branches — 

executive, legislative and judicial. 

USSGL/SGL — Uniform accounts 

used throughout federal government 

agencies to achieve consistency in 

financial statements among agencies 

and between agencies and the federal 

government CFS. 

34 


Appendix E: AGA Treasury 

Review Scope and Methodology 

Research Project — Summary of 

Project Meetings 

Our primary and objective research 

yielded conclusions and recommendations 

regarding the strategy and actions 

for improving the Closing Package 

reconciliation processes in the short 

term, improving the CFS compilation 

processes in the long term and targeting 

key stakeholders. 

Interviews with key process stakeholders 

enabled the research team to 

obtain a full understanding of (1) the 

process by which the OFAS’s Financial 

Management Service collects and generates 

agency budgetary and financial 

data and consequently prepares the 

CFS, (2) the nature of GAO’s audit findings 

and (3) recent and ongoing initiatives 

to address those findings. 

Marriott Corporation 

Carl T. Berquist, Executive Vice 

President and Chief Financial Officer 

Cindy Braak, Vice President, Global 

Business Finance 

Kevin M. Kimball, Executive Vice 

President 

Informational interviews were 

conducted with four states and two 

private-sector corporations to ascertain 

best practices and benchmarks regarding 

how they compile and prepare 

consolidated financial statements. 

Similar interviews were conducted 

with officials at Treasury, OMB, GAO, 

federal agencies and former Treasury 

Secretary O’Neill. Our questions focused 

on how the interviewees maintain data 

integrity through reconciliations and 

other internal controls when reporting 

at different levels and on different bases 

of accounting, such as budgetary and 

accrual financial records. 

The names of the interviewees and 

their organizations follow: 

IBM Corporation 

Steven B. Watson, Partner-Federal 

Financial Management/Global 

Business Services 

Timothy Mulvey, Financial Statement 

Group 

Stephanie Nash, Financial Statement 

Group 

Jeffrey Petzold, Financial Statement 

Group 

U.S. Department of 

the Treasury 

Richard L. Gregg, Fiscal Assistant 

Secretary 

Mark A. Reger, Deputy Assistant 

Secretary for Accounting Policy 

Ann Davis, CGFM, CPA, Senior Staff 

Accountant 

Patricia Cappello, CGFM, CPA, Senior 

Staff Accountant 

R. Scott Bell, CGFM, Senior Staff 

Accountant 

Wanda Rogers, Deputy 

Commissioner, Financial 

Management Service 

David Rebich, Assistant 

Commissioner, Governmentwide 

Accounting, Financial Management 

Service 

Julie Edwards, Deputy Assistant 

Commissioner, Governmentwide 

Accounting, Financial Management 

Service 

Colleen Graham, Supervisory 

Accountant, Financial Management 

Service 

Holden Hogue, Financial & Budgetary 

Report Directorate, Financial 

Management Service 


Appendix E 

U.S. Government 

Accountability Office 

Robert F. Dacey, Chief Accountant 

Gary T. Engel, Director, Financial 

Management and Assurance (FMA) 

Larry Malenich, Director, FMA 

Paula Rascona, Director, FMA 

Arkelga Braxton, Assistant Director, 

FMA 

Matthew Zaun, Senior Auditor, FMA 

Financial Management 

Service 

Senita Beverly, Director for 

Cash Accounting and Reporting 

Directorate 

Karen Dasuki, Director, Financial 

Reports Division 

Jeffrey Hoge, Managing Director of 

Operations 

Karen Stewart, Manager, Cash 

Control Branch 

Gary Ward, Senior Staff Accountant 

OMB 

Chris Fairhall, Budget Concepts 

Branch 

Budget Officers Advisory Council, 

includes 24 members from various 

federal agencies 

Paul O’Neill, Former 

Treasury Secretary 

Office of Financial 

Innovation and 

Transformation (OFIT) 

Andrew Ganahl, Initiative Leader 

Adam Goldberg, Executive Architect 

John Hill, Director 

House of Representatives 

Committee on Oversight 

and Government Reform 

Jennifer Hemingway, Senior Policy 

Staff Member (Majority) 

Tegan Millspaw, Research Analyst 

(Majority) 

Mark Stephenson, Senior Policy 

Advisor (Minority) 

SB and Company, LLC, 

Auditors for the State of 

Maryland 

Graylin Smith and William Seymour, 

Engagement Partners for Maryland 

audit team 

Commonwealth of 

Massachusetts 

Martin J. Benison, Comptroller of the 

Commonwealth 

Howard Merkowitz, Deputy 

Comptroller 

B.J. Triveti, Director, Financial 

Reporting Bureau 

Commonwealth of 

Pennsylvania Bureau of 

Financial Management 

(BFM) 

Michael Burns, BFM Director 

Lauren Dungan, BFM Assistant 

Director 

New York State Office of 

the State Comptroller 

Suzette Baker, CPA, CGFM, Assistant 

Director, Bureau of Financial 

Reporting 

David Hasso, CPA, CGFM, Executive 

Director, Bureau of Financial 

Reporting 

Tim Riley, Accountant, Bureau of 

Financial Reporting 

AGA Research Team meetings were 

held at AGA’s office in Alexandria, VA, 

every Wednesday from February 8, 2012, 

through June 6, 2012. 

36 


Endnotes 

1. Treasury’s process could also not 

ensure that the Statements of Operations 

and Changes in Net Position were consistent 

with underlying agency financial 

statements and other financial data. 

2. Chief Financial Officers (CFO) Act 

of 1990 (Public Law 101-576, 104 Stat. 

2838, November 15, 1990). 

3. The Budget and Accounting 


81-784, 64 Stat. 832, September 12, 1950). 

4. www.fms.treas.gov/tfm/vol1/ 

v1p2c100.html 

5. www.presidency.ucsb.edu/ws/ 

index.phppid+13617#axzz1uYzjyASs 

6. The Federal Managers’ Financial 


96 Stat. 814, September 8, 1982). 

7. “The CFO Act Turns 20 Years Old: 

As We Blow Out the Candles, Where Are 

We Today and Where Do We Go From 

Here,” by Jeffrey C. Steinhoff, CGFM, 

CPA, CFE, and John R. Cherbini, MBA, 

CGFM, CPA, AGA, Journal of Government 

Financial Management, Winter 2010. 

8. GAO, The Chief Financial Officer 

Act — A Mandate for Federal Financial 

Management Reform, 1991. 

9. Government Management Reform 


Stat. 3410, October 13, 1994). 

10. The Accountability of Tax Dollars 


Stat. 2049, November 7, 2002). 

11. Treasury’s Bureau of Government 

Financial Operation, now known as the 

Financial Management Service (FMS) 

began producing a prototype CFS in 1973. 

12. 2011 Financial Report of the United 

States Government, Statement of the 

Comptroller General of the United States 

and the U.S. Government Accountability 

Office’s Auditor’s Report, December 12, 

2011 (available at www.fms.treas.gov/fr/ 

index.html, and OMB and GAO websites). 

13. 1997 Financial Report of the 

United States Government. 

14. Appendix A1, p. 228, Audit Report 

on the Consolidated Financial Statement 

of the U.S. Government, FY 2011, 

December 12, 2012. 

15. FACTS II — the Treasury Federal 

Agencies’ Centralized Trial-Balance System 

— is the system through which agencies 

submit the budgetary information required 

for the SF-133, the Year-End Closing 

Statement (FMS 2108), and much of the 

initial data that will appear in the prior year 

column of the Program and Financing 

Schedule of the President’s Budget. 

16 The Combined Statement is 

compiled from SF-133s and SF-224s 

submitted by agencies to Treasury 

throughout the year. 

17. Financial Reporting in a Dynamic, 

Digital World: An Overview of AGA’s 

2010 Executive Session, July 10, 2010, 

Orlando, FL. 

18. Building a Foundation for 

Confidence in Government: Moving from 

Theory to Action in an Era of Scarce 

Resources, July 10, 2011, Atlanta, GA. 

19. Financial Reporting Model Task 

Force Report to the FASAB, December 

22, 2010. 








21. FY 2004 Financial Report of the 

United States Government, Government 

Accountability Office Comptroller 

General’s Statement, December 14, 2004. 

22. FY 2011 Financial Report of the 

United States Government, Government 

Accountability Office Comptroller 

General’s Statement, December 12, 2011. 




24. At the time the JFMIP Steering 

Committee was abolished in 2006, the 

members representing the principals 

were the Deputy Controller of OFFM 

in OMB, Treasury’s Deputy Fiscal 

Assistant Secretary, GAO’s Managing 

Director for Financial Management and 

Assurance, and OPM’s CFO. 





Endnotes 

26. www.fms.treas.gov/tfm/vol1/ 

v1p2c100.html 

27. www.presidency.ucsb.edu/ws/ 

index.phppid+13617#axzz1uYzjyASs 

28. Federal Managers’ Financial 


96, Stat. 814, September 8, 1982). 

29. GAO, Managing the Cost of 

Government — Building an Effective 

Financial Management Structure, GAO/ 

AFMD-85-35 and 35A, February 1985. 








31. GAO, The Chief Financial Officer 

Act — A Mandate for Federal Financial 

Management Reform, 1991. 

32. Government Management 

Reform Act of 1994 (Public Law 103-356, 

108 Stat. 3410, October 13, 1994). 

33. The Accountability of Tax Dollars 


Stat. 2049, November 7, 2002). 

34. Treasury’s Bureau of Government 

Financial Operation, now known as the 

Financial Management Service (FMS) 

began producing prototype CFS in 1973. 

35. The Federal Financial Management 

Improvement Act of 1996 (Public Law 104- 

208, div. A., sec. 101(f), title VIII Stat. 3009, 

3009-389, September 30, 1996). 

36. The Government Performance 

and Results Act of 1993 (Public Law 103- 

62, 107 Stat. 285, August 3, 1993). 

37. The Improper Payments 

Information Act of 2002 (Public Law 

111-204, November 26, 2002). 

38. The Improper Payments 

Elimination and Recovery Act of 2010 

(Public Law 107-300, July 22, 2010). 

39. The Federal Funding and 

Transparency Act of 2006 (Public Law 

109-282, September 26, 2006). 

40. The American Reinvestment and 

Recovery Act of 2009 (Public Law 111-5, 

February 17, 2009). 

41. The Clinger-Cohen Act of 1996 

(Public Law 104-106, div. E, 110 Stat. 186, 

679, February 10, 1996). 

42. The Government Information 

Security Reform Act of 2000 (Public Law 

106-398, October 30, 2000). 

43. The Federal Information Security 

Management Act of 2002 (Public Law 107- 

347, 116 Stat. 2899, December 17, 2002). 

44. “The Government Management 

Reform Act of 1994: A Retrospective 

of Achievements and Remaining 

Challenges,” by Jeffrey C. Steinhoff, 

CGFM, CPA, CFE and Robert F. Dacey, JD, 



45. 2011 Financial Report of the United 

States Government, Statement of the 

Comptroller General of the United States 

and the U.S. Government Accountability 

Office’s Auditor’s Report, December 12, 

2011 (available at www.fms.treas.gov/fr/ 

index.html, and OMB and GAO websites). 

46. From the GFOA mission statement: 

“The purpose of the GFOA is 

to enhance and promote the professional 

management of governments 

for the public benefit by identifying 

and developing financial policies and 

best practices and promoting their use 

through education, training, facilitation 

of member networking, and leadership.” 

47. Fortune, May 23, 2011, Vol. 163, 

Number 7. Generally these are fiscal 

year 2010 data (next ranking due in 

May 2012). For states, data are 2011 

fiscal years; their “ranking” is where 

they would appear if the Fortune 500 

included state governments. 

48. www.marylandtaxes.com (2011 

CAFR) — data exclude state pension plans. 

49. www.mass.gov/osc/publicationsand-reports/financial-reports/cafrreports 

(2011 CAFR) — data exclude 

state pension plans. 

50. www.osc.state.ny.us.finance/ 

index (2011 CAFR) — data exclude state 

pension plans. 

51. www.budget.state.pa.us (2011 

CAFR) — data exclude state pension plans. 

52. www.alcoa.com. Alcoa was not 

interviewed per se but Paul O’Neill, its 

former CEO, was interviewed. 

53. www.ibm.com 

54. www.marriott.com 

38 


AGA CPAG Research Reports 

No. 1, March 2005: 

No. 2, July 2005: 

No. 3, November 2005: 

No. 4, April 2006: 

No. 5, June 2006: 

No. 6, June 2006: 

No. 7, February 2007: 

No. 8, March 2007: 

No. 9, May 2007: 

No. 10, April 2007: 

No. 11, May 2007: 

No. 12, June 2007: 

No. 13, June 2007: 

No. 14, January 2008: 

No. 15, July 2008: 

No. 16, September 2008: 


No. 18, January 2009: 

No. 19, February 2009: 

No. 20, March 2009: 

No. 21, June 2009: 



No. 24, June 2010: 

No. 25, July 2010: 


No. 27, June 2011: 


No. 29, December 2011: 

No. 30, May 2012: 

Audit Federal Financial Controls: Sooner Rather than Later 

Financial Management Shared Services: A Guide for Federal Users 

Trends in Technology 

The Federal Purchase Card: Use, Policy and Practice 

Challenges in Performance Auditing: How a State Auditor with 

Intriguing New Performance Authority is Meeting Them 

PAR—The Report We Hate to Love 

The State Purchase Card: Uses, Policies and Best Practices 

Federal Real Property Asset Management 

Should State and Local Governments Strengthen Financial Controls 

by Applying SOX-Like Requirements 

Process-Based Financial Reporting 

The State Travel Card—Uses, Policies and Best Practices 

Trends in Technology—2007 Review 

The Federal Travel Card—Uses, Policies and Best Practices 

21st Century Financial Managers—A New Mix of Skills and Educational Levels 

SAS 70 Reports: Are they Useful and Can They Be Improved 

XBRL and Public Sector Financial Reporting: Standardized Business Reporting: 

The Oregon CAFR Project 

Characteristics of Effective Audit Committees in Federal, State and Local Governments 

Grants Management: How XBRL Can Help 

Procuring Audit Services in Government: A Practical Guide to Making the Right Decision 

Performance-Based Management 

Trends in Technology—2009 Review 

Managerial Cost Accounting in the Federal Government: 

Providing Useful Information for Decision Making 

State and Local Governments’ Use of Performance Measures to Improve Service Delivery 

Creating an Interactive Single Audit Database 

Redefining Accountability: Recovery Act Practices and Opportunities 

The Maturity of GRC in the Public Sector: Where Are We Today Where Are We Going 

Trends in Technology: 2011 Report, The Information Explosion 

Improper Payments: Not Just the Purview of the CFO Anymore 

Using Performance Information to Drive Performance Improvement 

Leveraging Data Analytics in Federal Organizations 


Association 

of Government 

Accountants 

2208 Mount Vernon Avenue 

Alexandria, VA 22301 

703.684.6931 

800.AGA.7211 

703.548.9367 (fax) 

www.agacgfm.org 

agamembers@agacgfm.org

Government-wide Financial Reporting - AGA

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