September 30, 2022

GAO Finds New Flaws in Federal Financial Accounting – MeriTalk

The Government Accountability Office (GAO) has released a new set of recommendations on how the U.S. government can better compile official financial statements — an issue the GAO has been raising with federal officials for a quarter century with varying success.

In a Management report released August 16, the GAO said it discovered four new “internal control gaps” in the process the Treasury Department, in coordination with the Office of Management and Budget (OMB), used to prepare the financial statements of the government’s 2021 fiscal year. .

The first gap stemmed from the American Rescue Plan Act – the $1.9 trillion COVID-19 relief bill. GAO auditors found that the Treasury failed to properly account for “unusual transactions or events” such as changes in legislation, including part of the bill that provided payments to multi-employer pension plans.

The other three issues cited were insufficient Treasury procedures to assess anomalies in the government’s financial statements; ensure that “significant accounting policies” have been appropriately disclosed; and explaining the “significant fluctuations” in certain numbers.

As a result, according to the GAO, the US government cannot “reasonably assure” that its own financial statements are complete and comply with generally accepted accounting principles. The statements, contained in a larger financial report each year, detail revenues, costs, assets, liabilities and “long term durabilityof federal finances.

To address the remaining issues, the GAO recommended that the Treasury take five executive actions, including improving its policies and procedures to account for unusual events such as legislative changes. The Treasury agreed with the recommendations.

The question of whether the U.S. government presents its finances fairly and completely to the public has occupied GAO accountants since 1997. The agency’s first audit of the government’s financial statements that year found “some material weaknessesthat persisted and still prevent the GAO from even “expressing an opinion” on the statements.

In the latest report, the GAO said the Treasury had resolved only two of 12 open recommendations to correct “control deficiencies” identified in previous years. The other 10 previous gaps remain unresolved – and the five new ones will now be added to those.

The five new recommendations for executive action state that the Treasury should:

  • “Improve existing policies and procedures to reasonably ensure appropriate accounting and reporting for significant and unusual transactions or events, such as changes in legislation”;
  • “Improve uncorrected misstatement analysis (procedures) to identify all known uncorrected misstatements, by line item and across all relevant current and prior year financial statements”;
  • “Improve (the procedures) for analyzing uncorrected misstatements to take into account the effect of uncorrected misstatements by line item and on all relevant current and prior year financial statements.”
  • “Improve existing procedures to reasonably ensure that significant accounting policies are properly disclosed”; and
  • “Enhance existing policies and procedures to support…disclosure decisions related to explaining significant fluctuations and disaggregating line item components in the scorecards.”