Significant Financial Management and Fiscal Challenges Reflected U.S. Government's 2011 Financial Report

WASHINGTON (December 23, 2011) - The U.S. Government Accountability Office (GAO) cannot render an opinion on the 2011 consolidated financial statements of the federal government, because of widespread material internal control weaknesses, significant uncertainties, and other limitations.

As was the case in 2010, the main obstacles to a GAO opinion on the accrual- based consolidated financial statements were: (1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable, (2) the federal governments inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal governments ineffective process for preparing the consolidated financial statements.

While the vast majority of the 24 CFO Act Agencies received unqualified opinions, DOD and the Department of Homeland Security (DHS) have consistently been unable to receive such audit opinions. Efforts are underway at both agencies to address this situation. At DOD, following years of unsuccessful financial improvement efforts, the Comptroller established the Financial Improvement and Audit Readiness Directorate to develop, manage, and implement a strategic approach for addressing weaknesses and for achieving auditability. DHS was able to attain a qualified audit opinion on its fiscal year 2011 Balance Sheet and Statement of Custodial Activity for the first time since 2003. This is a significant achievement for DHS, said Gene Dodaro, Comptroller General of the United States and head of the GAO.

Dodaro added, But even though progress has been made, our report illustrates that much work remains to be done to improve federal financial management. Treasury is undertaking both short-term and long-term initiatives to improve intragovernmental imbalances. Resolving this problem will also require a strong and sustained commitment by federal entities.

In addition, GAO was unable to render an opinion on the 2011 Statement of Social Insurance and the 2011 Statement of Changes in Social Insurance Amounts because of significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth. The consolidated financial statements discuss these uncertainties, which relate to reductions in physician payment rates and to productivity improvements, and provide an alternative projection to illustrate the uncertainties.

Dodaro also cited material weaknesses involving an estimated $115.3 billion in improper payments, information security across government, and tax collection activities.

The comprehensive fiscal projections presented in the 2011 Financial Report show that absent policy changes  the federal government continues to face an unsustainable long-term fiscal path, Dodaro said. While the Budget Control Act of 2011 improved the outlook, it did not fundamentally change the longer-term path over the next few decades. Dealing with the federal governments longer-term fiscal challenges will require sustained attention and difficult decisions. These fiscal challenges further highlight the need for the Congress, the administration, and federal managers to have reliable and complete financial and performance information both for individual federal entities and for the federal government as a whole.

Dodaro also commended the commitment and professionalism of the Inspectors General across government who are responsible for auditing the annual financial statements of individual federal entities each year.

The fiscal year 2011 Financial Report of the United States Government, which includes financial information from the 24 major federal departments and agencies along with GAOs audit report, is being released today by the Treasury Department. The report is also available on GAOs web site at http://www.gao.gov/financial.html.

For more information, contact GAOs Office of Public Affairs, at (202) 512-4800.

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The Government Accountability Office, known as the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities. GAO also works to improve the performance of the federal government and ensure its accountability to the American people. The agency examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAOs commitment to good government is reflected in its core values of accountability, integrity, and reliability.