Audit of the U.S. Government's Consolidated Financial Statements
This audit report pertains to the Consolidated Financial Statements (CFS) of the U.S. Government and covers topics such as background information, results of the FY 2021 CFS audit, and details on how the CFS is audited. The audit includes an analysis of accrual-based financial statements and sustainability financial statements, providing insights into the government's financial health and long-term fiscal projections.
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Audit of the U.S. Governments Consolidated Financial Statements Dawn B. Simpson, Director Government Accountability Office May 26, 2022 2022 CIGIE/GAO Financial Statement Audit Conference Page 1
Topics Background Results of FY 2021 CFS Audit How we audit the CFS FY 2022 CFS Audit Page 2
Background The Consolidated Financial Statements of the U.S. Government (CFS) are included in the annual Financial Report of the United States Government Understanding the Financial Report of the U.S. Government, GAO-18-239SP (Feb 2018) About 160 federal entities consolidated 40 significant entities Two types of financial statements: accrual-based and sustainability Page 3
Background Accrual-based CFS Statement of Net Cost (SNC) Statement of Operations and Changes in Net Position (SOCNP) Reconciliation of Net Operating Cost and Budget Deficit (Recon Stmt) Statement of Changes in Cash Balance from Budget and Other Activities (Cash Stmt) Balance Sheet Recon Statement and Cash Statement are only at the CFS level Page 4
Background Sustainability Financial Statements Statement of Long-Term Fiscal Projections (SLTFP) Statement of Social Insurance (SOSI) Statement of Changes in Social Insurance Amounts (SCSIA) Statement of Long-Term Fiscal Projections is only at the CFS level 4 components present social insurance information SSA (Social Security), HHS (Medicare/Medicaid), RRB (Railroad Retirement), DOL (Black Lung) Page 5
Results of FY 2021 CFS Audit FY21 Financial Report of the U.S. Government, GAO-21-105122 (February 17, 2022) GAO Independent Auditor s Report Page 6
Results of FY 2021 CFS Audit Disclaimer of opinion on accrual-based CFS 7 material weaknesses in internal control contributed to disclaimer Key significant component entity audit results: 34 entities with unmodified opinions DOD and SBA with disclaimers DOL with qualified General Fund and Security Assistance Accounts unaudited Page 7
Results of FY 2021 CFS Audit Disclaimer of opinion on sustainability financial statements Key significant component entity audit results: HHS disclaimer on SOSI and SCSIA SSA unmodified opinion on SOSI and SCSIA Scope limitations, including management representations Ineffective internal control over financial reporting 2 additional material weaknesses 3 significant deficiencies Tests of compliance limited by material weaknesses and scope limitations Page 8
Results of FY 2021 CFS Audit Three emphasis of matters COVID-19 pandemic response Long-Term Fiscal Challenges Equity Investments in Fannie Mae and Freddie Mac Improvements CFS preparation process DOD VA Page 9
How We Audit the CFS Accrual-based CFS Anticipate disclaimer All or most of the three major impediments expected to exist Serious financial management problems at DOD Inability to adequately account for intragovernmental activity and balances between federal entities Weaknesses in the CFS preparation process 2 objectives Perform those audit procedures that, in our judgment, are feasible and reasonable given the disclaimer Build knowledge for future audits Page 10
How We Audit the CFS Accrual-based CFS (cont) Focus areas Status of material weaknesses and other prior year issues CFS preparation process Governmentwide risks of material misstatement Changes in component level audit work Implementation of new accounting standards Changes in the CFS, including notes, RSI, other information Page 11
How We Audit the CFS Sustainability Financial Statements Anticipate disclaimer Significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, expected to exist Material weakness related to the budget deficit (which affects the SLTFP) expected to exist Approach Review and use component auditor's work at SSA and HHS for SOSI and SCSIA Monitor significant uncertainties and material weakness Page 12
How We Audit the CFS Planning Identify significant components currently 40, consistent with Treasury/OMB's identification Non significant only contribute 1% of net cost Use the work of component auditors for 37 significant components Audit 3 significant components FDIC, SEC, and General Fund Audit portions of Department of the Treasury Federal Debt, IRS, and TARP Page 13
How We Audit the CFS Planning (cont) Communicate with significant component auditors Request audit documentation Request performance of specific audit procedures Use planning PBCA items from component auditors Entity profiles update our understanding of the entities Materiality amounts review to determine any effects on the CFS audit Risks of material misstatement identify risks by CFS line items, determine if any new risks Status reports review for any issues affecting the CFS audit Page 14
How We Audit the CFS Planning (cont) Attend audit status meetings of certain significant components Obtain understanding of changes to the CFS preparation process Implementation of new accounting standards Changes in the CFS, including notes, RSI, other information Corrective actions to address deficiencies Page 15
How We Audit the CFS Year-end Assess the reporting entity (consolidation entities, disclosure entities, related parties) Review Fiscal Service documentation of procedures performed and conclusions Review PBCA items from significant component auditors assessing changes to the component s reporting entity from the prior year Page 16
How We Audit the CFS Year-end (cont) Balance Sheet, SNC, SOCNP, and related notes, RSI, other information (includes amounts and wording) Verify supported by significant component financial statements prior to eliminating intragovernmental Review Fiscal Service documentation tracing, JVs, uncorrected amounts Review PBCA items from significant component auditors related to reclassification and COVID note Perform additional tracing procedures Review Fiscal Service's preparation procedures For SNC, review allocations at the CFS level Page 17
How We Audit the CFS Year-end (cont) Recon Stmt and Cash Stmt Review Fiscal Service's preparation procedures Review BAR note (PBCA) from significant component auditors SLTFP, note, and RSI Review OMB s preparation procedures and projections SOSI, SCSIA, note, and RSI Verify supported by significant component financial statements Review Fiscal Service documentation Perform tracing Page 18
How We Audit the CFS Year-end (cont) Intragovernmental activity and balances Review Fiscal Service s monitoring of elimination differences and JVs Review PBCA items from significant component auditors Review JVs posted at the consolidated level Treaties and international agreements Perform procedures on corrective actions Review PBCA items from significant component auditors Page 19
How We Audit the CFS Year-end (cont) Review significant component auditor reports Analyze opinions on financial statements Aggregate material weaknesses and significant deficiencies by CFS line items/areas Use PBCA item providing additional information Discussions with component auditors Analyze non-compliances for significance at CFS level Analyze emphasis and other matters paragraphs Review entity auditor s Audit Summary Memo (PBCA) for consistency with auditor s report Page 20
How We Audit the CFS Year-end (cont) Review final significant component auditor status reports for any issues affecting the CFS audit Prepare FAM reporting phase documents using PBCA items from significant component auditors Management representation letters Legal letters Summaries of Uncorrected Misstatements Summaries of Corrected Misstatements Overall analytical procedures Updated materiality amounts Page 21
How We Audit the CFS Year-end (cont) Review Financial Report drafts Supported by significant component financial reports Explanations for significant variances from prior year Support for new information Determine conclusions for the CFS Page 22
FY 2022 CFS Audit PBCA list for significant component auditors includes new requests related to Loans receivable and loan guarantees (OMB A-136 Note 8, N & P) Audit exposure Implementation of SFFAS 54, Leases Internal control findings as of 9/30/22 for calendar year-end entities SAA undergoing audit Implementation of SFFAS 59, Land OMB A-136 new requirements Page 23
Support of Federal Financial Community Thank you! Page 24
Contact Information Dawn B. Simpson Director Financial Management and Assurance U.S. Government Accountability Office SimpsonDB@gao.gov William E. Boutboul Assistant Director BoutboulW@gao.gov Joseph P. O Neill Assistant Director OneillJ@gao.gov LaDonnaTowler Assistant Director TowlerL@gao.gov Carolyn M. Voltz Assistant Director VoltzC@gao.gov Page 25