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Preparing the Consolidated Financial Statements

While further progress was demonstrated in fiscal year 2010, the federal government continued to have 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 GAAP.14 For example,

Treasury’s process did not ensure that the information in certain of the accrual-based consolidated financial statements was fully consistent with the underlying information in 35 significant federal entities’ audited financial statements and other financial data.

To make the fiscal years 2010 and 2009 consolidated financial statements balance, Treasury recorded net increases of $0.8 billion and $17.4 billion, respectively, to net operating cost on the Statement of Operations and Changes in Net Position, which it labeled “Unmatched transactions and balances.”15 Treasury recorded an additional net $3.8 billion and $8 billion of unmatched transactions in the Statement of Net Cost for fiscal years 2010 and 2009, respectively. Treasury is unable to fully identify and quantify all components of these unreconciled activities.

Treasury’s reporting of certain financial information required by GAAP continues to be impaired, and will remain so until federal entities, such as DOD, can provide Treasury with complete and reliable information required to be reported in the consolidated financial statements.

A detailed discussion of additional control deficiencies regarding the process for preparing the consolidated financial statements can be found on pages 240 through 243 of the Financial Report.

During fiscal year 2010, Treasury, in coordination with OMB, continued implementing corrective action plans and made progress in addressing certain internal control deficiencies we have previously reported regarding the process for preparing the consolidated financial statements. Resolving

14Most of the issues we identified in fiscal year 2010 existed in fiscal year 2009, and many have existed for a number of years. Most recently, in July 2010, we reported the issues we identified to Treasury and OMB and provided recommendations for corrective action in GAO, Management Report: Improvements Needed in Controls over the Preparation of the U.S. Consolidated Financial Statements, GAO-10-757 (Washington, D.C.: July 30, 2010).

15Although Treasury was unable to determine how much of the unmatched transactions and balances, if any, relate to net operating cost, it reported this amount as a component of net operating cost in the consolidated financial statements.

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