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Addressing Impediments to an Opinion on the Accrual-Based Consolidated Financial Statements

Improving Financial Management at DOD

These other material weaknesses were the federal government’s inability to

determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce improper payments,9 identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and effectively manage its tax collection activities.

Also, many of the CFO Act agencies continue to struggle with financial systems that are not integrated and do not meet the needs of management for reliable, useful, and timely financial information. Often, agencies expend major time, effort, and resources to develop financial information that their systems should be able to provide on a daily or recurring basis.

Three major impediments continued to prevent us from rendering an opinion on the U.S. government’s accrual-based consolidated financial statements: (1) serious financial management problems at DOD that have prevented DOD’s financial statements from being auditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. Additional impediments, such as certain entities’ fiscal year 2010 financial statements that, as of the date of our audit report, received disclaimers of opinion or were not audited, also contributed to our inability to render an opinion on the U.S. government’s accrual-based consolidated financial statements. Extensive efforts by DOD and other entity officials and cooperative efforts between entity chief financial officers, Treasury officials, and Office of Management and Budget (OMB) officials will be needed to resolve these obstacles to achieving an opinion on the U.S. government’s accrual-based consolidated financial statements.

Given DOD’s size and complexity, the resolution of its serious financial management problems is essential to achieving an opinion on the U.S. government’s consolidated financial statements. Reported weaknesses in DOD’s financial management and other business operations adversely

9Federal entities reported estimates of improper payment amounts that totaled $125.4 billion for fiscal year 2010, which represented about 5.5 percent of $2.3 trillion of reported outlays for the related programs.

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