Government-wide Financial Reporting - AGA

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Breakdowns in the Compilation Process Our recommendation is intended to provide a full accounting of gross receipts and outlays comprising the Unified Budget Deficit. Treasury is aware of most of the reconciling items needed to populate the CFS reconciliation statements as a result of experience gained in compiling the CFS over the years. Treasury has a detailed understanding of these items and the activities underlying the differences. But, as we have seen with the Troubled Asset Relief Program (TARP) and other newly implemented programs, new items can be created each year by legislation or new/revised policies. Developing a systematic process to identify and report these reconciling items can be built on the foundation that already exists and can be enhanced by improved communication between Treasury and the agencies. The result would be needed improvements in the compilation process. A Related Initiative The Governmentwide Treasury Account Symbol Adjusted Trial Balance System (GTAS) initiative was brought to our attention. GTAS is intended to validate both budgetary and accrual-based information reported by agencies and to facilitate the analysis of governmentwide spending. GTAS, now under development, could improve the integrity of budgetary data and facilitate a solution to reconciling reported differences since information should be more reliable. GTAS is similar to the FACTS II process in design. Scheduled to go into production in December 2012, the system is expected to improve the integrity of all types of financial information agencies report. As GTAS becomes more advanced, agencies will be required to pass more edit checks before their data can be submitted to Treasury. These edit checks are expected to include tests to validate the relationship between budgetary and accrual data and the completeness of adjusting entries. In concept, higher quality underlying agency data will enable the production of better quality financial statements at both the agency and government-wide levels because the underlying database will be the same at agencies and in GTAS. Pilot efforts are under way to reconcile agency trial balances reported in the GTAS to agency financial statements. GTAS is not intended to be a shortterm or long-term solution to GAO findings related to the compilation of the CFS. GTAS is not a substitute for a compilation process built from audited agency financial statements, which is the concept underlying the Closing Package approach. Our recommendations acknowledge Treasury’s success in linking audited agency accrual data to the CFS using the Closing Package approach. We seek to leverage that success to reconcile budgetary data through a similar reporting, reconciliation and audit process. Short-Term Recommendations Recommendation 2.1: Continue to use and enhance the Closing Package process in compiling the CFS to include the reconciliation and audit of budgetary data and the items needed to prepare the reconciliation statements. The Closing Package process and the approach of deriving reliable government-wide information from audited agency financial statements is a transparent and auditable compilation process for the overwhelming majority of the balances in the CFS. In an entity the size of the federal government with agencies larger and more complex than many states and international corporations, accountability, data reliability and credibility should always be based on audited financial statements. Building on the foundation of audited agency information is a critical component of a sound, reliable compilation process. The existing Closing Package/GFRS process provides a solution that has been proven successful in establishing an audit trail between audited agency financial statements and the CFS. The current compilation process used for accrual balances that leverages audited agency financial statements through the Closing Package process has allowed Treasury to approach a transparent and auditable compilation process. By extending this process to include the reconciliation and audit of budgetary data as well as the accumulation of information needed to prepare the reconciliation statements, Treasury will be within striking distance of a reliable and auditable overall compilation process. Recommendation 2.2: Establish a process to reconcile and audit budgetary information reported in audited agency financial statements with gross receipt and outlay cash flows in Treasury’s central accounting system. To facilitate a complete reconciliation, Treasury should provide agencies with a populated reconciliation template as a starting point. Additional agency procedures are required to periodically perform the reconciliation, given that the detailed information to successfully identify and resolve differences exists at the agency level. This recommendation is intended to provide a full accounting of gross receipts and outlays reported in the CFS comprising the Unified Budget Deficit. Agency budgetary information is compiled, reported periodically to Treasury and audited in aggregate annually in the 14 AGA Corporate Partner Advisory Group Research
Breakdowns in the Compilation Process SBR. However, budgetary information reported in the CFS is independently generated from Treasury’s central accounting system. A process should be established to reconcile receipts and outlay information between these independent sources. Treasury has attempted to perform this reconciliation as part of the annual compilation process and on an agency pilot basis without broad success. However, in defense of Treasury’s efforts, the time, resources and level of detail do not exist at Treasury to successfully perform this reconciliation for each agency. Agencies must “own” their data and, in turn, “own” the reconciliation process. The reconciliation process should be facilitated by Treasury through the identification of Treasury Fund Symbols and receipt accounts that are tagged to agency balances in Treasury’s central accounting system that can be used by agencies to make similar comparisons of the Treasury Fund Symbols included in their SBRs. Similar comparisons of the composition of receipt accounts should also be made. A populated standard reconciliation template, provided quarterly by Treasury to each agency, can serve as a starting point for the reconciliation. The detailed reconciliation must be performed at the agency level where the information exists for the agency to successfully identify and resolve definitional and reporting differences. A budgetary reconciliation process will add transparency to differences in budgetary balances reported in the CFS and establish an audit trail from audited agency reported budgetary information to similarly aggregated information reported at the CFS level. In addition, performing this quarterly reconciliation will facilitate the proactive identification and resolution of differences and enhance the reliability and timely compilation to meet stringent CFS production and audit timelines at year end. It is important to note that controls exist at most agencies to reconcile the annual audited SBR and the actual column of the President’s Budget. This process should be leveraged to the extent possible in performing this reconciliation. However, this reconciliation does not always include all receipt and outlay accounts as a starting point and may not include final budgetary balances because of timing differences between the CFS and the President’s Budget. Recommendation 2.3: Establish a process to identify, report and audit the major differences between the Unified Budget Deficit, Net Operating Cost and the changes in cash government-wide to populate the CFS reconciliation statements. To facilitate this process, Treasury should consider providing agencies with a reconciliation template populated by using the relevant line items on the current reconciliation statements as part of the Closing Package. This recommendation is intended to provide Treasury with a systematic process to accumulate and support the information it uses to populate the reconciliation statements. The information needed to populate the “Reconciliation of Net Operating Costs and Unified Budget Deficit” comes from a combination of agency-supplied data and Treasury-maintained data. Audited agency information should be collected through the Closing Package process and leveraged to the extent possible (see Recommendation 2.4). The information needed to populate the Statement of Changes in Cash Balance will likely reside at Treasury, but to the extent that information is needed from the agencies, a second template should be developed to obtain the information. Many agencies will only populate a few line items on the template(s), but it is each agency’s responsibility to identify the applicable line items. To ensure consistency in reporting, the template(s) should be supplemented with guidance describing precisely what is to be included on each line. Treasury’s process should include a mechanism to enable Treasury to identify and quantify reconciling items that result from new or revised policies or legislation. As with the process recommended for budgetary data in Recommendation 2.2, this process would provide a transparent, documented trail of audited data supporting CFS budgetary versus GAAP differences. Recommendation 2.4: Include budgetary information and information needed to prepare the reconciliation statements in the Closing Package process and the GFRS to provide transparency and full audit coverage of budgetary receipts, outlays and differences between the Unified Budget Deficit, Net Operating Cost and changes in cash government-wide. The Closing Package submission should clearly identify those budgetary balances and reconciling items derived from audited agency financial statements and any other balances or reconciling items that need to be addressed at the government-wide level. While Recommendation 2.2 describes a process and audit trail for budgetary information and Recommendation 2.3 suggests a process for accumulating reconciling items, Recommendation 2.4 is intended to add rigor by subjecting to audit the crosswalking of reconciled receipts, outlays and reconciling items as part of the Closing Package process. As discussed, the Closing Package process has facilitated the linkage of audited agency-level accrual basis information to the CFS. Thus, an established audit trail and reporting process exists for accrual account balances from agency financial statements to the CFS. We recommend that the results of the budgetary reconciliation be incorporated into the Closing Package process and the GFRS to essentially crosswalk audited agency-level budgetary balances to budgetary balances included in the CFS, including the Unified Budget Deficit balance. By including in the Closing Package the items needed to populate Government-wide Financial Reporting 15
Page 1 and 2: Corporate Partner Research Advisory
Page 3 and 4: Table of Contents Executive Summary
Page 5 and 6: Executive Summary SUMMARY OF RECOMM
Page 7 and 8: Introduction sound system of accoun
Page 9 and 10: 2. Breakdowns in the Compilation Pr
Page 11 and 12: Breakdowns in the Compilation Proce
Page 13: Breakdowns in the Compilation Proce
Page 17 and 18: 3. Usefulness of the Two CFS Reconc
Page 19 and 20: 4. Structure Overview of the As-Is
Page 21 and 22: Structure to establish an organizat
Page 23 and 24: Structure and accountability. Stand
Page 25 and 26: Appendix A Act, much has been accom
Page 27 and 28: Appendix B: Clarification on Data F
Page 29 and 30: Appendix C In two instances, the st
Page 31 and 32: Appendix C Interviews with Federal
Page 33 and 34: Appendix D: Abbreviations and Acron
Page 35 and 36: Appendix E: AGA Treasury Review Sco
Page 37 and 38: Endnotes 1. Treasury’s process co
Page 39 and 40: AGA CPAG Research Reports No. 1, Ma

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