Audit of the U.S . Government’s - PowerPoint Presentation

1. Audit of the U.S. Government’s Consolidated Financial StatementsDawn B. Simpson, Director Government Accountability OfficeMay 26, 20222022 CIGIE/GAO Financial Statement Audit ConferencePage 1

2. TopicsBackgroundResults of FY 2021 CFS AuditHow we audit the CFSFY 2022 CFS AuditPage 2

3. BackgroundThe 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 sustainabilityPage 3

4. BackgroundAccrual-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 levelPage 4

5. BackgroundSustainability Financial StatementsStatement 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 level4 components present social insurance information – SSA (Social Security), HHS (Medicare/Medicaid), RRB (Railroad Retirement), DOL (Black Lung)Page 5

6. Results of FY 2021 CFS AuditFY21 Financial Report of the U.S. Government, GAO-21-105122 (February 17, 2022)GAO Independent Auditor’s ReportPage 6

7. Results of FY 2021 CFS AuditDisclaimer of opinion on accrual-based CFS7 material weaknesses in internal control contributed to disclaimerKey significant component entity audit results:34 entities with unmodified opinionsDOD and SBA with disclaimers DOL with qualifiedGeneral Fund and Security Assistance Accounts unauditedPage 7

8. Results of FY 2021 CFS AuditDisclaimer of opinion on sustainability financial statementsKey significant component entity audit results:HHS disclaimer on SOSI and SCSIASSA unmodified opinion on SOSI and SCSIAScope limitations, including management representationsIneffective internal control over financial reporting2 additional material weaknesses3 significant deficienciesTests of compliance limited by material weaknesses and scope limitationsPage 8

9. Results of FY 2021 CFS AuditThree emphasis of mattersCOVID-19 pandemic response Long-Term Fiscal Challenges Equity Investments in Fannie Mae and Freddie MacImprovementsCFS preparation processDODVAPage 9

10. How We Audit the CFSAccrual-based CFS Anticipate disclaimer All or most of the three major impediments expected to exist Serious financial management problems at DODInability to adequately account for intragovernmental activity and balances between federal entitiesWeaknesses in the CFS preparation process2 objectivesPerform those audit procedures that, in our judgment, are feasible and reasonable given the disclaimerBuild knowledge for future auditsPage 10

11. How We Audit the CFSAccrual-based CFS (cont)Focus areasStatus of material weaknesses and other prior year issuesCFS preparation process Governmentwide risks of material misstatementChanges in component level audit workImplementation of new accounting standards Changes in the CFS, including notes, RSI, other informationPage 11

12. How We Audit the CFSSustainability Financial StatementsAnticipate 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 existApproachReview and use component auditor's work at SSA and HHS for SOSI and SCSIAMonitor significant uncertainties and material weaknessPage 12

13. How We Audit the CFSPlanningIdentify significant componentscurrently 40, consistent with Treasury/OMB's identificationNon significant only contribute 1% of net costUse the work of component auditors for 37 significant componentsAudit 3 significant components – FDIC, SEC, and General FundAudit portions of Department of the Treasury – Federal Debt, IRS, and TARPPage 13

14. How We Audit the CFSPlanning (cont)Communicate with significant component auditorsRequest audit documentationRequest performance of specific audit proceduresUse planning PBCA items from component auditors Entity profiles – update our understanding of the entitiesMateriality amounts – review to determine any effects on the CFS auditRisks of material misstatement – identify risks by CFS line items, determine if any new risksStatus reports – review for any issues affecting the CFS audit Page 14

15. How We Audit the CFSPlanning (cont)Attend audit status meetings of certain significant componentsObtain understanding of changes to the CFS preparation processImplementation of new accounting standards Changes in the CFS, including notes, RSI, other informationCorrective actions to address deficienciesPage 15

16. How We Audit the CFSYear-endAssess the reporting entity (consolidation entities, disclosure entities, related parties)Review Fiscal Service documentation of procedures performed and conclusionsReview PBCA items from significant component auditors assessing changes to the component’s reporting entity from the prior yearPage 16

17. How We Audit the CFSYear-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 intragovernmentalReview Fiscal Service documentation—tracing, JVs, uncorrected amountsReview PBCA items from significant component auditors related to reclassification and COVID notePerform additional tracing procedures Review Fiscal Service's preparation proceduresFor SNC, review allocations at the CFS level Page 17

18. How We Audit the CFSYear-end (cont)Recon Stmt and Cash StmtReview Fiscal Service's preparation proceduresReview BAR note (PBCA) from significant component auditorsSLTFP, note, and RSIReview OMB’s preparation procedures and projections SOSI, SCSIA, note, and RSI Verify supported by significant component financial statements Review Fiscal Service documentationPerform tracingPage 18

19. How We Audit the CFSYear-end (cont)Intragovernmental activity and balancesReview Fiscal Service’s monitoring of elimination differences and JVsReview PBCA items from significant component auditorsReview JVs posted at the consolidated levelTreaties and international agreementsPerform procedures on corrective actionsReview PBCA items from significant component auditorsPage 19

20. How We Audit the CFSYear-end (cont)Review significant component auditor reportsAnalyze opinions on financial statementsAggregate material weaknesses and significant deficiencies by CFS line items/areasUse PBCA item providing additional informationDiscussions with component auditors Analyze non-compliances for significance at CFS levelAnalyze emphasis and other matters paragraphsReview entity auditor’s Audit Summary Memo (PBCA) for consistency with auditor’s reportPage 20

21. How We Audit the CFSYear-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 auditorsManagement representation lettersLegal lettersSummaries of Uncorrected MisstatementsSummaries of Corrected MisstatementsOverall analytical proceduresUpdated materiality amountsPage 21

22. How We Audit the CFSYear-end (cont)Review Financial Report drafts Supported by significant component financial reportsExplanations for significant variances from prior yearSupport for new informationDetermine conclusions for the CFSPage 22

23. FY 2022 CFS AuditPBCA list for significant component auditors includes new requests related toLoans receivable and loan guarantees (OMB A-136 Note 8, N & P)Audit exposureImplementation of SFFAS 54, Leases Internal control findings as of 9/30/22 for calendar year-end entitiesSAA undergoing auditImplementation of SFFAS 59, Land OMB A-136 new requirementsPage 23

24. Support of Federal Financial CommunityPage 24 Thank you!

25. Contact InformationDawn B. SimpsonDirectorFinancial Management and AssuranceU.S. Government Accountability OfficeSimpsonDB@gao.gov William E. BoutboulAssistant DirectorBoutboulW@gao.gov Joseph P. O’NeillAssistant Director OneillJ@gao.gov LaDonnaTowlerAssistant DirectorTowlerL@gao.gov Carolyn M. VoltzAssistant DirectorVoltzC@gao.gov Page 25