U.S. Government Financial Statements: Results of GAO's Fiscal Year 1997
Audit (Testimony, 04/01/98, GAO/T-AIMD-98-128).

Pursuant to a legislative requirement, GAO discussed the results of its
audit of the United States government's consolidated financial

GAO noted that: (1) significant financial systems weaknesses, problems
with fundamental recordkeeping, incomplete documentation, and weak
internal controls, including computer controls, prevented the government
from accurately reporting a large portion of assets, liabilities, and
costs; (2) these deficiencies affect the reliability of the consolidated
financial statements and much of the underlying financial information;
(3) they also affect the government's ability to accurately measure the
full cost and financial performance of programs and effectively and
efficiently manage its operations; (4) such deficiencies prevented GAO
from being able to form an opinion on the reliability of the
consolidated financial statements; (5) they are the result of widespread
material internal control and financial systems weaknesses that
significantly impair the federal government's ability to adequately
safeguard assets, ensure proper recording of transactions, and ensure
compliance with laws and regulations; (6) GAO's audit of the federal
government's consolidated financial statements and the Inspectors
General audits of agencies' financial statements have resulted in an
identification and analysis of deficiencies in the government's
recordkeeping and control systems and recommendations to correct them;
(7) fixing these problems represents a significant challenge because of
the size and complexity of the federal government and the discipline
needed to comply with new accounting and reporting requirements; (8)
several individual agencies that have been audited for a number of years
faced serious deficiencies in their initial audits and made good
progress in resolving them; (9) with a concerted effort, the federal
government, as a whole, can continue to make progress toward ensuring
full accountability and generating reliable information on a regular
basis; (10) annual financial statement audits are essential to ensuring
the effectiveness of the improvements now underway, and ultimately, to
producing the reliable and complete information needed by decisionmakers
and the public to evaluate the government's financial performance; and
(11) they are also central to helping the government implement broader
management reforms called for by the Government Performance and Results

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The federal government has material weaknesses in controls related to
its tax collection activities, which affect its ability to
efficiently and effectively account for and collect the government's
revenue.\4 This situation requires extensive reliance on ad hoc
programming and analysis and material audit adjustments to prepare
basic financial information.  For example, the government currently
does not obtain information necessary to identify tax collections by
every type of tax at the time of collection.  As a result, the
government cannot separately report revenue for three of the four
largest revenue sources--Social Security, Hospital Insurance, and
individual income taxes.  Because of this, the government had to
report these three tax types in the same line item on the
Consolidated Statement of Changes in Net Position.  Additionally,
excise tax revenues are distributed to the relevant trust funds based
on assessments rather than, as required by the Internal Revenue Code,
on collections. 

Serious weaknesses also affect the federal government's ability to
effectively manage its taxes receivable and other unpaid
assessments.\5 The lack of appropriate subsidiary systems to track
the status of taxpayer accounts affects the government's ability to
make informed decisions about collection efforts.  This weakness, for
example, has resulted in the government pursuing and collecting, from
individual taxpayers, taxes that had already been paid. 
Additionally, the federal government is vulnerable to loss of tax
revenue due to weaknesses in controls over disbursements for tax
refunds.  The government does not perform fundamental verification
procedures to ensure the validity of amounts claimed by taxpayers as
overpayments prior to making disbursements for refunds. 
Consequently, it does not have effective controls to prevent the
inappropriate payment of refunds, increasing its exposure to lost
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