U.S. Government’s 2020 Financial Statements Reveal Serious Management Weaknesses and Continued Efforts to Correct Those Weaknesses
The federal government recently released its 2020 financial statements. These statements provide a comprehensive view of public finances, including spending, revenue, and debt. However, as in past years, serious weaknesses in financial management have prevented us from giving the government an “unequivocal opinion” that its financial statements are presented fairly. These weaknesses continue to prevent the federal government from having reliable, useful and timely financial information to operate effectively and efficiently. Congress and the Administration need reliable information on spending, income and debt. Without reliable statements, which include rectifying some of the concerns we have outlined below, policymakers are not in the best position to plan for our fiscal future.
Today’s WatchBlog article explores our new report on the government’s financial statements and explains why we are unable to render such an opinion.
Serious weaknesses in financial management
Our audit report on the Federal Government’s Financial Statements for Fiscal Year 2020 addresses serious weaknesses in financial management and the ongoing efforts to address them. For example:
- The Department of Defense, which accounted for about 18% of federal net costs, continues to face long-standing financial management problems. For example, the DOD is unable to account for its goods and equipment and has ineffective information system controls. The DOD has made some improvements. For fiscal 2020, the DOD identified nearly $ 3 billion in materials that could be reused and closed 24% of the findings from the previous year’s financial statement audits. However, as in previous years, the DOD auditors could not tell whether or not there were any errors in the DOD financial statements. The DOD has recognized that it will take time to get a clear opinion and is prioritizing critical areas for improvement.
- The federal government is unable to properly account for federal transactions and interagency balances and to properly prepare government financial statements. The Treasury is making progress towards resolving these weaknesses. For example, the Treasury issued new accounting guidelines for intra-government transactions and balances and continued to help federal agencies better account for their transactions with other agencies. In addition, the Treasury has put in place new processes to improve the way it collects data from agencies.
- The Small Business Administration (SBA) needed to implement COVID-19 related relief as quickly and efficiently as possible in order to meet the needs of small businesses affected by the pandemic. But, this swift response led to several weaknesses in financial management, resulting in the auditor’s inability to express an opinion on the SBA’s fiscal year 2020 financial statements. Concerns about the SBA’s management and oversight of COVID-19 relief programs, including susceptibility to inappropriate payments (payments made in error), prompted us to add SBA emergency loans for small companies on our last High risk list.
Why is this important? Our long-term concerns
As we have reported, Congress and the administration have responded in unprecedented ways to the COVID-19 pandemic and the severe economic impact that has resulted from it. However, the fiscal response and the economic downturn have generated a substantial increase in federal debt. Once the pandemic has receded and the economy has recovered significantly, Congress and the administration should move quickly to develop an approach to put the federal government on a long-term sustainable fiscal path. .
Federal agencies have the opportunity to contribute to a sustainable fiscal future now. For example, the IRS could take steps to close the annual tax gap of about $ 381 billion, the difference between taxes owed to the government and taxes paid to the government. The tax gap and tax law enforcement made our high risk list again this year.
Additionally, individual agencies can help reduce abusive payments (payments made in error) estimated to be around $ 206 billion in FY2020, compared to $ 175 billion in FY19. This amount typically does not include potential payment errors related to the COVID- response. 19 and recovery efforts, which can be substantial. Agencies can take action to determine the full extent of inappropriate payments and take appropriate action to reduce them.
Federal financial management improvements
Overall, the federal government has made significant progress in improving financial management since the passage of the CFOs Act of 1990. For example, 22 of the 24 large agencies received clear opinions on their financial statements. financial statements for fiscal year 2020, compared to 6 agencies for fiscal year 1996. You can find out about the progress made by federal agencies in terms of financial management by consulting our August 2020 Report.