Posted by Eivind Tandberg
Comprehensive, transparent and reliable financial reporting is a cornerstone of good public financial management. The US Government financial report for fiscal year 2008 (October 2007 - September 2008) was released in December 2008. The report provides many examples of good international practices. However, the accompanying audit report from the US Comptroller General, which includes negative opinions for key government sectors, illustrates that it may be difficult to meet all requirements in this area, even for an advanced economy government with significant financial management resources.
One note-worthy feature is the timeliness of the report. The final, audited financial statements are presented less than three months after the end of the fiscal year. This is very prompt compared to most other countries.
The report covers consolidated central government, but exclude certain government-sponsored state enterprises, including the financial institutions Fannie Mae and Freddie Mac. An appendix provides a list of all significant entities that are included in or excluded from the report.
The statements are based on accrual accounting, as interpreted by "Federal Financial Accounting Standards (SFFAS)". This differs from the budget, which is mainly on a cash or obligation basis. For this reason, the financial report includes a reconciliation between the operating result from the accounts and the budget deficit.
Whereas the financial statements are fairly concise (14 pages), there is ample supplementary material. The notes comprise 74 pages with technical detail, and other supplementary information, largely analytical, comprises about 50 pages.
The Financial Report also includes a very useful Managements's discussion and analysis, which relates the financial reporting to the Government's fiscal, economic and administrative policies. This includes an overview of key measures to adress the ongoing financial crisis, including some measures undertaken after the end of the fiscal year.
The Financial Report includes a short audit statement and a detailed audit report from the Government Accountability Office (GAO), the Comptroller General of the US. According to the statement:
While significant progress has been made in improving financial management since the federal government began preparing consolidated financial statements 12 years ago, three major impediments have continued to prevent us from rendering an opinion on the accrual basis consolidated financial statements over this period of time: (1) serious financial management problems at the Department of Defense, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. In addition to the material weaknesses underlying these major impediments, we noted three material weaknesses involving the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to cost-effectively reduce improper payments, (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and (3) effectively manage its tax collection activities.
