GAO UPDATE—January 2007

by Jeanette Franzel and Maxine Hattery

GAO Welcomes 110th Congress with Suggested Areas of Oversight

Members of the 110th Congress began work in January with a new tool at their disposal: a collection of recommendations for their consideration in 36 key areas identified by GAO. The recommended areas for oversight are grouped into three categories: (1) targets for near-term oversight; (2) policies and programs that are in need of fundamental reform and re-engineering; and (3) governance issues that should be addressed to help ensure an economical, efficient, effective, ethical, and equitable federal government capable of responding to challenges and capitalizing on opportunities in the 21st century. Each of the 36 specific areas highlighted by GAO are described on one page, with information about the issue, references to related GAO products, and GAO contacts.

Two general themes are imbued in the recommendations. First, the federal government cannot afford to continue business as usual in Washington, given the current deficit and growing long-term fiscal challenges. Second, that most of the federal government's current policies, programs, functions, and activities are based on conditions that existed decades ago, are not results-based, and are not well aligned with 21st century realities. Therefore, there is a need to engage in a fundamental review, reprioritization, and reengineering of the base of government. Selected examples of areas being suggested for oversight include the following:

• Transforming the Department of Homeland Security, the Nuclear Weapons Complex, the Department of Defense business operations, and the Postal Service's business model.
• Enhancing border security, computer security, information sharing among the nation's intelligence agencies, coordination of U.S. international counterterrorism efforts, and the safety and security of transportation.
• Reforming the tax code, Medicare and Medicaid, immigration policy, and federal housing programs.
• Strengthening retirement security, savings, and financial literacy.
• Reviewing the effectiveness of the federal audit and accountability community, including the oversight, structure and division of responsibility.
• Assessing corporate financial reporting and standards for public company accountability

Suggested Areas for Oversight for the 110th Congress. GAO-07-235R November 17, 2006

GAO Issues 2007 High Risk List

On January 31, 2007, GAO released the eighth update of its assessment of federal programs, policies and operations that are "high risk" due to the need for broad-based transformation or vulnerabilities to fraud, waste and abuse and mismanagement.

Sufficient progress has been made to remove two items from the list: the U.S. Postal Service's transformation efforts and long-term outlook, and the Department of Housing and Urban Development's single-family mortgage insurance and rental housing assistance programs. At the same time, three additional items have been added to the High Risk list: federal oversight of food safety, protection of technologies critical to national security, and transportation financing and capacity.

Those three additions and two deletions leave 27 programs and operations on GAO's 2007 High Risk List.

Congress and the executive branch use GAO's High Risk List as an oversight tool and in shaping government-wide initiatives, including the President's Management Agenda. Since GAO's last update, important progress related to many areas on GAO's High Risk List has been made. Effort has been noted in all areas, although to varying degrees.

The 2007 High Risk List is available at www.gao.gov

For additional information, contact GAO's Office of Public Affairs at 202-512-4800.

The 2007 Yellow Book Is Issued

An increased focus on the ethical principles underlying the work of those who audit government programs and activities is one highlight of the many significant changes in the January 2007 revision of Government Auditing Standards.

First published in 1972, and commonly referred to as the "Yellow Book," the U.S. Comptroller General's auditing standards cover entities of the federal government and organizations that receive federal funds. Compliance with the standards is required by various federal laws for audits of federal entities and funds.

The January 2007 version, which supersedes the 2003 revision, contains the final 2007 revisions to the standards, except for the quality control and peer review sections in chapter 3. Concurrent with the electronic issuance of the January 2007 version of Government Auditing Standards, GAO is exposing for comment redrafted sections on quality control and peer review in response to the wide range of comments on those sections. The complete 2007 revision of Government Auditing Standards will be available after the quality assurance and peer review sections are finalized and incorporated into the standards and will be effective for financial audits and attestation engagements for periods beginning on or after January 1, 2008, and for performance audits beginning on or after January 1, 2008. Early implementation is permissible and encouraged. Electronic versions of the documents are available on the Web at http://www.gao.gov/govaud/ybk01.htm.

Fundamental changes in the 2007 revision include:

• emphasis on ethical principles
• streamlined discussion of nonaudit services and their impact on auditor independence;
• updated financial auditing standards based on recent developments in financial auditing and internal control,
• increased transparency surrounding restatements and significant concerns, uncertainties, or other unusual events;
• enhanced framework for performance-auditing, including the concepts of reasonable assurance and its relationship to audit risk and evidence;
• clarified language to define the auditor's level of responsibility and distinguish between auditor requirements and additional guidance.

For further information, please call Jeanette Franzel, Director, at (202) 512-9471 or Michael Hrapsky, Senior Project Manager, at (202) 512-9535, or e-mail yellowbook@gao.gov.

GAO Issues a Disclaimer on the Federal Government's
Consolidated Financial Statements

For the 10 th consecutive year, certain material weaknesses in financial reporting and other limitations on the scope of our work resulted in conditions that prevented GAO from being able to render an opinion on whether the consolidated financial statements of the U.S. government are fairly stated. Three major impediments continue to prevent GAO from rendering an opinion on the consolidated financial statements: (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. GAO also reported that the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2006. Further, GAO's audit report also included an emphasis paragraph for the 3 rd consecutive year noting that the nation's current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary to address the nation's large and growing long-term fiscal imbalance.

The fiscal year 2006 Financial Report of the United States Government can be found at www.fms.treas.gov/fr/index.html. and www.gao.gov

Comptroller General's Fiscal Wake-Up Video Now Available

The Comptroller General's warnings about the growing imbalance between expected federal spending and tax revenues is now available via video on GAO's Web site in the long-term fiscal outlook section http://www.gao.gov/special.pubs/longterm under the link, "Fiscal Wake-Up Tour."

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