GAO Update

Prepared for The Auditor's Report (Spring 2008)
By Jeanette Franzel and Maxine Hattery**

Call for Stewardship: Tools for 21st Century Challenges
GAO has developed a set of tools and process improvements to help Congress and the executive branch in the difficult discussions and decisions needed to meet the long-term challenges for the country's economic growth, standard of living, and national security. To meet the needs of this and future generations, Comptroller General David M. Walker says in his introduction to the publication, "a top-to-bottom review of federal programs and policies is essential." This latest in a series of related GAO publications establishes an approach to such a review.

The tools and process improvements in A Call for Stewardship: Enhancing the Federal Government's Ability to Address Key Fiscal and Other 21st Century Challenges provide the means to address issues raised in GAO's previously issued 21st Century Challenges: Reexamining the Base of the Federal Government. Issue in December 2007, A Call for Stewardship draws on GAO reports, testimony, other products, and Mr. Walker's speeches and presentations. It is intended to help policymakers (1) reach consensus on the outcomes Americans most want their government to achieve, (2) increase transparency and accountability, (3) better prioritize competing demands, (4) make more-informed decisions, and (5) modernize federal operations and management. Call for Stewardship sets forth an approach that would use the following tools and processes.

1. Key national indicators: a system of key national outcome-based indicators to help to set objectives, measure progress, assess conditions and trends, and communicate more effectively.
2. Governmentwide strategic plan: for clearly defining the outcomes we want our government to achieve and strategies and transformation our government will need to undertake to achieve those outcomes.
3. Commission to address long-term fiscal challenge: to educate the public and develop a specific legislative proposal for a "down payment" on narrowing the growing gap between expected federal revenues and spending.
4. Integrated solutions in Congress: for congressional oversight of the evolving governance framework.
5. Mechanisms for partnerships across federal agencies, levels of government, and sectors: to meet such cross-cutting national challenges as homeland security, natural disasters and pandemics, and federal oversight of such areas as food safety.
6. Executive branch financial and budget reporting: to meet the long-term challenges of mounting unfunded obligations for social insurance and other mandatory spending programs.
7. Governmentwide Performance and Accountability Report: to realize the full benefit of long-term strategic and annual performance goals.
8. Strategic management plan for the executive branch: to focus on long-term goals and strategies to overcome the significant management obstacles that stand in the way of progress.
9. Chief operating officers or chief management officers in key agencies: leadership to provide the continuing, focused attention essential to completing multiyear transformations.
10. Revisions to the presidential appointment process: which could include categorizing appointees by the differences in their roles and responsibilities.
11. Enhanced governmentwide acquisition and contracting capability: a concentrated effort to address existing problems and a reexamination of the rules and regulations that cover the government-contractor relationship.
12. Modernized federal government human capital models: transformation in how the federal government classifies, compensates, develops, and motivates its employees to achieve maximum results within available resources and existing authorities.
13. GAO's High-Risk List: to help in setting congressional oversight agendas, a tool that is already in use and has been updated at the start of each new Congress since the early 1990s, listing government programs and operations that present major challenges impeding effective government and costing billions of dollars each year.

A Call for Stewardship: Enhancing the Federal Government's Ability to Address Key Fiscal and Other 21st Century Challenges (GAO-08-93SP) December 17, 2007.

Audit of the Federal Government's Fiscal Year 2007 Consolidated Financial Statements
For fiscal year 2007, the second year that the Statement of Social Insurance has been presented as a basic financial statement of the U.S. government, GAO was able to render an unqualified opinion on the statement—a significant accomplishment for the federal government. The statement puts into dollars the challenge to the nation's fiscal sustainability which the Comptroller General and GAO publications, such as A Call of Stewardship, have been calling to the attention of Congress and the public. The statement also projects scheduled benefits that exceed earmarked revenues by approximately $41 trillion (on an open group basis) in present-value terms for the next 75-year period.

Considering this projected gap in social insurance, in addition to reported liabilities (e.g., debt held by the public and federal employees and veterans benefits payable) and other implicit commitments and contingencies that the federal government has pledged to support, the federal government's fiscal exposures totaled approximately $53 trillion as of September 30, 2007, up more than $2 trillion from September 30, 2006, and an increase of more than $32 trillion from about $20 trillion as of September 30, 2000. This translates into a current burden of about $175,000 per American or approximately $455,000 per American household, GAO reported.

The Secretary of the Treasury, in coordination with the Director of the Office of Management and Budget, is required annually to submit financial statements for the U.S. government to the President and the Congress. GAO is required to audit these statements. Published by the Treasury, the FY 2007 Financial Report of the United States Government includes GAO's report on the consolidated financial statements for the fiscal years ended September 30, 2007 and 2006, and the associated reports on internal control and compliance with significant laws and regulations.

GAO found that certain material weaknesses in financial reporting and other limitations on the scope of its work resulted in conditions that, for the 11th consecutive year, prevented GAO from expressing an opinion on the federal government's accrual basis consolidated financial statements.

While GAO reported that significant progress has been made over the years in improving financial management, three major impediments to an opinion on the accrual basis consolidated financial statements remain: (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 reported that, until the problems outlined in its audit report are adequately addressed, they will continue to have adverse implications for the federal government and American taxpayers.

FY 2007 Financial Report of the United States Government, Department of the Treasury, Financial Management Service, Washington, DC 20227.

Yellow Book Professional Requirements Tool
GAO has issued guidance—in a simple tabular format—to help auditors sort out the use of the terms "must" and "should" in the July 2007 revision of requirements in Government Auditing Standards, commonly called the Yellow Book. The 2007 revision applies the terms to two levels of professional requirements—those that set out what auditors "must" do and those that they "should" do—to describe the degree of responsibility imposed on the auditors and audit organization. The tool identifies the terms used by paragraph, and, as an electronic PDF form, can be filled out for use in implementing the requirements in the Yellow Book's chapters of general requirements and specific requirements for financial audits, attestation engagements, and performance audits.

The Implementation Tool and other publications for use in GAGAS audits are available on the Yellow Book Web page at http://www.gao.gov/govaud/ybk01.htm.

Government Auditing Standards Implementation Tool: Professional Requirements Tool for Use in Implementing the Requirements Identified by "Must" and "Should" in the July 2007 Revision of Government Auditing Standards (GAO-08-210G) December 2007.

Measuring Natural Resources and Environmental Sustainability The development of national environmental accounts was the subject of a forum convened by GAO and the National Academy of Sciences and an October 2007 GAO report on the discussion. Participants—including federal agency officials and experts, national and international, in statistics, energy, environment, and natural resources—discussed potential criteria for developing environmental accounts, lessons learned from the international community, and strategies for overcoming challenges.

Participants suggested four broad criteria to use in determining the components of environmental accounting:

• identifying the objective of the accounts,
• considering the availability and quality of data,
• ensuring that accounts provide information on current natural wealth, and
• considering the timeliness and regularity with which accounts can be produced.

Critical for first development, participants generally agreed, are pollution and material flow accounts, which provide industry-level information about the generation of pollutants and solid waste and energy and material use.

Measuring Our Nation's Natural Resources and Environmental Sustainability: Highlights of a Forum Jointly Convened by the Comptroller General of the United States and the National Academy of Science (GAO-08-127SP) October 24, 2007.

Low Defined-Contribution-Plan Savings May Pose Challenges to Retirees
Regardless of the age of the individual, and at most income levels, worker participation in defined-contribution retirement savings plans is low, and the account balances of participating workers are modest, according to a GAO report. GAO's analysis of the Federal Reserve Board's 2004 Survey of Consumer Finances shows that only 36 percent of workers were participating in a defined-contribution plan with their current employer. For all workers with a defined-contribution plan, the total median account balance was $22,800. Among workers aged 55 to 64, the median account balance was $50,000, and for those aged 60 to 64 it was $60,600. Low-income workers had less opportunity to participate in defined-contribution plans than the average worker, and when offered an opportunity to participate in a plan, they were less likely to do so. Modest balances might be expected, GAO reported, given that 401(k) prominence is relatively recent.

Simulations of future workers' defined-contribution savings over an entire working career indicate that the plans could replace, on average, about 22 percent of annualized career earnings at retirement, but with projected replacement rates varying widely across income groups. Projections showed almost 37 percent of workers reaching retirement with zero plan savings. Workers in the lowest income quartile had projected replacement rates of 10.3 percent on average, with 63 percent of these workers having no plan savings at retirement, while highest-income workers had average replacement rates of 34 percent.

Private Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement Security, Especially for Many Low-Income Workers (GAO-08-8) November 29, 2007.

**Jeanette Franzel, Director, Financial Management and Assurance;
Maxine Hattery, Financial Management and Assurance; U.S. Government Accountability Office.

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