Fewer errors key to passing future financial audits, GAO says

The government will have a better chance of passing its financial audit if Treasury Department managers take steps to reduce errors in transferring information from agencies' documents to consolidated financial forms, according to a new report from the General Accounting Office.

In fiscal 2002, the government failed its sixth consecutive financial audit, even though 21 of the 24 major agencies got clean opinions on their financial statements. GAO refrained from expressing an opinion on the governmentwide consolidated financial statement all six years because it considered the information in the statements unreliable.

Security weaknesses leave government financial data vulnerable to "inadvertent or deliberate misuse," GAO said after the fiscal 2002 audit. The government has also failed to account for billions of dollars in transactions among agencies and did not prepare the consolidated financial statements properly, GAO said.

The Treasury Department and Office of Management and Budget are designing a new process for compiling agency financial statements and plan on completing it this fiscal year. This system should address many of the problems with consolidated reports, according to GAO. However, the watchdog agency issued a set of recommendations to ensure that the new procedures work as intended.

For instance, the procedures should eliminate potential data transfer errors by pulling information in the consolidated report directly from agency documents. "Without directly linking financial information from agencies' audited financial statements, the information in the consolidated financial statements may not be reliable," GAO cautioned.

Treasury should also divide responsibilities so that no single person is in charge of an entire step in the compilation process. This division of labor would help "reduce the risk of error or fraud," GAO explained.

In addition, Treasury should fully document its policies and procedures for putting together the consolidated reports, GAO said. Managers need to review each step of the compilation process and keep a written record of the review, according to the report (GAO-04-45), which contains 40 other recommendations for compiling more reliable consolidated financial statements.