Management's Discussion & Analysis
Results-Oriented Accountability for Grants
Approximately $700 billion is spent annually on grants and cooperative agreements. Grants managers, both internal and external to the government, report that approximately 40 percent of their time is spent using antiquated processes to monitor compliance rather than using data analytics to monitor results. The President's Management Agenda (PMA) Cross Agency Priority (CAP) Goal #8, Results-Oriented Accountability for Grants, provides a comprehensive roadmap for improving grants management and reducing recipient reporting burden. Increased efficiencies in the grant-making process will provide recipients more time to perform work associated with the grant, thereby helping agencies28 more effectively achieve their missions..
The CAP Goal strategy focuses on standardizing grants data, modernizing digital tools, and using data to promote decision making that is based on risk and performance. In support of the CAP goal, OMB issued “Strategies to Reduce Grant Recipient Reporting Burden,” M-18-24, which requires agencies to increase grant program efficiency, promote evaluation of grant programs, and reduce reporting burden.
M-18-24 requires agencies to use the System for Award Management (SAM) information to comply with award requirements, reducing the recipient burden and government cost of having multiple agencies request the same information (except under limited circumstances) from the grant recipient. M-18-24 also requires agencies to evaluate all systems and other methods used to collect information from recipients to determine if the same data is being collected by the agency multiple times and to develop a strategy to eliminate any duplicative requests.
OMB is leading an agency-wide Grants Management Data Standards Work Group, and in September 2018, the Group completed an initial set of draft grants management data standards. In November 2018, a Draft Grants Management Data Standards Feedback website was set up to gather public input on the data standards. Input from the public will be used in finalizing the data standards that will allow inter-agency grants data to be created, reduce the number of grants management systems, and promote a risk-based, data-driven approach to managing federal grants.
Getting Payments Right
Preventing improper payments within the federal government is a priority for the Administration and OMB. In March 2018, OMB released the PMA CAP Goal #9, Getting Payments Right. In addition to the historical focus on identifying and addressing improper payment issues after they occur, the CAP goal has a renewed focus on systemic enhancements to preventing improper payments from occurring at all. This CAP Goal has resulted in exceptional collaboration across the CFO community to identify the causes of improper payments through two main strategies: (1) reducing monetary loss and (2) clarifying and streamlining reporting requirements. For agencies with programs reporting more than $100 million in monetary loss in fiscal year 2018, a scorecard must be completed quarterly and posted on paymentaccuracy.gov. These scorecards provide information on the actions taken and progress made on preventing improper payments that would result in monetary loss to the government.
Just as it did in fiscal year 2018, in fiscal year 2019, OMB will continue to work with agencies to improve the identification of the root causes of improper payments that result in monetary loss and to promote data analytic methods that take a comprehensive view of an agency’s payment lifecycle. In addition, OMB will continue to work with Treasury on outreach related to the Do Not Pay Business Center and the services they provide to agencies to ensure payment integrity. In June 2018, OMB released Circular A-123, Appendix C (M-18-20), Requirements for Payments Integrity Improvement to create a unified, comprehensive, and less burdensome set of requirements.
In fiscal year 2018, program performance was mixed, with some programs experiencing significant increases in improper payment estimates and others showing signs of improvement. As in the past, agencies recovered approximately $20 billion in overpayments through payment recapture audits and other methods. The estimated amount of improper payments increased in general across programs in fiscal year 2018, roughly in line with increases in program outlays. More details on fiscal year 2018 improper payment data can be found at PaymentAccuracy.gov.
In fiscal year 2019, OMB will continue to work with agencies, the Chief Financial Officers Council (CFOC), and other stakeholders as part of the Getting Payments Right CAP Goal. In addition, OMB will continue to rely on agency inspector general (IG) recommendations for additional program-specific improvements. OMB will also continue to improve communications with the public about improper payment rates and amounts.
Leveraging Data as a Strategic Asset
The Digital Accountability and Transparency Act of 2014 (DATA Act), signed on May 9, 2014, established a vision for the future of federal spending transparency. The Act amended the Federal Funding Accountability and Transparency Act of 2006 by requiring that all federal spending be displayed on a website in searchable, downloadable, and machine-readable formats and by requiring publication of agency financial data.
The improved and expanded USAspending.gov website was launched on April 2, 2018. The new website allows taxpayers to examine nearly $4 trillion in federal spending and observe how this money flows from Congressional appropriations to local communities and businesses. The data from over 100 federal agencies is compiled by Treasury and will continue to be published on a quarterly basis. The new site allows users to explore information and download reports that are catered to their specific interests. The new site also includes a new feature, the Data Lab, which provides additional use cases, data visualizations, and analysis with insights into federal spending and trends.
In November 2017, GAO and many agency Offices of Inspector General published audits of the quality of the data as required under the DATA Act. As a result of these audits, in June 2018, OMB issued guidance to improve data quality, M-18-16, Management of Reporting Data Integrity Risk, Appendix A to OMB Circular A-123. The guidance requires agencies to develop and implement a Data Quality Plan for fiscal years 2019 through 2021 at a minimum. Agencies are required to integrate Enterprise Risk Management (ERM) processes and internal controls and agencies are also required to consider in their assurance statements all internal controls (including financial and non-financial controls, and controls over DATA Act, financial, and all other reporting). The CFOC and key stakeholders from the procurement and financial assistance communities developed a DATA Act Data Quality Playbook as a resource tool for management and the audit communities.
As the quality of this data improves, OMB will work with Treasury and agencies to find additional data sources that could be linked to the DATA Act to better inform the public about the purpose and results of spending.
Sharing Quality Financial Management Services
The federal financial management infrastructure exists in a complex environment of legacy information technology, customized tools built to unique requirements, and business processes that do not fully leverage modern technology. The sharing of financial technology and services has been successful for smaller agencies, but has not met expectations for larger agencies. A cross-agency subgroup of the CFOC developed the core business framework for financial management that was used in the fall of 2017 to explore industry capabilities for smarter use of technology in federal financial management. This information is being used to develop and implement recommendations to improve financial management across the government. Results of ongoing efforts to support PMA CAP Goal #5, Sharing Quality Services, will be provided in fiscal year 2019. Please visit https://www.performance.gov/CAP/CAP_goal_5.html for additional information regarding CAP Goal #5.
Since the passage of the CFO Act of 1990, the federal financial community has made significant progress in financial accounting and reporting. As shown in Table 10, for fiscal year 2018, 22 of the 24 CFO Act agencies obtained an opinion from the independent auditors on their financial statements.29 In addition, 40 auditor-identified material weaknesses were reported at the end of both fiscal years 2017 and 2018. For 2018, half of these are associated with DOD, which just completed its first full-scope financial statement audit. The other half are associated with non-DOD agencies, which experienced a 25 percent reduction in material weaknesses, overall, from 27 at the end of fiscal year 2017 to 20 at the end of 2018. These results demonstrate that an increasing number of federal agencies have adopted and maintained disciplined financial reporting operations, implemented effective internal controls over financial reporting, and integrated transaction processing with accounting records. However, weaknesses in financial management practices continue to prevent two of the CFO Act agencies and the government as a whole from achieving an audit opinion.
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|Table 10: Agency Audit Results: FY 2018|
|Audit||Auditor-Reported Material Weaknesses|
|Department of Agriculture (USDA)||Unmodified||2||0||0||0||2|
|Department of Commerce (DOC)||Unmodified||1||1||0||0||2|
|Department of Defense (DOD)||Disclaimer||13||8||0||1||20|
|Department of Education (Education)||Unmodified||0||1||0||0||1|
|Department of Energy (DOE)||Unmodified||0||0||0||0||0|
|Department of Health and Human Services (HHS)*||Unmodified||1||0||1||0||0|
|Department of Homeland Security (DHS)||Unmodified||2||0||0||0||2|
|Department of Housing & Urban Development (HUD)||Disclaimer||9||0||2||2||5|
|Department of the Interior (DOI)||Unmodified||0||0||0||0||0|
|Department of Justice (DOJ)||Unmodified||0||0||0||0||0|
|Department of Labor (DOL)||Unmodified||1||0||1||0||0|
|Department of State (State)||Unmodified||0||0||0||0||0|
|Department of Transportation (DOT)||Unmodified||0||0||0||0||0|
|Department of the Treasury (Treasury)||Unmodified||1||0||1||0||0|
|Department of Veterans Affairs (VA)||Unmodified||6||0||1||0||5|
|Agency for International Development (USAID)||Unmodified||1||0||0||0||1|
|Environmental Protection Agency (EPA)||Unmodified||2||0||1||0||1|
|General Services Administration (GSA)||Unmodified||0||0||0||0||0|
|National Aeronautics & Space Administration (NASA)||Unmodified||0||0||0||0||0|
|National Science Foundation (NSF)||Unmodified||0||0||0||0||0|
|Nuclear Regulatory Commission (NRC)||Unmodified||0||0||0||0||0|
|Office of Personnel Management (OPM)||Unmodified||1||0||0||0||1|
|Small Business Administration (SBA)||Unmodified||0||0||0||0||0|
|Social Security Administration (SSA)||Unmodified||0||0||0||0||0|
|* Unmodified opinion on all statements except SOSI and SCSIA, which received a disclaimer.|
Agency Financial Management Systems
Federal agencies improved, but continue to face challenges, in implementing financial management systems that meet federal requirements. The number of CFO Act agencies reporting lack of substantial compliance with one or more of the three Section 803(a) requirements of the Federal Financial Management Improvement Act (FFMIA) fell to seven in fiscal year 2018 from eight in fiscal year 2017, and the number of auditors reporting lack of substantial compliance with one or more of the three Section 803(a) FFMIA requirements fell to nine in fiscal year 2018 from ten in fiscal year 2017.
As suggested in the “Sharing Quality Financial Management Services” section above, because of the federal government’s size and diversity, its financial management infrastructure consists of both legacy and modernized systems and standardized and customized systems. As the government’s fiscal agent, Treasury has systems for collecting and disbursing the government’s cash and financing disbursements when necessary, recording and reporting on those collections and disbursements, and reporting on all government revenues, expenses, assets, and liabilities.
The first four sections above30 summarize what OMB and agencies have been doing and plan to do to improve financial management, including financial management systems. In addition, Treasury has financial management improvements plans that will have governmentwide implications, which are described in its fiscal year 2018 agency financial report (https://home.treasury.gov/about/budget-financial-reporting-planning-and-performance/agency-financial-report) and its fiscal year 2020 budget request and performance plan (https://home.treasury.gov/about/budget-financial-reporting-planning-and-performance/budget-requestannual-performance-plan-and). Also, other agencies have plans to improve their financial management and financial reporting systems described in their financial reports, budget requests, and performance plans. Most significantly, DOD has plans to address its material weaknesses in financial reporting, and is bringing its financial systems into compliance with federal financial management systems requirements, including the FFMIA; all of these plans can be found in the agency financial report (https://comptroller.defense.gov/odcfo/afr2018.aspx). In addition to focusing on financial systems, DOD's audit remediation efforts include issues related to real property, inventory, operating materials and supplies (OM&S), government property in the possession of contractors, information technology, and reconciling the Department’s fund balance with Treasury.
Agency Internal Controls
Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help to ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Safeguarding assets is a goal of each of these three objectives.
In response to major management challenges to achieving their mission and goals, agencies continue to recognize the utility of ERM as a tool to identify, assess, mitigate, manage and prepare for risk. ERM contributes to risk-informed decision-making, encouraging a proactive rather than reactive approach to risk, and fostering a risk-aware culture. It also allows agencies to make better decisions in a resource-constrained environment and focus more on performance than compliances in various areas, including grants management. Under ERM, internal controls are not limited to compliance and financial reporting. Rather, internal controls are a means to address management challenges that cut across multiple agency functions and reduce the risk to an acceptable level. OMB has promoted ERM as a management tool, and the 2016 update to OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control, explains ERM and the importance of integrating ERM with internal control processes.
OMB Circular No. A-123 implements the requirements of 31 U.S.C. 3512 (c) and (d) (commonly known as the Federal Managers’ Financial Integrity Act) by providing agencies a framework for assessing and managing risks strategically and tactically. The Circular reflects changes incorporated in GAO’s updated Standards for Internal Control in the Federal Government and contains multiple appendices that address one or more of the objectives of effective internal control.
- Appendix A provides for agencies to use a risk-based approach to assess, document, test, and report on internal controls over reporting and data integrity;
- Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in government charge card programs;
- Appendix C implements the requirements for effective estimation and remediation of improper payments; and
- Appendix D defines new requirements for determining compliance with the FFMIA that are intended to reduce the cost, risk, and complexity of financial system modernizations.
As noted above, the total number of reported material weaknesses for the CFO Act agencies as of the issuance of this Financial Report was 40 for fiscal years 2018 and 2017. Effective internal controls are a challenge at the agency level and at the governmentwide level, with GAO reporting that at the governmentwide level, material weaknesses resulted in ineffective internal control over financial reporting. While progress is being made at many agencies and across the government in identifying and resolving internal control deficiencies, continued work is needed.
Agency Legal Compliance
Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, employment, health and safety, among others. Responsibility for compliance rests with agency management and compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws and regulations related to financial reporting and certain individual agency audit reports contain instances of noncompliance. None of these instances were material to the governmentwide financial statements; however, GAO reported that its work on compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.
Efficient Use of Real Property Assets
The federal government owns a significant amount of real property assets worldwide, with a majority of its holdings located in the U.S. These real property holdings include assets that are classified by property type in the Federal Real Property Profile (FRPP) as: land, buildings, and structures. The FRPP defines land as acreage and a building as a constructed asset that is enclosed with walls and a roof that provides space for agencies to perform activities, store materials, or provide space for people to live or work. A structure is defined as any constructed asset that does not meet the building definition above (i.e., fence, tower, parking structure). Further information can be found in the FRPP Data Dictionary available at https://www.gsa.gov/.
The federal government owns roughly 640 million acres, about 28 percent, of the 2.27 billion acres of land in the United States. Four major federal land management agencies administer 610.1 million acres, or 95 percent, of this land. They are the Bureau of Land Management, Fish and Wildlife Service, and National Park Service in the Department of Interior (DOI); and the Forest Service in the U.S. Department of Agriculture (USDA). These lands are managed for many purposes, primarily related to conservation, preservation, recreation, and the extraction of natural resources such as timber, minerals, oil, and gas. Much of the land managed by DOI and USDA is public domain land and is generally intended to be retained by the government for use by future generations. This and other land that qualifies as stewardship land is not valued on the governmentwide Balance Sheet, but is discussed in Note 24 and in agency financial reports. In addition, DOD (excluding the Army Corps of Engineers) administers 11.4 million acres of land in the United States (as of September 30, 2014), consisting of military bases, training ranges, and more. Numerous other agencies administer the remaining federal acreage.
The government owns structures that are affixed to the land and in many instances cannot easily be physically separated from the land; these include parking structures, power plants, power generating stations, dams, and space exploration structures. These structures are managed by agencies such as DOE, the Army Corps of Engineers, and NASA. The federal government charges fees for the use of some of these structures, which defray some of the costs of the assets. The receipt of such user fees (e.g., sales of electrical power) is recorded as revenue. Structures are generally reflected on the Balance Sheet at cost, net of depreciation, and any environmental or other liabilities associated with structures are reflected on the Balance Sheet in accordance with generally accepted accounting principles.
A large portion of the government’s real property inventory includes federal owned buildings, with the majority in the custodial care of DOD. In general, agencies hold and manage buildings for administrative use to achieve their mission. The government does not hold buildings or any real property assets for investment or land banking purposes. Buildings owned by the government (and the land associated with the buildings) are generally reflected on the Balance Sheet at cost, net of depreciation. As noted above with structures, any environmental or other liabilities associated with buildings (and the land underneath the buildings) are also reflected on the Balance Sheet in accordance with generally accepted accounting principles. Any buildings (or structures, including the land underneath the buildings or structures) that are not in service are included on the Balance Sheet at net realizable value. After the government identifies buildings or other real property for disposal, it carries out public or negotiated sales, demolitions, public benefit conveyances, and, on occasion, property exchanges.
The federal domestic building inventory is diverse and, as of 2016, contains 252,000 buildings reflecting 2.6 billion square feet of space. The domestic portfolio requires approximately $18.8 billion in annual operation and maintenance expenditures, including approximately $7.3 billion in annual lease costs. The replacement value for the government’s 232,000 owned buildings is approximately $1 trillion, and the repair costs are $115 billion. It should be noted, however, that replacement value is not synonymous with fair market value. Within both the owned and leased inventories, there are opportunities to use space more effectively and efficiently. Several initiatives are discussed below.
Transformation Efforts to Optimize the Use of Federal Real Property
On July 12, 2018, OMB issued Memorandum M-18-21 to require all federal entities to designate senior real property officers with the authority to coordinate all aspects of their real property programs and to serve on the Federal Real Property Council (FRPC). The reconstituted FRPC seeks to provide comprehensive governmentwide strategic direction that optimizes the federal real property portfolio to achieve statutory missions while managing costs over the short, mid, and long-term. The FRPC will address current challenges such as the lack of a comprehensive strategic approach to asset management, funding challenges, poor data quality, and the burden of legislative requirements by creating a governance structure to include an Executive Steering Committee (ESC) and working groups. Led by direction from the ESC, the working groups will map their outputs to the FRPC strategic direction to revise the national strategy’s policy framework, standardize the business processes and data, and diagnose and address root causes.
The new strategic direction will build on the results of the Reduce the Footprint (RTF) policy, which was issued in 2015 and requires the CFO Act agencies to reduce the size of their federal real property portfolios by improving the use of government-owned buildings and by reducing the amount of leased space and the number of excess and underutilized properties. In addition, under the RTF policy, the CFO Act agencies developed and annually update five-year Real Property Efficiency Plans to identify reductions to their portfolios over a five-year time-period. In fiscal years 2016 and 2017, the CFO Act agencies reduced their fiscal year 2015 RTF baselines (which is the amount of space the CFO Act agencies held/occupied in 2015) by 12.4 million square feet, resulting in an annual estimated cost avoidance of $125 million. Under the RTF policy, the CFO Act agencies will continue to validate square footage and operations and maintenance costs in their Performance and Accountability Reports (PARs) or AFRs to show that they are continuing to reduce their real property footprint over time.
Additionally, governmentwide real property management will be improved by implementation of the Federal Assets Sale and Transfer Act of 2016 (FASTA) and the Federal Property Management Reform Act of 2016 (FPMRA). To date, OMB has met, by the required deadlines, all of its responsibilities under FASTA (with a yearly data call to all federal agencies for recommendations to the to-be-established Real Property Reform Board) and under FPMRA (with the establishment of the FRPC and the issuance of a yearly report).
Finally, to support increased reduction targets, the General Services Administration (GSA) and OMB developed a new management tool within the FRPP database that enables the CFO Act agencies to fully analyze the efficiency of their portfolios and to collocate with other agencies. In addition, GSA issued technical guidance in fiscal year 2017 to establish mandatory FRPP data validation and verification requirements that will enhance agencies’ abilities to implement data driven decision making when developing their annual RTF reduction targets.
Together with the newly constituted FRPC, OMB will continue to work to optimize its use of federal real property.
The federal government has seen significant progress in financial management since the passage of the CFO Act more than 25 years ago; yet significant challenges remain. The issues that the federal government faces today require financial managers to move beyond the status quo and improve both the efficiency and effectiveness of financial management activities. The steps outlined above build on tools and capabilities that are in place today, and refocus energies on critical and emerging priorities – cutting wasteful spending, improving the efficiency of operations and information technology, and laying a foundation for improved data quality and collaboration.
28The term “agency” is used in the Financial Management section of the Management’s Discussion and Analysis rather than the term “entity,” which is used throughout the rest of the Financial Report. SFFAS No. 47, Reporting Entity, defines the term “entity” for federal financial reporting purposes and addresses both component and governmentwide financial reporting. The term entity is generally broader than “agency” because it refers to agencies, components of agencies, and the federal government as a whole. The term “agency” is used in this section because the laws, policies, and plans discussed in this section apply to “agencies” as defined in particular laws or policy guidance documents and because the laws, policies, and plans discussed in this section do not generally define the term “entity.” (Back to Content)
29 The 22 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA. (Back to Content)
30 These sections are “Results-Oriented Accountability for Grants,” “Getting Payments Right,” “Leveraging Data as a Strategic Asset,” and “Sharing Quality Financial Management Services.” (Back to Content)
- A Message from the Secretary of the Treasury -
- A Message from the Secretary of the Treasury - PDF version
- Table of Contents - PDF version
- Results in Brief - PDF version
- The Nation By The Numbers
- Executive Summary - PDF version
- Management's Discussion & Analysis - PDF version
- Statement of the Comptroller General of the United States - PDF version
- Financial Statements - PDF version
- Statements of Net Cost
- Statements of Operations and Changes in Net Position
- Reconciliations of Net Operating Cost and Budget Deficit
- Statements of Changes in Cash Balance from Budget and Other Activities
- Balance Sheets
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- Statements of Social Insurance and Changes in Social Insurance Amounts
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- Notes to the Financial Statements - PDF version
- Note 1. Summary of Significant Accounting Policies - PDF version
- Note 2. Cash and Other Monetary Assets - PDF version
- Note 3. Accounts and Taxes Receivable, Net - PDF version
- Note 4. Loan Receivable and Loan Guarantee Liabilities, Net - PDF version
- Note 5. Inventories and Related Property, Net - PDF version
- Note 6. Property, Plant, and Equipment, Net - PDF version
- Note 7. Debt and Equity Securities - PDF version
- Note 8. Investments in Government-Sponsored Enterprises - PDF version
- Note 9. Other Assets - PDF version
- Note 10. Accounts Payable - PDF version
- Note 11. Federal Debt Securities Held by the Public and Accrued Interest - PDF version
- Note 12. Federal Employee and Veteran Benefits Payable - PDF version
- Note 13. Environmental and Disposal Liabilities - PDF version
- Note 14. Benefits Due and Payable - PDF version
- Note 15. Insurance and Guarantee Program Liabilities - PDF version
- Note 16. Other Liabilities - PDF version
- Note 17. Collections and Refunds of Federal Revenue - PDF version
- Note 18. Contingencies - PDF version
- Note 19. Commitments - PDF version
- Note 20. Funds from Dedicated Collections - PDF version
- Note 21. Fiduciary Activities - PDF version
- Note 22. Social Insurance - PDF version
- Note 23. Long-Term Fiscal Projections - PDF version
- Note 24. Stewardship Land and Heritage Assets - PDF version
- Note 25. Disclosure Entities and Related Parties - PDF version
- Note 26. Subsequent Events - PDF version
- Required Supplementary Information (Unaudited) - PDF version
- The Sustainability of Fiscal Policy - PDF version
- Social Insurance - PDF version
- Deferred Maintenance and Repairs - PDF version
- Other Claims for Refunds - PDF version
- Tax Assessments - PDF version
- Federal Oil and Gas Resources - PDF version
- Federal Natural Resources Other than Oil and Gas - PDF version
- Other Information (Unaudited) - PDF version
- Required Supplementary Stewardship Information (Unaudited) - PDF version
- U.S. Government Accountability Office Independent Auditor's Report - PDF version
- Related Resources
Certain material weaknesses, limitations, and uncertainties prevented the Government Accountability Office from expressing an opinion on the U.S. Government's consolidated financial statements included in the Financial Report and, therefore, GAO disclaimed an opinion on such statements. Certain information included on or referenced in this website, such as individual agency financial reports that were audited by other auditors, is separate from and not specifically reported in the Financial Report and therefore not covered by GAO's disclaimer.
Last modified 07/16/19