International Consortium on Government Financial ManagementMay 8, 2006

Gene DodaroChief Operating OfficerUnited States Government Accountability Office

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Outline

• Achieving Federal Transformation

• Remaining Federal Challenges

• Modernizing the Accountability Profession

• Maximizing Key Partnerships

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Foundation Laid for Federal Transformation

• 1990-1995 – CFOs, Performance and Accountability & Audit Frameworks

• 1996-2000 – Financial Systems & CIOs

• 2001-Present – Expansion of Audits

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Transformation in Process

• Achieving Cultural Change

• Establishing Leadership Structure

• Addressing Financial Systems and Operations

• Preparing Auditable Financial Statements

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Transformation in Process

• Preparing Accountability Reports

• Strengthening Internal Controls

• Developing New Accounting Standards

• Refining Audit Standards and Methods

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Remaining Federal Challenges

• Addressing Structural Fiscal Imbalance

• Confronting Difficult High Risk Areas

• Improving U.S. Financial Statements

• Modernizing Systems and Controls

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Remaining Federal Challenges

Addressing Long Term Structural Fiscal Imbalance

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-35

-30

-25

-20

-15

-10

-5

0

5

10

1797 1820 1840 1860 1880 1900 1920 1940 1960 1980 2005Fiscal Years

Federal Surplus or Deficitas a Share of GDP

Fiscal Years 1797-2005

Note: Data until 1929 are shown as a percent of gross national product (GNP); data from 1930 to present are shown as a percent of GDP. Source: Department of Commerce, Office of Management and Budget, and Congressional Budget Office.

Percent of GNP/GDP

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Estimated Fiscal Exposures($ trillions)

2000 2005

• Explicit liabilities $6.9 $9.9– Publicly held debt– Military & civilian pensions & retiree health– Other

• Commitments & contingencies 0.5 0.9– E.g., PBGC, undelivered orders

• Implicit exposures 13.0 35.6– Future Social Security benefits 3.8 5.7

– Future Medicare Part A benefits 2.7 8.8

– Future Medicare Part B benefits 6.5 12.4

– Future Medicare Part D benefits -- 8.7

Total $20.4 $46.4

Source: U.S. government’s consolidated financial statements (CFS).Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year as reported in the CFS and all other data are as of September 30.

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How Big is OurGrowing Fiscal Burden?

2000 2005

Total Fiscal Exposures $20.4 trillion $46.4 trillion

BurdenPer Person $72,000 $156,000

Per Full-time Worker $165,000 $375,000

Per Household $189,000 $411,000Sources: GAO analysis.

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Composition of Spending as a Share of GDPUnder Baseline Extended

0

10

20

30

40

50

2005 2015 2030 2040Fiscal year

Revenue

Social Security

Medicare & MedicaidNet Interest

All other spending

Percent of GDP

Notes: In addition to the expiration of tax cuts, revenue as a share of GDP increases through 2016 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2016, revenue as a share of GDP is held constant.

Source: GAO’s January 2006 analysis.

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Composition of Spending as a Share of GDPAssuming Discretionary Spending Grows with GDP after 2006

and All Expiring Tax Provisions are Extended

0

10

20

30

40

50

2005 2015 2030 2040Fiscal year

Revenue

Social Security

Medicare & MedicaidNet Interest

All other spending

Percent of GDP

Note: This includes certain tax provisions that expired at the end of 2005, such as the increased AMT exemption amount.Source: GAO’s January 2006 analysis.

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Current Fiscal Policy Is Unsustainable

• The “Status Quo” is Not an Option

• Faster Economic Growth Can Help, But It Cannot Solve The Problem

• The Sooner the Better

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The Way Forward

• Stimulate Public Education

• Use Budget Controls

• Improve Accounting and Reporting

• Re-examine Policies and Programs

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21st Century Challenges Report

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Key National Indicators

• Portfolio of outcome-based measures

• Many initiatives underway

• Consortium housed by National Academies

• Related efforts by the OECD

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Remaining Federal Challenges

Confronting Difficult High Risk Areas

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GAO High-Risk Program

• Original list included 14 areas

• Since 1990, 30 areas have been added, 18 taken off or consolidated

• 26 areas on the current list

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High-Risk Categories

• Addressing Broad-based Transformations

• Managing Contracting More Efficiently

• Assessing Tax Law Administration

• Modernizing Insurance Benefit Programs

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GAO’s High-Risk List

High-Risk Areas Designated High Risk

Addressing Challenges in Broad-based TransformationsProtecting the Federal Government’s Information Systems and the Nation’s Critical Infrastructures

1997

Strategic Human Capital Managementa 2001U.S. Postal Service Transformation Efforts and Long-Term Outlooka 2001Managing Federal Real Propertya 2003Implementing and Transforming the Department of Homeland Security 2003Establishing Appropriate and Effective Information-Sharing Mechanisms to Improve Homeland Security

2005

DOD Approach to Business Transformationa 2005DOD Supply Chain Management (formerly Inventory Management)DOD Weapon Systems AcquisitionDOD Business Systems ModernizationDOD Financial ManagementDOD Support Infrastructure ManagementDOD Personnel Security Clearance Program

199019901995199519972005

Managing Federal Contracting More EffectivelyDOE Contract Management 1990NASA Contract Management 1990

DOD Contract Management 1992Management of Interagency Contracting 2005

Assessing the Efficiency and Effectiveness of Tax Law AdministrationEnforcement of Tax Lawsa, b 1990IRS Business Systems Modernizationc 1995

Modernizing and Safeguarding Insurance and Benefit ProgramsMedicare Programa 1990HUD Single-Family Mortgage Insurance and Rental Housing Assistance Programs 1994Medicaid Programa 2003Modernizing Federal Disability Programsa 2003Pension Benefit Guaranty Corporation Single-Employer Insurance Programa

National Flood Insurance Program 20032006

OtherFAA Air Traffic Control Modernization 1995a Legislation is likely to be necessary, as a supplement to actions by the executive branch, in order to effectively address this high-risk area.bTwo high-risk areas—Collection of Unpaid Taxes and Earned Income Credit Noncompliance—have been consolidated to make this area.cThe IRS Financial Management high-risk area has been incorporated into this high-risk area. 20

Added March 2006

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Remaining Federal Challenges

Improving U.S. GovernmentFinancial Statements

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Progress in AgencyAudit Results

0

5

10

15

20

25

30

1996 2000 2005

Unqualified Qualified Mixed Disclaimed

(2005 includes the Department of Homeland Security (DHS), which became a CFO Act Agency in FY 2005. FEMA, which became part of DHS, is included in prior years.)

Audit Results for 24 CFO Act Agencies

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The Federal Financial Audit Environment

Main challenges for the U.S. financial statements:

• Department of Defense

• Intergovernmental Transactions

• Financial Statement Preparation

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Remaining Federal Challenges

Modernizing Systems and Controls

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Limited FFMIA ProgressAuditors’ FFMIA AssessmentsFiscal Years 1997 through 2005

0

6

12

18

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1997 1998 1999 2000 2001 2002 2003 2004 2005

Key Problems: Nonintegrated Systems and Weak Information Systems Security

CFO Act Agencies Not In Compliance

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Modernizing the Accountability Profession

• Defining success in financial management

• Accelerating reporting

• Opining on system of internal control

• Updating Auditing Standards

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Modernizing the Accountability Profession

• Monitoring implementation of the Sarbanes-Oxley Act

• Exploring revised approaches to quality assurance programs

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Key GAO Partnerships

GAO

NationalAudit Forum

INTOSAI

Good Government

Organizations

Professional Associations

GAO Advisory Groups

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Others

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INTOSAI’s Strategic Plan

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Selected Countries that Have Adopted or Adapted the Yellow Book

• Albania• Bangladesh • Benin • Bolivia• Ecuador• El Salvador• Ethiopia• Ghana• Guyana• Honduras• Indonesia

• Kenya• Malawi• Mongolia• Nepal• Panama• Senegal• South Africa• Thailand• Uganda• Viet Nam• Zimbabwe

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Auditors GeneralGlobal Working Group

• 18 countries

• Discuss common issues and challenges

• Learn from each other

• Leverage knowledge and expertise

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Performance Audit Peer Review

• GWG Initiative

• GAO Experience– Seven Country Team– Clean Opinion– Global Good Practices

• INTOSAI Peer Review Subcommittee

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Peer Review in the21st Century Should

• Serve the public interest

• Evolve to meet changing circumstances

• Be principle based, not rule based

• Be based on value and risk

• Be integrated with other considerations

• Allow peer reviewer judgment

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NIAF Strategic Plan

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Other Examples of Coordination

• Domestic Working Group

• GAO meetings with Inspectors General

International Consortium on Government Financial ManagementMay 8, 2006

Gene DodaroChief Operating OfficerUnited States Government Accountability Office

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ICGFM