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International Consortium on Government Financial Management May 8, 2006 Gene Dodaro Chief Operating Officer United States Government Accountability Office Outline • Achieving Federal Transformation • Remaining Federal Challenges • Modernizing the Accountability Profession • Maximizing Key Partnerships 2 Foundation Laid for Federal Transformation • 1990-1995 – CFOs, Performance and Accountability & Audit Frameworks • 1996-2000 – Financial Systems & CIOs • 2001-Present – Expansion of Audits 3 Transformation in Process • Achieving Cultural Change • Establishing Leadership Structure • Addressing Financial Systems and Operations • Preparing Auditable Financial Statements 4 Transformation in Process • Preparing Accountability Reports • Strengthening Internal Controls • Developing New Accounting Standards • Refining Audit Standards and Methods 5 Remaining Federal Challenges • Addressing Structural Fiscal Imbalance • Confronting Difficult High Risk Areas • Improving U.S. Financial Statements • Modernizing Systems and Controls 6 Remaining Federal Challenges Addressing Long Term Structural Fiscal Imbalance 7 Federal Surplus or Deficit as a Share of GDP Fiscal Years 1797-2005 10 Percent of GNP/GDP 5 0 -5 -10 -15 -20 -25 -30 -35 1797 1820 1840 1860 1880 1900 1920 1940 1960 1980 2005 Fiscal Years 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. 8 Estimated Fiscal Exposures ($ trillions) 2000 $6.9 2005 $9.9 0.5 0.9 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 • Explicit liabilities – Publicly held debt – Military & civilian pensions & retiree health – Other • Commitments & contingencies – E.g., PBGC, undelivered orders • Implicit exposures 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. 9 How Big is Our Growing Fiscal Burden? 2000 Total Fiscal Exposures 2005 $20.4 trillion $46.4 trillion Burden Per Person $72,000 $156,000 Per Full-time Worker $165,000 $375,000 Per Household $189,000 $411,000 Sources: GAO analysis. 10 Composition of Spending as a Share of GDP Under Baseline Extended 50 Percent of GDP 40 30 Revenue 20 10 0 2005 2015 2030 2040 Fiscal year Net Interest Medicare & Medicaid Social Security All other spending 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 taxdeferred retirement accounts. After 2016, revenue as a share of GDP is held constant. Source: GAO’s January 2006 analysis. 11 Composition of Spending as a Share of GDP Assuming Discretionary Spending Grows with GDP after 2006 and All Expiring Tax Provisions are Extended 50 Percent of GDP 40 30 Revenue 20 10 0 2005 2015 2030 2040 Fiscal year Net Interest Social Security Medicare & Medicaid All other spending 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. 12 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 13 The Way Forward • Stimulate Public Education • Use Budget Controls • Improve Accounting and Reporting • Re-examine Policies and Programs 14 21st Century Challenges Report 15 Key National Indicators • Portfolio of outcome-based measures • Many initiatives underway • Consortium housed by National Academies • Related efforts by the OECD 16 Remaining Federal Challenges Confronting Difficult High Risk Areas 17 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 18 High-Risk Categories • Addressing Broad-based Transformations • Managing Contracting More Efficiently • Assessing Tax Law Administration • Modernizing Insurance Benefit Programs 19 GAO’s HighRisk List High-Risk Areas Designated High Risk Addressing Challenges in Broad-based Transformations Protecting the Federal Government’s Information Systems and the Nation’s Critical Infrastructures Strategic Human Capital Managementa U.S. Postal Service Transformation Efforts and Long-Term Outlooka Managing Federal Real Propertya Implementing and Transforming the Department of Homeland Security Establishing Appropriate and Effective Information-Sharing Mechanisms to Improve Homeland Security DOD Approach to Business Transformationa DOD Supply Chain Management (formerly Inventory Management) DOD Weapon Systems Acquisition DOD Business Systems Modernization DOD Financial Management DOD Support Infrastructure Management DOD Personnel Security Clearance Program 1997 2001 2001 2003 2003 2005 2005 1990 1990 1995 1995 1997 2005 Managing Federal Contracting More Effectively DOE Contract Management NASA Contract Management 1990 1990 DOD Contract Management Management of Interagency Contracting 1992 2005 Assessing the Efficiency and Effectiveness of Tax Law Administration Enforcement of Tax Lawsa, b IRS Business Systems Modernizationc 1990 1995 Modernizing and Safeguarding Insurance and Benefit Programs Added March 2006 Medicare Programa HUD Single-Family Mortgage Insurance and Rental Housing Assistance Programs Medicaid Programa Modernizing Federal Disability Programsa Pension Benefit Guaranty Corporation Single-Employer Insurance Programa National Flood Insurance Program 1990 1994 2003 2003 2003 2006 Other FAA Air Traffic Control Modernization 1995 a Legislation is likely to be necessary, as a supplement to actions by the executive branch, in order to effectively address this high-risk area. 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. bTwo 20 Remaining Federal Challenges Improving U.S. Government Financial Statements 21 Progress in Agency Audit Results 30 Audit Results for 24 CFO Act Agencies 25 20 15 10 5 0 2005 2000 1996 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.) 22 The Federal Financial Audit Environment Main challenges for the U.S. financial statements: • Department of Defense • Intergovernmental Transactions • Financial Statement Preparation 23 Remaining Federal Challenges Modernizing Systems and Controls 24 Limited FFMIA Progress Auditors’ FFMIA Assessments Fiscal Years 1997 through 2005 CFO Act Agencies Not In Compliance 24 18 12 6 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 Key Problems: Nonintegrated Systems and Weak Information Systems Security 25 Modernizing the Accountability Profession • Defining success in financial management • Accelerating reporting • Opining on system of internal control • Updating Auditing Standards 26 Modernizing the Accountability Profession • Monitoring implementation of the SarbanesOxley Act • Exploring revised approaches to quality assurance programs 27 Key GAO Partnerships National Audit Forum Good Government Organizations INTOSAI GAO Professional Associations Others GAO Advisory Groups 28 28 INTOSAI’s Strategic Plan 29 29 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 30 Auditors General Global Working Group • 18 countries • Discuss common issues and challenges • Learn from each other • Leverage knowledge and expertise 31 Performance Audit Peer Review • GWG Initiative • GAO Experience – Seven Country Team – Clean Opinion – Global Good Practices • INTOSAI Peer Review Subcommittee 32 Peer Review in the 21st 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 33 NIAF Strategic Plan 34 Other Examples of Coordination • Domestic Working Group • GAO meetings with Inspectors General 35 International Consortium on Government Financial Management May 8, 2006 Gene Dodaro Chief Operating Officer United States Government Accountability Office ICGFM 37