[Senate Report 108-383]
[From the U.S. Government Publishing Office]
Calendar No. 757
108th Congress Report
2d Session SENATE 108-383
_______________________________________________________________________
EXECUTIVE BRANCH FINANCIAL ACCOUNTABILITY REPORTING ACT OF 2004
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE
to accompany
S. 2688
TO PROVIDE FOR A REPORT OF FEDERAL ENTITIES WITHOUT ANNUALLY AUDITED
FINANCIAL STATEMENTS
October 4, 2004.--Ordered to be printed
COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Bonnie Heald, Professional Staff Member
Heather Hogg, Professional Staff Member,
Financial Management, the Budget, and International Security
Subcommittee
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Susan E. Propper, Minority Counsel
Amy B. Newhouse, Chief Clerk
Calendar No. 757
108th Congress Report
SENATE
2d Session 108-383
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EXECUTIVE BRANCH FINANCIAL ACCOUNTABILITY REPORTING ACT OF 2004
_______
October 4, 2004.--Ordered to be printed
_______
Ms. Collins, from the Committee on Governmental Affairs, submitted the
following
R E P O R T
[To accompany S. 2688]
The Committee on Governmental Affairs, to whom was referred
the bill (S. 2688) to provide for a report of Federal entities
without annually audited financial statements, having
considered the same reports favorably thereon and recommends
that the bill do pass.
CONTENTS
Page
I. Purpose & Summary................................................1
II. Background.......................................................2
III. Legislative History..............................................4
IV. Section-by-Section Analysis......................................4
V. Evaluation of Regulatory Impact..................................5
VI. CBO Cost Estimate................................................5
VII. Changes in Existing Law..........................................6
I. PURPOSE & SUMMARY
S. 2688, the Executive Branch Financial Accountability
Reporting Act of 2004, is intended to ensure that Congress
receives information on the financial management practices of
the Executive Branch. The legislation instructs the Director of
the Office of Management and Budget (OMB) to list for Congress:
(1) each Federal entity that receives an exemption or waiver
from the statutory requirement for an annually audited
financial statement; and (2) other Federal entities, including
special purpose entities, that do not prepare independently
audited annual financial statements.
S. 2688 also requires the OMB report to include assessments
of: (1) the capability of the listed entities to prepare annual
financial statements and have them independently audited; (2)
how to reduce the costs of preparing the financial statements
and performing independent audits by grouping together smaller
entities and other methods by which the preparation and
independent audits of financial statements could be made cost-
effective; and (3) the benefits of improved financial oversight
encompassing the entire Executive Branch, including
recommendations for a plan to implement a requirement that the
entire Executive Branch prepare annual independently audited
financial statements.
II. BACKGROUND
Financial statement audit requirements
Congressional efforts to improve financial management and
the efficiency of government spending began almost 25 years ago
with the enactment of the Federal Managers Financial Integrity
Act of 1982, which strengthened internal controls and
accounting systems. Since that time, Congress has passed
several other financial management reforms, including the Chief
Financial Officers Act (CFO) of 1990 and the Accountability of
Tax Dollars Act (ATDA) of 2002. Together, these reform
initiatives established important financial management
positions in Cabinet departments and most major Federal
agencies. In addition, the Government Management and Reform Act
of 1994 substantially expanded the CFO Act by requiring the 24
CFO Act agencies to produce annually audited financial
statements for all their accounts and associated activities.
The CFO Act, among other things, created 24 Chief Financial
Officer (CFO) and deputy CFO positions in Cabinet departments
\1\ and major Executive Branch agencies.
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\1\ The Department of Homeland Security (DHS) is currently not
subject to the CFO Act. However, Congress currently is considering
legislation to apply the CFO Act to DHS. The Federal Emergency
Management Agency (FEMA) was one of the original 24 agencies covered,
but is no longer since it is now part of the DHS.
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The Accountability of Tax Dollars Act (ATDA) of 2002 \2\
amended the CFO Act to extend its requirements regarding the
preparation and audit of financial statements to most Executive
Branch agencies. According to OMB, the ATDA required an
additional 76 agencies to prepare annual financial statements
and have them audited. Currently, all Cabinet-level departments
and most Executive Branch agencies are required by the ATDA to
conduct annual audits of their financial statements.
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\2\ Public Law No. 107-289.
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Provisions of the ATDA permitted the Director of OMB to
exempt non-CFO Act entities from this requirement under certain
conditions. The ATDA provided the OMB Director with the
authority to exempt an agency with budget authority of $25
million or less if it is determined that an audited financial
statement is not warranted ``due to the absence of risks
associated with the agency's operations, the agency's
demonstrated performance, or other factors that the Director
considers relevant.'' \3\ During the first two years of
implementation, the Director could also waive the requirement
to prepare an audited financial statement for any non-CFO Act
agency.
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\3\ Id.
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The ATDA required the OMB Director to notify Congress
annually of each agency that has been exempted from its
requirements, including the reason for such exemption. For FY
2003, 21 agencies received an exemption due to: the need for
additional time to develop sound financial practices; the lack
of budgeted funds and a lack of alternative sources; and the
need formore time to implement new financial systems.\4\
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\4\ Agencies receiving a waiver or exemption included: Broadcasting
Board of Governors, Central Intelligence Agency, Commission of Fine
Arts, Court Services and Offender Supervision Agency for the District
of Columbia, Defense Nuclear Facilities Safety Board, Federal Labor
Relations Authority, Federal Maritime Commission, Japan-U.S. Friendship
Commission, National Archives and Records Administration, National
Endowment for the Humanities, National Labor Relations Board, Office of
Special Counsel, Peace Corps, Securities and Exchange Commission,
Selective Service System, U.S. Commission on Civil Rights, U.S.
Commission for the Preservation of America's Heritage Abroad, U.S.
Commodity Futures Trading Commission, U.S. Consumer Product Safety
Commission, and U.S. International Trade Commission. See Letter from
OMB Director Joshua Bolten to the Senate Governmental Affairs Committee
and the House Government Reform Committee dated October 23, 2003.
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The reforms made by the CFO Act and the ATDA have improved
the oversight and accountability of most Executive Branch
departments and agencies. There currently are entities in the
Executive Branch, however, that do not prepare financial
statements, or if they do, their financial statements are not
being audited. Some agencies, for example, have received an
exemption from this requirement under provisions of the ATDA.
In addition, Executive Branch agencies are increasingly
establishing special purpose entities \5\ that are not included
in the agencies' budgets and, therefore, are not subject to the
scrutiny provided by an annual financial statement audit.
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\5\ According to a February 2003 report entitled ``The Budgetary
Treatment of Leases and Public/Private Ventures,'' the Congressional
Budget Office defines a special purpose entity (SPE) as ``a
corporation, partnership, limited liability company, grantor trust, or
other trust * * * that is created by public and private parties for a
single specified purpose and whose activities are predetermined by the
contracts and other arrangements between the parties involved.'' A
memorandum prepared by the Congressional Research Service (CRS) states
that, in some instances, Federal agencies may use SPEs to keep a
transaction off-budget, which may mask government liability. See CRS
memorandum of February 10, 2004, which was prepared at the request of
the Governmental Affairs Subcommittee on Financial Management, the
Budget, and International Security of which Senators Peter G.
Fitzgerald and Daniel K. Akaka are Chairman and Ranking Member,
respectively.
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The Committee believes it is imperative that every effort
be made to ensure the financial integrity of all Executive
Branch departments and agencies. Therefore, S. 2688 would
require the Office of Management and Budget (OMB) to conduct a
thorough assessment and submit a report to Congress regarding
those Federal entities that are not currently required to
prepare audited financial statements. The Committee further
believes this study is necessary to ensure that OMB and
Congress have an accurate and complete picture of the breadth
and depth of the gaps in financial accountability within the
Executive Branch to determine whether additional legislation is
needed to close those gaps.
Lack of financial information regarding all federal entities
ATDA does not require the OMB Director to provide further
information regarding the financial management practices of
agencies receiving an exemption from the requirement for an
annual financial statement audit; nor is the Director required
to submit a comprehensive list of all entities in the Executive
Branch--including temporary commissions, task forces, advisory
boards, or special purpose entities--that do not prepare
audited financial statements. This information would assist
congressional efforts to review implementation of the ATDA and
to improve the financial management of Federal entities within
the Executive Branch.
S. 2688 would require OMB to submit a comprehensive list of
entities that do not prepare audited financial statements. S.
2688 specifically requests information regarding entities, such
as special purpose entities, that currently are not considered
by OMB in its implementation of the ATDA. S. 2688 would also
require OPM to provide additional information, such as budget
and cost information for small Executive Branch entities, and
would direct OMB to assess ways to improve financial reporting
by these entities. This information is important to ensure that
Federal funds are subject to the oversight provided by Federal
financial management statutes.
III. LEGISLATIVE HISTORY
S. 2688, the Executive Branch Financial Accountability
Reporting Act of 2004, was introduced by Senators Fitzgerald
and Akaka on July 19, 2004, and was referred to the Committee
on Governmental Affairs.
On July 21, 2004, the Committee met to consider pending
legislation, including S. 2688. At that time, the Committee
ordered the bill reported by voice vote without amendment. The
following Senators were present: Collins, Voinovich, Specter,
Fitzgerald, Lieberman, Akaka, Durbin, Carper, and Lautenberg.
IV. SECTION-BY-SECTION ANALYSIS
Section 1--Short title
This section provides that the Act may be cited as the
``Executive Branch Financial Accountability Reporting Act of
2004.''
Section 2--Definition
This section defines the term ``Federal entity'' as any
entity that is established in the Executive Branch, and
includes any entity that administers a special purpose program
or any other entity that is established by presidential or
departmental directive.
Section 3--Report of Federal entities without annually audited
financial statements
Subsection (a) requires the Director of the Office of
Management and Budget within 60 days after the date of
enactment of the Act to submit a report to the Senate Committee
on Governmental Affairs and the House Committee on Government
Reform.
Paragraph (1) of subsection (b) requires the report in
subsection (a) to include a list of each Federal entity that
receives an exemption from the requirement for an annually
audited financial statement under the Accountability of Tax
Dollars Act. This list would include the entity's budget
authority and outlays for the previous and current fiscal
years, as well as theprojected budget authority for the
upcoming year.
Paragraph (2) requires the report to list any other Federal
entities, including temporary commissions, advisory boards,
task forces, or special purpose entities, that do not prepare
annual financial statements and have them independently
audited. This provision also requires the list to include the
budget authority and outlays of these entities for the previous
and current fiscal years, and the projected budget authority
for the upcoming fiscal year.
Paragraph (3) states that the report shall include an
assessment of the capability of the entities listed under
paragraphs (1) and (2) to prepare annual financial statements
and have them independently audited, as well as the costs that
would be incurred to do so.
Paragraph (4) requires the report to assess how the costs
of preparing the financial statements and performing
independent audits of those statements for the entities listed
under paragraphs (1) and (2) may be reduced by grouping smaller
entities together for the purpose of preparing and auditing the
entities' financial statements. This paragraph also requires an
assessment of other means by which the preparation and audit of
financial statements could be made cost-effective for the
entities listed.
Paragraph (5) requires the report to provide an assessment
of the benefits of improved financial oversight of the entire
Executive Branch, including the entities listed under
paragraphs (1) and (2). This paragraph also requires the report
to include recommendations for a plan to implement a
requirement that the entire Executive Branch have annual
financial statement audits.
Section 4--Authorization of appropriations
This section authorizes such sums as may be necessary to
carry out the Act.
V. EVALUATION OF REGULATORY IMPACT
Paragraph 11(b)(1) of rule XXVI of the Standing Rules of
the Senate requires that each report accompanying a bill
evaluate the ``regulatory impact which would be incurred in
carrying out this bill.'' The enactment of S. 2688 would have
no regulatory impact.
VI. CBO COST ESTIMATE
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 4, 2004.
Hon. Susan M. Collins,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
Dear Madam Chairman: As you requested, the Congressional
Budget Office has prepared the enclosed cost estimate for S.
2688, the Executive Branch Financial Accountability Reporting
Act of 2004.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Elizabeth Robinson
(For Douglas Holtz-Eakin, Director).
Enclosure.
S. 2688--Executive Branch Financial Accountability Reporting Act of
2004
S. 2688 would direct the Office of Management and Budget
(OMB) to prepare a report on all executive branch entities and
activities that are exempt from the requirement to undergo an
annual financial audit. Such entities would include many
federal commissions, task forces, advisory boards, and other
special groups. The report on those entities would include
budget information and an assessment of cost to prepare
independent audits for these entities. The bill would require
OMB to submit the report to the Congress within 60 days of
enactment.
The cost to conduct such a study could vary depending on
the level of detail included and the comprehensiveness of the
analysis. Based on information from OMB, and the cost to
prepare similar reports with short deadlines, CBO estimates
that preparing and distributing this report would cost less
than $500,000 in fiscal year 2005, assuming the availability of
appropriated funds. This estimate excludes any additional costs
to prepare audits for entities that are currently exempt from
auditing requirement. Subsequent legislation would be needed to
authorize such audits. Enacting S. 2688 would not affect direct
spending or revenues.
S. 2688 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act, and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Robert A. Sunshine,
Assistant Director for Budget Analysis.
VII. CHANGES TO EXISTING LAW
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, there are no changes in existing
law made by S. 2688 as reported.