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August 4, 2020
Federal Financial and Budgetary Reporting: A Primer
To improve the transparency and integrity of the federal
government and its activities, Congress has established in
law a still-evolving framework for budgetary and financial
reporting. This In Focus outlines several categories of
reporting and related statutory requirements for executive
branch entities. Financial and budgetary reporting may help
Congress, the President, and agency executives make better
informed decisions about the allocation and use of
government resources and guard against potential misuse
and misapplication of such resources. Accordingly, the
design and implementation of these laws may raise issues
for Congress.
Beginning in 1990, Congress has mandated that most
executive branch agencies prepare annual audited financial
statements and submit them to Congress and the director of
the Office of Management and Budget (OMB) (31 U.S.C.
§3515(a)). At agencies with statutorily appointed inspectors
general (IGs), these annual audits are to be directed by the
agency IG, but in practice such audits are typically
contracted by the IG to an independent public auditor. The
Chief Financial Officers (CFO) Act of 1990 established the
position of CFO at 24 large executive branch agencies
known since 1990 as the CFO Act agencies (31 U.S.C.
§901(b)). Each CFO Act agency must submit an annual
report to the agency head and OMB containing the
aforementioned financial statements and audit reports (31
U.S.C. §902(a)(6)).
OMB provides guidance to executive agencies on the
preparation of financial statements in Circular A-136 (see
31 U.S.C. §3515(d)). These annual reports may be included
in an agency's Performance and Accountability Report
(PAR) or an Agency Financial Report (AFR). OMB is then
required to submit a financial management status report
to Congress summarizing agency financial statements and
audit reports (31 U.S.C. §3512(a)(2)).
In addition to agency-level financial reporting, the
Department of the Treasury, in coordination with OMB, is
required to submit a government-wide audited financial
report to Congress and the President (31 U.S.C. §331(e)(1),
enacted in 1994 as part of the Government Management
Reform Act). The report, known as the Financial Report of
the United States Government, compiles information
included in agency-level audited financial statements and
annual reports. The Government Accountability Office
(GAO) audits the government-wide report (31 U.S.C.
§331(e)(2)).
Current law also requires Treasury to release annually a
publication detailing government receipts and outlays (see
31 U.S.C. §3513(a)). Since 2001, this report has been called
the Combined Statement of Receipts, Outlays, and Balances
of the U.S. Government. The report includes, among other
things, details of (1) receipts by source and (2)
appropriations, outlays, and balances by agency and
account.
Congress also established mechanisms to identify financial
management improvements. CFOs within CFO Act
agencies must include a financial management status update
in the agency's annual report (31 U.S.C. §902(a)(6)).
Separately, OMB must annually submit to Congress both a
report describing the status of financial management in the
executive branch and a government-wide five-year plan for
improving federal financial management (31 U.S.C.
§3512(a)). OMB previously published the financial
management status report and government-wide five-year
plan in a single document called the Federal Financial
Management Report. Since 2009, OMB has ceased
publishing a single document covering the statutory
requirements, and it is unclear to CRS where the required
components may be found.
Congress has passed two pieces of legislation instituting
requirements for internal controls at executive agencies.
Agencies are required to establish internal accounting and
administrative controls (31 U.S.C. §3512(c)(1)), a provision
included in the Federal Managers' Financial Integrity Act
of 1982 [FMFIA]). Additionally, agencies must identify
non-compliant accounting and administrative systems and
report a remediation plan to Congress and the President
annually (31 U.S.C. §3512(d)(2)). In practice, agencies
include this reporting with annually audited financial
statements.
Another statutory provision focuses on financial
management systems and applies only to the 24 CFO Act
agencies (see 31 U.S.C. §3512 note, commonly referred to
as the Federal Financial Management Improvement Act of
1996 [FFMIA]). This provision requires federal agencies to
implement and maintain financial management systems that
comply substantially with federal system requirements,
federal accounting standards (in practice, as defined by the
Federal Accounting Standards Advisory Board (FASAB)),
and the United States Government Standard General Ledger
at the transaction level (31 U.S.C. §3512 note). CFO Act
agencies and their auditors must attest to the compliance of
agency financial systems with federal requirements and
recommend remedial actions in annual audit reports (31
U.S.C. §3512 note). Annually, OMB must summarize
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