us treasury: feddebt ann1999

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GAOUnited States General Accounting Office

Report to the Secretary of the Treasury

March 2000 FINANCIAL AUDIT

Bureau of the Public

Debt’s Fiscal Years1999 and 1998Schedules of FederalDebt

GAO/AIMD-00-79



Page 1 GAO/AIMD-00-79 Schedule s of Fede ral Debt

Contents

Letter

Opinion Letter

Schedules and Notes 1

Schedules of Federal Debt 13

Notes to the Schedules of Federal Debt 14

Appendixes Appendix I: Comments From the Bureau of the Public Debt 20

Appendix II: GAO Contact and Staff Acknowledgments 21

Abbreviations

BPD Bureau of the Public DebtOMB Offic e o f Ma nagem ent and Budge t




United State s General Accounting OfficeWashin gto n, D.C. 2054 8


Comptrolle r Generalof the United States

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March 1, 2000

The Honorable Lawrence H. SummersThe Secretary of the Treasury

Dear Mr. Secretary:

This report presents the results of our audits of the Schedules of FederalDebt Managed by the Bureau of the Public Debt for the fiscal years endedSeptember 30, 1999 and 1998. The Schedules of Fed eral Debt p resen t thebeginning balances, increa ses and decreases, and ending balances for(1) Feder al Debt Held by the Public and Federal Debt Held by FederalEntities, (2) the re lated Accrued Interest P ayables, and (3) the related NetUnamortized Discounts and Premiums, managed by the bureau.

As of September 30, 1999 and 1998, federal deb t managed by the burea utotaled about $5.6 trillion and $5.5 trillion, respe ctively, for moniesborrowed to fund the government’s operat ions. These balances consistedof approx imate ly (1) $3.6 trillion as of September 30, 1999, and $3.8 trillionas o f September 30, 1998, owed to the public and about (2) $2.0 trillion as of

September 30, 1999, and $1.7 trillion as of September 30, 1998, owed tofederal ent ities, such as the Social Security Trust funds. Total interes texpense for fiscal years 1999 and 1998 was $356 billion and $363 billion,respec tively. These amounts cons isted o f (1) $230 billion and $243 billion of interest expense on debt owed to the public for fiscal years 1999 and 1998,respec tively, and (2) $126 billion and $120 billion of interest expense ondebt owed to federal en tities for fiscal years 1999 and 1998, respectively.

This report conta ins our (1) opinion on the Schedules of Federa l Debt forthe fiscal years ended September 30, 1999 and 1998, (2) opinion on theeffectiveness of related internal contro l as of September 30, 1999, and(3) conc lusion on the burea u’s compliance in fiscal year 1999 with a

selected p rovision of a significant law we tested.

The level of debt held by the pub lic reflects how much of the nation’swealth is absorbed by the federal government to finance its obligations. Itbest r epres ents the cumulative effect of past federal borrowing on today’seconomy and the federal budget. Debt held by federal entities primarilyrepresents balances in the Social Security and federal civilian employeeand military retirement trust funds , which account for almost 74 percent of



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the debt held by federal entities. The money is invested in special U.S.Treasury securities that are guaranteed for principal and interest by the fullfaith and cred it of the U.S. governme nt. These trus t funds have bee nrunning annual surpluses, which are loaned to the Treasury and reduce theneed for the government to borrow from the public today. The transactionsnet out on the government’s consolidated financial statements because, ineffect, they repres ent loans from one part of the government to another.However, they also constitute future obligations of the Treasury since theTreasury must pay back deb t held by federa l entities when these en titiesneed to redeem their Treasur y security holdings. Interest on Treasurysecur ities held by federal entities may be use d for outlays by the entity orinvested in additional Treasury secur ities.

Debt held by the public and debt held by federal entities are very different .Debt held by the public approximates the feder al government’s com petitionwith other sectors in the credit markets. This competition affects currentinterest ra tes and private capital accumulation. In addition, intere st on debtheld by the public is a curren t burden on taxpayers. In contrast, debt he ldby federal entities performs an accounting function, but it typically doesnot cons titute the government’s total future commitment to trust fundfinanced programs. It represents the cumulative annual surpluses of thosetrust funds plus acc rued interest and also re flects a future claim on the U.S.Treasury. It does no t have the cur rent ec onomic effects of borrowing fromthe public and does not curren tly compete with the private sector foravailable funds in the credit mark et. However, when trust funds redeemTreasury securities to obtain cash to fund expenditures, they compe te withthe private sector and thus have an effect on the economy.

As we reported in May 1999, 1 although the federal government has carr ieddebt throughout virtually all of U.S. history, large annual budget deficitsover the past two decade s sharply increased the total amount of debt owedto the public and its associated annual interest payments. Policymaker sresponded to the histor ically high debt levels in rece nt years by pass ingseveral deficit reduc tion initiatives. These actions, along with ec onomic

growth, helped shrink annu al deficits and bring about the 1999 and 1998surpluses.

1Federal Debt: Answers to Frequently Asked Questions—An Update (GAO/OCG-99-27,May 28, 1999).



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Even after 2 years of budgetary surpluses, debt held by the public stands atabout 40 perce nt of the annua l size of the U.S. econom y, a level that theUnited State s rarely exceeded before 1940. However, the projecte dsurpluses, if they materialize, would lead to a further reduc tion in debt heldby the public. Over the longer term, the retirement of the baby boomgeneration will place additional pressures on the budget. Thesepressures—including, for example, increasing demand for healthservices—will require furthe r act ion to prevent debt he ld by the publicfrom rising again in future decades.

We are send ing copies of this report to Senato r Ted Stevens, Senator RobertByrd, Senator Ben Nighthorse Campbell, Senator Byron Dorgan, SenatorWilliam Roth, Senator Daniel Moynihan, Senator Fred Thompson, Senat orJoseph Lieberman , Senato r Pete Domen ici, Senator Frank Lautenburg, andto Repre sen tative C.W. Bill Young, Representat ive David Obey,Represen tative Jim Kolbe, Representa tive Steny Hoyer, Representative BillArcher, Representat ive Charles Rangel, Representative Dan Burton,Represen tative Henry Waxman , Representative Stephen Horn,Represen tative Jim Turner, Represen tative John Kasich, andRepresen tative John Spratt in their capacities as Chairmen or RankingMinority Members of Sentate or House Committees and Subcom mittees.We are also sending copies of th is report to Mr. Van Zeck, Commissioner,Bureau o f the Pub lic Debt; the Honorab le Jeffrey Rush, Jr., Inspec torGeneral, Departmen t of the Treasury; the Honor able Jacob Lew, Directo r,Office of Management and Budget; and other agency officials. Copies willbe made available to others upon request.

If I can be of further ass istanc e, please ca ll me a t (202) 512-5500. Thisrepor t was pr epare d under the d irection of Gary T. Engel, AssociateDirecto r, Governmentwide Accounting and Financ ial Management Issues,Accounting and Information Management Division. Should you ormembers of your staff have any questions concer ning this report, please



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contac t Mr. Engel at (202) 512-3406. Another k ey contact and staff acknowledgements are in appendix II.

Sincere ly yours,

David M. WalkerComptroller Generalof the United States




United State s General Accounting OfficeWashin gto n, D.C. 2054 8

Comptrolle r Generalof the United States

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To the Commissioner of the Bureau o f the Public Debt

In connec tion with fulfilling our requirement to audit the financialstatements of the U.S. government, we audited the federal debt managed bythe Bureau of the Public Debt (BPD) due to the significance o f the federaldebt on the fede ral government’s financial statements . 1

This report presents the results of our audits of the Schedules of FederalDebt Managed by BPD for the fiscal years ended September 30, 1999 and1998. The Schedules of Fede ral Debt present the beginning balances,increases and decre ases, and ending balances for (1) Federal Debt Held bythe Public and Federal Debt Held by Feder al Entities, (2) the relatedAccrued Interest Payables, and (3) the related Net Unamor tized Discountsand Premiums, managed by BPD.

In our audits of the Schedules of Federal Debt for the fiscal years endedSeptember 30, 1999 and 1998, we found

• the Schedules of Federal Debt are presented fairly in conformity withgenerally accepted accoun ting principles,

• BPD had effective internal control over financial reporting (includingsafeguarding assets) and compliance with laws and regulations relatedto the Schedule of Federal Debt for the fiscal year ended September 30,1999, and

• no reportable noncompliance in fiscal year 1999 with a selectedprovision of a law we tested.

The following sections discuss, in more deta il, these conclusions and thescope of our audits.

Opinion on Schedulesof Federa l DebtThe Schedules of Federal Debt including the accompanying notes presen tfairly, in all material res pects, in conformity with generally acceptedaccounting principles, the ba lances as o f September 30, 1999, 1998, and1997, for Federal Debt managed by BPD, the re lated Accrue d Interes tPayables and Net Unamortized Discounts and Pr emiums, and the related

131 U.S.C. 331(e) (1994).



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increases and dec rease s for the fiscal years ended September 30, 1999 and1998.

Opinion on InternalControl

BPD maintained, in all mate rial respect s, effective internal cont rol overfinancial reporting and co mpliance as of September 30, 1999, that providedreasonable assurance that misstatements, losses, or noncompliance,mate rial in relation to th e Schedule of Federal Debt for the fiscal yearended September 30, 1999, would be prevented or detected on a timelybasis. Management asse rted that its internal control is effective based on

criteria est ablished under the Federal Managers’ Financial Integrity Act of 1982 and the Office of Management and Budget (OMB) Circular A-123,Management Accountability and Control .

We found matters involving computer controls that we do not consider tobe r eportable conditions. 2 We will communicate these matte rs sepa rately toBPD’s management , along with our suggestions for improvement.

Compliance With Lawsand Regulations

Our tes ts for compliance in fiscal year 1999 with Statutory Debt Limits, 31U.S.C. 3101(b), as amended, disclosed no instances of noncom pliance thatwould be reportable under generally accepted government auditingstandards or OMB Bulletin No. 98-08, Audit Requirements for Federal Financial Statements , as amended. However, the ob jective of our audit of the Schedule of Federal Debt for the fiscal year ended September 30, 1999,was not to provide an opinion on overall compliance with laws andregulations. Accord ingly, we do not express such an opinion.

Object ives, Scope, andMethodology

Management is responsible for

• preparing the Schedules of Federal Debt in conformity with generallyaccepted accounting principles;

2Reportable conditions are matters coming to ou r attention that, in our judgment, should becommunicated because they represent significant deficiencies in the design or operation of interna l control that c ould advers ely affect the o rganization’s ability to meet th e objectivesof reliable financial reporting and compliance with applicable laws and regulations.



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• tested relevant internal controls over financial reporting, includingsafeguarding assets, as reflected in note 5 to the sche dules, andcompliance, and evaluated the des ign and operating effectiveness of internal control related to the Schedule of Federal Debt for the fiscalyear ended September 30, 1999;

• considered the process for evaluating and reporting on internal controland financial management systems under the Federal Managers’Financial Integrity Act of 1982; and

• tested compliance in fiscal year 1999 with Statutory Debt Limits,31 U.S.C 3101(b), as amended.

We did not evaluate all internal contro ls relevant to op erating objectives asbroadly defined by the Federal Managers’ Financial Integrity Act of 1982,such as those controls relevant to preparing statistical reports and ensuringefficient operations. We limited our internal control testing to thosecontrols over financial reporting and compliance. Because of inherentlimitations in internal control, misstatem ents due to er ror or fraud, losses,or noncompliance may nevertheless occur and not be de tected. We alsocaution that pr ojecting our evaluation to future periods is subject to therisk that contro ls may becom e inadequate because of changes in conditionsor that the degree of compliance with controls may deteriorate.

We did not test c ompliance with all laws and regulations applicable to BPD.We limited our tests of compliance to those required by OMB Bulletin No.98-08, as amended, and which we deemed a pplicable to the Schedu le of Feder al Debt for the fiscal year ended September 30, 1999. We caution tha tnoncompliance may occur and not be de tected by these tests and that suchtesting may not be sufficient for other purposes.

We did our work in acc ordance with generally accepted governmentauditing standards and applicable OMB guidance .



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Agency Comments In commenting on a draft of this report (see appendix I), BPD concurredwith the facts and conc lusions in our repor t.

David M. WalkerComptroller Generalof the United States

January 28, 2000




Schedules and Notes

Schedules of Federal Debt



Schedules and Note s


Notes to the Schedules of Federal Debt




Appendix I

Comments From the Bureau of the PublicDebt




Appendix II

GAO Contact and Staff Acknowledgments

GAO Contact J. Lawre nce Malenich (202) 512-9399

Acknowledgments In addition to the individual named above, William E. Boutboul, Dawn B.Simpson, Dean D. Carpenter, Casey L. Keplinger, Ogbeide O. Oniha,Carolyn M. Voltz, and Michael S. Wetk low made key con tribut ions to th isreport.

(919401) Letter



United State sGe neral Account ing OfficeWashingt on , D.C. 205 48-0001

Official Busines sPenalty for Private Use $300

Addres s Correction Requeste d

Bulk RatePostage & Fees Paid

GAOPermit No. GI00

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