In addition to the material weaknesses discussed in appendices II and III, we found two significant deficiencies in the federal government’s internal control related to implementing effective internal controls at certain federal entities, as described below. Also, the significant deficiency in fiscal year 2010 relating to deficiencies in certain controls over spreadsheets used by the Department of Health and Human Services (HHS) to prepare its Statement of Social Insurance is no longer considered to be a significant deficiency as of September 30, 2011. HHS, which administers the Medicare programs, contributes the majority of the amounts reported on the consolidated Statement of Social Insurance.
Internal control deficiencies were identified at certain federal entities accounting for the majority of the reported balances for loans receivable and a significant amount of the reported balances for loan guarantee liabilities. The deficiencies, for the most part, involved credit subsidy estimation and related financial reporting processes. The issues and the complexities associated with estimating the costs of lending and other loan-related financing activities significantly increase the risk that misstatements in entity and governmentwide financial statements could occur and go undetected. Further, these control deficiencies can adversely affect the federal government’s ability to support annual budget requests for these programs, make future budgetary decisions, manage program costs, and measure the performance of lending activities.
The federal government reported grant outlays to states and local governments of over $600 billion in fiscal year 2010—almost one-fifth of the fiscal year 2010 federal budget. In fiscal year 2011, federal grants management internal control deficiencies, primarily regarding inadequate monitoring and oversight of grant programs, were identified at several federal entities. For example, the auditor for one federal entity that awards and manages significant amounts of grants reported issues regarding action and follow-up with noncompliant grantees, as well as inadequate procedures to identify noncompliant grantees. These internal control deficiencies could adversely affect the federal government’s ability to ensure that grant funds are being spent in accordance with applicable program laws and regulations.