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Financial Report of the United States Government

Management's Discussion & Analysis

Financial Management

Government Expenditures

Results-Oriented Accountability for Grants

Nearly $800 billion is spent annually on grants and cooperative agreements. Grants managers, both internal and external to the government, report that approximately 40 percent of their time is spent using antiquated processes to monitor compliance with grant requirements rather than using data analytics to monitor grant results. To address these challenges, OMB and the federal grant-making agencies27 have developed a long-term improvement strategy. The strategy includes standardizing the grants management business process and data, building shared IT infrastructure, establishing a standard risk management framework across grant programs, and ensuring that new grant programs are designed to reflect measurable goals.

To support the standardization of the business process and data and the building of shared IT infrastructure, OMB issued M-18-24, “Strategies to Reduce Grant Recipient Reporting Burden,” and published Version 1.0 of the Grants Management Standard Data Elements. In addition, in December 2019, the Grant Reporting Efficiency and Agreement Transparency Act was enacted and, in August 2020, OMB published final changes to 2 CFR to require future information collection requests to adhere to the Grants Management Standard Data Elements. Also, concurrent with the release of OMB memo M-19-16, “Centralized Mission Support Capabilities for the Federal Government,” OMB predesignated HHS as the Grants Management QSMO and throughout FY 2020 HHS worked with the federal grants community to modernize grants technology, promote interoperability of systems, reduce the number of grants management systems, and promote a risk-based, data-driven approach to managing federal grants. In January 2021, OMB announced that HHS was formally designated as the Grants Management QSMO.

To assess a grant applicant’s capabilities, agencies need performance data and the ability to include performance in risk modeling. Consistent with a risk-based approach, agencies are required to audit only seven, not all twelve, of the twelve management requirements (e.g., allowable costs, eligibility, cash management) applicable to grant programs. Specifically, they are required to audit the seven areas deemed to pose the greatest risk or that produced the greatest number of audit findings in the past, as specified in the Compliance Supplement.28 OMB issued an Addendum to the 2020 Compliance Supplement for the major COVID-19 programs, which seeks to also ensure compliance with subaward reporting under the Federal Funding Accountability and Transparency Act.

In addition, in FY 2020, OMB published the performance “playbook,” which promotes a common understanding of performance practices to improve grant recipient and program performance and OMB developed a change management strategy focused on listening sessions with federal stakeholders, including the grants community.

Also, in FY 2020, OMB issued COVID-19 related grants guidance, including: OMB Memorandum M-20-11, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19); OMB Memorandum M-20-17, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations; OMB Memorandum M-20-20, Repurposing Existing Federal Financial Assistance Programs and Awards to Support the Emergency Response to the Novel Coronavirus (COVID-19); and OMB Memorandum M-20-26, Extension of Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations.

Getting Payments Right

Preventing improper payments in the federal government is a management priority. To be successful in preventing improper payments, there must be a focus on systemic enhancements intended to make payments correctly the first time with an emphasis on reducing monetary loss. The federal government, through the CFO community, has identified five strategies to reduce monetary loss and prevent improper payments, which are: 1) Clarify and Streamline Requirements, 2) Identify Monetary Loss Root Causes, 3) Strategic Data Use (using data to prevent improper payments), 4) Mitigation Strategies (using non-data methods to prevent improper payments), and 5) Strengthen State Partnerships.

Starting in FY 2018, agencies with programs reporting more than $100 million in monetary loss began providing a quarterly scorecard on These scorecards provide information on the actions taken and progress made on preventing improper payments that would result in monetary loss to the government. Additional details on the programs’ FY 2020 improper payment data can be found at Beginning in FY 2020, began providing payment integrity information that had previously been reported in agencies financial statements. Information about program compliance, corrective actions, and accountability mechanisms is now available in a consistent format across all programs.

In FY 2021, OMB will continue to work with agencies, the CFOC, and other stakeholders to improve the identification of the root causes of improper payments that result in monetary loss and to promote data analytic methods that take a comprehensive view of an agency’s payment lifecycle.

Efficient Use of Real Property Assets

The federal government owns a significant amount of real property assets worldwide, with a majority of its holdings located in the U.S. These real property holdings include assets that are classified by property type in the FRPP as: land, buildings, and structures. The FRPP defines land as acreage and a building as a constructed asset that is enclosed with walls and a roof that provides space for agencies to perform activities, store materials, or provide space for people to live or work. A structure is defined as any constructed asset that does not meet the building definition above (i.e., fence, tower, parking structure). Further information can be found in the FRPP Data Dictionary available at


The federal government owns roughly 640 million acres, which represents about 28 percent, of all U.S. land. Four major federal land management agencies administer 610.1 million acres, or 95 percent, of this land. They are the BLM, Fish and Wildlife Service, and National Park Service in DOI; and the Forest Service in USDA. These lands are managed for many purposes, primarily related to conservation, preservation, recreation, and the extraction of natural resources such as timber, minerals, oil, and gas. Much of the land managed by DOI and USDA is public domain land and is generally intended to be retained by the government for use by future generations. This and other land that qualifies as stewardship land is not valued on the government-wide Balance Sheet, but is discussed in Note 25 and in agencies financial statements. In addition, DOD (excluding the Army Corps of Engineers) uses stewardship land for military bases, training ranges, and other military related functions.


The government owns structures that are affixed to the land and in many instances cannot easily be physically separated from the land; these include parking structures, power plants, power generating stations, dams, and space exploration structures. These structures are managed by agencies such as DOE, the Army Corps of Engineers, and NASA. The federal government charges fees for the use of some of these structures, which defray some of the costs of the assets. The receipt of such user fees (e.g., sales of electrical power) is recorded as revenue. Structures are generally reflected on the Balance Sheet at cost, net of depreciation, and any environmental or other liabilities associated with structures are reflected on the Balance Sheet in accordance with GAAP.


A large portion of the government’s real property inventory includes federally owned buildings, with the majority in the custodial care of DOD. In general, agencies hold and manage buildings for administrative use to achieve their mission. The government does not hold buildings or any real property assets for investment or land banking purposes. Buildings owned by the government (and the land associated with the buildings) are generally reflected on the Balance Sheet at cost, net of depreciation. As noted above with structures, any environmental or other liabilities associated with buildings (and the land underneath the buildings) are also reflected on the Balance Sheet in accordance with generally accepted accounting principles. Any buildings (or structures, including the land underneath the buildings or structures) that are not in service are included on the Balance Sheet at net realizable value. After the government identifies buildings or other real property for disposal, it carries out public or negotiated sales, demolitions, public benefit conveyances, and, on occasion, property exchanges.

The federal domestic building inventory is diverse and contains 272,000 owned and leased buildings totaling 2.7 billion square feet of space as of 2019. Several current real property initiatives being pursued are discussed below.

Transformation Efforts to Optimize the Use of Federal Real Property

OMB Memorandum M-18-21 requires all federal entities to designate senior real property officers to coordinate all aspects of their real property programs and to serve on the FRPC. The FRPC seeks to provide comprehensive government-wide strategic direction to help optimize the federal real property portfolio to achieve statutory missions while managing costs over the short, mid, and long-term. The FRPC is addressing current challenges such as the lack of a comprehensive strategic approach to asset management, funding challenges, poor data quality, and administratively burdensome and costly legislative disposal requirements. It seeks to revise the national strategy’s policy framework, standardize the business processes and data, and diagnose and address root causes of current challenges.

On November 6, 2019, OMB issued Memorandum M-20-03, providing detailed guidance to agencies to implement the Capital Programming Guide in OMB Circular A-11 and to ensure that an agency’s real property portfolio helps it efficiently achieve its mission. The Memo provides standards for agencies to use to develop a consistent methodology for allocating resources to real property. This resource allocation will occur as a part of the annual budget formulation process, with agencies systematically identifying their real property needs and assessing their existing real property assets. This process of reviewing real property holdings, acquisitions, and dispositions and linking clearly articulated long-term real property requirements to options that consider the life-cycle of real property is intended to allow agencies and policymakers to have the information necessary to optimize the federal real property portfolio. This should lead to the elimination of excess capacity, cost-effective long-term investments in real property, and annually updated information about the condition of existing property.

The strategic direction reflected in Memorandum M-20-03 builds on the results of the Reduce the Footprint policy, which was issued in 2015 and requires the CFO Act agencies to reduce the size of their federal real property portfolios by improving the use of government-owned buildings and by reducing the amount of leased space and the number of excess and underutilized properties. In March 2020, OMB issued Memorandum M-20-10 Addendum to the National Strategy for the Efficient Use of Real Property (Addendum), which goes beyond reducing office and warehouse space to optimizing the government’s entire portfolio to achieve mission effectiveness and cost efficiency. The Addendum seeks to ensure that the federal government has the right type of property, in the right amount, at the right location, at the right cost, in the right condition, to support its diverse mission requirements. In addition, Implementation of the Federal Assets Sale and Transfer Act of 2016 and the Federal Property Management Reform Act of 2016 may result in a number of property disposals and aid in the efficient use of real property.

Leveraging Data as a Strategic Asset

DATA Act and

The DATA Act amended the Federal Funding Accountability and Transparency Act of 2006 by linking federal government contract, loan, and grant spending to federal programs and requiring that all federal spending be displayed on a website in searchable, downloadable, and machine-readable formats.

The website, which Treasury launched in April 2018 in accordance with the DATA Act, allows users to examine more than $4 trillion in federal spending and identify communities, businesses and non-profit entities that have received federal funding. The data are provided by more than 100 federal agencies and is compiled by Treasury on a quarterly basis. The site allows users to explore the data and download reports that are tailored to their specific interests. The site also includes the Data Lab, which provides use cases, data visualizations, and analyses of federal spending and trends. The data are searchable in a machine-readable format and open application programming interface.

Under OMB Memorandum M-18-16, Management of Reporting Data Integrity Risk, Appendix A to OMB Circular A-123, agencies were required to develop and implement a data quality plan for FYs 2019 through 2021. The guidance also requires agencies to consider in their assurance statements all internal controls (including controls over DATA Act reporting). In November 2019, GAO noted (in GAO-20-75) that agencies had made significant progress in improving DATA Act data quality.

In April 2020, OMB issued Memorandum M-20-21 Implementation Guidance for Supplemental Funding Provided in Response to the Coronavirus Disease 2019 (COVID-19), which expanded the use of the DEFC for tracking disasters and emergencies to data provided for Additionally, in FY 2021, agencies are required to report program activities at the award level and, beginning in FY 2022 agencies are directed to begin monthly reporting, including outlays at the award level.

Program Inventory

In December 2020, OMB launched the Federal Program Inventory Exploratory Pilot as an interim step in a multi-year effort to create a coherent and comprehensive government-wide program inventory. The goal of the inventory, as articulated in the Government Performance and Results Modernization of 2010, is to provide policymakers and the public “a coherent picture of all Federal programs, and the performance of the Federal Government as well as individual agencies.” This coherent picture has become known as the Federal Program Inventory.

Financial Management Framework

Sharing Quality Financial Management Services

The federal financial management infrastructure (which includes grants) exists in a complex environment of legacy systems, customized tools built to unique requirements, lack of harmonized standards, and business processes that no longer leverage modern technology. The sharing of financial technology and services has been successful for smaller agencies as well as a cabinet-level department, with much opportunity remaining to expand the use and effectiveness of these types of arrangements. Specifically, agencies that provide financial management services to other agencies have done so efficiently and effectively for agencies with more limited financial systems requirements. However, when the service providers have attempted to provide similar services and share technology with agencies that have more complex requirements, the result has often been cost over-runs and the need for systems upgrades or customization. To address this, cross-agency work groups are exploring industry capabilities for optimal use of technology in federal financial management and coordinating the implementation of best practices across the government.

OMB issued M-19-16, “Centralized Mission Support Capabilities for the Federal Government,” on April 26, 2019. In June of 2020, Treasury was officially designated as the QSMO for the financial management line of business and, along with OMB and GSA, will be working with agencies as they pursue the goals as outlined in M-19-16.

Financial Management Workforce

Federal agencies and OMB are committed to redefining the role of the federal government by prioritizing activities that advance the federal government financial workforce. The future workforce must enable senior leaders and front-line managers to align staff skills with evolving mission needs. This will require more nimble and agile management of the workforce, including reskilling and redeploying existing workers to keep pace with the current pace of change.

Under the CFOC, a cross-agency “Shape the Workforce” work group has been working to establish a systematic process for identifying and addressing gaps between the financial management workforce of today and the workforce needs of tomorrow. Through this process, CFO leadership will be able to identify the personnel required to meet organizational goals, conduct analyses to determine and close competency and skills gaps, develop strategies to address human capital needs, and assess the effectiveness of CFO office structures. In addition, the cross-agency work group is exploring options for consolidating recruitment efforts and streamlining the hiring process, leveraging technology to improve the financial management workforce, and developing new tools for retention and staff development.

Enterprise Risk Management

ERM is a tool used by agencies to systematically identify, assess, mitigate, manage, and prepare for risks that could interfere with an agency’s ability to achieve its mission and goals. ERM promotes risk-informed decision making that allows resources to be prioritized and allocated based on risk and encourages agencies to target their limited resources to activities likely to produce the greatest improvement in program performance.

Using ERM techniques, federal agencies establish internal controls to address management challenges that cut across multiple agencies’ functions and reduce associated risk to an acceptable level that aligns with the agency’s risk appetite and tolerance. In this way, ERM integrates risk management and internal control processes. The 2016 update to OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control, stresses the importance of applying ERM to all financial management activities, including charge cards and payment integrity. In 2019, the updated OMB Circular A-11, Part 6, integrated ERM into agency strategic planning and performance measurement processes. In 2020, Circular A-11 (sections 31.1 and 31.8) was updated to integrate ERM into the budget formulation process. In response to COVID-19, OMB updated M-20-21, Risk-Based Financial Audits and Reporting Activities in Response to COVID-19, to encourage agencies to use risk-based frameworks to achieve financial, audit, and payment integrity objectives. Also in 2020, the CFOC established an ERM Executive Steering Committee to identify and share ERM best practices, develop a federal ERM maturity model (a self-assessment tool used to assist in ERM implementation), promote ERM integration with mission and mission support functions, and facilitate constructive coordination with oversight entities.

Agency Financial Report Results


Since the passage of the CFO Act, the federal financial community has made significant progress in financial accounting and reporting. As shown in Table 11, for FY 2020, 22 of the 24 CFO Act agencies obtained an unmodified opinion from the independent auditors on their financial statements.29 In addition, 48 auditor-identified material weaknesses were reported at the end of FY 2020 compared to 41 for FY 2019. Twenty-six of these are associated with DOD. The other 22 material weaknesses are associated with non-DOD agencies, which represents an increase from 16 reported in 2019, primarily because of the increase in new material weaknesses at SBA associated with implementation of programs implemented under the CARES Act and related legislation. Although virtually all federal agencies have adopted and maintained disciplined financial reporting operations, implemented effective internal controls over financial reporting, and integrated transaction processing with accounting records, weaknesses in financial management practices still continue to prevent the government as a whole from achieving an audit opinion.

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Table 11: Agency Audit Results: FY 2020
  Audit Auditor-Reported Material Weaknesses
Agency Opinion Beginning New Resolved Consolidated Ending
Department of Agriculture (USDA) Unmodified 2 0 0 0 2
Department of Commerce (DOC) Unmodified 0 0 0 0 0
Department of Defense (DOD) Disclaimer 25 4 2 1 26
Department of Education (Education) Unmodified 1 1 1 0 1
Department of Energy (DOE) Unmodified 0 0 0 0 0
Department of Health and Human Services (HHS)* Unmodified 0 0 0 0 0
Department of Homeland Security (DHS) Unmodified 2 0 0 0 2
Department of Housing & Urban Development (HUD)** Unmodified 1 0 0 0 1
Department of the Interior (DOI) Unmodified 1 1 1 0 1
Department of Justice (DOJ) Unmodified 1 0 1 0 0
Department of Labor (DOL) Unmodified 0 0 0 0 0
Department of State (State) Unmodified 0 0 0 0 0
Department of Transportation (DOT) Unmodified 0 0 0 0 0
Department of the Treasury (Treasury) Unmodified 0 0 0 0 0
Department of Veterans Affairs (VA) Unmodified 5 0 0 0 5
Agency for International Development (USAID) Unmodified 0 0 0 0 0
Environmental Protection Agency (EPA) Unmodified 1 0 0 0 1
General Services Administration (GSA) Unmodified 0 0 0 0 0
National Aeronautics & Space Administration (NASA) Unmodified 0 0 0 0 0
National Science Foundation (NSF) Unmodified 0 0 0 0 0
Nuclear Regulatory Commission (NRC) Unmodified 0 1 0 0 1
Office of Personnel Management (OPM) Unmodified 1 0 0 0 1
Small Business Administration (SBA) Disclaimer 1 7 1 0 7
Social Security Administration (SSA) Unmodified 0 0 0 0 0
Totals   41 14 6 1 48
* Unmodified opinion on all statements except SOSI and SCSIA, which received a disclaimer.

Agency Financial Management Systems

Federal agencies improved, but continue to face challenges, in implementing financial management systems that meet federal requirements. The number of CFO Act agencies reporting lack of substantial compliance with one or more of the three Section 803(a) requirements of the FFMIA remained at seven in FY 2020, and the number of auditors reporting lack of substantial compliance with one or more of the three Section 803(a) FFMIA requirements increased to nine in FY 2020.

As suggested in the “Sharing Quality Financial Management Services” section above, because of the federal government’s size and diversity, its financial management infrastructure consists of both legacy and modernized systems and standardized and customized systems. As the government’s fiscal agent, Treasury has systems for collecting and disbursing the government’s cash and financing disbursements when necessary, recording and reporting on those collections and disbursements, and reporting on all government revenues, expenses, assets, and liabilities.

In 2020, Treasury was designated as the Financial Management systems QSMO and it is pursuing financial management improvement strategies that have government-wide implications. These strategies include standing up a financial management marketplace, developing system standards, and standardized processes, system requirements, and system interfaces. These efforts provide a path to the decommissioning of legacy systems and migration to updated systems, leveraging modernized technologies. Also, agencies are coordinating with Treasury QSMO to improve their financial management and financial reporting systems as described in their financial reports, budget requests, and performance plans. DOD continues to address its material weaknesses in financial reporting, and is bringing its financial systems into compliance with federal financial management systems requirements, including the FFMIA; these plans can be found in the agency financial statements. In addition, DOD’s audit remediation efforts include issues related to real property, inventory and OM&S, government property in the possession of contractors, information technology access controls, reconciling DOD’s fund balance with Treasury, internal controls over financial reporting, the Joint Strike Fighter program, and component audit support.

Agency Internal Controls

Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help to ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Safeguarding assets is a goal of each of these three objectives.

OMB Circular No. A-123 implements the requirements of 31 U.S.C. 3512 (c) and (d) (commonly known as the Federal Managers’ Financial Integrity Act) by providing agencies a framework for assessing and managing risks strategically and tactically. The Circular reflects GAO’s Standards for Internal Control in the Federal Government and contains multiple appendices that address one or more of the objectives of effective internal control. 

  • Appendix A provides for agencies to use a risk-based approach to assess, document, test, and report on internal controls over reporting and data integrity; 
  • Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in government charge card programs; 
  • Appendix C implements the requirements for effective estimation and remediation of improper payments; and 
  • Appendix D defines requirements for determining compliance with the FFMIA that are intended to reduce the cost, risk, and complexity of financial system modernizations.

As noted above, the total number of reported material weaknesses for the CFO Act agencies as of the issuance of this Financial Report was 48 for FY 2020 and 41 for FY 2019. Effective internal controls are a challenge at the agency level and at the government-wide level, with GAO reporting that at the government-wide level, material weaknesses resulted in ineffective internal control over financial reporting. While progress is being made at many agencies and across the government in identifying and resolving internal control deficiencies, additional work is needed.

Legal Compliance

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, employment, and health and safety, among others. Responsibility for compliance rests with agency management and compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws and regulations related to financial reporting and certain individual agency audit reports contain instances of noncompliance. None of these instances were material to the government-wide financial statements; however, GAO reported that its work on compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.


The federal government has seen significant progress in financial management since the passage of the CFO Act nearly 30 years ago, but significant challenges remain to realizing the intended financial management reforms of the act. The issues that the federal government faces today require financial managers to improve both the efficiency and effectiveness of financial management activities, which includes moving toward integrated government operations with standardized business processes, systems, and data. Together with Treasury and OMB, agencies are building on tools and capabilities to improve financial accountability and transparency.


27 The term “agency” is used in the Financial Management section of the Management’s Discussion and Analysis rather than the term “entity,” which is used throughout the rest of the Financial Report. SFFAS No. 47, Reporting Entity, defines the term “entity” for federal financial reporting purposes and addresses both component and government-wide financial reporting. The term entity is generally broader than “agency” because it refers to agencies, components of agencies, and the federal government as a whole. The term “agency” is used in this section because the laws, policies, and plans discussed in this section apply to “agencies” as defined in particular laws or policy guidance documents and because the laws, policies, and plans discussed in this section do not generally define the term “entity.” (Back to Content)

28 The Compliance Supplement is an annually updated authoritative source for auditors that identifies compliance requirements that the federal government expects to be considered as part of an audit. Auditors use it to understand the federal program's objectives, procedures, and compliance requirements, as well as audit objectives and suggested audit procedures for determining compliance with the relevant federal program. (Back to Content)

29 The 22 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA.” (Back to Content)

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Last modified 01/31/23