Intragovernmental Transactions: Seeking a Solution to Perennial Imbalances in Accounting for Agency-to-Agency Financial Transactions

April 2008 - Despite significant improvements in recent years, the Federal Government has failed to achieve a clean audit of its consolidated financial statements for 12 years running.

One major obstacle has been its inability to adequately account for business transactions between its own departments and agencies—transactions that amounted to over $63 billion in 2007 alone. With generous support from MasterCard International, Kelly, Anderson and Associates, and Grant Thornton, the National Academy of Public Administration hosted a forum in April 2008 of seasoned public and private sector leaders to discuss efforts underway to identify and apply both public and private sector solutions to this continuing problem.

Overview

Despite significant improvements in recent years, the federal government has failed to achieve a clean audit of its consolidated financial statements for 12 years running. One major obstacle has been its inability to adequately account for business transactions among its own departments and agencies—transactions that amounted to over $63 billion in 2007 alone. With generous support from MasterCard International; Kelly, Anderson and Associates, and Grant Thornton, the National Academy hosted a forum in April 2008 of seasoned public and private sector  leaders to discuss efforts under way to identify and apply both public and private sector solutions to this continuing problem. Due to the volume of fund transfers back and forth, it appears that the government does much more business with itself than with the private sector. In March 2008, IGTs amounted to nearly $6 trillion compared with total budget outlays that same month of only $252 million. Congress has encouraged this business within the federal government, with the caveat that the service or good cannot be obtained for less from the private sector and that it is more readily available from within the government. This large volume of purchases and sales between and within departments needs to be processed and reconciled. Imbalances between a department’s accounts receivable and accounts payable (which should come to zero in total) are a small portion of that cash flow, but they still amounted to about $42 billion in FY 2007.

Key Findings

This report, which reflects that discussion, sheds light on potential solutions to this difficult challenge to effective financial management in government. The National Academy gratefully acknowledges the support of the sponsors, as well as the thoughtful participation of the forum attendees.