GAO-25-108147: U.S. Consolidated Financial Statements: Key Issues for the Small Business Administration

Summary

A Government Accountability Office letter dated July 23, 2025 to Nathan Davis, Chief Financial Officer of the Small Business Administration, on key issues for SBA affecting the U.S. government's consolidated financial statements. It states that on January 16, 2025 GAO issued a disclaimer of opinion on these statements for fiscal years 2024 and 2023. It states that SBA was unable to obtain an opinion on its fiscal years 2020 through 2024 financial statements because it could not support transactions and balances related to COVID-19 relief programs, such as the Paycheck Protection Program and the COVID-19 Economic Injury Disaster Loan program. The letter also addresses intragovernmental activity and balances between SBA and its trading partners.

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441 G St. N.W.
Washington, DC 20548



July 23, 2025

Mr. Nathan Davis
Chief Financial Officer
Small Business Administration
409 3rd St. S.W., Suite 6000
Washington, D.C. 20416

U.S. Consolidated Financial Statements: Key Issues for the Small Business
Administration

Dear Mr. Davis:

Congratulations on your appointment as Chief Financial Officer of the Small Business
Administration (SBA). As SBA’s Chief Financial Officer, you have an important role in helping to
ensure that reliable and complete federal financial information is available. The purpose of this
letter is to highlight important issues for your awareness related to financial management in the
federal government.

GAO is responsible for conducting the annual audit of the U.S. government’s consolidated
financial statements, or CFS.1 On January 16, 2025, we issued a disclaimer of opinion on these
statements for fiscal years 2024 and 2023.2 The consolidated financial statements are compiled
from federal entity financial statements and other federal entity information. As such, federal
entities, including SBA, have a key role in supporting financial reporting at the government-wide
level.

SBA’s strong and sustained commitment is critical to addressing the following key issues that
affect the U.S. government’s consolidated financial statements.

SBA’s disclaimers of opinion and material weaknesses: SBA was unable to obtain an
opinion on its fiscal years 2020 through 2024 financial statements. The disclaimers of opinion
were based on SBA’s inability to provide relevant and reliable information to support a
significant number of transactions and account balances related to COVID-19 relief programs,
such as the Paycheck Protection Program and the COVID-19 Economic Injury Disaster Loan
program, because of inadequate processes and controls. These disclaimers contributed to us
being unable to express an opinion on the consolidated financial statements. It is important that
SBA address the issues causing the disclaimers of opinion to support accurate reporting for the
consolidated financial statements.




1The Secretary of the Treasury, in coordination with the Director of the Office of Management and Budget, is required

to annually submit audited financial statements for the executive branch of the U.S. government to the President and
Congress. These statements, as submitted, also include the legislative and judicial branches.

2GAO, Financial Audit: FY 2024 and FY 2023 Consolidated Financial Statements of the U.S. Government, GAO-25-

107421 (Washington, D.C.: Jan. 16, 2025).

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SBA’s auditor also reported several material weaknesses in internal control in fiscal years 2020
through 2024 related to these COVID-19 programs, which contributed to SBA’s inability to
obtain an audit opinion. These weaknesses limit the reliability of SBA’s financial reporting and
increased the risk of fraud and improper payments. Due to the continuing material weaknesses
in controls associated with the two programs that led to loans going to potentially ineligible
borrowers, we have designated Emergency Loans for Small Businesses as a high-risk area
since 2021.3 Improved financial reporting to address the causes underlying the disclaimers of
opinion would help SBA make progress toward addressing this high-risk area.

Intragovernmental activity and balances: In our fiscal year 2024 audit of the consolidated
financial statements, we continued to report that the federal government was unable to
adequately account for intragovernmental activity and balances between federal entities. This is
one of three major impediments preventing us from rendering an opinion on the consolidated
financial statements.

Under federal accounting standards, intragovernmental activity and balances between federal
entities must be eliminated for the preparation of the consolidated financial statements. While
the Department of the Treasury has issued guidance and worked with federal entities to reduce
differences in intragovernmental activity and balances in recent years, differences remain.
These include differences between SBA and its trading partners.

It is important that SBA provides reliable intragovernmental activity and balances data to
Treasury, which properly eliminates in consolidation. To accomplish this, SBA will need to
continue to focus on effective controls that accurately identify, record, and report
intragovernmental transactions and balances, including reconciling and resolving differences
with its trading partners. Resolving differences with trading partners involves (1) identifying
differences related to transactions in SBA’s and its trading partners’ accounting records; (2)
reconciling those differences; and (3) adjusting accounting records, either SBA’s or its trading
partners’ as appropriate, to eliminate the differences.

Unresolved differences in federal entity intragovernmental activity and balances at the
transaction level could result in material misstatements in the consolidated financial statements.

Reconciliation statements: In our fiscal year 2024 audit of the consolidated financial
statements, we continued to report on Treasury’s ineffective preparation of the two
Reconciliation Statements: (1) Reconciliation of Net Operating Cost and Budget Deficit and (2)
Statement of Changes in Cash Balance from Budget and Other Activities.

We found that (1) amounts in the statements were not fully consistent with underlying
information in significant federal entities’ audited financial statements and other financial data
and (2) all reconciling items were not identified and reported in the statements.4 In addition, our

3GAO, High-Risk Series: Heightened Attention Could Save Billions More and Improve Government Efficiency and

Effectiveness, GAO-25-107743 (Washington, D.C.: Feb. 25, 2025).
4For fiscal year 2024, federal entities significant to the U.S. government’s consolidated financial statements were the

24 Chief Financial Officers Act agencies and Export-Import Bank of the United States, Farm Credit System Insurance
Corporation, Federal Communications Commission, Federal Deposit Insurance Corporation, Millennium Challenge
Corporation, National Credit Union Administration, National Railroad Retirement Investment Trust, Pension Benefit
Guaranty Corporation, Railroad Retirement Board, Securities and Exchange Commission, Smithsonian Institution,
Tennessee Valley Authority, U.S. International Development Finance Corporation, U.S. Postal Service, General Fund
of the U.S. Government, and Security Assistance Accounts.




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separate audit of the General Fund of the U.S. Government found that the effect of journal
entries on all applicable General Fund line items, including the budget deficit, which is a key line
item on the Reconciliation Statements, was not able to be determined.5

Treasury is developing corrective actions to address the deficiencies related to the
Reconciliation Statements. These include using the budget and accrual reconciliation disclosure
included in federal entities’ audited financial statements, including SBA’s financial statements, to
prepare the Reconciliation Statements.6 SBA accurately preparing its budget and accrual
reconciliation information is important to Treasury’s efforts in this area.

In addition, Treasury determined that it needs to enhance the ability for federal entities, such as
SBA, to record reclassifications of Treasury Account Symbol and Business Event Type Code
information for Fund Balance with Treasury activity previously recorded in the Central
Accounting Reporting System (CARS) at a more detailed level. While Treasury is in the process
of enhancing the reclassification process in CARS, it has implemented the Transfers and Non-
Cash module within CARS for federal entities to report this activity, including Treasury Account
Symbols and Business Event Type Codes, at a sufficiently detailed level. Currently, federal
entities report this activity at a summarized level. SBA (1) fully implementing the Transfers and
Non-Cash module for its transfer and non-cash activity and (2) using the enhanced
reclassification process once it is implemented in CARS are important to Treasury’s efforts in
this area.

Treaties and other international agreements: In our fiscal year 2024 audit of the consolidated
financial statements, we continued to report that Treasury was unable to reasonably assure that
contingencies related to treaties and other international agreements were reported in
accordance with U.S. generally accepted accounting principles.

We found that (1) contingencies for treaties and other international agreements were not
sufficiently identified at the time of entry into force and (2) treaties and other international
agreements with contingencies were not monitored for events that may give rise to the
recognition or disclosure of a contingency. In addition, we found that there was not a process for
determining in which federal entity’s financial statements to report any identified contingencies.

Treasury, in coordination with the Department of State, is developing new processes for federal
entities, including SBA, to implement to address these deficiencies. SBA effectively
implementing the new processes to identify, monitor, and report any contingencies related to
treaties and other international agreements is important to accurately reporting contingencies at
the government-wide level.

                 -------------------------------------------------------------------------------------------

Copies of this letter are being sent to the appropriate congressional committees. The letter will
also be available on the GAO website at https://www.gao.gov. In addition, we sent a separate

5The General Fund is a significant component of the U.S. government’s consolidated financial statements. It is a

stand-alone reporting entity that comprises the activities fundamental to funding the federal government (e.g., issued
budget authority, cash activity, and debt financing activities). See GAO, Financial Audit: Bureau of the Fiscal
Service’s FY 2024 Schedules of the General Fund, GAO-25-106679 (Washington, D.C.: Mar. 13, 2025).

6Statement of Federal Financial Accounting Standards (SFFAS) 53, Budget and Accrual Reconciliation: Amending

SFFAS 7, and 24, and Rescinding SFFAS 22, requires a reconciliation that explains the relationship between an
entity’s net outlays on a budgetary basis and its net cost of operations during the period.




Page 3                                                                    GAO-25-108147 CFS Issues for SBA
letter to the Administrator of the Small Business Administration related to agencywide priority
recommendations and will be sending a letter to SBA’s Chief Information Officer focused on key
recommendations related to managing information technology.7

If you have any questions or would like to discuss matters outlined in this letter, please contact
me at simpsondb@gao.gov. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this letter. I appreciate SBA’s continued
commitment and thank you for your personal attention to these important matters.

Sincerely,




Dawn B. Simpson
Director
Financial Management and Assurance

cc:      Deidre A. Harrison, Deputy Controller Performing the Delegated Duties of the
         Controller, Office of Management and Budget

         Gary Grippo, Acting Fiscal Assistant Secretary, Department of the Treasury




7Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or

agencies. They are highlighted because, upon implementation, they may significantly improve government
operations, for example, by realizing large dollar savings; eliminating mismanagement, fraud, and abuse; or making
progress toward addressing a high-risk or duplication issue. Since 2015, GAO has sent letters to selected agencies to
highlight the importance of implementing such recommendations. See GAO, Priority Open Recommendations: Small
Business Administration, GAO-25-108048 (Washington, D.C.: May 1, 2025).




Page 4                                                               GAO-25-108147 CFS Issues for SBA
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