Department of the Treasury FY 2018 Agency Financial Report

FY 2018 AGENCY FINANCIAL REPORT

ABOUT THIS REPORT

Our Agency Financial Report (AFR) for Fiscal Year (FY) 2018 presents the Department of the Treasury's (Treasury, Department, or our) financial information relative to our vital mission and stewardship of the resources entrusted to us. The AFR also highlights our priorities, accomplishments, and challenges implementing programs that promote conditions for sustaining economic growth and stability at home and abroad, protecting the integrity of our nation's financial system, and effectively

HOW THIS REPORT IS ORGANIZED

Our AFR provides financial and performance information for the FY beginning October 1, 2017, and ending on September 30, 2018, with comparative prior year data, where appropriate. The AFR demonstrates our commitment to our mission and accountability to

managing the United States (U.S.) government's finances and resources. In accordance with Office of Management and Budget's (OMB) Circular A-136, Financial Reporting Requirements, we produce the following reports: (i) an AFR issued on November 15, 2018 and (ii) an Annual Performance Report (APR) submitted with Treasury's congressional budget justification, to be issued by February 1, 2019. The AFR will be available online at . The APR will be available online at .

Congress and the American people. This report presents Treasury's operations, accomplishments and challenges. The AFR begins with a message from the Secretary of the Treasury, Steven T. Mnuchin. This introduction is followed by three main sections.

Part 1: Management's Discussion and Analysis

Provides a high-level overview of our organizational structure, strategic framework, programmatic and financial performance, and management assurances related to Treasury's internal controls.

Part 2: Financial Section

Begins with a message from the Assistant Secretary for Management and Deputy Chief Financial Officer, followed by the Independent Auditors' Report, audited financial statements and notes, and supplementary information.

Part 3: Other Information

Contains various information including Management and Performance Challenges identified by the Inspectors General and Management's response, along with information related to tax gap and tax burden, improper payments, and other relevant information.

TABLE OF CONTENTS

FY 2018 AGENCY FINANCIAL REPORT

FY 2018 AGENCY FINANCIAL REPORT FY 2018 AGENCY FINANCIAL REPORT

MESSAGE FROM THE SECRETARY OF THE TREASURY........................................................................................................................4

PART 1: MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)

TREASURY AT A GLANCE..................................................................................................................................................................9 ORGANIZATION ............................................................................................................................................................................... 11 TREASURY STRATEGIC MANAGEMENT.......................................................................................................................................14 PERFORMANCE OVERVIEW...........................................................................................................................................................16 ENTERPRISE RISK MANAGEMENT...............................................................................................................................................32 FY 2019 OUTLOOK.......................................................................................................................................................................33 FINANCIAL HIGHLIGHTS ? FINANCIAL OVERVIEW ...................................................................................................................34 MANAGEMENT ASSURANCES........................................................................................................................................................39 SYSTEMS, CONTROLS AND LEGAL COMPLIANCE .......................................................................................................................40

PART 2: FINANCIAL SECTION

MESSAGE FROM THE ASSISTANT SECRETARY FOR MANAGEMENT AND DEPUTY CHIEF FINANCIAL OFFICER...............47 INSPECTOR GENERAL'S TRANSMITTAL LETTER .......................................................................................................................48 INDEPENDENT AUDITORS' REPORT ............................................................................................................................................50 MANAGEMENT'S RESPONSE TO INDEPENDENT AUDITORS' REPORT.....................................................................................56 FINANCIAL STATEMENTS..............................................................................................................................................................57 NOTES TO THE FINANCIAL STATEMENTS...................................................................................................................................64 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) ............................................................................................... 135

PART 3: OTHER INFORMATION (UNAUDITED)

SECTION A: TAX GAP AND TAX BURDEN................................................................................................................................ 145 SECTION B: REDUCE THE FOOTPRINT .................................................................................................................................... 154 SECTION C: MANAGEMENT CHALLENGES AND TREASURY RESPONSE.............................................................................. 155 SECTION D: SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES .................................... 190 SECTION E: PAYMENT INTEGRITY ........................................................................................................................................... 192 SECTION F: FRAUD REDUCTION REPORT............................................................................................................................... 207 SECTION G: CIVIL MONETARY PENALTIES INFLATION ADJUSTMENT ............................................................................... 210 SECTION H: GRANTS OVERSIGHT AND NEW EFFICIENCY ACT REQUIREMENTS ............................................................. 216 APPENDIX: GLOSSARY OF ACRONYMS..................................................................................................................................... 217

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