posted on September 2, 2002 01:40:22 PM new
WASHINGTON, D.C. -- Concealing debt and operating costs. Flouting court orders by shredding documents. Failing to properly track assets and liabilities.
These misdeeds have blackened corporate America's eye and prompted criminal investigations and the wrath of Congress and President Bush.
Yet these same accounting failures and sleights of hand have for years been common practice in the federal government, fiscal experts say.
"There's been a lot of sanctimonious finger-waving in Congress at corporate CEOs and much of it is hypocritical," said Pete Sepp, a spokesman for the National Taxpayers Union, which promotes lower federal taxes and spending.
The financial statements of many federal agencies are in such dismal shape that the General Accounting Office (GAO) -- the investigative arm of Congress that audits federal accounts -- has been unable to provide an opinion on the government's finances for the past five years.
Audit not possible
Paul Posner, GAO's managing director of budget and strategic issues, said many federal agencies are unable to even prepare a financial statement to be analyzed.
"They don't have clear knowledge and valuation of all their assets, all their property; a lot of their transactions are still not properly accounted for," Posner said. "Key [agencies] simply don't have records in sufficiently good order for us to even audit and make an opinion."
Rep. Mark Kennedy, R-Minn., a certified public accountant, said the government is right to be holding private industry to a high standard, but that the same standard should apply to its own financial management.
"We do need to call to question and say the government should be held accountable," Kennedy said. He said federal agencies should be made to disclose how resources are being used, what results are achieved, and the standards being used to measure those results.
Bush signed into law last month a bill requiring chief executives or chief financial officers to certify the accuracy of company finances under penalty of law. "There will not be a different ethical standard for corporate America than the standard that applies to everyone else," he said.
But the CFOs of many federal agencies repeatedly fail to articulate what resources they have or the standards they use to account for them -- and they face few, if any, penalties.
Sepp notes that despite their poor records, federal agencies typically continue to receive spending increases.
"What kind of message is that sending to agencies that refuse to clean up their act?" he said.
'Weak stepchild'
While the government has taken steps to reduce the confusion surrounding its finances -- including setting earlier deadlines for financial reports and requiring agencies to submit progress reports along with those audited statements -- progress has been slow.
"Financial management has always been kind of a weak stepchild in government," Posner said. He said a main problem has been getting agencies to state not only their annual expenses, but their assets and liabilities as well. Without those figures, he said, it's hard to accurately measure the full cost of government programs.
"It is almost impossible for anyone other than a very sophisticated budget specialist to know what's going on in the federal budget and to read the stuff that the government puts out," said Bill Frenzel, a former U.S. representative from Minnesota and now a Brookings Institution scholar. "I think Congress is the cleverer of the two in keeping opacity in the system, but the executive branch is pretty good, too."
The government commonly accepts liability for programs like flood insurance, but doesn't record it as a cost, further skewing its financial picture, Frenzel said.
If a corporation had a known liability and didn't put it on its books, "someone would probably be sent off to jail," he said.
Additionally, many federal agencies are fraught with waste, fraud and abuse, according to a financial management report issued by the Office of Management and Budget (OMB) in May.
The report details several accounting weaknesses, including billions of dollars lost in erroneous payments, billions more lost in a sea of unaccounted transactions between departments, and a lack of clear guidelines to manage assets and liabilities.
"The government has a really poor track record," said David Williams, vice president of policy for Citizens Against Government Waste, a watchdog group. Williams cited the more than 2,300 laptop computers misplaced by the Internal Revenue Service in recent years, as well as the Pentagon's admission that it was unable to account for several trillion dollars.
Among the worst offenders is the Defense Department, according to Posner of the GAO.
"I think we've always said that their mission is top flight; it's how they account for it and how they manage their assets and liabilities that they need to do work on," he said.
Frenzel notes, however, that the Defense Department is charged with some of the most complicated tasks. He said the most egregious failures come from the Department of Education.
Always a way
Financial experts point out that when the federal government runs out of money, it easily enough finds ways to spend more.
"Congress can do whatever it wants and it can pretty much call the various kinds of spending -- or whatever else it does -- what it feels like," Frenzel said. "It can be an emergency or not an emergency, it can be supplemental."
"And they do worse things that many of us will never be able to find out," he said.
For example, Frenzel said, Congress creates euphemisms to cloud certain processes and make it look like less money is being spent, such as calling tax increases "negative outlays."
Likewise, Congress can delay Social Security payments, shifting billions of dollars in expenses from one fiscal year to the next, he said. "They're always trying to cover up for a particular year that's in question . . . There's a lot of shifting of revenue and shifting of expenses in the federal government's books."
Even the national debt is inaccurately portrayed: If one includes the money owed to Social Security and pension trust funds, the $3.46 trillion figure would jump by about $35 trillion.
"We're nowhere near an honest measure here," Frenzel said.
And the effects of unfunded liabilities such as Social Security and federal pension funds are ever closer to becoming a real financial disaster issue for the American public, said Sepp of the Taxpayers Union.
"Congress is holding these hearings of tearful Enron employees who say their 401(k)'s have been wiped out," Sepp said. "Well there's an even bigger problem looming, and that's just about all of us who are under 55 who will be lucky to see a dime from Social Security."
posted on September 2, 2002 02:04:08 PM new
Comparing corporate accounting to government accounting is apples to oranges.
No one is bidding up or owns "shares" in the federal government. The federal government hasn't defaulted on loans, nor is it a profiting making venture.
