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Source link: http://archive.mises.org/15189/gao-cant-render-opinion-on-government-financials/

GAO can’t render opinion on government financials

December 31, 2010 by

The federal government released its 2010 financial statements as prepared according to Generally Accepted Accounting Principles (GAAP) a few days before Christmas. The public isn’t clamoring for this information and the government’s numbers don’t seem to be keeping anyone awake at night.

For those looking for scary numbers to wash down with their bubbly tonight, according to GAAP, the government’s deficit in 2010 was $2.08 trillion, a considerable widening from the $1.254 trillion deficit in 2009.

If these numbers weren’t bad enough, the U.S. Government Accountability Office says it can’t render an opinion on the federal government’s financials “because of widespread material internal control weaknesses, significant uncertainties, and other limitations.”

Specifically the GAO won’t weigh in because of three areas: “(1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.”

Gene Dodaro, acting comptroller general of the United States cited material weaknesses involving an estimated $125.4 billion in improper payments, information security across government, and tax collection activities. Dodaro noted that three major agencies, the Department of Defense, the Department of Homeland Security and the Department of Labor, could not provide good enough numbers to get clean opinions and said, “Improved accuracy and transparency in financial reporting are urgently needed.”

Recent accounting graduate Briggs Armstrong points out that no publicly traded company could get away with half that many qualified opinion areas and if the government was a company, the accounting report would be top of the fold news for weeks with congressional hearings scheduled immediately.

He believes the audit violated GAAP in disclaiming. “GAAS is pretty clear about when disclaiming an opinion is allowable. There are only 4 acceptable reasons for disclaiming. 1) Lack of auditor independence 2)limitation of scope (inability to test reported figures 3) going concern 4)significant uncertainties.”

Armstrong contends that a qualified or adverse opinion is required based upon the Comptroller’s statement, instead of the pass the GAO took.

The government’s balance sheet is in the hole $64 trillion when all obligations are taken into account, according to the faulty-official numbers that the GAO won’t express an opinion on. John Williams, who scrutinizes the numbers at shadowstats.com, claims the hole is more like $76.3 trillion and explains, “The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so.”

Williams is of the opinion that all of this government spending will lead to hyperinflation. Money manager and trader Victor Sperandeo sees it the same as Williams. America’s debt rolls over every 49 months to the tune of $4.3 trillion a year, according to Sperandeo. “A nation needs to inspire a lot of confidence to keep that kind of Ponzi scheme alive.”

Sperandeo wrote in Barron’s that when a government borrows 40 percent or more of its annual expenditures over an extended period of years, its lenders shy away from extending more credit and the central bank will fill the breach by printing money to buy the bonds and fund the deficits.

The last two years Uncle Sam has borrowed more than 40 percent of its expenditures and it appears this percentage will only grow.

Williams says the U.S. is on a collision course with “a hyperinflationary great depression” with the dollar completely collapsing, along with the financial system, causing an end to “the normal stream of U.S. commercial and economic activity.”

Something to ponder while bringing in the New Year.

{ 18 comments }

Ohhh Henry December 31, 2010 at 11:38 am

Never mind. Wikileaks is being plugged, the Republicans are going to give Fannie and Freddie whatever money it takes to convince Americans that real estate never falls, and the assertions that government spending is out of control are nothing but vicious right-wing lies. State- and municipal-level bankruptcy and restructuring are unthinkable and therefore cannot and will not happen. The World Cop is still on his beat, whistling cheerfully as he gives those foreign bums and troublemakers a good old wooden shampoo whenever they need it. I read all this in the New York Times, so it must be true.

Now would someone please tell the Price of Gold that there’s nothing to worry about and to stop acting like it’s headed for the moon?

Walt D. December 31, 2010 at 12:09 pm

Why is Bernie Madoff in jail?
Why was Andrew Fastow in jail?
Why is Jeff Skilling in jail?

Curt Howland December 31, 2010 at 2:52 pm

Why is Lon Horiuchi not in prison?

billwald December 31, 2010 at 12:35 pm

Has any national government ever kept an honest set of books in the history of the world?

HL December 31, 2010 at 2:00 pm

Oh dear. I feel like I just watched the prequel to “The Road.”

Curt Howland December 31, 2010 at 2:53 pm

You will forgive me if I spend a few minutes having an “Andrew Napolitano as Attorney General” fantasy…

Hat December 31, 2010 at 3:11 pm

So how do we profit from hyperinflation? Gold only maintains its true value, but what will go up in value? And how do we later donate it to the Mises Institute?

BioTube December 31, 2010 at 8:36 pm

Stock up on nonperishable necessities(maybe the extra soft variety), wait until even quarters fall out of circulation and then undercut the big box stores.

RichF December 31, 2010 at 4:42 pm

Is Rothbard’s idea of repudiating the debt finally going to come to pass?

Tyler Rouillard December 31, 2010 at 8:09 pm

I am reading Adam Fergusson’s “When Money Dies” and if even a fraction of what occurred in Germany in the 1920s comes true in the US, then the citizenry is in for a violent, barely subsisting livelihood.

It does make me wonder what a hyperinflation would look like in the US. Also, by what definition would it be considered hyperinflation. Fergusson does a great job explaining how nobody at the time in Germany would possibly consider that printing ever more money was the cause of their problems. It was greed, foreigners and Jews who were to blame. I think we all know how that ended…

newson January 1, 2011 at 3:29 am

sounds like the accounting irregularities at the dept. of defense were never sorted out after the hijackers’ plane took out the wing housing the audit team and records. deus ex machina?

brad January 1, 2011 at 2:54 pm

i find that the acronym GAAP is so perfect to the situation of government accountability, don’t you? there’s a GAAP between what is known and what is not. how fitting.

The Beer Baron January 1, 2011 at 4:38 pm

They are using the limitation-of-scope out (inability to test data). But I prefer to think they are using the going-concern out! As in, the .gov is a questionable going concern. (LOL)
I agree with the author that this should be above-the-fold news for weeks. I will, at minimum, forward this to several of the major accounting blogs. This would be a great case study for university accounting majors. Professors are always looking for good ethics cases to intersperse into their teaching materials.

The Anti-Gnostic January 1, 2011 at 4:54 pm

I recall my home county published a budget with a “Miscellaneous” line item expense of $15 million; no further itemization, just “Miscellaneous.” After objection, that line item was revised. To $5 million.

prettyskin January 1, 2011 at 6:43 pm

About one trillion dollars siphoned away, what to do can not be forecast.

Where can I go to take my vote back? Ooops, I forgot. “A people can vote themselves into slavery, though they cannot vote themselves out of it.” (Frank Chodorov).

Capn Mike January 2, 2011 at 7:59 pm

You VOTED????

What were you THINKING????!!!????

LukeM January 1, 2011 at 11:27 pm

Here’s a 3 min clip from CBS that aired on 09/10/01 where Rumsfeld admits that, “according to some estimates, we cannot track $2.3 trillion in transactions.”

http://www.youtube.com/watch?v=OTwCRuwJc34

Brisbane Accountant October 18, 2011 at 1:49 am

Hi LukeM,
I watched youtube video you recommended. In a word “astounding”. It make you wonder if it is only 2.3 trillion they cannot track or a whole lot more.

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