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Source link: http://archive.mises.org/6862/accounting-and-accountability-in-government/

Accounting and Accountability in Government

July 17, 2007 by

This is a story about Linda Combs, who cleaned up the government’s financial reporting process.

A remarkable fact jumps off the page at me: “Nineteen of the 24 agencies received unqualified audit opinions in 2005, a vast improvement compared to 1990, when only one had a clean audit opinion.” Then the article goes on to say that:

Still, many of the agencies have been dogged by lack of integrated controls, material weaknesses, and restatements. Many of them have consistently performed below par when it comes to being able to “produce reliable, useful, and timely financial information,” according to the Government Accountability Office’s most recent annual report on the progress of the Federal Financial Management Improvement Act of 1996.

…The government won’t be able to achieve a consolidated audit until the largest agency, the Department of Defense, achieves a clean audit, Combs says. The agency’s sordid financial history is rife with failed business systems and missed budget projections.

I don’t doubt this lady worked a zillion hours per week and cleaned up the financial reporting and accounting processes of these agencies. Nineteen of twenty-four (agencies that received an unqualified opinion) is still unacceptable and indicates that something is very wrong. However, my guess is that she was a superstar to even accomplish that much within the halls of ill repute. In fact, in 1996 only six agencies received clean opinions, and in 2000 there were eighteen clean audit opinions from the twenty-four agencies. Wait – back in 2002, David Walker, the comptroller general of the United States and head of the General Accounting Office (GAO), said this:

“If you look at the 18 departments and agencies that did receive clean opinions on their [FY2000] financial statements,” says Walker, “a majority of those received that clean opinion only because they engaged in ‘heroic efforts’ — whereby they spent millions of dollars and thousands of person-hours…adjusting journal entries and reconstructing the books.”

What is the agency that consistently does the best job of accounting for its financial condition? The Social Security Administration, believe it or not.

The government still cannot produce a consolidated annual report for the federal government as a whole. Private corporations do produce consolidated financial statements for their businesses. Fiscal year 2006 was the 10th consecutive year in which the government’s consolidated audit statement received a judgment of “no comment” from auditors. The GAO has cited the following shortcomings: “financial management problems at the Defense Department, an inability to account for and to reconcile balances that cross agency lines, and an ineffective process for preparing financial statements.”

Before we all get too confident in the ability of a few good people to go in and clean up the government’s financial mess, a reminder that an October 2006 GAO report noted that out of the eleven agencies that restated the results of their fiscal 2003 audits, nine of those agencies initially received unqualified [clean] opinions.

{ 2 comments }

LukeM July 17, 2007 at 10:47 pm

In regards to accounting and accountability in government, a figure that I found absolutely astounding and that I just couldn’t believe was one I read in Chalmer Johnson’s book ‘Sorrows of Empire’. In it, he states that on the 10th of September 2001, Donald Rumsfeld admitted that $2.3 trillion – yes you read that right – was missing. The Department of Defense couldn’t account for it.

Can you believe that? I think it’s about $8000 for every single man, woman and child in the United States. And they don’t know what happened to it!

If that doesn’t illustrate the degree to which government is not held accountable for their actions, then I don’t know what will. It makes the Enron scandal look like lost pocket change. Can you imagine if a private enterprise told their shareholders that they “cannot track $2.3 trillion in transactions”?

Tell me, my American friends – how many of you recall seeing all the newspaper headlines about this or all the nightly news reports about it? Hmmmmmm, funny about that, huh?

Here’s a link to Rumsfeld’s speech on the DoD website: http://www.defenselink.mil/speeches/speech.aspx?speechid=430

Brad July 18, 2007 at 9:21 am

Writing a clean “opinioned” financial statement is only half the battle. SOMEONE HAS TO USE IT. The President and Congress have been receiving Financial Reports of the United States Government for several years now, and 2006′s report shows an accrual national debt of $50 Trillion, or $440,000 per household, according to Walker. And all I’ve seen by way of averting economic disaster here in the US is “privatizing” social security that went nowhere fast. And I’m sure the lack of movement is not due to the lack of clean opinions, the $50 Trillion is a very represetative number and likely too low, if anything. And yet nothing gets done. Does it really matter how precise and pure the numbers are if “management” circular files it?

As a CPA it’s frustrating enough when the information I provide is ignored, it is completely unsupportable when raw force alloted to the State is tossed in to boot. In the private sector if bad decisions are made by ignoring the data, no one suffers but the owners and other voluntary associates. When the government does it, they squander extorted equity to begin with, and lackadaisically use more force to get more to fix their blunders (in the short run anyway).

Finally, if any private entity had a set of books, and an equity position such as this, isn’t it likely that someone would not be hauled off in chains? But the Federal Government gets a free pass. I can only assume it is because it has a monopoly of “legally” jackbooting the necks of the citizenry. How comforting.

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