March 3, 2012 – 1:16 p.m.
Political Economy: Simmering the Books
By John Cranford, CQ Columnist
The federal government’s books are a mess, and not to put too fine a point on it, are probably more than a little bit wrong in some places. It isn’t necessary to ask a critic of Washington from the right or the left to elicit that opinion. That’s the view straight from the auditor-in-chief, the Government Accountability Office.
This situation is not new. And although the bookkeeping insufficiencies don’t appear to suggest either nefarious doings or particularly dire consequences, billions of dollars are nonetheless missing, or at least not clearly accounted for.
That seems like pocket change for the far-flung and impossibly expensive enterprise that is the government of the United States. On some level, a few accounting mistakes and shortcomings are understandable in a $3 trillion-plus annual budget. And it’s not as if the Securities and Exchange Commission (whose books check out, by the way) is in a position to stop the Treasury from selling bonds or to fine the director of the Office of Management and Budget because of these errors.
But still, poor accounting is an embarrassment and provides agar for fraud. And although the bookkeeping gets better every year, it would seem to be a high priority to resolve these concerns promptly at a time when Washington’s fiscal position is such a crucial matter.
That’s because even if the government isn’t intentionally hiding malfeasance, the lack of bookkeeping controls may disguise improper payments to individuals who benefit from government programs and to government contractors and grantees alike. Waste not, want not, or so they say.
In language that can only appeal to accountants, Comptroller General Gene L. Dodaro, the head of the GAO, last week described the difficulties his staff faced in trying to audit the government’s consolidated financial statement for fiscal 2011. “The federal government was unable to demonstrate the reliability of significant portions of the U.S. government’s accrual-based consolidated financial statements for fiscal years 2011 and 2010,” Dodaro told a House Oversight and Government Reform subcommittee.
Using what are harsh words in his world, Dodaro said the government’s books were riddled with instances of “material weakness” that prevented auditors from offering any opinion about the veracity of some accounts. In other cases, Dodaro said, the GAO was able to offer only a “qualified” opinion, the playground equivalent of a promise made with fingers crossed.
Not all is lost. The good news is that for large parts of the federal enterprise, the management is apparently effective, the accounting is clean and the GAO was willing to provide “unqualified” opinions. For example, the books of the IRS and the Treasury’s Bureau of Public Debt were audited and given first-rate reports. In fact, 23 of 24 agencies that have chief financial officers received audit opinions this year, and 21 of those were clean. Also, the number of material weaknesses found in agency audit reports was down considerably.
All that suggests considerable progress over the two decades that the government has been working to improve its financial management practices. OMB controller Daniel I. Werfel’s testimony at the same hearing where Dodaro testified was downright ecstatic in reporting that NASA had obtained an unqualified audit opinion for the first time since 2002.
A Pentagon Problem
Most of the remaining issues, though, are longstanding and may require years of effort to overcome.
GAO expressed serious concerns about the inability of the government to accurately report intragovernmental transfers — situations where agencies trade off costs, employees and resources and don’t do a very good job of reconciling their accounts. The other big concern is the Pentagon. Apparently, military precision and proper accounting aren’t particularly compatible.
The problems with the Defense Department’s books are well known, and since 1994 there has been a push to make the Pentagon fully auditable. The deadline is now fiscal 2017, but some have doubts whether that can be met. And even if GAO were able to wrap its collective arms around the military’s accounting system, it might still find that the internal controls aren’t up to snuff.
Political Economy: Simmering the Books
It’s important to note that a portion of the government’s financial statement relates to projections about the course of spending, revenue, deficits, interest costs and the big bugaboo, the debt. And GAO found issue with those projections, too, noting that some are based on assumptions that cannot be expected to stand up. For instance, Medicare costs are constrained in the financial statement’s forecast by a 27 percent cut in physician reimbursements that Congress last month deferred — once again.
Better accounting may save a few bucks or even a few billion bucks over the long run, and that would be undeniably to the good. More important, though, as fiscal policy fights ramp up in this era of austerity, clean books will help counter obfuscatory charges of waste and fraud. The worth of federal programs will be easier to measure — and debate — if the finances are transparent.