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Trash in the Trash Dump

There’s a reason why governments bury bad news by releasing it on a Friday before a big holiday weekend. When the federal government released it’s 2011 financial statements on the Friday before Christmas, Bryan Lawrence, founder of an investment partnership fortunately spotted them, and read them closely.

Lawrence’s analysis of those financial statements, including the General Accountability Office’s auditor’s report, which appeared in the Washington Post last week, should be required reading for every American wanting to better understand the dire financial condition in which the nation finds itself. The following two paragraphs are the “take aways” from Mr. Lawrence’s column:

“In fiscal 2011, the cost of the promises grew from $30.9 trillion to $33.8 trillion. To put that in context, consider that the total value of companies traded on U.S. stock markets is $13.1 trillion, based on the Wilshire 5000 index, and the value of the equity in U.S. taxpayers’ homes, according to Freddie Mac, is $6.2 trillion. Said another way, there is not enough wealth in America to meet those promises. (emphasis added)

“If the government followed corporate accounting rules, that $2.9 trillion increase would be added to the $1.3 trillion cash deficit for fiscal 2011 that has been widely reported. And a $4.2 trillion deficit is something that Americans need to know about." (emphasis added)

The Federal Times’s lede for their story began this way:

“Deep-rooted problems continue to hobble the federal government's ability to reckon accurately its financial assets and liabilities, the Government Accountability Office found in a newly released review.

“Although 21 of the 24 agencies covered by the Chief Financial Officers Act had fully auditable books in fiscal 2011, two of the largest — the Defense and Homeland Security departments — still did not. The State Department's books also were not fully auditable. As a result of those and other problems, GAO was again unable to provide a clean audit opinion on the government's consolidated financial statements.

“DoD, for example, could not provide solid estimates for key parts of its environmental cleanup liabilities, GAO said in its "auditor's report." (link embedded in the original; requires Adobe)

“Nor did the Pentagon have the systems and records needed to provide accurate information on its holdings of property and equipment.

“More broadly, many agencies had trouble reconciling financial transactions with each other, with a significant number of agency chief financial officers citing "differing accounting methodologies, accounting errors and timing differences" as reasons for the disparities.”

Government Executive also contained a good overall summary, including several useful links, including to the financial statements themselves.

Here is how GAO summarized what they found in their report (requires Adobe):

  • Certain material weaknesses5 in internal control over financial reporting and other limitations on the scope of our work6 resulted in conditions that continued to prevent us from expressing an opinion on the accompanying accrual-based consolidated financial statements for the fiscal years endedSeptember 30, 2011 and 2010.
  • Significant uncertainties (discussed in Note 26 to the consolidated financial statements), primarily related to the achievement of projected reductions in Medicare cost growth reflected in the 2011 and 2010 Statements of Social Insurance, prevented us from expressing an opinion on those statements as well as on the 2011 Statement of Changes in Social Insurance Amounts. The Statements of Social Insurance for 2009, 2008, and 20078 are presented fairly, in all material respects, in conformity with GAAP.
  • Material weaknesses resulted in ineffective internal control over financial reporting (including safeguarding of assets).
  • Our work to test compliance with selected provisions of laws and regulations in fiscal year 2011 was limited by the material weaknesses and other scope limitations discussed in this report.
Be a informed voter. Take a few minutes to read through the entire documents!

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