Earlier this month, Investor's Business Daily (IBD) began their editorial about the "GAO’s report on the U.S. government’s consolidated financial statements for fiscal years 2016 and 2015" by asking "(w)hat do you call it when a major organization's financial statements are so deceptive and badly kept that even its auditor refuses to render an opinion?" Their answer was the federal government.
The IBD editorial began this wayl:
"That's right, the U.S. Government Accountability Office (GAO), the federal government's accountant, refused to hand down an opinion of the federal government's financial statements for 2016 "due to deficiencies that have plagued prior financial statements — persistent financial management problems at the Department of Defense (DOD), the government's inability to account for and reconcile certain transactions, an ineffective process for preparing the consolidated financial statements, and significant uncertainties."
"No question that, just like Enron, if this happened in the private sector, the executives in charge would either be fired or tried for fraud, and the shareholders would suffer major losses. But U.S. taxpayers pay little attention to the problem since they don't know how bad it really is. And the sad thing is, no one does.
"The Department of Defense, the Department of Housing and Urban Development, and the Department of Agriculture were all singled out by the GAO for criticism over their financial management.
"But to be fair, controls seem to be quite lax everywhere in government.
"In particular, the report cites the estimated $144 billion spent by the federal government in 2016 on "improper payments," a gain of 5% from 2015. It goes on to criticize "weaknesses in internal control" over such things as information security — repeated incidents of Chinese and Russian cyberhacking and Hillary Clinton's home-brew email server come to mind — and problems with "tax collection activities."
"But by far the most worrisome weakness the GAO cited is the unbridled growth in entitlements, especially Medicare costs, and the overly optimistic assumptions made in the nation's budgets about them. This failure places our ability to assess the health of our nation's future finances in doubt."
IBD concludes the editorial by pointing out:
"At some point, those who now eagerly snap up our debts will say, "No, thanks." Then we'll have serious, difficult fiscal choices to make — and very likely an ugly kind of intergenerational warfare over taxes, benefits and spending will break out. (emphasis added)
"All because we can't be honest about the problems we face, as the GAO report indicates. It's a big vote of no-confidence in the government's fiscal management when the only solid conclusion the GAO can give us is that "absent policy changes, the federal government's fiscal path is unsustainable." (emphasis added)
You can review a summary of the GAO report here, as well as link to the full 284-page report. GAO listed their four major audit findings as:
"Certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2016, and 2015. About 34 percent of the federal government’s reported total assets as of September 30, 2016, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2016 relate to significant federal entities that, as of the date of GAO’s audit report, were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements, or received a disclaimer of opinion on their fiscal year 2016 financial statements.
"Significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, prevented GAO from expressing an opinion on the sustainability financial statements, which consist of the 2016 and 2015 Statements of Long-Term Fiscal Projections; the 2016, 2015, 2014, 2013, and 2012 Statements of Social Insurance; and the 2016 and 2015 Statements of Changes in Social Insurance Amounts. About $32.5 trillion, or 70.0 percent, of the reported total present value of future expenditures in excess of future revenue presented in the 2016 Statement of Social Insurance relates to Medicare programs reported in the Department of Health and Human Services’ 2016 Statement of Social Insurance, which received a disclaimer of opinion. A material weakness in internal control also prevented GAO from expressing an opinion on the 2016 and 2015 Statements of Long-Term Fiscal Projections.
"Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2016.
"Material weaknesses and other scope limitations discussed in the audit report limited GAO’s tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 2016."
At the National Taxpayers Union blog yesterday, Demian Brady and Spencer Woody commented on the GAO report, writing:
"GAO’s audit revealed that parts of the federal government are in desperate need of better financial management. While most departments and agencies received a clean audit, the main culprits cited by the Comptroller General were the Department of Defense (DoD) and the Department of Housing and Urban Development which “have continuing impediments to receiving a clean opinion on their financial statements,” and the Department of Agriculture which obtained a clean audit for only one of its financial statements.
"Without audited financial statements and more information, the GAO cannot provide an opinion on the state of the government’s financial status. A disclaimer of opinion means that “the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.”
Brady and Woody concluded:
"The GAO echoes the warning from other fiscal watchdogs that the federal government’s current fiscal path is unsustainable, but the lack of financial transparency and shoddy accounting practices hinders effective oversight of how taxpayer dollars are being used. If this next administration is serious about shaping a better functioning government, the necessary reforms include better transparency and accountability, especially on the financial level. (A smaller federal government would also ease the burden on both taxpayers and Congress’s oversight committees.) Taxpayers should expect the same standards of accountability from the government that the Internal Revenue Service and regulatory agencies like the Securities and Exchange Commission demand of citizens and companies."
Other than the reporting of the Washington Free Beacon and Government Executive Magazine, your humble scribe was unable to find very many members of the mainstream media that reported on GAO's audit of the federal government's financial statements.
An interesting way to improve transparency and accountability of the federal government's financial management is discussed in a statement from the American Institute of Certified Public Accountants (AICPA) in which they support "presentation to Congress regarding Federal Government's audited financial statements." Here's their short statement:
"The American Institute of CPAs (AICPA) has expressed its support for a concurrent resolution “providing for a joint session of Congress to receive a presentation from the Comptroller General of the United States regarding the audited financial statement of the executive branch.”
"H. Con. Res. 140, the Fiscal State of the Nation, was introduced by U.S. Rep. Jim Renacci (R-Ohio) and 23 other lawmakers through their Bipartisan Working Group on July 5.
“We believe requiring the Comptroller General to make an annual presentation before a joint session of Congress will be very useful in helping these key policymakers focus in on some of the most important aspects of the financial statements, including financial and sustainability measures, and understand the findings of the audit,” AICPA President and CEO Barry C. Melancon, CPA, CGMA, stated in the Institute’s September 6 letter. “The requirements outlined in this Concurrent Resolution also represent another critical step in moving our Federal government forward, particularly as it relates to financial accountability and transparency, and will allow for improved decision making around government spending and stewardship of our nation’s assets.”
"Renacci, a CPA and member of the Congressional CPA and Accountants Caucus, said, “We need to begin to get serious about our fiscal future and lawmakers must fully understand the financial statements of the United States in order to adequately address these issues. That is why this bill is an important first step to educate lawmakers and Americans so we can work towards finding a solution – ensuring that we do not burden our children and grandchildren with our massive debt. Our fiscal health is not a partisan issue and we need to start taking control.”
Although such a presentation to a full session of Congress might require an extra time demand on members of Congress, it could easily be coordinated with the president's annual state of the union message. Given that the president's annual state of the union speech is often more concerned with the many new programs being promised, it seems the state of the union's finances are far more important than much of what is in the state of the union speech. Thus, it seems American citizens need to know the fiscal state of the nation as much if not more so than other aspects of the current annual speech.
Take a few minutes to write your member of Congress. Ask your members of Congress to support H. Con. Res. 140, the Fiscal State of the Nation. Contact information is available at the Library of Congress' Congress.gov. Taxpayers living in Virginia's Arlington County can contact:
- Senator Mark Warner (D) -- write to him or call (202) 224-2023
- Senator Tim Kaine (D) -- write to him or call (202) 224-4024
- Representative Don Beyer (D) -- write to him or call (202) 225-4376
Ask for a written response. And tell them ACTA sent you.