Government Fails The Test
By Reed Irvine and Cliff Kincaid
June 11, 2002
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Ric Edelman, a well-known financial commentator who has appeared on Oprah, has said that the Enron and Arthur Andersen scandals make the case for the federalization of the accounting profession. He says the feds ought to take over the profession. This will reassure the public about integrity in accounting and the integrity and well-being of major companies.
That statement makes us question his other financial advice. The fact is that the federal government is less well-managed than Enron, and the federal government can’t pass its own financial audit. This is a point we made after the Enron scandal broke, when politicians were claiming they could clean up the mess. We noted that Social Security, which they supervise, is going bankrupt. Our Social Security benefits are dependent on the politicians taxing our children and grandchildren to pay for them. Other media are coming around to the ugly truth. In a column entitled "Speaking of shoddy accounting," Bruce Bartlett points out that federal accounting methods and controls are worse than those of Arthur Andersen and Enron. He cites reports from the General Accounting Office, which looks at the books of federal agencies.
Insight magazine has followed with a story by Kelly Patricia O’Meara: "After spending weeks reviewing the audits of federal departments and agencies, Insight is convinced the U.S. government doesn’t cook its books — your government is honest enough to admit that it just doesn’t know where the money went." The government’s top auditor, U.S. Comptroller General David Walker, says the agencies and departments of the federal government couldn’t properly account for the money each was entrusted with and, therefore, he couldn’t produce a legitimate consolidated financial statement. That means, in simple language, that the federal government can’t pass an audit.
Like Bartlett, she focuses on the Department of Defense, perhaps the worst managed agency. She points out that Walker says, "To date, none of the military services or major DoD components have passed the test of an independent financial audit." Walker continues, "DoD faces financial-management problems that are pervasive, complex, long-standing and deeply rooted in virtually all business operations throughout the department."
Incredibly, the evidence shows that $1.1 trillion is unaccounted for at DoD. O’Meara says that the Department of the Army, headed by former Enron executive Thomas White, had an excuse for its sloppy record-keeping. It blamed the problem on "the loss of financial-management personnel sustained during the Sept. 11 terrorist attack." That’s ridiculous because the problem goes back many years.
Congressman Patrick Toomey points out that 25 federal agencies are not even required by law to prepare audited financial statements. One of them is the Securities & Exchange Commission (SEC), which oversees the activities of Arthur Andersen. An agency not required to audit its own books is trying to clean up the Enron mess. The fox is guarding the henhouse. And it’s our money.
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