Uncle Worldcom Sam
by Michael Chapman*
TNA News with Commentary
No. 442 July 2002
newaus.com.au
Because of the $3.8 billion WorldCom scandal and a few other corrupt companies, many critics are yelping that capitalism doesn't work and we need more government to fix things. Yet when Uncle Sam "mispays" $100 billion every year, those critics go mum. Washington's multi-billion dollar mismanagement, which dwarfs the problems in the free market, gets a pass year after year.
"Reforms" to fix the government's pervasive accounting problems went into effect six years ago. Yet today, 83 percent of federal agencies are not in compliance with the law, reports Forbes magazine. That translates into an estimated $100 billion in erroneous payments every year, according to the U.S. General Accounting Office.
The latest Financial Report of the U.S. government, for instance, shows that some $17.3 billion in "unreconciled transactions" of that $100 billion is somewhere in the Pentagon. Given that the Pentagon operates some 1,100 financial systems, one can understand why it's difficult to reconcile those transactions. But the Pentagon is spending $200 million to pare down its financial systems' beehive to just 100 systems, says Forbes.
Making matters more loathsome is the fact that the Securities and Exchange Commission (SEC), responsible for overseeing corporate compliance with federal rules, doesn't even produce audited financial statements of its own operations. WorldCom may have cooked its books to inflate its worth, but the SEC apparently doesn't even produce a financial book. In addition, for most of the 1990s the Internal Revenue Service could not balance its own books. Taxpaying Americans had to get their tax returns right and in on time, but the IRS didn't. Many Americans were audited and paid penalties and late fees. The IRS didn't. And even if it had to pay penalties, the money would come from ... you, the taxpayer.
There are so many government financial games. Take Social Security. It's the largest welfare program in America and in the world — $400 billion a year — even though it's marketed as a retirement program. You pay in all your working days. But you don't get back what the government took. You get back, on average, a return of about 1 percent. In addition, the government says that there is a Social Security trust fund, implying that your money is safe and sound. That's not true. There is no trust fund. The government spent that money long ago to finance general government spending and hide the true size of the federal budget deficit. That's real accounting gimmickry, on a multi-trillion dollar scale. As the Congressional Research Service reports: "[T]he trust funds themselves do not hold financial resources to pay benefits."
The trust fund now consists only of IOUs-promises that at some time in the future the government will replace that money, which can only be done by collecting more taxes or issuing even more debt. "The fund is like a private corporation financing its pension plan with bonds issued to itself-a practice that is illegal in the private sector," reports Andrew Biggs, a Cato Institute scholar and former staff member of the President's Commission to Strengthen Social Security.
The feds also hide a lot of spending for some projects in departments that may have nothing to do with the spending. For instance, while some critics are lamenting the $3.8 billion accounting shuffle at WorldCom, the U.S. General Accounting Office eventually tracked down more than $5 billion in "nondefense" pork spending in the Pentagon budget for FY 2000 (latest figure available). Such high-priority "national defense" spending included $3 million for urban youth programs, $9 million for the World Cup soccer tournament and $100 million for breast cancer research.
President Bush, whose budget for next year will total more than $2 trillion, says that "corporate America has got to understand there's a higher calling than trying to fudge the numbers, to kind of slip a billion here or a billion there and hope nobody notices." Granted, those who allegedly broke laws at WorldCom and other private firms should be prosecuted. And no one should belittle the suffering of those private sector workers who have recently lost their jobs. At the same time, however, we should not forget the accounting trickery and incompetence of Uncle Sam — $100 billion "mispaid" every year. And apparently no one is held accountable, no one is fired. Clearly, the bad apples in the private sector can't compete with the boys in Washington, D.C.
*Michael Chapman is editorial director at the Cato Institute, www.cato.org. |
