U.S. Government: “Do as I say, not as I do.”
Tue, Aug 23, 2016, 5:00 am
The federal government through the FASB (Financial Accounting Standards Board) sets standards for financial reporting by corporate, non-profit, and governmental entities. This includes the requirement for independent audit by licensed Certified Public Accountants. It’s a serious business and the penalties for producing financial statements without a clean opinion (“in our opinion these financial statements present fairly…”) is harsh – a public company is delisted by the SEC if its financials are not blessed by the auditors; a 501(c)iii will have its license to accept tax-deductible donations yanked by the IRS. A bad audit is bad for business – and for a career!
Except for federal government entities, it appears. The financial statements for the entire federal government have not had a clean audit opinion since 1996. Why? Because the financial statements produced by the federal government do not follow the rules they insist everybody else follow. I learned of this at a tax conference in 1998 from David Walker, Comptroller-General from 1998 to 2008. The Comptroller General of the United States is the bi-partisan, appointed director of the Government Accountability Office (GAO). They are a legislative branch agency established by Congress in 1921 to ensure the fiscal and managerial accountability of the federal government.
According to the Comptroller-General’s audit report of 2007, the specific unclean items are:
1) serious financial management problems at the Department of Defense
2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and
3) the federal government’s ineffective process for preparing the consolidated financial statements
I’ll be writing more about item 3) in a later article, but in the meantime consider this article about the DOD which, in 2015 alone, made wrongful accounting adjustments of $6.5 trillion in their “materially misstated” financial statements. In any other organization, heads would roll, lawsuits would multiply, and so on – but this situation has been allowed to continue for years with no accountability or correction. This is bad, very bad.