Fast and Loose with Government Money

Commentary by Pete du Pont
Just in time for taxpaying season, an official report says that the government isn't quite sure what it does with all that money it collects because it doesn't keep very good books. Of one thing, however, the report is certain: "the U.S. government's most important financial resource [is] its ability to tax and regulate."

The report, actually a financial audit by the General Accounting Office, cited a laundry list of problems, adding, "These deficiencies significantly impair the federal government's ability to adequately safeguard assets, properly record transactions, and comply with selected provisions of laws and regulations related to financial reporting."

There were a few news items about the audit, but then the subject seemed to disappear from everybody's radar screen. Maybe those who noticed it considered the fact that government is a mess an old story and felt they couldn't do anything about it, anyway. But the farther one gets into the audit, the more evidence we find that our federal government basically is operating out of fiscal control -- something many of us have been saying for years. Here are just some of the things the General Accounting Office -- the government's in-house auditor, mind you -- points out in its report.

It's too easy to gain unauthorized access to sensitive material -- including from Defense Department computers -- from both inside and outside government. Serious and widespread computer security weaknesses "expose the government's financial and other sensitive information to inappropriate disclosure, destruction, modification, and fraud, and critical operations to disruption."

The government has the power to tax, but apparently not to do it very efficiently. The financial management systems are so bad that people who have paid their tax obligations in full are pursued by the government, refunds are disbursed with inadequate checking and there are terrible physical controls over cash, checks, and sensitive data coming from taxpayers.

The host of federal credit agencies have a pretty good idea of how much they have out in loans under various federal lending programs -- $167 billion. They also figure that the government is going to be on the hook eventually for $38 billion in default of other loans that it has guaranteed. But they aren't able even to estimate how much of any of the loans will be paid and when, or when they're going to have to pay off the guarantees.

The federal government reported that the total net cost of government operations was $1.8 trillion, but can't really document much of it -- sort of like your turning in an expense account for, say, $1,800 with receipts for only $180 of it. Except that when it's the government, the money gets paid anyway. In something of an understatement, the GAO's audit report notes, "Accurate cost information is important to the federal government's ability to control and reduce costs, assess performance, evaluate programs, and set fees to recover costs where required."

Given the previous paragraph, it comes as no surprise that the federal government reports estimates of billions of dollars annually in improper payments, but it doesn't know how much. Many agencies know there are improper payments, but haven't estimated the amounts, "nor have they considered this issue in their annual performance plans," the audit says.

The GAO prepared a balance sheet showing that the government reported assets of $466 billion in property, plant and equipment, and inventories. Even that amount wasn't properly documented, but the GAO said it appeared that a lot of other assets didn't get included.

The federal budget operates on a cash basis, and on that basis there was a surplus of $69.2 billion for the fiscal year ending last September 30th. However, when the government's financial statements are prepared on an accrual basis -- the accounting method required of businesses -- the government actually wound up $133.8 billion in the hole for the fiscal year. The difference is in costs the government incurred in 1998 that will have to be paid later: an increase in accrued veteran compensation benefits of $109.4 billion, increases in actuarial expenses for federal employees and military pensions and health benefits of $39.8 billion, and an increase in environmental liabilities of $12.8 billion, the government.

Is there any good news in the report? Well, probably the most that can be said is that the GAO reported some improvement over fiscal 1997, the first year it submitted overall financial statements for the government. That finding, however, is not especially comforting to taxpayers who see, as they struggle to pay the bill, that the government is not being careful with their money.

The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues.

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