NCPA - National Center for Policy Analysis

Feds Flunk Test Of Private-Sector Accounting Rules

March 31, 1999

On its second try in as many years, the federal government has failed to apply private-sector accounting standards to its books. In fact, the General Accounting Office will issue a "disclaimer" to the administration's financial statements for the fiscal year ended September 30, 1998.

Moreover, the the much-vaunted budget surplus could disappear if the logic of corporate bookkeeping were applied to the government. Under the 1994 Government Management Reform Act, Congress required the administration to report a more business- like version of its finances.

  • For fiscal year 1998, the Clinton administration announced last year that the surplus was $69.2 billion -- a sharp turnaround from the $21.9 billion deficit for fiscal 1997.
  • Those figures were simply calculated by subtracting government spending from total receipts, using "cash flow" accounting.
  • But corporations are also expected to declare a portion of expected future payments as expenses in the current year in their annual financial statements.
  • Using that method, the government's consolidated financial statement will show costs exceeded revenue by $134 billion -- largely because of an increase in future expected payments for veterans benefits.

The GAO audited 24 federal departments and agencies and will give an "unqualified opinion" -- a clean bill of health on their financial statements -- to 13 for the 1998 fiscal year, up from 11 the previous year. For the first time, this includes the Department of Housing and Urban Development -- long acknowledged as a poorly run bureaucracy.

The National Science Foundation and the Federal Emergency Management Agency also received top ratings for the first time.

However, the Department of Energy, which had receive a top rating last year, is expected to receive a "qualified" rating -- because of uncertainties over future environmental cleanup costs.

Seven departments and agencies -- including Defense and Agriculture -- received the lowest rating of a "disclaimer."

Source: Jacob M. Schlesinger, "Federal Government Again Fails in Bid to Use Private-Sector Accounting Rules," Wall Street Journal, March 31, 1999.


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