NCPA - National Center for Policy Analysis

Critics Claim Federal Budget Accounting Invalid

January 22, 1996

Some of the dollar amounts used in the current budget debate are so misleading they should be tossed out, according to some certified public accountants. The figures are based on accounting principles that capture only a portion of the costs of federal activities.

  • Using 1993 data to illustrate the overall problem, they observe that -- using the principles also being used today -- the federal government determined its actual operating deficit to be $225 billion.
  • However, in its audited financial statement for 1993, the U.S. government, using "generally accepted accounting principles," reported a deficit of $386 billion -- a 51 percent discrepancy.
  • The conventional measure of the federal debt holds that it was $3.2 trillion as of year-end 1993.
  • This contrasts with $5.2 trillion as reported in the latest audited financial statements.

The difference exists because the budget is constructed on a cash basis, whereas the financial statements are prepared on a more meaningful "generally accepted accounting principles" basis.

While the higher federal debt figure incorporates accounts payable and accrued civil service and military pension obligations, it still does not include total unfunded actuarial liability for Social Security of $7.6 trillion and unrecorded Medicare obligations of $3.6 trillion. In addition, it excludes contingencies, such as loan and credit guarantees and potential obligations under insurance programs, that add up to another $5.9 trillion.

In a report on the 1993 statements, Arthur Anderson & Co. concluded that deficiencies in both accounting principles and information systems "make it likely that the (consolidated financial statements are) materially misstated."

Experts are demanding that the government hold itself to the same standards of accountability to which it holds officers of publicly-traded corporations and taxpayers.

Source: Former U.S. Congressman Joseph J. DioGuardi and Michael H. Granof (University of Texas), "Truth in Spending Needed for Budget to be Balanced," Washington Times, January 22, 1996.


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