NCPA - National Center for Policy Analysis

Federal Agencies' Accounting Would Not be Tolerated in Private Sector

October 14, 2002

Year after year, auditors studying the financial records of federal departments find many of them so disorganized, even chaotic, that the agencies cannot account for tens of billions of dollars. So officials simply enter multibillion-dollar balance adjustments -- thereby writing off the money.

Mitchell E. Daniels Jr., director of the Office of Management and Budget, has written to Congress that the government's accounts "would never be tolerated in the private sector," adding that "repair of a system so badly broken will not happen overnight."

In part to embarrass the agencies, the budget office this year began rating the 24 largest departments -- scoring each green, yellow or red. Green indicates that the agency's financial systems are acceptable, yellow that they are troubled but improving and red that there are serious, chronic problems.

  • In June, only one agency was rated green -- the tiny National Science Foundation.
  • Twenty were rated red.
  • In the fiscal year ended Sept. 30, 2000, the Department of Defense entered unsubstantiated balance adjustments totaling $1.1 trillion -- down from $2.3 trillion the previous year.
  • In addition to Defense, the books of the Agriculture Department, NASA and the Agency for International Development were in such chaos they were not auditable in 2000-2001.

The Internal Revenue Service is unable to produce a hard figure for the amount of tax payments due the government -- relying instead on a statistical sample of taxes due from which it derives an estimate.

All told, for the 2000-2001 fiscal year, the Treasury Department entered a balance deduction from the government's general fund of $17.3 billion to make up for financial errors throughout the government.

Source: Joel Brinkley, "Auditors Say U.S. Agencies Lose Track of Billions," New York Times, October 14, 2002.


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