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For the eighth year in a row - indeed, ever since audits were required - the government has failed its annual financial statement review.

When the Treasury Department publicly released the government's financial statements along with the Government Accountability Office's report on them, few were surprised at the poor results: problems with internal controls, the methods in place to prevent mistakes, fraud, and accounting issues, as well as with reporting practices, prevented GAO from giving the government a clean audit.

"Until the problems discussed in our audit report are adequately addressed, they will continue to present a number of adverse implications for the federal government and the taxpayers," wrote GAO chief David Walker in presenting the results of the audit.

Walker also issued a warning about federal spending. He noted the rapid increase of Medicare costs, which shot up 60 percent this year with the addition of the prescription drug card benefit. The government's total debt as of September 2004 of $7.4 trillion adds up to about $25,000 per person, he said.

Treasury reported government revenues increased by more than $100 billion in fiscal 2004, to $1.9 trillion. Net costs, however, were $2.5 trillion.

Treasury has been required to issue governmentwide financial statements since 1997, as required by the 1990 Chief Financial Officers Act. That law requires 23--soon to be 24, with the inclusion of the Homeland Security Department--agencies to have chief financial officers responsible for financial management, and for each agency to have a financial management plan that conforms to the five-year plan issued by the Office of Management and Budget.

"It changed the way we did business and gave a lot more focus on financial management," said Ed Verburg, who served as deputy chief financial officer at Treasury while the CFO Act was being implemented. As for the lack of a clean audit, he said, "The federal government is just very young in this process."

The elusiveness of a clean audit is largely caused by the Defense Department, said Mueller, spokeswoman for the House Government Reform Subcommittee on Government Efficiency and Financial Management.

"It's such a large chunk of budget, if they're not receiving a clean opinion, it affects the entire government," she said. DoD accounts for roughly one-sixth of the total federal budget, or $400 billion out of $2.3 trillion, she said.

The financial statements were released with record speed this year, after OMB, which is responsible for the federal government's financial health, moved up the deadline for each agency to report. Walker noted that while he appreciates the value of having timely financial statements, the tight turnaround time hampered GAO's ability to perform a complete audit.

"Treasury's ability to timely provide us with complete and properly supported drafts of the consolidated financial statements was significantly impaired," he wrote. The statements were submitted Dec. 15, just 75 days after the end of the fiscal year.

OMB Controller Linda Springer said she was proud of agencies' performance in meeting this year's accelerated deadline, and noted that last year, the governmentwide report was not released until the end of February. She said there was no drop in quality because of the accelerated deadline.

While the Housing and Urban Development Department was unable to complete its audit on time, she said she expects the department to have a plan in place to meet the deadline next year.

Walker also wrote that he was concerned about the growing number of agencies who needed to restate previous financial statements because of errors. Ten out of 23 CFO Act agencies had to fix errors in their fiscal 2003 statements, he said.

Walker urged more fiscal responsibility. He called Medicare's new prescription drug benefit "one of the largest unfunded commitments ever undertaken by the federal government," and noted the current present value, or the cost including future estimated payments, for the next 75 years was $8.1 trillion as of Jan. 1, 2004, or more than four times the government's fiscal 2004 total revenue.

Walker also criticized the growing expense of defense-related programs. "We should not assume that all defense and homeland security expenditures are both necessary and prudent," he wrote.

COMMENTS

• It doesn't surprise me about this story! When the squeeze is put on the upper levels of management & military leaders to be fiscally responsible and stop robbing peter to pay paul, then maybe we will be able have balanced books!!! GovExec.com reader Posted December 21, 2004 9:35 AM
• Our government has only been requiring internal audits for seven years!? Unbelievable. GovExec.com reader Posted December 20, 2004 4:21 PM
• "It changed the way we did business and gave a lot more focus on financial management," said Ed Verburg, who served as deputy chief financial officer at Treasury while the CFO Act was being implemented. As for the lack of a clean audit, he said, "The federal government is just very young in this process." It should not change the way anyone does business - it only changes the way that the financial aspects of the business are reported! The CFO act empowered OMB to set an accounting standard. For whatever reason the OMB set the corporate accrual accounting standard as the system to adopt for government. That is ridiculous on its face and Mr Walker should bew smart enough to see that. Changing a funds accounting system to an accrual system is not simply changing the numbers reported but involves establishment of an entire new system that take several years! For example, reporting historical cost (accounting standard) for inventories involves setting up an whole new process to capture and keep historic cost. However, for management purposes histoic cost is meaningless. Inventories need to be kept at replacement cost for budget and performance purposes - historic cost is useless. Likewise, the accounting standards themselves (FFASB)are just plain bad! The DoD comtroller is not issuing accounting guidance but is asking the functionals to tell them what to issue. Even when everyone follows DoD financial reporting guidance they will not be compliant. taxpayer Posted December 20, 2004 8:35 AM