Government flunks annual audit, again

For the ninth year running, the federal government failed to achieve a clean financial audit, largely because of accounting issues at the Pentagon.

This year's results, released on Thursday, looked much like those from recent years. Internal problems with government accounting systems prevented the Government Accountability Office from reaching a reliable conclusion about the accuracy of the Treasury Department's Fiscal Year 2005 Financial Report of the U.S. Government.

The failed audit was unsurprising, as accounting problems at the Defense Department alone -- given the size of its budget -- are sufficient to introduce uncertainty into the entire federal accounting process. DoD has told lawmakers it will not be able to meet a 2007 target to clean up its accounting procedures.

GAO cited three major factors for the audit failure. In addition to "serious financial management problems at the Defense Department," the report noted an inability to account for and reconcile balances that cross agency lines, and an ineffective process for preparing the financial statements.

DoD was not alone in receiving a disclaimer, or failing mark. It was joined by NASA, the Energy Department and the Homeland Security Department. Together, these agencies represent 58 percent of the government's total reported assets, the report said.

New to this report was a warning about restatements of previous years' results. Of the 24 agencies required to submit financial statements under the 1990 Chief Financial Officers Act, seven have restated their results for fiscal year 2004. GAO's audit report warns that such restatements can harm the credibility of the accounting process.

Tabetha Mueller, a spokeswoman for the House Government Reform Subcommittee on Government Efficiency and Financial Management, said the high level of uncertainty expressed in the audit report could have several explanations.

"One of the reasons could be that the auditors are getting better at auditing," she said. "In other words, as they turn over more rocks, they're finding more."

GAO chief David Walker said the Treasury report raises broad concerns.

"The current financial reporting model does not clearly and transparently show the wide range of responsibilities, programs and activities that may either obligate the federal government to future spending or create an expectation for such spending," he wrote in a statement accompanying the audit. "Thus, it provides a potentially unrealistic and misleading picture of the federal government's overall performance, financial condition, and future fiscal outlook."

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