The Unthinkable: Government Accounting Processes Force Even Trained Auditors To Give Up

Many, many times and in so many ways we have written how the size of the Federal government has gotten totally out of control, so large and so atrophied:

• Medicare, Medicaid, and Social Security have gotten so big and so unwieldy from a government bureaucracy perspective that they lose over $200 billion a year to waste and criminal fraud.
• During the financial crisis, the Federal Reserve Board was trying to increase the amount of short term Treasury debt that was in the market while the Treasury Department was trying to increase the amount of long term Treasury debt in the market while reducing the amount of short term debt, i.e. the government was so big that two parts of it were trying to do the exact opposite of what each other was doing.
• The tax code has gotten so large and so complicated that the IRS cannot even keep up, admitting that it fails to collect over $380 billion a year from tax evaders.
• The Transportation Safety Administration is so inefficient that it recently purchased almost $200 million worth of airport security equipment that it will never use.
• The Defense Department has gotten so large that one of its own task forces found that the Department buys over $30 billion worth of military parts every year that are either obsolete or unneeded.

The list goes on and on. Our Federal government has morphed into a political Jabba The Hutt, an overbearing, overweight, repressive, inefficient, non-agile character out of the Star Wars movies. This political Jabba wastes taxpayer wealth, destroys freedom and liberties, and never actually resolves any major issues of problems.

Nowhere is this illusion been more vivid than in a recent article from the Huffington Post on January 18, 2013:

• The Government Accountability Office (GAO) announced in the third week in January that it will be unable to complete a complete financial audit of the Federal government since there are serious accounting problems with the Department of Defense.
• At that time, the GAO also identified the Department of Homeland Security as having operational and accounting problems so substantial that it was impossible for investigators to audit it.
• Can you imagine, two major government departments that are so screwed up that even the expert auditors from the GAO, trained professionals that are supposed to bring order to chaos, have thrown up their hands and said they give up, these two departments cannot be audited because of how screwed up they have become.
• And these are not two insignificant entities: the article states that the Department of Defense has a net annual cost of $799.1 billion and the Department of Homeland Security has a net cost of $48.7 billion.
• If you add these two numbers up and divide the total by the 115 million households in the U.S., you end up with over $7,300 per household in taxes that that the Federal government cannot account for every year.
• This is an atrocious insult to every American taxpayer who pays their fair share of taxes to a government that then proceeds to misappropriate, misspend, and outright lose those taxes at a rate of $7,300 per household.
• This was the official GAO reasons of why they could not complete their audit: "The U.S. Government Accountability Office (GAO) cannot render an opinion on the 2012 consolidated financial statements of the federal government because of widespread material internal control weaknesses, significant uncertainties, and other limitations. As was the case in 2011, the main obstacles to a GAO opinion on the accrual-based consolidated financial statements were: Serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable. The federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies. The federal government’s ineffective process for preparing the consolidated financial statements."

I love the phrase, “as was the case in 2011,” in other words, this type of screwup happens every year. The other adjectives used to describe the situation are also quite damning: serious problems, unsuitable, ineffective, control weaknesses, limitations, uncertainties, etc. What a disgrace.

How much corruption, criminal fraud, outright wasteful spending is going on in these two departments? We may never know because of how messed up the government and the political class that should be overseeing these operations have allowed the political Jabba The Hutt to grow out of control.

But not only are the actual accounting and audit processes out of whack, the process for fixing them are also a train wreck, according to the article:

• A GAO source told the Huffington Post writer that Pentagon meetings with the auditors were often canceled at the last minute because the Pentagon could not get its paperwork and financial statements compiled on time.
• Gene L. Dodaro, Comptroller General of the United States and head of the GAO, tried to throw the Pentagon a bone/compliment and recognize the improvements in accounting practices made over time but since the Defense Department’s accounting processes and results are still unaudtiable, how much improvement really could have been made?
• The GAO report said that the Pentagon was working on a way to get its financial statements to a point where they could actually be audited, "following years of unsuccessful financial improvements." How can an “improvement” be “unsuccessful?” Makes no sense.
• The target is to have valid financial statements available by September, 2017. However, in October 2011, the goal was to have audit-readiness by fiscal year 2014 so good luck hitting that 2017 date.
• And in reality, that 2017 date is really unacceptable. That would mean that for four more years, over $800 billion a year would be a mystery as far as how it was being spent and how much of it was being wasted.
• The agency slammed the Pentagon for its financial readiness, saying that recent work has "raised concerns" about the Pentagon's ability to implement a valid accounting process and plan.

Thus, the financial statements are a farce, the past improvements to remedy the statements and accounting processes have been a farce, and the ability to fix the processes going forward look like they will also be a farce. I have never heard of any business, any corporation, any non-profit organization, any government agency, or any human endeavor being so screwed up that it could not even be audited by trained professional to find out how screwed up it was. Until now, that is.

Several steps from “Love My Country, Loathe My Government” need to be implemented right away to start to address and fix this insult to the American taxpayer:

1. Step 46 would impose very strict accounting and auditing processes on every single Federal government entity along the lines of the Sarbannes-Oxley legislation that is imposed on private businesses and companies. If non-government entities have to live under and obey strict, generally accepted accounting rules and guidelines, there is no reason why government entities should be exempted from those same rules. Maybe if Sarbannes-Oxley had been in place all along we would not annual have over $800 billion at risk.
2. Step 34 establishes a process to remove Congressional members from their committee posts if their committees fall down on the jobs they are supposed to be doing. In this case, any Congressional member who allowed the Defense Department budgeting and accounting process to get this screwed up needs to be removed form those committees immediately. Given how massive this screwup is, they probably should also be drummed out of office.
3. Step 1 would reduce Federal government spending 10% a year for five years across the board. Possibly the only way to get the political Jabba under control is to starve it down to a smaller, more manageable entity that could actually be audited.

Is there any wonder why we have a $16.4 TRILLION national debt when two large government departments are so big and so out of control that an audit is not only difficult, it is impossible?

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http://www.reason.com/
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http://realpolichick.blogspot.com
http://www.youtube.com/watch?v=08j0sYUOb5w