Honesty in Government

A couple of years ago I had the opportunity to listen to the Comptroller General of the United States, who serves, in essence as the chief accountant for the federal government. David Walker was previously a partner with Arthur Anderson and spoke poignantly about the destruction of that firm. But he also spoke eloquently about the fudge in accounting for the federal government. In this morning's Washington Post he wrote a letter to the editor which said in part -

"The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity's total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.

If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case -- even though the entity is the U.S. government."

Walker puts this debt into perspective by dividing it by the number of Americans which comes up to $400,000 per person. That is a healthy chunk of change, even if as I do, you would discount some of that potential burden. But a lot of this has been put behind a curtain because it is in the interest of politicians to do that. It comes back to the Cole Porter theory of public policy - accentuate the positive (the current benefits) and decentuate the negatives (the future and unfunded liabilities).

Were Sarbanes Oxley applied to government accounting, the government would have even larger problems than it does. Beginning in the new year, government entities will begin to have to account for their unfunded pension obligations in a more responsible manner. That is a good first step. But we really do need more.

Oh, by the way, Merry Christmas!