Tuesday, January 4, 2011

We Don't Even Know How Bad the Federal Finances Are

After pouring over the U.S. Government Accountability Office's 2010 Financial Statements, Doug French reports that
the U.S. Government Accountability Office says it can’t render an opinion on the federal government’s financials “because of widespread material internal control weaknesses, significant uncertainties, and other limitations.”

Remember when even an unsubstantiated hint of impropriety at accounting titan Arthur Andersen sent it packing? Well, let us see what the Comptroller General of the United States has to say about our national government's financial statement:

Our report on the U.S. government’s consolidated financial statements is enclosed. In summary, we found the following:

• Certain material weaknesses in internal control over financial reporting and other limitations on the scope of our work resulted in conditions that prevented us from expressing an opinion on the fiscal years 2010 and 2009 accrual-based financial statements.1 About 32 percent of the federal government’s reported total assets as of September 30, 2010, and approximately 25 percent of the federal government’s reported net cost for fiscal year 2010 relate to three agencies’ fiscal year 2010 financial statements that, as of the date of our report, either received disclaimers of opinion or were not audited.

• Because of significant uncertainties, as discussed in our report, we are unable to, and we do not, express an opinion on the 2010 Statement of Social Insurance. About $22.8 trillion, or 74 percent, of the federal government’s reported total present value of future expenditures in excess of future revenue for 2010 relate to the Department of Health and Human Services’ 2010 Statement of Social Insurance, which received a disclaimer of opinion. In our opinion, the Statements of Social Insurance for 2009, 2008, and 2007 present fairly, in all material respects, the financial condition of the federal government’s social insurance programs, in conformity with U.S. generally accepted accounting principles.

• Material weaknesses resulted in ineffective internal control over financial reporting (including safeguarding of assets).

• Our work to test compliance with selected provisions of laws and regulations in fiscal year 2010 was limited by the material weaknesses and other scope limitations discussed in our report.

These sort of irregularities are not uncommon in a bureaucratic institution that, by its very nature, is unconstrained by profit and loss. When an entity can force people to give it money or it can legally print money itself, what does it matter if no one establish the extent of its solvency? It must be solvent because it simply must be.

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