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GAO Again Finds Fault With the Federal Books

Auditors Say That Government's Records Are So Inadequate They Cannot Be Evaluated, but Bush Official Cites Progress

By Christopher Lee
Washington Post Staff Writer
Tuesday, December 21, 2004; Page A23

The U.S. government's financial record-keeping is so inadequate that congressional auditors said last week that they could not determine whether the federal books meet generally accepted accounting principles.

It was the eighth fiscal year in a row that the Government Accountability Office, the investigative arm of Congress, was unable to provide a definitive opinion on the quality of the federal government's consolidated financial statements.

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"Proper accounting and financial reporting practices are essential in the public sector," Comptroller General David M. Walker wrote in a Dec. 14 cover letter to his agency's audit report on consolidated financial statements for fiscal 2003 and 2004. "The U.S. government is the largest, most diverse, most complex, and arguably the most important entity on earth today. . . . Sound decisions on the current results and future direction of vital federal programs and policies are made more difficult without timely, reliable and useful financial and performance information."

Linda M. Springer, head of the Office of Federal Financial Management within the Office of Management and Budget, acknowledged the shortcomings in the financial statements but stressed that the Bush administration is making progress. She said President Bush has made improving financial performance and record-keeping one of his top management priorities.

"We believe . . . that we owe the taxpayers no less than a private company would to its investors in being able to account for their money," Springer said in an interview Friday. "We believe that's a sign that we're managing their money properly, if we can account for it and do that in a timely way."

Walker wrote that the need for timely, accurate and reliable financial information is "greater than ever" as the government grapples with long-term budget problems related to Social Security and Medicare and new spending on homeland security.

As of September, the government's debt was $7.4 trillion -- or about $25,000 for every adult and child in the country, Walker noted. If one factors in other unfunded commitments that are not included in that number -- such as promised Social Security and Medicare benefits and veterans' health care -- the debt burden works out to about $145,000 per person, or $350,000 per full-time worker.

In their review, GAO auditors found that incomplete documentation and "weaknesses" in financial systems, record-keeping and financial reporting hurt the government's ability to provide reliable information on assets, liabilities and costs. The greatest challenges are continuing "serious financial management problems" at the Defense Department, auditors reported. The government could not show that property and equipment inventory reports at Defense were correct, nor could it fully account for transactions between agencies.

Also, at least 10 of 23 major agencies and departments restated their fiscal 2003 financial statements this year to correct errors. Only four did so last year. "Frequent restatements to correct errors can undermine public trust and confidence in both the entity and all responsible parties," the GAO report said.

However, Springer, the OMB official, said the increasing number of restatements is an indication that departmental auditors "are being more careful than ever before."

Springer also said financial statements have been completed in a more timely fashion. The 2004 consolidated report was released on Dec. 15, less than three months after the close of the fiscal year on Sept. 30. The 2003 report, in contrast, did not come out until the following February, and the 2002 report was not released until March.

"It's a huge step forward," she said. "We believe that forcing the timeliness is key to having the agencies . . . deal with these issues."

Springer said 18 major departments and agencies received "clean" outside audits of their financial statements this year, the same number as in 2003.

Other problems continue to prevent the government from receiving a favorable opinion from the GAO, she said, but they are being addressed. Such issues include ongoing financial management problems at Defense, problems with the way individual agencies' statements are consolidated by the Treasury Department and difficulty in reconciling transactions between agencies, she said.

"They are long-standing issues that still need work, frankly," Springer said. " . . . It's like anything else, you keep moving forward and eventually you get to the point where you have all of the problems solved."

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