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GAO says no to fed fi­nan­cial fraud

The U.S. Gov­ern­ment Ac­count­abil­ity Of­fice (GAO) re­cently re­vealed that, as the of­fi­cial au­dit­ing agency of record for the U.S. Fed­eral Gov­ern­ment, it could not sign off on the gov­ern­ment’s con­sol­i­dated fi­nan­cial state­ments for 2015. Even worse, be­cause of the lack of prop­erly pre­pared and thor­ough gov­ern­ment data, the GAO says it may not be able to do so any ear­lier than 18 months from now, if at all.

Lack of in­for­ma­tion, in­suf­fi­cient trans­parency, on­go­ing prob­lems with the De­part­ment of De­fense data, and in­ef­fi­cient data gath­er­ing were cited as ma­jor prob­lems.

The dec­la­ra­tion by the GAO is a stun­ning non-par­ti­san in­dict­ment of the fed­eral gov­ern­ment and should cause con­cern to all Amer­i­cans, but cer­tainly comes as no sur­prise to those al­ready fa­mil­iar with the is­sue.

It is un­likely that any­one will get fired or go to jail as a re­sult of the gross in­com­pe­tence and cor­rup­tion within fed­eral agen­cies.

“The fed­eral gov­ern­ment needs to be able to track all rev­enues and ex­penses, as well as its as­sets and li­a­bil­i­ties, and that’s par­tic­u­larly im­por­tant in a tight bud­get en­vi­ron­ment,” said Gene L. Do­daro, Comptroller Gen­eral of the United States and head of the GAO. “Our re­port on the gov­ern­ment’s con­sol­i­dated fi­nan­cial state­ments un­der­scores the fact that much more work needs to be done to en­sure our pol­i­cy­mak­ers re­ceive the ac­cu­rate fi­nan­cial in­for­ma­tion needed to make dif­fi­cult short-term and long-term spend­ing de­ci­sions.”

For 2014, most, but not all, the 24 Chief Fi­nan­cial Of­fi­cers Act agen­cies re­ceived un­mod­i­fied or “clean” opin­ions on their re­spec­tive en­ti­ties’ fis­cal year 2014 fi­nan­cial state­ments. But for 2015, the De­part­ment of De­fense (DOD), as well as the De­part­ment of Hous­ing and Ur­ban Devel­op­ment and the De­part­ment of Agri­cul­ture, failed to get clean opin­ions.

The De­part­ment of De­fense (DOD) is the only gov­ern­ment agency that has failed to com­ply with a 1992 law that all fed­eral agen­cies be au­dited. The Marines did man­age to pass an au­dit in 2014, but no DOD agency has passed an au­dit since and the Marines’ 2014 au­dit came un­der heavy crit­i­cism.

The DOD says that its goal is to have au­dit-ready fi­nan­cial state­ments de­part­ment-wide by Septem­ber 30, 2017, some­thing it has failed to pro­vide since 1997 and can’t re­al­is­ti­cally pro­vide.

Since 1997, there is nearly $10 tril­lion the DOD can’t prop­erly ac­count for. With­out a mas­sive re­struc­tur­ing it is un­likely that a proper au­dit could ever be con­ducted. There are far too many peo­ple who ben­e­fit from an opaque war in­dus­try that now costs Amer­i­can tax­pay­ers nearly $1 tril­lion each year and from which vast sums are si­phoned off.

Do­daro op­ti­misti­cally urged strong and sus­tained com­mit­ment by DOD and other fed­eral en­ti­ties, along with con­tin­ued lead­er­ship by the U.S. De­part­ment of the Trea­sury and the Of­fice of Man­age­ment and Bud­get, to en­sure more ac­cu­rate fi­nan­cial re­port­ing.

GAO could not ren­der an opin­ion on the sus­tain­abil­ity fi­nan­cial state­ments due to sig­nif­i­cant un­cer­tain­ties about achiev­ing pro­jected re­duc­tions in Medi­care cost growth and a ma­te­rial weak­ness in in­ter­nal con­trol over fi­nan­cial re­port­ing. These sus­tain­abil­ity fi­nan­cial state­ments con­sist of the 2015 State­ment of Long-term Fis­cal Pro­jec­tions, an ef­fort to pro­vide in­for­ma­tion on the fed­eral gov­ern­ment’s long-term fis­cal con­di­tion.

Do­daro also ex­pressed con­cern about the con­tin­ued in­crease in im­proper pay­ments un­der the Obama ad­min­is­tra­tion. He noted ma­te­rial weak­nesses in­volv­ing up­wards of $136 bil­lion in im­proper pay­ments re­ported for fis­cal 2015.

This com­pares to more than $124 bil­lion in im­proper pay­ments re­ported for fis­cal year 2014, and more than $105 bil­lion for fis­cal year 2013. Al­to­gether, the GAO has iden­ti­fied more than $1 tril­lion wasted through im­proper pay­ments.

Im­proper pay­ments have con­sis­tently been a gov­ern­ment-wide is­sue de­spite ef­forts to re­duce them and iden­tify root causes, in­clud­ing fraud. An im­proper pay­ment can in­clude:

• In­cor­rect amounts paid to el­i­gi­ble re­cip­i­ents

• Pay­ments made to in­el­i­gi­ble re­cip­i­ents

• Pay­ments for goods or ser­vices not re­ceived

• Du­pli­cate pay­ments

• Pay­ments for which in­suf­fi­cient or no doc­u­menta-

tion was found.

GAO re­mains con­cerned that the fed­eral gov­ern­ment’s long-term fis­cal path re­mains un­sus­tain­able with­out fur­ther pol­icy changes. GAO has pre­pared long-term fis­cal sim­u­la­tions that pro­ject fed­eral deficits and debt un­der dif­fer­ent sets of pol­icy as­sump­tions.

“Grow­ing debt held by the public, which is now about 74% of GDP, could limit the fed­eral gov­ern­ment’s flex­i­bil­ity to ad­dress new or un­fore­seen chal­lenges, such as an­other eco­nomic down­turn or a large-scale dis­as­ter,” Do­daro said.

In ad­di­tion, Do­daro pointed out that de­lays in rais­ing the debt limit can cre­ate un­cer­tainty in the Trea­sury mar­ket and limit Amer­ica’s abil­ity to keep bor­row­ing more money to keep the ship afloat. To avoid dis­rup­tions to the Trea­sury mar­ket, min­i­mize un­nec­es­sary costs, and help in­form fis­cal pol­icy de­bate in a timely way, GAO has sug­gested that Congress con­sider bet­ter link­ing de­ci­sions about the debt limit with de­ci­sions about spend­ing and rev­enue at the time those de­ci­sions are made.

GAO’S au­dit re­port on the U.S. gov­ern­ment’s con­sol­i­dated fi­nan­cial state­ments is in­cluded in the 2015 Fi­nan­cial Re­port of the United States Gov­ern­ment, which is pre­pared by the De­part­ment of the Trea­sury. GAO has not been able to ren­der an opin­ion on the ac­cru­al­based con­sol­i­dated fi­nan­cial state­ments since they were first pre­pared in 1997.

GAO’S au­dit re­port is avail­able on GAO’S web­site at­ucts/gao-16-357r.

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