'High-Risk' Finance At the Federal Level; Status reports confirm and detail the failures of federal agencies to account for taxpayer funds, but Congress seems indifferent to where the people's money has gone

0 Comments | Insight on the News, Sept 2, 2003

Byline: Kelly Patricia O'Meara, INSIGHT

The introduction to the General Accounting Office (GAO) "high-risk" list of federal agencies engaged in dubious accounting practices provided by Comptroller General of the United States David Walker reads in part: "The high-risk status reports are provided at the start of each new Congress. This update should help the Congress and the administration in carrying out their responsibilities, while improving government for the benefit of the American people." In other words, the purpose of the "high-risk" list is to provide helpful information to Congress about management of government agencies and departments.

But, even though the status reports are well into their second decade, one is hard-pressed to find in them detailed information that might in fact be useful to Congress in appropriating funds. Nowhere is this more evident than in financial management of the agencies and departments, about which this magazine has reported with care for nearly five years (see sidebar, p. 22).

To provide a sense of how government bureaucrats are handling the people's money the GAO has provided an upbeat, yet sobering, breakdown. In 2001 there were 23 departments or agencies on the high-risk list. Two years later the number has increased to 25. The good news is that the Social Security Administration's (SSA) supplemental-security-income program and the Department of Justice's asset-forfeiture program have been removed from the list.

However, four new designations have been added, including the Department of Homeland Security, the disability programs at the SSA and the Department of Veterans' Affairs, federal real property and deteriorating facilities, and the Medicaid program. And, although it will come as no surprise to anyone remotely familiar with the problems plaguing corporate pensions [see "Don't Count on That Company Pension," Dec. 10-23, 2002, and "Pension Insurer Announces Huge Loss," posted Feb. 5 on Insight Online], months after the official "high risk" was made public, the Pension Benefit Guarantee Corp. (PBGC) was added to the list, raising the total yet another notch to 26.

In his announcement adding the PBGC to the high-risk list, Walker explained that "the PBGC single-insurance program has a significant accumulated deficit and faces additional potential losses due to a variety of factors, including certain weaknesses in the current minimum-funding rules and insurance provisions. In addition, the PBGC has significant exposure in industries that are affected by increasing global competition and the move from an industrial to a knowledge-based economy." What the comptroller general is alluding to is that if corporations continue to experience huge losses and are unable adequately to fund their pensions, the PBGC, the federal insurer of last resort, may not have the financial wherewithal to make pension payments to millions of retirees.

Walker's assessment may come as a surprise only to the flack catchers running the PBGC. Just eight months ago Jeffrey Speicher, a spokesman for the giant guarantor, assured Insight that "the PBGC is able to meet its commitment to pay benefits for the foreseeable future. We have been running a surplus but, even if that should go away, we have the wherewithal to meet our commitments that we were set up to pay." Since Walker sees a "high-risk" deficit and Speicher sees a surplus, it may be only that the two are at odds over what each understands as the definition of "foreseeable future." Time will tell.

But, speaking of deficits and surpluses, Walker again has raised the issue of the apparent inability of federal agencies properly and accurately to account for funds entrusted to them by taxpayers. For example, the Department of Defense (DoD), which has in the last two years received tens of billions of additional funds to fight wars in Afghanistan and Iraq, has been on the high-risk list since the list's inception. According to Walker, "DoD's financial-management deficiencies represent the single largest obstacle to achieving an unqualified opinion on the U.S. government's consolidated financial statements. To date, none of the military services or major DoD components have passed the test of an independent financial audit." In other words, because of DoD's inability properly to account for its funds, the entire federal ledger cannot be balanced.

Among the DoD's financial-management "deficiencies" is the agency's inability to account for $1.1 trillion. Insight pointed out in April of last year that, according to Assistant Inspector General for DoD Auditing David Steensma, "we reported that DoD processed $1.1 trillion in unsupported accounting entries to DoD component financial data used to prepare departmental reports and DoD financial statements for [fiscal year] 2000" [see "Government Fails Fiscal-Fitness Test," May 20, 2002]. That is, when the Clinton administration turned over the Pentagon to the Bush team some $1.1 trillion was missing or unaccounted for.