fly at night

The politicians in D.C. wouldn’t fake the financial condition of America would they? Hey, anything coming out of the capital comes with a label “politics prevents us from telling the truth”.

USA Today has an article by Dennis Cauchon titled What’s the real federal deficit? (How many billions (or trillions) of dollars depends on how you do the accounting)

The federal government keeps two sets of books.

The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005.

The set the government doesn’t talk about is the audited financial statement produced by the government’s accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.

Two sets of books? Misleading numbers? Please tell me it isn’t so!

Government has long lived under accounting standards that were, at best, archaic and nonsensical. CPA candidates cringed at the idea that they would encounter questions about such anti-logic rules.

I am sure that you have heard about the trillions of dollars in surpluses that Bill Clinton racked up during his term but did you know

The Clinton administration reported a surplus of $559 billion in its final four budget years. The audited numbers showed a deficit of $484 billion.

The official line is that the feds are eating up about 20% of the GDP. If you look at the real numbers we would know that number is low.

Does this really matter? You bet.

The audited financial statement — prepared by the Treasury Department — reveals a federal government in far worse financial shape than official budget reports indicate, a USA TODAY analysis found. The government has run a deficit of $2.9 trillion since 1997, according to the audited number. The official deficit since then is just $729 billion. The difference is equal to an entire year’s worth of federal spending.

The fact is that government is not transparent. We only know what we are told. Why not fix the problem and tell us the truth?

The House of Representatives supported Cooper’s proposal this year to ask the president to include the audited numbers in his budgets, but the Senate did not consider the measure.

Yep, the greatest deliberative body in the world said no to tell the public what is really happening in America.

The new Medicare prescription-drug benefit alone would have added $8 trillion to the government’s audited deficit. That’s the amount the government would need today, set aside and earning interest, to pay for the tens of trillions of dollars the benefit will cost in future years.

Standard accounting concepts say that $8 trillion should be reported as an expense. Combined with other new liabilities and operating losses, the government would have reported an $11 trillion deficit in 2004 — about the size of the nation’s entire economy.

The federal government also would have had a $12.7 trillion deficit in 2000 because that was the first year that Social Security and Medicare reported broader measures of the programs’ unfunded liabilities. That created a one-time expense.

The proposal to add Social Security and Medicare to the bottom line has deeply divided the federal accounting board, composed of government officials and “public” members, who are accounting experts from outside government.

How can this be? It is called static analysis. For example, if you cut taxes by 10% then you will receive 10% less than you would have if you didn’t cut taxes. Of course there is never an explanation about the increase or decrease in revenues compared to the budgeted numbers.

The government also uses cash flows to determine its financial position. If they make a decision today that flows into future years they only consider the cash flows in those years to determine financial impact.

The official number is based on “cash accounting,” similar to the way you track what comes into your checking account and what goes out. That works fine for paying today’s bills, but it’s a poor way to measure a financial condition that could include credit card debt, car loans, a mortgage and an overdue electric bill.

Under accrual accounting, the $25,000 cash from your credit card is offset immediately by the $25,000 you now owe. Your bottom line hasn’t changed. An accountant might even make you report a loss on the transaction because of the interest you’re going to pay.

“The problem with cash accounting is that there’s a tremendous opportunity for manipulation,” says University of Texas accounting professor Michael Granof. “It’s not just that you fool others. You end up fooling yourself, too.”

And so goes government accounting. For states and local governments the rules have changed. They now have to produce financial statements that have a reasonable relationship to reality. Soon they will even have to report in more detail about the costs of all those employee benefit programs that they approved without understanding what the real costs could be.

Look at our friends in Sutter County. They went from a surplus in their pension plan to a deficit with a single vote. This vote was to keep qualified employees but we soon found the Deputy CAO was retiring.

Why don’t we get the straight information? It is the election season. In fact, every day is the election season for those who desire to maintain power.

We, the taxpayer, have a right to know the truth. We have a right to know that our hard earned money is being spent wisely. We have a right to demand accountability. However, there can’t be true accountability until government comes clean on it true financial position. That may never really happen until being an elected official returns to the concept of being a public service for a limited time and not a desired financial and power entitlement program for the official.