Ten years after Congress ordered federal agencies to have outside auditors review their books, neither the Defense Department nor the newer Department of Homeland Security has met even basic accounting requirements, leaving them vulnerable to waste, fraud and abuse.
An Associated Press review shows that the two departments’ financial records are so disorganized and inconsistent that they have repeatedly earned “disclaimer” opinions, meaning that they simply cannot be fully audited.
“It means we really can’t put any faith in the numbers they use,” said Ross Rubenstein, who teaches public administration at Syracuse University’s Maxwell School.
The Federal Financial Management Improvement Act of 1996 requires, among other things, that the financial systems of major federal agencies “comply substantially” with generally accepted accounting standards. Each year, those agencies are required to release results of outside audits.
The AP review of financial statements from the federal government’s 15 executive departments shows that most pass their audits, although many agencies – including NASA, the Coast Guard and FEMA – have been frequently cited for serious accounting errors.
The entire Homeland Security Department, with a $35 billion budget this fiscal year, passed its first audit in 2003 with strong stipulations, but has failed every one since.
And the Defense Department, with a $460 billion budget this fiscal year, has never even come close to passing. Because that department makes up at least 20 percent of all federal spending, the entire federal government also has failed its audits since the congressional mandate took effect.
Tina Jonas, undersecretary and chief financial officer of the Department of Defense, and David Norquist, chief financial officer at the Homeland Security Department, agree that a disclaimer on an audit leaves their agencies vulnerable to waste and fraud. Both said they have other checks in place aimed at controlling how money is spent but also acknowledged that resolving the audit problems would save their agencies money.
“The consequence to the public is the federal budget is conceivably larger than it needs to be,” said Ronald W. Johnson, a senior vice president at RTI International, a non-profit research institute in Research Triangle Park, N.C. “Even if there are no financial consequences, there are political consequences.”
Some experts say the accounting standards for federal agencies themselves don’t make much sense because they treat the government like a company, which buys and sells things, rather than a public entity, which collects taxes and spends whatever is needed. The federal government also doesn’t have to account for required future payments, such as Social Security and Medicare.
“Even if they were getting clean bills of health on these audits, they only measure what’s going on this year and don’t talk about promises being made down the road,” said Kent Smetters, former deputy assistant secretary for economic policy at the Treasury Department.
If those funds committed into the future are taken into account, the federal deficit this year would be about $2 trillion, not $158 billion, said Smetters, who teaches at the University of Pennsylvania’s Wharton School.
“The bottom line is that you have the president’s budget passed by Congress, and these agencies have a line in there of how much money they’re going to get. And what these audits say is that they can’t trace how that money actually gets spent,” he said. “That’s a problem.”
