GAO can't render opinion on government financialsby Douglas French
Mises Economics Blog
Jan. 02, 2011
UK: Muslim Teacher 'Told Class Charlie Hebdo Victims Should be Killed for Insulting the Prophet'
Knockout Game In St. Louis: White Man Viciously Beat 'For No Apparent Reason'
Canadian State TV Hails 'Beige Horizon' With No White People
'Kick Them Out Of Our County': Geert Wilders Shares Shocking Vid Of Migrants Rioting In The Netherlands
With Carson Pick For HUD, Trump Makes Good On Promise To End Obama's Forced 'Diversity' Scheme
The federal government released its 2010 financial statements as prepared according to Generally Accepted Accounting Principles (GAAP) a few days before Christmas. The public isn't clamoring for this information and the government's numbers don't seem to be keeping anyone awake at night.
For those looking for scary numbers to wash down with their bubbly tonight, according to GAAP, the government's deficit in 2010 was $2.08 trillion, a considerable widening from the $1.254 trillion deficit in 2009.
If these numbers weren't bad enough, the U.S. Government Accountability Office says it can't render an opinion on the federal government's financials "because of widespread material internal control weaknesses, significant uncertainties, and other limitations."
Specifically the GAO won't weigh in because of three areas: "(1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable, (2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government's ineffective process for preparing the consolidated financial statements."
Gene Dodaro, acting comptroller general of the United States cited material weaknesses involving an estimated $125.4 billion in improper payments, information security across government, and tax collection activities. Dodaro noted that three major agencies, the Department of Defense, the Department of Homeland Security and the Department of Labor, could not provide good enough numbers to get clean opinions and said, "Improved accuracy and transparency in financial reporting are urgently needed."
Recent accounting graduate Briggs Armstrong points out that no publicly traded company could get away with half that many qualified opinion areas and if the government was a company, the accounting report would be top of the fold news for weeks with congressional hearings scheduled immediately.
He believes the audit violated GAAP in disclaiming. “GAAS is pretty clear about when disclaiming an opinion is allowable. There are only 4 acceptable reasons for disclaiming. 1) Lack of auditor independence 2)limitation of scope (inability to test reported figures 3) going concern 4)significant uncertainties.”
Armstrong contends that a qualified or adverse opinion is required based upon the Comptroller’s statement, instead of the pass the GAO took.
The government's balance sheet is in the hole $64 trillion when all obligations are taken into account, according to the faulty-official numbers that the GAO won't express an opinion on. John Williams, who scrutinizes the numbers at shadowstats.com, claims the hole is more like $76.3 trillion and explains, "The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so."
Williams is of the opinion that all of this government spending will lead to hyperinflation. Money manager and trader Victor Sperandeo sees it the same as Williams. America's debt rolls over every 49 months to the tune of $4.3 trillion a year, according to Sperandeo. "A nation needs to inspire a lot of confidence to keep that kind of Ponzi scheme alive."
Sperandeo wrote in Barron's that when a government borrows 40 percent or more of its annual expenditures over an extended period of years, its lenders shy away from extending more credit and the central bank will fill the breach by printing money to buy the bonds and fund the deficits.
The last two years Uncle Sam has borrowed more than 40 percent of its expenditures and it appears this percentage will only grow.
Williams says the U.S. is on a collision course with "a hyperinflationary great depression" with the dollar completely collapsing, along with the financial system, causing an end to "the normal stream of U.S. commercial and economic activity."
Something to ponder while bringing in the New Year.