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Press Release

    No Account Budget ... for Bigger Government

    02/08/2000

    With the releases of his budget for fiscal 2001 today, Bill Clinton is challenging the Republican Congress to "do more."

    Mr. Clinton is raising the ante on the fearful Republicans by proposing more than $1.8 trillion in spending for next year, including hundreds of expensive, poll-tested initiatives to benefit every liberal interest group under the sun. But before the congressional leadership takes the bait, they should first ask Clinton, and his hand-picked successor Al Gore, to explain why their administration cannot account for the money they already are spending.

    After seven years of perfecting the art of recycling of paper clips, Al Gore's "Reinventing Government" effort has failed to get federal agencies to do the most basic function - account for how they are spending the taxpayers' money. According to Uncle Sam's own watchdogs, the federal government - which will spend more this year than the combined economies of Canada, China and Mexico - is a financial wreck and should be put into receivership, not given more money.

    In its typically understated way, the U.S. General Accounting Office (GAO) reported last year that, "significant financial systems weaknesses, problems with fundamental recordkeeping and financial reporting, incompletedocumentation, and weak internal controls . . . continue to prevent the government from accurately reporting a significant portion of its assets, liabilities and costs."

    In other words, the government has no idea where its spending our money, how it is being spent, and if it is doing any good. To make the fiscal 1998 financial statement of the government balance, the Treasury had to record a $24 billion plug (an amount slightly less than the Education Department's budget that year) to account for "unreconciled transactions." You can almost hear some bureaucrat saying, "Let's see. Those receipts have got to be around here someplace."

    The most troubling aspect of this is that the programs that will get the most political attention during this election year - Defense, Education and Medicare - are the agencies with the biggest financial management problems.

    By far, the worst financial management problems are found within the Department of Defense. By it's own admission, DOD "continues to lack systems capable of compiling financial reports that comply with federal accounting standards and laws, and these systems will not be in place for several more years." Indeed, no major branch of the military can survive a financial statement audit.

    It's little wonder, then, that DOD's financial management systems have been on the General Accounting Office's list of "High-Risk" programs since 1995. To make that list, a program must be extremely vulnerable to waste, fraud, abuse and mismanagement.

    DOD's problems are far greater than buying $10,000 toilet seats. According to GAO, Defense has "not properly accounted for and reported billions of dollars of property, equipment, inventory and supplies." As a result, reports DOD's own inspector general, the agency had to make $1.7 trillion of "unsupported adjustments" to prepare last year's financial statements. Talk about cooking the books. GAO summed it up by saying that "without more reliable financial and other management information, DOD cannot ensure adequate accountability to the president, the Congress, and the American public."

    Speaking of accountability, every major presidential candidate is calling for more accountability in education. That's all well and good, but first they should demand accountability from the U.S. Department of Education. DOE's financial systems are so bad, reports the GAO, that it took the agency eight months beyond the required March 1, 1999, due date to complete its fiscal 1998 financial statements. Even then, independent auditors still couldn't make the numbers add up. Let's hope this isn't the new math they're trying to teach our kids.

    What those auditors found at Education would land most private sector accountants in jail. In short, the auditors could not determine if the financial statements were reliable (called a disclaimer of opinion) because of "pervasive weaknesses in the design and operation of Education's financial management systems, accounting procedures, documentation, record-keeping, and internal controls." In addition, Education's student loan programs are so vulnerable to "waste, fraud, abuse and mismanagement," they have been on GAO's High Risk list since 1990.

    The question Congress should ask Mr. Clinton is: Have you fired anyone at the Department of Education for allowing this level of gross mismanagement to continue? If not, why not?

    While "saving Medicare" has become the bipartisan political mantra of the year, there may not be much left to save after the doctors, hospitals and nursing homes have plundered the system. Medicare has been on GAO's High Risk list since 1990 because it too "is inherently vulnerable to fraud, waste, and abuse."

    Between 1996 and 1998, the Health Care Financing Administration (HCFA), which administers Medicare, paid out more than $56 billion in improper payments to doctors and hospitals. To make matters worse, the agency's inspector general now predicts that inflated payment rates will result in overpayments to managed care organizations totaling $11.3 billion over the next five years and $34.3 billion over the next 10.

    Instead of cleaning up this financial mess, Mr. Clinton proposes to add a prescription drug benefit to Medicare and allow younger retirees to enter the rogram. While these measures may poll well, they will sink an already bankrupt program even deeper into the red.

    The financial mismanagement plaguing these programs is just the tip of the iceberg. Behind virtually every one of Mr. Clinton's new initiatives is a federal agency that cannot produce auditable books, cannot account for how it is spending taxpayers' money, and cannot show any measurable results from the money it is spending.

    So when Mr. Clinton says the government needs $1.8 trillion next year to do its job, how can we have any confidence that this is, in fact, true? Perhaps the government needs only $1.6 trillion and the difference is just a bookkeeping error. Who is to know?

    If Congress is serious about dispelling its "do-nothing" image this year, the last thing it should do is put forward a watered-down spending plan of its own. Instead, lawmakers should hold a series of high-profile hearings on the vast amount of financial mismanagement within this administration. Here's the first question to every administration official that appears before these hearings: "Why shouldn't we subject Cabinet members, political appointees, or bureaucrats, to the same laws that send shady Wall Street operators on long vacations in federal prison?"

    Scott A. Hodge is a senior fellow in tax and budget policy at Citizens for a Sound Economy Foundation.