By Demian Brady, National Taxpayers Union Foundation
As if the budget outlook published Wednesday by the Congressional Budget Office (CBO) didn’t raise enough red flags about the fiscal state of the nation, yesterday the Government Accountability Office (GAO) dropped its financial audit of the federal government.
CBO projected that $20.3 trillion will be added to the national debt over the next decade. GAO’s audit reviews the government’s consolidated financial statements for 2022 and finds financial control deficiencies and material weaknesses.
GAO defines a deficiency when the financial reporting controls do not allow management or employees “to prevent, or detect and correct, misstatements on a timely basis” in the normal course of their work. A material weakness is a deficiency or combination of deficiencies leading to situations whereby financial misstatements will not be prevented, or detected and corrected on a timely basis.
A comprehensive audit includes reporting of financial information as well as an audit opinion regarding the quality of the data and the processes used to record and report the data. The best outcome of an audit is to obtain an unqualified opinion with a clean report, signifying that the financial data does not include material misstatements and is in compliance with auditing standards and applicable laws.
On the positive side, 20 key agencies received clean opinions. But due to persistent weaknesses in the federal government’s financial control systems, GAO was “again unable to provide an opinion on the reliability of the federal government’s consolidated financial statements.” A disclaimer opinion means that there are serious shortcomings in keeping track of finances. The problem programs represent 23 percent of federal outlays. Among the significant concerns raised by GAO include:
Serious and persistent financial management problems at the Department of Defense (DoD), which has never been able to obtain an audit opinion. Many of DoD’s agencies and programs also failed to obtain an opinion including the Army, Navy, Air Force, U.S. Marine Corps, Defense Health Program, Defense Information Systems Agency, Defense Logistics Agency, U.S. Special Operations Command, and U.S. Transportation Command.
Weakness in accounting for intragovernmental transfers and balances. When federal agencies engage in transactions with each other, the financial accounting should be in balance, but in too many instances there are misstatements. GAO notes that the Treasury Department and the Office of Management and Budget have issued guidance and implemented corrective actions, but accounting problems persist.
The Small Business Administration was unable to obtain an opinion on its fiscal years 2020 through 2022 financial statements because of weaknesses related to loans and loan guarantees created in response to the pandemic and economic shutdown.
For the first time in several years, the Department of Education was unable to obtain an opinion on its fiscal year 2022 financial statements because of its “inability to provide adequate evidential matter to support certain key assumptions used to estimate the cost it recorded for the broad-based debt relief for eligible student loan borrowers.” As NTUF wrote a few months ago, the Department had originally estimated that the student loans issued over the past 25 years would generate $114 billion in revenues for the federal government. This was based on faulty assumptions. GAO found that instead of a deficit-reduction windfall, the loans actually cost the government $197 billion.
In FY 2022, the government made an estimated total of $247 billion in Improper payments — outlays that the government should not have paid out or were made in the incorrect amount. The issue results from a combination of fraud and errors. GAO noted that the figure could be higher because the data is not yet available for some key programs including the Department of Labor’s Pandemic Unemployment Assistance Program and the Department of Agriculture’s Supplemental Nutrition Assistance Program.
GAO warns that the material weaknesses hamper the federal government’s ability to reliably assess the full cost of certain programs and “hinder the federal government from having reliable, useful, and timely financial information to operate effectively and efficiently.”
Like CBO, GAO also raised concerns that the ever-growing and ultimately unsustainable federal debt threatens the long-term fiscal health of the nation. At the end of FY 2022, federal debt held by the public totaled 97 percent of GDP but will rise to record highs later within a decade, surpassing the previous highs seen directly after World War II. A goal of achieving a debt-to-GDP target of 97 percent would require policy changes to increase revenues by 26 percent, spending reductions of 21 percent, or a combination of the two over the next 75 years.
GAO’s theoretical target can be readily achievable by slowing the growth in spending and enacting pro-growth policies to spur private-sector employment and income gains.
In a statement related to the consolidated audit, the Comptroller General Gene Dodaro said that “this year’s audit report emphasizes the need for the government to address these serious financial management weaknesses and for Congress to develop a plan to put the government on a path toward long-term fiscal sustainability.”
The fundamental accounting flaws across the federal government, compounded by the trillions in annual deficit spending, should raise red flags in Congress. The House and Senate authorizing committees can help address these problems by acting with due diligence to carefully review the effectiveness of programs before providing funding. Ineffective and duplicative programs should be consolidated, reformed, or eliminated. A smaller, more efficient government will enhance Congress’s ability and capacity to fulfill its oversight responsibilities, improve the government’s bottom line, and ease burdens on current and future generations of taxpayers.
Demian Brady is the Vice President of Research for the National Taxpayers Union Foundation.