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GAO Gives Thumbs-Down to U.S. Financial Statements (for the 14th Time)

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Oops, they did it again – for the 14th time. The Government Accountability Office said Tuesday it could not issue an opinion on the federal government's 2010 consolidated financial statement "because of widespread material internal control weaknesses, significant uncertainties and other limitations."

Trouble is, experts say, politicians and others don’t give these annual opinions much attention, at least, in the 14 consecutive years the GAO has been issuing them, according to a report by Government Executive.

"Even though significant progress has been made since the enactment of key financial management reforms in the 1990s, our report on the U.S. government's consolidated financial statement illustrates that much work remains to be done to improve federal financial management," said Gene Dodaro, acting controller general, in a press release.

Last year, the GAO was able to give an unqualified opinion on the government's fiscal 2009 Statement of Social Insurance, which covers the Social Security, Medicare and Railroad Retirement Board programs, Government Executive reports.

However, for fiscal 2010, the agency said it could not offer such an endorsement due to "significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth."

This year, “serious financial management problems" at the Defense Department also topped the list of financial woes, along with the government’s “inability to account for and reconcile balances between agencies,” and “an overall "ineffective process" for preparing financial statements.

In addition, Dodaro pointed to "material weaknesses" in federal financial practices associated with $125-plus billion in improper payments in fiscal 2010, information security practices across government and tax collection activities.

Still, 19 of 24 federal agencies did get clean opinions from GAO on their 2010 financial statements. Among those that didn't were the Defense, Homeland Security and Labor departments.

Bigger Picture

Today, the rising federal deficit is eclipsing such accounting matters, says Scott Brown, chief economist of Raymond James Financial.

“The accounting issues add a bit to this discussion, but the deficit is much more significant,” said Brown in a phone interview Thursday. “Investors in general do not like a booming deficit.”

Plus, those in the U.S. Congress and government “do no get credit for solving long-term problems,” like accounting and similar matters. “There are no incentives to do much about it,” Brown explained.

With more Republicans in Congress next year, Brown doesn’t expect major shifts in how the federal government manages its budget and tax revenues. “But we may see some small steps to streamline government,” he said. “I have not heard of any major efforts to re-do government accounting.”

In other words, along with the economy – which, he says, is in a state of gradual recovery – we should expect “more of the same” when it comes to accounting and financial issues.

“The key element is time for us to get back to normal. That isn’t very comforting for some, but it’s the way it’s going to be for a while,” the economist said.