Posted: September 20 2006 Last Updated: September 20 2006
Is the federal budget deficit really declining or are we being served our federal budget well done? After the financial disasters of ENRON and WorldCom, where the books were kept in such a manner as to keep the investors in the dark regarding the real financial state of the companies, we need to make sure that other companies and even — especially — governments are following accounting practices that aren’t misleading. In an attempt to keep publicly traded companies honest, Congress passed the Sarbanes-Oxley Act, or, as it is also known, SOX. While SOX adds many reporting and compliance requirements, it is worth the added efforts and costs to protect investors from those who would mislead them with inaccurate financial statements. The question now is, are our Federal books being kept in the same standard that the Congress required of public companies?
The Office of Management and Budget (OMB) reported a deficit for 2005 of $319 billion. They used cash accounting, which measures cash on hand without taking into account long term liabilities. This means that it ignores IOUs, interest, and principal of liabilities that are not due yet. Even ENRON didn’t take this approach of "If the bill isn’t due today I don’t owe it.” Using cash accounting, United Airlines and many other companies wouldn’t have had to file bankruptcy.
The Treasury Department reported a deficit for 2005 of $760 billion. Treasury uses accrual accounting which includes expenses and liabilities that haven’t come due yet. While still not perfect, accrual accounting is at least an accepted form of bookkeeping in the business world. Treasury reports the deficit is increasing, not decreasing as the OMB report says. Treasury also insists that total federal obligations are close to $49 trillion, while OMB only takes into account the national debt of $8.2 trillion. This means that each one of us owes $156,000, meaning my family of four owes $624,000. And this still doesn’t take into account the IOUs in the Social Security and other trust funds.
I have always been a fiscal conservative. If we don’t take good care of the national checkbook we won’t be able to do the things we need to do. And if we don’t start doing it soon, we will be facing a national ENRON. The first step in the process is to start holding our government responsible to the same accounting standards it has passed for business. If SOX is good to keep companies from defrauding and misleading investors, then it should be a good start to keeping our government from misleading us. Brent Benedict – Candidate (Hixson) U.S. Congress, 3rd District Tennessee
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