Skip to content

Protecting Taxpayer Interests Just as Important as Protecting Shareholders

4 min readBy: Scott Hodge

The headline grabbing financial collapse of the Enron Corporation (a small contributor to the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation since 1996) has attracted Washington’s political culture like a moth to flames. Politicians of both parties are promising to “get to the bottom it” in order to punish those responsible and protect the thousands of employees whose pensions are now bare.

Its too bad that these same politicians can’t bring the same vigor to addressing the severe financial problems facing the federal government.

But in a welcome display of candor, President George W. Bush’s Fiscal 2003 budget documents the alarming amount of financial mismanagement in virtually every federal agency in the government. The budget reports that “on average, it takes agencies almost five months of heroic efforts to close their books. And even then the overall government has been unable to pass its auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. .”

In order to bring accountability to government agencies, the Administration has announced that it will begin keeping a Management Scorecard based on a simple “traffic light” grading system — green for success, yellow for mixed results, and red for unsatisfactory. This year’s scorecard is a sea of red and yellow. Of the 26 major agencies judged, the lone green award was given to the National Science Foundation for its financial management system. Every other agency is a dismal failure.

It should come as no surprise that the most serious financial management problems are found at the government’s largest agencies: The Department of Health and Human Services (HHS), and the Department of Defense (DOD). According to the Bush budget, “HHS’s financial management systems have been non-compliant with federal laws and regulations since 1996, and its systems remain inadequate to produce reliable financial information.”

As a result of this financial mismanagement, HHS — which will spend $400 billion this year on programs such as Medicare and Medicaid — made at least $12.5 billion in erroneous overpayments to providers in the Medicare system alone. Medicare has been on the General Accounting Office’s list of “High Risk” programs since 1990.

When it comes to “High Risk” agencies, the Administration faces an even bigger challenge in fixing the financial problems at Defense which first received GAO’s designation in 1995. DOD has over 600 different management systems to track its finances, yet few of these systems are compatible. As a result, GAO reports that “no major part of DOD’s operations has been able to prepare financial statements that comply with generally accepted accounting principles and pass the test of an independent audit.” DOD is expected to spend nearly $330 billion this year, but with problems this severe how can we be sure?

But the award for financial ineptitude sustained over the longest period of time clearly goes to Amtrak, the National Passenger Railroad Corporation. According to the Bush Budget, Amtrak has never posted a profit in its 31-year history. Indeed, Amtrak has accumulated more than $20 billion in operating losses over the past three decades, an average of $660 million per year. Estimates have put the per-passenger subsidy at $47 per-ride, but it is likely much higher. Although Congress had ordered Amtrak to become self-sufficient by the end of this year, the railroad now claims that it not only cannot meet this deadline but needs more subsidies to survive.

Troubling as these mismanagement issues are, they pale in comparison to the government’s long-term liabilities. Of course, most taxpayers already know about the $3.4 trillion in outstanding debt held by the public because that figure gets so much public attention. But few are aware of the government’s other liabilities, such as: nearly $2.8 trillion in pension, disability, and health care costs for current and retired civilian and military employees; $300 billion in expected costs to clean up environmental damage on government properties; and $37 billion in loan guarantee liabilities. And the biggest whopper of all, Social Security’s $24 trillion cumulative cash shortfall — in today’s dollars — over the next 75 years.

Why doesn’t this abuse of taxpayer dollars get the bold headlines reserved for private scandals such as Enron? One reason is that the cost of the government’s financial mismanagement is spread across 125 million taxpayers. No one of us has been “harmed” enough to make for a compelling congressional hearing.

While it may be difficult to isolate the victims, it should be far easier to identify those responsible and hold them accountable. The President’s budget has given lawmakers the road map. It’s up to them to make protecting taxpayers’ interests as important as protecting shareholders’.