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Wall Street vs. U.S. government: Which is sneakier?




By LANCE GAY

August 6, 2002



It is not just Wall Street that has been inflating assets, hiding red ink and using arcane accounting procedures - Congress has been doing it for years.



When Congress overspends and runs its budget into the red, it doesn't have to hide assets on a Caribbean island or move some operations to another corporation to make the books balance out. The lawmakers just move the payday for federal employees - as they did two years ago to save $7.8 million, by pushing back paychecks for the military from Sept. 29 to Oct. 2.



Like corporations, Congress is supposed to follow a budget. But lawmakers have given themselves an out that private industry doesn't have: the option of declaring an emergency so they can spend more.



The supplemental spending bill Congress passed in response to Sept. 11 is an example. Although it was supposed to pay the costs of Sept. 11, it also includes non-terrorist issues - $4 billion in highway projects, an additional gift of $20,000 for each senator's office expense account, $1.1 billion for disabled veterans - and $80 million to pay claims from wild fires in New Mexico.



Even the 2000 Census was classed as an emergency so Congress could pay for it without having the money declared in its budget.



While Harvey Pitt, chairman of the Securities and Exchange Commission, has given corporate chief executives until Aug. 14 to swear - on penalty of being charged with fraud - that their corporate financial statements are correct, there is no similar requirement for Washington.



In fact, for the last five years in a row, the congressional General Accounting Office has been unable to certify that government books are correct in accordance with generally accepted accounting principles - the basic standard required of all U.S. corporations. Wall Street companies have seen their stocks collapse when accountants can't certify the books.



Frustrated GAO auditors last year said the Agriculture Department had lost track of $1 billion, and Amtrak has no idea of the future revenues that would come from the trains it runs. GAO Comptroller General David Walker said the Pentagon is the worst offender, having lost track of weapons that were paid for, or wasted money on unnecessary purchases consistently year after year. He complained the Pentagon doesn't show any indication of reform.



Washington is far worse than Wall Street, and the evidence is the financial statements of the federal government, said Chris Edwards, a budget analyst at the Cato Institute, a Libertarian think tank.



Edwards said it is frustrating that while Wall Street executives are facing criminal trials for corporate mismanagement of disgraced business giants like WorldCom and Andersen, no one in Washington is held accountable for financial mismanagement. Bureaucrats never get fired for poor performance,'' Edwards said.



Edwards said Congress is too busy devising clever budget tricks to worry about how the executive branch is mishandling money. For the first time since 1974 lawmakers this year have failed to pass the budget bill needed to head off a spending free-for-all this fall. These folks could teach the financial hucksters at Enron a few tricks, he said.



Edwards said a balanced budget amendment to the Constitution might work to force Congress to keep better books but wouldn't close all of the loopholes.



The Enron and WorldCom debacles show how companies can use creative bookkeeping to hide mountains of debt - in WorldCom's case the amount involved was $3.9 billion.



But Pete Sepp of the National Taxpayers Union said Washington's debts are so mountainous, they can't be hidden. Some analysts say the unfunded liabilities of Social Security now amount to $9 trillion and that the agency will run out of money to pay the claims of retirees by 2041.



This is a massively ill government as far as finances go - it's pervasive and continuous, Sepp said. You see waste, fraud and abuse and a lack of effort to remedy it. On Wall Street, stocks would suffer and executives would be sacked, and there would be calls for a crackdown, he said.



Sepp said that what's disheartening is that Congress can't seem to find a way of fixing what's wrong. There have been several high-profile efforts. In 1974, Congress set up House and Senate budget committees to set annual budget targets and make adjustments when spending exceeded them - but federal deficits just grew larger as lawmakers ignored the limits.



In 1985, lawmakers agreed to automatic spending cuts when deficit targets were missed, but kept on adjusting the targets to put off having to make the cuts.



Tough new rules were imposed again in 1990 and 1997 but each time the rules were promptly broken. Congress simply delayed spending bills until after the new fiscal year began Oct. 1 and ignored its own budget goals. Recently, House Republicans even floated the idea of declaring that a fiscal year has 13 months so spending that couldn't be fit into 12 months would be accommodated.



Bob Bixby of the Concord Coalition, a budget watchdog organization, said the return of federal deficits after four years of surpluses is likely to rekindle public interest in Washington's spending and force renewed efforts for lawmakers to reach a budget that sets limits on federal giveaways.



It's been a bad year all around, Bixby said.

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