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February 3, 2023

Government Audits Turn Up Some Scary Stuff

In 2016, government auditors in Washington state discovered $420,300 in unemployment benefits paid out to prisoners. Prisoners, by the way, are ineligible for unemployment benefits. It feels like an episode of Orange is the New Black (another quality show I've been binge-watching in my spare time), but as far as I know, it's still just a true story of badass auditors identifying internal control weaknesses and waste.

Inspired by the good auditors of Washington state, I started digging additional examples of government waste and corruption that auditors have identified to support my personal believe that auditors are badasses hustling to identify internal control weaknesses err'y day.

Remember when I wanted accounting firms to provide us all with air transport to and `from the office in exchange for a “workplace morale is excellent” endorsement from Going Concern? Well, thanks to auditors, from now on, you'll definitely have to pay registration fees on the firm-branded chopper if you own it in Iowa. Auditors saved the good people of Iowa over $1.6 million once the state finally corrected the internal control problems that the audit identified.  See? Those internal control matrices aren't all for nothing.

But while I was reading all about auditors identifying internal control weaknesses and corruption all over the nation, I learned something horrifying:

The United States government cannot pass its own audit. AGAIN.

YOU GUYS, this isn't even new. The US Government Accountability Office (GAO) “has not been able to render an opinion on the accrual-based consolidated financial statements since they were first prepared in 1997.”  So… the government's financial reporting has been terrible since consolidated government financial reporting became a thing nineteen years ago? Really? For perspective, in '97, we were all blasting Chumba Wumba through our discmen (I'm not wrong), and Biggie was still alive. It was a good year.

The government has managed to clean itself up a little bit since then. The GAO notes that the financial reporting among individual government entities have gotten better since 1996 when only 6 out of 24 government “agencies received unmodified 'clean' opinions on their respective entities’ fiscal year financial statements” versus 2015 when “almost all” of 24 individual agencies received unmodified opinions. However, the U.S. government's consolidated reports are still too sloppy to be trusted even after nineteen years. Nineteen years of consolidated financial reports so sloppy that auditors can't issue an opinion? Sounds like the audit client from hell, to be honest.

In fact, the report claims that the Department of Defense's financial statements are so bad they're not auditable. Are you kidding me? Nope. The DOD wasn't the only department with a disclaimer of opinion:

About 34 percent of the federal government’s reported total assets as of September 30, 2015, and approximately 19 percent of the federal government’s reported net cost for fiscal year 2015 relate to three Chief Financial Officers (CFO) Act agencies—the Department of Defense (DOD), the Department of Housing and Urban Development, and the U.S. Department of Agriculture—that received disclaimers of opinion on their fiscal year 2015 financial statements.

Yikes. Combine poor financial reporting within individual entities with a financial reporting team that can't manage consolidation accounting or financial statement preparation, and you have every auditor's worst nightmare. In this case, the government hasn't managed to account for our tax dollars on a consolidated basis correctly. Ever. Even though it's been issuing consolidated financial statements since the year I watched Leo romance Kate aboard the Titanic four times in theaters with my grade school cronies.

As for the United States' Government's Going Concern? The GAO couldn't give us an opinion on that either. “GAO could not render an opinion on the sustainability financial statements due to significant uncertainties about achieving projected reductions in Medicare cost growth and a material weakness in internal control over financial reporting.” Am I the only one who finds this terrifying? I found the report truly haunting, and I've read Misery and seen The Exorcist. Twice.

If you're interested, check it out the full GAO audit report. Enjoy.

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