ENRON-Type Bookkeeping in Government

The bookkeeping of Enron, Worldcom, and several other large companies deviated from standard accounting practices in order to hide enormous losses. But the federal government has been doing the same thing for years. According to an article this morning in USA Today by Dennis Cauchon, the government uses unaudited financial statements that do not follow standard accounting practices—which results in hiding enormous losses that dwarf those of Enron and all the other offenders that have been caught. Cauchon reports that if standard accounting practices had been followed, the federal deficit for 2005 would have been $760 billion instead of the reported $318 billion. That amounts to $6,700 per family for the year compared to $2,800. The running deficit since 1997 would equal $2.9 trillion, compared to the reported $729 billion. And the reported surplus of $559 billion for the last four years of the Clinton administration would instead have been a deficit of $484 billion.

Furthermore, these figures do not include the financial deterioration of Social Security or Medicare. Had these been included according to standard accounting principles, the deficits would be in the trillions of dollars annually. The government would have had to report losses of nearly $40 trillion just since 1997. And the public doesn't realize what is going on any more than Enron's employees and investors.

Why doesn't Congress demand audits that would require the government to follow standard accounting practices? Because Congressional members benefit from the public not knowing the extend of the losses. That way they can continue to vote for lavish spending measures that “buy” votes from their constituents and perpetuate themselves in office without causing much alarm. And they can continue to draw their Congressional salaries (currently $165,000 per year), which they frequently raise—and do so at rates faster than the rate of inflation or increases in average income in the private sector. Furthermore, they have the most lavish pension benefits in the world. Pension benefits in the private sector typically amount to 25 percent or less of a worker's salary. But Congressional pension benefits are adjusted so lavishly for cost-of-living increases that retirees frequently receive annual benefits greater than their salaries when they were in office. A study several years ago (the figure is probably higher now) found that nearly three-fourths of senators and more than half of the members of the House stood to be future “pension millionaires,” that is, they could collect a total of a million dollars or more from their pensions.

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