Federal Agencies Flunk Their Audits

Sometimes it seems there is an infinite number of things needing fixin' in Washington DC.

Ten years after Congress ordered federal agencies to have outside auditors review their books, neither the Defense Department nor the newer Department of Homeland Security has met even basic accounting requirements, leaving them vulnerable to waste, fraud and abuse. An Associated Press review shows that the two departments' financial records are so disorganized and inconsistent that they have repeatedly earned "disclaimer" opinions, meaning that they simply cannot be fully audited.

"It means we really can't put any faith in the numbers they use," said Ross Rubenstein, who teaches public administration at Syracuse University's Maxwell School.

The Federal Financial Management Improvement Act of 1996 requires, among other things, that the financial systems of major federal agencies "comply substantially" with generally accepted accounting standards. Each year, those agencies are required to release results of outside audits.

The AP review of financial statements from the federal government's 15 executive departments shows that most pass their audits, although many agencies - including NASA, the Coast Guard and FEMA - have been frequently cited for serious accounting errors.

The entire Homeland Security Department, with a $35 billion budget this fiscal year, passed its first audit in 2003 with strong stipulations, but has failed every one since.

And the Defense Department, with a $460 billion budget this fiscal year, has never even come close to passing. Because that department makes up at least 20 percent of all federal spending, the entire federal government also has failed its audits since the congressional mandate took effect.

Failing an audit in any other venue could have dire consequences - a public company's stock could plummet, state and local governments could see bond and credit ratings sink. But for the federal government, effects are less direct because the U.S. Treasury is a guaranteed funding source.

Via Associated Press.