GAO: Federal financial picture is grim

It's an annual Washington ritual: The Treasury Department releases a year-end consolidated financial report for the federal government, followed by an audit report from the Government Accountability Office that says the numbers are so flawed as to largely render the Treasury report unreliable.

The Treasury report shows that the government's net operating cost for fiscal 2009 was about $1.3 trillion -- a $245 billion increase over 2008. In a statement accompanying the report, Treasury Secretary Timothy Geithner said the increase was due largely to rising costs for mandatory spending programs, such as unemployment insurance, Social Security, Medicaid and Medicare benefits along with economic stimulus spending. At the same time, tax revenues were down more than $400 billion due to the flagging economy. All were factors in the ballooning budget deficit, which spiked from $455 billion in 2008 to $1.4 trillion in 2009.

The only part of the government's consolidated book-keeping for which GAO was able to issue an unqualified opinion was the 2009 Statement of Social Insurance, which includes Social Security, Medicare and Railroad Retirement social insurance programs.

While the book-keeping for the Statement of Social Insurance might be reliable, it's hardly good news. The data show that the present value of projected scheduled benefits exceeds earmarked revenues for Social Security and Medicare by about $46 trillion during the next 75 years.

Without policy changes, interest payments on the country's growing debt coupled with entitlement program costs could absorb 92 cents of every dollar of federal revenue by 2019. "Clearly, this is not sustainable," GAO reported.

"While financial management has improved significantly since the government began preparing consolidated financial statements, for the 13th year in a row now shortcomings in three areas again prevented us from expressing an opinion," said Gene L. Dodaro, acting comptroller general of the United States in a statement.

Those areas include serious financial management problems at the Defense Department, the government's inability to accurately account for and reconcile intragovernmental financial activity among agencies, and ineffective processes for creating consolidated financial statements.

Defense is the largest of four major agencies that did not receive individual clean audit opinions for the 2009 financial statement. NASA and the Homeland Security and State departments also failed to garner unqualified opinions by independent auditors.

Other major problems GAO cited include material weaknesses involving improper payments by agencies, which are estimated to be at least $98 billion, inadequate information security across government and ineffective tax collection activities.

The $98 billion estimate of improper payments in 2009 is a significant increase -- $26.2 billion -- over estimated improper payments in 2008. The increase was attributable to changes in methodologies or increased program outlays in four major areas: the Health and Human Services Department's Medicare fee-for-service program; HHS' Medicare Advantage; the Labor Department's Unemployment Insurance program; and the Transportation Department's Federal Aid Highway program.

The 2009 consolidated statement reflects the unprecedented government intervention aimed at stabilizing the economy since the start of the recession in December 2007, including investments in the Troubled Asset Relief Program, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as mortgage-backed securities guaranteed by them.

"The ultimate cost of these actions and their impact on the federal government's fiscal condition will not be known for some time," the report said.