Statements and Speeches

"In the Red: Addressing the Nation's Financial Challenges"

Opening Statement: Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security

Jun 26 2008

The Subcommittee will come to order.

My thanks to our guests and witnesses for being here today. 

For the past 11 years, the Treasury Department has been required to prepare a financial statement for the federal government and have it audited by the GAO.   Every year, the information contained in this statement and the process used to prepare the statement have been so unreliable that GAO’s audit team has essentially been unable to do its job. As such, GAO has been forced each year to issue a so-called “disclaimer” of opinion on the government’s finances, which is a nice way of saying that they won’t attach their good name to the Treasury’s work.

Fiscal Year 2007 was, for the most part, no different from past years. Improvements were made, and I look forward to hearing more about those. However, the major impediments to the Treasury Department receiving a clean opinion on our consolidated financial statements are largely the same as they have been for the past decade or more.

First, there are the longstanding financial management problems at the Department of Defense. In part, because of the significant amount of money that goes in and out of that department, the government as a whole cannot get a clean opinion until they are also in improving their financial statements as well.

Second, there is our inability, at a government-wide level, to keep track of the money that individual agencies transfer to and from each other.

Third, there is Treasury’s inability to reliably sum up all of the financial statements from across government into a single set of consolidated financial statements.

In addition to these problems that we’ve known about and have been grappling with for some time, GAO has highlighted a handful of other financial-related internal control problems that we have yet to fully get our arms around.

There’s the inability of OMB and the agencies to determine the extent to which improper payments occur throughout government.

Then there’s our inability to manage and effectively execute tax collection activities so that we’re collecting taxes from all of those who owe them.

And, there are the problems a number of agencies that are unable to deal with their information security weaknesses.

I’ll note here that these three issues – improper payments, information security weaknesses, and the tax gap – are issues that this subcommittee has focused on a great deal. Based on our work, we share a deep concern for the potential growing risks these three problem areas present.

I’d like to point out that Article I, Section 9 of our Constitution reads: "a regular statement and account of the receipts and expenditures of all public money shall be published from time to time."   So, when we ask for a clean financial statement from the federal government, we are not really asking for anything more than what’s been required for the past 217 years. Yet, to this day, the average taxpayer – or even a well-trained accountant, for that matter – cannot vouch for the accuracy of Treasury’s annual statements or gain any assurance from them that our tax dollars are well spent.

This situation would be laughable if it weren’t so serious. Imagine what would happen if a major business’s books were in this sort of shape. In fact, it’s not so difficult to recall the corporate accounting scandals of a few years back. Businesses folded. People were fired. People went to jail. While the federal government’s repeated failings in the basics of financial management haven’t received the media attention that the failings of some private sector companies have received, I, for one, think the state of our nation’s finances should be seen as a scandal. I’m not suggesting that anyone here get fired or go to jail, but we do need to take definitive action to provide the kind of quality financial management and transparency that the American taxpayers expect and deserve.

The Congress - and, especially our next President, whoever that may be – needs to play a leadership role here. Among the problems highlighted by GAO’s audit report, is the fiscally unsustainable long term path this nation faces. I am grateful to the GAO for taking on this important issue.

Our projected long-term liabilities went up dramatically between the years 2000 and 2007 - from more than $20 trillion to just under $53 trillion dollars. That is a rate of increase that is clearly not sustainable in the long term. 

This increase is partially attributable to demographics. In the coming years, 80 million baby boomers will become eligible for Social Security and Medicare. These programs already take up a massive share – over 40% - of the government’s total expenses. This is a trend that will continue dramatically over time as baby boomers like me start to draw benefits. Absent any changes, this trend will crowd out future necessary investments in things like education, energy, and any number of other important areas.

One thing that Congress and our next President will have to do together is find a way to overhaul our entitlement programs so that they are not as much of a burden on the next generation, who will be footing the bill. But another thing we can do to get ourselves out of the hole we find ourselves in is to stop digging.

When I served as Governor of Delaware, we were able to cut taxes and to make a number of investments we thought were worthwhile. But we paid for them and actually balanced our budget all eight years of the two terms I was fortunate enough to serve.

Restoring fiscal discipline here in Washington will require self- restraint from Congress as well as increased leadership from the Executive Branch. Congress has taken some steps in the right direction, recently. 

We’ve reinstated “Pay-Go” rules so that proposed new spending or tax cuts must be paid for. We’ve also started making members take ownership of and be held accountable for the earmarked spending they request. There are other steps that I’m hopeful we can take in the coming years and months as well. And I’m sure Senator Coburn and my other colleagues have their own ideas. It is my hope that our new President can join us in finding a way back to the “if it’s worth doing, it’s worth paying for” motto that I had in Delaware and that we had here in Washington in the 1990s.

I look forward to hearing from our witnesses and to having a dialogue here today not only about how we can make sense of the federal government’s books, but about how those of us here in Washington, who have been elected to lead and set priorities, can devote our energies to righting our financial ship over the long term.