Dear Mr. President,
Despite the bankruptcy of a few of your companies, because you are a successful businessman, I assume you understand the importance of a company’s finances. It is impossible to operate a business successfully without knowing how much money it is making (or losing) and the amount of debt the business carries. The financial state of a business is one of the most important, if not the most important, measures of its success.
Each year, CEOs address shareholders to discuss their company’s condition and its finances. For example, in his most recent letter to Berkshire Hathaway shareholders, Warren Buffett gave them upfront a clear report on the financial state of the company by stating last year’s gain in net worth and the current per share book value. He provided an overview of the U.S. economy and what Berkshire’s management team hopes to accomplish in the future. Mr. Buffett also highlighted that Berkshire’s “Our Earnings Report,” a summary of the company’s annual report, was issued before his address.
The U.S. government is the largest business in the world. Mr. President, in your State of the Union speech please remember to address the government’s shareholders--its citizens, including the taxpayers. I urge you to take a cue from Mr. Buffett, one of the other most successful businessmen in the country. Upfront and throughout your address provide the shareholders of the U.S. government with a clear financial state of the union.
Start by highlighting last year’s deficit of $666 billion and the current financial debt, which is reported to be $20.5 trillion, but is actually more than $100 trillion. Also, please provide an overview of the U.S. economy and how you and your team plan to improve the financial condition of the nation and address the federal debt.
It will be difficult for you, however, to highlight the country’s finances because the Financial Report of the U.S. Government has not been issued. How can you fully address the State of the Union without the financial report? And even if it were published, the report’s usefulness would be limited by two factors.
First, the report will not accurately reflect all of the government’s liabilities. Just like Enron, the U.S. government maintains a huge amount of its debt off its balance sheet. More than $75 trillion of unfunded Social Security and Medicare promises will not appear on the balance sheet. If these unfunded promises were added to the balance sheet, the federal debt would equate to more than $600,000 per taxpayer.
It would also come as a complete surprise our seniors to learn that the reason unfunded Social Security and Medicare promises are not included on the federal balance sheet is because government officials do not believe anyone is owed any of these benefits.
Second, the usefulness of the federal financial report is limited by the fact that its auditors have for decades given previous reports a disclaimer of opinion. A ‘disclaimer’ of opinion arises if the auditor simply refuses to provide an opinion, given limitations on the scope of the audit, or if significant material weaknesses in the internal controls and reporting material mean that an opinion can’t be delivered. In other words, they flunked the reports, and the major reason they did is because the Department of Defense’s books are in shambles.
Many of your predecessors have failed to give the taxpayers the complete financial state of the union. I urge you to address these critical issues on Tuesday night. We, the American people deserve a truthful accounting of our government’s finances. Our democracy demands it.
Sheila Weinberg, CPA
Founder and CEO Truth in Accounting