(CNSNews.com) – At the end of Fiscal Year 2015, the federal government’s liabilities exceeded its assets by more than $18 trillion, according to a February 26 audit report released by the U.S. Government Accountability Office (GAO).
“The federal government’s reported assets totaled about $3.2 trillion as of September 30, 2015, which was about $165 billion greater than the amount reported as of September 30, 2014,” Gene Dodaro, comptroller general of the United States, wrote in a letter accompanying the audit report that was sent to President Obama and leaders of Congress.
“Its reported liabilities totaled about $21.5 trillion as of September 30, 2015, which was about $686 billion greater than the amount reported as of September 30, 2014,” he continued, warning that “absent policy changes, the federal government continues to face an unsustainable long-term fiscal path.”
Dodaro noted that outstanding student loans were largely responsible for the net increase in the federal government’s assets during FY2015, and that a higher national debt was one of the primary causes of the government’s increased liabilities.
“Most of the net increase in the federal government’s reported assets was due to student loans made by the Department of Education,” the comptroller general pointed out. According to the department’s consolidated balance sheet, it has a total of $1 trillion in student loans outstanding.
Dodaro added that “the net increase in liabilities was due primarily to a net increase in federal debt held by the public and the liability for restoration of federal debt principal and interest to the Federal Thrift Savings Plan.” Payments into the retirement fund for federal employees were suspended during last year’s congressional debate on raising the debt ceiling.
GAO summarized the assets and liabilities listed on the federal government’s balance sheet during the last fiscal year:
“The Government held about $3.2 trillion in assets (mostly $1.2 trillion in net loans receivable (primarily student loans) and $839.9 billion in net property, plant and equipment.) Besides these assets, other significant Government resources not reported on the balance sheet include stewardship assets, natural resources, and the Government’s power to tax and set monetary policy.
“Total liabilities ($21.5 trillion) consist mostly of: (1) $13.2 trillion in federal debt securities held by the public and accrued interest and (2) $6.7 trillion in federal employee and veteran benefits payable,” the report stated.
“The Government also reports about $5.1 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another.
"For example, Government funds (e.g. Social Security and Medicare trust funds) typically must invest excess annual receipts in Treasury-issued federal debt securities, creating trust fund assets and Treasury liabilities. These amounts are included in the financial statements of investing agencies and Treasury, respectively, but offset each other when consolidated into the government-wide financial statements.”
Dodaro’s letter also noted numerous “material weaknesses” and “deficiencies in internal controls” at the Department of Defense (DOD) and other agencies that resulted in auditors issuing “disclaimers of opinion” on their FY2015 financial statements.
According to Generally Accepted Auditing Standards (GASS), auditors make such disclaimers when they are unable to issue an opinion on the audited entity’s overall financial condition.
On page 241 of the report, GAO auditors warn that “the federal government is not able to demonstrate the reliability of significant portions of the accompanying accrual-based financial statements as of and for the fiscal years ended September 30, 2015, and 2014, principally resulting from limitations related to certain material weaknesses in internal control.…As a result of these limitations, readers are cautioned that amounts reported in the accrual-based consolidated financial statements and related notes may not be reliable.”
The federal government was “unable to pass [the] GAO audit “because of persistent problems with the Department of Defense’s (DOD) finances, the federal government’s inability to account for and reconcile certain transactions, an ineffective process for preparing consolidated financial statements, and significant uncertainties,” GAO explained in a Feb. 25 press release.
However, federal officials are currently working on a “remediation plan” to make their next consolidated financial report more accurate, GAO reports.
“In fiscal year 2015, Treasury and OMB made significant progress with respect to their corrective action plans by developing a remediation plan that focuses on corrective actions to be taken over the next 3 years to address the material weaknesses in internal control,” the audit agency noted.
“I wouldn’t use the word ‘technical insolvency’,” said Robert Dacey, GAO’s chief accountant, when CNSNews.com asked him whether the federal government was technically insolvent because its liabilities were seven times larger than its assets and its “total net position” was $18.2 trillion in the red.
“Negative net position isn’t normal, but the federal government still has the ability to tax, and there are a lot of other resources [i.e. national parks] that are not recorded” on its consolidated financial statement, he told CNSNews.com.
However, Dacey agreed with the comptroller general that the current financial condition of the federal government is unsustainable over the long term.
“We tried to illustrate the long-term fiscal situation” in the audit report, he told CNSNews.com. “Over the long-term, receipts are not enough to cover expenses.”