The Problem of Dishonesty in Government Accounting

Accountants can only provide work as accurate as the information they’re given. Inaccurate financial information is a big problem in government accounting. A recent article from Accounting Today takes a deep look into this issue.

The problem stems from the fact that elected officials are just that—elected. Frequently, they are more concerned with pleasing their constituents in order to ensure reelection than they are in operating in a financially honest manner.

The majority of public entities require balanced budget accounting. This might sound like a good plan, but unfortunately, it is far too easy for elected officials to circumvent the balanced budget requirements. The article outlines several workarounds, including:

• Using cash-basis accounting, which the author describes as a “short-sighted accounting method”
• Establishing separate funds within the budget that can only be used for a designated purpose
• Inflating revenues and understating expenses by omitting or including certain items in budget calculations
• Using non-budgeted funds to hid costs
• Underfunding pension and retiree health care debts

There are many government entities that have long misconstrued the true condition of their financial situations. For accountants to be able to help them develop feasible financial plans moving forward, the first step is going to be a difficult one: being honest about the financial realities.

For more details, click here to read the article in full.