Government agencies failed their audits, some as repeat offenders, and the unaccounted money along with the discrepancies must be addressed.
November 25, 2024
By: Bobby Casey, Managing Director GWP
Andrew Breitbart coined the phrase: Politics is downstream of culture. It’s downstream of a lot of things. Everyday people and their common sense tends to kick in long before a politician catches on much less does anything about it.
This is really a soft way of pointing out failure. The government fails at reading the room. It fails at any undertaking or task. It fails longer than any private individual or business could tolerate. It fails at upholding its own stated purpose and standards. It literally writes its own rules and fails to follow them.
If it wasn’t so tragic, it’d be funny. But their failures are not benign. They come at a high cost of treasure, time, and often lives.
It should then come as no surprise that government agencies failed their audits… again. News like this does nothing for the waning trust people have in their institutions, that much is sure.
IRS
The headline from the Department of Treasury reads: Ninety-Five Percent of IRS and Contractor Employees Were Tax Compliant; However, There Were Some Tax Delinquencies or Prior Conduct/Performance Issues
A congresswoman from Iowa, Joni Ernst, decided to look into the other 5% and here’s what she found :
- More than 5,800 IRS and contractor employees owe nearly $50 million in overdue taxes.
- Despite the IRS having the authority to fire employees who willfully fail to pay taxes, just 20 of the agency’s tax cheats were terminated.
- Over 500 former IRS employees with tax compliance issues or conduct and performance problems, including criminal misconduct, sexual misconduct, inability to perform duties, fighting and assault, and unauthorized access to tax return information, have been rehired by the agency and its contractors. Of these, 282 rehires had multiple previously documented conduct and performance issues.
It doesn’t stop there.
A recent audit by the Treasury Inspector General for Tax Administration found that 149,000 federal employees owe $1.5 billion in unpaid taxes.
Pay taxes, don’t pay taxes… find a way around taxes… whatever. But if you work for the Internal Revenue Service and you are literally hunting people for their taxes and strapping them up by their thumbs for not paying on a $600 Venmo transaction, let’s just say, I might be too busy to care when the auditors come for you.
It’s not a left versus right thing. It really is more of an us versus them thing. And you can sit there dragging a bunch of wealthy people for taking LEGAL measures to mitigate their tax liabilities, while you’re not even playing by the very rules you are meant to enforce.
As Joni Ernst puts it:
“There is absolutely nothing fair about forcing hardworking Americans to pay the salaries of tax-evading tax collectors while the IRS targets lower-income and middle-class Americans with nearly two-thirds of the new audits.”
Government agencies failed their audits, and they have themselves to blame for their drop in credibility.
Dept. of Education
Another sternly worded letter went out to the Department of Education because they failed another audit, this time from Congresswoman from North Carolina, Virginia Foxx where she says:
KPMG was not able to obtain “sufficient appropriate audit evidence [from the Department] to provide a basis for an audit opinion.” Indeed, the Department itself “was unable to determine the extent of the impact of these issues on the balance sheet and related notes.” Simply put, the Department has failed an audit two years in a row, been derelict in its duties, and continues to make up estimates it cannot defend to its auditor.
Material Weakness: KPMG found a material weakness in the Department’s internal controls, noting its “Controls over the Relevance and Reliability of Underlying Data Used in Credit Reform Estimates Need Improvement.”
Significant Deficiencies: KPMG drew attention to prior-year Department and Federal Student Aid (FSA) significant IT control deficiencies that had not been fully remediated (e.g., logical access administration, separated and transferred user access removal, user access reviews and recertification, configuration management, and computer operations).
KPMG also cited the Department and FSA for “[n]ew and existing” deficiencies “related to security management, access controls, and segregation of IT duties for the department’s core financial management system, three of FSA’s financial and mixed systems, and one identity and access management support system.
When Congressman Lloyd Smucker from Pennsylvania interrogated Secretary of Education Miguel Cardona about the misses in the process by which estimates and assumptions for Federal Family Education Loan (FFEL) portfolio are made, things got sticky. Mind you, this is a $1.6 trillion portfolio owned by 43 million borrowers.
Initially 22,000 anomalies in the data was discovered by the DOE team; then an additional 8,000,000 anomalies were later found; meaning, the underlying data feeding the loan portfolio was riddled with errors.
While Cardona proudly takes credit for his team finding the errors, he suggests that these errors existed for many administrations. However, the audit resulted in a Disclaimer of Opinion for the second year in a row. Smucker argues this hasn’t happened in decades, while Cardona insists these issues have been there for multiple administrations.
Government agencies failed their audits, but Cardona felt poised to request more money for his department nonetheless. Smucker balked, given the repeated failure to manage the portfolio properly, why would people feel comfortable putting even more money into it to fix problems that department created.
Defense Dept.
The Reason headline reads as follows: Pentagon Fails 7th Audit in a Row but Hopes To Pass by 2028.
Hopes to pass? By its ELEVENTH audit?
So let’s just lay down a little context here for those who are late to this particular grievance.
- 1990 – Congress orders ALL government agencies to submit to financial audits. All comply except, the Department of Defense
- 2010 – Congress calls out the Department of Defense, saying they must submit to an audit by September 30, 2017
- 2018 – The Department of Defense submits to its first audit, and fails 16 out of the 21 components.
Put another way: if someone gave you 7 years to prepare for a test with 21 questions, and told you what those questions would be in advance and allowed you to use any and all resources during the test, and you still only got 5 out of 21, you would be relegated to the least sophisticated tasks imaginable for very obvious reasons.
They have failed every audit since then. The department has expanded, and now so too have the components. The Department of Defense is the largest US federal agency with an annual budget of $824 billion, $4.1 trillion in assets and $4.3 trillion in liabilities.
There are now 28 components to their audit, so let’s break some of that down:
- 9 Passed with an “Unmodified Audit Opinion”: Per the DoD this means, “auditors determined the financial statements were presented fairly and in accordance with [generally accepted accounting principles].”
- 1 Received a “qualified” Opinion: This means, “auditors concluded there were misstatements or potentially undetected misstatements that were material but not pervasive to the financial statements.”
- 15 received disclaimers: This means, “could not obtain sufficient, appropriate evidence to provide a basis for an audit opinion.”
- 3 opinions were still pending as of November 18, 2024.
Among the 15 failed entities is National Security Agency, the Defense Intelligence Agency, and the Defense Advanced Research Projects Agency. The 15 failures represents at least 44% of the DoD’s total assets and at least 68% of the DoD’s total budgetary resources.
Pentagon comptroller Michael McCord thinks it’s “unfair” that people are saying the DoD failed, yet he went on to explain exactly WHY people are saying they did:
“We have about half clean opinions. We have half that are not clean opinions,” he explained. “If someone had a report card that is half good and half not good, I don’t know that you call the student or the report card a failure.”
My brother in Christ, getting 50% on a test is a failing grade by any metric… even on a curve. But also, you’ve passed 9 out of 28. That’s less than 33%. You have still failed, my dude.
That was his best effort to spin this positively… For an agency called the Department of DEFENSE, that’s the saddest defense I’ve seen.
All these government agencies failed their audits, yet they are so glib about it, or they have excuses about budgets. As the old saying goes: “If ifs and buts were candy and nuts, we’d all have a Merry Christmas”. Or as my grandmother would say, “If a frog had wings, he wouldn’t bump his ass”. Either way, the imaginary scenarios constructed by their excuses and spin doesn’t exist. Ifs and buts aren’t candy and nuts and frogs don’t have wings.
The heartening part is when you look on X and see the posts about the failed audits, people are just commenting DOGE, signaling that people are now paying attention and are only too happy to slash these budget and departments.
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