The Fight of a Lifetime: Telling It Like It Is on Our National Debt
by Hon. Joseph J. DioGuardi, CPA
Speaking Truth to Power
“Well,” I paused as I began my introductory remarks to the committee. “You’ve got economists, actuaries, politicians, accountants…but let's not forget the people!” I had spent a career as a professional Certified Public Accountant, but my motivation for testifying before the Federal Accounting Standards Advisory Board (FASAB) on that day, February 25, 2009, was to protect the interests of the people (“We the People”) in knowing the true costs of our federal government’s reckless spending. Before the full committee, I emphasized the need for full liability accrual/GAAP accounting (including all major unfunded commitments and obligations for entitlements such as Social Security, Medicare, and Medicaid, and guarantees for federally sponsored enterprises like the Pension Benefit Guaranty Corporation) for the budget and financial reports of the U.S. Government.
The Hoover Commissions of 1949 and 1956 required that accrual accounting principles be used for federal budgeting and financial management; in published remarks dated May 6, 1976, U.S. Comptroller General Elmer Staats stated as follows:
“When the Budget and Accounting Procedures Act of 1950 was passed, the General Accounting Office made it a requirement that agency accounting systems be maintained on an accrual basis in order to secure Comptroller General approval. Accrual accounting was recommended in 1949 by the First Hoover Commission. In 1956, based on the Second Hoover Commission Report, the Congress amended by the 1950 Act and specifically directed that agencies maintain their accounts on ‘an accrual basis’.”
Nonetheless, for more than 70 years now, the federal government has simply ignored the 1956 law and, practically speaking, there seems to be no legal means to enforce its implementation without another legislative action by Congress that would explicitly affirm that the federal government must use the accrual/GAAP basis of accounting for budgeting, financial management, and financial reporting.
While full liability accrual/GAAP accounting has not been adopted by the FASAB for the federal government’s annual financial statements, the largest components of unfunded liabilities for entitlements (such as Social Security and Medicare) are disclosed just below the U.S. Annual Financial Statements in a footnote. I still believe, as I testified on February 25, 2009, that the FASAB was formed by the Treasury Department to effectively block the use of full liability accrual accounting in the annual financial statements of the federal government with voting seats on the FASAB. It should not go unnoticed that the first prototype U.S. Consolidated Financial Statement for the fiscal year 1975 (prepared by Arthur Andersen & Co.) contained a $5 trillion liability for Social Security that was eliminated when the U.S. Treasury Department assumed responsibility for the preparation of the annual financial statements; thus, creating an inherent conflict in opposition to the public interest (which would have been better served by fully disclosing the national debt on the accrual basis of accounting). Also, it is the FASAB that is wholly funded by internal government sources (such as the U.S. Treasury Department), creating a conflict for what is in the public interest in fully disclosing the national debt. Since 1990, the effect of not implementing accrual accounting for the annual financial statements of the U.S. government has made spending (and the resulting national debt) appear lower than it really is in the short term, encouraging the private sector to backload expensive federal programs such as those projects in the Department of Defense for which many former elected officials end up benefiting from as highly-paid lobbyists in their later years.
In many ways, my testimony before the FASAB eleven years ago was symbolic of my lifetime of work to bring financial accountability and fiscal responsibility to the books and budget of the U.S. government. Today, it is visible even to the average observer that our federal government is not taking action to reverse the dangerous trend of its financial unsustainability. The purpose of this article is to focus on the immense damage to our nation and future generations being caused by not adhering to the highest professional accounting, financial management, and ethical standards when dealing with the costs of our federal government. It is time for the accounting profession to tell the truth to the American people, and future generations of Americans, about our unaccountable spending, and our reckless borrowing for almost everything we do. And, finally, it is time to promote support for full liability accrual/GAAP accounting principles for the budget, financial management, and the financial statements of the federal government to tell it like it is on our nation’s financial unsustainability caused by the unchecked growth of our national debt.
Putting the Present in Perspective
Perennial annual deficit spending on a massive scale has become uncontrollable and unsustainable ever since the Social Security “Trust Fund” surplus and the deficit in the federal government’s General Fund were combined in 1969 to cover up the real cost of the Vietnam War. The truth is that we continue to spend money we do not have, requiring us to borrow massively from countries like China that we cannot trust. But whose money are we spending now and will be spending even much more in the future? The answer should be obvious to all who are willing to open their eyes. The future of our children, grandchildren, and great grandchildren is being mortgaged without their consent, or even their knowledge, since many of them are not of voting age or even alive yet.
The accounting profession must wake up and accept its share of the blame. Due to the accounting profession’s failure to actively support the use of full liability/GAAP accounting principles for the federal government, it has ceded the integrity of the numbers to manipulation by Washington’s political establishment. And, by the profession’s silence on this issue, it has effectively condoned a massive generational conflict of interest that facilitates elected officials favoring “today’s voters at the expense of tomorrow’s taxpayers.”
The federal accounting, budget, financial management, and reporting process is effectively controlled by elected officials in the U.S. House of Representatives and Senate who have not been adequately trained (nor have their staffs been trained) to understand the damage being done to the national and financial security of the United States of America because of inadequate accounting principles, poor federal financial management, and the “material weaknesses” that are noted in the legally required annual financial statement audits of the departments and agencies of the federal government.
An example of the perennial audit problem we face is the requirement for the Government Accountability Office (GAO), led by the Comptroller General, to give an audit opinion on the consolidated financial statements of the United States of America (as “fairly” representing the results of operations and the financial condition of our federal government). This is not a self-imposed rule by the GAO; it is a legal requirement imposed by the CFO Act that the Congress passed and President George H.W. Bush signed into law in 1990.
Almost all federal departments and agencies complied with the initial statutory date of 1994. However, the Department of Defense (DOD) has not been able to deliver an auditable set of books and financial statements to the GAO because of “material weaknesses” in the way that the Department’s financial statements are prepared. For the most part, this is due to poor “internal controls” resulting in massive bookkeeping errors and computer system anomalies that negatively affect the financial integrity of the statements presented to the GAO for audit. Since the DOD is one of the largest budget items with just almost 13% of federal spending projected in 2021, this has prevented an audit opinion to be expressed once again on the entire consolidated US financial statements for the fiscal year that ended on September 30, 2019.
Since I initiated the drafting of the CFO Act in 1987, I decided to take the lead in publicly confronting the Pentagon and the DOD to get their act together on rendering a “clean audit opinion.” Supporters of “Truth In Government” paid for my attendance at the 2014 Reagan National Defense Forum in Simi Valley, California, twenty years after the legal requirement to comply with audit provisions of the CFO Act of 1990 were not met.. While at the Forum, I got up to speak in front of several hundred Defense Industry lobbyists, government representatives, and corporate officials to ask why it was taking so long to get an audit opinion. Taking the microphone, I openly stated that “accounting was not rocket science” and that the best professional outside accountants should be engaged by the DOD to correct the egregious occurrence of failed audits once and for all. I concluded my remarks by saying that the DOD not only has a budget problem (since they consistently lobby for more funds that we do not have and need to borrow) but that, even worse, the DOD has not been able to account properly for what they have already spent, resulting in a big credibility problem with the American people—who rightfully feel that they are already overtaxed and want to be sure that their tax dollars are not being wasted.
My public chastisement of the DOD in November 2014 led the Pentagon to seriously confront the issue of its lack of accountability to the American people for its huge budget, and to spend hundreds of millions of dollars to try to remedy the problem. Unfortunately, it is now more than five years since I publicly sounded the alarm on behalf of the American people, and it was recently announced in February 2020 that the “material weaknesses” that I mentioned above still have not been adequately corrected, and another “disclaimer of opinion” (which is basically no opinion at all) was issued by Comptroller General Gene Dodaro in February.
Sheila Weinberg, the CEO of the watchdog group “Truth In Accounting,” commented to Rolling Stone Magazine in an interview in March 2019 that the only reason that a professional audit of the DOD is happening at all is that a Certified Public Accountant, Joe DioGuardi, got elected to the US Congress. The author of the article, Matt Taibi, said further that DioGuardi, during his tenure in the House of Representatives, consistently commented on the federal government’s smoke and mirror accounting and budgeting that he said would get private-sector officials of publicly traded corporations indicted for violating security laws enforced to protect stockholders by the Security and Exchange Commission (SEC). Demanding a professional audit from the leaders of our Defense Department is based in the idea that the information which results from good accounting can, and should, be used to better the public good. Professor Gary Previts, the Chairman of the Department of Accountancy at Case Western Reserve University, once remarked of the accounting profession, “A culture which expects or seeks only competence…is deficient. It must also seek to aid the well being of others.” In this spirit, the professional and ethical considerations of our profession become so clearly intertwined; and, our responsibility to society becomes so ever clear.
Putting My Past in Perspective
Looking back, my last-minute choice of a career in accounting at Fordham University in 1959 fortuitously resulted in a 22-year tenure (12 as a Partner) at Arthur Andersen & Co., one of the world’s largest and most respected accounting firms. This also resulted in a most unusual and unexpected outcome: a seat representing Westchester County, New York, in the U.S. House of Representatives in 1985. After so many years it is not easy to connect the dots, but I have concluded that everything in life begins with a seed, and that seed for my future was sown by a highly respected Professor of Accounting at Fordham University, Dr. James McNeill. Professor McNeill epitomized the qualities of integrity, competence, and sound judgment—the same qualities synonymous with the respected pillars of the accounting profession.
Professor McNeill was not just a technician. He taught accounting from a philosophical perspective. He took the time to know what motivated me personally as one of his more active students in my sophomore year. He guided me from a major in economics, which I initially had felt would be the best foundation for the legal career that I had been considering, to look at accounting as not only a science but as an art requiring technical know-how joined with creativity and sound judgment. His teaching methodology embraced accounting education as “seeing things whole,” requiring respect for both left brain and right brain (one might say digital and analogue) thinking. He best represented this on many occasions by saying that “theory animates practice, but practice perfects theory.”
When it was time for me to consider an internship in the accounting profession during my senior year at Fordham University, it was McNeill who saw my future best served at Arthur Andersen & Co., the only “big eight” accounting firm started by the son of Norwegian immigrants in 1913 (a profile that mirrored my own upbringing as the son of Italian and Albanian immigrants who came to America with minimal formal education, but with the determination to work hard and succeed). In my many years on the professional staff and as a partner at Arthur Andersen & Co., I was mentored by some of the great moral and ethical captains of public sector accounting and accountability. I have no doubt that the latter inspired me to carry on the Firm’s “think straight, talk straight” motto as an outspoken Member of Congress speaking always in the public interest on federal fiscal responsibility, financial accountability, and budget reforms.
Looking back, my most important experience at Arthur Andersen (which presaged my stint in Congress) was to work with a team of partners assigned to come up with a strategy for the federal government to bail out New York City from certain financial bankruptcy in 1975, most notably at a time when elected officials in Washington, DC, could not seem to justify it politically. (Even President Gerald Ford was quoted against a bailout of New York City on the front page of The Daily News, in very bold headline letters, “Ford to City: Drop Dead”).
That assignment by the U.S. Treasury Department put Arthur Andersen in a successful partnership with Felix Rohatyn of Lazard Frères, who was later ironically quoted in a speech critical of the much accepted business and corporate credo of “profit maximization” saying, “I have been in business for almost forty years, and I cannot recall a period in which greed and corruption appeared as prevalent as they are today.” Coincidentally, this was part of Rohatyn’s speech at the Urban League Club in New York City, just as the Savings and Loan crisis of 1987 was emerging that would require a massive federal bailout (“off budget”) estimated at $500 billion in costs to U.S. taxpayers.
Arthur Andersen & Co.’s work for the Treasury Department in 1975 was very successful and resulted in the implementation of the federal bailout of New York City. As destiny would have it, I joined the public sector industry team of Arthur Andersen & Co. that was headed by a top-notch audit partner and good friend, Mort Egol; the team took what we had learned about the terribly inadequate and politically manipulated accounting employed by New York City and applied that knowledge to understanding the Consolidated Financial Statements of the United States of Government. The latter work was done “pro bono” (for public benefit without compensation) and ended in the early 1980s, just as I was thinking of a career in public service.
It all resulted in me running for a seat in the U.S. House of Representatives in the Congressional District in which I resided. And, I did this under a unique Arthur Andersen program for partners who wanted to withdraw from the firm early for public service. I succeeded in getting elected in 1984, enabling me to bring to Capitol Hill an immense experience in government accounting and financial accountability for voters and taxpayers that was achieved from my professional experience from 1975 to 1983. The work that I did on drafting the CFO Act came directly out of this experience, and it earned me the “Outstanding CPA in Government Award” by the New York State Society of CPAs in 1986.
Our Nation’s Failing Fiscal Health and What You Can Do About It
What concerns me today is that, after what seems like a lifetime of work to bring real financial accountability and fiscal sustainability to Washington, the future financial health of our nation looks very grim. If our fiscal course does not change, we are projected to amass a national debt that will likely permanently exceed our nation’s Gross Domestic Product (GDP) in the next ten years (even without taking into account the economic costs of the Coronavirus pandemic). On the current trajectory, the American way of life—and the benefit that citizens draw from important government investments in society—could dramatically be squeezed by required interest payments that are coming due on our nation’s unstoppable debt path. As the national debt rises to nearly $40 trillion in ten years, the annual interest payments on that debt over that same time will also balloon. Given years of prior inaction in correcting our nation’s fiscal path (and recent Congressional actions in recklessly fostering high annual deficits), the annual interest payment of the U.S. government is projected to hit $799 billion by 2031—which, unfortunately, nearly equates to the $915 billion projected to be spent on Defense in the same year.
However, there is a major difference in terms of societal benefit between interest costs and other federal payments. Interest costs do not further the education of our nation’s youth, do not improve the healthcare of our nation’s bravest who return home from war, do not invest in the life-saving medicines of the future, and do not help us prepare for a unanticipated international health crisis such as the Coronavirus pandemic we are now experiencing. Instead, interest costs squeeze the discretionary spending portion of the federal budget. And, whereas mandatory spending for entitlement programs such as Social Security and Medicare are on an autopilot-like schedule to allocate a certain set of funds each year for our senior citizens and Americans with disabilities, discretionary spending is the only portion of our annual federal budget that our present-day decision makers control when allocating funds for our nation’s priorities.
And, it is important to understand the fiscal decisions of Congress in relation to today’s Coronavirus crisis. While I wholeheartedly support the over $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act legislation which was necessary for the federal government to preserve the economic lifeblood of American society, I believe that the fiscal preparation for this moment has been grossly inadequate. Due to the past 20 years of reckless fiscal and financial mismanagement, our federal government failed to set aside a part of our annual revenues and minimize deficit spending in good economic times in order to have financial reserves for a crisis such as the one that befalls us now. It is now projected that the U.S. annual budget deficit for fiscal year 2021 will be $2.26 trillion and federal debt held by the public will be 102.3 percent of GDP by September 30, 2021. And, the Coronavirus crisis—like the 2008 financial crisis before it—further exploited the concept of “too big to fail.” To be more specific, while the federal government has stepped forward in both crises to save industries it deemed critically important to the economy, it should also be noted that should a day of apocalyptic reckoning come to America, the question remains unanswered as to who will bail out the U.S. government? The Reckoning, a book published by Jacob Soll (a professor of accounting and history at the University of Southern California), details the roots of the U.S. federal government’s continual budget deficits. But Soll argues that while, in past times, nations went broke through ignorance, there is no excuse today since professional, independent, and non-governmental accountants are available everywhere to provide good financial information. So, it is Certified Public Accountants who should be “telling it like it is.” By speaking up, we (the accounting profession) give voice not only to the hidden truth of our government’s finances, but also to the future generations who we all wish will be able to enjoy the fruits of this wonderful nation—in the continuation of the American Dream.
When I think back to my testimony before the Federal Accounting Standards Advisory Board in Washington, D.C. on February 25, 2009, I recall my opening words—making sure that the Chair of the FASAB and the other board members did not forget “the people.” Iconically, “We the People” are the first three words of the preamble to our U.S. Constitution:
“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
With these words, our Founders understood that the purpose of the Constitution was not merely to serve the living (or themselves), but also to “secure the Blessings of Liberty to … our Posterity.” Fundamentally, my motivation for telling it like it is about the danger of accumulated annual budget deficits of our federal government is because our nation’s debt represents a claim on the standard of living of future Americans—“our Posterity.” The reason is because future generations face the unfair prospect of being held responsible for the repayment of the public debt (plus interest) that was egregiously racked up and hidden by their predecessors with grossly inadequate accounting principles and very poor standards of accountability; and, future generations will do so with diminished discretionary spending from the national budget for the vital societal investments needed to maintain the American way of life. The Founders gave us a living asset (the U.S. Constitution), but—at the present time—we are leaving our children with the liability of a huge unpaid bill. And, that huge unpaid bill is the result of our out-of-control, politically manipulated, and grossly inadequate financial management and accounting process resulting in annual budget deficits (on and off the books) that total to our monstrous national debt. How unkind will history judge us for this costly legacy? And, how even more unkind will judgment be on those who had the professional accounting education and experience to know better (what Professor Soll would refer to as good financial information), but instead remained silent?
When you combine the years I spent as a professional accountant, my time in public service on Capitol Hill, and my post-Congressional career in public advocacy through “Truth In Government,” it has been personally gratifying to have been in the right place at the right time to sound the alarm about the unsustainability of our national debt for our country’s future. It has truly been the fight of a lifetime.
I have been a practicing CPA for over a half-century and feel that my work (and yours) on this issue is not yet finished. I remain committed to telling it like it is on the unsustainability of our national debt. Only by telling it like it is can we (the trusted accounting profession) make a difference in preserving the American Dream for our Posterity. Surely, that is the legacy a profession of CPAs that has been held in such high esteem for so many years should fight for—now, and for all times.
 Joseph J. DioGuardi, Testimony, Federal Accounting Standards Advisory Board Hearing, February 25, 2009, https:// www.youtube.com/watch?v=Ji-I7chYKkE.
 U.S. General Accounting Office, Remarks of Elmer B. Staats (Comptroller General of the United States) to the Committee to Investigate a Balanced Federal Budget of the Democratic Research Organization on Implementing Accrual Accounting within the Federal Government, May 6, 1976, http://archive.gao.gov/f0102/091275.pdf; Public Law 84-863 (1956).
 Federal Accounting Standards Advisory Board (FASAB), Board Members, https://fasab.gov/about-fasab/board-members/.
 Arthur Andersen & Co., Sound Financial Reporting in the Public Sector, 1975.
 U.S. Legal, The Federal Accounting Standards Advisory Board [FASAB] Law and Legal Definition, https://definitions.uslegal.com/t/the-federal-accounting-standards-advisory-board-f-a-s-a-b/.
 See e.g., Matt Taibbi, The Pentagon’s Bottomless Money Pit, Rolling Stone Magazine, March 17, 2019, https://www.rollingstone.com/politics/politics-features/pentagon-budget-mystery-807276/.
 Arthur Andersen & Co., Sound Financial Reporting in the US Government: A Prerequisite to Fiscal Responsibility, February 1986, p. 7.
 GAO-20-315R U.S. Government’s 2019 and 2018 Consolidated Financial Statements, https://www.gao.gov/assets/710/704983.pdf, p. 4.
 Chief Financial Officers (CFO) Act of 1990 (Public Law 101–576) signed into law by President George H.W. Bush on November 15, 1990; GAO, The Chief Financial Officers Act: A Mandate for Federal Financial Management Reform, September 1991, https://www.gao.gov/special.pubs/af12194.pdf.
 Matt Taibbi, The Pentagon’s Bottomless Money Pit.
 CBO, The Budget and Economic Outlook: 2021-2031, February 2021, https://www.cbo.gov/system/files/2021-02/56970-Outlook.pdf, p. 2, 6. Here, based on the CBO’s estimations for fiscal year 2021, defense outlays total $733 billion and total outlays for the U.S. government will total $5.764 trillion.
 Joe DioGuardi, Questions before the Reagan National Defense Forum 2014, November 15, 2014, https://www.youtube.com/watch?v=68YIAUL7U_Q&t=3s; Matt Taibbi, The Pentagon’s Bottomless Money Pit.
 Joe DioGuardi, Questions before the Reagan National Defense Forum 2014.
 Zuri Davis, The Pentagon Fails Its First Comprehensive Audit, Reason, November 16, 2018, https://reason.com/2018/11/16/the-pentagon-failed-its-first-audit/.
 GAO-20-315R U.S. Government’s 2019 and 2018 Consolidated Financial Statements,
https://www.gao.gov/assets/710/704983.pdf, p. 4.
 Matt Taibbi, The Pentagon’s Bottomless Money Pit.
 Gary John Previts, Cultural and Socialization Aspects: Examples from Schools of Medicine, Law and Management, Annual Meeting, The Federation of Schools of Accountancy, Houston, Texas, December 9, 1986.
 THINK STRAIGHT, TALK STRAIGHT - Trademark Details, Serial No. 73579748, Owned by: Arthur Andersen & Co., Filing Date: 01/27/1986, https://trademarks.justia.com/735/79/think-straight-talk-straight-73579748.html.
 “Ford to City: Drop Dead,” New York Daily News, Vol. 59, No. 109, October 30, 1975.
 National Urban League, Inc., The State of Black America 1987, editor: Janet Dewart, National Urban League, Inc., January 1987.
 Ibid. David E. Rosenbaum, “A Financial Disaster With Many Culprits,” New York Times, June 6, 1990, https://www.nytimes.com/1990/06/06/business/the-savings-debacle-a-special-report-a-financial-disaster-with-many-culprits.html.
 Sewell Chan, Felix G. Rohatyn, Financier Who Piloted New York’s Rescue, Dies at 91, NY Times, December 14, 2019, https://www.nytimes.com/2019/12/14/nyregion/felix-rohatyn-dead.html; U.S. House of Representatives, Reform of the Federal Budget Process, Hearings Before a Subcommittee of the Committee on Government Operations, U.S. Government Printing Office, March 2, April 2 and 30, 1987.
 In a letter to me dated June 18, 1987 summarizing the main differences of the federal deficit on the accrual basis as opposed to the cash basis deficit, Mort Egol wrote, “If citizens and creditors were to demand the financial information to which they’re clearly entitled, incentives would be created for sound fiscal management and perhaps for more enlightened political leadership. We would then see better-informed decision-making that could set the brakes on fiscal recklessness. Ultimately, effective reporting of government activities should improve public confidence in public officials. And maybe—just maybe—citizens might feel less cynical about the idea that concerted action and some personal sacrifice are still the requirements for effective self-government.”
 Arthur Andersen & Co., Sound Financial Reporting in the Public Sector, 1975.
 Lawrence A. Weinbach, Subject: Joseph J. DioGuardi, Arthur Andersen & Co., Letter to All Metro New York Personnel, March 5, 1984.
 New York State Society of CPAs (NYSSCPA), About NYSSCPA, Past Presidents & Award Winners, Outstanding CPA in Government Award, https://www.nysscpa.org/about/about-nysscpa/past-presidents-award-winners#sthash.KEFpKiek.dpbs.
 CBO, The Budget and Economic Outlook: 2021-2031, February 2021, https://www.cbo.gov/system/files/2021-02/56970-Outlook.pdf, p. 3.
 Ibid, p. 2, 6.
 CBO, The Budget and Economic Outlook: 2021-2031, February 2021, https://www.cbo.gov/system/files/2021-02/56970-Outlook.pdf, p. 2, 3.
 Jacob Soll, The Reckoning: Financial Accountability and the Making and Breaking of Nations, Penguin: New York (2014).
 U.S. Constitution, Preamble, https://constitutionus.com/.
 Jacob Soll, The Reckoning.
 Please visit the website of my nonprofit profit origination, Truth In Government (www.TruthInGovernment.org) for more information on my life’s work. Truth In Government is public watchdog organization dedicated to fiscal responsibility in government through the promotion of honest budgeting, accounting, financial management and reporting practices by Congress and the Executive Branch.