Summary

This was a speech given by the Comptroller General before the National Press Club in Washington, D.C. on December 17, 2007. The Treasury Department released the 2007 Financial Report of the United States Government. Candidly, if the federal government were a private corporation and the same report came out this morning, our stock would be dropping and there would be talk about whether the company's management and directors needed a major shake-up. If you look at today's report, you'll see that for the 11th straight year GAO was unable to express an opinion on the consolidated financial statements of the U.S. Government, primarily due to financial management problems within the Department of Defense. GAO also noted a number of very serious internal control weaknesses. At the same time, there is some good news in connection with this year's audit. Today's annual report includes the first GAO opinion on a statement within the federal government's consolidated financial statements. Specifically, GAO expressed an unqualified opinion on the Statement of Social Insurance. This statement includes the largest numbers in the federal government's financial statements. To put things in perspective, we're talking numbers in the tens of trillions of dollars in current dollar terms. One of the reasons we could issue an unqualified opinion is because the Department of Defense has nothing to do to with the Statement of Social Insurance! When it comes to America's financial situation, are we on the right course? The answer is "yes" and "no."

From a short-term perspective, it's true that our federal deficits have declined for three straight years and declining deficits are better than rising deficits. However, we are still running large deficits on an operating basis. Candidly, our current deficit and debt levels are not unduly troubling as a percentage of our national economy. However, these deficit levels and related debt burdens are set to escalate dramatically in the near future due to the retirement of the "baby boomers" and rising health care costs. The fact is, absent meaningful reforms, America faces escalating deficit levels and debt burdens that could swamp our ship of state! The Medicare program alone represents about $34 trillion of our current $53 trillion fiscal gap. If there is one thing in particular that could bankrupt America, it's runaway health care costs. And don't forget, the first "baby boomers" will begin to draw their early retirement benefits under Social Security in a couple of weeks! And, just three years later, they will be eligible for Medicare. When "baby boomers" begin to retire in big numbers, it will bring a tsunami of spending that, unlike most tsunamis, will never recede. If trillions of dollars aren't big enough to get your attention, believe it or not, in fiscal 2007 over 62 percent of the federal budget was on "auto-pilot" and this percentage is on the rise! Shockingly, the major functions expressly envisioned by our Founding Fathers as a proper role for the federal government--things like national defense, homeland security, foreign policy, the treasury function, the federal judiciary, the Congress and the Executive Office of the President--are in the remaining 38 percent of the federal budget! And this portion of the budget is set to get squeezed. GAO has been working with the Treasury Department and the Office of Management and Budget (OMB) to produce the first ever Summary Annual Report for the federal government. This document will be much more concise and user friendly than the voluminous annual report Treasury issued today. Hopefully, it will be both useful and used. The Summary Annual Report is a positive step to help us understand our fiscal challenge, but far more dramatic action is needed to help us solve the problem. GAO is working with members of Congress from both parties as well as OMB, CBO, and others to draft a proposed Transparency and Accountability Act. We need to re-impose tough budget controls, tougher than the ones that expired in 2002. It's also urgent that we engage in comprehensive Social Security reform, as well as round one of comprehensive health care and tax reform.