In the wake of accounting scandals that blew up companies from Enron and Tyco to Sunbeam and Arthur Andersen, it would be implausible that anyone would take serious a suggestion to let companies decide for themselves what the rules of accounting are, as though they should be different from company to company, malleable to the whims of whatever a company executive wanted them to be.
Meanwhile, there’s another band of financial hoodlums out there. Will Rogers once wrote that no man’s purse is safe while the legislature is in session. We’ve just come through another nightmare budget session, in which our lawmakers played Three Card Monte with taxpayer dollars. And yet, even for the shills at the Capitol there are rules. Where the books for private enterprise are prescribed by the Financial Accounting Standards Board, those for municipal, state and federal entities are set by the Government Accounting Standards Board.
Why, one might wonder, are there two standards for accounting? Because, just as governments often exempt themselves from the regulations they impose on everyone else, governments like to be able to count money in ways that make elected officials look their best to those whose pockets they pick. So, yes, there is both FASB and GASB because governments are already playing fast and loose with the rules.
And so one could ask the same question of governments as of private firms. In the face of elected leaders who never met a buck they couldn’t spend, who would take serious a suggestion to let the state decide for itself what the rules of accounting should be? As it turns out, nearly a couple hundred people think that’s a swell idea.
All of them people who would benefit from a few broken rules.
The state House of Representatives unanimously, and 22 out of 36 state Senators, gave the nod to a bill that would have essentially exempted Connecticut from being subject to the Government Accounting Standards Board. The bill would have given the state comptroller the authority to set accounting standards for the state.
Current Comptroller Nancy Wyman was all for that idea. Connecticut doesn t fund all its obligations, and it currently carries a debt of more than $1 billion. The legislature is supposed to begin paying that debt down at the rate of $150 million a year, but since doing so would mean lawmakers don’t get to spend that money on things that help them with voting constituents, they simply refuse to do it. And the debt keeps mounting.
Wyman wants different rules, that let her essentially move that debt out of the annual budget picture, so that she can persuade lawmakers to start paying it down at least a little bit at a time. And lawmakers, too, seemed eager to find a way to make the debt become all but invisible.
Sensibly, Gov. M. Jodi Rell vetoed this apoplexy-inducing bit of rubbish. Just as accounting standards for private industry are important so that companies can be measured and judged with confidence, so do government standards allow the financial community some degree of confidence that they are not being hoodwinked when they’re dealing with government-backed bonds.
“Bond investors and those making economic decisions have a clear understanding of statements prepared in conformity with generally accepted accounting principles,” Rell said. “To deviate from this standard would jeopardize the financial standing of our state.”
Her move was applauded by GASB, which had lobbied her to kill the measure. The move angered Wyman, who penned a three-page letter excoriating the governor’s action.
But Wyman is in the wrong here. Accounting problems don’t disappear by changing the accounting. They disappear by fixing the funding.
