The prevailing accounting practices of North Carolina state government, and those of other states, would be illegal if carried out by a private corporation. The problem is that these practices enable deception and the deferring of operating expenses, both of which are violations of the state’s balanced budget amendment.
One organization, the Institute for Truth in Accounting, has been doing a sterling job of revealing this and building pressure for transparency and reform. Ever so slightly, their work is having an impact. As I noted last week, the new GASB standards nudge states to begin giving a more accurate reflection of their pension liabilities. This action, even if only symbolic, suggests positive changes on the horizon.
So what is the alternative, the ideal? Allow me to introduce F.A.C.T. based accounting (pp.110-115) — the IFTA’s acronym for full accrual calculations and techniques. If applied, it would provide "a comprehensive indication of the total activity of Government and the long-term effects of current policy," which would assist greatly with public understanding and assessment.
Most importantly, IFTA affirms the need for accrual-based, rather than cash-based, measurement. That means one "records revenues and expenses in the period the activity generating revenues, increasing liabilities or consuming resources occurs, regardless of when associated cash is actually received or paid."
IFTA even has model legislation for states to work with. Some of it is just common sense and ought to be adopted sooner rather than later: clear deadlines for reporting — last year North Carolina’s comprehensive annual financial report took almost six months — corporate presentation guidelines, and measurement of future liabilities by a relevant discount rate.
While many may fear this scrutiny, it is for the benefit of both government employees and constituents alike. Currently, officials in many states are making promises and acquiring liabilities they cannot fulfill, similar to Social Security at the federal level. While spending generosity may come down when properly accounted for and understood, at least it will actually be able to come fruition.
Image of the week!
A man who owns five hot dog outlets has weighed into the discussion over where credit is due when it comes to private business. The image alone sends a clear message, but I also appreciated an interview with him from the Civitas Institute. Click through to watch.
Notes
- Last week, the staff of the John Locke Foundation hosted candidates for a policy briefing, and my focus was a Taxpayer Bill of Rights for North Carolina. While I’ve touched on this in an earlier newsletter, here is a video of my presentation with new insights from my latest research. I look forward to publishing a lengthier article on this issue within the next couple of months.
- If you have not tried the website, Reddit.com, you are missing out. Here is a blog post from me that explains its benefits, and I have just added a page for pro-liberty content in North Carolina. Don’t hesitate to subscribe and submit content of your own!
- I am highly active on Twitter and glad to engage with more people through that medium. If you would like to follow me, my username is @FergHodgson (si prefiere espanol @Fergusito).
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