Dear Mr. President,
I strongly recommend that you adopt full accrual accounting for the country’s financial statements instead of using cash accounting based budget numbers to manage public finances. As a step toward getting to good public financial management over the next four years, you could focus on three high-impact wins.
First, position the United States as a world leader in public financial management. It's been 25 years since there has been a clean audit opinion on the US government’s annual financial reports. Get one now. Correct the hundreds of billions of improper payments and critically deferred maintenance of government property. Use best practices of international public sector financial management and reporting. And especially, get the Department of Defense (DoD) to produce a clean audit opinion.
Second, focus on changes in the government’s total net worth (assets minus liabilities) as a percentage of GDP rather than the 19th century historical relic debt-and-cash-deficit measure as a percentage of GDP. Show the world how to be the most capable steward of all the government’s assets and all the government’s debts. Educate Americans on the importance of sound financial management in government by concentrating on changes in government total net worth rather than the defunct debt and deficit ratios. Provide four-year projections of government total net worth and GDP.
Third, protect Americans and confirm that the billions of treasury debt securities held in Social Security and Medicare trust funds cannot be usurped by the government.
These three action items are decades overdue. Success in implementing them will vastly improve the financial performance and position of the United States and put America back on the path to rivalling New Zealand as the world leader in public financial management.
Shivaram Rajgopal teaches a class on Sovereign Risk Assessment via Financial Statements.