- The Washington Times - Tuesday, December 9, 2003

What did the now-defunct Enron Corp. and the U.S. governmenthavein common? Both were the superpower of their universe. Both were staffed with some of the “best and brightest” of the land, or so touted at the time. Both used imaginative, and in Enron’s case illegal, accounting methods and misrepresentations that distorted truth. Both believed in perpetual growth, with Enron guaranteeing its growing liabilities with stock and the U.S. government with the full faith and credit of the Treasury.

In the wake of Enron and a spate of other corporate misdeeds and scandals, Congress passed HR3763, the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley was meant to correct these ills by imposing greater visibility and accountability on publicly traded companies. Three provisions are relevant.

Chief executives were required to certify that information in required financial reports did not contain any “untrue statement ? or omit” material facts in “fairly presenting” the firm’s financial condition. Boards of directors were enjoined to impose greater scrutiny. And assignment to the audit committee, to which the firm’s auditors would now report, would become a second full-time job. Last, the Public Company Accounting Oversight Board was created, ending the era of self-regulation for the accounting industry.

If the corporate world had been conducting the wars against terror and Saddam Hussein under Sarbanes-Oxley, it would be in trouble. No one knows whether the $87 billion appropriation to cover the costs of the war and reconstruction “fairly present” the financial realities. And, after having asserted as a key reason for the war, Iraq’s weapons of mass destruction, corporations would be held accountable for finding them and subject to penalties if they did not. But corporations do not have those responsibilities.

As with the private sector when things go wrong, in government there have always been attempts to discipline, reform or fix the excesses. Success is in the eye of the beholder. For example, both Congress and the president regularly promise to impose fiscal discipline. Based on the Reagan-Bush economic packages, the Clinton administration was finally able to achieve budget discipline and surplus. Those are now relics of the past.

Beyond understandable increases for defense and homeland security, federal spending has jumped some 20 percent in two years. Both political parties are complicit.

The large tax cuts will stimulate the economy. No one knows how long that will last or how large future deficits will be. And new legislation reforming health care has one certainty: It will be very expensive for the taxpayers.

If transparency and accountability are as important to good government as to a healthy private sector, then a Sarbanes-Oxley Act for government is a reasonable idea to consider. Of course, any White House would rightly claim executive privilege and resist the need for transparency. Turnover, as well as size of government, is a huge constraint to fixing accountability.

How might these three provisions of Sarbanes-Oxley — certification of reports, audits and oversight — be applied to government and would they have much chance of success? To start, every time the president sent a budget or fiscal request to Congress, he, or given the size of his branch of government, the responsible executive, would provide the same certifications required of corporate management. If those certifications proved wrong or misleading, some consequence would follow.

Whilereorganizational chemotherapy may be a surer cure for Congress, how could Sarbanes-Oxley be applied on Capitol Hill? Consider the coins of the realm in Congress: the bills that are debated and passed. Many of those bills are unread and some provisions unwritten at the time of the vote.

There are good and bad reasons for this. Some bills, such defense, would take hours or days to read. Sarbanes-Oxley was 66 pages long, and the prose is not easy to digest. The current trend of massive omnibus bills stuffed with so many provisions that not even the staff may fully understand them is a further step in the wrong direction.

As corporate executives must certify their reports, why not require members of Congress to certify reading and understanding the legislation on which they are voting beforehand? For complex bills or situations when revision or completion is necessary after the vote, any of those provisions would be redlined for all to see. And, for every individual spending bill, ceilings could be set that, once broken because of unanticipated or wrongly estimated cost growth, would be automatically subject to legislative review.

The chances of any of this happening are far less than, say, Al Sharpton being elected president. The good news is that the U.S. government, unlike Enron, will not go pop. But a Sarbanes-Oxley for government is still something to ponder.


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