Back to TopBack to Top

Can there be an accrual accounting for war?


July 24, 2013

Joseph Stigliz on Government Transparency

Doug Hadden, VP Products

There has not been significant scrutiny about the human and monetary costs for war. Wars, as Joseph Stiglitz points out, encourage poor political Public Financial Management (PFM) practices. In particular, budget oversight is reduced against the urgency of prosecuting a war. He suggests that there was a lack of appropriations scrutiny for the Iraq War.

The American federal government runs public finances on a cash basis. This hides long-term costs associated with war such as veterans’ benefits, further subsidies and other expenses. Stigliz points out that operating on a cash basis creates an incentive to minimize short-term costs at the expense of the long-term total cost. This includes the unintended consequence of contractors operating at cross-purposes to government intentions.

This is further compounded by the use of complex and inappropriate private sector “ERP” systems at the US Department of Defence that are not auditable. Billions remain unaccounted for.

The human price of war is incalculable. But, the total cost can be calculated with the right systems and the right accounting methods. The United States is an advanced country and in a position to move to accrual accounting. That will expose the present value “entitlements” and the true cost of promises by politicians. So, it’s no wonder that both parties see political benefits to the deception offered by the use of cash accounting. In other words, cash accounting ensures that government finances are not fully transparent in long-term expenditures like wars and major public investments.

The following two tabs change content below.
Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

Leave a Reply