At the heart of Truth in Accounting’s mission is a simple want to make things easy to understand. Sheila Weinberg started TIA to use her expertise as an accountant to help others. She saw how confusing government accounting reports were and set out to simplify them for the average citizen. She didn't set out on a politically-driven agenda to take down a politician or policy, other than accounting standards. Our mission is to shed light on government accounting so the government can get back to doing what they do best: helping people. But the government can only help if their money is properly managed. We've all felt some mistrust towards the government. We're trying to rebuild that trust alongside other nonprofits, educators, policy-makers, public servants, and journalists. We're sad to see that the Longview News-Journal didn't see that mission when covering our special report on the city of Longview, TX.
The reporter is correct in saying we use an accounting method that is different from standard practice… for governments. We believe the standard accounting practice for governments should be changed and have been fighting for that change for 20 years. Governments currently use outdated cash-based accounting. Cash-based accounting is acceptable if you're running a lemonade stand but not for million-dollar revenue-producing entities like the city of Longview. We are not alone in this fight. The International Monetary Fund (IMF) disagrees with governments using cash-based accounting:
Pure cash accounting has a number of weaknesses from the point of view of government financial transparency, integrity, and accountability. Under cash accounting, transactions are recognized only when the associated cash is received or paid, and economic events are not reported if there is no immediate exchange of cash. Governments have been tempted to exploit this weakness by deferring cash disbursements or bringing forward cash receipts as a means of artificially inflating their financial balance. Moreover, governments that follow cash accounting tend to not maintain comprehensive and up-to-date records of the value of their assets and liabilities. This enables them to transfer assets (such as land or mineral rights) or incur liabilities (such as pensions or public-private partnership contracts) to third-parties without disclosing their financial implications for the government and taxpayer.
Corporations with more than $5 million in revenue over three years in the United States must follow full accrual accounting standards and governments should be no different. Full accrual accounting is supported by Former U.S. Comptroller General David A. Walker, USC Professor of History and Accounting Jacob Soll, the International Public Sector Accounting Standards Board, the International Monetary Fund, and hundreds of our CPA subscribers, just to name a few. Full accrual accounting records revenues and expenses in the period of activity when revenues are generated, liabilities are increased, and resources are consumed, regardless of when the money is actually received or paid.This type of measurement is useful in budgeting and accounting for situations in which benefits are promised and earned in one year, but not paid until future years, as is true with government pension plans.
City spokesman Richard Yeakley argued in the article that city finance shouldn’t be compared to personal finances because people are typically saving for retirement. We hope the city of Longview is always producing revenue and never retires. But we've seen cities “retire” before, like Detroit and Stockton. Does the hope of future revenue mean the city can run up massive debt?
We break things down to a personal level so the average citizen can understand government accounting. Not everyone is a CPA, but citizens deserve information that is easy-to-understand. Our Taxpayer Burden is a simple calculation of the city's debt divided by the estimated number of taxpayers. But one could easily take the government’s debt and divide it by the number of businesses, households, pets, buildings, acres, or cowboy hats in that government. The point is the city has debt that will need to be paid back.
We also want to congratulate the city on their excellence award from the The Government Finance Officers Association (GFOA). This is the greatest participation trophy in government accounting. It is awarded to any city that pays a small fee. We also congratulate Longview on their AAA bond rating. Bond ratings are like credit scores for individuals. They are just one way to measure a government’s trustworthiness, not how much debt they have.
Citizens deserve information in a timely manner. The GFOA standard for timelines is 180 days after the fiscal year end. If a financial report is not available to the public by that time, it is late. It doesn’t matter if city council members had access to the report, it is meant for their constituents. The latest report was not available when we were commissioned to analyze the city, so we worked with the information we had. It is a shame that Longview News-Journal did not do the same and waited to publish this article until after the election, despite receiving our report when it was released. Do they not trust their readers to form their own opinions and do their own due diligence?
As a show of good faith, we will be updating our report to include the latest information, free of charge. We hope the Longview News-Journal helps us provide this information to Longview citizens, oh, and spells our founder’s name right next time.