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What’s Fair is Fair

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Thursday, October 16, 2003

What worries me is that if you did it, government might have to shut down. Okay, so maybe that doesn’t worry me so much.

Here’s the deal. After some high-​profile firms were found cooking the books Enron, Worldcom Congress cracked down. Fraud, they said, could not be tolerated. The CEOs of companies would now have to sign off on the accuracy of all the accounting in their firm, under penalty of fine or jail if the accounting turned out to be misleading.

There are a couple problems with the new law. One has to do with treating CEOs as proven fraud artists when the case against them isn’t really proven. If a CEO signs off on accounting that does turn out to include fraud, does that mean the CEO knew about the fraud at the time? Not at all. If the CEO were the accountant, he would be the accountant, not the CEO. He hires other people precisely so other people can handle details he cannot handle.

Anyway, Richard Rahn, an adjunct scholar of the Cato Institute, suggests that what’s good for the goose is good for the gander. The requirement of attesting to the “accuracy of the financial statements under penalty of fine or jail” should, he says, be “extended to government officials.” And Congress should freeze the budgets of agencies that fail to satisfy proper audits.

Given all the sloppy accounting we always hear about, from HUD to the Pentagon, if this advice is followed the government would soon have to shut down. Well … okay.

This is Common Sense. I’m Paul Jacob.

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