Sarbanes-Oxley — for the Bush administration

Edward Lazarus has an idea that I can enthusiastically support. In fact, I’m disappointed I didn’t come up with the idea sooner.

Imagine that a large multinational company, in a document filed with the Securities and Exchange Commission, takes a $400 million charge against earnings, representing the cost of a new service that the company is going to offer. Now imagine, further, that the company’s Chief Financial Officer has received from his top financial manager a cost estimate of more than $500 million for the service, and that the CFO has suppressed this cost report. Finally, imagine that New York Attorney General Eliot Spitzer and SEC Director of Enforcement Stephen Cutler learn about the suppression of the company’s own estimate – and learn, further, that the real cost of the program is going to be $750 million, or even more.

I think we all know what would happen next. The investigations would start; the indictments and shareholder lawsuits would follow; and the company would end up paying a whopping fine while the CFO would, in all likelihood, be off for a stint in the pokey.

Now change the channel to the arena of national politics – and change the stakes from millions to billions of dollars. The Bush Administration proposes a new prescription drug program. It sells the program to the Congress and to the American people as costing $400 billion, even though the top bean-counter at the Department of Health and Human Services has estimated the true cost to be more than $500 billion and, it turns out, in real life the cost is likely to be at least $750 billion and perhaps much more.

So what happens? Nothing, of course. By the time the internal estimate of over $500 million comes out, the new prescription drug benefit is the law of the land and the presidential election that might have provided accountability for the Administration’s lying about its cost is over.

Quite right. Our first “CEO President” is perhaps the worst businessman imaginable, heading a branch of government with an enormous budget, but fudging the numbers to suit his purposes in a way that wouldn’t be tolerated in corporate America. In fact, in the wake of corporate scandals like Enron (Bush’s top corporate donor in 2000), Congress passed and Bush signed Sarbanes-Oxley Act, which legally mandates that businesses steer clear of “fuzzy math” in their budgets.

So, how about we get a new Sarbanes-Oxley for the Bush administration?

In truth, Bush has given us plenty of cause, lying repeatedly about budget numbers for years. From hiding the costs of his tax cuts for millionaires, to hiding the costs of wars, to intentionally deceiving Congress about the cost of Medicare “reform,” the Bush gang has set a new standard for budget shenanigans — exactly the kind of tactics that are now illegal in corporate America.

Lazarus makes a very compelling case.

Sarbanes-Oxley has many facets, of course, and most of them could not possibly be transferred from the context of corporate SEC filings to the context of Executive Branch budget numbers. But one important new Sarbanes-Oxley requirement could be imported – namely, the requirement that the CEO and CFO of a corporation must explicitly certify the integrity of the accounting in their periodic reports to the SEC.

More specifically, under Sarbanes-Oxley, the company’s CEO and the CFO must certify that their filings are based on legitimate accounting methods, and that the filings contain no material misstatements of fact or material factual omissions related to the subject matter of the filings. Importantly, a CEO or CFO who falsely vouches for the integrity of company SEC filings risks criminal prosecution.

The purpose behind this new requirement is straightforward. In an effort to ensure that current and prospective shareholders of a company receive a full and accurate picture of the company’s actual financial health, Sarbanes-Oxley places a heavy burden on top executives to ensure a high level of accuracy and transparency in their corporate disclosures. No more claims of ignorance when hidden bad news comes out will be tolerated. Sarbanes-Oxley puts the necks of the CEO and the CFO on the line.

Why should top government officials enjoy a lesser degree of accountability? … [I]t is not so far-fetched to think that Cabinet secretaries and/or the head of the Office of Management and Budget should formally certify the integrity of their budget projections, much as top corporate executives now must.

Sounds good to me. These administration officials are empowered by the public to spend our money, so when they play fast-and-loose with their figures, they are, in a manner of speaking, lying to their shareholders. The fact the administration feels justified in offering us an incomplete and highly misleading budget picture, while continuing to spend hundreds of billions more than they take in, cries out for a remedy.

With the stakes so high, is it really unthinkable that we ought to create legal sanctions for high Executive Branch officials who deliberately fudge the numbers? Most of these officials are appointed, and therefore never directly accountable to the people. Remember the lesson of David Stockman – Reagan’s budget director in the 1980s, who cooked the books in order to advance Reagan’s policy agenda, and then bragged about it after leaving office.

No corporate executive could ever get away with that. And isn’t the country’s economic future important enough at least to consider imposing higher standards of conduct for those who assume its stewardship?