David M. Walker is a man on a mission. Or, more accurately, a tour: the Fiscal Wake-Up Tour. As Comptroller General of the United States, Walker has been a vocal critic of the state of America's balance sheet. Now, as part of a road show bent on educating citizens about the deficit and other budgetary crises, Walker delivers that message far and wide. After 10 years at the helm of the U.S. Government Accountability Office (GAO), Walker recently decided that he could more effectively tackle that mission from the private sector; in March he became president and CEO of the Peter G. Peterson Foundation, an organization devoted to finding solutions to a range of "sustainability challenges." Despite spending a decade in Washington, D.C., Walker is no bureaucrat. "I'm an innovator, a transformational leader," he says. "Once you get to the point where you've achieved much of that, and where the focus becomes continuous improvement, I can do that, but that's not my highest and best [contribution]."
You have five years left on your term. Why leave now?
[One of my goals when I came to the GAO] was to achieve a down payment on our large and growing fiscal imbalance and also make progress on several other key sustainability challenges: health care, entitlements, balance of payments, and so on. And I've come to the realization that to be successful will take specific solutions, more-aggressive coalition building, and much more aggressive grassroots efforts designed to increase the pressure on Washington to act sooner rather than later. And there are very real limits to what I can and should do [in that regard] as Comptroller General of the United States.
You're leaving before the GAO ever issues an opinion on the government's consolidated financial statements. What's the holdup?
Largely due to financial-management challenges within the Department of Defense, it's pretty clear that the GAO is not going to be able to express an opinion on the consolidated financial statements as a whole until after my 15-year term. In fact, the current target date for the DoD is 2017.
Considering what a moving target the DoD is, do you believe it can ever get done?
It's possible. It's the tail on the dog; it's going to wag last. One of the real questions about the Department of Defense that remains unanswered is who will assume responsibility for the audit? It's likely that the GAO will have to assume it, for several reasons. Number one, there's probably not a major [audit] firm that would be deemed to be independent, since so many are doing other work within Defense. Second, there are not that many firms that have the capacity to do it. Third, the Inspector General's office would need to be involved, but it doesn't have the capacity either. Besides, the DoD is highly material to the consolidated financial statements, and the GAO has a responsibility to express an opinion on those statements.
Public companies must sign off on their statements. Shouldn't the government?
When I first came in, everybody's goal was to achieve a clean opinion on their financial statements. There were a lot of agencies engaged in heroic measures, spending thousands of person hours and millions of dollars to achieve an opinion on a set of financial statements that were six-plus months old. Yet the agencies didn't have the systems and controls that would generate timely, accurate, and useful financial information to make informed decisions on a day-by-day basis. And if you don't have that, it really doesn't make any difference whether you have a clean opinion on your financial statements.
What have you done to strengthen the focus on that information?
We've accelerated the due date of financial-statement audits to 45 days after the end of the year rather than six months. That means you can't engage any "so what" measures. You have to focus on systems, you have to focus on controls. Otherwise you couldn't possibly hit a 45-day time frame. So part of it is redefining what success is and focusing on the most meaningful things.
You've said that we have only a 5-to-10-year window to address our most pressing fiscal challenges. Are any of the Presidential candidates focused on fiscal reform?
I didn't expect fiscal responsibility and intergenerational equity to be major issues in the primary campaign. What's important is that they be key issues in the general election. And we and others are taking steps to make that happen.… The Fiscal Wake-Up Tour and the upcoming documentary film [titled I.O.U.S.A.] are two of the efforts.… But it's important to keep in mind that the country has only one chief executive officer. And if the President of the United States makes this issue a priority, then we can make real progress.
What if that doesn't happen?
There are two scenarios. There's a hard-landing scenario, and there's a termites-in-the-woodwork scenario. The latter says that we have a gradual weakening of our economy and a gradual decline in our relative standard of living and international influence. That's very possible. The other possibility is a hard landing, where the foreign lenders that we have been relying on to buy about 70-plus percent of our debt in recent years lose patience and decide that either A) they're not going to continue to buy our debt or B) they demand much higher interest rates in order to do so. That would obviously have a serious adverse impact on the federal budget, and a ripple effect on the economy.
But the potential fixes are a long way from being politically palatable.
One of the reasons we're not getting action is because elected officials are afraid they'll lose their jobs if they make tough choices. Some people have said deficits don't matter. Some have said we'll grow our way out of this problem. Some have said we've had higher deficits as a percentage of GDP in the past. [But] our problem is not where we are or where we've been; our problem is where we're headed.