Price Waterhouse Coopers (PWC) audits Social Security Administration (SSA).  On November 7, the accounting firm issued its outside audit of SSA.  The report stated in part:

"The consolidated balance sheets of SSA as of September 30, 2008 and 2007, and the related consolidated statements of net cost and of changes in net position, and the combined statements of budgetary resources for the years then ended and the statement of social insurance as of January 1, 2008, January 1, 2007, and January 1, 2006 are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America;

"Management fairly stated that SSA's internal control over financial reporting was operating effectively as of September 30, 2008.

"No reportable instances of noncompliance with the laws, regulations or other matter tested.

".the statements of social insurance present the actuarial present value of SSA's estimated future income to be received from or on behalf of the participants and estimated future expenditures to be paid to or on behalf of participants during a projection period sufficient to illustrate long-term sustainability of the social insurance program."

However, PWC added:

"We limited our tests of compliance to the provisions of laws and regulations cited in the preceding paragraph of this report. Providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion."

The complete audit report is online at http://www.ssa.gov/oig/ADOBEPDF/A-15-08-18087.pdf

What the PWC report means is the audit accepted the premise in federal law that the special-issue non-negotiable bonds in the Social Security Trust Fund are meaningful assets.  Using that criterion, then it is possible to sign-off on the "long-term sustainability of the social insurance program."

In fact, the payroll tax will not raise enough money to pay full benefits after 2017.  In order to continue to pay benefits, these "assets" will have to be utilized.  But they are only IOUs from the government to itself. 

No one has any idea how these IOUs will be redeemed.

An outside audit is a good idea for all federal agencies, but it is of limited use if the auditors are required to consider imaginary assets as real.

As this is written, the report for October has not yet been issued, but at the end of September 2008, the federal government owed the Social Security Trust Fund (old age and disability) slightly more than $2.367 trillion.