Corporate Fraud: It's Clinton's Fault!

July 3, 2002

The connection between the Clinton administration and the collapse of a substantial portion of corporate America is concrete and reaches well beyond the dangers that are currently perceived.

I looked for the inevitable counterpunch. Democrats have been overreaching to create that magical feeling that fraud within American corporations can be blamed on President Bush and Vice President Cheney. The mere suggestion might help them win congressional seats this year. Paul Beckner, president of Citizens for a Sound Economy responded in an article entitled A Tragic Failure of Leadership. It is Bill Clinton's fault after all. That was what I was looking for.

I take Paul Beckner's points seriously as a matter of fact. He shames politicians (Democrats) for behaving unethically. "It turns out," he writes, "the conduct, behavior, and moral tone of our leaders really does matter." Of course it does. He goes on to castigate Democrats for remaining "silent on a massive government accounting sham – the future of Social Security."

Beckner is a defender of free enterprise and limited government who has no difficulty admitting that the current problem, "the largest corporate accounting scandal and tragedy in our nation’s history," is serious. Pointing out the similarity in character between an opposing party and "some greedy, overly ambitious, unscrupulous, and slick corporate CEOs [who] followed Clinton’s lead and deliberately and brazenly committed fraud" might also be regarded as quick-witted politics.

As much as I agree with Paul Beckner's points, the subtle noise of classic political stereotype is pounding in my brain. I read most political debate as a by-product of our de facto two party system. It causes me to imagine a great wall between two sides of America. On the right, corporate individualists who must take personal responsibility for their actions defend against an ever-encroaching Big Brother government. The left speaks in terms of groups rather than individuals. That George W. Bush and Dick Cheney have been on the corporate side makes them guilty by association.

But the fact is that there is no great wall between corporate America and government. The relationship between big government accounting fraud and corporate accounting fraud is not merely a matter of copy-cat behavior. A concrete tie might not so easily be found in the traditional Social Security "Trust Fund" but it can be found – rather easily by anyone who really looks – in the new Social Security "trust fund" created before Bill Clinton took office. Arthur Andersen Consulting was a key player. Who taught who?

Remember welfare reform? Back in 1975 when the current vision of reform was born, divorced and never-married men were paying around $10 billion annually to mothers in child support. Available evidence showed a high rate of payment but Congress decided to create the US Office of Child Support Enforcement (OCSE) anyway.

In the mid 1980s OCSE promoted itself as an essential element in the economy fighting a foe so sinister and destructive that it threatened the nation. For the left, it was big government centralized intervention and NOW was for it. Somebody said "personal responsibility" and the right was hooked as well. The child support enforcement budget climbed to approximately $4 billion annually. By the early 1990s politicians were claiming that the battle against "deadbeat dads" would remove women and children from welfare rolls, lower taxes, cure baldness, and lead to discovery of an effortless diet that really works.

Force (presumably wealthy) fathers to pay child support so that mothers and children can leave welfare, relieving taxpayers. It sounded like a plan. Here is how it worked.

Initially there were no collections on the books in non-welfare cases. The reforms expanded the scope of federal involvement in child support enforcement to include all child support cases. Instead of allowing normal payment by check, cash, or money order the government began "forcing fathers to pay" through their system. All payments are entered into OCSE's books as "collections" which now include regular non-problematic payments in non-welfare cases. As more parents received orders to pay through the system year after year, OCSE reported increases in "collections" (which were mostly non-problematic non-welfare related payments that would have been paid anyway). States (the CSE program) received more federal funding as a result of reporting higher "collections."

But wait; that's not all! The deal was too good for "collection" agents to sit on the sidelines. What if they, individually, could keep a portion of the take? The interests of bureacratic growth and "entrepreneurship" were aligned. The public-private partnership in child support collection was born.

Representatives from the new private child support collection industry became extremely influential in defining policy. If you can't collect much from people who don't pay (because there is no order or they're broke), then arbitrarily increase the amount that normally good payers are ordered to pay. Debt will increase, especially if proper adjustments are refused for visitation, unemployment and other causes of reduced income. Do not forgive child support debt even when DNA tests prove the man is not the father. So that's what they did and soon politicians were parroting the phrase, "There is no excuse for not paying child support."

There is still more to the story. Billions of dollars "collected" have not been dispersed because recipients cannot be found. Who keeps the interest? Why is the money not returned to payers? For that matter, who gets the interest on money passing through the system that is dispersed? During the Clinton years approximately $4 billion dollars – a huge sum - was spent on a big brother computer system, allegedly for tracking "deadbeat dads." I would have happily created a child support tracking system for one million dollars and laughed all the way to the bank. Who got all that money and why? Why is the system keeping information on everyone (I mean everyone) rather than just tracking child support payments?

For eight full Clinton years government accounting fraud held hands with corporate profit. Corporate partners include some of America's largest companies as well as some newcomers; some greedy, overly ambitious, unscrupulous, and slick entrepreneurs as well as some less than enthusiastic large government contractors who were forced to participate under government pressure. (Some in this latter group have pulled out since George Bush took office.)

Fraudulent accounting practices leached out in every direction as government regulation piled up to create corporate profits and pork. Due process and separation of powers essential to our Constitutional system no longer exist in the experience of tens of millions of Americans. Child support agencies perform judicial tasks, hold hearings, write regulations (laws), and determine every state's eligibility for funding; including funding for the state judiciary. The system of checks and balances protecting basic individual rights is gone.

The problem goes far beyond the enormous losses experienced by individuals in the stock market. A public-private conspiracy defines the daily life of a great portion of the population. Any party not working feverishly to eliminate unscrupulous federal manipulation of domestic relations law is not entitled to the high ground on accounting and public ethics.

Copyright © 2002

Roger F. Gay