decode the financial fallout—where payables stall, nonprofits scramble, and the irs slows to a crawl.
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accounting arc
with liz mason, byron patrick, and donny shimamoto
center for accounting transformation
when the federal government shuts down, headlines focus on politics. but behind every furlough and frozen budget lies a deeper story—one told through accounting cycles, payroll ledgers, and cash flow reports.
in the latest episode of accounting arc, hosts liz mason, cpa; byron patrick, cpa.citp, cgma; and donny shimamoto, cpa.citp, cgma, break down what really happens when appropriations stall and the business of government grinds to a halt.
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“this is the kind of thing accountants think about,” mason says at the start of the episode. “what’s the actual technical answer? what does a shutdown mean for accounts payable, for payroll, for the irs? what’s really happening behind the scenes?”
their discussion reveals a complex web of accounting impacts—from unpaid invoices and delayed reimbursements to frozen nonprofit grants and confused taxpayers.
shimamoto, founder and managing director of intraprisetechknowlogies llc and founder and inspiration architect of the center for accounting transformation, who advises multiple government and nonprofit entities, explains that shutdowns halt operations not because the money disappears, but because employees are legally unable to work while their positions are unfunded.
“it’s not that the money isn’t there,” he says. “it’s that the staff aren’t working unless they’re considered essential.”
that distinction creates a massive payroll headache. “when the government opens up, they’re going to have one heck of a payroll calculation,” says mason, ceo of high rock accounting. “it’s all accrued wages that need to be paid out retroactively.”
patrick, ceo of verifyiq and co-founder and educator at tb academy, notes that furloughed employees are protected under the government employee fair treatment act of 2019, which guarantees back pay after a shutdown. “that’s great for workers,” he says, “but it’s also millions in wages for time not worked. it’s a big cost for doing nothing.”
shimamoto adds, “if there’s an expectation that everyone’s getting paid anyway, maybe they should just keep working. the disruption hurts more than it helps.”
mason highlights how the damage extends beyond washington. “we work with nonprofits that depend on federal funding,” she says. “during a shutdown, those funds are on pause. it’s not just a government problem—it’s a cash flow crisis for entire organizations.”
patrick agrees, pointing to federal contractors caught in limbo. “contractors have to decide whether to keep their people working and front the payroll, or send everyone home and wait it out,” he says. “it’s a lose-lose situation.”
shimamoto adds that some of his clients continue to submit invoices even during the shutdown. “you want it sitting in accounts payable, waiting to be paid,” he says. “that way, when the lights come back on, you’re first in line.”
but smaller nonprofits, mason warns, don’t have that luxury. “they can’t float salaries or take on more debt,” she says. “so they furlough staff. that ripple effect is massive.”
the conversation soon turns to revenue—the lifeblood of government operations. mason laughs as she notes that even in a shutdown, “irs criminal investigation is essential. so don’t get any ideas.”
but that’s where the efficiency ends. “call centers aren’t staffed, audits pause, and paper checks pile up,” mason says. “taxpayers keep sending money in, but the people who process it aren’t there.”
patrick quips, “so in the middle of extensions, we get even longer extensions—on irs time.”
shimamoto says the operational consequences go far beyond delayed refunds. “think about back payments, penalties, and interest,” he explains. “when payments aren’t applied on time, the system has to reconcile everything later. it’s not just inconvenient—it’s expensive.”
from an accounting standpoint, shutdowns expose weaknesses in the u.s. government’s financial tracking system.
“the government doesn’t really use accrual accounting,” shimamoto explains. “it’s mostly cash basis. so liabilities like pensions or social security don’t appear in the financial statements. that’s part of why the numbers look so odd after a shutdown.”
mason reacts with disbelief. “so effectively, we get really, really wonky government financials,” she says.
“not effectively—we already have them,” shimamoto replies with a grin.
patrick calls it “a systemic issue that accountants have been flagging for years.” the aicpa and other professional bodies have long advocated for accrual-based federal financials, but implementation remains elusive.
after dissecting the problems, the hosts turn to potential solutions. patrick argues that congress should be penalized for failing to pass a budget on time.
“if a business doesn’t get its budget done before the fiscal year, the ceo doesn’t get paid,” patrick says. “why should congress be any different?”
mason suggests classifying every government position by priority so that essential roles continue automatically during a lapse in funding. “people should know ahead of time if they’re essential or not,” she says. “that transparency would save a lot of chaos.”
shimamoto proposes a more structural fix drawn from his consulting framework: run, optimize, innovate.
“‘run’ spending is what keeps the lights on—payroll, irs operations, critical infrastructure,” he explains. “‘optimize’ means improving what already exists, and ‘innovate’ is your r&d and pilot programs. if we applied that framework to government, ‘run’ never stops.”
patrick agrees. “it’s simple but brilliant,” he says. “imagine three budgets instead of one—so the operational side keeps moving while political debates continue elsewhere.”
mason adds, “that’s the problem with how we budget now. it’s all or nothing. we need layers of priority.”
as the conversation winds down, all three hosts circle back to the people most affected: taxpayers, contractors, and accountants trying to make sense of the chaos.
“these shutdowns aren’t just political stunts,” mason says. “they have real accounting consequences.”
patrick nods. “it’s a reminder that everything is connected—government, business, nonprofits. when one stops, everyone feels it.”
shimamoto adds a final thought: “if we’re going to promise back pay anyway, why not let everyone keep working? that would save taxpayers money, protect our systems, and keep the economy stable.”
10 key takeaways
- staff availability—not just funding—drives shutdown disruption.
- appropriations can be one-year, multi-year, or no-year; invoices still pile up.
- essential workers continue to work; payroll catches up later. back pay rules are in dispute in 2025.
- nonprofits and contractors face an immediate cash-flow risk as reimbursements are paused.
- the irs maintains critical enforcement but reduces services; backlogs continue to grow.
- accrual financial reporting vs. cash-based budgeting complicates post-shutdown reconciliations.
- “run/optimize/innovate” budgeting can protect essential operations.
- earlier, enforceable budget deadlines would reduce brinkmanship.
- government accounting is a distinct and viable career path; aga resources can help.
- agencies are innovating (e.g., blockchain pilots) despite constraints.