This won't surprise you

Is there ANYthing the government CAN'T do for "national security reasons"?

[N]ew guidance, [from the Federal Accounting Standards Advisory Board — FASAB,] “SFFAS 56 – CLASSIFIED ACTIVITIES” permits government agencies to “modify” public financial statements and move expenditures from one line item to another. It also expressly allows federal agencies to refrain from telling taxpayers if and when public financial statements have been altered.

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“From this point forward,” [Michigan State professor Mark Skidmore] says, “the federal government will keep two sets of books, one modified book for the public and one true book that is hidden.”

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This new accounting guideline really does mean what it appears to mean, and the details are more bizarre than the broad strokes.

The FASAB ruling adds a new and confusing wrinkle to what little we know about levels of spending in the intelligence community. Officially, the fiscal year 2019 appropriation is $81.1 billion, which breaks down to $59.9 billion for the National Intelligence Program, along with $21.2 billion for the Military Intelligence Program.

This made a few headlines, as Trump’s “black budget” request was described as the largest in history. However, as Aftergood notes, even the high FY ‘19 numbers do not include spending for “classified DoD operations and procurement.” Add now the possibility of future “modifications,” and the real answer for how big a share of national spending belongs to the intelligence community is probably “God only knows.”

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The story of openly secret budgets really began in 1949, with the passage of the Central Intelligence Agency Act. The law exempted the newly christened spy agency from public financial disclosure.

The CIA Act was a radical departure from the Constitution, which is clear about public accounting:

“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

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No one much worried over this issue until the early Seventies. That’s when a series of scandals — from botched assassination attempts abroad to the discovery of legally proscribed domestic spying programs — invited closer scrutiny of the CIA. The most famous oversight effort came in the form of Idaho Senator Frank Church’s famed 1975 committee hearings scrutinizing America’s intelligence agencies.

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Fast-forward 16 years, when, in the second year of George H.W. Bush’s presidency, Congress passed the Chief Financial Officers Act of 1990.

This new law was aimed at curbing “billions of dollars” said to be “lost each year through fraud, waste, abuse, and mismanagement” of public budgets.

It demanded that 23 major federal agencies — including the Departments of Defense, Justice, Interior and many others — designate a CFO and file regular reports.

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To create a more uniform standard for this reporting, the government created FASAB in that same year. The new “Accounting Standards” bureau was designed to help make apples-to-apples comparisons between budgets of government departments. With the passage of the CFO Act, the Pentagon was supposed to begin delivering intelligible numbers about its expenditures. It did not.

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Finally, Congress appropriated money to hire outside auditors like Ernst & Young to do the work, which was to be completed last year.

On November 15th, 2018, however, the Department of Defense failed its first audit, which was conducted by 1,200 auditors.

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That the Pentagon failed its audit was no surprise. There had already been significant hints that even the supposedly legal version of defense budgeting was an indecipherable morass.

On the day before 9/11, for instance, then-Defense Secretary Donald Rumsfeld announced that, according to some estimates, “we cannot track $2.3 trillion in transactions.” The following day’s events obviously distracted the media from that shock announcement.

  Matt Taibbi

Coincidence?

In 2015, the Office of the Inspector General found the Army alone — which had a budget of $122 billion that year — had $6.5 trillion in “yearend adjustments” they could not “adequately support.”

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2018 was to be the year when we finally got answers to questions about defense spending. Early results were not encouraging.

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Later that year, the DoD flunked its audit, and little-known FASAB quietly issued a new guidance that may make future disclosures even more remote. The new rule appears to smooth the way for permanent classification of national security expenditures.

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Most of the federal agencies solicited seemed more than happy with the idea of having the authority to “modify” their public financial disclosures. Homeland Security gave a big thumbs-up.

“DHS agrees with the Board’s overall proposed approach for protecting classified information. Classified information should be protected,” it wrote, with redundant satisfaction.

This made sense, coming from Homeland Security. Why, however, was the Department of Housing and Urban Development so thrilled? Ben Carson’s agency seemed actively pleased with the idea of allowing the government to move accounting line items from one agency to another.

“If an entity’s identification would disclose there is classified information,” HUD’s comment letter read, “it makes sense to include that organization in another entity.”

I asked assistant director of FASAB Monica Valentine if such a thing could happen under the new rule: “Could an expenditure be moved from [Department of Defense] to HUD?”

“Because of the classified nature of this topic, I will not respond to specific examples,” Valentine replied.

However, another government source told me flat out that the new rule would not involve moving line items between agencies. It’s not clear, however, how firm a line that is.

Because Ben Carson is an idiot may actually be the reason he was happy. Who knows?

Late last year, for instance, we saw an incident in which two employees of the National Reconnaissance Office and the NSA were arrested for procurement fraud in Colorado in a case involving a classified signals intelligence program. In that instance, the site turned out to be owned by the Department of Health and Human Services.

In any case, not all of the comment letters FASAB solicited last year were positive. Several expressed serious concerns. Perhaps the harshest reply came from the office of the Inspector General for the Department of Defense, which flatly disagreed with the proposed changes.

“This proposed guidance is a major shift in Federal accounting guidance,” the agency wrote. It added, “This approach would likely make the financial statements misleading to all but a select few individuals that are aware of the Interpretation.”

Yes, I think that's the point.

In plain English, the new guidance allowed federal agencies to “modify” public financial statements, with essentially a two-book system. Public statements would at best be unreliable, while the real books would be audited in “classified environment[s]” by certain designated officials.

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This new rule is not confined to a few spy agencies. It appears to allow a stunningly long list of federal agencies to make use of new authority to “modify” public financial statements.

The Treasury Department’s definition of a “component reporting entity” includes 154 different agencies and bodies, from the Smithsonian Foundation to the CIA to the SEC to the Farm Credit Administration to the Railroad Retirement Board. The notion that any of these agencies could now submit altered public financial reports under the rubric of national security is mind-boggling.

Lucky for us, there's probably not a mind left in the country that isn't already boggled.

When asked why this authority extended to so many agencies and not just those with national security mandates, FASAB replied:

“We use a standard scope paragraph in all of our standards. We have never named specific reporting entities in the scope paragraph. Also – we cannot anticipate what the name of a future entity might be. It is simply more practical to make the standards broadly applicable.”

That would be too hard. Brilliant.

In a strange twist, paragraph 8a of the new rule seems to insist that modifications may only be made if it does not “change the net results of operations.” In conversations with federal officials, this was stressed to me, that the new rule would not allow for changes to “total net cost” line items on public financial disclosures.

However, paragraph 8c of the same rule reads:

“An entity may apply Interpretations of this Statement that allow other modifications to information required by other standards, and the effect of the modifications may change the net results of operations and/or net position.”

This directly contradicts 8a, and seems to allow in some cases for changes even to total net position numbers. When asked on the record if 8c opened the door for greater changes, FASAB answered, “We cannot speculate about the changes.”

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Bluntly put, line items in public federal financial statements may now legally be, for lack of a better word — wrong.

Moreover, the state is not required to include a disclaimer telling the reader that modifications have been made.

The authoritarian regime at its finest.

“That’s what makes this so crazy. The list of agencies is so long,” says Skidmore. “If you don’t even know what’s been modified, why bother reading a summary for any of them?”

That's the next change in the guidelines: No accounting necessary.

Reached by email, Austin Fitts was pessimistic about the meaning of the new rule.

“The White House and Congress just opened a pipeline into the back of the US Treasury,” she wrote, “and announced to every private army, mercenary and thug in the world that we are open for business.”

...but hey, do what you want...you will anyway.