This Business Will Get out of Control. It Will Get out of Control and We’ll Be Lucky to Live through It.

No, I am not referring to the “Black Budget” that covers things like our spy satellites, I mean pretty much everything, up to and including the Department of Housing and Urban Development:


The only thing that did not make the news was an announcement by a little-known government body called the Federal Accounting Standards Advisory Board — FASAB — that essentially legalized secret national security spending. The new guidance, “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.

To Michigan State professor Mark Skidmore, who’s been studying discrepancies in defense expenditures for years, the new ruling ­— and the lack of public response to it — was a shock.

“From this point forward,” he says, “the federal government will keep two sets of books, one modified book for the public and one true book that is hidden.”

Steven Aftergood of the Federation of American Scientists’ Project on Government Secrecy was one of the few people across the country to pay attention to the FASAB news release. He was alarmed.

“It diminishes the credibility of all public budget documents,” he says.

I spent weeks trying to find a more harmless explanation for SFFAS 56, or at least one that did not amount to a rule that allows federal officials to fake public financial reports.


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.

When I asked FASAB who would be doing the auditing in “classified environment[s],” they answered:

“Please contact the federal entity’s Office of the Inspector General for questions pertaining to who does the auditing in a classified environment.”

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.


One thing is certain: the taxpayer who opens up a federal financial statement expecting to find correct numbers will no longer be sure of what he or she is reading. 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.


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.”

What the rule actually will mean in practice is not clear. But it’s not hard to imagine how it could be employed. A quick look in the historical rearview mirror offers more than a few hints.

The Iran-Contra affair was, at its core, an accounting issue. In it, a group of actors used proceeds of weapons sales to fund unauthorized support of Nicaraguan rebels. Money was moved from one place to another, with the public cut out of the loop.

This is in-f%$#ing-sane.

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