Taibbi: Has The Government Legalized Secret Defense Spending?

Excerpted from RollingStone.com, authored by Matt Taibbi,

While a noisy Supreme Court fight captivated America last fall, an obscure federal accounting body quietly approved a system of classified money-moving...

October 4th, 2018, was a busy news day.

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.


“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.”

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


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.


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 (emphasis mine):

“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.”

The CIA Act created a blunt constitutional carve-out.

“The sums made available to the Agency may be expended without regard to the provisions of law and regulations relating to the expenditure of Government funds,” the law read. “For objects of a confidential, extraordinary, or emergency nature, such expenditures to be accounted for solely on the certificate of the Director…”

In other words, while other government agencies had to account for their expenses, the word of the CIA director was good enough when it came to what they’d spent and why.

In a few accidental disclosures in the Fifties, CIA expenses appeared as Department of Defense line items, despite the fact that the CIA is not a Defense agency.


On November 15th, 2018, however, the Department of Defense failed its first audit, which was conducted by 1,200 auditors. This was after 26 years of what Sen. Chuck Grassley (R-IA) called “hard-core foot-dragging.”

“We failed the audit, but we never expected to pass it,” Deputy Secretary of Defense Patrick Shanahan said at the time.

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.

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.”

Skidmore recalls being dumbfounded by the numbers.

“When I saw that first report from 2015, with the $6.5 trillion, I thought, ‘That’s impossible, that can’t be,’” he says.

... Outside auditors found that just one Pentagon outfit, the Defense Logistics Agency, could not account for over $800 million in construction transactions.


Despite these and other objections, on October 4th of last year, FASAB issued a news release about SFFAS 56. The text of the new rule strongly resembled the original proposal. The money quote:

This Statement permits the following

–  an entity to modify information required by other standards if the effect of the modification does not change the net results of operations or net position;

–  a component reporting entity to be excluded from one reporting entity and consolidated into another reporting entity

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.


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.


“If this authority is used to obscure those top-line numbers,” says POGO’s Smithberger, “that would suggest the potential for abuse.”


Given the government’s track record in failing to force transparency out of the Pentagon, it’s hard to have a lot of confidence answers will be forthcoming.

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

A legalized dualistic system for public financial reporting would therefore just be the latest blow to federal transparency, but it would be a big one. It would be nice to get a few answers before paying taxes into a black box becomes a permanent feature of American life...

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