A change in federal accounting rules means the government can lie on its public accounting books and lie about how much it is spending on national security operations.

On October 4, 2018, the Federal Accounting Standards Advisory Board (FASAB), a cryptic government body, released new accounting guidance that essentially legalized “secret national security spending,” as revealed in a report from Rolling Stone.

The new guidance allows government agencies to withhold information to taxpayers regarding if and when public financial documents have been modified. The guidance also allows the agencies to alter those financial statements and move line items to other lines.

What does the new ordinance permit?

The new guidance, SFFAS 56 – Classified Activities, permits the following, as summarized on fasab.gov:

• 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, and the effect of the modification may change the net results of operations and/or net position; and
• 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.

Furthermore, “SFFAS 56 balances the need for financial reports to be publicly available with the need to prevent the disclosure of classified national security information or activities in publicly issued General Purpose Federal Financial Reports (GPFFRs),” according to FASAB.

SFFAS 56 is available in its entirety here.

Two Sets of Accounting Books

Steven Aftergood, associated with the Federation of American Scientists’ Project on Government Secrecy, was alarmed at the FASAB news release.

“It diminishes the credibility of all public budget documents,” he told Rolling Stone.

Ultimately, the FASAB ordinance confuses what the public knows about the intelligence community’s spending levels. The 2019 fiscal year allocation is $21.2 billion for the Military Intelligence Program and $59.9 billion for the National Intelligence Program, totaling $81.1 billion.

Mark Skidmore, a professor at Michigan State, finds the new ruling, along with the “lack of public response to it,” a shock.

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

Why has the authority to submit financial reports under the classification of national security been granted to so many agencies, instead of only those with national security mandates?

When Rolling Stone asked FASAB who would be responsible for auditing in “classified environment[s],” they responded, “Please contact the federal entity’s Office of the Inspector General for questions pertaining to who does the auditing in a classified environment.”

The new rule appears to permit a large number of federal agencies to “modify” public financial statements, rather than just a select few agencies.

According to the Treasury Department, 154 different agencies and entities, from the Railroad Retirement Board to the Smithsonian Foundation to the CIA to the SEC to the Farm Credit Association, have the authority to alter and submit financial reports under the classification of national security.

When asked why this authority had been granted to so many entities, FASAB responded, “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.”

The bottom line is that taxpayers will no longer be sure of what they are reading when they open a federal financial statement, and the state does not have to include a disclaimer regarding modifications made.