By John Devanny
“The revenue of the state is the state.” Edmund Burke, Reflections on the French Revolution
Washington D. C. finds itself in the midst of an entertaining, nay consuming, Kabuki theatre. The federal government has “shut down” its non-essential functions, re-opened the same, and promised to do it all over again in a few weeks, raising the question as to why it has non-essential functions at all. Mr. Mueller’s fishing expedition continues sailing along through Mr. Trump’s tweetstorms, as Democrats await the landing of the big tuna complete with waterside fish fry and impeachment. Meanwhile, the Trumpites patiently fantasize about their man turning the tables on the evil deep state by purging the temples and draining good ol’ foggy bottom. T’is all sound and fury underscoring Henry Kissinger’s view that the smaller the stakes, the more vicious the politics.
What is currently at stake is the survival of the last vestiges, really the tatters and shreds, of the old republic, and no one, neither leftists identity politics ideologues or MAGA hat wearing Trumpites are lifting even a whimper of protest, minus a few notable exceptions such as journalist Greg Hunter. What matters is 21 trillion dollars of unaccounted for spending. The story takes us back to the eve of the 9/11 attacks. Donald Rumsfeld, the Secretary of Defense, disclosed a particularly embarrassing piece of news that the Defense Department spent 2.3 trillion dollars and could not account for it. Conveniently for Rumsfeld and the DoD, some folks decided to pilot passenger jetliners into the World Trade Center’s twin towers, so the issue of the “missing money” fell to the wayside. Until, Catherine Austin Fitts, a former Assistant Secretary of Housing during Daddy Bush’s reign, claimed that around 6 trillion dollars of spending could not be accounted for in the Department of Housing and Urban Development budget. One Dr. Mark Skidmore, a professor of economics and the holder of the Morris Chair of State and Local Government Finance and Policy at Michigan State University, was sure Fitts and her researchers were incorrect. So he and a team of graduate students combed through the publicly available financial records and found that Fitts was correct. So, just for kicks, they took a look at the spending records of the DoD and found another 15 trillion of unaccounted spending. As Skidmore and his intrepid team dug deeper into the bowels of federal agencies with information requests, the Office of the Inspector General pulled the plug on all the internet links to the key documents that showed the unaccounted for spending. Eventually, the links came back up, and with a promise of an audit of spending by the DoD. Clearly, Dr. Skidmore had hit a nerve.
Various and sundry debunkers have gone into overdrive to assure us that all is well. The leading court newspaper, the Washington Post, is quite certain that this is a case of double counting or perhaps lost receipts. Other sober-minded folks have compared this to someone forgetting about the twenty-five bucks you paid an enterprising teenager to mow your lawn, or perhaps it’s like when you forget to report a meal on your expense account, or you double booked the latte at Starbucks. A few lawns, some lattes, some double booked F-35s, some uncounted $300.00 toilet seats and pretty soon we have 21 trillion dollars of unaccounted spending. The Post never produced any evidence of plugging or double booking of accounts, bless their hearts, they just took the federal government at its word.
But we really can’t take the federal government at its word. Consider Federal Accounting Standards Advisory Board (FASAB) Statement 56. According to Michele Ferri and Jonathan Luire, Statement 56 is fraught with perils for the republic.
In the absolute most simple terms, Standard 56 allows federal entities to shift amounts from line item to line item and sometimes even omit spending altogether when reporting their financials in order to avoid the potential of revealing classified information.1 However, as with all laws, nearly every word in that sentence is a complicated concept to unpack. Who counts as a federal reporting entity? When and how can these entities conceal or remove financial information from their reports? What information can be removed? When does something count as confidential, and who makes that determination? . . .
The simplest place to start with understanding Standard 56 is its scope. It applies to federal entities that issue unclassified general purpose federal financial reports (GPFFR), including where one entity is consolidated with another. This means it only applies to otherwise unclassified financial reports where there is a risk of revealing classified information; classified financial reports are their own can of worms. (see generally FASAB Statement of Federal Financial Accounting Standards 56, available at http://files.fasab.gov/pdffiles/handbook_sffas_56.pdf) Standard 56 also doesn’t remove the actual requirement to report, it just allows these entities to change their reports in ways that don’t reflect their actual spending.
Simply put, a broad interpretation of Statement 56 (When has the federal government not chosen the broad interpretation?), books can be cooked if an entity, public or private, is spending money or fiscally involved in operations that are related to national security. This renders the balance sheets and accounts of both the federal government and the corporations that do business with the government, deeply suspect at best, completely untrustworthy at worst. Most ominous, it effectively removes public spending from any meaningful oversight by the people or the representatives of the people and the states in the Congress. What is in place now is the legal architecture to support legitimize financial fraud.
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