“About 34 percent of the federal government’s reported total assets as of September 30, 2016, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2016 relate to significant federal entities that, as of the date of GAO’s audit report, were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements, or received a disclaimer of opinion on their fiscal year 2016 financial statements.” (U.S. Gov. Accountability Office, GAO-17-283R, U.S. Government’s 2016 and 2015 Consolidated Financial Statements, (2017) at forward 1, available at https://www.gao.gov/products/GAO-17-283R).

Table of Contents

I. Introduction
II. Statement and Accounts Legislation
    A. Framework Statute Exceptions
    B. Federal Financial Managers Integrity Act of 1982
    C. Chief Financial Officers Act of 1990
    D. Federal Credit Reform Act of 1990
    E. Government Performance and Results Act
    F. Government Management Reform Act
    G. Federal Financial Management Improvement Act of 1996
III. Statement and Accounts Shenanigans
    A. Agencies Failure to Report
    B. Missing Money
IV. The Black Budget
V. Conclusion
VI. About Us

January 23, 2018

I. Introduction

The Statements and Accounts Clause of the Constitution is the Founders’ attempt to ensure the financial transparency of the government (The Heritage Guide to the Constitution: Appropriations Clause, available at http://www.heritage.org/constitution/#!/articles/1/essays/67/appropriations-clause). As a very basic summary of the constitutional requirement, the Clause requires the government to provide a detailed account of all the money it spends from time to time (see id.). It also requires all money spent to be approved by Congress. The thought was that a government that could spend without any accountability is antithetical to a true democracy as that is a government not beholden to the people (see id.). The application of the Statements and Accounts Clause has generally been left in the hands of Congress. The courts have established that Congress may adopt “any reporting and accounting [Congress] considers appropriate in the public interest” (United States v. Richardson, 418 U.S. 166 (1974)).

Unfortunately, Congress has chosen to treat its power as an afterthought–only really bringing up the accounting requirements of the Constitution when politically convenient. What’s more, while the Clause was originally contemplated as a Congressional check on the Executive–allowing Congress to oversee and approve Executive spending–Congress has delegated a great deal of its constitutional powers to the very Executive branch the powers were meant to check. (See The Appropriations Clause: A History of the Constitution’s (As of Yet) Underused Clause, available at https://constitution.solari.com/the-appropriations-clause-a-history-of-the-constitutions-as-of-yet-underused-clause/#ch10.)

As it is, the current accounting practices of the U.S. government fall far short of the Founders’ goals of creating financial transparency for the public. A 2008 study showed that only 5% of U.S. citizens feel like they are provided sufficient information on the financial status of the government; the number has only marginally increased in a 2010 version of the study (Public Attitudes Towards Government Accountability and Transparency 2010 at p. 2, available at http://global.oup.com/us/companion.websites/9780199859214/student/chapter3/pdf/accountability.pdf). This is for good reason. The accounting practices of the government have serious issues with them. Lack of uniformity makes them often incomprehensible; inconsistencies in reporting certain matters or on government corporations such as Fannie Mae or Freddie Mac, long delays in reporting, and more leave the reports the government does provide pursuant to the Statements and Accounts Clause of the Constitution far from useful to a member of the public seeking financial transparency. Fannie Mae, Freddie Mac, and the Federal Reserve are all notable as exceptions to reporting requirements within the Government Accountability Office’s (the GAO, a congressional accounting and accountability agency) consolidated financial statements of the U.S. government. (See Financial Audit: Fiscal Years 2016 and 2015 Consolidated Financial Statements of the U.S. Government at p. 13, available at https://www.gao.gov/assets/690/682081.pdf). The GAO can audit these entities, but does not include them in the financial reports it provides to the public (see id.). Over 30 years of non-compliance on the part of many government agencies, and every agency non-compliant to some degree or another for at least a decade, have not helped the matter. As of today, the Department of Defense and the Department of Housing and Urban Development have over $21 trillion (that’s trillion with a very big “T”) in undocumented expenditures they’ve provided to the public just between the years of 1998 and 2015 (DoD and HUD Missing Money: Supporting Documentation, available at https://missingmoney.solari.com/dod-and-hud-missing-money-supporting-documentation/). This is more money unaccounted for than the current national debt in just the span of 17 years and only taking two executive agencies into consideration.

All this being said, Congress has not totally ignored the responsibilities of the Statement and Account Clause. There have been a number of statutes passed over the years that have expanded or limited the accounting requirements created by the Clause, attempting to make government financial reports a more useful and comprehensible tool. Unfortunately, these efforts have been plagued with a constant lack of enforcement mechanisms and a near total lack of follow-through on behalf of the government agencies the reporting requirements apply to. We’ll be taking a look in this article at the most impactful of these statutory changes and the decades of failures on the part of government agencies to comply with these statutes. It is worth noting that the statutes on this topic could fill a textbook, thus we have chosen several of the most impactful to focus on as they illustrate an ongoing trend in government financial reporting legislation.The general provisions, and issues with the Statements and Accounts Clause have been discussed in depth in a previous article available through The Solari Report. (see The Appropriations Clause: A History of the Constitution’s (As of Yet) Underused Clause, available at https://constitution.solari.com/the-appropriations-clause-a-history-of-the-constitutions-as-of-yet-underused-clause/#ch10). With that in mind, we will be addressing the Clause, as well as some of the more important elements of the previous article, in only a cursory manner.

II. Statement and Accounts Legislation

While we discussed a historical overview of statement and accounts legislation previously, the last two decades or so have seen a multitude of newer Acts intended to create and enforce accounting and reporting requirements on the federal government. These Acts, while well intentioned, have had varied success in enforcing Congress’s will and the requirements of the Constitution. We will discuss a few of the relevant Acts below.


A. Framework Statute Exceptions

As we mentioned previously, Congress enacted various framework statutes, such as the Miscellaneous Receipts Statute (31 U.S.C. § 3302, enacted in 1849, amended in 1982, requiring money given to the federal government to be placed in the Treasury), and the Anti-Deficiency Act (31 U.S.C. § 1341, enacted in 1884, amended in 1950, prohibiting federal agencies from spending money in excess of appropriations). However, these framework Acts have certain exceptions Congress later legislated into existence.

For instance, the Miscellaneous Receipts Statute has three categories of exceptions: collections, revolving funds, and gift authority (Kate Stith, Congress’ Power of the Purse, Jan 1, 1988 at 1366). Agencies with collections exceptions may keep some of the funds they collect (i.e., for permits, filing fees, and the like) instead of being required to deposit those funds in the Treasury (id.). Revolving funds take it a step further. While they are initially funded by an appropriation, the income from whatever activity the agency undertakes generally provides the necessary funding after (id. at 1366-7). Finally, gift authority allows an agency to receive a gift from a private entity and use it without first depositing the gift into the Treasury (id.).


B. Federal Financial Managers Integrity Act of 1982

In the early ’80s, efforts began to try and turn the Statements and Accounts Clause reporting into something more useful which would actually provide the transparency to the public that was the goal of the Constitution. In 1982, the Federal Financial Managers Integrity Act was passed as an amendment to the Accounting and Auditing Act of 1950 with an aim of placing stricter requirements on government financial reporting as well as creating a means by which to see whether agencies were following these requirements. (See Pub.L. 97-255, available at https://www.congress.gov/bill/97th-congress/house-bill/1526).

First and foremost, the Act required the Comptroller General (the director of the GAO) and the Office of Management and Budget (OMB) to create minimum guidelines for internal accounting at the executive agencies. These requirements were meant to ensure that the accounting measures followed applicable laws, safeguarded against waste, loss, or spending without a Congressional appropriation, and properly recorded revenues and expenditures so as to maintain accountability for all assets (id.).

Once these requirements were in place, the heads of each agency were required to prepare a statement every year saying whether or not their accounting practices were compliant with the requirements of the Comptroller and the OMB. Where they did not comply, the agencies had to produce an additional report identifying their weaknesses and plans to fix those weaknesses. These reports were all made available to the public, with the exception of disclosures prohibited by law or where it is kept secret by executive order for foreign policy or national security purposes (id.).

These steps, as well as the accounting requirements released by the Comptroller and the OMB, did make steps forward in improving the quality of government financial reporting and helped bring it in line with the vision of the Statement and Accounts Clause. However, the law still had some serious weaknesses. First, it did not include a reporting requirement for government corporations. This created an enormous reporting loophole. Second, there was an issue you may have already noticed–no real enforcement mechanism (see id.).

As mentioned in our last article, the courts are very hesitant to entertain lawsuits regarding the Statements and Accounts Clause–whether from taxpayers or from Congress itself. (See The Appropriations Clause: A History of the Constitution’s (As of Yet) Underused Clause, available at https://constitution.solari.com/the-appropriations-clause-a-history-of-the-constitutions-as-of-yet-underused-clause/#ch10) (citing Bob Smith and Sarah Miller, The Constitutionality of Executive Spending Powers at p. 32, available at http://www.law.harvard.edu/faculty/hjackson/ConstitutionalityOfExecutive_38.pdf).) The Act itself here has no carrot or stick associated with it to ensure that agencies have complied with provisions beyond the inconvenience of producing a report as to their financial weaknesses (see Pub.L. 97-255, available at https://www.congress.gov/bill/97th-congress/house-bill/1526).

This led to something we will see to be a trend in laws on government financial reporting, a law in place which executive agencies felt free to essentially ignore. (See Fiscal Years 2016 and 2015 Consolidated Financial Statements of the U.S. Government at p. 1, available at https://www.gao.gov/products/GAO-15-341R.)


C. Chief Financial Officers Act of 1990

The Chief Financial Officers Act (CFO Act), enacted in 1990, represented a move by Congress to try and make government accounting practices more uniform, comprehensible, and useful (see Pub.L. 101-576, available at https://www.gpo.gov/fdsys/pkg/STATUTE-104/pdf/STATUTE-104-Pg2838.pdf). As an initial step, the CFO Act required 24 covered U.S. agencies1 to create and staff a Chief Financial Officers office. This office would coordinate on budget reporting with the Office of Management and Budget (OMB) in the hopes of establishing groundwork for more comprehensive accounting practices (id.).

The Act also put greater onus on the OMB to bring government accounting practices into the 20th century, requiring development of a five year plan to shore up the gaping holes in the statements and accounts of government agencies such as the Department of Defense (DoD) and the Department of Housing and Urban Development (HUD). To this end, the Act created a Deputy Director for Management within the OMB to coordinate with the agency CFOs and create guidelines for how they must behave. It also created a new position known as the Controller of the Office of Federal Financial Management, appointed by the President and confirmed by the Senate, to aid in this endeavor. The OMB also must annually submit an evaluation to Congress of how the executive agencies and government corporations–Fannie Mae, Freddie Mac, and PBS, for example–are doing when it comes to financial reporting (see id.).

Under the Act, the individual agency CFOs are responsible for preparing financial statements for regular audit in order to ensure accuracy in accounting. The CFOs also were tasked by the Act with integrating accounting and budget information into a form consistent with those used to make budgets, put together a uniform financial management system for their agency, and–perhaps most importantly–make sure that the system they put together allowed for actual useful measurement of the financial performance of the CFO’s agency. Government corporations are additionally required to independently put together an annual report on their internal accounting in compliance with reporting requirements such as those in the Federal Managers Financial Integrity Act. These reports are required no later than 180 days after the end of the fiscal year. The CFO reports similarly need to be compliant with the requirements of these sorts of laws but also must comply with internal control standards from the OMB, accounting principles and standards to ensure uniformity and quality, and other requirements out of the OMB and the Department of the Treasury. They must also be complete, uniform, reliable, consistent, and timely (see The Chief Financial Officers Act: A Mandate for Federal Financial Management Reform, available at https://www.gao.gov/special.pubs/af12194.pdf).

These are some great ideas; they had the potential to change the way government accounting was done and truly live up to the goals of the Statement and Accounts Clause of the Constitution. However, the requirements have been largely ignored for years–both agencies and government corporations habitually do not make CFO Act compliant reports (see Fiscal Years 2016 and 2015 Consolidated Financial Statements of the U.S. Government at p. 1, available at https://www.gao.gov/products/GAO-15-341R). As we will discuss further, the DoD has never once successfully made a CFO compliant accounting in the nearly 30 years since the law was passed.


D. Federal Credit Reform Act of 1990

Continuing a trend towards government financial responsibility in 1990, Congress also passed the Federal Credit Reform Act (FCRA, although not to be confused with the Federal Credit Reporting Act). (See Pub.L. 101-508,available at https://www.fiscal.treasury.gov/files/ussgl/fcra.pdf.) This Act was designed to improve accounting practices and functionality when it came to Federal credit programs (see Credit Reform Accounting, available at https://www.fiscal.treasury.gov/files/ussgl/fcra.pdf). The FCRA came in the wake of the savings & loan (S&L) crisis of the 1980s–a financial catastrophe where a combination of increased discount rates rendering an enormous number of savings and loan companies insolvent and the lack of regulation allowing these insolvent companies to turn to very risky investing practices such as junk bonds led to over a thousand savings and loan companies going under–and the housing bubble that came along with it (Black, William K., The Best Way to Rob a Bank Is to Own One (2005) at pp. 64-65). This meant that the FCRA was designed to prevent a similar housing crisis in the future.

Part of the issue that created the S&L crisis was that the Federal government did not have to report or account for its own loan loss reserves the way a normal lender would. When loans are made, normally a loan loss reserve is set up to cover loan losses up to a certain percent of the lender’s loan portfolio. Before the FCRA, the government simply didn’t have to do this. They didn’t appropriate funds for losses or even report them–exclusively reporting the gains from these loans. The FCRA, coupled with the Financial Institutions Reform, Recovery, and Enforcement Act from the year before in 1989, took steps to change these reporting practices, require appropriations from Congress for Federal loan losses, and limit the types of securities the Federal government could deal in (see Pub.L. 101-508 and Pub.L. 101-73, available at http://legisworks.org/GPO/STATUTE-103-Pg183.pdf).

The FCRA also moved credit program reporting to an accrual basis style of accounting. This meant that revenues were reported when cash was actually received and expenses accounted for immediately as the expenses are incurred as opposed to when they are actually paid (see Pub.L. 101-508). This was important for a number of reasons. First and foremost it created uniformity; where some accounting is on an accrual basis and other on a cash basis within a single government, it makes it nearly impossible to meaningfully interpret financial records. The accrual accounting method also has the advantage of preventing a situation where the government can act on a project or undertaking without full knowledge of the costs associated with it. It’s worth noting that this was not a general adoption of accrual accounting for all of the U.S. government. Instead, it exclusively adopted it for Federal credit programs. As of the publication of this article, the U.S. government has still not adopted a uniform accounting method–accrual or otherwise–and still suffers from the accounting issues discussed above.

The Act also required the President’s budget to incorporate and report on the costs of direct loan and loan guarantee programs. The budget also needs to forecast potential obligations from new loans in the upcoming year in order to better predict Congressional appropriations as well as update estimates as new information becomes available (see id.). What’s more, the Act clarifies that no Federal credit program can move forward without an existing appropriation from Congress every year (see id.).

The exceptions to this are for student loans and veterans’ home loans, which are subject to essentially unlimited appropriations–an Appropriations Clause issue unto itself as we discussed in the last article. (See The Appropriations Clause: A History of the Constitution’s (As of Yet) Underused Clause, available at https://constitution.solari.com/the-appropriations-clause-a-history-of-the-constitutions-as-of-yet-underused-clause/#ch10) (citing Principles of Federal Appropriations Law: Fourth Edition, Chapter 2, at p. 13, available at https://www.gao.gov/assets/680/675709.pdf).) This was not the only or most extreme Appropriations overreach of the FCRA. It also provided an appropriation authorization in the future for any amount necessary for a Federal agency to pay any cost on associated with a Federal loan or on their own salaries (see Pub.L. 101-508). This may be understandable from a logistical standpoint but, from an Appropriations Clause standpoint, it essentially was an example of Congress delegating away its check on the Executive branch by writing a blank check. This is especially concerning given that outstanding Federal loans stand in the trillions of dollars (Understanding Fair Value Accounting, available at http://www.crfb.org/blogs/understanding-fair-value-accounting).


E. Government Performance and Results Act

The Government Performance and Results Act (GPRA) was enacted in 1993, and was intended to resolve longstanding management problems and improve transparency (U.S. Gov. Accountability Office, GAO-04-38, Results-Oriented Government: GPRA Has Established a Solid Foundation for Achieving Greater Results, (2004) at p. 4, available at https://www.gao.gov/new.items/d0438.pdf). The GPRA required executive agencies to develop strategic plans every 3 years, annual performance plans, and report annually on their plans’ progress (id. at 5). The strategic plans require agencies to consult with Congress and “define their missions, establish results-oriented goals, and identify the strategies that will be needed to achieve those goals” (id.). The annual performance plans and reports then implement the 3 year strategic plans. The OMB is then responsible for “[ensuring] that agency plans and reports are consistent with the President’s budget and administration policies” (id.).

In 2004 the GAO released a somewhat optimistic report summarizing the progress under the GPRA, and what the agency learned so far. The report concluded the GPRA “laid a solid foundation of results-oriented agency planning, measurement, and reporting” for improving federal program effectiveness (id. at 6). However, the report also acknowledged that “[w]hile a great deal of progress has been made in making federal agencies more results oriented, numerous challenges still exist” (id.). One of the critical issues, as one might expect, was a lack of “top leadership commitment and sustained attention to achieving results” both at the agencies in question and the OMB itself (id.).

The law was later updated by the GPRA Modernization Act of 2010, which overhauled the GPRA and addressed some key issues. Strategic plans are now required every 4 years and can be modified after significant changes in operating circumstances (in line with presidential terms) (Kamensky, John, GPRA Modernization Act of 2010 Explained, (2011) at p. 2, available at https://www.scribd.com/document/47464749/GPRA-Modernization-Act-of-2010-Explained). Congressional consultation regarding strategic plans must occur every 2 years, and agencies need to consult periodically with their respective authorizing, appropriations, and oversight committees (id.). Annual plans now have to cover a two year period, and agencies must include additional information on how they plan to achieve their strategic goals (id. at 3).

Furthermore, the Act adds a new “review and respond” process on the OMB’s side, with scaling responses based on if agency goals remain unmet for 1, 2, or 3 years (id. at 2-3). If agency goals remain unmet for 1 year, the agency must submit a plan to improve performance and put a senior official in charge of the improvement plan (id. at 4). If the agency fails for 2 years, the agency must report to Congress with a plan to improve performance, and a list of the necessary funding reprogramming and/or transfers necessary to undertake the plan (id.). If the agency fails for 3 years in a row, they must report to Congress with (1) reauthorization proposals for each underperforming activity, (2) proposed statutory changes, and (3) planned executive actions, program terminations, or budget reductions (id.).

The updated Act also requires the OMB to consult with Congress and submit a variety of government wide annual performance plans with each budget. As part of their performance plans, they need to develop federal priority goals, and coordinate with agency priority goals in order to “improve performance and management across the federal government” (id. at 5). The OMB is also required to generate quarterly reports on their government wide coordination efforts (id.).

Agencies are currently more or less making an effort to comply with the new requirements, although there are some difficulties (U.S. Gov. Accountability Office, GAO-16-510, Managing for Results: Agencies Need to Fully Identify and Report Major Management Challenges and Actions to Resolve them in their Agency Performance Plans, (2016), available at https://www.gao.gov/products/GAO-16-510). The GAO found “that 14 of 24 agencies reviewed did not describe their major management challenges in their [agency performance plans] as required” (id.). Even though many of those have since implemented or at least addressed the GAO recommendations, there are some stragglers. In particular, the Departments of the Treasury, Defense, Agriculture, and Commerce have done nothing as of 2017 (id.).


F. Government Management Reform Act

In 1994, the Government Management Reform Act (GMRA) was signed into law by former-President Bill Clinton (see Pub.L 103-356, available at https://www.usaid.gov/sites/default/files/documents/1868/5401a5.pdf). This represented yet another step towards improving the financial reporting practices of the executive agencies. It called for annual audited financial statements from all CFO Act agencies moving forward, as well as an audit of the overarching financials done annually by the GAO. The required reports must include a discussion of the overall financial position of the offices, activities, and projects of each agency as well as the results of their operations. These reports are made available to the public. The GMRA also moved up the annual due dates of these reports and provided a more comprehensive time table of due dates for these reports with the hopes of improving the efficiency of the reporting process (see id.). These audit requirements were expanded even further in a 2002 amendment known as the Accountability of Tax Dollars Act (see Pub.L. 107-289, available at https://www.congress.gov/107/plaws/publ289/PLAW-107publ289.pdf).

The audit provisions of the GMRA have received some criticism. A 2008 study found the majority of people saying that these audits were extremely expensive and weren’t providing substantial useful information either to the public or those making decisions in government. The numbers from the public were especially bad, with only 5% of U.S. citizens saying that they felt they were receiving enough information on the financial activity of the government (see Public Attitudes Towards Government Accountability and Transparency 2010 at p. 2, available at http://global.oup.com/us/companion.websites/9780199859214/student/chapter3/pdf/accountability.pdf). This isn’t altogether surprising; even with the additional steps in the GMRA, compliance on the part of executive agencies has been fairly abysmal. We’ll discuss further the trillions in unreported government spending later in this article, but suffice it to say the sharpest sword is useless if nobody ever takes it out of its sheath.

This being said, the GMRA has had an impact on the efficiency of agencies specifically dedicated to reporting, such as the OMB, the Department of the Treasury, and the GAO. For example, the Department of the Treasury has taken the time it takes to prepare financial statements from six months to around two and half–streamlining its practices and improving the quality of its opinions (Jeffrey Steinhoff & Robert Dacey, The Government Management and Reform Act of 1994: A Retrospective of Achievements and Remaining Challenges and a Look to the Future, at p. 1, available at https://www.kpmg-institutes.com/content/dam/kpmg/governmentinstitute/pdf/archive/gmra-retrospective.pdf).


G. Federal Financial Management Improvement Act of 1996

As we’ve seen, attempt after attempt was made over time to pass acts improving the financial reporting of executive agencies. However, these efforts were largely discouraged by agencies simply failing to follow through on the requirements the above acts created and a lack of enforcement mechanisms–legislative or judicial–to bring them in line. The Federal Financial Management Improvement Act of 1996 (FFMIA) immediately recognized this unfortunate state of affairs in the very text of the Act–criticizing the fact that, true to the name of the Act, federal financials had long been MIA (see Pub.L. 104-208, available at https://www.congress.gov/bill/97th-congress/house-bill/1526).

The very beginning of the Act noted the many Acts that had been passed in recent years and the efforts made to improve Federal accounting but noted that:

“Federal accounting standards [had] not been uniformly implemented in financial management systems for agencies…[and] Federal financial management continues to be seriously deficient. Federal financial management and fiscal practices had failed to…identify costs fully; reflect the total liabilities of congressional actions; [or] accurately report the financial condition of the Federal Government. (3) Current Federal accounting practices [have] not accurately report[ed] financial results of the Federal Government or the full costs of programs and activities. The continued use of these practices undermines the Government’s ability to provide credible and reliable financial data and encourages already widespread Government waste, and will not assist in achieving a balanced budget.” (id.).

They further noted the sheer breadth of waste and inefficiency, how this undermined the faith of the public, and the need to improve accounting practices in order to restore public faith (id.). With this in mind, the FFMIA set out with the noble goal of once again imposing stricter reporting standards on government agencies, creating uniform reporting standards for the U.S. Government, and making this financial information available to the public as required by the Statements and Accounts Clause of the Constitution.

The FFMIA set out with the goal of complementing and enhancing the Acts we’ve already discussed; thus it mostly just enhanced already existing reporting requirements. Agencies were required to give more thorough audited reports and explanations of how and why they failed to fulfill reporting requirements, and the actions they would be taking to fix this fact (see id.). This report on agency failings would be followed up with a remediation plan which would bring them in compliance with reporting requirements within 3 years. However, once again, the FFMIA included no repercussions or follow-up elements for continued failure to comply with the government’s own self-imposed reporting requirements (see id.).

With this in mind, having read the rest of this article, and given that we are still writing this article two decades after this Act was passed, you can likely predict the long-term effectiveness of the FFMIA. Once again, despite excellent steps to lay a groundwork of government financial responsibility, without enforcement mechanisms or enforcement actions, government agencies continued to fail to comply with financial reporting laws and procedures year after year (U.S. Gov. Accountability Office, GAO-17-283R, U.S. Government’s 2016 and 2015 Consolidated Financial Statements, (2017) at forward 1). This has been a continuing issue through the present (see id.).


H. The Federal Funding Accountability and Transparency Act of 2006 and the Digital Accountability and Transparency Act of 2014

The Federal Funding Accountability and Transparency Act of 2006 (FFATA), and its 2008 amendment were intended to foster transparency by creating a single searchable site, open to the public, that contains comprehensive information on each federal award, from amount and transaction type to the receiving entity’s name and location (U.S. Senate, Senate Report 113–139, Digital Accountability and Transparency Act of 2013 Report, (2014), available at https://www.congress.gov/113/crpt/srpt139/CRPT-113srpt139.pdf). This information was hosted on USASpending.gov (available at https://www.usaspending.gov/Pages/Default.aspx), but the site was plagued with issues, not the least of which was the accuracy and completeness of the contained data.

These issues led to the passage of the Digital Accountability and Transparency Act (DATA), which was enacted in 2014, expanding on the existing FFATA, and integrating the reporting requirements of the CFO Act and the American Recovery and Reinvestment Act of 2009 (ARRA), a recession stimulus package. (See DATA Foundation, The DATA Act: Vision & Value, (2016) available at http://www.datafoundation.org/data-act-vision-and-value-report/). The goal of the DATA is to fix issues on USASpending.gov and “expand current requirements to publish Federal spending information online… mandate that the information appear in a form that is both easily searchable and downloadable, make uniform the manner in which agencies provide such data for online posting, and require audit[s] and report[s] on agency compliance…” (Digital Accountability and Transparency Act of 2013 Report).

Under the expanded requirements of DATA, agencies are in theory required to post information about their budget, including funds spent, funds remaining to be spent, and funds reprogrammed or transferred, in a form that can be downloaded in bulk (id. at 4). Where practicable, agencies are supposed to provide location data regarding where the funds are spent as well (id.). Reporting of standardized agency budget data began in May of 2017, and the data are supposed to be published on USASpending in May 2018 (The DATA Act: Vision & Value, Figure 1).

Furthermore, the DATA mandates improved data accuracy. To that end, the Act requires audits of the data submitted by agencies (Digital Accountability and Transparency Act of 2013 Report, at pp. 5-6). Previous audits from before DATA was enacted showed significant discrepancies between the reports of federal agencies and the data that eventually made it to the public website (id.).

The current form of USASpending.gov is in a transitory state while DATA is being implemented, but shows a great deal of promise. Its spending map (available at https://www.usaspending.gov/transparency/Pages/SpendingMap.aspx) is filterable by amount, agency, grant type, state, county, zip code, and spending district. Currently, the site only covers FFATA information,2 but a beta version of USASpending already contains some agency budget data (available at https://beta.usaspending.gov/). It’s a promising work in progress, and we hope to have more information on the implementation of DATA in the latter half of 2018.

However, while the DATA has largely been successful and on schedule so far (The DATA Act: Vision & Value), with proponents being optimistic as to future developments (DATA Foundation, DATA Act 2022: Changing Technology, Changing Culture, (2017) available at http://www.datafoundation.org/data-act-2022/), there have been some hiccups. For instance, as is a recurring theme of this article, the Department of Defense Office of the Inspector General reported the Department of Defense was not in compliance with the reporting requirements of DATA in the fiscal year of 2017 (U.S. Department of Defense Office of Inspector General, DODIG-2018-020, DoD Compliance With the Digital Accountability and Transparency Act of 2014, (2017) available at http://www.dodig.mil/reports.html/Article/1365972/dod-compliance-with-the-digital-accountability-and-transparency-act-of-2014/).

III. Statement and Accounts Shenanigans

There are two main (and often interchangeable) issues that plague the various reporting statutes we discussed. First, there are still inconsistencies in the accounting systems of various federal agencies. For instance, while the DoD has contemplated using accrual basis accounting in the past, it ultimately failed to implement the changes despite the benefits accrual basis accounting brought other parts of the federal government (Christopher H. Hanks, Financial Accountability at the DoD: Reviewing the Bidding, Defense A R Journal (2009) available at https://www.thefreelibrary.com/Financial+accountability+at+the+DoD%3A+reviewing+the+bidding.-a0205637486). Second, various agencies fail to comply with the reporting requirements required by law. This is often due to inconsistent accounting practices (like the DoD) or lack of sufficient commitment or direction from agency leadership.


A. Agencies’ Failure to Report

As noted multiple times above, various agencies have failed to comply with many of the reporting requirements of the discussed Acts. It is somewhat disturbing to note that the GAO reports:

“About 34 percent of the federal government’s reported total assets as of September 30, 2016, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2016 relate to significant federal entities that, as of the date of GAO’s audit report, were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements, or received a disclaimer of opinion on their fiscal year 2016 financial statements.” (U.S. Gov. Accountability Office, GAO-17-283R, U.S. Government’s 2016 and 2015 Consolidated Financial Statements, (2017) at forward 1, available at https://www.gao.gov/products/GAO-17-283R).

In the fiscal year of 2015, 12 out of the 24 CFO reporting agencies did not comply with FFMIA requirements, with a similar circumstance the next year (id. at 247). In 2016, 9 out of 21 agencies were noncompliant, and three failed to report by the time the consolidated financial statement was published: the DoD, HUD, and NSF (id.).

Some are more egregious than others, and none are quite as persistent or flagrant as the Department of Defense. The DoD has yet to achieve compliance with the CFO Act, let alone many of the subsequent reporting or transparency acts (Financial Accountability at the DoD: Reviewing the Bidding). As of January 2017, the GAO has reiterated this problem, describing “serious financial management problems at the Department of Defense (DOD) that prevented its financial statements from being auditable” and stating that DOD “has consistently been unable to receive an audit opinion on its financial statements in the past” (U.S. Government’s 2016 and 2015 Consolidated Financial Statements, at forward 3). A bipartisan bill was introduced to add enforcement “teeth” to the DoD’s reporting duties in 2015, but it died in committee, with no action taken since February 2015 (Audit the Pentagon Act of 2015, available at https://www.congress.gov/bill/114th-congress/senate-bill/327/related-bills).

HUD has its own reporting problems, on a smaller scale but no less flagrant than the DoD. The GAO report, when explaining why substantial sections of the report were not accurate or reliable, noted that several agencies did not report anything regarding improper payment amounts for high risk programs, including “[HUD’s] Single Family Insurance Claims, HUD’s Community Planning and Development Entitlement Grants, [and] HUD’s HOME Investments Program” (U.S. Government’s 2016 and 2015 Consolidated Financial Statements, at 263, footnote 57). Likewise, HUD has failed to comply with GPRA Modernization Act reporting requirements (U.S. Gov. Accountability Office, GAO-16-497, Department of Housing and Urban Development: Actions Needed to Incorporate Key Practices into Management Functions and Program Oversight, (2016) available at https://www.gao.gov/assets/680/678551.pdf).


B. Missing Money

These issues we’ve discussed aren’t simply issues of transparency and accountability, or efficiency. The sheer disorder has left rather prodigiously large sums of money missing (Solari Report, The Missing Money, available at https://missingmoney.solari.com/). As we mentioned above, some accounts hold this undocumented missing money at over $21 trillion dollars, exceeding even the national debt (id.).

One of the ways such “missing money” shows up is as journal voucher adjustments. The Under Secretary of Defense (Comptroller)/Chief Financial Officer defines journal vouchers as “summary-level accounting adjustments made when balances between systems cannot be reconciled. Often these journal vouchers are unsupported, meaning they lack supporting documentation…having too many journal vouchers may be an indicator of underlying problems, such as weak internal controls. For an auditor, journal vouchers are a red-flag for transactions not being captured, reported, or summarized correctly.” (See U.S. Dept. of Defense, Financial Improvement and Audit Readiness (FIAR) Plan Status Report ES-11, (2015) available at http://comptroller.defense.gov/Portals/45/documents/fiar/FIAR_Plan_May_2015.pdf.) One result of having systemic journal vouchers is an inability to audit the books properly, as is often the case with DoD accounting reporting.

For instance, in the fiscal year of 2015, the DoD Inspector General found the Army “did not adequately support $2.8 trillion in [journal voucher] adjustments for third quarter and $6.5 trillion in JV adjustments for yearend” (U.S. Department of Defense, DODIG-2016-113, Army General Fund Adjustments Not Adequately Documented or Supported (2016), at p. 5, available at https://media.defense.gov/2016/Jul/26/2001714261/-1/-1/1/DODIG-2016-113.pdf).

IV. The Black Budget

All the issues we’ve discussed so far occur more or less in the public eye (if not the public attention). However, there are situations where both the appropriations discussed in the last article and the reporting requirements discussed in this one come together into one extremely constitutionally problematic issue. There are some subjects in which the government exempts monies from both the constitutional requirements of a congressional appropriation and the need to report the use of that money to the public.

One such situation is the Exchange Stabilization Fund, or ESF, created by the Gold Reserve Act of 1934 (31 U.S. Code § 5117, available at https://www.law.cornell.edu/uscode/text/31/5117). The ESF was originally created as a tool to allow the U.S. to enact foreign exchange interventions and impact the exchange rates of U.S. and foreign currency. However, with 94.77B in its coffers (U.S. Dept. of the Treasury, OIG-18-021, Audit of the Exchange Stabilization Fund’s Fiscal Years 2017 and 2016 Financial Statements, available at https://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/OIG-18-021.pdf), it is a funding tool solely under the control of an executive agency—the United States Treasury Department. It requires no appropriations to use, and has no reporting requirement whatsoever3 to keep the public abreast of what is done with about as much money as the net worth of Jeff Bezos. This is obviously problematic; not only is it fundamentally misaligned with the goals of the Constitution, the complete lack of transparency on this much money obviously creates the potential for incompetence, malfeasance, or mismanagement.

The Solari Report has covered the topic of the ESF, and potential issues with the Fund, in the past. However, what has not yet been discussed is the holes punched through appropriations and reporting requirements with legislation such as the NSA Act (50 U.S.C. § 401, enacted in 1947) and the CIA Act (50 U.S.C. § 403, enacted in 1949)–the Black Budget. There is obviously some need for confidentiality in covert operations, otherwise they’d call them overt operations. However, Congress has left an enormous amount of leeway for the unappropriated spending of unreported funds with very little in the way of a check Congress can place on what happens with these funds. This is an issue that overlaps with the problems discussed in both this and our last article—executive overreach and agency failure to comply with reporting requirements. In the coming weeks, expect a larger article discussing the issue of the Black Budget more fully.

V. Conclusion

The Founders of this country envisioned a government accountable to its people. The Statement and Accounts Clause of the Constitution is one of the very few that had nearly no debate whatsoever–there were no objections whatsoever to the reporting requirements, only their frequency. Constitutional Framer James McHenry explained the lack of debate, saying, “the People who give their Money ought to know in what manner it is expended.” This requires complete and comprehensible reporting from the government.

To its credit, Congress has certainly made many attempts to legislate reporting requirements that will make financial information of a type useful to understanding the actions of the U.S. government available to the public. However, their failure to enforce these legislative efforts have left us where we are today—with decades of non-compliance and financial reporting so non-uniform as to often be useless to the public. Government entities such as the GAO have long worked to change this; however, there is a notable lack of commitment on the part of government agencies to address their fundamental financial failings despite the guidance and prodding of the GAO and others.

This is something that needs to change. Not only does the public have a Constitutional right to know how and where its money is used, there is a fundamental danger in removing financial transparency from a government meant to serve its people. If you gave an investment advisor your money and they disappeared with it never to talk to you again about what they were doing with it, you’d certainly have concerns. The government should not be held to a different standard.

As we’ve discussed in our previous article, this is an issue unlikely to be settled in the courts (see The Appropriations Clause: A History of the Constitution’s (As of Yet) Underused Clause , available at https://constitution.solari.com/the-appropriations-clause-a-history-of-the-constitutions-as-of-yet-underused-clause/#ch10). The power to determine appropriate reporting lies nearly entirely in the hands of Congress, as does the power to enforce those reporting standards. As of now, the standards are there, but they are ignored and not enforced. If this is going to change, it will almost certainly take a broader political movement, from Congress or otherwise, to do it.

James Madison noted in The Federalist Papers that the “power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people” (Federalist No. 58, available at http://www.foundingfathers.info/federalistpapers/fedindex.htm). Without knowing how money is used by the government, the power of the purse is a weapon incapable of being used with precision and left for the public to wield blindfolded.

The state of federal financial reporting has left more money unaccounted for than the entire national debt, and that is an issue that affects every person and every local government. While Congress is slowly making efforts to improve reporting standards, those efforts are patchwork and often ignored. Ultimately, Congress is an extension of the people, which is why the Founding Fathers gave them the powers of the purse in the first place. It is the people’s responsibility to hold their direct representative in the federal government responsible. Congress can be held accountable at the polls, and can be pressured by discussion at the local government level. The more pressure put on your Congressman, through calls, letters, local government, or at the polls, the more likely Congress and the government will take more decisive action. The fiscal accountability of the U.S. government is, ultimately, in the hands of the people.

VI. About Us

This article was written and edited by Michele Ferri and Jonathan Lurie of The Law Offices of Lurie and Ferri for use by The Solari Report. Michele Ferri and Jonathan Lurie are both practicing attorneys out of California. The Law Offices of Lurie and Ferri focus on working with start-up businesses as well as on intellectual property and business law issues. They can be found at http://www.lflawoffices.com/ or contacted at partners@lflawoffices.com.

1. The reporting agencies are: The Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, Veterans Affairs, the Environmental Protection Agency, the General Services Administration, the National Aeronautics and Space Administration, the National Science Foundation, the Office of Personnel Management, the Small Business Administration, the Social Security Administration, the U.S. Agency for International Development, and the U.S. Nuclear Regulatory Commission.

2. According to the USASpending site, its data currently covers:

“All prime recipient contract transactions more than $3,000.
All grant, loan, and other financial assistance transactions of more than $25,000.
First-tier sub-recipient contract, grant, and loan transactions of more than $25,000.
Micro-purchases of less than $3,000 made with a federal credit card are collected by the General Services Administration​ and displayed monthly in a SmartPay spreadsheet. This same data may also be displayed on the charts, graphs, or summaries.”

It excludes:

“Federal salaries and compensation
Individuals’ names receiving direct assistance payments, such as benefits or entitlements
Award information that could result in a security risk to the recipient
Tax credit data
Appropriation amounts”

3. The Solari Report has discussed the ESF in detail at https://solari.com/blog/the-exchange-stabilization-fund-with-rob-kirby/