SFFAS 56: The Secret Loophole Hiding Billions in Fraud, Waste, & Abuse from DOGE

Imagine a vast ledger, chronicling the transactions of a mighty republic, now riddled with deliberate gaps and omissions, gaps no auditor may probe, no citizen may question. This is no fanciful dystopia, but the present reality, quietly authorized by what is known as Statement of Federal Financial Accounting Standards 56 (SFFAS 56). While initially crafted, perhaps, with honorable intentions to shield 'classified' operations from hostile eyes, SFFAS 56 now threatens the very transparency and public accountability that sustain a free government. Federal agencies are allowed to use SFFAS 56 to hide spending they desire to be 'classified' from the American people, Congress, and even the President of the United States.

What is SFFAS 56? At its core, it is an administrative rule issued by the Federal Accounting Standards Advisory Board (FASAB) in 2018, not a statute passed by Congress. It allows any federal agency to modify its financial statements in order to obscure sensitive national security information. This authority extends beyond the obvious domains of intelligence or defense, touching every department that produces General Purpose Federal Financial Reports, from USAID to the Department of Energy. In theory, this safeguard exists to prevent enemies from exploiting financial disclosures to learn state secrets. In practice, it creates a black hole into which billions of taxpayer dollars vanish without a trace.

To understand the peril, one must first grasp the astonishing breadth of the rule. Under SFFAS 56, agencies may alter financial reports by removing, aggregating, or fabricating information, provided these adjustments do not "materially" affect the reported net results. Further, agencies can exclude entire sub-entities from reports or consolidate them elsewhere, masking not merely amounts but organizational structures themselves. Crucially, neither the public nor Congress is afforded any right to know when these modifications occur, how often they happen, or the underlying reasons. A general, but nonspecific, disclaimer suffices, buried in the back pages of thick agency reports: "Accounting standards allow certain presentations and disclosures to be modified to prevent the disclosure of classified information."

Even Congress itself can be kept in the dark unless an agency, by its own volition, deigns to disclose the concealment. Thus, SFFAS 56 effectively removes the legislature’s constitutional power of the purse from critical oversight. It conjures a legal purgatory where funds can be appropriated for one purpose, redirected for another, and hidden altogether from elected representatives. The theoretical protections against abuse, internal controls, audits, classified oversight, are weak reeds indeed when the very financial data needed to detect mischief has been sanitized.

Proponents of SFFAS 56 argue that, without such protections, enemies could piece together vital intelligence from innocent-looking financial entries. Yet the ingenuity of our foes cannot justify the abandonment of self-government. If secrecy is to be justified, it must be rare, tightly controlled, and explicitly authorized by the people’s elected representatives. Instead, SFFAS 56 inverts the burden: concealment becomes the default, accountability the exception. One might as well argue that because a handful of bank robbers lurk at large, all citizens must henceforth veil their account balances from scrutiny.

History offers sobering lessons when governments assume powers of secret spending. The clandestine financing of "black ops" during the Cold War, sometimes used for noble ends, sometimes for ignoble, occurred under conditions of limited and direct congressional oversight. Even then, abuses proliferated. The Iran-Contra affair revealed how easily noble motives could give way to clandestine mischief when oversight was thwarted. Now, SFFAS 56 institutionalizes a structure far broader and more opaque than anything Colonel Oliver North could have dreamed.

Under SFFAS 56, the Department of Defense could award lucrative contracts to politically connected firms and conceal both the recipient and the amount from public view. USAID could fund controversial NGOs both here and abroad without alerting Congress or the public. Worse still, agencies could funnel money to the family members of political figures or even, under a perverse interpretation, fund hostile entities abroad, all behind the iron curtain of "classified activities."

Consider a hypothetical yet disturbingly plausible example. Suppose USAID wished to grant a billion dollars to the Clinton Foundation or the Open Society Foundation, ostensibly to support development projects in unstable regions. Concerned that public knowledge of such a grant might spark political controversy and, by some stretch, be construed as harmful to national security, the head of USAID could invoke SFFAS 56 to hide the transaction. No notification to the President would be required. Congress would remain unaware. The public, journalists, and watchdog groups would find themselves stonewalled. Even if the agency head believed sincerely that the money would be wisely spent for a legitimate purpose, no one outside his immediate circle could help him ensure that actually happened. Oversight by the press, vigilant members of Congress, or curious citizens would be thoroughly stymied.

Some may protest that the President retains control of the executive branch, and thus can police such abuses internally. But the President’s power is not omniscient. Unless agency heads choose to disclose their use of SFFAS 56, even the President may remain unaware of the specific expenditures being hidden. In effect, FASAB, a mere advisory board, has created a tool so potent that it outstrips the constitutional balance of powers itself.

The irony is sharp. Conservatives, rightly skeptical of administrative overreach, have long warned against the quiet accretion of unaccountable power by regulatory boards. Yet here lies one of the gravest examples: a board that issues "standards" more consequential than many laws, without democratic debate or meaningful constraint.

President Trump must act decisively. First, he should formally direct every agency head to audit the use of SFFAS 56 within their departments since 2018. For every instance, they must privately report to the President the recipient, the amount, the date, and the justification for concealment. Such a review need not, and should not, compromise national security, but the chief executive must know whether public funds have been lawfully spent.

Second, the President should demand that the leaders of FASAB, particularly the current chair, George B. Scott, and Executive Director Monica R. Valentine, rescind or at least reform SFFAS 56. If they refuse, legislation must follow. Congress, spurred by the White House, must reassert its constitutional authority and mandate that no funds shall be expended without public disclosure unless specifically authorized by statute and subjected to classified presidential and congressional oversight.

It strains credulity that an executive board not directly answerable to voters or even the president should wield the power to dissolve financial transparency across the entire federal government. Even among classified programs, there are means of maintaining oversight without sacrificing security. Classified briefings, secure audits, special oversight committees, all these mechanisms exist and function in sensitive areas of defense and intelligence. What SFFAS 56 does is more radical: it banishes oversight by design.

In Federalist 51, Madison observed that "if men were angels, no government would be necessary." A corollary is clear: if governments were composed entirely of angels, perhaps SFFAS 56 would pose no danger. But human beings, tempted by self-interest, ambition, and error, cannot be trusted with unchecked authority. Transparency and oversight are the sinews of a free republic. Without them, the Constitution is a parchment barrier.

Critics may claim that rolling back SFFAS 56 will impair national security. This is a false dilemma. It is possible to protect legitimate secrets while maintaining financial accountability. It is not necessary, indeed, it is dangerous, to dismantle the public’s right to know how its money is spent in the name of security.

SFFAS 56, well-intentioned or not, is an invitation to abuse. It is a standing temptation to the unscrupulous. It is a blindfold upon the eyes of the republic. It must be reformed, and if reform proves impossible, it must be repealed.

The ledger of a free people must be open, not riddled with secret ink. President Trump must insist that the light of public scrutiny shines once more upon the accounts of the United States. The integrity of the American experiment depends on it.

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