THE PENTAGON, FASAB 56, AND THE POST OFFICE
By Daniel Beck
November 2021 

Summary
(1) On 9/11, Flight 77 struck the Pentagon Budget Office, destroying evidence and auditors (Arlington County After-Action Report, Mount Vernon Gazette) trying to reconcile $2.3 trillion in untraceable Defense Department transactions announced by Donald Rumsfeld the previous day (CBS).

(2) Over the next 14 years, that number grew to at least $21 trillion (NYT, Nation, Forbes). When Congress ordered an audit of the Pentagon in 2018 (which it was legally required to do annually, but never did) it failed miserably when third-party corporate accounting firms found so many errors that completing the audit was impossible. The auditors further found that the Pentagon annually committed massive fraud by making up numbers (Nation). Less than one year later, the Federal Accounting Standards Advisory Board (FASAB) quietly changed federal agency accounting rules in the name of national security so that any of the over 150 federal agencies could classify all of its expenditures, change its functions, and show the public completely different expenditures (FASAB, Rolling Stone).

(3) In April of 2021 it was publicly revealed that the United States Postal Service (USPS) was running a covert intelligence program that tracked and collected American’s social media posts and shared them with other agencies such as the Department of Homeland Security. Civil liberties advocates and some lawmakers questioned the necessity and legal authority of the USPS to perform this function (Yahoo News, Forbes, Newsweek, Guardian). When questioned by lawmakers, the USPS Chief Postal Inspector said the program would continue and would not provide information about when the program began, how it was funded, or how much money was spent on it (Fox, Epoch Times). The nonprofit government watchdog organization Judicial Watch filed a lawsuit against the USPS after it failed to respond to its Freedom of Information Act (FOIA) request for documents related to the program (Epoch Times, Judicial Watch).

(1) Sources:
Arlington County, 2002, “Arlington County After-Action Report on the Response to the September 11 Terrorist Attack on the Pentagon,” page A-86
CBS, 1/29/2002, “The War on Waste”
Mount Vernon Gazette, 9/4/2002, “An Engineer’s Expertise Joins A Firefighter’s Nightmare”

(2) Sources:
Federal Accounting Standards Advisory Board, 10/4/2018, “News Release: FASAB Issues Statement of Federal Financial Accounting Standards 56, Classified Activities”
Forbes, 12/8/2017, 12/8/2017, “Has Our Government Spent $21 Trillion Of Our Money Without Telling Us?”
Forbes, 7/21/2018, “Is Our Government Intentionally Hiding $21 Trillion In Spending?”
New York Times, 12/3/2018, “The Misleading Claim That $21 Trillion in Misspent Pentagon Funds Could Pay for ‘Medicare for All’”
Rolling Stone, 1/16/2019, “Has the Government Legalized Secret Defense Spending?”
The Nation, 11/27/2018, “Exclusive: The Pentagon’s Massive Accounting Fraud Exposed: How US Military Spending Keeps Rising Even as the Pentagon Flunks its Audit.”

(3) Sources:
Epoch Times, 7/12/2021, “Judicial Watch Asks Court to Order USPS to Disclose Social Media Snooping Documents”
Forbes, 4/23/2021, “Is The Post Office Monitoring Americans’ Social Media Posts? Some Republicans Are Raising Concerns”
Fox, 4/28/2021, “USPS Official Confirms Covert Social Media Tracking Operation, Lawmaker Says; The Program Is Reportedly Expected To Continue”
Guardian, 4/23/2021, “Outcry Over US Postal Service Reportedly Tracking Social Media Posts”
Judicial Watch, 7/8/2021, “Judicial Watch Sues U.S. Postal Service for Information on Tracking Americans’ Social Media Posts”
Newsweek, 4/21/2021, “U.S. Postal Service Tracking Americans Social Media for ‘Inflammatory’ Posts”
Yahoo News, 4/21/2021, “The Postal Service Is Running a ‘Covert Operations Program’ That Monitors Americans’ Social Media Posts”
Yahoo News, 4/27/2021, “U.S. Post Office to Brief Lawmakers On Its Covert Surveillance Program” 

Budget Office Struck; Untraceable Transactions Grow from $2.3 to $21 Trillion
On 9/11, Flight 77 struck the Pentagon Budget Office where analysts were trying to reconcile $2.3 trillion in untraceable transactions Defense Secretary Donald Rumsfeld announced the previous day, stating: 

“The adversary is… the Pentagon bureaucracy… According to some estimates we cannot track $2.3 trillion in transactions.”

That the aircraft hit the budget office was confirmed by multiple sources. For example, a post-9/11 Arlington County After-Action Report stated:

“It was also the end of the fiscal year and important budget information was in the damaged area.”

Similarly, the Mount Vernon Gazette reported:

“The plane had gone in right where [a victim] was located as part of the budget analyst office.”

While the unaccounted-for $2.3 trillion might have grown into a major scandal, such budget concerns fell by the wayside in the wake of 9/11. Instead, the problem grew much worse. According to Forbes, Nation, and the New York Times, a minimum of $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be “traced, documented, or explained”. The Nation and New York Times both pointed out that the untraceable transactions resulted in adjustments to “both the positive and the negative sides of the ledger, thus potentially netting each other out.” Therefore, the core issue was the utter void of transparency/accountability rather than any firm grasp of exactly how much money was spent on secretive and/or fraudulent transactions.

Throughout that period, the Defense Department neglected to perform a single required annual audit for decades, congress finally ordered an independent audit in 2018. According to Nation, the Defense Department failed the audit after multiple third-party corporate accounting firms concluded that its financial records contained so many errors that completing the audit was impossible. The audit further showed that the Defense Department had perpetrated “massive fraud” by making up numbers for decades in its annual financial reports to congress.

Sources:
Arlington County, 2002, “Arlington County After-Action Report on the Response to the September 11 Terrorist Attack on the Pentagon,” page A-86
CBS, 1/29/2002, “The War on Waste”
Forbes, 12/8/2017, 12/8/2017, “Has Our Government Spent $21 Trillion Of Our Money Without Telling Us?”
Forbes, 7/21/2018, “Is Our Government Intentionally Hiding $21 Trillion In Spending?”
Mount Vernon Gazette, 9/4/2002, “An Engineer’s Expertise Joins A Firefighter’s Nightmare”
New York Times, 12/3/2018, “The Misleading Claim That $21 Trillion in Misspent Pentagon Funds Could Pay for ‘Medicare for All’”
The Nation, 11/27/2018, “Exclusive: The Pentagon’s Massive Accounting Fraud Exposed: How US Military Spending Keeps Rising Even as the Pentagon Flunks its Audit.”

154 Government Agencies Quietly Empowered to Hide True Financials from the Public
This brief section is a worthwhile tangent, after which we will return to the topic of Flight 77 and the Pentagon impact. Less than a year after the Defense Department failed its 2018 audit and could not account for $21 trillion of expenditures, the state of federal financial transparency and oversight went from horrible to even more horrible. On October 4th, 2018, the Federal Accounting Standards Advisory Board (FASAB) quietly issued a news release concerning a new federal accounting standard entitled, “Statement of Federal Financial Accounting Standards 56, Classified Activities” or SFFAS 56. The news release stated:

“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… The statement permits

1)      an entity to modify information… if the effect of the modification does not change the net results of operations or [financial] position.

2)      [an] entity [may be] consolidated into another… entity, and the effect of the modifications may change the net results of operations and/or [financial] position.”

3)      an entity may… allow other modifications to information… and the effect of the modifications may change the net results of operations and/or [financial] position.”

On the day of the release, the news cycle was dominated by partisan fighting over Brett Kavanaugh’s nomination to the Supreme Court. Not a single media outlet covered the FASAB news release, nor did any media outlet report on it in the years that followed other than a single January of 2019 article by Rolling Stone magazine. The article was discomforting. It pointed out that the Treasury Department’s definition of an “entity” as it was used in the news release:

“…includes 154 different agencies and bodies, from the Smithsonian Foundation to the CIA to the SEC to the Farm Credit Administration to the Railroad Retirement Board.”

Therefore, each of these 154 agencies could now legally alter its public financial report in the name of “national security.” Furthermore, per Rolling Stone, the new standard “expressly allows federal agencies to refrain from telling taxpayers if and when public financial statements have been altered.” The article quoted Michigan State professor Mark Skidmore, a perennial researcher of defense expenditure discrepancies, as stating:

“The list of agencies is so long. If you don’t even know what’s been modified, why bother reading a summary for any of them?”

The press release included the name and contact information of FASAB’s assistant director Monica Valentine for questions. When Rolling Stone asked why this accounting standard did not apply only to agencies with a national security mandate, Valentine replied:

“We use a standard scope paragraph in all of our standards… It is simply more practical to make the standards broadly applicable.”

Rolling Stone pointed out that the second and third points in the news release directly contradict the first point. The first says “the modification” cannot “change the net results” of the agency’s overall financial pictures or operations. However, the third says precisely the opposite – that “other modifications… may change the net results” of the agency’s overall financial picture or operations. There is no verbiage to explain the difference between “modification” in point one and “other modifications” in point two. When Rolling Stone asked Valentine whether this essentially allows for unlimited secret changes to the finances or operations of any government agency, she responded:

“We cannot speculate about the changes.”

When Rolling Stone asked Monica Valentine if a Department of Defense expenditure could hypothetically be moved to the Department of Housing and Urban Development, she replied:

“Because of the classified nature of this topic, I will not respond to specific examples.”

The new standard effectively meant two sets of government accounting books. Michigan State professor Mark Skidmore stated:

“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.”

Similarly, Catherine Austin Fitts, Assistant Secretary for Housing and Urban Development under George H.W. Bush administration said the new standard “expressly approved[s] obfuscation of reporting and, in some cases, outright concealing financials.”

Likewise, The Department of Defense Inspector General stated:

“This approach would likely make the financial statements misleading to all but a select few individuals that are aware of the Interpretation.”

Also, FASAB consultant and private financial firm Kearney & Co. said the standard would allow “only select individuals to view and accept” the modifications. Rolling Stone summarized:

“…the new guidance…[creates] 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.”

When Rolling Stone asked FASAB who had authority to make the secret modifications, Valentine replied:

“Please contact the federal entity’s Office of the Inspector General for questions pertaining to who does the auditing in a classified environment.”

By way of background, the article noted that the idea of secret budgets in American began in 1949, via the Central Intelligence Agency Act, which shielded the agency from public financial disclosure, stating:

“No Money shall be drawn from the Treasury… The sums made available to the Agency may be expended without regard to the provisions of law… [Furthermore,] expenditures [are] to be accounted for solely on the certificate of the Director…”

In the mid-1970s, the Supreme Court by a 5-4 vote upheld the federal government’s power to employ secret budgets. In 1999, the rationale for secret budgets was verbalized by CIA Director George Tenet in this way:

“Disclosure of the budget request reasonably could be expected to provide foreign governments with the United States’ own assessment of its intelligence capabilities and weaknesses.”

However, a few years before this statement, the Brown-Aspin Commission, which Congress formed to examine intelligence-related issues, determined precisely the opposite – that publishing “bulk amounts of national security expenditures” did not pose any risk to national security. Three former CIA directors agreed with this assessment.

Sources:
Federal Accounting Standards Advisory Board, 10/4/2018, “News Release: FASAB Issues Statement of Federal Financial Accounting Standards 56, Classified Activities”
Rolling Stone, 1/16/2019, “Has the Government Legalized Secret Defense Spending?”

United States Postal Service Intelligence Gathering Program Leaked; Origins and Budget Not Disclosed
In April of 2021, Yahoo News obtained a document that showed that the law enforcement arm of the United States Postal Service (USPS) was running a covert intelligence program for which analysts tracked and collected American’s social media posts in order to find “inflammatory” postings, which were then shared with intelligence or law enforcement agencies such as the Department of Homeland Security. The story was immediately picked up by Forbes, Newsweek, and the Guardian.

Civil liberties advocates were alarmed. Chicago law professor Geoffrey Stone, whom President Obama appointed to review the NSA’s data collection activities, stated:

“I don’t understand why the government would go to the Postal Service for examining the internet for security issues… There are so many other federal agencies that could do this… you’ve got FBI, Homeland Security and so on, so I don’t know why the post office is doing this.”

Rachel Levinson-Waldman, deputy director of the Brennan Center for Justice’s liberty and national security program, stated:

“This seems a little bizarre. It’s not at all clear why their mandate would include monitoring of social media that’s unrelated to use of the postal system. If the individuals they’re monitoring are carrying out or planning criminal activity, that should be the purview of the FBI. If they’re simply engaging in lawfully protected speech, even if it’s odious or objectionable, then monitoring them on that basis raises serious constitutional concerns.”

Because the program’s use included monitoring posts made in the buildup to the partisan capital riots the previous January, the issue quickly polarized along partisan lines. In a follow-up report, Yahoo News noted that several Democrat Senators such as Elizabeth Warren and Ron Wyden declined to comment on the program despite previously challenging the Homeland Security Department’s domestic surveillance and social media activities.

Likewise, Forbes and Yahoo News reported that thirty Republican lawmakers, some belonging to the House Oversight Committee signed a letter to Trump-appointed Postmaster General Louis DeJoy which questioned the necessity of the program and described it as an “encroachment into the private lives of Americans.” Forbes further quoted the letter as stating:

“…it is unclear why the USPS, of all government agencies… is taking on the role of intelligence collection.”

Yahoo News quoted the letter as stating:

“[The program] raises serious questions about the federal government’s ongoing surveillance of, and encroachment upon, Americans’ private lives and discourse.”

Nevertheless, according to Fox News, USPS Chief Postal Inspector Gary Barksdale told lawmakers the program would continue and would not provide them with details about when the program began or how much money was spent on it. This was despite those lawmakers having directly asked (per the Epoch Times) questions such as:

“What vendor does USPIS use to search publicly available information?”

“What information is the vendor storing about searches and results, and how is this information secured?”

“What is the total awarded value of the contract, and what are USPIS’s obligated costs under the contract?”

When was the contract initiated, and when does it terminate?”

The Epoch Times further reported that the nonprofit government watchdog organization Judicial Watch had filed a lawsuit against the USPS for failure to respond by the legal deadline to its Freedom of Information Act (FOIA) request for all documents related to several aspects of the program, including:

“Any analyses outlining USPS authority to monitor, track, and collect Americans’ social media posts… [and all] records concerning justifications for USPS to monitor, track, and collect Americans’ social media posts.”

Sources:
Epoch Times, 7/12/2021, “Judicial Watch Asks Court to Order USPS to Disclose Social Media Snooping Documents”
Forbes, 4/23/2021, “Is The Post Office Monitoring Americans’ Social Media Posts? Some Republicans Are Raising Concerns”
Fox, 4/28/2021, “USPS Official Confirms Covert Social Media Tracking Operation, Lawmaker Says; The Program Is Reportedly Expected To Continue”
Guardian, 4/23/2021, “Outcry Over US Postal Service Reportedly Tracking Social Media Posts”
Judicial Watch, 7/8/2021, “Judicial Watch Sues U.S. Postal Service for Information on Tracking Americans’ Social Media Posts”
Newsweek, 4/21/2021, “U.S. Postal Service Tracking Americans Social Media for ‘Inflammatory’ Posts”
Yahoo News, 4/21/2021, “The Postal Service Is Running a ‘Covert Operations Program’ That Monitors Americans’ Social Media Posts”
Yahoo News, 4/27/2021, “U.S. Post Office to Brief Lawmakers On Its Covert Surveillance Program”