The Pentagon’s New Stealth Bookkeeping

The Defense Department’s finances have been an unauditable black hole for decades. But as the military has struggled mightily in recent years to remove the cobwebs and fog from its books, it has run into another problem: where to hide its work on classified programs?

Not to fear: where there’s a will, there’s a waiver.

That’s why the Pentagon (and CIA) have asked the U.S. government’s accounting overlords to let them fudge their costs in the name of national security. Think of it as the latest in fiscal transparency: while the U.S. military struggles to make its accounts finally auditable, it needs new nooks and crannies to mask spending. Only U.S. national-security apparatchiks would plead for future budget secrecy to justify past budget sloppiness.

And they have received preliminary approval for the change from the Federal Accounting Standards Advisory Board (FASAB), which sets the so-called “generally accepted accounting principles” for federal bean-counters. Government accountants may “modify” spending levels, the accounting agency says, and allow spending “to be excluded from one reporting entity and consolidated into another reporting entity” to keep work on classified programs secret. Government secrecy sleuth Steven Aftergood revealed this latest Pentagon ledger legerdemain in a recent post on his Secrecy News blog for the Federation of American Scientists. The change is expected to win final approval from Treasury Secretary Steven Mnuchin, Comptroller General Gene Dodaro, and Mick Mulvaney, chief of the Office of Management and Budget (OMB), this fall.

The Pentagon announced last December that it was dispatching 1,200 auditors—that’s about two battalions’ worth—to conduct the first-ever across-the-board audit of the Department of Defense. Conflicting accounting systems and programs—and wars—spread over decades make it challenging to track military spending. But armed with calculators and reinforced by an army of independent public-accounting firms and a nearly $1 billion budget, the Pentagon is due to offer up its most accurate bottom line ever in November.

The push for better bookkeeping leavened with lying wasn’t unanimous. The Pentagon Inspector General warned the change would represent a “major shift” in federal fiscal management while doing little to “effectively protect classified information.” The change “jeopardizes the financial statements’ usefulness and provides financial managers with an arbitrary method of reporting accounting information,” the IG said in its filing opposing the new math. “We do not agree that incorporating summary-level dollar amounts in the overall statements will necessarily result in the release of classified information.”

Outside experts agreed. Gordon Adams, who oversaw national-security spending at OMB during the Clinton Administration, says the change represents a new kind of “duck and cover,” the Cold War exercise where schoolchildren would crawl under their desks to avoid nuclear fallout. “The goal is to duck the need for public reporting by concealing—covering—the numbers somewhere else,” Adams says. “They don’t provide details or examples, probably because that would give the game away, but the goal is to conceal the classified data by hiding it in plain sight in some other number.”

Congressional budget veterans find the proposal unsettling, especially given what they say is the weaker oversight lawmakers now give to national-security spending. “Lots of CIA spending used to be hidden in the Pentagon budget, and it’s still there—but we can’t find it anymore,” says one Capitol Hill budget hawk who has spent decades spelunking military spending. Speaking anonymously, he fears the proposed accounting tweak will give the Pentagon free rein to use its so-called “unsupported adjustments”—known colloquially as “plugged figures”—that have long been used to mask Pentagon spending, dubious and otherwise.

U.S. defense and intelligence agencies have long argued that revealing too much budgetary information can harm national security. They secretly spent more than $50 billion on their “black budget” in 2013, according to a tally intelligence contractor Edward Snowden provided to the Washington Post. But the Pentagon also hides spending on well-publicized programs like its fledgling B-21 bomber. The Air Force fears divulging how much of that sum is going to certain parts of the program—fuselage, engine, radar-eluding “stealth” technologies—could let potential foes beef up their efforts and dull the bomber’s advantage. 

“Seventeen years after 9/11 and we still can't get out from under the `it's for national security, don't worry about it’ rubber-stamping of too much data and information that shouldn’t, and otherwise wouldn’t, qualify as needing to be classified,” says Mackenzie Eaglen, a defense analyst at the American Enterprise Institute. “The problem with this rubber-stamping is regular folks like us can't get to the core, or raw, data to better question or shine light on the final decision. We can only pooh-pooh the outcome weakly.”