Hell is truth seen too late

Mischievous misconception about public expenditure

We seem to have fallen into an age in which the Enlightenment search for truth has ended. It is replaced by a penchant, if not for outright falsehood, then for what is an expediency for the teller. Maybe the problem is that the concept of truth is much more elusive than first appears. It is said that truth is where a word or set of words has an exact identity with a fact. Of course that presupposes a fact, or more likely, a collection of facts can be known. We may need to be content with broadly true or materially true in the language of the accountant. Socially agreed truth such as this is to be contrasted with materially or completely false.

A topical example of the phenomenon finds itself in the headlines. The White House issues what it terms “Fact Sheets”. Within the last fortnight one such Fact Sheet has been published which states:

For decades, the United States Agency for International Development (USAID) has been unaccountable to taxpayers as it funnels massive sums of money to the ridiculous — and, in many cases, malicious — pet projects of entrenched bureaucrats, with next-to-no oversight.

The Fact Sheet then gives what it claims are examples of the “ridiculous”. For instance, it claims that $70,000 was granted for production of a “DEI musical” in Ireland. If accurate, I would find that a peculiar use of aid money on the basis that there must be more deserving recipients in places other than wealthy Ireland. The Fact Sheet, though, is inaccurate. The money was gifted in 2022 but came from the State Department through the Dublin Embassy.

The Fact Sheet doesn’t quite say that USAID is vast cesspit of fraud. However, Trump himself is reported as saying that the agency is a tremendous fraud. Apparently, he has said on his social media outlet with the Orwellian name of Truth Social:

THE CORRUPTION IS AT LEVELS RARELY SEEN BEFORE. CLOSE IT DOWN!

I have taken this from a news source and I assume the upper-case shouting was in the original. He repeated his claims when returning from the Superbowl. He referred to tremendous fraud, kickbacks and theft. An official from the Trump administration has represented to a court that: the president "has decided there is corruption and fraud at USAID". I assume that is carefully worded much like lawyers’ code when using the phrase: “I am instructed”. It invariably means I have been told to say what I am saying but I don’t believe it personally.

Quite what Trump means by fraud is not clear. Fraud is usually defined to be obtaining unwarranted benefit by deceit. In any given organization fraud will take one of two forms. The organization itself can misrepresent financial values to achieve pecuniary benefit. The most prominent example of recent times is the inflation of property values within the Trump organization to enable borrowing at lower interest rates than the true circumstances would dictate. Fraud within an organization takes the form of its operatives acquiring assets in some way that deprives the organization of its rightful assets or causes conduct detrimental to its interests. Those acts may or may not entail flagrant deception. In the public sector the classic example is applying appropriated moneys to purposes other than the appropriating body intended.

The American people seem to be invited to think there has been a chaotic free-for-all with billions spent in unaccountable ways presumably since the foundation of USAID more than 60 years ago. If that is what Trump, Musk and his band of last year’s head prefects understand then they are mistaken. They evidently do not understand the appropriation of public expenditures and accountability systems that prevail in the US and everywhere else in the world.

USAID is a federal agency. As such it is required by statute to prepare a public financial report and have the report audited. The financial report for 2023/24 is available on the Office of the Inspector General’s website. The way the report is presented it does not tell you what was appropriated in any given financial year by Congress but it tells you what of those appropriations were applied and therefore what has been appropriated but not yet spent. Of course, over time what is expended will not exceed that which is expressly authorized by the legislature. Public sector bodies routinely exceed the spending limit in which case they need to be granted an increment to the authority.

The Constitution states: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The process in the federal government is complicated. It starts with the Executive in the form of the Office of Management and Budget (OMB) which in itself is vast employing hundreds of staff. Ultimately the process results in an appropriations bill which is passed into law as statute. The Congressional Research Service describes the process as follows:

… appropriations acts are organized as a series of mostly unnumbered paragraphs that provide budget authority, which permits a federal agency to enter into financial agreements that will obligate the Treasury to make payments. In addition to appropriations bills, the subcommittees draft written reports that accompany them and provide agencies with more detailed information about congressional intent concerning how agencies should use appropriated funds.

USAID provides extremely detailed reports as to how it has complied with Congressional prescription. Note 15 to its financial statements provides a definitive table which divides expenditure into seven broad categories including Democracy, Human Rights & Governance through to Peace & Security with a category for Health in between. The table then subdivides each category into various programs and then analyses by region. One of the sub-classes of Health for example is Pandemic Influenza and Other Emerging Threats which is reduced to the not quite poetic acronym PIOET. In the last reported year, a total of $258 million was spent in this area across the globe of which $132 million was spent in Africa. In the previous year $1 billion was spent for this purpose. It seems to me that it is not just Africans who benefit. Perhaps selfishly I hope the US keeps up expenditure under this heading given the spectre of Ebola and Marburg’s disease and other such horrors.

In total the net expenditure (gross expenditure less financial revenue) was about $23 billion whereas it was $36 billion the year before. In the current reported year, the appropriation totalled $30 billion meaning $7 billion was held over held, essentially, as drawing rights against the US Treasury. The unexpended cumulative appropriation was $47 billion as at September 2024. If Congress wants to withdraw the unexpended appropriation it is fully at liberty to do so. However, it is the prerogative of Congress and not anyone else.

The sums of money expended and made available are stupendous in scale. With so much money sloshing through the system some fraud is inevitable but it is likely to be immaterial. Where Trump and his intrepid head prefects labour under an illusion is the suggestion that there are no checks or constraints on the various operating components of USAID. There is an annual audit carried out. The audit is contracted to an external private sector firm in Washington known as Williams, Adley. Their lengthy formal report states as is core conclusion:

In accordance with Government Auditing Standards issued by the Comptroller General of the United States; and OMB Bulletin No. 24-02, Audit Requirements for Federal Financial Statements, we have audited USAID’s financial statements. USAID’s financial statements comprise the consolidated balance sheet as of September 30, 2024 … In our opinion, USAID’s financial statements present fairly, in all material respects, USAID’s financial position as of September 30, 2024, and its net cost of operations, changes in net position, and budgetary resources for the fiscal years then ended in accordance with U.S. generally accepted accounting principles.

The OMB Bulletin mentioned in the formal opinion is lengthy requiring compliance with relevant auditing standards. Those auditing standards include what is termed the Yellow Book, a publication of the Government Accountability Office. It deals at length with fraud. The OMB Bulletin also requires specific reference to fraud in the audit report. The USAID auditor’s long form report states:

In performing an audit in accordance with U.S. generally accepted government auditing standards, we: … Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks …

The pre-eminent risk of fraud the auditors would confront is that moneys expended have not been applied in the way Congress intended. Audit testing would be designed to check a representative sample. The firm is proud of the travel opportunities for staff including into the Sahel. It is highly likely audit field workers have been sent to countries such as Mali and Niger to ensure what is reported to be happening is happening. They would not only test detail but they would assess control systems that the organization uses to ensure probity. For example, they would look for split functions, rotation of people and such like. The auditors are required to formally report on system deficiencies and none were reported in respect to core functions. Measures such as these guard against corruption but don’t eliminate it altogether. The true guard against such misbehaviour is esprit de corps, which is probably evaporating given the vandalistic conduct being perpetrated.

To be fair there are passages included in the report which attempt to put distance between the auditor and instances of fraud. However, there is a limit. The auditors cannot walk away from the commitment they made in respect to the detection or prevention of material fraud. As an auditor of yore, I trust the audit firm in question here. In some ways they may be like surveillance staff in a casino. They cannot guarantee there is no cheating at all, but they will say they keep it to a minimum and I have no doubt they do.

Ultimately, the auditors would be personally accountable if what Trump said about USAID was true. I think it fair to say that within the flexibility of social truth there is no fraud or at least no fraud of such magnitude that moneys have been used for nefarious purpose. The auditors are not responsible for waste.

GOP senators have claimed that USAID is out of control and unaccountable. Such claims are the height of the disingenuous. Senators and representatives control the process of appropriation. I have no doubt that if they bothered to burrow into the detail, they could get accountability information which would be accurate but require diligence to make sense of it. There may be waste but that is not the fault of the USAID staff or the auditors. That is caused by the persons setting the appropriations frameworks, senators and representatives in other words as well as the president through OMB.

Trump and Musk might heed two anecdotes. With respect to waste, I have heard a story of a corporate CE proclaiming: “half my advertising budget is wasted. But the problem is I don’t know which half”. Public expenditure is beset by the same curse. Furthermore, I remember years ago reading about a management consultant who said that many consultants analogize organizations to machines. He said it is a spurious analogy and organizations should be viewed organically. It is easy to rip out and replace a crankshaft or a piston but ripping out a liver or lungs results in termination.

I began with a general observation on the elusive nature of truth. Truth absolute. It is, therefore, a nonsense to talk about shades of truth. Nonetheless I made reference to the accountant’s notion of materiality which accommodates insignificant inaccuracy. I am confident that the USAID audit firm’s conclusions are soundly based even if at the margin there may be matters of marginal probity. On that basis I am reasonably certain that what Trump and Musk have to say is almost completely false.

Postscript

As I neared the end of this essay, I found an article on the Fox News website reporting on a “study” from the Middle East Forum. The study asserts that moneys have been granted to “terrorist” organizations or their supporters. The major beneficiary cited is an organization called ANERA which has received $106,189,558.27 from USAID over an unspecified period of time. There is a peculiar precision in the value cited. It is based on a spreadsheet summarizing data from USAID. There is no better evidence of transparency and accountability than that.

https://oig.usaid.gov/sites/default/files/2024-12/0-000-25-001-C.pdf

https://www.meforum.org/fwi/fwi-research/terror-finance-at-the-state-department-and-usaid