The Statement and Account Clause, the Obamacare Litigation and the FASAB’s Unconstitutional Reporting Entity Proposal


Does current financial reporting by the federal government comply with the requirements of the United States Constitution? This is a central question that Congress needs to address but will not. This memorandum attempts to answer that question.

It will surprise few that the conclusion reached in this memorandum is that the federal government’s financial reporting falls far short of Constitutional requirements and that the proposed Exposure Draft does little more than maintain the current status quo with respect to fraudulent financial reporting by the federal government. The Exposure Draft reflects the fact that our political leaders have subverted the democratic process to protect their self interests. They have failed and continue to fail to comply with an important Constitutional check on power, the requirement for the publication of a complete and truthful statement and account.

Article I, Section 9 clause 7 of the United States Constitution provides that:

“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

The first part is called the Appropriations Clause and the second part is called the Statement and Account Clause. The Tax and Spending Clause is found in Article I, section 8, Clause 1:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

The inquiry into whether financial reporting violates the Constitution includes a review of a broad range of evidence from our nation’s early history including the Articles of Confederation, statements by the Framers at the Constitutional Convention and at the state ratification conventions, government practices both before and after enactment of the Constitution and the only court case to reach the Supreme Court regarding the Statement and Account Clause. A detailed analysis of the Appropriations Clause, the Statement and Account Clause and the Tax and Spending Clause is presented. This discussion is followed by a review of the legislative history affecting financial reporting from the late 1800s to the present day. An overview of current financial reporting by the federal government including detailed analysis of the President’s Budget and the Financial Report follows. Included in the commentary of the Financial Report is an estimate of the federal government’s actual financial results over the last decade. Also depicted is an estimated current balance sheet for the nation. The psychological factors that make it virtually impossible for the Legislative or Executive branches or state legislatures to correct the financial reporting problem are summarized. Finally, the question of whether reporting requirements have changed since the Constitution was ratified is addressed.

Why does financial reporting by the federal government matter? Based on Supreme Court decisions the deficient financial reporting violates numerous private rights conferred by our Constitution including the right to vote, freedom of speech, due process, equal protection, the right to financial information and the right to political accountability. In addition, the Supreme Court has ruled extensively on the meaning of the antifraud provisions of the securities laws. It appears that these principles are inherent in the Statement and Account Clause.

Many believe that the Statement and Account is subject to the plenary power of Congress and that no court or citizen has any ability to challenge any financial reporting that Congress wishes to undertake. This assertion will be reviewed and proven to be a false.

In addition to undermining private rights granted by the Constitution the deficient financial reporting by the federal government has led the Supreme Court of the United States to decide at least one case based on financial facts that are clearly untrue. On June 28, 2012 the Supreme Court resolved constitutional challenges to two provisions of the Patient Protection and Affordable Care Act of 2010 (“ACA” or the “Act”): the individual mandate and the Medicaid expansion.1 The memorandum contains a discussion of the second provision resolved by the Court, the Medicaid expansion. Seven members of the Supreme Court agreed that the Medicaid expansion in the Act is unconstitutional.2 Each of the opinions issued by the Court, Justice Ginsburg and the Dissenters (Justices Scalia, Kennedy, Thomas and Alito) contains economic and political accountability analyses that are seriously flawed.

Information submitted in merit briefs and orally to the Supreme Court included financial information published by the federal government that does not appear to comply with the Statement and Account Clause. In addition, relevant material financial information that was published only after the passage of the ACA but prior to the submission of merit briefs and oral argument was not raised or discussed in either. The fraudulent material submitted by each state to the Court relates to each state’s financial results. This information is fraudulent as it does not include the full costs directly related to each state’s participation in the Medicaid program. The full cost of the Medicaid program for each state has never been published by any state.

The basic framework for the analysis contained in this memorandum was created for a first-of-its-kind conference “Representation Without Accountability” which was held at Fordham Law School on January 23, 2012. The conference addressed the federal government’s actual expenditures, its current financial reporting and questions surrounding the Statement and Account Clause including whether financial reporting by the federal government comports with Constitutional requirements. A nonpartisan panel of speakers included Hon. David Walker, former Comptroller General, David Mosso, former Chairman of the Federal Accounting Standards Advisory Board (“FASAB”), Professor Brian Fitzpatrick, a constitutional law professor at Vanderbilt Law School and Joseph Marren, President & CEO of KStone Partners. Professor Sean Griffith, Director of the Fordham Law Corporate Center delivered opening remarks and acted as moderator for the conference. The conference was presented by the Fordham Corporate Law Center and sponsored by Joseph and Joan Marren and KStone Partners LLC. A video of the conference as well as a transcript, all presentations and the conference brochure can be found at

All figures used in the memorandum are taken or calculated directly from the federal government’s reported financial results.

This memorandum is not intended to support either policy option (raising taxes or cutting spending) that are required to stabilize the nation’s finances. The author believes that once all members of Congress and the Administration must deal with the same set of facts with respect to the nation’s financial results and financial position, they will navigate their way to an acceptable outcome for the electorate. Furthermore, this memorandum does not attempt to assign blame for the current state of financial reporting. There is more than enough for both political parties.

In this memorandum the federal Government’s Constitutional authority to suppress financial information related to national security matters is not being questioned. Also, Congress’ authority to determine the amount of detail associated with its financial results is not being questioned. What is being asserted is that the federal Government is falsely reporting total receipts, total expenditures and the resulting deficit calculated by subtracting the second figure from the first. These three figures, it is asserted, are not subject to the plenary power of Congress.

Joseph H. Marren, President and Chief Executive Officer of KStone Partners LLC, and is an excerpt of his memorandum discussing current financial reporting by the federal government.  You can find the full text of the memorandum here.


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Fordham Journal of Corporate & Financial Law