Boundaries and cultures

You may be able to rearrange the lines or move the boxes around; but philosophies, cultures, and approaches to problem solving cannot necessary be changed. This discussion on another blog is about election results and long-standing cultural divides that are not necessarily affected by redrawing the map. It made me reflect on the government environment in which I work. Over my career I have audited city, county, and now regional government. Some of the organizational problems that are identified during the audit might be attributable to historical antecedents that were not affected when boundaries were changed.

Many county services were previously managed by the state or city. The library was a non-profit organization that was brought back into the county. Police services are now primarily provided by cities; but the county operates the jails and the state operates the judicial system. At the regional level, many of the services were transferred from the city or county. Some of the services meet state-wide objectives and attempt to organize the region to meet those objectives. Finding effectiveness and efficiency in systems that operate according to different cultural norms is a challenge. Understanding the antecedents can be helpful when conducting an audit and crafting meaningful recommendations.

Web 2.0 Update 2.0

Since making a presentation last spring on the potential for Web 2.0 for government I've posted updates. What I find most exciting about Web 2.0 is the potential for increasing communication and reaching out to more of the public. As I've written before here and here, those who are able or willing to attend public hearings are limited and new possibilities are opening up.

Here are some more examples. The mayor San Francisco is addressing citizens on YouTube. And here's an article about tourism departments marketing through blogs, podcasts, and vlogs. Still pondering ways for an auditor to use Web 2.0. Hmmmm.

The value of a peer review

Several years ago now auditing standards began to require peer reviews. It answers the question of "Who audits the auditor?" Over the course of my career I've had 3-4 peer reviews of my office's operation. I have found them valuable. You always learn from a peer review. It allows you to see your audit operation through different eyes. It also adds credibility to your office. The public and your elected decision-makers can gain confidence from the fact that every three years auditors, with no stake in your office, review your procedures to determine that they follow audit standards and examine audits to ensure that auditors followed procedures.

It is with interest that I've been following the largest financial fraud in history. The S.E.C. is now investigating why years of regulation did not uncover the fraud. On Freakonomics they're recommending a career option for Bernie Madoff, the perpetrator of the fraud. And it's been discovered that Mr. Madoff's auditor doesn't audit. According to this report, the auditing firm that conducted audits has been telling the AICPA for years that they don't conduct audits in order to avoid having a peer review conducted. Here's another story about why a three person auditing firm would be conducting audits of multibillion dollar operation.

Time for reflection

It's been a crazy week! Snow, ice and cold in Portland. Who would have thought? And, trying to tie up loose ends this week before I take a week off for the holidays increased the pressure. My sister was in town and my daughter returning from college. So, I had no time for reflection. But, the ideas were piling up. In the next two days I'll add some posts. Hopefully they're not too dated.

Auditing market shrinking

Looks like the big auditing firms might be affected by the financial crisis. Although, while markets are shrinking in the developed companies, the demand in emerging markets, like China and India, remains strong. So far in the posts below it has seemed, at least at the federal level, that the demand for government auditors is strong. Wonder what will happen at the local government level.

Inequality among dogs

I don't know why reading this article made me sad. But it is also a demonstration of the power of criteria. One scientist disputes the findings and only interprets it as a dog reacting to negative circumstances, rather than inequality. But if the one dog hadn't had the knowledge of how the other was being treated better, how would he/she know that these were negative circumstances?

Another watchdog

The U.S. Senate has confirmed a special investigator within the Treasury to audit and investigate the Troubled Asset Relieve Program (bailout). A discussion of the GAO audit is posted below.

So many tails

Did the watchdog lie down on the job? We rely on watchdogs, auditors among them, to remain objective and provide facts and reliable assessments of the risks involved in decision-making. As I've written before here and here, independence is key. Here is an article about Moody's, a company that ranks the credit-worthiness of borrowers using a standardized ratings scale. Moody's and other investment rating entities are supposed to help investors evaluate risk. But evidently Moody's was paid more for its evaluations of more complicated debt potentially compromising independence.

According to the report, "Moody’s current woes, former executives say, were set in motion a decade or so ago when top management started pushing the company to be more profit-oriented and friendly to issuers of debt. Along the way, the firm, whose objectivity once derived from the fact that its revenue came from investors who bought Moody’s research and analysis, ended up working closely with the companies it rated, and being paid by them." This also relates to another theme that I've written about - tone at the top. The leaders of an organization actually do lead. And if pressure exists, perceived or in reality, employees will follow.

Moving quickly and internal controls

I'm reading the GAO report released yesterday about the bailout. Several things jump out. "However, the rapid pace of implementation and evolving nature of the program have hampered efforts to put a comprehensive system of internal control in place." and "While OFS and PricewaterhouseCoopers are working to implement a comprehensive system of internal control, until such a system is fully developed and implemented, there is heightened risk that the interests of the government and taxpayers may not be adequately protected and that the program objectives may not be achieved in an efficient and effective manner." I know in a crisis you can't wait to act but protecting assets is also important, particularly when they are public assets at risk.

So far there is no system in place to monitor compliance of the financial institutions that receive aid. Institutions told the auditors that they intended to use the funds consistent with the goals of the bailout but stated that they would view this capital as no different from their other capital. Most institution officials noted that money is "fungible" and that they did not intend to track the funds received separately. The audit further notes that strong organization of the Office of Financial Stability will be critical. The OFS is relying on contractors and financial agents in the private sector which the audit notes will enhance flexibility but also requires oversight and protection against the risk of conflict of interest. Acknowledging that less than 60 days have passed since the bailout was created, the audit strongly urges the quick implementation of internal controls.

This echoes many local audits that I have been part of over the years. Certainly not of the magnitude and significance of this program, still they included the lack of planning about ensuring how goals will be accomplished. It is not enough to have a plan to address a problem. Government must also have a plan to ensure that the plan is implemented efficiently and effectively. That plan is one of internal controls. It's like planning a trip with a map but driving with your eyes closed.

Audit of the Bailout

I look forward to reading this. I'm impressed that we'll get this information so quickly.