Elements of an Audit

Several times I've written about how the work that auditors and journalists do is sometimes similar. Here is a news story by Henry Esteve that begins with a simple questions. Were the estimates of the cost of a tax credit accurate? Estimates are just that, estimates. Costs may turn out to be lower than higher than estimated. But it is good management to check and adjust a program depending upon what unfolds.

It's called closing the loop. Many audits address this management area. In my auditing experience, government service providers intensely pay attention to the design and organization of services. Just as much work and effort should also be placed in monitoring the service and evaluating whether it was successful.

This lengthy unfolding news story also illustrates a difference between journalism and auditing. News stories are short, not comprehensive, and accumulate over time. Turns out that state energy subsidies have been an ongoing story in 2009 in the Oregonian. The most recent story linked above that caught my eye was followed by at least 10 more stories and commentary including a story that the Governor would roll back subsidies.

Journalism is designed to foster accountability and transparency by shining a light on government practices. So is auditing, but audits are also intended to analyze the source of the problem and offer recommendations for change. Audits have a dual purpose - accountability and improvement of government services. The article cited a potential cause for the under estimated costs - that they had been low balled to gain legislative approval. If I had been conducting an audit I would have wanted to look at management practices that allowed estimates to be manipulated, if that is indeed what happened. What an auditor wants is to shine a light on the problem but also to have management rebuild a system that will protect the accuracy of data and prevent the problem in the future.

I can't imagine

I am signed up for several Google alerts relating to auditing and audits. One such alert recently took me on an interesting journey. The original alert took me to this website (?) blog (?) about the findings of an auditor in Zimbabwe. According to the About Us page, "Zimbabwe Metro online (zimbabwemetro.com) is an aggregated web log that covers a wide-range of topics, including sections devoted to politics, entertainment, media, lifestyle and business.We also feature hyperlinks to various news sources and columnists. Our roster of bloggers includes many people from Zimbabwe’s politicians to our extensive network of prominent writers. We are ranked the most most visited news weblog on Zimbabwe News by Alexa Internet."

Intrigued that an auditor would be exposing government corruption to such a degree, I tried to do some research. Using the NY Times search function I discovered an interesting archive of news stories about Zimbabwe. It seems that the president of Zimbabwe won a run off election and was inaugurated to his sixth term in June 2008. His opponent withdrew from the race because "state-sponsored enforcers were beating and killing his followers." More recent articles document a cholera epidemic and devastating economic and agricultural policies that leave the population starving. In February 2009, the president's opponent was sworn in as the prime minister to try and bring unity to the government. And just yesterday President Obama presented the 2009 Robert F. Kennedy Human Rights Award to publicly recognize Women of Zimbabwe Arise, or Woza, a grassroots effort to speak out against injustice in the country.

And in all of this an auditor is operating. I tried to search for a website for the auditor or the audit but was unsuccessful.

Blink Auditing

I have been reading several books lately that cause me to reflect on auditing skills and why I find auditing so intriguing. (Yes, intriguing!) I have already posted about Freakonomics. Another book that I've recently read and in the same vein is Outliers. That author has a similar perspective as Freakonomics except its focus is on successful people. The premise is that it was no accident or fluke that certain people become successful and that it can be explained by the underlying circumstances.

Another book that I just finished, blink, by the same author of Outliers, Malcolm Gladwell, can also be related to the auditing experience. In the final chapter of this book, Mr. Gladwell realizes that the overarching subject of the book is judgement. The first chapters deal with snap judgements or a conclusion that comes in the blink of the eye. This discussion helped me understand why sometimes judgements in audits seem to be intuitive rather than straight-line rational thought. He then explores when snap judgements can lead you astray. And finally there is a discussion of when snap judgements should be relied on and when not. The case studies and illustrations are very thought provoking.

Accountability, Politics and Independence

It is always difficult to create the best organization to provide government services. Many different structures have been created to remove politics from decisions made about the services. In some jurisdictions sheriffs and police chiefs are elected to give the agencies independence from politics, but this creates a different type of political battle at budget time when these elected officials can make an independent case to the public for a larger share. Another organizational model is to create an independent commission to direct the service such as a development commission or a library foundation.

There is another side to this puzzle. Some of the solutions to keep politics out of decision-making and provide the best service also remove the organization from accountability. There is no question that elected officials are accountable to the voters. When a barrier is created to this accountability, e.g. a commission, that link is broken. While voters may still blame the elected officials for poor decisions, the elected officials may have no control because of the independence of the commission.

During my career I have audited several of these types of organizations. I continue to believe that it is not the structure but the people that make the difference. There is a constant search for the perfect balance between accountability and independence and politics. Here is an audit and news story that illustrates that dilemma. This is a case where the commission is appointed by the governor with the consent of the state senate. The mayor along with the commission oversee police operations.