Short-term engagement

What would I do auditing in an environment that didn't value equity and human rights. Guess I wouldn't last long.

Chilling Effect in LA

Previously in this blog, I have written about a lawsuit against the LA Auditor who was trying to audit the worker's compensation program. The lawsuit was filed by the elected City Attorney against the elected Controller. The City Attorney claimed that the Controller had no authority to audit another elected official's program. I made the argument that all roads eventually lead to an elected official, so why would that make a program exempt, and also that audits are auditing the program's performance, not the leadership's. Now it appears that a judge has issued a tentative ruling backing the City Attorney's position. The City is now talking about clarifying the charter and perhaps a ballot measure. I can't imagine that the public would not support accountability.

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.

The job of inspector general

Learning about the audit function and role in other countries is always interesting. However, this story about Iraq was alarming. In the U.S. inspector generals are appointed either by the president or by the federal agency head. There were protections written into the U.S. Code to ensure independence. Just recently the Inspector General Reform Act was passed to further enhance independence. According to the N.Y Times article about Iraq "But Stuart W. Bowen Jr., who leads an independent oversight office in Washington, the Office of the Special Inspector General for Iraq Reconstruction, and who is currently working in Iraq, said he knew of six of the dismissals. He said the inspectors general were vulnerable because once their offices were created, the United States provided little support and training for what was a startling concept for the bureaucracy, which was shaped by the secrecy and corruption of the Saddam Hussein era." While inspector generals have had problems with independence in the U.S, it has been nothing in comparison to this.

Ethics in Auditing

Auditing principles almost require that an auditor maintain a permanent out-of-body experience. In order to meet the ethical standards of integrity, objectivity, serving the public interest, professionalism, and not misusing their government position, auditors constantly weigh possible actions against these standards. Not only must we in fact meet these standards, but also must guard against the perception that we are not. In order to do this, auditors first think about a course of action and then pause and reflect on the effect of that action to consider whether it meets the ethical test. It is a very high standard, but necessary. The credibility of our work, audits, depends upon it.

Update to Sex, Drug Use and Graft

Update to a recent post. The Oregonian now has an editorial relating to the audit report that was issued last week.

Department of Defense auditors muzzled

Several weeks ago I wrote about how government auditors had been intimidated and didn't follow standards. On the same topic, the Government Accountability Office released an audit today titled "Allegations That Certain Audits at Three Locations Did Not Meet Professional Standards Were Substantiated." That doesn't sound very newsworthy - didn't meet standards - ho-hum. Note: the DCAA is the Defense Contract Audit Agency (DCAA) under the Department of Defense and provides oversight for defense contracts.

But read this "Moreover, during our investigation, DCAA managers took actions against their staff at two locations that served to intimidate auditors and create an abusive work environment."

Further, "We found that enough evidence had been collected by the original supervisory auditor and senior auditor to support this opinion. However, after the contractor objected to draft findings and conclusions presented at the audit exit conference, the DCAA resident auditor replaced the original supervisory auditor assigned to this audit and threatened the senior auditor with personnel action if he did not change the summary workpaper and draft audit opinion. The second supervisory auditor issued the final report with an “adequate” opinion without documenting adequate support for the changes."

That is why following standards is so important.

Government auditors and independence

Here's an another good example of why auditor independence is so critical. The NY Times evidently broke the story after a report by the Inspector General at the U.S. Department of Health and Human Services was leaked. You can also read about it in the Miami Herald. In a report to be released next week, the Inspector General found that AdvanceMed, a company hired to audit claims payments by the Medicare program and calculate the rate of improper payments, was pressured to not follow written procedures. They were told to only verify payments with the vendors and not check medical or patient records to ensure that the item was prescribed and received. As a result, the Inspector General found that the rate of improper payments was much higher than reported by AdvanceMed.

According to one report this firm is a subsidiary of a larger company that is a major government contractor and that this made them susceptible to the pressure applied by the Medicare program. According to another report, the Government Accountability Office is in the early stages of auditing the same company for another project.

Auditor Independence

The story continues out of Los Angeles of the battle between the City Controller and City Attorney as reported in an earlier post. The language is getting quite strong out of the City Attorney’s Office. A spokesman is quoted as saying that the city attorney is willing to have his workers' compensation unit reviewed by an independent auditor, but he objects to having a "politician" conduct the audit.

I have always thought that being elected gives auditors a “leg up” on independence. Government Auditing Standards which guide us all, state that auditors must maintain independence “so that their opinions, findings, conclusions, judgments, and recommendations will be impartial and viewed as impartial…” The standards then go on to define what organizational independence is. Audit organizations where the head is directly elected by voters of the jurisdiction being audited are presumed to be independent. Auditors though are cautioned to avoid even the appearance of impairments to independence.

More about putting the personal aside and control

I earlier noted in a post that sometimes auditors can add facts and reason to a politically charged environment. But this week in the news is a story about an elected auditor whose authority to audit is challenged by another elected official, the City Attorney. The Los Angeles City Controller was scheduled to begin a performance audit of the worker’s compensation program which is in the office of the City Attorney. The City Attorney has gone to court to block the audit. When I was at Multnomah County, my office audited the Sheriff’s Office and the District Attorney’s Office, both led by elected officials. There was never any resistance to the audits or questioning of the office's authority to audit a department led by an elected official. In fact, when you think about it, almost every audit ultimately lands at the feet of an elected official. But the City Attorney is claiming that the City Controller is politically motivated. She is term-limited and may be seeking office as a City Councilor. The City Attorney is claiming that the Controller is not independent and that the City Charter only allows her office to do financial not performance audits.

At Metro, the Charter is pretty clear. “The functions of the Auditor include financial as well as performance audits of all departments, offices, commissions, activities and operations of Metro and reports regarding compliance with adopted laws, policies and sound fiscal practices.” Also, the Metro Auditor for four years after the last term is ineligible to hold the office of Metro Councilor.

Funny thing, here are similar charges of a politically motivated audit from Pakistan.

Operating in a political arena

Auditors for the most part tend to be cautious and reticent to be in the public eye. But here is an audit that brings facts to a politically charged arena. It resulted in an editorial in the NY Times.

Putting the personal aside

When you're auditing you have to separate your personal beliefs from your work. There are many programs and services at Metro that I get excited about because they help to shape the future of our region. I value planning and preserving what is unique about this area. But as an auditor I also value action and efficiency. So it is with a critical eye and skepticism we approach any program or service. Without that an auditor can't be objective or provide the accountability that the job requires.

Auditors speak out.

If the auditors won't say it who will. Sometimes everyone knows what the problem is but no one can say it and it is only the auditor who can bring things to light. This recent audit by the Government Accountability Office shows how auditors may be the only ones able to call out when there is a suppression of facts. GAO auditors found that Department of Defense auditors were prevented from acting independently in a review of contracts. Independence is the cornerstone of auditing. Only bad things can happen when independent review is constricted.