Long Summer

Auditing is a lonely business. It helps to work on a team who can appreciate and congratulate you on your work, but at some point you must speak up. The information in an audit is not always welcome but it must be said . That is why we work so hard on clarity and conciseness - to communicate the results and to be prepared for that moment. Most times, the satisfaction of being a voice of accountability outweighs the loneliness.

Words 2

As I said below, words are important. As auditors we want to speak precisely. But to communicate to our audience we may have to speak more generally and give up some precision. Case in point, is in the new Freakonomics blog post. Economists have a precise definition of "recovery" but the public doesn't understand the same word the same way.

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.

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.

Well known auditor on NY Times Front Page

I opened the NYTimes web site this morning and saw a familiar face. Mark Funkhouser, previous Kansas City auditor, is well respected by the local government auditing community and was a leader in auditing. I use some of the columns that he wrote for the Local Government Auditors Quarterly to train new staff. He ran for mayor of Kansas City and won. The transition from auditor to mayor has not been easy.

Descriptors of an auditor

I just finished Freakonomics. It was an easy read and interesting. It would be a good text for a beginning class on auditing. At the end of the book is some "bonus material." Included is the original NY times article about Steven Levitt written by Stephen Dubner, the co-authors of Freakonmics. Mr. Dubner describes Mr. Levitt as a detective, an intuitionist, and an accidental provocateur. I think these are also descriptors of performance auditors.

Curiousity

I've started reading Freakonomics. I thought since I found the blog so interesting that I should read the book that started it all. The drive behind this economist is similar to what I find fascinating about auditing. Many times as you start an audit you hear from the program or service some "truth" that influences operations. You test that "truth" and find out how things really work. That is what Freakonomics is about - how things really work. Sometimes it is just more detail behind the scenes that, although the "truth" still stands, what makes it true is different then you thought. But sometimes the "truth" is really wrong. Things are not as they seem. Whatever the finding, the audit is unraveling the ball of string and then trying to craft recommendations to make the program or service better.

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.

Auditors on the Sports Page!

The Indian Audit and Accounts agency is on the sports page of The Hindu for capturing both the men’s and women’s titles in the 10th National inter-institutional carrom championship. What is carrom? And? The Indian Audit and Accounts? The Indian Audit and Accounts has a history of over 140 years. In 1860 the Government Accounting and Auditing functions were amalgamated and placed under the Auditor General of India. That made me curious about the U.S Government Accountability Office (GAO). Here is a history of the GAO. Excerpts from that history are below.

"The first Congress passed the Treasury Act of 1789, creating the Treasury Department with a Secretary, a Comptroller, an Auditor, a Treasurer, and a Register. The Comptroller of the Treasury was the predecessor of the modern Comptroller General."

"After debating in 1919 and 1920 whether accounting and auditing functions should remain in the executive branch, the Congress eventually decided to create GAO “independent of the executive departments.” And, "Title III of the Budget and Accounting Act of 1921 abolished the Office of Comptroller of the Treasury and established the positions of Comptroller General and Assistant Comptroller General..."

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.

OMG - Exotic Fantisies - GAO Reports

David Brooks, Op-Ed columnist to the NY Times and also commentator with Newshour with Jim Lehrer, began a column yesterday with this, "I have dreams. I may seem like a boring pundit whose most exotic fantasies involve G.A.O. reports, but deep down, I have dreams." Yes!

Most admired institutions

Over at the Freakonomics blog Stephen Dubner asked readers "What's an institution you admire?" So far there are 143 comments and many contain more than one institution. It's an interesting read. I added my comment and voted for government auditors. :>)

Auditors' Part in the Financial Crisis

Here's an article in a newspaper in Scotland about what part auditors had in the current financial crisis.

Where were the auditors?

As I watched the economic crisis unfold and then read yesterday that over 100 economists had come out with a united statement about the government bailout I wondered, where were the auditors? This blogger is wondering which big 4 firms will be auditing the failing banks and noting that they were also involved in creating this crisis. But I also wondered if government auditors had been warning about this risk or not.

I did a quick search on the Government Accountability Office (GAO) website and found two reports that are interesting to say the least. In 2000 the GAO issued an audit about the roles of Freddie Mac and Fannie Mae. At that time the GAO said, "Federal sponsorship creates significant risks and costs because taxpayers might end up paying part of that more than $2 trillion debt."

An audit released on March 6, 2008 and titled, HOUSING GOVERNMENT-SPONSORED ENTERPRISES: A Single Regulator Will Better Ensure Safety and Soundness and Mission Achievement, contained these statements. "While the GSEs (government sponsored enterprises) provide certain public benefits, they also pose potential risks." and "While not obligated to do so, the federal government could provide financial assistance to the GSEs, if one or more experienced financial difficulties, that could result in significant costs to taxpayers." The GAO recommended "that Congress establish a single regulator that is equipped with adequate authorities to fully oversee GSE activities and governed by a board or hybrid board structure."

And, in 2007, a report was issued on default and foreclosure trends. That report stated "According to mortgage industry researchers and participants, the number and percentage of loans in default and foreclosure are likely to worsen through the end of 2007 and into 2008, due partly to scheduled payment increases for many ARMs." So the auditors were not silent.

Auditing is like going back to school

It took me a long time to not want to go back to school in the fall. Every time the season changed and the air became crisp, I used to think about new classes, new challenges, and new books. I was reminded of this when my daughter started college a week ago.

One reason auditing is fun is because each audit requires that you go back to school. At the beginning of an audit, we are never experts in the particular field we are studying. So at first, audit work involves becoming a mini-expert in the subject area. We review literature, find books to read, and go out and visit the program to see how it works on the ground. It's an exciting time as a picture starts to emerge.

Auditor who ran for office

Previously I said if I were running for office I would talk to the auditor. In Kansas City the auditor ran for mayor. I guess he got tired of no one taking the office's advice or asking. His campaign focused on financial stability and transparency. Here is a recent story with a great quote at the bottom. The office of the Kansas City Auditor has audited tax incentives many times in 1998, 2002, 2003, and in 2007 released after he retired and announced his campaign for mayor. So I think he has a good understanding of the problems. He has not been without controversy.

I did have random thoughts

In a previous post I cited a GAO article on transparency. In it, the Chinese auditor general was mentioned. Here is a story where the Chinese auditor increases transparency in China.

Taking your work home with you

This cracked me up. I thought I was the only one that did that.

I was right

Front page of the Oregonian today is a second story about Social Security. Yesterday I wrote about this story and speculated that the cause of the incredibly slow system could be lack of funding or over-proceduralization. The headline of the story - "Social Security backlog grows from lack of cash." Another difference between journalists and auditors - auditors get to write their complete findings in one report. Journalists have to write a series over several days to tell the complete story.