The AGA Weblog

Think Big! Act Courageously! Make a Difference! Performance Management

By: William Morehead, Ph.D., CGFM

William Morehead, Ph.D., CGFM, a member of AGA’s Jackson Chapter, is the chair of Accountancy, Computer Information Systems and Finance at Delta State University in Cleveland, MS. He is AGA’s National President-Elect.

Happy Halloween! AGA completed another successful Performance Management Conference (PMC) this week in Seattle—what a “treat” (not a trick)!

The PMC was a wonderful opportunity to network with likeminded professionals from all over the country where we addressed issues of performance measurement and management. A special thanks goes to our hosts in the Northwest, our speakers, the technical committee and the AGA staff —y’all were great. Further, we could not have had better weather. What an excellent event!

On Tuesday, October 28, 2008 at the concluding forum on the subject of performance management, the question was asked, “How do we get other governments involved in Service, Efforts and Accomplishment Reporting?” Some 20 governments have been awarded the AGA Certificate of Achievement in SEA Reporting since the inception of the program a few years ago; this number is growing, but slowly. Our discussion on this question suggested many governments have some form of performance measurement and management systems, but perhaps, they are just unaware of the Certificate process established by AGA? 

If this is the case, how do we “get the word out?” We have spoken to and communicated with many municipal and other state and local groups. Your AGA national leaders and office staff discuss the SEA Program in numerous settings as we travel around the country; and, we’ve just held our fourth PMC. The word is out there, to some extent; are our communications getting through on a broad scale?

Could it be we all so busy in our respective governments that we cannot stop and reduce our already functioning performance management systems to writing based upon the suggested criteria from GASB? Or, is it that our performance management systems are truly just performance measurement systems instead (where we are only measuring performance and not using the data to help make management decisions about changes and improvements to existing processes)? If the latter is the case, then we have a system where we are reporting on data and nothing more.

We must “complete the circle” for our performance measurement process to become a performance management process. Our respective governments need to strategically anticipate and plan their future. They must be prepared to respond to changing and challenging conditions rather than just simply reporting on past performance; and, they must act on the data and the results in order to affect positive change. Hence, they must “complete the circle.” 

AGA is all about accountability in government. Is AGA doing all it needs to do in this area? I have asked a lot of questions on performance measurement and management! What are your thoughts? Let me hear from you on this issue.

Live from AGA's Performance Management Conference

Performance Audit in Washington State

Washington State Auditor Brian Sonntag, CGFM, kicked off the last day of AGA’s Fourth Annual Performance Management Conference by describing the sweeping performance audits conducted by his office by virtue of a 2005 voter-approved initiative.

Sonntag said voters gave his office the most extensive authority to perform comprehensive and independent performance audits in the country. The office is responsible for auditing 2,700 governmental units – from the massive state Department of Transportation to tiny mosquito control districts in eastern Washington.

Sonntag said his office was not even allowed to conduct performance audits, as the prohibition was included in state law until 1993, when the prohibition was removed. However, the only way performance audits could be done was if the legislature ordered and funded them, which resulted in very little performance auditing, he said.

In 2005, thousands of signatures were collected to place the voter initiative on the ballot, which passed by nearly 60 percent. “People want to see government be accountable, perform well and do the jobs we were hired to do.”

Sonntag stressed that he works for the people of Washington, not the legislature or the governor, and a cornerstone of the new performance auditing authority is gathering public suggestions on what issues should be explored. The auditor’s office has formed a new performance auditing department and hired a contractor to reach out to citizens through meetings, focus groups, surveys and even a televised town hall meeting on PBS that generated 1,000 suggestions.

Some of the audits have been narrowly focused; others are more sweeping. The first performance audit, he said, resulted in four specific recommendations on how to improve the motor pool operation of the General Administration Department. The report recommended $1.5 million in annual savings, and the department also sold excess vehicles that brought in $500,000. All the recommendations were adopted.

Another performance audit actually saved lives, he said. His office made 67 recommendations on how health care workers should be credentialed and disciplined after a Seattle Times article titled “Licensed to Harm” highlighted the lax licensing requirements in some health care disciplines.

Sonntag was asked about sharing his office’s best practices with other states, and he pointed to AGA as a “shining example” of an objective, third-party organization that can facilitate sharing of information.

GASB Update: The Government Environment and the Value of SEA Reporting

Robert H. Attmore, CGFM, chairman of the Governmental Accounting Standards Board (GASB), said the board has been researching Service Efforts and Accomplishments (SEA) reporting for two decades and is gathering comments on proposed guidelines for voluntary reporting of performance information. The comment deadline is Oct. 31.

The proposal calls for four essential components to SEA reports: the purpose and scope, major goals and objectives, key measures of SEA performance, and a discussion and analysis of results and challenges.

Attmore said the project is NOT about establishing performance measures, benchmarks or reporting standards, and the GASB is no intention to require SEA reporting. However, he said he believes “it’s really important to do this to have true accountability.” Financial statements are not enough to help citizens decide if they are getting value for their tax dollars, he said.

Federal Government Update: The Past, the Present, and the Future of Performance Reporting

Robert Shea, director, Global Public Sector, Grant Thornton LLP, gave the audience his insights into progress in performance reporting at the federal level and predictions of what the future may bring. Shea is the former associate director of Administration and Government Performance at the U.S. Office of Management and Budget

In the last eight years, he said, tremendous progress has been made in federal financial management in many areas. Two examples are accelerated financial reporting and the implementation of the Performance Assessment Rating Tool, which seeks to determine whether government programs are well-managed and meeting their goals. In addition, he said, transparency has been revolutionized. A massive amount of financial data is openly available on the USAspending.gov and Expectmore.gov websites.

In the next presidential administration, no matter who is elected, it’s likely that a top-to-bottom review of federal management will be conducted and the PART results will be validated, Shea said. Sen. Barack Obama has proposed a chief performance officer position in the White House, which would bring far greater visibility to performance management and a greater focus on outcomes and usefulness of financial information. He said he also foresees a more aggressive focus on federal government agencies collaborating and working together more effectively. “I think we’re about to really ramp up in the next administration.”

By: Christina M. Camara, AGA Publications Manager

Quantifying Quality of Life—Measuring Matters in Government

By: Christina M. Camara, Publications Manager, AGA

King County Executive Rom Sims opened AGA’s Fourth Annual Performance Management Conference in Seattle Monday with an inspiring talk about the varied ways performance reporting has improved the lives of Seattle-area residents.

Sims, the three-term executive of the 14^th largest county in the U.S., is a leader in using performance information to develop policies and manage services for 1.8 million residents. He called performance information a “foundational building block” for accountability and building public trust. Without the ability to accurately gauge whether programs are successful, it’s nearly impossible to instill confidence in government, he told the audience at the Renaissance Hotel.

Sims said the county gathered comments from citizens about what services are most important to them. King County residents listed issues involving natural resources, such as restoring chinook salmon runs, as well as land use, transportation and children’s health care. Tracking performance helps agencies manage their programs, work collaboratively within government and see the impact of policies on the ground.

Performance measures tracked by King County include: reduction in King County government’s greenhouse gas emissions, percent of chinook salmon restoration projects completed, bus ridership levels, on-time bus performance by Metro Transit, timely answering of 911 calls, and percent of eligible children enrolled in Children’s Health Initiative, to name just a few.

He noted that his 2009 budget speech was one of the most difficult of his long public service career. He announced 125 layoffs and the fact that 309 unfilled positions would remain unfilled. Cutting jobs is a terrible task, he said, but it would have been far worse if he hadn’t had the performance data to help him set priorities and safeguard resources.

Performance information can be used to help tackle some of the most intractable problems facing King County. He discussed the health disparities within the county, for example. In the poor neighborhoods where fresh food isn’t sold, where fast food restaurants abound, where parks and walking trails are scarce…these are the neighborhoods were childhood obesity and diabetes is high. “The data told us this,” he said. The result of studying the data is an aggressive push for more livable communities. In poor neighborhoods, housing, parks and walking trails are being created. “We’re launching an assault on poverty,” he said, “and we couldn’t have done it without the data.”

Statistics on homelessness also helped the city provide the right services for its most needy residents. The data said 40 percent of homeless people in the county have college degrees; wrap-around services were provided to stabilize families and get them into temporary and then permanent housing.

Affordable housing, parks and trails, a thriving arts community and an inclusive, welcoming environment for people of all races, classes and sexual orientations are the keys to attracting new residents and businesses, he said. Tracking performance can help provide the background information to eliminate poverty, racism and restore faith in government.

We’ve Come a Long Way Baby­—40 Years of Performance Management and Reporting

Harry Hatry, director of the Public Management Program at the Urban Institute, and Paul Posner, director of the Public Administration Program at George Mason University, followed Sims’ talk with a discussion of the long history of performance reporting and a look at what the future may bring.

Performance-based management has gone through many phases: as a way to look at economic efficiencies of weapons systems in the early 1960s to PPBS (Planning, Programming and Budgeting Systems) and zero-based budgeting in the 1970s, to the “Reinventing Government” movement of the early ‘90s, to the Government Performance and Results Act and Service Efforts and Accomplishments work by the Governmental Accounting Standards Board reaching back to the mid-1990s.

Hatry said governments are slowly moving from merely measuring performance to using it to improve programs. “The element of using the information to make decisions has taken a back seat. I hope we’re emerging out of that,” he said.

He sees a few major trends in performance management: the increasing use of technology, such as GPS and handheld computers to collect data, more reliance on citizen surveys, logic models and “how are we doing sessions” within government so staff can discuss what they’re doing well and how services can improve. “This is a new fad in performance management today, and it’s a good fad I think.”

Some of his concerns include inadequate explanations for outcomes that were unexpected and too much emphasis on form over function in performance reports.

Posner discussed the Government Performance and Results Act and the Performance Assessment Rating Tool (PART) on the federal level, and what’s been learned. Integrating performance and budgeting is a challenge for many reasons, but success can be helped along by agreeing on goals and the metrics used.

“This is not an easy thing to do. There are inherent tensions,” he said. The Bush administration’s education reform effort, No Child Left Behind, is one example of where performance is at the center of an intense political controversy. “It has the potential to accentuate conflict.”

He said he would love to see the next presidential administration to “continue what PART started in a more collaborative way.”

Tomorrow: Performance Audit in Washington State and GASB Update: the Government Environment and the Value of SEA Reporting.

 

 

 

 

 

 

 

IBM Center Releases Transition Guides

By: John M. Kamensky

 John M. Kamensky is a Senior Fellow and Associate Partner, IBM Center for The Business of Government.

Next week, we’ll know who the next President will be. And he’ll have to hit the ground running to deal with the mega-challenges he’ll face. 

His first task will be to put in place his team of executives to run agencies that oftentimes dwarf even Fortune 50 companies. How do they get up to speed?

Incoming agency executives in the next President’s administration must focus on ensuring success in key management areas, and respond to six imperatives, in order to ensure their success, according to two new books from the IBM Center for The Business of Government.

The authors, all former career federal executives, interviewed hundreds of current and former government officials, public policy experts, academics and researchers to prepare succinct guides detailing the shift from campaigning to governing.

 Book 1: The Operator’s Manual 

The Operator's Manual for the New Administration is like a new car manual. It tells you how it works. It details critical areas of expertise—leadership, performance, people, money, contracting, technology, innovation and collaboration—along with examples of effective government management. You can also read the book online at a special website devoted to presidential transition resources.

Each critical area starts with a two-page memo to incoming agency executives with crisp explanations of what they face. For example, in the “Money” area, the memo highlights the role of agency CFOs:

“While legislation has been put into place to strengthen the role of the federal chief financial officer (CFO), there is a lack of clarity for federal CFO roles and responsibilities. Oversight responsibilities for CFOs in the federal government vary from agency to agency. While CFOs are responsible for the financial management activities of their agency, not all CFOs are responsible for budgeting and planning. Similarly, some CFOs share responsibility for implementation of financial management systems with their agency chief information officer (CIO). Moreover, in some agencies, the CFO is responsible for many other agency activities, including human resources, asset management, procurement, facilities, bankcards, and general administration in addition to financial management. In some agencies, the CFO also reports to the CIO. In other words, there are no standard practices for federal CFO responsibilities.” 

Each memo is followed by a series of questions-and-answers. In the Money section, these include questions such as: “Do you have any suggestions on how we might better control costs?” and, “Can you tell me more about the ‘cost management’ culture?” Responses are based on past IBM Center studies.

 Book 2: Getting It Done

The Getting It Done: A Guide for Government Executives is more like a map. While the Manual tells you how the car works, the Guide is more like a map on how to get somewhere. In it, the authors identify six initial imperatives for success:

• “What I meant to say was … “There is likely to be a gap in time (sometimes long) between nomination and confirmation.  During this time period, learn as much about your agency as possible.

• Get smart. While you have done your background research on your agency prior to confirmation, devote early days in office to learning more about your customers, your agency programs, and “flash points” that may cause problems down the road for an agency.

·       The urgency of now. As part of learning how your agency works, find out what needs quick action and what issues require further study.

•       It’s the vision, stupid! A vision and a focused agenda will be crucial to your success in Washington. You will need to both communicate the vision and convey a sense of urgency to get it done. 

·       Civil servants are people, too. A key ingredient to your success will be putting together a joint political/career team. Don’t view your staff as two distinct camps. Avoid “political appointees only” meetings as much as possible.

·       Likeability works. All organizations—public and private—have stakeholders and a complex environment, but many observers think that government is harder because there are so many stakeholders. The key to your success will be succeeding (to a large extent) with all of them.

In addition, Getting It Done contains 14 “primers”—written by experienced leaders—on how to work with key stakeholders such as the White House, Congress, the Office of Management & Budget, the media, etc., all of whom are key to “getting it done.”

The Washington media has showcased these two books as being useful. What do you think? What additional advice would you add to new agency leaders?

 

Increasing Transparency in State and Local Government Purchasing

By: Stephen B. Gordon, Ph.D., CPPO, FNIGP

Stephen B. Gordon, Ph.D., CPPO, FNIGP, a member of AGA’s Northern Virginia Chapter, is Director of Procurement, City of Alexandria, Virginia* 

Especially in difficult financial times, it is critical for state and local government purchasing and contracting processes to be transparent to policy makers, managers, and the public. If properly planned, executed and administered, purchases and contracts present clear opportunities to reduce expenditures, optimize service quality and increase public confidence in state and local government.

Historically, several factors have driven interest among citizens, good government groups and others in how states and local governments spend their money for goods, services and construction. These factors have included concerns that purchases and contracts do not always yield the best value for tax dollars; that purchases and contracts are not always awarded through open and competitive processes; and concerns that purchases and contracts, once awarded, are not always administered as well as they should be.

Kickbacks and other forms of blatant corruption have captured most of the attention from law enforcement authorities, investigative committees, and the media over the years. However, there are many other longstanding, widespread and more subtle practices, which are deceptive, wasteful and abusive that need to be made visible. These other practices include selections of vendors and contractors made under strong pressure to “just get it done.” Means and methods used to force purchases and contracts through systems designed to protect the public interest include unjustified or insufficiently justified sole source contracts, unjustified or insufficiently justified emergency contracts, last-minute requisitions and contract requests with short turnaround times, and “forced fit” piggyback (or rider) contracts.

In the rush to just get things done, bidders are not always properly vetted, the “responsiveness” of bids is not always checked out sufficiently, and proposals are not always evaluated through processes that reasonable people would agree are as structured, rational, objective or impartial as they should be. Because there often is too much work for increasingly too few staff members in purchasing agencies
and client departments, many contracts of necessity extend beyond their intended expiration date, increasing both costs and risks for the particular state or local government.

The post-award growth in the scope and size of many construction, technology and other large dollar contracts would be a source of disappointment and dismay to those who gain more access than they now have to state and local government purchasing and contracting information. These same individuals would also be disturbed by how poorly some state and local governments pay their vendors and contractors, because slow pay is costly to state and local governments in both the short term and the long term.

Arguably, the supporting information for individual procurement decisions is available in one form or another in most instances. The principal challenge for state and local governments is how to provide easy and efficient access to that information, which enables interested citizens, stakeholders and organizations to put together the various pieces of information in a way that makes sense and tells the right and complete story. Even within individual state and local government agencies, the information one needs to answer a question might be in a paper file or a technology solution, or in several paper files and  several technology solutions.

Moving beyond the “process information” that supports individual procurement decisions, the public also should have easy and efficient access to information related to the people who were involved or had a stake in individual procurement decisions. This additional information should include personal disclosures by public officials who participated in procurement decisions as well as contributions made by firms and individuals who participated as bidders, proposers, and key team members of bidders and proposers.

What has your state or local government done, or what is it doing, to increase the transparency of its purchasing and contracting processes?
________________________________________________________________________
* Any opinions expressed by the author of this essay are those of the
author and not necessarily those of the City of Alexandria, Virginia

Maintenance or Modification? Expense or Capitalize? Who Decides?

By: Ric Sylvester

Ric Sylvester is director, Property, Plant and Equipment Policy Office, Undersecretary of Defense, Acquisition, Technology and Logistics, U.S. Department of Defense

Should the costs of replacing a roof be capitalized or expensed?

The accounting guidance is pretty straightforward: Efforts that extend useful life or increase capability or capacity should be capitalized; efforts that keep fixed assets in an acceptable condition to perform their intended function and ensure that they meet their expected useful lives should be expensed. However, as always, interpretation and implementation in specific situations is the challenge.

Some believe that the decision to capitalize or expense should be based on intent, that is, the decision depends on why the roof is being replaced. If it is being replaced to allow the building to meet its expected useful life, then the costs would be expensed as maintenance. If it is being replaced to allow the building to last significantly longer than originally planned, the costs would be capitalized. This would be true whether the replacement roof was significantly more durable or was identical to the original. Intent is their key to determining accounting treatment.

Others believe that the nature of the work itself makes the difference. With this group, the decision depends on the nature of the effort/change. If the roof is significantly more durable and will last longer, then it should be capitalized. This would be true even if the only reason that the roof was being replaced was that it had been damaged and the only reason it was being upgraded was that the old roofing material was no longer available. The nature of the change would determine the accounting treatment.

An additional complication is that frequently multiple modifications are done as a part of an overall upgrade program. In addition to the roof, the siding may be replaced, the plumbing may be upgraded and new carpet may be installed. Some believe every element of this improvement effort needs to be assessed separately to determine whether it should be expensed or capitalized based on whichever criterion (intent or nature of effort) they had selected. Others would say that the totality of the project needs to be considered as a single effort and that the total cost should be capitalized or expensed.

When it comes to the treatment of maintenance and modification costs, reasonable individuals can justifiably arrive at differing positions as to the appropriate accounting treatment. The basic guidance can be used to support alternate positions. It’s easy to see how disagreements on accounting treatment may arise during federal audits, which result in wasted time and resources. Even worse, agencies may decide to develop systems to allow them to capture costs for each of the individual efforts included in a modification program—even if they do not agree with the requirement—if they think it’s needed to get to a clean audit opinion. The question is whether the expenditures associated with this effort would be a wise use of resources, and whether the additional detail improves management decision-making. 

Agency managers must make decisions relating to the accounting treatment for various maintenance and modification efforts on a daily basis. These decisions, which affect the type of funding used—generally Operating Materials and Supplies (OM&S) for maintenance and procurement for modifications—are based on input from agency managers and are indirectly supported by the congressional appropriation process.

I believe that in these situations, where the guidance is subjective, decisions made by agency management relative to the treatment of the costs should be accepted unless they are clearly unreasonable.

What do you think?

The Challenge Ahead

By: Bob Prieto

Bob Prieto is senior vice president at Fluor Corporation.

What future do we desire as a nation, and what is the level of economic competitiveness that future requires? This is the challenge our country faces. We must set an expectation of the quality of life we wish for ourselves and our children that is affordable and sustainable. This future must provide us, as a nation, with the ability to respond to new challenges, manmade and natural. It must be built upon the hopes and dreams of our children, who must have the knowledge and tools to improve the world within which we live. It must be a future that inspires us and has a strong foundation.

Today one of the elements of that foundation is in crisis. The nation’s infrastructure is crumbling.

In order to meet the challenges of the future, we must first challenge ourselves to redress this situation. We must set a broad and inspiring vision such as the one set in 1929 in the first New York regional plan, or in 1956 with the dawn of the interstate highway era, or in 1962 when then President Kennedy challenged the nation to put a man on the moon by the end of the decade.

We see that vision as putting in place a world-class critical infrastructure system that provides a solid foundation for the nation’s health, safety and well-being by 2025.

To achieve this vision we must conceive new ideas and use new frameworks and approaches. We must act in a concerted way over a sustained period as a nation. We must keep a clear focus—failure to put in place a world-class set of integrated and efficient infrastructure systems will slowly sap our economic competitiveness. Failure will deny us the economic resources we as a nation require to be a world leader.

While the U.S. infrastructure is crumbling, our competitors around the world are improving their infrastucture systems. The time to act is now.

How can we achieve this vision of putting in place a world-class critical infrastructure system that provides a solid foundation for the nation’s health, safety and well-being by 2025?

Change must occur at all levels and in all elements of what comprises a world-class infrastructure system. The dimensions of change include:

• Leadership—It is not someone else’s duty to lead. Leadership must take place at the national, state and local level, by the executive, legislative and judiciary, by the public and private sector, and by business, academia and the citizenry.
• Education—As a nation we do not understand the severity of the crisis. The American public, its leaders and its children must understand that the need is not just about future “success” but very much about survival, for our way of life at the very least, and in the longer term about much more. Our future is not assured and our prospects will only grow more dire the longer we wait to address the problems facing us.
• Vision—The nation’s leaders must articulate this vision, support this vision and most important, drive it home. It is not a vision about concrete and steel, rather it is a vision about the jobs we can have, the privileges we can enjoy, the quality of the life we can live and the quality of the environment in which we will eat, drink and breathe every day.
• Decisiveness—Decisions in the 21st century must recognize that the silos of the past are barriers to the future. More holistic approaches such as the regional approach first employed in the New York regional plan of 1929 or the national perspective embodied in the Pershing map that underpinned the interstate highway system are required. Perhaps more than ever, however, we must recognize that inaction carries an unacceptable penalty.
• Innovation—The future requires new solutions and bolder applications of the technologies we currently have. We must invest in being a leader in how we plan, deliver and finance the strong foundations we wish for our nation’s infrastructure in 2025.
• Stewardship—We must be honest with ourselves on the cost of deploying and sustaining a world-class infrastructure. We must recognize the impacts of our choices and make decisions that promote improvements to the quality of life and the environment we all share.

The Challenge is Great

The challenge ahead is great, but we are a great people. The effort will be hard and the journey long—certainly longer than the two-, four- and six-year election cycles that have governed many of our more recent decisions on meeting this growing infrastructure challenge. The cost will be great, certainly more than the tens of billions some have suggested. But failure is not an option. We must succeed for ourselves and for our children. We must succeed so the ideals we believe in have resonance in the future. We must succeed so that we may remain that shining beacon of hope that lady Liberty embodies in New York harbor.

We have the most fundamental tool required for success, the strength and determination of the American people when they rally behind a great goal. This is the opportunity for us to control our own destiny much as those who founded this great country choose even greater sacrifices to control their own.

A Question for Each of You

How should we change our planning, budgeting and accounting practices to ensure that we fully and realistically price risk (time, money) up front and reflect and provide for full lifecycle costs?

Advocating for Our Cause

By: Nancy Shepherd, CPA

Nancy Shepherd, CPA, is senior field auditor at the Family and Social Services Administration, State of Indiana.

Senator ______ called our office today to inquire about an audit report you issued. [The grantee] is having trouble understanding what you need from them to resolve this. Is there any way you can clarify your finding?”

I sighed deeply as I returned the phone’s handset to its receiver. I had bent over backwards for this grantee, finding every excuse I could live with for whittling down the substantial disallowances in my report based on poor documentation and inadequate subcontractor oversight. Regarding the finding in question, I had e-mailed detailed instructions for additional information that another grantee in similar circumstances had followed without problem. But, this particular grantee is located in a powerful district in our state and has an attitude to match. “These things can always be worked out by the lawyers,” the director told me at the exit conference.

I thought back over the many battles I have fought since accepting my first state government job a little over six years ago. At that time, I performed external audits of state agencies. I quickly perceived a gap between what average members of the public assumed we were keeping an eye on and what we actually reported to them. Some of my colleagues inspired me with their courage and persistence in selling their findings upstairs year after year. It took unpaid overtime to dig down into an agency’s culture rather than locating the minimum information necessary to complete our control evaluation checklists with plausibly complete replies. These checklists, prepared by our quality control department, ensured that we passed peer review.

Others scoffed at these efforts. “No one ever got fired for turning in a clean audit report,” one colleague informed me. But auditors did get called to the front office to answer complaints received from agency heads regarding their “hostile communication style.” Auditors labored through extensive rewrites to achieve the “more objective language” favored by reviewers, a language rife with technicalities that discouraged public comprehension. Auditors were overruled on review if they could not produce “smoking gun” evidence of soft control failures. Auditors who turned in too many findings missed deadlines, and deadlines mattered for promotions. Some auditors burned out and left state government, and other auditors survived.

Survivors understood the value of avoiding phone calls from the Legislature, either to the state examiner’s office or to the agencies we audited. Too many phone calls placed us at risk of funding cuts, including the number of auditor positions. “Until the state decides to truly fund the audit function,” some of my superiors sighed, “we can only do the best we can.”

In all fairness, our best was better than average compared to many states, but is that good enough? We have before us the example of the Washington state auditor, who went over the state Legislature’s head to the citizens by referendum and obtain a dedicated source of funding. In return, he promised to open up the doors to the audit function through town hall meetings and other means of encouraging public input. On the other hand, we have before us the example of Michael Cantrell, an army engineer turned underground lobbyist on the taxpayer’s dime. Cantrell evaded discipline for financial improprieties by being careful to steer contracts to key congressional districts whose senators and/or representatives could be counted on to intervene on his behalf if any trouble arose. (See “Insider’s Projects Drained Missile-Defense Millions”). 

Until the public demands accountability, the political process cannot deliver it. Special interests will continue to gut the substance of the audit function, while keeping enough of us around for cover. I’ve become convinced that auditors cannot afford to “rise above” the political process if they wish to avoid being dragged down in the mud by it. We must find ways to directly engage the public in understanding the importance of our role. We must out-lobby the lobbyists in defense of due diligence in our reporting. We must become effective and organized advocates of the principles that we hold dear in order to preserve them for future generations. Without our own control environment in order, we will have little to attract the best candidates to our profession.

Questions

How can accountability professionals build understanding and support at a grass-roots level for our role?

How can we identify and support those legislators who support government accountability? How can we empower them with talking points?

How can we counteract the negative influence of legislators who do not support accountability?

Hands Free? Or Security Free? You Decide

By: Mark Abraham

Mark Abraham is an Information Technology Specialist II with the Network Security Unit, Division of State Government Accountability, Office of the State Comptroller, State of New York. He is DoD IACND Level III Certified.

The other day my father asked me to help him connect his new hands-free Bluetooth headset to smart phone so he could safely speak on the phone while driving to and from conferences. It only took a minute to get it connected and he thanked me and proclaimed, “Now I’ll be safe when I use my cell phone!” This made me think about the information security or “safety” of Bluetooth on cell phones and smart phones.

I agree that while hands-free is surely the way to go when it comes to driver safety, a few minutes on the Internet was all it took to reveal that there are a few “bugs” with Bluetooth. Within 30 minutes I had downloaded a few nifty little programs that lets me do almost whatever I want with YOUR cell phone from MY laptop, PDA, or even my own cell phone. Using freely available software, I was able to scan for and find my dad’s cell phone, bypass the password, and take complete control of his phone from outside the house. (Note: I asked his permission before “hacking” him; otherwise it would be illegal.)

Once I gained control of his cell phone I was able to see and copy his address book, view his recent call activity and text messages, and even make calls using his minutes. What are those phone companies thinking? A little more tinkering revealed that I could turn on his microphone and listen to everything that was going on in the room. The implications were nauseating. Not only can hackers steal your company’s information and your minutes, now they can eavesdrop on you too.

After a couple hours I had figured out how to extend this spy capability to the headsets themselves and I was even able to tap his car’s hands free system and listen to conversations taking place in the car. Here comes the scary part. There are freely available plans to make an antenna that will let you do all of these terrific things from up to a mile away. A MILE.

Naturally my next question was, how in the world can I prevent this? Well the two main things you can do are to disable Bluetooth until you really need it, and make sure to keep your phone software up to date.

Questions

Do you have good controls over who has access to your Bluetooth devices?

Have you audited your organization to see how Bluetooth security is being implemented?

A True Financial Markets Meltdown or Simply an Accounting Problem?

By: Jeffrey C. Steinhoff, CGFM, CPA, CFE

Jeffrey C. Steinhoff, CGFM, CPA, CFE, a member of AGA’s Northern Virginia and Washington, D.C. Chapters, retired earlier this year after 40 years of government service. His most recent position was managing director, Financial Management and Assurance, U.S. Government Accountability Office (GAO). He is an AGA Past National President and is known in the Association as the “father” of the Certified Government Financial Manager (CGFM) Program.

In the past month, the country watched the federal government provide financial support to facilitate the acquisition of Bear Stearns, take over Fannie Mae, Freddie Mac and AIG, and now approve a massive financial institution bailout. We all watched the venerable Lehman Brothers collapse, Washington Mutual tank, and a household name, Merrill Lynch, be acquired by the Bank of America to stave off possible bankruptcy. President Bush went on national television to discuss the precarious position of our financial markets and the urgent need for immediate action by the federal government to avoid a meltdown. The Secretary of the Treasury demonstrated leadership in fighting what was a burgeoning forest fire on several fronts using a variety of garden hoses and calling for high-pressured fire hoses backed up by billions in taxpayer dollars. When the House of Representatives rejected the first bailout bill, the stock market responded with an all-time record one-day drop of 778 points. But after all, members of Congress had all of about a week to act on a proposal that put untold billions of taxpayer money on the table. Based on my experience, the average person spends more time picking out a sofa.

Pundits have ruminated over the causes, whether it be Wall Street greed, deregulation, political inaction, the wrong incentives, naiveté by home buyers, flat-out stupidity or a combination of all of the above, which is most likely the case. A lot of fingers have been pointed. While one can certainly disagree as to the solution, the bottom line is that there is a serious problem, with a range of culprits, requiring some type of intervention by the federal government to avoid further disruption of the financial markets and serious impacts to our economy.

One rationale cited for the market meltdown was the decision by the Financial Accounting Standards Board (FASB) to adopt fair value or mark to market accounting, whereby assets are reported at their fair value. Some now want the clock rolled back on that standard. If fair value accounting pushed the crisis over the edge as some claim, it simply did so sooner than later by helping shed much needed light on the seriousness of the situation. We are in a financial market crisis because banks made a lot of shaky loans and bad business decisions resulting in an avalanche of bad assets, not because in its wisdom FASB required the mark down of these assets to their proper worth for financial reporting! In fact, fair value reporting is one step toward rethinking the financial reporting model. We should go further in moving financial reporting in a direction that helps facilitate the identification of financial problems and risks much earlier in the cycle.

It is most unfortunate the problem was not on the table much earlier in the process so that all options could be fully explored. One lesson that we should learn from all of this is that financial reporting has to tell a story and be more anticipatory. What is the substance of a transaction and the risk associated with various financial instruments? For example, the present credit crisis might have been averted or its impact lessened had management and auditors been required to look more at the substance of transactions and disclose the degree of leverage and the related risks involved in the mortgages and related derivative paper that the banks and investment companies were holding.

Following the Enron and WorldCom debacles, steps were taken to deal with corporate fraud and enhance corporate governance. The risk of implosion of the financial markets and the related worldwide economic risks—not just to Wall Street but to Main Street as the President and Treasury Secretary pointed out in making their case for immediate action—should cause us to reexamine the financial reporting and audit models.

The time is right to ask fundamental questions as to their adequacy in today’s complex economic world. If fair value accounting pushed us over the edge, we owe FASB a debt of gratitude for getting the ball rolling. We just want to do that pushing a little earlier next time and through a financial reporting and auditing model that helps support early intervention or, better yet, enable us to avoid government intervention altogether.

My questions to the bloggers:

Do you think that fair value accounting was a culprit here or is it getting a totally bum rap in being cited as a contributor to the problems in the financial markets and should FASB be applauded?

Do you think we should reevaluate the financial statement model in earnest in light of the current financial market crisis and be willing to make bold changes as needed?

Do you believe the present audit model works or is it mission impossible for auditors where the risk of the underlying financial model is tenuous at best?