Oregon’s history of auditing parallels the growth of the profession

Frequency of word occurrence in scanned books

The field of auditing is taking on a larger role in government, and a growing subject of authors.  Google has scanned many published books and you can use their ‘Ngram Viewer‘ to chart the frequency of a term. Here is the mention of ‘audit’ and ‘accountability’ in English language books since 1800. Auditing was written about much earlier than the broader term of accountability, though the two are running nearly parallel since the 1970s.

The topic of auditing is also reflected in the history of auditing in Oregon. Oregon’s Secretary of State is the ‘auditor of public accounts” as set forth in the 1857 State Constitution. The responsibilities of the auditor of public accounts had already been outlined in Oregon’s Territorial statutes of 1854.

Starting in the territorial days, the auditor was the general accountant of the territory and was also responsible for reporting to the legislature those recommendations deemed “expedient for the support of public credit; for lessening the public expenses; for using public money to the best advantage; for promoting frugality and economy in public offices; and generally, for the better management and more perfect understanding of the fiscal affairs’ of the state.”

Here is an interesting example of a performance audit by Secretary of State Kincaid in 1897. The state purchased paper by weight in those days. Thousands of dollars worth of paper were bought every year but had never been weighed to verify correctness. Secretary Kincaid bought a pair of scales and, in the very first shipment, found it was several hundred pounds less than its claimed weight, resulting in a $19 overcharge. The current value of that overcharge would be $540.

On the national scene, the GAO was created in 1921, which coincides with the first jump in ‘audit’ mentions among the writings. ‘Accountability’ was not a commonly used term during this entire time period.

Then, starting in the early 1970s, both ‘audit’ and ‘accountability’ started their steep increases. GAO developed and issued the first version of Government Auditing Standards, also known as the Yellow Book, in 1972. Correlation doesn’t mean cause because other factors or events could have triggered this growing dialogue about accountability and auditing. For example, the Watergate investigation  leading to President Nixon’s resignation could have sparked increasing use of these terms.

In the early 1980s the Oregon Secretary of State started assigning staff to conduct these performance audits and promoting their value. Secretaries of State Paulus, Roberts, and Keisling all grew the performance audit capacity in the office, during the period that ‘audit’ and ‘accountability’ usage continued their steep climbs. New technologies and analytical tools have allowed the profession to grow in sophistication in the past decades, and information technology audits are now a common genre of performance audits.

One note of interest: the seeds of the Division’s performance audits were planted in Oregon’s Territorial Statutes, and subsequently grew into the Constitution’s current office of Secretary of State.

Compare the previous blue, territorial auditor responsibilities with the definition of performance auditing in the latest Government Auditing Standards:

Performance audits provide objective analysis to assist management and those charged with governance and oversight in using the information to improve program performance and operations, reduce costs, facilitate decision making by parties with responsibility to oversee or initiate corrective action, and contribute to public accountability. [2.10]

There is a remarkable overlap in responsibilities between the Oregon territorial auditor and the modern Secretary of State Audits Division, which complies with these standards.

Auditing has 160 years of history in Oregon and growing more important, as the profession’s trend continues its path here and nationally.

Accountability and Media Data Wonk Featured Performance Audit

Eye on the digital future: Coding a Better Government

What is government? According to the Merriam-Webster dictionary, it is “the group of people who control and make decisions for a country, state, etc,” or “a particular system used for controlling a country, state, etc,” or even “the process or manner of controlling a country, state, etc.”

But more simply than that, according to Tim O’Reilly government is, at it’s core, what we do together that we can’t do alone. The Merriam-Webster definition of government- often considered to be technologically outdated, slow, monolithic and inefficient- is being replaced and rebuilt to reflect the vast social and technological changes that have touched most of our lives. As Jennifer Pahlka explains in the video below, governments (particularly local governments) are becoming more accessible, more open-sourced, and more responsive to their communities through effective use of new technologies.

What do these changes in how governments serve their citizens, and how citizens work with one another, mean as we look to the future?

 

Featured

Audit Release: Oregon Needs Stronger Leadership, Sustained Focus to Improve Delinquent Debt Collection

Executive Summary


Liquidated and delinquent receivables owed to the state of Oregon have almost doubled since 2008, to nearly $3.2 billion, while collection rates on the debt have dropped. The state’s debt collection system needs more leadership, sustained focus and accountability to improve performance over time.

 

Read full report here.

Past due receivables are growing

Oregon’s liquidated and delinquent debt rose from $1.7 billion at the end of fiscal year 2008 to nearly $3.2 billion by 2014, while statewide collection rates on that debt dropped from 13.5% to 11.2%. Nearly $800 million of the debt is tied to the state’s general fund.

Liquidated and Delinquent Receivables

collections audit blog pic 1

Source: Legislative Fiscal Office. Adjusted for PERS errors. Excludes Department of Administrative Services interagency debt.

The recession contributed to the increased debt. Evidence indicates many of the debtors are low-income, and more than half the debt may be uncollectible.

However, bumping up Oregon’s collection rates could still make a substantial difference over time. At 2014 debt levels, every percentage point increase in the statewide collection rate would improve collections by about $38 million. If Oregon had collected delinquent debt at a 13.5% rate in 2014 – last achieved in 2008 – the state would have brought in nearly $90 million more in collections.

Our audit found four key improvements that could help Oregon increase collections:

  • Improved oversight of collections;
  • Enhanced performance measurement and reporting;
  • Increased expectations for private collection firms and the state’s central collection agency;
  • Better use of proven collection tools.

Oregon has not focused on improving collections

collections audit blog pic 2Our audit found Oregon’s highly decentralized approach to collections has contributed to a lack of sustained focus on improvement. This is our sixth collections-related audit since 1997. Significant improvements identified in those audits have not been implemented, some dating back 18 years.

Oregon has not implemented productive collection tools used by other states, has not resolved lingering legal issues that hinder collections, and has allowed inadequate performance measurement to persist.

Individual agencies have made some improvements. Statewide, however, no one has been tracking collection improvement efforts or encouraging them. Our discussions with leading states on debt collection highlighted the importance of having a system “expert” responsible for identifying potential improvements, looking outside the state system for new opportunities, and reporting to decision makers.

In Oregon, the statutory authority and history of the Department of Administrative Services indicate it is the best agency to serve as a statewide strategist on debt collection.

Performance reporting, measurement are flawed

collections audit blog pic 3State agencies routinely collect receivables, or bills for charges and services. Statewide performance reporting focuses on receivables that become “liquidated and delinquent” – past due debt that debtors have had a chance to contest.

The Legislative Fiscal Office prepares an annual report on liquidated and delinquent debt collection, designed 16 years ago by the Legislature to help drive collection improvements. However, the report includes few large-debtor agency details – not even their collection rates – contains noteworthy inaccuracies, and does little to hold agencies accountable for collections performance. It also does not identify potential collections improvements or detail the status of agency improvement efforts, key to encouraging advances.

In addition to reporting, we also focused on “assignment” of debt, accounts sent by agencies to private collection firms or the Other Agency Accounts unit at the Department of Revenue, the state’s collectors of last resort. Private collection firms carried nearly $1 billion of the state’s debt as of 2014 – more than double the 2008 balance – with a collection rate just over 1%. Other Agency Accounts, the state’s central collection agency, had a better rate, roughly 7%, according to Legislative Fiscal Office data. Assignment to OAA has stayed relatively flat, however, hitting $259 million in 2014.

We found the Department of Administrative Services is not evaluating the performance of OAA or private collection firms. We also found some large-debtor agencies are not using performance information to strategically assign debt.

Oregon is not using some proven collection tools

Our research, discussions with other states and interviews with Oregon officials suggested eight tools Oregon could pursue to increase collections, including some the state has considered for years but not implemented.

Among the most promising:

State vendor offset: Forty states are intercepting state payments to debtors who are also state vendors, including corporations and consultants. Our work indicates vendor offset in Oregon would collect at least $750,000 a year.

collections audit blog pic 4Bank levies: Other states have systems that allow for automated matching of a wide variety of debtors to bank account records, a process that yielded $30 million for Wisconsin in 2014.

Internet posting of debtors: Twenty-three states maintain public online lists of debtors, some focused only on large debtors, to increase collections. Many of the debtors pay after they receive a warning letter but before the information is posted.

2015 Legislative changes should help

The Institute for Modern Government at Willamette University drafted Senate Bill 55 in the 2015 legislative session to improve debt collection. We issued an interim report to the Legislature to suggest further legislative changes. Our recommendations were incorporated in the bill, which the Legislature passed and the governor signed in July.

At our recommendation, Senate Bill 55 charged the Department of Administrative Services with monitoring and improving debt collection. DAS’s duties, detailed in the bill, include improving performance reporting and assignment of debt for collection. DAS started a committee last year to address statewide collections, and contributed to Senate Bill 55.

Senate Bill 55, passed by the Legislature, included changes we recommended.

Even with stronger oversight, improving collection of Oregon’s rising debt will not happen overnight. During our audit, we found that improving collections requires meticulous work with agencies.

DAS officials – and policy makers – will also have to be persistent to ensure improvements are made.

Recommendations

Beyond the changes implemented in Senate Bill 55, we found improvements OAA could focus on. We also found other steps DAS could take, including:

  • Preparing meaningful annual reports on debt collection, relevant to the public and policy makers.
  • Helping agencies adopt successful collection tools.
  • Developing short- and long-term plans for a sustained focus on debt collection.

Agency Responses

Both the Department of Administrative Services and the Department of Revenue generally agreed with our recommendations, with DAS noting that it recognizes its oversight role.

DAS said it would focus efforts on current receivables as well as liquidated and delinquent debt. The response also included concerns about the difficulty of adopting a fully integrated vendor offset program.

The Department of Revenue said agency officials will continue to discuss many of the collection improvements noted in our audit with policymakers and stakeholders. A computer system upgrade now underway will help the agency make further improvements, the response said.

The full agency responses can be found at the end of the report.

 

Featured New Audit Release Performance Audit

How To: Analyze payroll data using Excel’s SUMIFS function

A few years ago, I worked on an audit at the Oregon Department of Corrections (DOC). Elected officials were concerned that the DOC was spending too much money on overtime. We used a combination of ACL and Excel to conduct this audit work. We followed the National Institute of Corrections Net Annual Work Hours Post Relief Factor methodology.

First, we accessed our state’s central payroll database. We pulled the tables we needed that recorded hours worked by pay code by month. The way the table was organized was not right for Excel, so we first needed to prepare the information by using the Summarize function in ACL. For this example, you will need to summarize on employee classification, pay code, and location. Aggregate both hours and dollars.
With the data prepared, it should like something like this:

Table 1 – Data

sumif post pic 1

The first column denotes the prison. The next is the classification of the correctional employees (e.g. sergeant, corporal, officer etc.). The following column shows pay codes – we had 50 different pay codes in our data set. The next three are straight forward – dollars, hours, and counts. Lastly, we have a short description of the pay codes. For example, CD is career development/training.

After developing this table, I calculated the average for each row by dividing by the FTE in each classification at each prison. For example, there were 3881.5 hours of CD and 184 FTE, yielding an average of 21 CD hours per staff. Now that I have my data ready I can start analyzing it. I want to know if there are differences between locations, classifications, and pay codes to see if this is driving any overtime.

I set up a table in excel, shown below. CCCF stands for Coffee Creek Correctional Institution and TRCI is Two Rivers Correctional Institution. Pay code descriptions are above. Classifications range from officer (C6775) to captain (X6780).

Table 2 – PRF

sumif post pic 2

I can now use this table within my SUMIFS function to pull average hours from the other table.
The SUMIFS function has three main parameters: Sum_range, Criteria_range, and Criteria.

sumif post pic 3

Sum range is the range of data you want summarized. In this case, I wanted to pull average hours from my payroll data. You only have one sum_range, although you can have as many criteria as you want. I will have three criteria. I want the average to come from (1) the correctional institution (2) the employee classification and (3) the pay code.

Columns a, b, and c, from the table 1 will each be a criteria range. I will use table 2 as my criteria. Here is what the formula looks like. Not I use a combination of absolute and relative references (our next post will delve into this in more detail). Absolute references ‘lock’ in cell ranges in a formula so when you drag the formula it does not change. Absolute references are denoted by a “$”.

SUMIFS function

sumif post pic 4

Reading left to right, the function is asked to summarize the averages calculated from the table 1. It is to look at the first column for the prison acronym to match to “CCCF” highlighted in blue. Next it searches employee classification in column b for “C6775”. Finally, it matches pay code “CD” highlighted in purple.

Once I have the one formula set up, I can drag it over and down and calculate over 500 different averages in a few seconds. After setting up one year of data, all you need to do is copy the tab and re-link to the next data and you can compare year-over-year trends in minutes.

There’s a few steps I’m skipping over, but the end result from these calculations looks something like this:

sumif post pic 5

So what did we find in our audit? Overtime is not as big of a problem as people perceive it.

Most people think that overtime has to be more expensive because you are paying time and a half. What is often left out is the cost of leave time and other benefits, which often add up close to 50% of salary making the pay difference negligible. Furthermore, if you hire an officer to replace overtime you must pay them for about 2,000 hours per year. Whereas with overtime, you only need to pay it when you need it. What is cheaper? $65,000 for a new officer or $25,000 for 500 hours of overtime?

So if you pay only 500 hours of overtime per year in a given shift, it doesn’t make sense to hire an officer to cover that time, because they would be paid for hours not needed. Below is a great example.

Overtime at CCCF

sumif post pic 6

You can see that overtime is quite varied. It peaks around hunting and fishing seasons, flu season, and winter holidays. This is not that surprising as more people are calling in sick during these times and someone needs to work the overtime to replace them.

If CCCF hired an additional officer to work these hours, they would only reduce overtime by a small fraction. At best, CCCF could eliminate all of the overtime between 0 and 8 hours. To eliminate all overtime, CCCF would need to hire 6 FTE on the graveyard shift, or 48 hours of coverage, which is vastly more expensive than the cost.

As we found out in this audit, sometimes your gut, i.e. overtime is costly, is wrong.

ian

Post prepared by Guest Blogger and OAD Senior Auditor Ian Green

Data Wonk Featured How To

GAO Report: Incomplete information on collective performance of rental assistance programs nationwide

Last week the GAO released a report looking at the roles federal, state, and local governments play in providing rental assistance and developing affordable rental housing for low-income households.

“Affordable Rental Housing: Assistance is Provided by Federal, State, and Local Programs, but There is Incomplete Information on Collective Performance” (GAO-15-645)

GAO partnered with 25 state and local audit offices to complete the study, including the Oregon Audits Division, the Multnomah County Auditor’s Office, and the City of Portland.

GAO found that the information on collective performance of federal, state, and local rental assistance programs nationwide is incomplete.

“Without information on the government-wide performance of rental assistance, the Congress, decision makers, and stakeholders at all levels of government are hampered in their ability to set priorities and allocate resources. While complete and reliable information is a vital component of assessing effectiveness, GAO recognizes it is difficult to identify relevant federal, state, and local programs; collect performance information from multiple levels of government; and synthesize the information to reflect collective performance. HUD, the nation’s leading housing agency, in consultation with the RPWG, is well positioned to capitalize on its existing collaboration among federal agencies and with state and local jurisdictions.”

(Excerpt from the highlights page of the GAO report.)

GAO report blog pic

Featured New Audit Release Noteworthy

Secretary of State Atkins Celebrates National Voter Registration Day

Today at the Cedar Mills Community Library, Secretary of State Jeanne P. Atkins will remind Oregonians that citizen engagement begins in our local communities.  As part of a National Voter Registration Day celebration at the library, Secretary Atkins will encourage communities throughout Oregon to register to vote…

Read more at the SoS Blog!

Source: Secretary of State Atkins Celebrates National Voter Registration Day

Featured Noteworthy

How do we find great auditors?

The Oregon Audits Division is holding a ‘Meet the Agency’ event for people interested in a job as a financial or performance auditor.  Come join us Friday, October 30, 2015 from 11:30 – 2:30 at the Oregon State Capitol, Room 50 to speak with our staff and learn what we do. To see the event flier, click here. Watch the Secretary of State jobs page for the chance to apply.

Every fall we initiate our hiring efforts. Auditing is a profession that is often misunderstood, but has many features that, once discovered, can offer a very fulfilling career.

We start by announcing on our website that we will be holding a ‘Meet the Agency’ session, usually late October. Meet the Agency is a chance for us to show off our office, and to speak to potential applicants about what we do, and who we are. We describe our activities in financial, performance, and information technology auditing. We also provide an opportunity for applicants to sit down with our auditors and ask questions. We want them to have a clear understanding of the role, responsibilities, and satisfactions of becoming an auditor.

mtaOur application is posted on the Secretary of State’s website and is conducted online. We ask for education and employment history and usually ask a couple questions to get a more detailed sense of the applicant. We require applicants to submit their college transcripts as well.

Applicants who meet the minimum qualifications get their written application reviewed for a possible interview. We schedule an interview with the top-ranked applicants then make a decision on hiring.

From the close of the announcements to a hiring decision is generally about 6 to 8 weeks. New hires must also successfully pass a criminal background check.

We consider our hiring decisions the most important ones we make. New hires should also know that we conduct several evaluations during their trial service period to give them feedback on their learning and progress to be an auditor. We take this period very seriously because we sometimes have to make the difficult decision to dismiss those who struggle with the work.

We look for certain characteristics of success in all our applicants, and special kinds of skills and expertise for our financial, performance, and information technology auditors. All our auditors need good interpersonal skills because so much of our work depends upon engaging and interviewing agency personnel. We look for candidates with a nature to ask questions and get answers. We must also be quick to learn the wide range of the activities performed by more than 40,000 other state employees 150 agencies, boards, commissions, and departments. Lastly, our auditors need to communicate what they find, so clear and concise writing is a fundamental skill.

Fin wallFor our financial auditors we require a strong accounting background, of course. But auditing is different than accounting and we either hire or develop a ‘reviewer’ perspective in these auditors. We expect them to apply their judgment in determining whether agencies have carried out their financial work properly.

IT wallOur information technology auditors should have a good grounding in computer systems and some accounting skills can be a bonus, since we are often testing the reliability of financial data in major state applications. We are also looking for applicants with an interest in learning about computer systems and checking them for security vulnerabilities.

We want our performance auditors to be comfortable with numbers, and also have an ability to see the ‘big picture’ and connect it to the critical details. Applicants should bring an understanding of organizations and management principles which can reveal the sources of many of our audit findings.

We have high expectations of our auditor applicants but that also brings them a deep satisfaction when they earn a place in the Secretary of State’s office. Once here, they find a rich variety of experiences that offer long-term personal growth, teamwork with peers and managers that break big challenges down into answers and solutions. That means a fulfilling career serving Oregonians by improving government and holding it accountable.

Auditors at Work Featured Noteworthy