The Scales of Time

This post is in honor of May being National Historic Preservation Month

Two years ago, our former director Gary Blackmer wrote about Oregon’s long history of auditing.  He outlined how Oregon’s territorial statutes of 1854 called for an auditor to report recommendations “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”.

One of those recommendations was to provide sufficient resources to the state penitentiary. Territorial auditor B.F. Bonham noted in 1857 that “The amount appropriated by the Legislative Assembly ($2,500) annually for the support of the penitentiary department, is wholly inadequate for that purpose, and must be increased unless a reorganization can be effected”.  In 2017 dollars, the amount allocated would be approximately $70,000 per year, which I think we can all agree would have been wholly inadequate to operate a state prison.

Oregon’s founding fathers designed our constitution with accountability and independence in mind based on our territorial experience. Drafted in 1857, Oregon’s constitution calls for the Secretary of State to be the “auditor of public accounts”.

In 1897, Secretary H.R. Kincaid reported on what could now be termed a performance audit and certainly the earliest known audit from our office. The Secretary was concerned the state was purchasing paper without verifying the quantity of paper received.  Secretary Kincaid reported “Soon after taking charge of this office I bought a pair of scales for the purpose of weighing paper which is purchase by weight for the public printing.  The first lot of paper received for the state printer after the scales were obtained fell short of the weight charged in the bill several hundred pounds, amounting to about nineteen dollars, which sum was deducted from the bill.  Since then full weight has been required.  This has no doubt saved to the state many times the cost of the scales.  Previous to the time mentioned thousands of dollars work of paper had been received and paid for ever year on bills of shippers without being weighed here to verify the correctness of the weight charges in the bills”.

Recently, I was at the Oregon office of Publishing and Distribution. While there I saw a small historic exhibit with some old printing equipment and some very old scales.

And wouldn’t you know it, one of the scales had a serial number dated 1890.

From a report from the State Treasurer in 1897, the state made several disbursements to the Howe Scale Company (Thank you Google for digitizing the book and making it text searchable and thank you Treasurer Phil Metschan for the excellent transparency of Oregon’s expenditures). The largest disbursement to Howe Scale company was for $71.50, which matches the report by Secretary Kincaid since the scales cost more than what was saved on the first weighing ($19.00).

Given all of the evidence, from the Secretary’s report on purchasing two scales to a corresponding the serial number date (these scales were made in Vermont and would have taken a long time to cross the country or sail to the west coast), and the Treasurer’s report showing a payment to Howe Scales that matches the Secretary’s report, it seems more likely than not that this scale is one of the pair H.R. Kincaid used more than 120 years ago to do some innovative performance audit work.

The scale shown above cost roughly $22.50 according to this 1900 catalog. The scale’s current value – priceless.

Ian Green, CGAP and OAD Principal Auditor

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Internal Auditor Repost: Champions of trust

The most effective internal auditors are those with enough fortitude to blow the whistle before trouble ensues. They see troubling issues in the formation stage, raise a concern, and take a stand to ensure things are done right.

But, as I discovered years ago, there has to be a high degree of trust between internal auditors and those whom they are cautioning about pending wrongdoing or calamity. Without trust as a basis for engagement, the conversation can become awkward or even polarizing.

Ethics is an area that plays a significant role in my view of outstanding internal audit performance; so much so that I decided to feature ethical resilience as my first area of focus. I’ve been known to characterize ethics as “table stakes” for those wishing to engage in internal auditing. It’s a strong statement, but I stand by it. Internal auditors can’t accomplish their mission without a diligent, unceasing commitment to ethical behavior.

Richard Chambers outlines an auditor’s need to demonstrate and commit to ethical behavior in this post.

A commitment to ethical behaviors means committing to integrity, honesty, and trustworthiness. Auditors can be flexible around the scope of work done, are willing to engage in continuous learning and professional improvement, but must be able to support, stand behind, and be accountable for the work that they do. At times, that may require a degree of courage. But we as auditors must behave ethically if we are to be trusted, and we must ask the same of others.

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Talkin’ Shop with: Brian Evans, Metro Auditor

About Metro’s Audit Shop

MetroAuditor Brian Evans 2015The Metro Auditor’s Office mission is to make Metro programs more transparent, efficient and effective and to ensure that its activities are accountable to citizens. We do this by conducting independent and objective assessments and reporting our findings and recommendations.

It is our vision to be completely relevant and efficient, choosing the right areas to audit and completing audits quickly so that Metro can constantly improve its services and be accountable to the public.

The Metro Charter created the office of Metro Auditor, to be elected at large for a four-year term, beginning in 1995.

So far in 2016, reports have been released on the financial condition of Metro, a follow-up audit on travel practices and ethics, and an audit on community planning and development grants.

In addition to performance audits, the Metro auditor also publishes annual reports and peer reviews.

The Metro Accountability Hotline, administered by the Metro Auditor’s Office, gives employees and citizens an avenue to report misconduct, waste or misuse of resources in any Metro or Metropolitan Exposition Recreation Commission facility or department.

MetroAuditorLogo seems like a pretty unique government structure. Can you describe it?

It is quite unique. Metro is one of only two regional governments with elected officials in the country. It encompasses Clackamas, Multnomah, and Washington counties and is governed by a nonpartisan council, with six district councilors, each representing different parts of the region. Metro’s council president is regionally elected. The region represents 1.5 million people in 24 cities and three counties. MetroAuditorMapBoudaries

Map of the Metro area, indicated with the blue border.

When it comes to transportation planning, Metro is the federally mandated metropolitan planning organization that develops an overall transportation plan and to program federal funds through the Joint Policy Advisory Committee on Transportation (JPACT). JPACT is comprised of locally elected officials from across the region. They strategize how to use federal funds and are high-level decisions-makers.

The Metro Council also oversees the Metropolitan Exposition and Recreation Commission, or MERC. MERC Commissioners are appointed by the Metro Council based on the recommendation of their local area governments. MERC has seven members who represent the city of Portland, Metro, and one each for Clackamas, Multnomah and Washington counties. The commissioners serve four-year terms.

Services of Metro:

So, when you were a kid, what did you want to be when you grew up?

An architect.

Architecture and auditing seem very different— do you see any similarities?

Both professions focus on the details while keeping an eye on the big picture. Architects balance aesthetic considerations with the practical needs of the people who will use the building they design. Performance audits have to balance similar considerations. Effective auditing combines practical information with creativity to produce a report that the public, decision makers and managers can use to understand the need for improvements. In audit reports we choose the words, tone and data points we think will motivate change. This seem analogous with the choices an architect would make for the materials, color and details of a building.

Prior to becoming an auditor, what did you do?

In undergrad, I studied International Relations and Economics. While in school, I studied abroad in Spain, Kenya, and Tanzania. After that, I served as an AmeriCorps member working on microfinance programs at Mercy Corps. In graduate school, I pursued a Master’s degree in International Public Affairs at the University of Wisconsin-Madison. I moved back to Oregon shortly after grad school and worked in state government as the Senior Economist in the economic development department. While there, I did financial and economic analysis of industry trends and business incentives.

How did you get your start in auditing?

In my position as the Senior Economist, I found that I wanted to point out ways we could improve.  There were strategies I thought could help, and recommendations I wanted to make. Essentially, I  wanted to recommend evidence-based policy— which is similar to what auditors do. I learned about the performance auditing in graduate school when the Government Accountability Office did recruiting visits. In Oregon, I did some informational interviews with local government auditors. In 2008, I started my first auditing position with Metro as a Senior Management Auditor.MetroAuditorLandscapeCartoon

What made you stay in auditing?

When I came to Metro, I enjoyed the structured approach to auditing that the office followed. I appreciated and found helpful the office’s commitment to a high level, quality reporting based on the leadership of Jewel Lansing  and Gary Blackmer. Suzanne Flynn, the Metro Auditor I worked for, was committed to the development of staff, and this is something I strive to do as well.

As a Senior Management Auditor and then as a Principal Management Auditor with Metro, I really enjoyed the variety of topics I worked on. I also liked getting into the weeds and the structure of the workflow in performance auditing— the different phases. Programs at Metro tend to be innovative, willing to take risks to move things forward, and have long-term thinking as part of their philosophy. Prior to becoming the elected Auditor of Metro, I had the opportunity to get a good sense of the different parts that make up Metro. I conducted audits on internal services such as payroll, IT, and policy audits around solid waste planning and transportation planning.

You became the Metro Auditor fairly recently. What was the election process like? How’s it going so far? 

I decided to run at the end of 2013, and ended up running unopposed. Running unopposed takes some of the pressure off, but once you commit to running there is a method and timing involved in completing everything you need to complete—the filing deadline, creating a MetroAuditorOfficewebsite, and outreach. I took office in 2015 for a four-year term and am now about halfway though.

One of the things I am most proud of accomplishing in the past two years is putting such a strong team together. There were three vacancies when I took office, as my position needed to be filled, Mary Hull Caballero became Portland’s Auditor, and we had a retirement. I was able to rebuild the office and with my team, keep producing high quality audits.

How do you create your audit schedule

Creating the audit schedule is a process of gathering a lot of data and then analyzing it to identify the areas of greatest need.

We create a list of audit topics based on my discussions with Metro Councilors and department directors, the public, along with topics staff have identified in their audit work. As an office, we have a retreat and conduct a risk assessment, look at impact of potential audit topics, and consider timing and available resources. From there, I select the topics we will audit and publish the list on our website.

What are some current, or recently released audits that you are most excited about?

In February, we released an audit that provides a good picture of the challenge of auditing land use planning. It was also challenging to find a balance between the planning jargon and language the average reader can understand. In the audit, we found decreased geographic alignment between the grant project areas and the ones identified in the regional plan as priorities areas for development. We also found that the program did not develop clear expectations for grant monitoring. The deliverables for some projects were not fully met prior to payments being made. It was not always clear what amount of time should be spent monitoring or how much discretion there was to evaluate deliverables.

Right now, we are conducting an audit of the Zoo, looking at organizational culture. It is challenging to figure out how to audit organizational culture, and then communicate that in a public report. It is making us think about issues from a different perspective.

Follow the Metro Auditor on Twitter! @MetroAuditor 

Check out Metro’s mapping feature that uses GIS and see where the trails, neighborhoods, school districts, and more are.

MetroAuditorMapTrails

Map of the Metro area with trails indicated in green.

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Audit Release: Keeping the State of Oregon Accountable, Fiscal Year 2015

Every year the Audits Division of the Secretary of State’s Office audits the State of Oregon’s financial statements to determine whether the information reported is reliable and accurate. This annual audit provides the state with our professional opinion about the completeness, accuracy, and validity of the state’s accounting information. See the Financial Statement Audit section of this report for more discussion of Oregon’s financial status.

In addition, we annually perform compliance audits of programs funded by the federal government to determine if they meet federal requirements for tracking and using federal dollars. These programs provide billions of federal dollars to Oregon citizens for important social, economic, and environmental missions. See the Federal Compliance Audits section of this report for more discussion of Oregon’s compliance with the requirements of federal programs.

The division communicates errors identified in financial reporting, financial processes, and non-compliance to state agencies and provides recommendations for correction to assure the integrity of financial information provided to the public. This report, “Keeping the State of Oregon Accountable,” reflects the findings of those annual audits of publicly funded programs. Important conclusions in this report are:

Audit of the State of Oregon’s Financial Statements

  • We concluded that the state’s financial statements, as corrected, are fairly presented in conformance with Generally Accepted Accounting Principles.
  • We reported fewer internal control weaknesses this year and found that management corrected several of the prior year findings.
  • Three major changes impacted Oregon’s financial statements for fiscal year 2015:  a $1.6 billion increase in Medicaid expenditures, a change in the reporting of three major universities, and new reporting standards that changed how pension information is presented.

Federal Compliance Audits

  • Because of ongoing internal control and compliance weaknesses, auditors were required to audit an increased percentage of the state’s federal expenditures.
  • Our audit included 35 findings related to 14 audited federal programs at seven state agencies. We issued “qualified” opinions on five programs, which indicate a department’s internal controls are inadequate to prevent or detect significant noncompliance in a timely manner.

Read full report here

 

For more information about audit results, you can also see the official reports on our website:

Oregon’s Financial Statements:

http://sos.oregon.gov/audits/Documents/2016-03.pdf

Single Audit (including Federal Compliance) Results:

http://sos.oregon.gov/audits/Documents/2016-09post.pdf

 

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Portland City Auditor: Payment Card Data Security Audit

In 2014, the Portland City auditor released a report stating the City was not in compliance with the standard with its handling of payment card transactions.  Now, certified external assessors report that the City complies with the standard.  Outsourcing payment card processing services, improving data security, and discontinuing some payment options for customers brought the City into compliance.

City of Portland Credit Card audit

The City received more than 10 million payments using credit or debit cards last year for water and sewer services, Parks and Recreation classes or permits, and parking – including City-owned parking garages.

The industry standards for security apply to merchants, like the city, that accept credit or debit cards for payment.  Failing tests in any of 12 sub-categories means the merchant fails to meet the overall standard.  Portland was out of compliance for the previous seven years.  Now that the City is in compliance, it will be tested each year by an outside assessor to make sure it continues to meet the standard.

Read the full audit online 

News coverage of the audit

Koin 6  Portland promises it’s safe to use credit cards: City auditor discovered the city failed security requirements since 2009

Portland Tribune Coverage City improves credit card payment security, but work remains

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Insights for auditors

I have been subscribing to a series of newsletters by Harvard professor Bob Behn for many years now. Behn teaches in the Kennedy School of Government. They cover many topics that touch on our audit world: accountability, performance, measures, management. The one-pagers are an interesting quick read on topics about government performance.

Behn has a good eye for the pragmatics that interfere with the best laid plans of policy makers and executives.

His narratives often bring in ideas and experiences we encounter in performance auditing, though he has raised a few questions about the profession. He wrote about one hearing he attended in Olympia in 2008 about a performance audit of the state’s transportation department, produced by contractors Ernst & Young. He learned about specific cost savings identified by the auditors but didn’t get a sense of the agency’s performance, and seemed to have an idea of what was missing:

“For a performance audit, however, what is the equivalent of the financial rules? Who has set what expectations for performance for which the auditors can check”?

It’s clear that Professor Behn comes from a measurement viewpoint, because he seems to want a target or expectation as a basis to gauge performance. The intent of performance auditors is to spot a solution or strategy that improves an organization’s performance, and results. We don’t grade agencies but we show agencies a path to save money, serve more clients, or produce better outcomes. And, as we say, there is always room for improvement…

It would be very difficult for us to produce a reliable grade because the performance of an organization is dependent upon too many variables, external and internal. Economic conditions can affect the costs of goods and services, or the workload in an employment department. Demographic changes, federal rule changes, weather conditions, and even availability of street drugs are just some of the factors that can make government agency outcomes better or worse. These agencies also face internal variables such as turnover in managers or staff, computer system efficacy, agility to change, and sufficiency of resources.

The professor writes about many of these challenges, so perhaps he is taking a second look at his first impressions of performance auditing. Some activities are subject to control, such as financial rules, while others can only be ‘managed’ within circumstances.

Here is a sampling of some of the more recent newsletters, and there are many others worth reading as well.

May 2015: Policy Design & Operational Capacity

November 2014: Avoiding the KPI Quagmire

October 2014: What Performance Mgmt Is and Is Not

August 2014: Designing a Test Worth Teaching To

July 2014: Be Both a Hedgehog and a Fox

June 2014: What Is Really Going On? [ II ]

November 2013: Measurement, Mgmt, & Leadership

October 2103: Punishing the Efficient

Gary Blackmer OAD Director

Gary Blackmer
OAD Director

 

Header Image: @Stephen Orsillo, Dreamstime Stock Photos

 

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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.

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