Transcript from Gary Blackmer's talk Nov. 29, 2007, at the CPA annual meeting. Audio is available here.
I've been here before talking about performance auditing since it's something Eugene has considered over its years. There are many cities in the country that don't have an auditor, and there are many cities that have an auditor who doesn't do performance auditing.
My office and a couple of dozen others around the country do something that we call performance auditing, and we think it provides a large value to the jurisdiction that we work with.
A financial auditor is essentially an accountant who looks at a report of financial transactions and verifies whether it's true and accurate. The main place where you see financial auditors is auditing financial statements. Every city in the state of Oregon has to prepare a financial statement that's audited. The city describes what its revenues, expenditures and bank balances are, and gives that to an independent auditor who looks at it, looks at the documentation behind it, and attests to whether that's a true and accurate statement or not.
A performance auditor brings more tools than accounting, and asks a much broader question, which is: What did you do with the money? Not how much money did you get or how much money did you spend. We joke that that's the only question we ask, but we use different inflection, such as: "What did you do with the money?" Or "What did you do with the money?" Or "What did you do with the money?" depending on what kind of audit.
And we bring a variety of tools. There are auditors in my office who have degrees in sociology, business administration, budgeting, environmental sciences and computers. We go into an organization and analyze it, and look at what problems that a department has, or might have, and figure out if we have a strategy for making it better.
Every audit is a custom-built document that looks at how the organization works, how it doesn't work as well as it could, and applies the tools that we bring. We do a lot of interviewing in the process, survey work as a regular course. We do focus groups, a variety of things, whatever it takes to raise the performance of that organization.
Credibility is critical, and the key that we use in my office is the government audit standards that we follow. These are the standards that the U.S. Government Accountability Office (GAO) developed and follows. The state of Oregon and many other states and communities around the country follow those standards as well. They are a minimum standard that we all have to meet to ensure that what we are doing is quality work. We've got general standards for both financial and performance auditing, and we have specific standards for financial audits and specific standards for performance audits.
Independence is a key for an auditor. … Say I was working for the treasurer as an auditor, which is not an uncommon situation — I wouldn't want to tell my boss that he was doing a bad job of supervising, and the credibility of my work would be at question. So independence is important.
The model in Washington, D.C., is the GAO answers to Congress, and audits the president. So in a similar manner there are two ways you can have independence according to the standards:
• One is the GAO model in which the auditor answers to the legislative body of government and audits the executive part of government.
• The other way is to have an elected auditor, which is what my office is, and offers that independence.
There are advantages and disadvantages to each. My sense in just talking to you this evening and getting a sense of what Eugene is about, probably the appointed (auditor) is a good way to start. Because elected means you really have to change your city charter, you have to get it right the first time, and it's a little more difficult to make that leap.
The Association of Local Government Auditors has model legislation. It has language that works in city code or city charter that describes what an auditor should have in terms of independence and powers, and so it recognizes both those models of elected or legislative as equally good models for any jurisdiction to have. That depends on your jurisdiction and what works best for you, and how to get from no auditor to an auditor, and keeping in mind you can do it incrementally also. You can create it with a city council vote or a county commissioner or state legislative body, and then later on put it into the charter.
In any case, I think having an auditor is a good idea, and start with one auditor and grow it larger as your city grows and the complexity of the issues the city faces grows.
Another thing to think about is professional judgment. Auditors are supposed to exercise professional judgment in all they do, in terms of how the audit is planned and conducted. And ultimately the key to professional judgment is following auditing standards. So in my charter in Portland, it says that I follow the government auditing standards. That's a guarantee to the public that I'm doing good work, so that when we put out a document that makes recommendations, that those recommendations are right, and that they are going to make things better and not worse.
The third (key element) is competence. Education, experience and ongoing training are a key. My city charter also says that the elected auditor must either be a certified internal auditor, a certified public accountant, or a certified management accountant. That takes the elected auditor out of the political track. There aren't politicians who want to go through the effort of becoming auditors so they can aspire to be a city council member, or a mayor. That happens in other jurisdictions where that kind of a filter isn't in place, that the auditor becomes a political office, a stepping stone to something higher — though I think this is as high as you can go. I love being an auditor. It's a value we place — that it takes the politics out of the office.
One of the problems with having an elected office with that certification is suddenly the pool of people who would run for that office becomes very narrow. They may be the right people, but you may not have enough people who approach auditing like we do, in terms of looking at the management of government.
The fourth (element) is quality control. We go through a very thorough process of checking, double-checking and triple-checking our work before we issue an audit report. We work actually with the people we are auditing. We give them a confidential draft and say, "Is there anything in here that's wrong?" It's a way for us to 1) make sure we haven't come up with bad or impractical recommendations, but 2) if we do have something wrong, we can get it fixed before we issue the final report. Now if they say we got it wrong, we need evidence ... We won't just say, "Oh, whatever you say, we will fix it." It really depends upon the evidence for the quality process we go through. And if you look at one of our audit reports as we are drafting it, every idea in the audit report is tied back to a work paper that explains how we made that conclusion. And we had auditors who didn't work on the audit look at that sentence or idea and look at the work paper and see if it's supported, that the evidence is sufficient and adequate.
We go through a process to make sure we are never wrong. Occasionally we make little mistakes but everybody makes mistakes, and we recognize that also in the people we are auditing. So that is another guarantee that we have to the public: If we're going to put something out there, we're going to work really hard to be accurate, because if we get something wrong, the people we are auditing can really challenge the whole audit.
What we are trying to do is help government better achieve its goals and objectives. So the government raises taxes. We look at how the taxes are collected and see if they are missing any. One of the things we did in the city of Portland — the city was annexing out into the unincorporated areas and the utilities were remembering to add the franchise fee onto the (utility) bills but forgetting to write a check to the city of Portland. We got a few million dollars off of that one. … Those kinds of things are winners.
When I started at Multnomah County we looked at business licenses fees and we were able to identify some businesses that weren't paying, and actually saved the county board of commissioners from cutting about $4 million (from their budget) that year.
Another thing we do is look at ways we can save money, and spread that money to more customers, more clients, more services, providing better quality of services, providing cheaper services.
In almost every audit we are talking to the front-line staff about what they do, what are the obstacles they face in delivering the services they are responsible for doing. What are the problems they see in their day-to-day activities? A lot of times that gives us ideas about what we can do to make them, the front lines, more efficient and help them do their job better. We have gotten great support from the employees in terms of having someone really listening and watching, asking questions and caring about what they are doing, and helping them do more.
We really approach every audit as trying to understand what are the objectives that are trying to be accomplished and how can we better get there. And everyone can participate in this. We don't do the audits where we sneak up. There are very few of those. If we have suspicions of fraud, we will not announce we are doing an audit, but 99 percent of the time our proposed audit schedule is public. We work with the managers to make sure that we are doing it at a time that works for them during the year we put them on the schedule. In any case, we are trying very hard to engage them in it, because ultimately at the end when we come up with recommendations, we want them to implement those recommendations. If they feel some ownership in the product that we put together, we're much more likely to succeed. And we're getting about 85 percent of our recommendations implemented.
One of the fears we always have as auditors is that we'll come in and talk to a manager and the manager will have a list of 15 projects that he wants to start working on, and he just doesn't have the time or resources to get to it. If we came in as auditors and said, "We finished our audit and here's something that we think you need to do," and it turns out that's number 17 on his list. That's not serving the public because we missed the most important things out there. If we can focus on the biggest, most important challenges that that organization has, and if they are spending 80 percent of their budget on that big thing, and we find even a 1 percent savings, that still gets them a lot closer than if we find 10 percent improvement in a much smaller part of their expenditures. So we're always looking at what are the biggest, most important things you are doing and how can we help you get there better.
We routinely look at compliance with rules and laws, we very rarely find violations. Normally the violations are mistakes. If we see repeated violations or significantly serious violations we report those. If it's criminal, to the district attorney. If it's fraud we will immediately report it to the bureau director and work with the police or whoever to make sure it's properly investigated, and we will assist in those kinds of investigations. Those don't happen very often. Frankly one of the things in the Northwest that we are really fortunate in is that we have a lot of honest, hard-working public employees, and I talk about the $6,000 fraud because that's usually what it turns out to be in the city of Portland. We had newspaper headlines about overtime abuse at central precincts, and it was ultimately about $6,000, and it was so marginal it was difficult to determine if that really was fraud or not. We had federal investigators and everybody in there. In that case the police chief asked me to come in and do an audit of their overtime practices, and we said we will look at everything except central precincts and that issue. We'll look at your general systems of tracking your overtime, approving your overtime, looking at how you can save money on overtime. Ironically, that came up as an issue four or five months ago and the mayor wanted me to audit the police bureau for overtime and I said, we did an audit about five years ago where we comprehensively looked at all the ways that overtime is generated and made some recommendations. Why don't we go back and see what the police bureau did? So next week we have a council session where we're going to say the police bureau did nearly everything we recommended. So that actually helps the police bureau in its budget process, because it's an affirmation that they implemented our recommendations.
So it's a different kind of a role we can play between the bureau and the city council and public, and depending on what we find, it can be very supportive.
One of the other very broad things we do is improve accountability. There are occasions when people want an honest, objective, insightful analysis of something, and they can hire a consultant to do it, but having an audit shop is another way of sending someone in to analyze something and give an answer. That's something we do on a routine basis as well. We will be doing an objective analysis of something that we think will be of value to clarify or correct a public impression. There are a lot of folklore and myths and anecdotes that get blown up into that's the way the world is, and having an auditor go in and say "We analyzed 3,000 cases and that was a really rare thing, and most of the time, this happens." Those kinds of analyses can help council with setting policy.
I describe an auditor as a backseat driver. The City Council has the steering wheel and pushes the pedals and decides where that vehicle is going, and my job is to sit in the back seat and say, "You know, if you turned right here, you'd get there a little quicker." Or, "Watch out for the pedestrian." Those are the kinds of things an auditor does, and I never question the policies that are set by the City Council. They are elected to balance the values, needs and priorities and resources of the community, to best serve the community. I'm not elected to put my ear to the ground to figure out what the public wants. My job is to make sure that once council decides where it wants to go, we get there in the best way possible, that we wisely spend the resources we have to get as far as we can.
To that degree, I know there's talk (in Eugene) about urban renewal and what would I do in that kind of case, and frankly when there are plans under way, we don't audit plans. We really look at after the fact, was there something we can learn from here that we can do better in the future? Ultimately, we're looking for areas where we think we can do better.
I'm actually here not as the city auditor for Portland, but I'm on the advocacy committee for the Association of Local Government Auditors. We have regional people who go out and talk to local jurisdictions about these issues. … I looked at who would be a good example of someone you might want to talk to about auditing, and actually Palo Alto might be a great sister city for Eugene. It's a college town, it has an appointed auditor. Her name is Sharon Erickson. She's very bright, she's doing great work down there. Palo Alto would be a great place to approach just in terms of what their experience is, how their auditor works. You can look at some of the audits she's done. …
How your auditor operates within your government is not entirely just a professional decision but it's a political decision. Elected, appointed, an audit committee is a way for an appointed auditor to have a small group to work with in terms of developing an audit schedule, who would be on that audit committee. Those are just some of the start-up things.
I would urge you to think about whether Eugene is ready for an auditor, what size of an audit shop it should have, what the expectations are of that auditor, and make certain they are reasonable. One of the mistakes I made when I was the newly appointed county auditor was to go after an issue on the incarceration of Hispanics. That was much too early in my term, I was a little green and I got beat up by the criminal justice system. But I was right. That sometimes happens with audits, but eventually audits are kind of like a stone in the shoe. They keep reminding people that there's something there.
There was a time when the city was having severe cutbacks. We issued a report we called "Opportunities Missed," with all the recommendations that were not implemented in our audits. So it was a way to look back and say, "By the way, if you want to save money, remember this recommendation."
Look at our model legislation from the Association of Local Government Auditors, with model language that can pretty much fit into any jurisdiction.
You need to think about how big a shop, and I'll tell you, one auditor is a very lonely auditor. There are single-auditor shops where they are never invited to coffee by anybody. There is a Lane County auditor not too far away, so they can have coffee together. Having two auditors is a good process because you have another set of eyes looking at that auditor's work to make sure it's being done accurately, and properly.
One of the advantages of an appointed auditor is you can do a national search. Elected means they have to live in Eugene and that limits the pool of potentials.
Auditors need to have ready access to information, materials, computer systems and so forth.
I talked about mistakes. We don't audit mistakes, we audit those systemic things that happen over and over again, recurrent systems and actions that we need to stop doing, and do better. Never expect anyone or any government to be perfect, and when a mistake happens, the first question to ask is, "Is this a one-time thing or is this something we need to work on and make sure it doesn't happen again."
Sometimes sending in an auditor to deal with a mistake is the wrong thing to do, because other people are already working on identifying the problem and solutions. We have a phrase in auditing that goes, "Going onto the battlefield and bayoneting the wounded." We don't like to do that. We'd rather find the mistakes before they happen, or before they've been discovered.
If you get only one auditor, you will get only one or two audits a year out of that auditor, because you want your auditor to get into the big, significant issues of the organization, so they are going to have to get deeply into the more complex areas, and deliver to you something that's big and significant in terms of improvement.
So be patient with your auditor. It's going to be a while before the audits come out, and don't throw the hardest thing at your auditor to deal with, because in the first year they are going to have to understand how Eugene works, how it doesn't work, and figure out the timing of the audits, and what the scope and objectives are when they go into an organization.
If I were ever a city manager, my best friend would be the auditor, and I'm not speaking as a auditor. I think auditors can raise issues that are uncomfortable for city managers or city councils, or employees to raise. It's important for someone to be able to play that role of talking about that elephant in the room. … Sometimes a smart city manager will say, "Well, I see five big things that need working on, and I can do two or three of them right now. I'm going to put the auditor on this one and they will be able to figure out what the problem is and get some momentum going, and it will be easier for me to implement a solution."
(Transcription stopped at 31:34 in Eugene Weekly's audio file, and does not include questions and answers. The full digital audio file is available by request as a wma or mp3 file.)