Never Hesitate to Ask Directly

Please remember that the GAO has no authority over you AND they are very, very nice. First, they put the standard on the internet both in an Adobe format and in a text format. This makes it imminently readable and usable.

But most importantly, the GAO pays for someone to answer our questions! The gentleman who answers questions about the Yellow Book when you write toyellowbook@gao.gov - Michael C. Hrapsky - is so cool and generous, you won’t believe it! Once I called him to ask a question about an obscure paragraph in the Yellow Book and he asked around his office to find out what I wanted to know. Turns out, they decided to delete the offending paragraph from the 2006 revision. He isn’t defensive – he is collaborative. He never shames you for asking a silly question - and I've asked so many he called me one of his 'clients' once...

He gets right back to you when you call or email. It is a DREAM talking to him. Why can’t the AICPA or the IIA be like that? I feel like giving the GAO a hug.

A Dog Parade.... Our Tax Dollars at Work

I teach performance based budgeting to city leaders about a half-dozen times a year. At one point during the seminar, I ask the participants to discuss what their department does and what their goals are for the coming year.

One Parks and Rec director for a moderate sized city said that her department has a mission to connect the community and get people from all walks of life involved. OK - I can go with that concept. Sounds very parks and rec-ey. But then she went on to say that they were trying out a new concept this year - a dog parade. They had already designated several of their parks as dog friendly - which makes sense to me. But they felt like they could do more - so they came up with a dog parade.

Now I love dogs and have had several that I treated like children. That is until I had my own children - you know - HUMAN children. And I understand that everyone needs to get out. But do I have to pay for that? Is that where my tax dollars are going? What about defending us from terrorists? Flu shots? Teaching Johnny to read?

I remember reading about Jimmy Carter's efforts to implement zero-based budgeting at the federal level. He said that once you get a program going in government it is hard to kill - because you have constituents who will fight very hard to keep it. This city was creating a new expectation from its citizens that it will have to continue to meet or suffer the wrath of dog owners.

Once you give someone money - they feel like they have to spend it doing something. Why not just make something up on the fly!?!

Another fire chief for a high end estate community bemoaned his citizens lack of support for his service. He was trying everything he could to extract more money from them so that he could build his team - but the community was already being served by a neighboring, larger municipality and they saw no need in paying double. He was furious with them and felt unappreciated. Narcissism alert! I gently, gingerly worked to make him see that just because he exists now does not mean he should exist in the future. They simply didn't need him, and he knew that in his core. But he didn't want to lose his job.

Another participant in this very class was new to city leadership. He and his gated community felt that the city that owned them was not serving their needs - so they broke free and created their own city. He told me that he had millions in property taxes at his disposal now, but had no idea what to do with them. He couldn't think of anything that his citizens needed so he was a little stuck and asked me what I thought he should do with the money. Again - the attitude of use it or lose it!

I told him to give it back. What he did with that little gem of advice :), I don't know.

Still Working Out the Risk Assessment SASs

I am home from a trip that included visiting two CPA firms in the southeast. At both, we talked about risk assessment and how to plan an audit - yellow book style. We looked at the tools they were using to comply with the risk assessment SASs. I presented a technique that would help them stop using the shot-gun approach to auditing (you know - throw as many methodologies on a subject as possible) and they liked it.

Problem is - their tools aren't flexible enough to pull it off. The PPC e-tool went way overboard - throwing 30 methodologies at simple questions! I was amazed at how much work it recommended. Of course, the auditor was supposed to cut back on these suggested methodologies using their judgment - but unseasoned auditors (sounds like I"m talking about a frying pan!) were scared to cut anything out. Even seasoned auditors were reluctant.

The McGladry tool was a little more flexible - but required - as the PPC tool did - way too much work on the front end. I must say - I appreciated how the McGladry tool didn't just throw 30 methodologies at you - but asked you to build a relant program from a list of possibilities. That at least discouraged the auditors from throwing every possible methodology at the problem.

But both are throwing you a buffet when all you want is a sandwich. Most auditors I encounter love a good checklist and don't want to be left to their own devices and brain. I can appreciate the comfort that comes from using a checklist. But, the creators of the checklists and tools overdo. Way overdo.

One of the key pieces missing from the approach is a clear audit objective. The yellowbook encourages objectives - the AICPA doesn't. And given a clear, finite objective - you will end up with a minimum of targeted - dart like methodologies. Not a dozen methodologies - where maybe ONE hits the target.

If you have a tool you like for risk assessment, please share it with me. I'd love to see a lazy - get that potato salad off my plate! - approach to risk assessment.

What is the big deal about ARRA?

ARRA ARRA ARRA - every conference I attend has someone talking about ARRA. Every audit team that wants me to cover the Single Audit wants me to talk about ARRA. What is the big deal? Everyone is stirred up and agitated.

Part of the excitement comes as the result of our staid, slow moving profession. When something new comes up to talk about - everyone who plans conferences is relieved. Believe me, I am one of these people. You can only talk about Yellow Book independence issues a few times before you get booed off the stage. A few years ago the hot topic was the PCIE report, then sampling, now ARRA. We have to make a big deal of something so that people will come back and see us.

Part of the excitement comes from the speed at which the money was distributed and the uncertainty regarding several key requirements of the grant that were meant to enhance accountability and transparency.

A friend of mine who is the director of monitors of subrecipients for a major ARRA funded program here in Texas has been visited by auditors 10 times since the funds were granted. Calm down, why don't we?

Accountability and Transparency

I absolutely love these concepts and applying them to government programs. The first line of the 2007 Yellow Book - written by the leader of the GAO at the time - David Walker, says, "The principles of transparency and accountability for the use of public resources are key to our nation's governing processes." Here here!

But the way these ARRA monies are being treated is unprecedented. I was part of a meeting in Austin where the GAO auditors from Dallas warned the internal audit directors of the state agencies that they were sending down the funding this week - but expected these agencies to report valid performance measures the next week so they could be posted on the web.

Why so fast? Well, the political pendulum has swung ... hard. Under Bush, we bailed out the banks in an effort to keep the economy from collapsing and to free up credit. My father builds apartments in Houston, and he will tell you that is not what the banks did with the money! Credit has not freed up and we, the citizens, have no idea what the banks did with their billions. We did hear that AIG went on a $500,000 spa retreat - expletive - but otherwise we have no idea where our money went. The public went crazy and Obama doesn't want to see that happen to him.

One of Obama's favorite words is transparency. He sprinkles it into his speeches and his websites. And his administration designed the ARRA funded programs to be as transparent as possible. As such, the programs have to report how many jobs were created and retained and their audit results will be available on the web. The website www.recovery.gov is spectacular. All ARRA audits will undergo a mandatory quality control review at the inspector general level.

But the bottom line is more of the same

ARRA grants are still federal grants and subject to the same Single Audit requirements. So, the audit techniques are the same.

Yes, the compliance supplement has redefined some requirements - usually surrounding eligibility- but that isn't that big a deal to integrate into your work. That is the same thing you do when you audit a new grant.

And, yes, the ARRA grants are considered high risk - always. Which means you will have to add them to your audit plan.

The biggest excitement has surrounded the performance measures

The most prominent measure on the recovery.gov website is jobs created or retained. The ARRA monies were intended to supplement the spending already occurring at the grantee level - not replace it.

So the grantees were supposed to use the moneys to do new things that they couldn't afford before - not use the money to do the same things. For instance, many states are using the money to fund already existing positions and activities and then diverting the money they were going to spend on those positions and activities to fund another activity. Inadvertently, the ARRA grants have helped many state governments stay afloat during a very rough financial period. But did they stimulate growth? HM. Very questionable.

My buddy who monitors ARRA grants for the state says that in order to show progress on the grants, they took last years service levels and contrasted them with this year's service levels. He had to come up with this technique on his own because the 10 auditors who visited him last year wanted the numbers - but could give him zero guidance on how to create them.

And the jobs created/retained number has been quite controversial. Many grantees argued that they would have had to eliminate existing positions without the funding - so shouldn't they brag about that in the performance measure so we could post it to the website and show the public how much bang we were getting for our buck?

After plenty of wrangling - the feds finally decided to use the metric `jobs funded' and simply count how many people's salaries were being funded by the grant. My buddy says that the accountants at his agency have creatively reallocated everyone's salaries who even touches these grants to extract the maximum number. That is not unusual behavior when it comes to performance measures - what gets measured gets done.

So what's the big deal?

Personally, I don't think much. I think everyone should just calm down and make sure they have all of their ducks in a row on these grants. They are going to be looked at very closely and the results will be posted on the web. But we were going here anyway - moving toward true transparency and accountability with governmental programs and funds. Maybe it is a just a little quicker than some are comfortable with.

What will be the hot topic next year? The Single Audit requirements and the Yellow Book are due for an update. Maybe attestation standards, maybe information technology, maybe CPE requirements. What an anxiety inducing, wild, fast, dangerous life we auditors lead, eh? Better stock up on your meds.