Here in New York State, fraud is hitting the headlines. Accusations of alleged theft and embezzlement by school officials have citizens questioning whether their tax dollars go to learning or to luxuries for school officials.
New York State Comptroller Alan Hevesi has called for increased oversight of school finances in response to these scandals, and has identified specific school districts for in-depth audits. The New York State Society of CPAs is part of his initiative to review the safeguards in place to protect the taxpayers' investment in education. Goals include ensuring strong internal controls in school districts and improving the effectiveness of independent audits by training local school board officials on how to get the most from their audit.
These school scandals have cast a new light on accountability - not in the corporate boardroom this time, but instead in our own communities. Not for investors, but instead for taxpayers who deserve assurances that their dollars are spent appropriately. CPAs are key in providing these assurances.
This accountability initiative is one important step down the road to get us to where we need to be.
However, it raises a broader issue that concerns me and that I put forth to stimulate discussion. The New York State Society of CPAs has not yet taken a position on this concept.
As we move past the two-year anniversary of the Sarbanes-Oxley legislation that redefined accountability in the boardroom, our focus during this period has been on public companies - a sector that exists to create profits. New laws are in place to protect investors.
The government sector, which includes school districts and so much more, is fundamentally different in that it exists to serve the public. In these cases, it's not about profit-making, but instead it's about matching money with mission. It's about ensuring that funding and donations are spent to execute the charter of the organization - not to make a profit, but instead to meet a need. Its audits must be different as well.
The good news is that, similar to the lesson that Dorothy and her companions learned in The Wizard of Oz, the profession carries within itself the solution to these problems.
It's all about performance
A road already exists that sets the path for improved accountability. As every government auditor well knows, the "Yellow Book" is the source for auditing any entity that receives federal funding. This includes audits of government organizations, programs, activities and functions, and of government assistance received by other nongovernmental organizations.
According to the 2001-02 Census figures, total state and local expenditures are $1.73 trillion. Total federal assistance to state and local governments is $361 billion. Who's checking to make sure taxpayer money is properly spent?
CPAs have a vital role in taxpayer assurance.
What makes the Yellow Book so appealing in the quest for greater accountability is that it offers mandatory standards for financial audits and goes beyond that to offer performance audit standards as well. Performance audit standards that query non-financial actions are voluntary, depending upon the requirements of the grantee or on procedures agreed upon between the parties.
In auditing government entities, we should strive for audits that focus not only on whether the organization is doing things right (accounting properly for income and expenses), but also on whether it is doing the right thing (tying funding to mission).
It's the concept of performance audits that leaps off the Yellow Book pages. Why is this important?
The Yellow Book standards already exist and fit as an answer to a much broader problem. They are the starting point for higher levels of performance for all government entities and would be helpful.
Top Yellow Book auditors who, for example, have audited difficult and huge hospitals and universities, can train the right people in all kinds of government entities on how a dual audit - financial and performance - can answer questions that provide all kinds of levels of assurance. This will help assure taxpayers that they are getting the best performance for their dollars. Yes, two types of audits will raise costs, but in terms of accountability, it will be well worth it.
The AICPA holds the answer
Having said all of this, the American Institute of CPAs has created something much bigger than everyone realizes in its idea for a Government Audit Quality Center.
If the Yellow Book performance standards do indeed provide the platform to elevate accountability in this all-important segment, the Government Audit Quality Center has the potential to offer a big solution.
The AICPA has defined the new center's goal as strengthening the quality of government audits and providing CPAs with a home to share best practices and find guidelines, training and practical tools to help further improve audit quality. Members of the center will participate in enhanced peer review.
With this as its core, what better place to educate CPAs on the value of comprehensive performance audits as a tool to ensure the wisest possible use of taxpayer dollars? What better place is there to develop testing tools and spread the knowledge of Yellow Book experts? What better place is there to broaden the AICPA's own Audit and Accounting Guide for organizations receiving federal funds?
Yellow Book standards can help government officials by blending knowledge of accounting with knowledge of government - to everyone's benefit. Performance audits should be considered for these entities.
Arguably, accountability in the government sector is even more important than in the corporate world. The auditing of government entities like school districts, municipalities, police departments and firehouses should be a priority in a democratic society. All taxpayers, not just those who choose to be corporate investors, fund these entities.
Forging ahead on this "Yellow Book road" will get us to where we need to be.
Lou Grumet is the executive director of the New York State Society of CPAs.
