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After a long career as a financial statement auditor in the corporate sector, I accepted an opportunity to broaden my experiences to include auditing federal government financial statements. I have found the transition to be a fascinating adventure. Although the auditing and management skills I have honed over the years transferred easily to government, the differences in culture between the corporate community and federal government still remain striking to me on a daily basis.
When I had an opportunity to be a small part of a government project, I jumped at the chance. As I suspected, the experiences of political appointees have been similar to my own and working with them has been both inspirational and educational. Most impressive to me has been the political executives drive in moving forward on their agency’s mission.
One of the comments that I have heard consistently from political executives is their unhappiness with the amount of time it takes to get things accomplished. Generally speaking, it takes longer for them to make change in government than in their prior corporate worlds. Political executives feel their time may be limited, so it is critical for them to prioritize their time and use it to make the most in advancing their agency’s mission.
My experience and role in government is in auditing. By definition, I am focused on infrastructure, financial controls and financial reporting. These things certainly impact mission and can be very detrimental to mission success, but are usually not viewed as a priority in generating change or as contributing to mission. As a result, my profession is sometimes underutilized or even lost in the setting of priorities. Unfortunately, this contributes to auditors having findings that occasionally catch outside attention and flare into emergency issues. Despite what some may think, most auditors really don’t want to be the center of attention. We would prefer to be helpful and help contribute to agencies in building infrastructure that is supportive of their mission, while guaranteeing fair and accurate reporting of financial results.
In my experience, auditors are more likely to achieve that objective in the corporate world than in government. It is simply a matter of priority. In the corporate environment, the reporting of earnings is part of their primary mission. So it shouldn’t be surprising that money is spent more easily in the private sector on technology and talent to strengthen their accounting process and controls. Financial accountability is an obligation of good stewards in government, but there is a difference in the level of focus and investment one makes to fulfill an obligation versus what one commits to achieve mission. As a result, auditors in government are often less likely to be seen as a valuable part of a risk management team and more likely to be seen as the guys and gals that call “gotcha.”
As an auditor, I believe that government would be improved if the positive attitude toward auditors in the corporate sector was seen in the federal environment. From my perspective, based on my direct experience in auditing, here are five recommendations for political executives to consider when working closely with their auditors.
More than the corporate world, the federal government is flooded with auditors each with a separate mandate and no obligation to coordinate with others. In government, management accepts that as a fact of life and tolerates the audit process. Management in the private sector, in their financial stewardship role, frequently establishes internal risk management committees. These committees coordinate internally but short of reviewing findings and corrective action plans, they don’t necessarily compare notes on risk assessment or coordinate where testing or investigations occur. The most significant example of this is the A-123 process. Rare is the SEC registrant that tests its internal control processes under Sarbanes Oxley that doesn’t insist that their testers share their knowledge with the external financial statement auditors and encourage the auditors to consider and to the extent possible rely upon that test work. Equally as rare is the federal agency that does the same thing.
Political executives should be involved in the risk management committee, encourage that committee to understand the risk assessments done by the various audit constituencies particularly the OIG, the A-123 team and the external auditors. Political executives should have that committee challenge the lack of coordinated efforts to eliminate, where possible, overlapping testing and duplicative conclusions and recommendations. In an ideal world everyone should be close to the same conclusions on risk and strength of the controls. The risk committee should be focused on improving the most critical control processes.
A standard part of any audit process is for the auditors to assess the risk of the auditee. One of the standard procedures performed is to interview senior management to understand their perspective of risk. For political executives who need a crash course on an independent professionals assessment of risk within the agency, the tables can easily be reversed and the political executives can and should inquire about the auditors conclusions of what could go wrong from a financial management standpoint and how well the organization overall is doing in guarding against things that could go wrong.
In the corporate environment, significant deficiencies and material weaknesses are reasons to call emergency sessions of the Board of Directors. In government, they are viewed to be unfortunate facts of life brought on by those pesky auditors. Which sector do you think is faster to get corrective actions accomplished? In the corporate environment, management would discuss the issue thoroughly with the auditors and include them in periodic review of the resulting corrective plan and steps taken to resolve the issue. There is no reason, other than past culture, that similar steps couldn’t work in the federal environment. Political executives should sponsor those meetings and require voices of reason to prevail.
The financial disclosure culture within government is still in its infancy, relative to that of the corporate world. I have read many financial statements. Most of them struggle to communicate fiscal issues. Your auditors read these reports. They are experts and chances are they have read far more reports from diverse organizations than you have. Take advantage of that expertise when crafting your messaging. They need to remain independent, but are certainly permitted to give their thoughts and ideas on the effectiveness of messaging as much as they do on the numbers themselves.
In short, I suggest you add more visits with the auditors as part of developing background and problem solving action plans. Both staff in your Inspectors General and audit offices have deep knowledge of your infrastructure and most likely have great interest in helping solve the organizational infrastructure problems. Auditors’ reports, like any other public documents, have been reviewed and edited and scrubbed to assure accuracy and present only those facts that are fully supportable. Additional color and useful information may be available through more robust discussion and stronger relationships with the auditors directly.
Robert Shope is the Assurance Leader for the Federal Government services at Ernst & Young LLP. In his 35 year career at Ernest & Young, he has served in a wide variety of positions in the areas of government services, manufacturing, real estate, and health care.