Bring Audits Up To Expectations
May 1, 2012 (Knight Ridder/Tribune Business News) After the Dixon comptroller scandal broke 2 weeks ago today, Sauk Valley Media did a follow-up story a few days later with the headline "How did the auditors miss the missing millions?"
That remains a huge, unanswered question.
Quoted in the story was an accounting professor at the University of Illinois.
Mark Peecher said: "One of the things you need to keep in mind, there's this thing called the expectation gap. The public thinks the audit does more than it does."
Peecher seemed to imply that a standard audit might not uncover certain instances of fraud, particularly when they involve a "very trusted" employee -- a status that former Comptroller Rita Crundwell enjoyed.
Given the federal accusation that Crundwell misappropriated $30 million between 2006 and this year, an audit's "expectation gap" certainly needs to be narrowed.
If the public expects an audit to do more than it does, then the auditing process itself had better be revised and improved to meet public expectations.
In Dixon's case, two accounting firms prepared the annual city audit at a combined cost of thousands of dollars.
Why wouldn't the public expect such a large expenditure of tax dollars to uncover misappropriation and fraud?
By themselves, improved audits won't solve questionable financial practices. Government leaders must take the information supplied in an audit and act on it. Otherwise, the audit will join other reports on the bookshelf, collecting dust and performing no worthwhile service.
Ten weeks before Crundwell's arrest, state Sen. Tim Bivins, R-Dixon, introduced a bill in the Illinois Senate to ensure that audits translate into action.
Bivins' legislation would apply the mandatory reporting concept to government audits. Board members for cities, counties, townships and other governing units who review audits and financial reports would be required to report any suspected criminal activity or fraud to the local state's attorney's office.
As of March 30, Bivins' bill was stuck in the Senate Assignments Committee. A Republican in a Democratic-controlled Senate, Bivins likely harbors no fantasies that his bill will ever see the light of day.
That's too bad.
A mandatory reporting provision may not have made any difference in the Crundwell case, but it certainly would provide solid direction to all government bodies regarding their fiduciary responsibilities to taxpayers.
The Bivins bill could be improved to require auditing firms to report any and all financial hanky-panky they uncover.
Or, as we suggested last week, the whole private auditing process could be replaced by an Indiana-style State Board of Accounts, whose auditors closely monitor local governments' public spending in the Hoosier state.
The public is correct to expect that expensive audits should uncover corruption and fraud. Local and state officials should do all they can to bring reality in line with those expectations.