NLPES Question of the Month
How, if at all, does your program evaluation staff use the expertise of financial auditors during the evaluation process?
(Does your program evaluation staff include persons with CPAs or financial auditing backgrounds? If not, do you sometimes find ways to incorporate the perspectives of financial auditors - from inside or outside your office - into your evaluation work? What has been your experience with these efforts?)
David Dean, Oregon Secretary of State-Audits Division
In Oregon, it is the Secretary of State's constitutional duty to act as the auditor of public accounts. Consequently, based on this authority, the Secretary of State's Audits Division was created to examine both the financial accounts of state government and the results achieved from the spending of public money. Our employees' educational backgrounds are varied, ranging from public policy and public administration to accounting, business, economics, the social sciences, and computer science. Most of our staff have graduate degrees or professional certifications; nearly half of the division's staff are certified public accountants. While this diversity can result in challenges, overall, our experience of mixing individuals with financial and non-financial backgrounds has been positive. Because we accomplish our work in team, this diversity of skills provides helpful staffing options on the range of topics that we address in our work. The scope of state government and our work is very broad. For that reason, the Oregon Audits Division has found it useful to build a staff of individuals with a wide range of skills, including financial and other skills relevant to government management.
Jim Pellegrini, Montana
The Montana Legislative Audit Division is comprised of three operational components: Financial-Compliance Audit, Performance Audit, and Information System Audit. Currently staff number: Financial-Compliance 30, Performance 12, and Information System 5.
Financial Compliance auditors on a two-year schedule audit all state agencies. They are assuring that expenditures are only in furtherance of authorized activities and in accordance with the requirements of applicable laws and regulations. They submit reports and financial statements to the Governor, the Legislature, and central control agencies that disclose the nature and scope of the activities conducted, and provide a proper basis for evaluating the agencies' operations. During these audits they may identify operational areas that are outside of their scope. These areas are passed on to Performance Audit to be placed on our potential performance audit list.
We use the information disclosed in the financial audits in conducting our performance audits. We know we can rely upon the financial information and controls of the program. We also rely upon our Information System auditors to ensure that the larger data processing systems are providing accurate and complete information.
On specific audit projects we use the expertise of Financial Compliance and Information System auditors to aid us in the gathering of initial expenditure, revenue and data processing information. They have developed automated techniques that help us gather general financial information, but when more specific information is necessary they will aid us in the audit work. We may use a combined staff of all operational components for specific parts of an audit depending on its objectives.
During planning on each performance audit we meet with the financial compliance audit team for the agency or program under review. They can provide us data and information on financial areas, and on areas related to compliance with laws, rules and procedures. For the Financial Compliance planning meeting on each financial audit we relate the areas we will be examining and they may help gather preliminary financial and background data. They have also developed personal contacts with state agencies' financial officers that are helpful when we need to identify specific cost areas.
Bottom line: The use of financial and information system resources is driven by the objectives of the performance audit. The planning of the performance audit is critical in determining the need for other skill sets.
Trish Bishop, Virginia
In Virginia, the office of the Auditor of Public Accounts (APA), housed within the legislative branch of government, conducts the Commonwealth's financial audits. While current members of the Joint Legislative Audit and Review Commission (JLARC) staff are not CPAs, as program evaluators JLARC staffers have a long history of working cooperatively with the staff of the APA. Both offices have shared documentation, data, reports, and other information. In the past, JLARC has often relied on the APA to assist in providing financial data concerning agencies under review. In turn, the APA has often requested that JLARC staff meet with them regarding findings and recommendations developed during a program evaluation. In addition, the Auditor of Public Accounts serves as an ex-officio member of the Joint Legislative Audit and Review Commission.
Sylvia Hensley, California
Most of the performance audits we are asked to perform do not require the expertise of a financial auditor. Also because the Legislature is interested in keeping the cost of audits down and in fast turnarounds, we do not specifically look for ways to incorporate a financial component into our audits. However, as explained below we use auditors with a financial background or a CPA extensively in our performance audits.
About 10 years ago to increase our flexibility and efficiency, the California Bureau of State Audits did away with separate financial and performance audit divisions. However, because we are responsible for conducting performance audits as well as the State's Single Audit, we expect all auditors, irrespective of background, to possess the skills to work on performance audits and either the financial or the compliance portion of the Single Audit. About one-third of our audit staff are CPAs. An auditor with a financial background or a CPA is assigned the same types of responsibilities on a performance audit that an auditor with any other background is assigned. Further they are subjected to the same rigorous hiring standards and receive the same types of training as those who studied other disciplines.
We consider our blending of financial and performance auditors into one division to be very successful. Not only did we achieve the flexibility and efficiencies we were looking for, but each member of our audit staff has a well-rounded set of skills and is able to contribute to the Single Audit or any performance audit we do. Furthermore we continue to issue top-notch audits.
Jill Jensen, Connecticut
We do not have anyone with a financial auditing background on our staff and the scope of our studies does not include financial compliance. Our state's Office of the Auditors of Public Accounts, also a legislative agency, is responsible for all state financial auditing. Typically at the start of one of our studies, we will contact the auditors to get copies of the most recent audits of the entity we are reviewing. We also like to talk to the responsible audit staff about the agency or program to get their views on performance, areas of concern, strengths and weaknesses, and possible issues. In the course of a study, if we come across a problem related to financial requirements, we would refer the matter to the auditors. Overall, we have a good working relationship with the auditors and frequently share information.
John Sylvia, West Virginia
Our policy is to have someone on our staff that has a CPA when that is possible. We have had an analyst and a research manager with CPA's and another research manager with an accounting degree who performed financial audits in the banking industry. Unfortunately, these three individuals have left our agency and we have had a difficult time finding replacements with CPA's. It is difficult to keep CPA's on staff because they are in high demand and it seems difficult for many CPA's to enjoy making the transition from doing financial audits to doing performance audits. In several audits we have collaborated with CPA staff from our agency's financial audit division when there is a need. This process helps us in reducing the time we need to research issues that a CPA would know immediately, such as tax laws and other state laws that could be relevant to our audit.
Rick Coleman, Utah
In Utah, we (the Legislative Auditor General) conduct performance audits and another office (the elected State Auditor) has the primary responsibility for financial auditing. Occasionally, one of our performance audits includes a heavy financial accounting component that requires the audit team to study and analyze financial statements. On such assignments, our audit team may contact the state auditor's office for their input and assistance. We have an excellent relationship with our fellow auditors and we encourage our staff to contact the state auditor's office whenever needed. However, we do not routinely contact the state auditor on every (or even most) audits; it's up to the audit team to identify the need and make contact. Similarly, if our audit involves entities that have financial audits by private auditors we will often contact the private CPA firm. For example, on a recent mental health system audit, we contacted private CPA firms for a general overview of the financial statements and to discuss areas of concern such as related party transactions. In addition, we have two CPAs on our staff who are available for consultation as needed. Again, it's up to the team to identify the need to get a CPAs input and make contact. If we can tell from the audit request that financial accounting expertise will be critical, we will try to include a CPA on the audit team. This approach has worked well for us, thanks to our great audit staff. Ultimately, each team understands it's up to them to make the contacts and get the input needed to address the audit issues.
Jane Thesing, South Carolina
At the Legislative Audit Council the extent to which we use the expertise of financial auditors is directly related to our audit objectives. We review all audited agencies' most recent financial audits when starting a project. If these audits have any findings relating to our audit objectives we follow up on them. We have one CPA on staff with whom we consult when we have questions relating to financial audits. In some cases where the audit objectives are directly related to financial operations and/or financial reporting/auditing, we consult with financial auditors, usually those with the State Auditor's Office (executive agency that does or contracts for the financial audits of SC state agencies). These procedures have generally worked well.
Joel Alter, Minnesota
Our program evaluation staff does not include any CPAs, and typically we work pretty independently of the 40+ financial auditors in our office. But occasionally we find that it is very helpful to consult with our financial auditors regarding a program evaluation topic, and on rare occasions we have worked side-by-side on projects.
For example, we have been working on a study of the state lottery, and the Program Evaluation Division "borrowed" a financial auditor for a couple of months for this project. The lottery's accounting system is fairly complicated and is separate from the accounting system used by state agencies. We used the financial auditor to explore and document some specific financial practices. Because our office conducts periodic financial audits of the lottery, this auditor already had a good understanding of the financial environment of the lottery.
Other examples of significant collaboration between our program evaluators and financial auditors have included: (1) a study of grants administration by a variety of state agencies, and (2) a study of the University of Minnesota's physical plant operations.
Although these joint projects are not real common, we often talk with financial auditors at the outset of a new program evaluation-to find out more about the agencies we're about to study. In addition, our IT financial audit staff are often familiar with the information systems of the agencies, and they sometimes work on behalf of program evaluation staff to get data.