November 2, 2005 Audits: What they tell and what they don't tell

In a previous post on October 28, I mentioned that the Hamblen County Commission decided in October 2002 to have state auditors come in and perform the county's annual financial audit at a cost of $13,000-$14,000 per year and cancelled the financial audit contract that it had with local private auditors at a cost of $31,000 per year.

In my campaign for county commission, contracting with the state auditors to perform the Hamblen County audit was a keystone of my platform, and I introduced the resolution in October 2002 to do just that.


Using the state auditors has had at least two major benefits for the county.

1. The county saves $17,000-$18,000 every year on audit costs-- plus
2. Because the state auditors are experienced in auditing counties, the quality of the Hamblen County financial audit is better today than it was in years past.

But, as noted in the title of this post, a financial audit is by its nature a very limited financial review. A financial audit looks at a small sample of transactions. It does not, and it is not intended to, look at every check, every purchase, every invoice, every receipt, every deposit, every grant, etc.

There are financial audits, performance audits, legal audits, and the like, but there is one thing to remember about all audits: "Trust but verify."

The State Comptroller's Office, the governmental unit that performs the Hamblen County audit, notes in a report that I will briefly quote here that audits are limited and that local government officials are the first and primary line of defense in the prevention of fraud, waste, and abuse at the local level.

"After all, auditors cannot prevent fraud. It is the duty of the people in positions of trust and responsibility, who are given the power by their positions, to protect their organization and the assets provided by the taxpayers from fraud, waste, and abuse. Management, and boards, when part of the structure of an organization, have often tried to avoid these responsibilities by pointing out that they cannot stop what they don’t know. If staff under them decides to act inappropriately, how are they to know? Well, having no knowledge about something is not the same thing as having no responsibility to know.
To effectively fight fraud, it is essential that management take proactive steps to assure themselves that they have made it clear to staff that they are to be apprised of departures from controls or breakdowns of controls. Furthermore, management should monitor the activities of their respective organizations to assure themselves that they are being given accurate information by staff. It should no longer be acceptable for management to say that they just didn’t know what was going on. They may not have actual knowledge, but the test is, what should the management of an organization know about the operations and integrity of their organization? What good-faith steps did they take to obtain pertinent information? What did they know, and how did they utilize that knowledge to meet their responsibilities to the taxpayers?

The excuse from Wall Street to Main Street is always ignorance of the facts. Unfortunately, it has been too easy for responsible parties to turn their heads to avoid seeing the problem. "
State audit #04059, State Dept of Education, Financial Compliance Audit of State Departments and Agencies. The full text is available at the Comptroller's website. http://www.comptroller.state.tn.us/

The Comptroller's Office, the very office that performs numerous audits across the state, points out the limitations of audits. The Comptroller is not accusing anyone of fraud, waste, or abuse. He is, however, pointing out that local officials are the first and primary line of defense in preventing fraud, waste, and abuse. And how does the Comptroller say that local officials can act to protect public funds? Ask questions and insist on accurate financial information.

If certain individuals want to attack those who ask questions and who try to verify information and financial data, then I guess they would also attack the Comptroller of the State of Tennessee and common sense.
I will continue to work for the taxpayers. I will continue to ask questions.
Hamblen County must get its financial house in order. Hamblen County must get its debt under control. Hamblen County government must learn to balance a budget and not spend more than it takes in.