POSTED ON FEBRUARY 4, 2009:
Counting the Cost
It's all about protecting taxpayers' money. A growing city requires growing accountability and need for additional, independent auditing
The slamming sounds you hear around City Hall are from an outbreak of post-horse-escape barn-door-closing.
After the bombshell announcement of federal indictments involving Tulsa Public Works Department construction and engineering contracts, Mayor Kathy Taylor announced that a local law firm and a national accounting firm have been hired to conduct a fraud risk management review of the department's engineering services division.
Taylor also stopped work on contracts involving the companies whose principals were indicted, froze all Public Works contract payments for three days, and asked "management team members" to swear that they are unaware of any other fraud within city government.
Some additional controls have been put in place to prevent the specific types of fraud alleged in the federal indictments. For example, instead of circulating a final payment request for signatures one-by-one, everyone will meet together to verify that the payment request is valid.
Meanwhile, several councilors continue to push for a full audit of Public Works, a cause first championed by former Councilor Jim Mautino.
You may be wondering why an independent audit is necessary. Doesn't Tulsa already have an independently elected city auditor?
We do indeed.
City Auditor Phil Wood, first elected in 1988, has his own staff of internal auditors who are by all accounts intelligent, diligent and thorough. Chief Internal Auditor Ron Maxwell has set a standard of professionalism and excellence for his team.
Their audits seek to cover the same territory as the SCARE audits we discussed in last week's column -- the safeguarding of city resources, compliance with laws and rules, accomplishment of goals and objectives, reliability and integrity of information, economy and efficiency.
What they do, they do well, but the auditor's department is stretched to its limit. When councilors asked the auditor's office to investigate another scandal -- firefighters allegedly falsifying continuing education records -- Maxwell indicated that a shortage of manpower and resources could prevent an inquiry from starting right away.
According to Wood, who responded by e-mail to a series of questions, he has only 10 employees, nine of whom are directly engaged in conducting audits. On an annual budget of under a million dollars, this tiny team does its best to keep an eye on how more than 4,000 city employees handle hundreds of millions of dollars a year in taxpayer money.
The auditor's department has remained at about the same headcount over Wood's two decades of service. (He says he is looking to add an auditor to deal specifically with information technology issues.)
Wood is worried about losing his people to the private sector. As companies seek to cut waste during the present downturn, demand for internal auditors has increased, boosting their market value. Wood writes, "Our requests for competitive wages have not been met."
While the relative security of a government job might compensate for some of the pay differential, if the gap is big enough, an energetic and experienced internal auditor would have to give serious thought to taking a private sector job.
A top-to-bottom audit of the city's biggest department is simply beyond the capacity of the City Auditor's office. Internal auditors are already fully committed to ongoing assignments.
Even if they had the personnel and budget, they don't have the sort of in-house specialists in fields like civil engineering that they would need to evaluate the effectiveness of Public Works practices.
A 1994 audit report quotes the Standards for the Professional Practice of Internal Auditing, which calls for an audit department to "have employees or use consultants who are qualified in such disciplines as accounting, economics, finance, statistics, electronic data processing, engineering, taxation, and law as needed to meet audit responsibilities." Without in-house expertise, internal auditors are forced to rely on guidance from the very individuals they're evaluating.
That same 1994 report, an offshoot of a grand jury investigation, noted that Public Works director Charles Hardt requested that auditors go through him for information, rather than going directly to his employees. While the report makes no complaint against Hardt for his request, it's easy to imagine how funneling all information through top management might keep crucial data out of the auditors' hands.
A 1996 charter amendment removed the potential of a management roadblock, giving the auditor's office full access to anything, anyone, and any place in city government.
A number of internal audits during the years have examined issues that might be related to the recent indictments: purchasing and accounts payable, construction contracts, contract administration. On an annual basis, auditors also review "sensitive payments" -- transactions where executive discretion presents a greater potential for abuse.
Each audit report includes recommendations for improvement, which a city department's management can choose to implement or ignore. On occasion, management rejection of a recommendation will be met with an auditor's comment in the final report.
No Perfect System, but Improvements Needed
Did Public Works upper management reject any auditor's recommendations that might have prevented the alleged corruption? It's a question that deserves further investigation.
As Wood notes, "No audit or control system can assure prevention of criminal conspiracy committed by employees and contractors." Someone who has been in place for many years, who knows how the system works, will know how far he can cheat the system without raising suspicions. Still, internal auditing may identify additional controls that could deter cheats or catch them before they can do much damage.
The framers of our 1989 City Charter envisioned the auditor as a kind of "anti-mayor," a counterweight to balance the mayor's power over the executive branch of government.
Under Wood, the department has instead taken a low-key approach, quietly releasing audit reports to elected officials and department heads.
Wood has been a leader in making city government information, including audit reports, available on the World Wide Web. He funded and programmed his own Web site (cityauditorphilwood.com) providing access to city documents long before the city's official Web site was functional. All of his department's reports are available on his Web site.
But it's left up to others to make noise about important findings or to chide department heads for ignoring the auditor's recommendations.
The caution is understandable: Too high a profile would open the city auditor to charges of political grandstanding. A city worker might hesitate to share information with an audit department that seems too eager to assign blame.
Still, it's possible to be too cautious. I don't want to take anything away from Phil Wood's distinguished service or the good people who work for him, but it's time he held the occasional press conference to call attention to audit recommendations and to push for the resources his people need to keep an eye on our money.
The change may draw criticism, but after 11 straight election victories, many of them unopposed, Wood certainly has the political capital to spend.
But the Mayor and councilors shouldn't wait for the auditor to speak up. In addition to authorizing the independent audit of Public Works, they should add funding in the coming year's budget to hire more internal auditors, including specialists in IT, law, and engineering, and to raise salaries to competitive levels.
I'm normally not a fan of growing government budgets, but the auditor's office is one department where a strategic increase could help Tulsans to get full value for their tax dollars.
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