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Fifteen Tools for Efficient Performance Auditing
Drummond Kahn
Director of Audit Services
City of Portland, OregonWebinar Presented to NASACT
September 2010
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Web Conferences Are Tough
You can’t see who’s talkingBut you can imagine what people might
look like!
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The City of Roses -- Portland
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Portland’s Audit Services Division www.portlandoregon.gov/auditor/auditservices City has over 5,000 employees and $2 Billion budget ALGA member office, follows Yellow Book standards
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Greetings!
Thanks for participating in today’s conference!
We’ll have time for questions at the end of the session.
My contact information is on the final slide of today’s presentation.
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What’s a Performance Audit?
An objective, systematic examination of evidence.
Makes recommendations to decision-makers and to enhance public accountability.
Distinct from financial audits, which express opinions on financial statements.
Conducted in accordance with standards.Has significant “barriers to entry”. Not everyone
can call themselves a performance auditor!
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Barriers to Entry
Economists talk about “barriers to entry” as the rules, logistics, or processes that keep new companies from entering a marketplace easily.
Think about how tough it would be to start up a hospital, an insurance company, or an airline!
Audit “barriers” involve:External quality control review (peer review)Continuing education requirement for staffIndependence in fact and appearanceOperational structures like supervisionReporting structure to those charged with governance
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Special and Unique
Performance audits are expensive, since:Staff are highly-trained (CPE requirements), Staff are well-supervised (which increases hourly
costs compared to less supervision), and Audits take more time than similar analysis done
outside of an audit environment due to our internal and external quality control processes
Not every organization can field a performance audit function.
Government and the public should understand and appreciate the performance audit function.
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Importance of Performance Auditing
Auditing has barriers to entry, may cost more than other analytical efforts, and has an important audience of the public and decision-makers!
We need tools to keep this important field timely and as efficient as possible.
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Our Overture – Tools for Efficiency
Like baseball, how more “at-bats” can help auditors effect organizational change
From Star Wars to Lord of the Rings, how movie trilogy production can inform auditing
Why the audit process should work more like Southwest than Northwest
Why audits should read more like Hemingway than Michener
Why audit concerns about reporting and timeliness date back to Shakespeare
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Today’s Sponsor
15 Tools for Efficiency in performance auditing
Today’s presentation is brought to you by the number 15 and the letter “E”
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Conducting Performance Audits Efficiently
“Efficiency” is the ratio of inputs per output:Hours spent per audit reportYears spent per audit report (??!?!)
Highly efficient auditors and offices have “traction” to create audit yield with each hour of audit time invested
Core idea: Make each time investment count in your audit office
This work needs to lead to reports!Public reports help us fulfill the promise of
auditing by leading to change and by placing management “on the record” through written, published responses.
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Initial Tool Kit
Develop clear objectives near beginning of audit. For unclear or new areas, slate a specific amount of time for survey and don’t exceed it without a “scoping meeting”
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Initial Tool Kit
Develop clear objectives near beginning of audit. For unclear or new areas, slate a specific amount of time for survey and don’t exceed it without a “scoping meeting”
Set and stick to a clear scope for the audit
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Initial Tool Kit
Develop clear objectives near beginning of audit. For unclear or new areas, slate a specific amount of time for survey and don’t exceed it without a “scoping meeting”
Set and stick to a clear scope for the auditWhen scope is fulfilled and objectives are
met, write the report!
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Initial Tool Kit
Develop clear objectives near beginning of audit. For unclear or new areas, slate a specific amount of time for survey and don’t exceed it without a “scoping meeting”
Set and stick to a clear scope for the auditWhen scope is fulfilled and objectives are
met, write the report!Objectives can met and the report can be
written, even when literal fulfillment of the objectives is impossible!
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Unmet Objectives Can Be Findings!
If audit objective can’t be met, that’s a reportable condition.“Determine which laws govern the State’s
practices” – no laws mean that we’ve determined that “no laws govern practices”, NOT that additional audit work is needed right then.
“Determine whether policies are properly reported” – if not, that’s the finding.
“Determine whether agency expenses are properly supported” – if not, that’s the finding.
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Determining When You’re Done
In each of these examples, the objective was answered by a lack of data, not by additional audit work.
This time-saving tool simply has us answer the objective and write the report, rather than performing more work to prove a negative.
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Whose Fault, Anyway?
“We were unable to determine. . .” can also be worded as “Management may lack the information it needs. . .” – and not just from the report, but from their own mechanisms!!!
Remember that data limitations aren’t the same as scope limitations! (Data not answering your objective is very different from someone restricting your access to that data)
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Substitute “Superauditor” for “Auditor”
You’d never see this phrase --“Superauditor™ was unable to determine whether travel claims were supported”!
Try placing responsibility on management, rather than on the auditor.
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Managers Manage, Auditors Audit
It’s in Auditing 101: Managers are responsible for managing, while auditors are responsible for auditing.
Shortcomings in the organization are NOT due to lack of data or a shortage of audit information. They are due to management choices.
Keep this in mind while framing findings.Reports shouldn’t be about the audit process
and its difficulties, they should be about the performance of management.
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Whose Problem is Missing Data?
Consider these examples:
1. “Data on the audit objective was lacking. Therefore, we were unable to conduct our audit or determine the condition that we sought to review” (No Finding)
2. “Data on the audit objective was lacking. Therefore, neither auditors nor management have the information they need to make good decisions.” (Finding!)
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Victory from the Jaws of Defeat
In one case, missing data means no finding.
In the same case through another lens, missing data becomes a finding and can guide management to improvement.
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Don’t “Limit”! -- “Focus”!
Instead of scope choices reading like limitations, consider wording scope choices as a focus –
“We limited our audit to XYZ” versus “We focused our audit on XYZ”.
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Audits Shouldn’t Have Birthdays!
Birthday parties are great for little kids.
Not so great for audit reports.
Audits taking longer than a year to complete put a longer distance between the problem and the report.
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Birthday Conundrum
As audit work ages, you might need to repeat work to collect newer data, since the report will now be issued in a new year!
So a report set for 2010 but issued in 2011 would need to “refresh” its 2009 fieldwork.
This is bad.
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Really. No Birthdays.
I’m OK if I never have to take another audit report out for a pizza party.
Let’s celebrate concise, focused, early reports.
And let’s only have pizza when reports are released, not just when they turn one or two.
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Audit Birthday Avoidance Protocol
Consider the Audit Birthday Avoidance Protocol (ABAP):
Audits should be scoped tightly to take less time (remember that one full-time equivalent auditor spends about 1,500 billable hours per year).
Basic and regular team communication, including update meetings on scope and progress.
Adopt tools to quickly and cleanly decide on message/focus.
Positive organizational change is our goal, rather than only focusing on the report itself.
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Blueprints for Improvement
Assign both the responsibility and the positive results of being responsible to management!
Findings are not negative or “gotcha” results – they are blueprints for positive improvement.
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Not Bad – 80 to 90 Percent
Many audit offices have 80 to 90 percent implementation of audit recommendations!
An excellent process – auditors suggest improvement, and then management improves!
Audit reporting and results are uniquely bi-partisan!
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Missing Data Finding Structure “1”
Condition: Management data lacking or missing
Criteria: To do an audit, we need data as auditors
Cause: We can’t find the dataEffect: Audit on hold or cancelledRecommendation: None – no published
report
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Missing Data Finding Structure “2”
Condition: Management data lacking or missing
Criteria: Data was needed to make good decisions (decisionmaking, accountability)
Cause: Too expensive, not available, etc.Effect: Audit ended early, management
proceeding without complete informationRecommendation: Improve data!
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Use Everything!
Just like a barbecue can use all parts of an animal, an audit should make the best use of its fieldwork.
Bolster OSM sectionUse findings to propel
the reportUse “absence of
evidence” to show concerns
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Boosting “Yield”
Use and bolster an “Objectives, Scope, and Methodology” (OSM) section
Tell the reader about all the work you didInterviewed officials, reviewed data,
analyzed information, compared/evaluated, reached conclusions – using your work to boost yield in the audit report.
This builds credibility and confidence in the report by users because they can “see inside” your work!
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Where to Put the OSM Section?
For most audits with straightforward scope and methodology, putting the OSM section near the end of the report is OK, since readers won’t be slowed by it as they review the findings and recommendations.
For audits with extra controversy or anticipated reader concerns, OSM can be closer to the beginning.
Putting OSM earlier in the report is like taking an antacid before you eat a bowl of chili.
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Findings and Results Propel Reports
Readers like to see results (which we structure as audit findings) and the conclusion to work completed.
Tips later will discuss writing, but remember that results are most interesting.
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Absence of Evidence
As discussed on The X-Files,
“absence of evidence
is not
evidence of absence”.Lack of data does not
mean that a condition doesn’t exist, just that there is no data.
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Match Amount of Evidence to Risk
Unusual claims require unusual evidence – the higher the risk of the audit statement, the higher the level of evidence needed.
But reviewers and QC should not require a huge amount of evidence for an ordinary finding.
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Lower Risk = Lower Evidence
“Management processes could be improved” requires less evidence than “Management could be improved 73% and save $1,630,022.10.”
More detail and more risk increase the demand on the audit evidence supporting the report.
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Use the Information You Find
If management data is missing, report it!
If management can’t use its own information, report it!
If data and analysis could be improved, report it!
If data, processes, and analysis are accurate, report what they show!
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Increase “Plate Appearances”
Specific audits on specific subjects are easier to scope, plan, conduct, write, and review!
More specificity = more reports better tailored to each audience
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Increase “Plate Appearances” Part 2
More reports allows your office to show a series of efforts on a topic, rather than bunching different findings into one report.
Each topic can create momentum for change.
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More “Contacts” = More ResultsBusiness is big on the
notion of “touches” and “contacts” with clients.
Extended to auditing, it’s a good goal to have more contacts with decision-makers, the public, and the media.
Audit reports are the perfect vehicle to do this, but we need more reports to have more contacts!
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Which Works Better?
High costsHad declared
bankruptcyCharged for snacksCharged for
checked bagsFlew fewer, longer
flights per day
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Which Works Better?
Lower costsProfitableFree snacksFree checked
bagsFlies more short
flights per day
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Which Works Better for Auditing?
Producing just a few large reports and contacts per year?
ORProducing more short reports, leading to many
more contacts per year?“Contacts” include public, decision-makers,
media, and other audit report usersMore reports may enhance meeting our goal of
informing the public and enhancing decision-making
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“Quick Response” and Efficiency
Briefly, “quick response” audits limit scope and fieldwork to focus only on the objectives of the audit.
So should all audits!!!Consider your scope
early on – it will dictate fieldwork, writing, and review!
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Setting a Clear Scope
The clearer the focus of the planned audit, the easier fieldwork will be and the better you’ll know when you’re finished.
Discuss scope regularly, and whether current fieldwork is still within the planned scope.
Avoid “scope creep”!
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Focused Scope, Focused Fieldwork
Summarizing the tools so far, a specific, focused scope can lead to specific, focused fieldwork.
With a clear scope, you can tell when you are finished.
Clear scope makes the report easier to write, helping with everything from the title to the summary to the recommendations.
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Focused Fieldwork, Focused Report
Clear fieldwork leads to an easier-to-write report, and a better focus in the report on the important issues.
Deadlines, fieldwork plans, and sticking to them actually helps complete an audit report.
Does focus squelch creativity?
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Big Dilemma on Creativity?
Our offices hire smart, nice, thoughtful people with lots of great ideas.
We also have deadlines and deliverables.
Creativity and brilliance in auditing need not mean that we miss deadlines.
What’s more insightful than issuing reports and inspiring change???
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Clear Reporting Helps Prompt Review
The more focused the report is, the easier and faster it is to review.
Reviewers may have additional questions and ideas for future audit topics.
Consider these in future audit planning, but don’t curtail reporting what’s in hand.
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Action From Audits Requires Reports
It’s issuing reports that allows us to achieve the promise of performance auditing.
No report issued = no change (or no result from the audit work).
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Efficient Audit Reviews
“Three drafts or it’s out!”
Focus report on key objectives, defer other issues to future reports (can mention this in current report)
Use visuals – photos, charts, maps, sketches to explain
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Efficient Audit Reporting
Die Hard-style reporting (no opening credits to slow reader)
Movie-making and audit-making
Star Wars trilogy vs. Lord of the Rings – timing of fieldwork vs. timing and packaging of reports
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Department of Redundancy Department
Avoid recycling editing comments to the point that a second editorial change shifts the text back to be the way it was before the first change!
Distinguish between line edit / formatting comments and content suggestions.
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“Activate” Audit Findings
Consider “action” titles for reports that describe major finding --“Audit of Police Bureau”“Police: Crimes Unsolved”“Police: Crimesolving Could
be Improved with Policy Changes”
Which do you prefer?
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Presenting Results
Think about the “elevator speech” – your main points of the audit distilled into 30 seconds
Consider use of summary with elected officials, media, and public
Focus on findings
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Remember Your AudienceAudit readers tend to be busyState main point in title, in summary, and
throughout the reportWrite at 8th grade level with short sentences
(conversational, focused, and for the public)
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Hemingway, not Michener
Keep sentences short
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Long Reports May Not Be Read!
Nothing is wrong with a long novel for your summer reading –
Audit reports, though, should be reasonably easy to digest!
Brevity is the soul of an audit report that’s used!
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Release Delays are Shakespearean!
“And how his audit stands, who knows, save Heaven?” – Shakespeare, Hamlet (Act III, Scene 3)
We should clearly communicate where our audits stand and the status of recommendations!
Update auditees and the public.
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Inspiring Action with Auditing“I’ll be an auditor – an
actor too, perhaps, if I have cause.” – Shakespeare, A Midsummer Night’s Dream (Act III, Scene 1)
Audits can inspire action and change by management.
Audits help change happen through well-supported, published recommendations.
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Two Kinds of Audit Reports
The kind that is perfect in every respect, with absolutely nothing that could ever improve it.
OR
The kind that gets finished.
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Summary of Tools Discussed
Set and stick to a clear scope Limit fieldwork to that scope When objectives are met (or it’s
determined that they can’t be), start writing
Use high-yield OSM sections Place the focus on the auditee, not on
the auditor, when data is limited
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Summary of Tools Discussed
Write more, shorter reports (plate appearances)
Focus on “quick response” by limiting scope, fieldwork, and reporting to a specific issue
Avoid audit birthdays Consider low-cost, high-frequency audits
rather than high-cost, low-frequency to maximize contacts and efficiency/yield
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Summary of Tools Discussed
Be visualCap draft reviews at threeDie Hard, Star Wars vs. Lord of the Rings:
How to best package a body of audit workUse “action” titles for reports and in your
short descriptions of your workKnow thy audience, simplifyWrite the report that gets finished
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The Promise of Auditing
Improving government with recommendations
Improving public accountability
Enhancing decision-making
Showing a “footprint” of change and of the value auditing adds
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What’s Not to Like?
A track record of audit recommendations implemented and of government improving!
Auditors suggest improvement, and management improves!
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Questions and Contact Information
Drummond KahnDirector of Audit ServicesOffice of the City AuditorCity of Portland1221 SW Fourth Avenue
Room 310Portland, Oregon 97204(503) [email protected]
www.portlandoregon.gov/auditor/auditservices
