Once more into the breach ...

Why do I do this to myself?

Me, by way of NightCafe

Every once in a while I get a wild hair, and I post something I think is educational, knowing full well that the illiterati are going to land on me with all four feet.

Those who have followed me over from the old blog will remember my posts on the Nordstream incident, suggesting that Russian incompetence and hydrate plugs were one possible explanation for the explosions. Despite multiple, redundant links and .jpeg pics of textbook pages involving hydrate plugs, and their … energetic effects on pipelines; and links to articles where Russian pipelines went kinetic due to hydrate plugs — the hosting service for my blog crashed under the weight of all the visitors with their freshly-printed degrees in Petrochemical Engineering from the University of Google showing up to call me everything but a Child of God.

Apparently I ain’t too bright, because I’m going to opine on a popular, controversial subject again.

*Crosses self*

Ok. One definition of “Audit” is “A methodical examination and review.” While most people think of “audit” in the financial sense, there are actually about nine different kinds of audit — at least — most of which don’t need the services of an accountant.

Case in point, when it comes to organizations — particularly public organizations — there are three audits that every public organization/government organization should be doing on the regular, and only one of them absolutely requires the services of an accountant. These three audits — remembering that an audit is “A methodical examination and review” — are:

1. The Operational Audit. Defined as “A review of an organization's operations to evaluate efficiency, effectiveness, and economy. It's a systematic, independent, and future-oriented assessment of an organization's activities.” This is where people show up, look at how you’re doing things, why you’re doing things, how you’re generally spending money¹, why you’re generally spending money², that sort of thing, with an eye towards making things more efficient³.

2. The Compliance Audit. Defined as “An independent review of an organization to ensure that it's following laws, regulations, and internal policies.” You’ve got rules, both internal and external, that you should be following; policies that are Good Ideas; and laws that should be genuflected towards. Are you? We’re about to find out!

3. The Financial Audit. Defined as “An examination of an organization's financial records to ensure they are accurate and comply with regulations.” This is where highly-trained and very expensive folks show up and go through your books line-by-line. This is also the audit most likely to result in indictments that stick.

Of the three big audits, only the Financial Audit absolutely has to have accountants.

To give an example of a Compliance Audit in government organization, every County Jail in the State of Texas is mandated to have what is euphemistically referred to as a “Jail Inspection” every year. I say “euphemistically” because this inspection is a classic Compliance Audit (“An independent review of an organization to ensure that it's following laws, regulations, and internal policies”), and of all of the Jail Inspectors I have known⁴ not a one of them has been an accountant, or probably ever been in a room with an accounting degree.

Texas has specific laws regarding how the money from the Inmate Commissary sales may be used, and it doesn’t require the services of an accountant to look at the Commissary log and say, “This says you used Inmate Commissary funds to pay for a training trip for Patrol Deputies. Want to explain that?⁵” They also pull inmate files, and check those for discrepancies (“Hey, here’s an intake receipt that shows this inmate came in with $4.95. The out-processing receipt shows zero balance, but there’s no receipt for anything spent. Want to explain that?⁶”)

In these examples, and many more, the fact that there was an issue with funds was not spotted by an accountant, nor was an accountant needed to spot the issue. Not to say that a accountants won’t show up pretty quickly⁷ — and your pain-in-the-butt Compliance Audit turn into a fear-inducing Financial Audit — but it didn’t start out that way.

Compliance Audits and Operational Audits notice a problem. Financial Audits find out exactly whose fingerprints are on the problem, who got a taste of the problem, and where every single part of the problem went.

“Well, Ian, why don’t they just make every audit a Financial Audit?”

Because a Compliance Audit of a medium size organization take one to three days, one inspector/auditor, and a representative of the organization;
An Operational Audit of the same organization requires two to five auditors, some of the Higher Ups of the organization and takes a couple of weeks; and
A Financial Audit of that organization takes a team of auditors weeks, if not a month, and all of the C-Suite on deck, or sweating.

A highly-trained, highly-specialized, and highly-paid accountant isn’t needed to look at your paperwork and verify that there was always at least one officer present for every 48 inmates assigned to that area⁸; an accountant is overkill as far as checking that inmates have been observed by staff at the proper intervals⁹; and you really don’t need a Masters in Accounting to pull a fire alarm and time the response with a stopwatch¹⁰ — but all of these are essential in a Jail Inspection¹¹ (Compliance Audit).

“But, Ian, that’s just jails!”

You’ve never talked to a Texas nursing home Administrator, or the HMFIC of a EMS operating in Texas, have you?

That is way too many words — and probably badly explained — to say that there may be issues with the current audits happening at the Federal level, but if your issue is that there aren’t any accountants doing the audits … people are going to get the impression that you don’t have the first clue about organizational audits.

Ian

1. "You’re spending X amount on health insurance. You’ll see long-term savings if you pay to enroll your employees in a wellness program.”

2. “You’re buying tools from the local box store? Be cheaper and more efficient if you signed a contract with Grainger and used them.”

3. If you’re in an Operational Audit, and someone Asks You A Question With Intent, never, ever, ever respond with “Well, that’s the way we’ve always done it.” Just don’t.

4. Way. Too. Many.

5. I have heard these words. Mildly paraphrased. The Sheriff was … not comfortable explaining that.

6. From the expression on the responsible officer’s face, I suspect that (to quote Kelly Grayson) if I had handed him a lump of charcoal, he would have given me back a diamond — as long as no-one cared where it had been.

7. And Texas Rangers.

8. Texas Administrative Code, Title 37, Part 9, Chapter 275, Rule §275.4

9. Texas Administrative Code, Title 37, Part 9, Chapter 275, Rule §275.1

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10. Texas Administrative Code, Title 37, Part 9, Chapter 263, Subchapter A, Rule §263.3

11. You may have guessed by now that dealing with Jail Inspections/Compliance Audits was my job at the County for several years.