Auditing the auditors

State government will never be truly accountable without independent, comprehensive performance audits. Taxpayers hired a state auditor to perform such audits, but he is currently prohibited by the legislature and governor from doing his job.

Some state officials and bureaucrats think internal audits should be enough, while others are reluctant to allow the elected state auditor to do his job for fear his reports will not be truly independent. They prefer instead to contract with private audit companies. While this is a positive step, it is not sufficient, since many companies want to continue doing business with the state and this may influence their willingness to be critical when necessary.

A recent audit of state agencies conducted by the well-known international consulting firm KPMG is a prime example.

The 2001-03 supplemental budget passed by the legislature authorized a performance review of state agencies under the direction of the Office of Financial Management (OFM). To fulfill this directive, OFM contracted with KPMG to assess and score the performance of 88 different state agencies. But the KPMG's Statewide Agency Performance Assessment suffers from serious shortcomings and does not accurately reflect the current performance of the agencies reviewed.

According to the 2001-03 supplemental operating budget (Section 127 of Engrossed Substitute Bill 6387), 88 agencies were supposed to be assessed and scored for performance on the following criteria:

• Program effectiveness
• Quality and process management practices
• Internal and external customer satisfaction
• Independent and internal audit functions
• Fiscal productivity and efficiency
• Statutory and regulatory compliance

OFM signed a contract with KPMG in July 2002, but in October OFM reduced the assessment from 88 agencies to 73. The final report covers only 43 agencies, which means the scope is less than half of what was originally intended.

We question the accuracy of the results of this audit due to the following facts:

1. KPMG's "audit" consisted of a self-assessment questionnaire sent to state agencies, which they could choose to complete if they wished.

2. KPMG had the following disclaimer for its results: "KPMG did not audit or research the validity of the information and/or statements provided by the agencies. KPMG does not attest to the accuracy of the information supplied to support the self-assessment."

3. Of the 57 agencies who responded to KPMG's questionnaire, only 43 provided supporting documentation for their claims.

4. The original legislative directive for the audit was too limited. It asked for an assessment of "program effectiveness," which does not include an evaluation of overall efficiency and economy. KPMG limited this definition still further by looking only at a program's "strategic planning." The best strategy in the world does not guarantee the programs being carried out are effective. If they are not efficient or economical, those deficiencies need to be pointed out.

5. KPMG's quality and process management policies left much to be desired. For example, a quick read through the newspapers would tell an auditor there are serious problems in the Department of Labor and Industries (L&I) and the Department of Transportation (DOT), yet both agencies received a "high" score for performance.

6. L&I and DOT also received "high" ratings for internal and external customer satisfaction. The employers staging rallies around the state in response to rate increases in workers' compensation and the voters who resoundingly defeated Referendum 51 might say otherwise.

7. Ranking DOT "high" in audit performance is also startling given the fact that the Ferry System ticket takers have failed 14 consecutive audits and DOT considers its own auditing function a "low priority" in the 2003-05 budget.

8. KPMG's definition of "fiscal productivity and efficiency" is seriously flawed. Agencies received a "high" rating for "maximizing revenue available" (i.e. the Department of Revenue would receive a high score if it was overly aggressive on tax audits to bring in more collections), and received no penalties in scoring for overspending their budgets provided they "regularly tracked spending."

The "audit" conducted by KPMG is clearly not independent or comprehensive, nor is it an accurate assessment of agency performance. This should be a wake-up call to the governor and state lawmakers that it is time to allow the state auditor to do his job.

Please refer to EFF Policy Highlighter 13-3 for a description of the job the state auditor should be allowed to do.

Prepared by Bob Williams, President and Senior Research Analyst (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org