Sometimes it’s helpful and often reinforcing to move to the side and view the context and outcomes of the endeavors we have undertaken.

As professionals in the operations and conduct of audit offices in government we are charged with significant responsibility. In almost every instance, government obtains its resources by involuntary payment from its citizens. Citizens seldom get to vote on payment of taxes, in many cases don’t get to express their concern regarding how the resources are used, and are expected to ante up the funds on demand.

Government therefore has a sacred responsibility to use the funds wisely, efficiently and effectively. Government also has the responsibility to protect the assets it obtains from the citizenry from losses of any nature.

The government audit function is part and parcel of these two responsibilities: It operates between the two conflicting forces of identifying inefficiency, lack of effectiveness, fraud, abuse and illegal acts, and the pressure from special interests, government management and elected officials to do in a manner that agency integrity remains unblemished, management and elected officials are not embarrassed and that public confidence in its governments remains high.

In this continuing push and pull many government auditors have lost their job or were not re-appointed upon completion of their term for simply attempting to accomplish the mission of their office. And, on the other side, employees, managers, and some elected officials have been turned out of office, lost their pensions, and in some cases been prosecuted and punished for the manner in which they conducted the peoples business.

Are these prices too high to pay? What is the context in which professionals in our profession should view this continuing drama? And why discuss it at all?

First a view of the playing field for the oversight coverage provided by the profession. The 2005 federal budget identified $2.037 billion (two trillion thirty seven billion) in expected revenues and $2,397 billion in outlays for operating a vast spectrum of public service operations. Add to that the hundreds of billions of dollars obtained and spent by state and local governments for an equally vast network of government funded programs and the result is a gold mine of opportunity for mismanagement, inefficiency, fraud, corruption and illegal acts – and don’t forget ineffective delivery of services to the public.

In it\’s 2006 Report to the Nation on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners estimates that U.S. organizations lose five percent of their annual revenues to fraud. Applied to the federal government’s 2005 expenditure budget, this amounts to $105.8 billion in fraud losses alone. And that figure does not include mismanagement of funds, costs of programs that are no long necessary, costs of programs that result in ineffective service, nor does it include funds expended in the course of abusive use of power. Again, applying the CFE’s five percent estimate to state government and local municipalities’ expenditures, the estimated loss from fraud alone is staggering. When waste of governmental resources is factored in, the result is an enormous loss of taxpayer provided funds.

Fraud and mismanagement of funds is very difficult to identify. The Association of Certified Fraud Examiners (CFE) estimates that on average 18 months elapses from the time the fraud was initiated until it was identified. Similarly, mismanagement and misuse of funds is equally difficult to identify. Typically internal fraud occurs due to weak internal accounting and management controls, over-riding internal controls by management and/or inattention to the controls by management. Ineffective use of resources can be caused by many factors, among them are political directives spawned by special interest groups, promotion from a cadre of persons trained in a professional specialty, but not in management, and leadership resistant to change. The combination of huge amounts of funding available for expenditure in the public sector and the potential of weak internal controls and lax management provides a significant lure to persons interested in making illegal gains.

A final factor that fits into this mix is the lack of sufficient oversight. Most governments now undergo an annual independent audit of their financial statements by accounting firms external to the government. Typically the best that comes from such and audit is a declaration of reasonable assurance that the financial statements fairly represent the business activities of the audited agency accompanied by a management letter. And while external auditors have a responsibility for being alert for fraud, that function is not their primary mission. Moreover, if fraud is discovered and reported, the result could eventually lead to loss of future contracts for the engagement – for the same reasons that internal government oversight personnel are released simply for performing the job they were hired to do.

Also, many organizations employ internal auditors to check financial transactions and perform other financial oversight responsibilities. And while they should report to an audit committee, more often than not, they report to the finance director or the chief operating officer of the organization – an organizational placement that provides at a minimum, the appearance of conflict of interest. At worst it becomes an actual conflict of interest that results in pressure to not report financial details accurately.

Finally many government organizations, especially at the federal and state level employ offices of inspector general to conduct a variety of oversight functions that can include: financial audit, performance audit, fraud investigation, inspections and program evaluations. On paper, this oversight effort is laudable but given the lure of huge amounts of money expended by government and the potential for weak controls/management, the challenge is monumental.

The truth of the matter is that government oversight operations are generally not provided with the resources necessary given the vulnerability and relative risk contained in the entity in which they operate. If an oversight body were to lay out all the high risk, vulnerable functions inherent in the organization for which it has oversight responsibility and estimate the time necessary to examine by audit or pro-actively investigate for fraud deterrence given existing resources, the time it would take to complete work in all areas would stretch out over decades. Most governmental entities allocate less than half a percent of their annual budget to the oversight function. This situation does not provide a reasonable comfort level for protecting the assets entrusted to the entity by the public.

So, looking at the big picture from the sidelines – the enormity of the responsibility, the tendency for nonacceptance by the entity leadership and the lack of suitable resources points to the most difficult of challenges. Each of the audit organizations in ALGA face that reality. And each such member is at the job every day, maintaining the integrity of the office, rooting out fraud, providing the entity with information that will improve efficiency and effectiveness and attempting to stay on top of the potentially foul things that can occur in their organization. There is every reason to be pleased and proud of the work so conducted and at the end of the day or the day you leave office, to be proud of what has been accomplished and what has been contributed to the citizens of your community. While there is no way that oversight can find all the instances that exist that waste and steal public resources oversight does make a difference.

There will always be a full day of challenges ahead – use those challenges as an opportunity and continue to uphold the righteousness of the oversight function.