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Lake Geneva Chiropractic

Why bean counters serve important task

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May 28, 2013 | 03:29 PM
Our government center was crawling with bean counters last month.

By bean counters, I mean accountants, and they were here poring over our financial records in preparation of our 2012 audit.

I use the term bean counters affectionately, in part because they have not yet finished the audit, but mainly because accountants, whether they are employed by the government or audit government finances, provide an important service to the public.

To comply with state and federal requirements, our county hires an independent accounting firm each year to make sure that the balance sheet is accurate and that our fiscal house is in order.

Bondholders and other government agencies depend on an independent set of eyes reviewing our books as do taxpayers, who have an interest in making sure their money was spent for its intended purpose.

One function of the audit is to test for and deter fraud. This is an area, however, where there is a considerable amount of misunderstanding by the public.

It is difficult for some people to understand how fraud can take place in an organization that has been audited. The answer is that it can and, unfortunately, does happen because it is impossible for an audit firm to check out each and every transaction that an organization makes in the course of a year.

Instead, they check a sampling of transactions. If an organization makes hundreds of thousands of transactions each year, it is possible that fraudulent ones will not be included in the sample.

Unfortunately, fraud is all too common. While there have been a number of high-profile cases in recent years, Dixon, Illinois takes the cake. The comptroller there was recently convicted of embezzling nearly $55 million during the course of 20 years. The question of whether auditors should have been able to detect such a large and lengthy scheme will likely be answered by the courts. The city of Dixon is suing their audit firm.

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Since auditors can't study each transaction that was made during the course of a year, an important part of their visit is to ensure that an organization has policies and internal controls in place to deter a rogue actor from attempting to commit fraud in the first place. In this way, the organization can protect itself. A critical concept behind these controls is to have multiple workers perform separate parts of each financial transaction.

If I, as a department head, have the ability to order, let's say notebook computers, request the check to pay the vendor and then receive the computers myself, I am working in a situation that is ripe for fraud.

Since I'm the only one who knows about the order, there is nothing preventing me from taking the computers home and re-selling them. In fact, under the scenario I just laid out, the computers may not even exist. The order could have been placed with an accomplice, posing as a computer company.

I have been through quite a few audits over the years, and I have noticed an increased emphasis on fraud detection and prevention. Auditors now separately interview a sampling of elected and appointed officials to discuss the issue and any concerns they may have.

I discovered in my latest interview that our county's committee structure actually operates as a fraud deterrent. As a means of making sure that all supervisors participate in governance and to divide up the workload, committee assignments are distributed, more or less evenly, among our eleven board members.

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Additionally, our ordinances prevent a supervisor from chairing more than two committees. We hadn't really thought about it at the time, but dividing up board responsibilities can have the same positive effect as separating a single financial transaction into multiple parts. An individual supervisor, under our rules, is less likely to be able to pressure staff, for example, into abetting fraudulent transactions.

Government workers and elected officials, as well as members of the public, have ambivalent feelings when it comes to accounting in government. Requests to add finance positions are never popular moves. Ordinances dealing with financial controls are often viewed as fussy or overly-bureaucratic. These rules are criticized for slowing up the work of front-line departments and driving up the cost of doing business. At times, all of the rules can appear to defy common sense.

Why should I have to requisition my office computer through our purchasing department, for example? It would be much quicker and even cheaper if I were to just take the company credit card down to the local big box electronics store and buy it myself. Well-meaning elected officials occasionally yield to these arguments, admonishing the accountants that we need to trust our staff.

About the only time that bean counters are appreciated is when it appears that a scandal has taken place; then outraged officials demand that a full audit be conducted. Unfortunately, at that point, the damage has been done. Those same officials who now want the books to be opened up should be asked what rules they had enacted to deter fraud in the first place.

We are lucky to have honest employees in Walworth County. Handing the credit card off in the manner described above might well work 99 percent of the time. It is that 1 percent of any workforce, however, that will be tempted to take advantage of a lack of oversight.

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That 1 percent can cause a tremendous amount of damage over time as the citizens of Dixon learned the hard way.

The opinions expressed in this column are those of the author and not necessarily those of the Walworth County Board of Supervisors.

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