Partners In Public Accountability
(from Maine Townsman, January 2000)
by Richard H. Foote, CPA, Deputy State Auditor;
Kathy B. Tyson, CPA, Runyon, Kersteen, Ouellette
On March 20, 1998 the Committee on State and Local Government (Committee) sent a letter to State Auditor Gail M. Chase and asked the Department of Audit to work with the Maine Municipal Association and other interested parties to provide training materials and programs that would strengthen municipalities’ internal control systems. The Committee also asked that the program address procedures that would focus on the problem of embezzlement of excise tax funds. This article discusses the Partners for Public Accountability (PPA) program that was developed in response to the Committee’s request.
The PPA program would not have been such a success if it had not been for the help of several organizations (partners). The program was sponsored by the following organizations:
• State of Maine - Department of Audit
• Maine Municipal Association (MMA)
• Runyon Kersteen Ouellette
• MMA Risk Management Services
• Maine Government Finance Officers Association (MGFOA)
• Maine Tax Collectors and Treasurers Association
• Office of the Attorney General
• Office of the Secretary of State
• Maine Society of CPAs (MSCPA)
• Maine Town and City Clerks Association
• Maine Town and City Management Association
These organizations provided marketing materials, program materials and, most importantly, volunteers who were involved in the training sessions. The Maine Municipal Association coordinated and performed administrative functions including publicity, program registration and securing training facilities. While several representatives of the sponsoring organizations were on the program development committee, other organizations such as the Maine Society of CPAs and the Maine Government Finance Officers Association were facilitators at each of the program locations. John Eldridge, Finance Director of the Town of Brunswick and representative of the Maine Government Finance Officers Association, was a program facilitator for most of the eleven programs that were presented during 1999. Representatives from the CPA community, primarily members of the Maine State Society of CPAs, provided numerous volunteers that served as facilitators for the programs. In fact 20 of the 35 firms that conduct municipal audits in Maine performed this invaluable service.
The name of the program, Partners for Public Accountability, was originally proposed because of the requirement that team registration (a person that works for the municipality and a member of the oversight body) was a requirement for attendance. However it became very apparent that Partners for Public Accountability, also described the hard work of the sponsors or "partners" of the program.
The program was offered in the municipalities of South Berwick, Camden, Caribou, Calais, Portland, Orono and Augusta. These training locations attracted 265 attendees from 100 of the 492 municipalities in our State. The attendees represented municipalities from each of the 16 counties in Maine. Further analysis indicated that these municipalities, which ranged from a very large city to a town with less than 35 citizens, represented approximately 30% of the population in our State. These statistics demonstrated that we had met the program goal of serving municipalities of all sizes and locations in Maine.
The most important indicator of success or failure of a program is determined through program evaluations. In response to the question about how useful the program was to the attendee completing the evaluation, the overwhelming response was "very useful". This was very encouraging in that many of the program participants said that prior to attending the program they were not sure what to expect from it (this was the first time that this type of program had been offered). Also some of the comments included in the evaluations were very revealing. The following comments are representative of the written responses received.
1) I would recommend this class for all Council Members and Treasurers.
2) The program should be mandatory for all communities.
3) It would be great to require that all Selectmen come to this.
4) I think this topic should be expanded to all governmental instrumentalities.
5) I picked up some good ideas and enjoyed the program.
6) Great training. Very useful.
Perhaps the comment that summarizes the training workshop best is - "The program was well put together and well taught. I found many useful topics. Keep up the great work."
What We Learned
In the course of making presentations during one’s professional career, one often learns about the importance of certain areas from an attendee’s perspective. When we first developed the program we did not anticipate some of the lengthy but very interesting discussions that took place. Here are some examples of these areas of discussion.
1) What is my auditor responsible for when conducting an audit?
Answer: The auditor is responsible for providing an opinion on the fairness of the presentation of the financial statements in accordance with generally accepted accounting principles. The actual financial statements are those of the municipality. The only document in the financial statements that belongs to the auditor is the "Independent Auditors Report". The audit of the financial statements cannot be considered a fraud audit. Although the auditor does have a responsibility to plan the audit to be able to detect "material" fraud, the audit will not necessarily uncover all fraud. Also the audit does not guarantee that the numbers are exact. In fact, the numbers contained in a financial statement are presented in a manner that uses the concept of "materiality".
2) Isn’t it the auditor’s job to determine and report on whether policies and procedures are in place to protect assets such as cash, equipment, etc.?
Answer: Not always. The auditor must consider policies and procedures in place in order to plan the audit but unless there are significant problems with these procedures they will not necessarily be reported. The key concept is that management (and the definition of management for this purpose means the oversight officials) is responsible for ensuring that control policies and procedures are developed, used, and monitored to provide a good system of internal control over items such as cash and equipment.
3) Do we really need to use written receipts for all transactions and separate cash drawers for all of the people that work in the town office?
Answer: Yes. The only way to assign responsibility for municipal transactions is by having a system that ensures separate accountability. This means that there must be separate cash drawers for all people who are involved in transacting town business. It also means that receipts must be used for all transactions, whether paid for by cash, check or money order.
These are only a few of the valuable discussions that occurred during the course of program. The facilitators (CPAs and MGFOA members) encouraged much active participation on the part of the participants. There was a significant amount of interactive learning that took place.
We recognize that there are still 392 municipalities that did not participate in this educational workshop. Although we have made significant progress in providing information to 100 municipalities about the need to strengthen internal control, we believe that there must be additional mechanisms to address the needs of the communities that have not participated in this training. Even communities that participated in the training sessions could benefit from future training as employee/elected officials turnover is bound to take place.
Where Do We Go From Here?
We found that there was a great need for this type of training. We also found that there is some additional work that can be done in the areas of materials, information and/or additional auditing services that may be needed to help strengthen internal control in all of our municipalities. The following ideas are currently being discussed by members of the sponsoring organizations to address the need for internal control training, materials and awareness.
1) Each year offer the PPA program in the format that was used this past year.
2) Incorporate financial / accounting control training in MMA’s elected officials workshops.
3) Encourage municipalities to adopt more written policies and procedures. This could be accomplished by developing sample policies and procedures that could be used by a municipality to tailor its own policies and procedures.
4) Support the establishment and use of "internal audit committees" that would be responsible for evaluating and monitoring the implementation and use of internal control policies and procedures.
5) Establish an "internal audit function" that would be operated for the purpose of performing independent internal control evaluations and testing. The selection of municipalities for an internal audit would be on a random basis. This work would be beyond the scope of a financial statement audit but could also be performed by the municipality’s CPA firm for an additional fee.
6) Develop a baseline on internal control that is currently used in all municipalities. This information could help focus the development and implementation of future training and/or materials in this area.
7) Publish, on a periodic basis, articles in the Maine Townsman about internal control.
Some Final Thoughts
Prudent and responsible management of the financial affairs of a community is its backbone. We hope that this article will spur further discussion and comments that will ultimately lead to actions that strengthen internal control in all of our communities.
Partners for Public Accountability should be an ongoing educational program that encourages the implementation of better controls and procedures. A proper system of internal control will help to ensure that goals and objectives are achieved, and will prevent situations that are detrimental to the organization. A good system of internal control will also help protect a municipality’s reputation and the reputations of its employees and oversight officials. This is a team effort involving all employees and elected officials, but the ultimate responsibility rests on the shoulders of our oversight officials. We wish you the best in your collaborative efforts to establish the appropriate control system for your community!