Using Broad Scope Auditing To Serve Management

Published by the Government Accountability Office on 1977-12-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             NO. 10

                             CASE STUDY

                             BY THE
                             OF THE

* Scope
  Using Broad
-.,     Auditing
      To Serve

      How the Governor
      of Missisbpi
      broad scope auditing
      as a management tool
The pamphlet "Standards for Audit of Governmental Organizations, Programs,
Activities & Functions" is for sale by the Superintendent of Documents; stock
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Pamphlets explaining and supplementing the standards have been issued as

              AUDIT STANDARDS SUPPLEMENT SERIES                                 .
No. 1 Whar GAO is Doing t o Improve Governmental Auditing Standards(out
      of print)

No. 2 Auditors-Agents     for Good Government

No. 3   Case Study-Illinois' Use of Public Accountants for Auditing State
        Activities (out of print)

No 4    Examples of Findings From Governmental Audits

No. 5   Questions and Answers on the Standards for Audit of Governmental
        Organizations, Programs, Activities & Functions

No. 6   Illustrative Report Prepared in Accordance with GAO Audit Stand-
        ards-Air Pollution Control Program, Sassafras County, Maryland

No. 7 Using Auditing to Improve Efficiency and Economy
No. 8 Case Study-How        Auditors Develop Findings-Increasing    the Pro-
        ductivity of City Water Meter Readers

No. 9   Self-Evaluation Guide for Governmental Audit Organizations-Based
        on the Standards for Audit of Governmental Organizations. Programs,
        Activities & Functions

No. 10 Using Broad Scope Auditing to Serve Management
No. 11 The Audit Survey-A Key Step in Auditing Government Programs
No 12 Benefits of Expanded Scape Auditing at the Local Level

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                                                                          NO. 10

                                                                          CASE STUDY

                                                                          BY THE
                                                                          OF THE

Using Broad
Scope Auditing
To Serve

How the Gouernor
of Mississippi
broad scope auditing
as u manugement tool
       For s a l e by the Sup-rinienrient of Documents. U.S. Government
                  Printing O f f i c e . Washington. D . C .   20402

   Since publishing the Standards for Audit of Governmental Orga-
nizations, Programs, Activities & Functions in June 1972, the General
Accounting Office has closely followed efforts by Federal, State, and
local audit groups to expand the scope of their audits and otherwise
improve audits of federally assisted programs. The Office has pub-
lished a series of pamphlets explaining and supplementing the stan-
dards and has participated in joint projects with State and local audit
groups and others t o demonstrate and test the standards’ application
t o various functional areas of government.

   The concept of broad scope auditing advocated in the standards
has received widespread acceptance by Federal auditors, and it is
an increasingly important factor in the evolution of the auditing
discipline a t all levels of government.

   Auditors are not alone in their concern with the issues that broad
scope auditing is designed to address. Managers and public officials
want to know whether the funds for which they are responsible are
handled properly and whether governmental programs are being
conducted efficientlv and effectively. Broad scope audits can provide
this information and can point out to managers and public officials
actions that should be taken to improve governmental activities.

   This publication illustrates what can be achieved when a top
public official questions how well his government is operated, takes
deliberate steps to find out through broad scope auditing, and then
takes corrective action where it is needed.

                                  Comptroller General
                                  of the United States
                                   December 1, 1977
Letter From Governor Finch

                               THE   CAPITOL


 GOVElNOP                                        OCTOBER 26, 1977


      When I took the oath of office as the 57th Governor of the
 State of Mississippi, one question was uppermost in my mind. That
 question was: What do we really need from state government, and if
 we are not meeting these needs, what can we do to get the job done
 at the lowest possible cost? My preparations for the office had
 already convinced me that these questions would not be easy to
 answer. The traditional role of the Governor in Mississippi did
 not give this office the authority and resources to do much about
 charting a course for our state and there was a serious void in
 the flow of information to the Governor as chief executive officer.
 This hampered my ability to judge how well our government was
      I was determined to change the traditional relationship
 between the Governor and the legislature. The serious times we
 faced required that the Governor and the legislature arrive at a
 new working agreement-a partnership that would be responsive to
 the demands of good government and equally responsive to the needs
 of our state and our people. The time had come when the legislative
 and executive branches must equally share the responsibility of
 operating state government as required by the state constitution.
      Our system of state government had grown awkward and unworkable,
 inefficient, and too expensive. We could not continue in that
 system which had kept us on the bottom rung of the ladder. To
 reverse the trend, we had to cut government bureaucracy, spend
 less, and get more for our hard-earned tax dollars.
      In order for the executive branch to take a hand in reversing
 the trend in government and achieving more efficiency and effective-
 ness, there had to be a flow of information to top management
 which did more than supply financial data on how much was spent
 for salaries, commodities, and other costs incurred in running
 governmental units. We had t o have information to enable us to
 judge whether the taxpayer's money was spent wisely. Were funds
 and other resources properly handled? Did the programs achieve
 their intended results? Could we learn from past mistakes and
 improve future performance?

     We were not getting the type of information we needed to
answer these questions. One of the first actions I took as
Governor was to initiate an evaluation of state government
operations as one way of getting answers to these important
     The evaluations proved beneficial in more ways than one.
Not only did we save hard-earned dollars of our taxpayers and
improve the economy and efficiency of agency operations, we
demonstrated that management evaluations using the broad-scope
audit techniques, long advocated in the federal government, were
equally at home in state government. The evaluations also rein-
forced my belief in the program budget approach and the bene-
ficial effect this will have in meeting our goals and objectives.
In fact, after our evaluations, the legislature mandated that
program budgeting be adopted by all state agencies.
     We have made progress, but much remains to be done. If we
are to achieve our objective of more economical, efficient, and
effective state government that better serves all Mississippians,
then one of our highest priorities must be the continuation of
these evaluations.
     If public officials really want to know how "good" their
government is, they have to take deliberate steps to find out.
Broad-scope auditing of governmental organizations, programs,
and activities is a good way of getting the answer. It is the
most effective tool available to us, as public officials, to
make certain the taxpayers get full value for every tax dollar.

                                    CLIFF FINCH

PREFACE .....................................................              I

LETTER FROM GOVERNOR FINCH                              ..............   Ill


   1 . introduction ...............................................       1

   2. Office of the Governor.. ...................................        3

   3. Greater Economy and Efficiency in
         Operating State Agencies ...............................         6

   4. Audits of Program Results.. ...............................        14

   5. Continuing Efforts.. .......................................       16

  When Governor Cliff Finch took office in January 1976, he
announced, in an address to the Joint Assembly of the Mississippi
Legislature, plans for an evaluation of State government operations.
The purpose of the evaluation was t o assist top management by
identifying opportunities for improving government operations and
by disclosing ways of making more efficient and effective use of
available resources. The Governor saw the evaluation as benefiting
State government through reduced expenditures, reallocation of
scarce resources, increased revenues, and greater credibility with the
State's taxpayers.

   With assistance from the General Accounting Office, the Governor
formed a temporary audit group to perform the evaluations. Repre-
sentatives of State and Federal governments and the private sector
comprised the group, which was directed by a senior member of the
Governor's staff.

   An audit plan was prepared which included objectives and scope,
target dates, required resources, and guidelines for survey and review
work. The effort was to include all elements of broad scope auditing
identified in the Standards for Audit of Governmental Organizations,
Programs, Activities & Functions, issued by the Comptroller General
in 1972. The objectives were to answer such questions as the follow-

     Financial and Comdiance

     Were financial operations conducted properly, financial reports
     presented fairly, and applicable laws and regulations complied

     Econornv and Eff iciencv

    Was the agency managing its resources (personnel, property,
    space, funds, etc.) economically and efficiently? What were the
    causes of any inefficient or uneconomical practices-inade-
    quacies in management information systems, in administrative
    procedures, or in organizational structure?

     Program Resu Its

    Were desired results or benefits being achieved?Were the
    objectives established by the legislature or other authorizing
    body met? Were alternatives considered which might give
    desired results a t lower costs?

  Because financial and compliance audits were being done by the
State Auditor, little additional work was necessary in this area.
Therefore, the audit focused on only two elements of broad scope
auditing, economy and efficiency and program results.

   The following pages present the results of the audit as applied
to the Office of the Governor and to several agencies of the State.
Chapter 2 describes the organizational and operational improvements
made in the Governor's office. The practices identified by the audit
group that offered opportunities for reducing waste and making
more efficient use of resources in several agencies are discussed in
chapter 3. Chapter 4 explains why a program results audit was not
feasible and what changes were recommended to facilitate such
efforts in the future. Top management's reaction to broad scope
auditing and i t s continuation i s discussed in chapter 5.


Office of the Governor
   The Office of the Governor was chosen as the starting point for
the audit, on the basis that any need for organizational or opera-
tional improvements in that Office should be dealt with before the
effort was extended to other executive agencies.


   The Governor's Office was a "one-man operation" with no formal
organizational structure. The staff was not organized to identify,
plan, or establish programs that would achieve the Governor's objec-
tives. The staff was a reactive one that became involved in the pres-
sures and crises of the moment. Little attention was given to guiding
and directing the agencies and programs which were under the
Governor's control. Even less effort was made t o coordinate with
agencies over which the Governor had no legal control, even though
the participation of these agencies was necessary in many of the
Governor's programs.

   The group recommended establishing a programs staff which
would be the link between the Governor and the agencies of State
government. In response to the recommendations, the Governor
established additional "Assistant to the Governor" positions to pro-
vide State agencies with the leadership, direction, coordination, and
communication needed to successfully pursue his objectives. This
reorganization also provided for the establishment of a permanent
staff in the Governor's Office t o continue evaluations of State
government operations.


  The audit group found that:

    - The movement of correspondence and other information was
       not timely or effective.

    - The absence of a sound organizational structure and clearly
       defined responsibilities contributed t o confusion and weak

     - Other procedural problems hindered the efforts of the
       Governor and his Office.

  Over 40 recommendations were made for improving day-to-day
operations. Most of the recommendations were immediately imple-
mented; the others required additional time for devising final actions.
Some of the major changes follow.

     - The mission of the Governor's Office was reassessed and
       restated, a formal organizational structure was established,
       and a staffing plan was developed that more clearly defines
       administrative responsibilities and permits the Governor to
       devote more time t o program matters.

     - The office layout and conference room facilities were im-
       proved for more effective work flow and communications,
       and some staff were relocated because their functions did not
       require immediate or continuing contact with the Governor.
- An appointments assistant position was established to better
  schedule the Governor’s time for visitors, meetings, speeches,
  trips, etc. This gave the Governor more time for furthering
  his program objectives.

- Responsibility for mail was assigned to qualified personnel,
  and accountability for incoming correspondence, from
  receipt through final disposition, was established.


Greater Economy and Efficiency
in Operating State Agencies
   The Governor's primary goal was to increase the efficiency of
State government operations. Therefore, the audit was designed t o
evaluate the economy and efficiency of State activities. To do this,
the auditors reviewed several major agencies' organizational struc-
tures, procedures, and operations to identify ways of reducing the
cost or improving the results of government programs. They identi-
fied instances of inefficient or unnecessary use of resources and the
underIy ing causes.

   As the audit work was concluded at each agency, a draft report
was prepared, and agency officials were invited to submit their
comments before a final report was released to the Governor. In
most cases, the Governor accepted the audit group's recommenda-
tions and directed agency heads to make the needed changes.

   Following are examples of findings and recommendations, to-
gether with brief background statements on the agencies involved.


   The State Tax Commission administers and collects 25 separate
taxes and i s also responsible for the wholesale distribution of alco-
holic beverages. The commission thus handles more than 90 percent
of the State's general fund revenues. In fiscal year 1976, this agency
collected approximately $700 million. It is governed by three com-
missioners and has a staff of approximately 500 employees. I t s ap-
proved annual budget is $8.6 million.

More Timely Deposits of Tax
Collections Could Increase Revenue

  The Tax Commission was depositing tax collections and other
receipts in non-interest-bearingaccounts in local banks for up to
15 days before transferring these funds to the State Treasury where
they could be invested.

  The average daily balance in these non-interest-bearingaccounts
exceeded $15.8 million during fiscal year 1976.

   The audit group estimated that prompt deposit of the funds into
interest-bearingaccounts could earn additional revenue of $1 million
annually. As a result of the audit, the Governor directed the Tax
Commission t o study the problem further, and, where practical,
move tax collections into interest-bearingaccounts without delay.

Organizational Changes Needed to Increase
Managerial Control and Improve Efficiency

   The activities of the commission were carried out by 10 separate
organizational units, each reporting directly to the chairman of the
commission. Since the units had similar responsibilities in tax ad-
ministration, they performed operational and administrative func-
tions that were similar or duplicative.

  Following are some of the recommended changes that were
adopted or are in the process of implementation as a result of the

     - A reduction in the number of major divisions from 10 t o 4.

     -   Consolidation of the accounting and administrative functions
         into one administrative service division.

     - Establishment of an internal audit and management review
         department to report directly to the commissioners.

     -   The transfer of certain investigative functions of the alcoholic
         beverage control permit section to the enforcement section,
         to reduce travel and make better use of personnel.

   The group recommended this reorganization to reduce the need
for the commissioners to be directly involved in day-to-day opera-
tions and allow them more time for executive planning and policy

Revenue Lost as Result of Failure of
Agency to Enforce Filing of Quarterly
Declaration of Estimated Income Tax

  The audit group estimated that the failure of taxpayers t o file
declarations of estimated State income tax was costing the State
approximately $360,000 in interest annually.

   Presently, the failure to file quarterly statements is a violation
of criminal law punishable by fines of up to $100. The Tax Commis-
sion had found it uneconomical to enforce the law because of the
cost of criminal proceedings and the light penalties assessed. The
audit group concluded that, if a civil penalty assessed by the Tax
Commission was substituted for the criminal penalty, and the limita-
tion on the amount of the penalty increased, then it would be

economically feasible for the Tax Commission to enforce the law.
The auditors recommended that legislation be enacted to accomplish
this. Such legislation has been prepared by the commission and
proposed to the State legislature.


   The Motor Vehicle Comptroller is the second largest tax-collecting
agency in the State. Collections for the fiscal year ended June 30,
1976, amounted to over $1 50 million from taxes on petroleum
products, truck size and weight fees, license tag fees, t i t l e fees, and
fees for safety inspections of pressurized fuel tanks. The agency
employs about 420 people; operating costs amounted to about $7.7
million in fiscal year 1976.

Need to Improve Controls Over Procurement of
Goods and Services

  The audit revealed serious deficiencies in controls over the
agency's procurement of goods and services.

     - Requisitions generally were not justified and approved before
        purchase orders were issued.

     - Receiving reports were not prepared to document the receipt
        of goods or services.

     - Basic controls, such as separating the duties of issuing pur-
        chase orders from the duties of paying invoices, were absent.
    The audit group recommended major improvements in the pro-
curement procedures to give greater assurance that the agency
acquires only required goods and services and that they are delivered
a t the agreed time, place, and price. Most of the recommendations
concerning the procurement procedures were acted upon during the
audit, and others were under consideration a t the completion of the

Organizational Changes Needed
To lmwove Efficiencv

   Organizational changes were needed to eliminate overlaps of field
division boundaries and reduce duplication in operations among the
agency's divisions, allow the agency director to devote more time to
overall agency direction and policy matters, reduce travel, and permit
more effective use of personnel. The recommended changes which
were being implemented a t the completion of the audit included:

     - Reducing the number of divisions reporting directly to the
       comptroller from 10 to 3.

     -   Consolidating administrative functions, including accounting,
         data processing, maintenance, purchasing, and property
         management, into one bureau of administrative services.

     - Reducing the overlap and duplication of field districts by
         consolidating field functions and establishing uniform bound-
         aries, and reducing travel by assigning personnel to smaller
         districts. (Field personnel were traveling 4 to 6 hours per day.
         The audit group estimated that changes in field organization
         would save $248,000 annually in travel costs and that the
         resulting increased productivity would equal another
         $285,000 annually in personnel costs.)


  The Game and Fish Commission was created by the legislature in
1932 to take care of the State's wildlife and fish and t o promote wise
conservation practices.

   The commission is a special-fund agency and receives i t s revenue
principally from license sales. Smaller amounts of revenue are derived
from Federal funds, fines, cropland leases, and timber sales. These
funds are spent to support law enforcement activities, administra-
tion, fisheries management and activities, and game management
and related activities. The commission had 307 employees and bud-
get of $5.5 million for fiscal year 1976.

Excessive Costs Incurred to Meet
Minimum Travel Reuuirements

   A review of the use of nine vehicles assigned to agency officials
showed that $37,800 was spent for only 324 days of vehicle usage.
The vehicles were used an average of less than 3 days a month each
for official travel during fiscal year 1976.

   The audit group estimated that pooling vehicles or reimbursing
employees for using privately owned vehicles could save approxi-
mately $32,000 annually. As a result of the audit, the agency ar-
ranged for these vehicles to be pooled so all personnel could use
them as needed for agency business.

Improved Procedures Needed
To insure Remittance
of License Sales Revenue to the State

   The sale of hunting and fishing licenses is the largest source of
revenue for the Game and Fish Commission. Sales amounted to
about $3.7 million in fiscal year 1976.

   State statutes require each bonded agent to remit receipts from
license sales to the Game and Fish Commission on or before the
10th of each month. Some agents were not complying with the law-
keeping receipts sometimes for more than a year-and the commis-
sion had not established procedures to insure collection of such
receipts. The audit group recommended that conservation officers
located throughout the State contact the independent agents periodi-
cally and enforce the timely collection of license sales receipts.

Need for Improved Procedures and
Controls Over Collection of Fines

   The audit disclosed that local justices of the peace were not re-
mitting fine collections according to State game and fish laws. These
laws provide that money collected as fines or penalties by remitted
on or before the 20th of the month after collections are made. Some
justices retained fines for over a year before remitting them to the
commission. Also, citations issued by conservation officers were not
controlled by prenumbered forms; thus, there was no assurance that
all assessed fines were collected.

   As a result of the audit, the Game and Fish Commission had
officers begin using prenumbered tickets for which they are held
accountable. Also, a procedure was established for conservation
officers to insure that justices of the peace remit fine collections
on time.


Audits of Program Results

   The results of State programs were also given considerable atten-
tion by the audit group. This element of broad scope auditing,
called "program results audit" and sometimes referred to as effective-
ness audit, is t o determine whether the desired results or benefits
of a program or activity are being achieved. Program results reviews
can be made only if the purposes or goals of the organization or pro-
gram being reviewed have been established. In addition, criteria must
be available for measuring performance. Finally, a system is needed
for accumulating data t o reflect the program's achievements.

  The audit group found that the State agencies being audited did
not satisfy these basic requirements. For example, they did not have
well-defined program goals. One agency goal was "the promotion and
development of more and better paying jobs," and some of the
objectives included ( 1 ) developing as many industrial type jobs as
possible, (2) developing better markets, (3) increasing the tourist
dollars spent in the State, and (4) promoting small business develop-
ment. Objectives stated in such vague terms as "more," "better," and
"many" are not subject to a meaningful assessment of achievements.

    Furthermore, the agency had not established feedback systems
that would show what the programs had achieved. Progress-in some
cases major progress-had indeed been made in attaining some of the
agency's goals, but other organizations and outside factors had con-
tributed t o this progress. No plans had been made to accumulate data
t o distinguish results attributable to the programs from results at-
tributable to outside factors. There was no reasonable way to mea-
sure that part of the progress brought about by the agency's efforts.

   Therefore, the principal finding of the audit group, insofar as pro-
gram results were concerned, was that, if the State were t o measure
the effectiveness of i t s programs, it would need t o ( 1 ) set more speci-
fic goals so that progress could be measured and (2) accumulate data
on accomplishments.

   Overall program goals and criteria should be established by the
government body that authorizes the program, with more specific
objectives developed by the program managers. When no overall
goals and criteria are provided, however, the program managers
should prepare them as well. The audit group recommended that
each of the agencies develop program goals and criteria and establish
feedback systems to permit meaningful assessments of results.


Continuing Efforts
   The Governor undertook broad scope auditing t o develop informa-
tion which would be useful in managing-information that would
help managers carry out government activities and increase efficiency
of programs. The Governor and the agency heads considered the
results of the review highly beneficial.

   Because of the audit, performance in the Office of the Governor
was improved, the need for criteria for measuring the effectiveness
of activities and programs was recognized, and program deficiencies
and weaknesses were identified.

   Furthermore, the broad scope audit identified several audit areas
with a potential for saving money or improving programs. Several of
these possibilities were related t o procedures and organizational
responsibilities that involved more than a single agency. The audit
group recommended a series of studies of functions and activities
that would cross agency lines and identify improvements needed
governmentwide. Some of the needed improvements that were
identified require further study, including:

     - An organizational structure that will provide more effective
       managerial control and consolidate agencies with overlapping
       and duplicate functions, activities, or programs.

     - Opportunities for greater consolidation and sharing of com-
       puter hardware and software among agencies, through the
       State's centralized ADP center. Computers are being used

    more and more, a t substantial cost, in administering State
    government operations, and several State agencies are operat-
    ing their own data processing sections.

-   Procurement practices that will help insure that money is
    spent wisely for goods and services. Each agency, and in some
    cases each component of an agency, operates i t s own pro-
    curement system. Savings may be possible through a con-
    solidated procurement system for all State agencies.

- A system of administrative and fiscal controls that will help
    insure the propriety of every government expenditure. Con-
    trols over expenditures for travel and personnel service con-
    tracts do not assure that such services have actually been
    received or that they satisfy valid needs. Basic controls, such
    as getting requisitions approved before purchase orders are
    issued, recording data on bids received and the basis for
    selection of vendors, and preparing receiving and inspection
    reports, were nonexistent in some agencies.

- A State-wide merit system that would standardize personnel
    policies and procedures and enhance the hiring and retention
    of qualified State employees.

-   A system of program planning and budgeting that would per-
    mit a more meaningful consideration of agency budget re-
    quests and provide a means of measuring accomplishments.
    Such a system would require improved planning and budget-
    ing procedures in almost all State agencies.
   In his second state of the State address to the joint session of the
legislature, the Governor pledged to continue the reviews of State
agencies and recommended that the program budget approach be
adopted for all State agencies so their effectiveness can be measured.
Excerpts from the Governor‘s address follow.

     ”The head of every department, agency, board and commission
     should be given necessary authority to manage budgets, person-
     nel and policies so they can streamline operations, cut costs
     and increase efficiency.

     “The evaluation team I appointed this year has studied four major
     agencies and has recommended changes and adjustments that
     would further save ten percent in those agencies evaluated. If
     cost savings can be made in these agencies, savings can be made
     in others.

     ”This additional ten percent savings would free money for use
     in meeting critical needs now unmet, including merit raises and
     highways. These evaluation studies are available to you.

     ”The evaluation * * * will continue examining other agencies
     seeking add itional savings.

     “We should adopt the program budget approach for all agencies
     of state government so we can measure their effectiveness by
     what they do for people instead of just by how much they
     spend. Major state functions and services should be grouped
     into not less than ten or more than twenty agencies.”

   The Governor is continuing the review effort with a temporary
audit group. The review will be expanded to include all State govern-
ment operations and will cross agency lines into functional areas.
Future plans call for a permanent staff to carry on audits and evalua-
tions of State government operations.

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