Category Archives: Auditors

Why government should not compete with business

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The outside auditor’s management report for Cass County was released earlier this week. An earlier report by the County Auditor on the County Collector’s office had been blocked from being released on the county website. When the outside audit was delivered, the county Powers-That-Be relented and allowed both reports to be posted on the Auditor’s section of the county website.

There has been a firestorm about these reports since their release.  There has been accusations and counter-accusations on local Facebook groups and other internet forums. If you read the management report closely, you’ll see why a commissioner abruptly resigned last year and why another chose to not run for re-election.  The outside auditor is particularly damning on the actions and methods of the county commission and vindicates the county auditor.

But that is not the theme for today’s post. We should use these auditor reports to develop county Policies and Procedures to insure future occurrences do not occur.  In the business world, this is known as “Lessons Learned.” That is why we have auditors and auditor reports.

I would suggest that at the top of those lessons learned is this:

  1. Never compete with business. Especially, never compete with business when business has a proven track record, established customer base and existing infrastructure to support the product. In this case, the Broadband project should have been shown the door at its first appearance.  There is no way the county can compete with AT&T, Embarq, Sprint, CenTel, Comcast or Time-Warner in providing broadband internet access and provide a competing product at a competitive cost.  The rural customers that were to be served by the Broadband project don’t have the customer density to support Broadband at a reasonable cost.  That means municipal customers would subsidize the rural customers. The county’s competing product would have to do so at a price that is equivalent or lower than broadband service by AT&T, Sprint and others.  Any competent business manager or certified project manager would have seen these pitfalls and would not have approved the broadband project.  In business, this comes under Risk Identification, Mitigation and Avoidance—all part of a needed business plan that didn’t exist.
  2. Never subsidize new technologies or pilot plants without a proven vendor track record, customer base and established maintenance and support. In short, never be the first kid on the block with new technology until it has been proven.  In this case, the county subsidized the production of a pilot bio-fuels plant with the University of Central Missouri with no scope of work, project plan nor established schedule of deliverables, i.e., it was money thrown down a hole with no obligation of any return on investment.

The Commissioners violated other those and other common business rules and we now see the result. I don’t know the background of the two appointed democrat commissioners, Luke Scavuzzo and Terry Wilson. I would hope when they were selected to fill the vacant commissioner positions by Governor Jay Nixon, that he picked people with proven and successful business backgrounds for surely as God created little green apples, Cass County needs competent commissioners. We’ve not have any, as far as I can determine, for decades.

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Cass County Outside Auditor’s Report for 2010

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The anticipated auditor’s report by Trout, Beeman & Co., CPAs has been released.  In the case of some officials in Harrisonville, feared may be the appropriate adjective.  You can read the report on the Cass County Auditor’s webpage. If you have difficulty finding the report, you can find a copy at an alternate site here.

I had anticipated rising early this morning to read the document and to highlight items in the report of particular interest.  Unfortunately, as happens from time-to-time, I had an attack of insomnia and didn’t get to sleep until well after 3:00AM. Instead, I’ll read the report and give a better review in the coming days.

The link above is to a copy of the report. You can read it for yourself.  The bottom line you’ll find, as am I, is that our County government must have been filled with incompetents to have done what the reports reveal.  The introduction of the report contains these two paragraphs.

Our consideration of Internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.

When a CPA says there are “material weaknesses,” managers in the private sector think, “OMG!!! I’m gonna get fired, sued and never work again!”  I once worked as a Data Systems Auditor for a large KC CPA firm. Our audit team used that phrase in a report to a large corporation. After reading the report, the Board of Directors fired the CEO, CIO and CFO. Those two words are significant and that was just the first page of the Trout-Beeman report.

I’m sure the white-washing and finger-pointing will commence immediately. I’ve had hints that it has already started. I wonder what the editorial for the Harrisonville Democrat-Missourian will say in this week’s issue?  If last week is any judge, I’ll bet a buck the white-wash has already been ordered.

 

 

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