Two trends in government today have interesting implications for the local government auditor. Privatization and program performance measurement each hold the promise of greater return in value for money in government services. Waste is indeed the enemy of people in need, and with stagnant wages and devolution of government responsibilities, increasing numbers of people are going to depend on local government to meet vital needs. Therefore, any opportunity to improve the cost-effectiveness of local government must be explored. But there is a direct relationship between risk and return; greater returns come at the cost of greater risk. The trends toward privatization and program performance measurement each bring substantially increased risk that should be examined carefully by the thoughtful local government auditor.
Professor H. George Frederickson has an article entitled "Public Sector Model Strives to Avoid Corruption" in the May 1997 issue of PA Times. In the article he makes the case that the propensity for corruption and unethical behavior increases as the organization and structure of a government moves from the governmental model to the enterprise model and as the preponderance of individuals in the organization moves from the civically to the privately inclined. He supports his argument with references to well known government scandals such as those in defense procurement and HUD. Frankly, all my experience as an auditor tells me that Professor Frederickson is right about this; the propensity, i.e. the risk, of corruption increases as government is more privatized.
In a classic article on policy analysis in Public Administration Review in 1969, Aaron Wildavsky, arguably the foremost American scholar on government budgeting in the 20th century, wrote "All the obstacles previously mentioned, such as lack of talent, theory, and data, may be summed up in a single statement: no one knows how to do program budgeting." (Emphasis in the original.) Earlier this year, I heard Harry Hatry, the expert on performance measurement, say "Results oriented budgeting: nobody today knows what the hell that is!" Still, many governments are largely abandoning traditional internal controls in favor of things like "performance results budgeting". Program performance measurement is a good thing, but most cities have barely begun to develop rudimentary measurement systems. And the state of the art in terms of linking measurement to budget is still about where it was in 1969. At this point, dropping "process controls" in favor of "outcome measures" is risky indeed.
This is not an argument for the status quo. There are real potential benefits to each of these movements. But as we take on the increased risks associated with privatization we must recognize the risks and not drop financial controls in favor of performance measurement systems that are barely functional. You can cut more wood with a power saw than a hand saw, but you can also lose a finger if you are not careful. Help your jurisdiction be careful.
(Incidentally, the best work I've seen on linking budget to performance measurement is an audit entitled "Performance Budgeting" issued in 1994 by the Minnesota Legislative Auditor.)
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Funkhouser on Auditing