| Written by Gary Blackmer,
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The City of Portland Auditor’s Office has studied the concept of “Managing for Results” and is now in its third year of monitoring its implementation in the City. Our annual Service Efforts and Accomplishments report (which received its second annual recognition from the AGA and Sloan Foundation for Achievement in SEA reporting) is a key element in the City’s Managing for Results (MFR) process.
As we discuss MFR, it’s important to understand how it relates to performance auditing. This article describes audits that address general management concepts, how to raise the expectations of management (including the steps in the MFR cycle), how auditing can reinforce MFR, and a concluding story that illustrates how we can challenge managers to manage better. In short, auditing management and managing for results are two strategies that auditors and managers can use to focus on the results and effects of the services we provide.
Auditing management
Managers and auditors should hold some principles in common. Public managers are expected to negotiate the winds, currents, and obstacles of the world to deliver quality services at the least cost. Auditors also need to hold themselves to the same principle: the best results at the least cost. Auditors negotiate the smaller world of the auditee organization, spot the weaknesses and deliver a persuasive audit in a minimum amount of time.
Managers aim high and we should also. I never heard a manager say, “I want to lead the [transportation, police, library, whatever] department so I can make sure all the contracts are properly written, payroll accurately calculated, and the invoices vouched.” Most managers want to accomplish the mission of the agency and are working to orchestrate all the necessary parts, and recognize the need for adequate attention to contracting, payroll and invoices. They don’t want cut too many corners, but the process and documentation are often seen as a means to a larger end, and given a lower priority.
When auditors think about mission first and the means second, we are more likely to deliver an audit that compels the manager’s interest, and best serves the public’s interest. The most important findings with the largest effects are often linked to management decisions or lapses. These findings are usually the more challenging for auditors, who must coordinate 1,000 hours or more of audit resources to gather data, identify emerging best practices, apply sophisticated analyses, and write a persuasive report. This is a reach for the auditor – a high-stakes gamble – but the reward can be immense, especially if the report shows management how to better achieve the agency’s mission. Despite the resulting discomfort, the best managers often still respect the well-done audit, and the auditor, after the report is issued.
I am not intending to diminish the importance of internal control reviews or compliance testing. These audits can produce significant findings and routinely need to be conducted. In many cases, a failure of mission will tie back to a breakdown in controls, which is the best reminder a manager can receive that the processes and documentation are important. Ultimately you want to establish the scope and objectives according to the improvement opportunities of the organization so you can be confident that your audits are achieving the best results for the public at the least cost. The better we can link our scope to the mission and improvement opportunities the more focused audits our audits will be, bringing better value to the public for each auditing dollar.
Raising expectations of management
If auditors should aim high, then improving general management practices throughout the jurisdiction is the greatest goal. Auditors have devised several ways of pushing management to better practices. One way auditors have helped managers learn to improve their own organizations was to teach them to audit themselves, such as Control Self-Assessment. A second method is where management creates an internal audit unit that identifies possible improvements. A third method is to work with the jurisdiction’s leadership to consistently advocate sound management methods throughout the organization and reinforce those expectations whenever possible.
What are the characteristics that leadership should expect to see in a well-managed organization? (The “control environment” is another way we auditors describe these expectations, though the definition is usually rather vague.) There is no single answer for every organization. Many books have been written about good management practices and over 40 years ago Peter Drucker proposed “managing for results” as a strategy for continuous improvement. Drucker proposed many modern management practices upon which experts later added refinements. (Management: Tasks, Responsibilities, Practices, Peter F. Drucker. 1974)
Based upon a review of best practices done by my office, the Portland City Council adopted Managing for Results (MFR), which is the framework we are beginning to use in our audits and recommendations. We expect management to conform to good practices and our recommendations reinforce the concepts and language of MFR.
MFR is built on a feedback loop, comprising four general elements: plan, budget, manage, and report. There are variations on this system (sometimes slightly different words, sometimes the functions are broken down into six or eight steps) but the progression underlies them all. Success is built on iterative efforts to sustain the best results with the least resources. Many of the other methods – Management by Objectives, Program Performance Budgeting Systems, Total Quality Management, and Weighted Scorecards – share common features with Managing for Results.
These are the general steps involved in each of the four elements.
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PLAN To establish agreement and common understanding of goals and how the parts of the organization contribute to achieving goals
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1. Assess community values and needs
2. Develop organizational vision and mission
3. Establish long-term goals and desired results
4. Align department goals and objectives
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BUDGET To allocate resources purposely and optimally to accomplish goals
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1. Forecast financial resources
2. Obtain citizen and stakeholder input
3. Set priorities for funding
4. Allocate resources to programs based on priorities
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MANAGE To implement, monitor and revise plans and strategies to optimize accomplishment of goals
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1. Acquire and organize physical and human resources
2. Direct and control work efforts
3. Implement plans and strategies
4. Collect performance data and measure progress
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REPORT To evaluate and report to the public and elected officials to enhance accountability and decision-making
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1. Evaluate and assess performance
2. Identify problems and solutions
3. Communicate results to management
4. Communicate results to public
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Managing for Results: A Proposal for the City of Portland, Audit Services Division, December 2002
Auditing to reinforce MFR
MFR is getting incorporated into our audit work, but it has not required any significant changes in our audit procedures. By asking a few different questions our efforts can produce better results in three different ways: on occasion we spot management weaknesses we wouldn’t ordinarily, we show management the logic and value of using MFR, and we are better able to articulate and defend our recommendations.
We still develop the elements of a finding in the survey phase to ensure that our fieldwork plan gathers all the necessary evidence. However, we are approaching the cause element from an MFR perspective. We make sure that our workpapers capture the management lapses that caused the finding. The breakdown may be a lack of good planning, or a misallocation of resources that causes a bottleneck, inadequate training, improper procedures, or insufficient monitoring to spot and correct problems. You can see an example in our 2005 Knighton-winning audit, Police Investigations: Improvements needed to address relatively low clearance rates. The audit identifies the poor crime-solving rates of the detectives and addresses planning, budget, management, and reporting weaknesses as causes for the poor performance.
If you go back and look at the elements of MFR illustrated in the table above, you’ll see activities whose breakdowns are regularly reported in the audits of ALGA members. Your audits have documented programs that failed due to clear, agreed-upon objectives. Portland has issued numerous audits over the years that identified mismatches between workload and staffing that a better allocation (budgeting) by hour of day could alleviate. Hundreds of audit abstracts document failures of managing personnel, resources or processes. The reporting breakdowns are my favorite: how often have we found performance information that nobody is looking at, and if they did, they would see problems? We do the analysis and it’s like shooting fish in a barrel. If you let your imagination run, you can see many audit findings among those MFR elements.
While management may perform each of these elements well, it does not always guarantee good results. Oftentimes the breakdowns happen between the elements: the budget is fine except it does not reflect the plan, the program is not following the budget, or the subsequent planning process does not review past results for opportunities to refine objectives and priorities.
There are many ways that a program can go off the rails, and MFR is one framework for categorizing them. If MFR can effectively guide managers, then it can also be a diagnostic tool for auditors. My office would not use MFR as criteria in an audit. In other words, we would not audit a department’s compliance with MFR. Real effects are more persuasive and meaningful than a “finding” that the department failed to implement MFR with no adverse consequence, yet. In addition, I think our resources are better spent identifying breakdowns with an obvious impact than non-compliance with MFR principles. A third reason is the independence issue, since our office developed the report on best management practices and recommended adopting it. Because our audit findings address conditions, criteria and effects like any other audit, we are simply identifying the cause and recommendation within the context of best management practices. I would argue that this provides management with better guidance than expressing recommendations with no context.
One other way my office audits to reinforce MFR is through our annual Service Efforts and Accomplishments reporting. These higher level measures have been in place for 15 years and they fit within the reporting element of the MFR framework. We review management performance measures and prepare an annual report, summarizing performance trends, which is also available at our website.
I subscribe to the belief that better-informed decisions will produce better results for the public. Getting Council members and managers to adopt a structure for decision-making, and reinforcing it through our audits, can raise performance throughout our agency.
Here’s a story
Years ago I was developing the finding that the City’s paving program laid down crummy asphalt: the condition element. The criterion was the paving construction specifications required of private contractors. The effect was the expected failure of the pavement years earlier than it should.
But I needed the cause, which would lead me to the recommendation. I called a paving expert and asked about the recipe for good asphalt. He explained the key ingredients: the mix of different sized gravels, the amount of liquid asphalt, the temperature of the product when it was laid, and the compaction while it was still warm. I believed the temperature was the cause but I couldn’t get anything definitive.
I talked to my boss about the problem and he said the cause was simpler: the paving crews failed to perform quality tests on their work. I realized that while I had been trying to identify the specific physical cause, I was missing the management issue. It was management’s responsibility to test the work – evaluating and assessing performance, and it was no longer my responsibility to solve a road engineering puzzle. Even more important, telling them the technical solution does not help them prevent other problems in the future.
(Several months later I learned the specific cause was poor compaction.)
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Opportunities for Improvement