| Written by Mark Funkhouser,
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“American cities have a long history of corruption and sometimes citizens take a perverse pride in a figure like Buddy Cianci, a flamboyant mayor now in federal prison but also credited with bringing the city of Providence, Rhode Island, back to life.”
So said Neal Conan, the host of National Public Radio’s “Talk of the Nation” during a recent broadcast focused on cities and corruption. Personally, it’s a little hard for me to understand the “pride.” The Prince of Providence, Mike Stanton’s well-documented and readable chronicle of Cianci’s adventures paints an astounding portrait of public corruption, extending more or less unbroken from 1974 to 2002. Even if I could forgive outright theft, (his mother had more than $500,000 in a safe in her house that Cianci collected one bundle at a time), his rape of a young woman at gun point while he was a law student or his police chief’s suicide over guilt from succumbing to his pressure to hire unqualified officers, would push me past the limit.
Providence is not alone as a city plagued by public corruption. Scandals rocked Miami, Florida, throughout the 1990s and this year a former city commissioner who faced federal corruption charges walked into the lobby of the local paper and shot himself in the head. San Diego’s city hall is paralyzed by an onslaught of investigations related to a massive pension fraud. In Chicago, a bribery case involving city trucking contracts has morphed into a corruption scandal that has already resulted in 23 convictions, with eight people awaiting trial. And, in the middle 1990s, my own Kansas City, Missouri, saw four of the twelve people on the city council convicted on various federal corruption charges. Further, the state of Ohio has been rocked by charges of “pay to play” corruption in which a well-connected political operative stole about $12 million from the workers’ compensation system, which lost an addition $215 million in an inadequately overseen investment scheme. The Canadian Auditor General reported in early 2004 that, in what has become known as the “sponsorship scandal,” government agencies paid more than $100 million in fees and commissions to firms in a program designed to generate commissions for private companies, while hiding the source of funding and providing no benefit for Canadians. She reported that in most cases the agencies did little more than hand over the checks.
“Corruption is the misuse of public power, office or authority for private benefit – through bribery, extortion, influence peddling, nepotism, fraud, speed money or embezzlement,” according to the United Nations Development Programme. While some might think that figures like Cianci in Providence or Tom Pendergast in the Kansas City of the 1930s are clever or charming, that perception rarely survives careful scrutiny. The facts reveal something ugly and harmful. In its annual “Corruption Perception Index,” Transparency International reports that corruption, which is rampant in 60 countries, is “...A daunting obstacle to sustainable development, and results in a major loss of public funds needed for education, healthcare and poverty alleviation, both in developed and developing countries.” In The Pursuit of Absolute Integrity, a scathing critique of corruption control efforts in the United States, Frank Anechiarico and James Jacobs write, “Our criticism of the anticorruption project does not ignore the importance of corruption. Corruption is not harmless. We recognize that in some societies and at some points in history, corruption has totally demoralized society, eviscerated the government’s legitimacy, and led to coups, revolutions, and societal collapse, or, on occasion, simply to cynicism, alienation, and stagnation.” In short, public corruption undermines the basic trust required to enable governments, institutions and communities to function.
Government auditors have been largely absent from the battle against corruption. Grant Thornton, in partnership with the International Consortium on Government Financial Management did a world-wide study in 2005 entitled Resisting Corruption in the Public Sector. Researchers interviewed 50 officials in ten countries about causes of corruption and strategies for combating corruption. Apparently, no one mentioned government auditing. The auditors themselves talk a great deal about fraud. We have the Association of Certified Fraud Examiners, the Institute of Internal Auditors’ flagship publication Internal Auditor has a regular feature examining actual fraud cases and devoted its entire April 2004 issue to “Uncovering Fraud,” and virtually every audit conference of any kind has at least one session devoted to some aspect of fraud.
But the audit profession doesn’t talk about public corruption, and I think there are at least three reasons for this. First, the organizational and institutional underpinnings of our profession remain rooted in the private sector. Therefore, we focus on what the market will pay for and there is a market for dealing with fraud but no market for fighting corruption. Top management decides what organizations will buy. They are willing pay for someone to uncover and prevent theft of their assets by those outside of top management – fraud as it is normally understood – but are less likely to pay for someone to prevent improper activity by top management. Second, we focus on financial controls, which usually suffices to catch wrong-doing at the retail level, but real public corruption involves management override of those controls. By its very definition, public corruption involves the abuse of power and authority. Finally, we fail to include equity along with efficiency and effectiveness as the values our audits seek to further. Considering equity would lead us to look at officials’ use of power as well as their use of resources.
Anechiarico and Jacobs argue that citizen participation indirectly controls corruption when people have a stake in the outcomes of government agencies. They also write, “Of the control mechanisms we have considered, auditing and accounting have the greatest potential to further, simultaneously, the goals of preventing corruption and of improving efficiency and effectiveness of public administration.” I noted earlier that corruption undermines trust in government. The New Zealand National Audit Office has a strategic plan for their organization based on an elaborate model of inputs, outputs, and intermediate outcomes that is designed to result in a single end outcome: “Trust in an effective and efficient public sector.”
Public corruption is a nasty problem that we in government auditing are uniquely positioned to fight. And in joining that fight, this is the model we should strive for: citizen-centered auditing that focuses on equity as well as efficiency and effectiveness and is explicitly designed to enhance trust in government.
I want to acknowledge Peter Aliferis, Director of Professional Certification for the Association of Government Accountants and Jerome Heer, Director of Audits for Milwaukee County for sources and insights that lead to this column.
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Funkhouser on Auditing