Auditing the state of our government

Feb. 21, 2010

A new report from the California State Auditor should throw cold water on those who believe that the best way to solve the state’s problems is by expanding government power, increasing government funding and creating new regulatory powers and agencies.

The auditor has released its annual report analyzing how the various government agencies have implemented the findings from various auditor reports over the past two years. The reports, released last week, themselves spotlight problems within government agencies, but the beauty of the new “implementation” report is that it shows that the agencies frequently give the auditor the back of the hand and drag their feet on fixing the financial problems spotlighted in the audits.

The auditor’s office, headed by State Auditor Elaine Howle, is one of the few government agencies worth its salt, in that its charge is to follow the public money trail. It has no teeth to enforce its findings, so it is left hectoring agencies to clean up their acts. It does so in calm, officious tones that, nevertheless, here tell a disturbing story:

“In the reports issued during the past two years, we made 281 recommendations, of which state agencies asserted that they have fully implemented 132 and partially implemented 88; however, for the remaining 61 recommendations, we determined that agencies have taken no action, did not provide a response, or corrective action is pending.” The agencies’ lack of compliance with audit recommendations is costing the state $1.4 billion “in monetary value by reducing costs, increasing revenues or avoiding wasteful spending,” Howle said.

What if a government auditing agency, such as the Internal Revenue Service or the Franchise Tax Board, audited private businesses or households and found major problems with their books? Would those agencies be content if many citizens simply ignored their requests or complied in only a partial manner?

The implementation report shows government agencies that can’t seem to comply with government laws and regulations. Regarding an audit of the Veterans Home of California, the audit found that “The Veterans Home has not assessed its compliance with Americans with Disabilities Act requirements to ensure people with qualifying disabilities have access to the Veterans Homes and its programs and services.” The problem was only partially corrected.

Agencies that are supposed to provide oversight and inspections sometimes failed to do so. The state Department of Health, for instance, “is not inspecting clinical laboratories every two years, which is required by state and is a critical component of the state’s intended oversight structure,” according to the audit report. And the department can’t manage to get its fee structure right: “Because it had raised its fees improperly one year and failed to impose two subsequent fee increases the budget act called for, Laboratory Services did not collect more than $1 million in fees from laboratories.” Partial corrective action was taken in these cases.

Government officials often lecture private companies about conflicts of interest, yet an audit found that the California Highway Patrol does not require “employees who deal with purchasing to make financial interest disclosures” and it doesn’t consistently follow “its procedures to annually review its employees’ outside employment” – something that also was partially corrected after the 2008 audit.

The Department of Public Health – an agency that nags Californians about food and radiation safety – has yet to “provide required information on the amount of low-level [radioactive] waste generated in California.” Corrective action is still pending five years after passage of the law requiring it to trace those radioactive waste levels.

I focused here on run-of-the-mill violations and audit findings. Many of the findings deal with relatively low levels of waste and abuse. None of the reports shed light on the big picture – for instance, the tens of billions of dollars in debt California government has committed to pay the pensions and health care of retired public employees. But the audits and the lackadaisical response to them by many agencies shed light on the inner workings of government.

In the private sector, the desire to boost profit motivates businesses to root out waste and halt counterproductive policies. Businesses that best serve the consumer tend to be most successful over time. The litigation system provides an ever-present check on bad practices and, of course, fraud is rightly subject to prosecution.

Government systems have no competition, no bottom line, face no threat of going out of business. Decisions are made in the political process, and customers, such as they are, are an afterthought at best. Agencies are largely protected from lawsuits, and, although government officials are subject to prosecution for their crimes, they seem to be held to a lower standard than people in the private sector.

Do we really expect agencies to act efficiently and to follow all the rules and regulations? Audits spur some necessary procedural changes, of course. But the bigger the government, the more we are looking at an arcane and endless process of oversight and reform that never seems to fix anything. We need some government, but the fewer things handled outside the discipline of the market, the better off we all are (with the exception of government employees).

Audits always show government entities that always are poking and prodding and controlling us can’t manage to follow their own rules. There’s vast evidence that government is incompetent and venal, yet that doesn’t stop politicians for calling for more of it and seeking new ways to fund its operations. When will we ever learn?

If you don’t believe this is a dead-end street, spend some time on the state auditor’s Web site,, reading its reports about the inner workings of that clunky, inefficient and oftentimes abusive entity known as government.

–Steven Greenhut

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