Abstract
This article examines financial controls, including accounting and auditing, as an anti-corruption methodology in public administration. Part I places accounting and auditing in the context of the anti-corruption project, the reformist pursuit of corruption-free government. Part II presents a case study of the evolution of anti-corruption accounting and auditing strategies in New York City. Part III examines the impacts of more comprehensive and intrusive financial controls for contemporary public administration.
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References
Michel Foucault,Discipline and Punish: The Birth of the Prison (New York: Vintage, 1979), p. 204.
Ibid., p. 204. Jeremy Bentham's brother actually built the first panopticon in a Russian factory. See Shoshana Zuboff,In the Age of the Smart Machine (New York: Basic Books, 1988), pp. 320–322.
The sociologist, Stanley Cohen has contributed further insight by building upon William Burroughs' vision of social control as a “soft machine”. (William Burroughs,Naked Lunch (London: Calder, 1959) p. 164; quoted in Stanley Cohen,Visions of Social Control: Crime, Punishment and Classification (Cambridge, England: Polity Press, 1985), p. 234.) Cohen argues that observation, counseling and diverse social services mask and extend the system of control. At its furthest extent, a system of observation can exercise control simply by “sending” the message of its rules and its presence. (Cohen, Chapter 6, “Visions of Order”.)
Michel Foucault,Discipline and Punish: The Birth of the Prison, p. 204.
Michel Foucault,Ibid Discipline and Punish: The Birth of the Prison, p. 305.
Frank Anechiarico and James B. Jacobs, “The Continuing Saga of Municipal Reform: New York City and the Politics of Ethics Law”,Urban Affairs Quarterly, 27: 4, June, 1992, pp. 580–603.
James B. Jacobs and Frank Anechiarico, “Blacklisting Public Contractors as an Anti-Corruption and Racketeering Strategy”,Criminal Justice Ethics, Winter/Spring, 1992, pp. 64–74.
Frank Anechiarico and James B. Jacobs, “Visions of Corruption Control and the Evolution of Public Administration”,Public Administration Review 54: 5, 1994, pp. 465–473.
According to a standard definition: “An audit is a methodical review and objective examination of an item, including the verification of specific information as determined by the auditor or as established by general practice. Generally, the purpose of an audit is to express an opinion or reach a conclusion about what was audited”. Generally Accepted Auditing Standards Guide sec. 1.01, “Audited Financial Statements Public and Private Companies” (1989). The 1988 Revision of the GAO's, “Standards for Audit of Governmental Organizations, Programs, Activities, and Functions” offers a broader definition. “[The goal of the audit] is to help ensure full accountability and assist government officials and employees in carrying out their responsibilities”.
New York State Organized Crime Task Force,Corruption and Racketeering in the New York City Construction Industry (New York: New York University Press, 1991), p. 266.
Bureau of Municipal Research, “What Should New York's Next Comptroller Do?” October, 1909, p. 3.
Ibid., p. 7.
Ibid., p 7.
“Some Results and Limitations of Central Financial Control”, Municipal Research Bulletin 81 (January, 1917), p. 3.
For example, during the heyday of the Tweed ring, the mayor and the comptroller conspired to loot the public fisc: “The main reliance of the brazen robbers was contract padding. The figures on bills of City contractors were raised, sometimes it is said even by adding ciphers. Then the amounts were allowed by Comptroller Connolly and, after the contractor had been given an extra sum for his trouble, the surplus went into the pockets of the ring”. Alexander Flick (ed.),History of the State of New York (New York: New York Historical Association, 1935) Vol. VII, p. 148.
William Herlands, “Preface” to Harold Seidman,Investigating Municipal Corruption: A Study of the NYC Department of Investigation (New York: Institute of Public Administration, Columbia University, 1941), p. xiii.
Leonard D. White,Trends in Public Administration (New York: McGraw-Hill, 1933), p. 162.
This was part of a general trend at the time, as noted by William Lafferty in 1933. “Older charters usually gave the local finance officers only responsibility for the records in their own offices. Recent charters tend to place responsibility for all accounting and accounting procedures on one city finance officer. Where the responsibilities for all city accounting is put on one person, it is possible to work all departmental accounts and records into one accounting system”. (William A. Lafferty, Jr.The Auditing of Municipal Accounts in New York State (Albany, N.Y.: New York State Conference of Mayors and Other Officials, 1933), p. 23.)) Despite this continually repeated aspiration, New York City was not able to achieve a unified accounting system until the 1980s.
New York State Commission on Governmental Operations of the City of New York, “Background Research on the Top Structure of the Government of the City of New York”, Vol. III,Finance Management, February, 1961, pp. 116–117. See also Edward F. Marek,The Historical Development and Administrative Role of the Comptroller in New York City Government (Dissertation, Columbia University, 1966), pp. 146–147.
See Suzanne Garment,Scandal: The Culture of Mistrust in American Politics, Doubleday, 1991.
As Roger Starr observed: “Records were skimpy. There was no way to ascertain if all the taxes [with which bonds were secured] would be collected, or indeed if some might not already have been collected”. Roger Starr,The Rise and Fall of New York (New York: Basic Books, 1985). p. 225.
According to the Bureau of Labor Statistics, the average number of accountants and auditors in the government sector in 1991 was 217,000, of which 90,000 were federal, 88,000 state, and 39,000 local. This compares with 161,000 in 1983. (Interview with Philip Rones, U.S. Bureau of Labor Statistics, June 14, 1992).
For an explanation of EDP, see James O. Hicks, Jr.,Information Systems in Business: An Introduction, 2nd ed. (St. Paul, Minn.: West Publishing, 1990); GAO, “Assessing the Reliability of Computer-Processed Data”, September 1990. For an explanation of statistical sampling, see Dan M. Guy and D.R. Carmichael,Audit Sampling: An Introduction to Statistical Sampling in Auditing, 2nd ed. (New York: Wiley, 1986), pp. 2–5.
The Port Authority of New York and New Jersey has established as a goal using EDP for at least twenty percent of internal audits. Audit Division, Port Authority of New York and New Jersey, “Audit Plan, 1992”, January 13, 1992.
In order to provide an external check on the City's bookkeeping, the 1975 charter mandated an annual audit by a private sector certified public accounting firm. New York City Charter, Sec. 95.
New York City Charter, Sec. 93(c)(e).
New York City Comptroller, “Comptroller's Internal Control and Accountability Directives”, April 15, 1985, p. 1-1.
New York City Comptroller, “Comptroller's Internal Control and Accountability Directives”, pp. 1–4.
Ibid New York City Comptroller, “Comptroller's Internal Control and Accountability Directives”, pp. 1–4.
Auditors in a number of other agencies, including the School Construction Authority's inspector general's office, have launched undercover operations to ferret out evidence of contractor fraud.
City of New York Office of the Comptroller, Special Investigations Unit, “Social Clubs”, SPIN 90-005, April 8, 1991, p. 4.
Ibid City of New York Office of the Comptroller, Special Investigations Unit, “Social Clubs”, SPIN 90-005, April 8, 1991, p 25.
Ibid City of New York Office of the Comptroller, Special Investigations Unit, “Social Clubs”, SPIN 90-005, April 8, 1991, p. 26.
Under Generally Accepted Government Auditing Standards, financial statements audits must determine (1) whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows or changes in financial position in accordance with generally accepted accounting principles; and (2) whether the entity has complied with laws and regulations for those transactions and events that may have a material effect on the financial statements. “Financial related audits include determining”: (1) whether financial reports and related items, such as elements, accounts, or funds are fairly presented; (2) whether financial information is presented in accordance with established or stated criteria; and (3) whether the entity has adhered to specific financial compliance requirements. Comptroller general of the United States, “Government Auditing Standards, Standards for Audit of Governmental Organizations, Programs, Activities, and Functions”, 1988 revision.
Ibid. Under Generally Accepted Government Auditing Standards, financial statements audits must determine (1) whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows or changes in financial position in accordance with generally accepted accounting principles; and (2) whether the entity has complied with laws and regulations for those transactions and events that may have a material effect on the financial statements. “Financial related audits include determining”: (1) whether financial reports and related items, such as elements, accounts, or funds are fairly presented; (2) whether financial information is presented in accordance with established or stated criteria; and (3) whether the entity has adhered to specific financial compliance requirements. Comptroller general of the United States, “Government Auditing Standards, Standards for Audit of Governmental Organizations, Programs, Activities, and Functions”, 1988 revision.
The Budget and Accounting Act of 1921 gave the comptroller the power to investigate “all matters relating to the receipt, disbursement and application of public finds”, and in reports to Congress ‘to make recommendations looking to greater economy or efficiency in public expenditures”. (31 U.S.C. 312).
GAO conducts audits of “government organizations, programs, activities, and functions, and of government funds received by contractors, nonprofit organizations, and other nongovernment organizations”, U.S. General Accounting Office, Government Auditing Standards: Standards for Audit of Government Organizations, Programs, Activities, and Functions (Washington, D.C.: U.S. Government Printing Office, 1988), p. 1–1.
U.S. General Accounting Office, “Report to Selected Members of Congress: Mass Transit Grants, Noncompliance and Misspent Funds by Two Grantees in UMTA's New York Region”, January, 1992.
New York State Constitution Art. 5, sec. 1; General Municipal Law Art. 3.
Interview with William Challice, Director of the Bureau of New York City Audits, June 20, 1992.
The comptroller registers contracts. The Procurement Policy Board sets contracting policy and tracks the volume of City contracting. The Mayor's Office of Contracts attempts to resolve problems that arise in the contracting process. Each agency's chief contracting officer is responsible for making sure the agency adheres to the comprehensive and complex contracting regime. Collectively, these “reforms” significantly expand control over the agency-level contracting process.
New York City Department of Investigation, “City-Wide Anti-Corruption Program, Report to the Mayor, December 31, 1989”, p. 1.
New York City Department of Investigation, Corruption Prevention and Management Review Bureau, “An Analysis of the Corruption Risks in the Management and Control Systems within the Department of General Services, Bureaus of Leasing and Design in Leasing Private Space for City Use”, January, 1989, p. 7.
New York City Department of Investigation, Corruption Prevention and Management Review Bureau, “An Analysis of Corruption within the Construction Inspection Units of the Department of Buildings and the Agency's Corruption Prevention Program”, May, 1991, pp. 55–58.
See Richard Winslow and David Burke,Rogues, Rascals, and Heroes: A History of the New York City Department of Investigation (New York: New York City Department of Investigation, 1992).
Auditing also has became an important investigative tool in the federal government. Congress mandated a deputy IG for audit and a deputy IG for investigation. For a legislative history of the federal Inspector-General Act of 1978, see Margories Knowles, “The Inspector General in the Federal Government: A New Approach to Accountability”,Alabama Law Review 36 (Winter) 1985), 475–513. Also see Mark H. Moore and Margaret Jane Gates,Inspectors-General: Junkyard Dogs or Man's Best Friend? (New York: Russell Sage Foundation, 1986); Paul Light,Monitoring Government: Inspectors General and the Search for Accountability, Washington, The Brookings Institution, 1993.
Keith Hoskin and Richard H. Macve, “Accounting and the Examination: A Genealogy of Disciplinary Power”,Accounting, Organization, and Society, vol. 11, no. 2, 1986, [pp. 105–136] p. 134.
In a persuasive criticism of public administration scholarship, James Q. Wilson noted: “To my knowledge no one has systematically compared the cost of all the inspectors, rules, and auditors with the savings that are achieved to see if all the checking and reviewing is worth it”.Bureaucracy: What Government Agencies Do and Why They Do It (New York: Basic Books, 1989), p. 323.
J.D. Dermer and R.G. Lucas, “The Illusion of Managerial Control”,Accounting Organization, and Society, 11: 6 (1986), p. 471.
Eric G. Flamholtz, T.K. Das, and Anne S. Tsui deduce four ways that measurement influences work behavior. First, it “serves as a criterion function by operationally defining the goals and standards of activities. The criterion becomes the decision premise ... or the constraint ... that guides behavior or action ... they also induce the manager to engage in systematic planning. This is the catalytic function ... A third way in which the act of measurement can influence behavior is through affecting perception ... Thus, decision and behavioral alternatives tend to be limited to the set of information produced by the measurement system. This is called the set function. Lastly, the motivational function refers to the attention focusing property of the information system, i.e. individuals concentrate efforts where results are measured ... and ignore those aspects that are not being measured or recorded”. “Toward an Integrative Framework of Organizational Control,Accounting, Organization, and Society, 10: 1 (1985), pp. 40–41.
NAPA,Revitalizing Federal Management: Managers and Their Overburdened Systems, Nov. 1983, p. 3.
Michel Foucault,Discipline and Punish: The Birth of the Prison, p. 204.
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Anechiarico, F., Jacobs, J.B. Panopticism and financial controls. Crime Law Soc Change 22, 361–379 (1994). https://doi.org/10.1007/BF01302925
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DOI: https://doi.org/10.1007/BF01302925