Dollars and sense for government
Elected officials have varied backgrounds; they are merchants, homemakers, brokers, lawyers, community activists. Many share a common quandary: They have little, if any, understanding of public finance. Yet their communities entrust them with million-dollar or even billion-dollar budgets.
One does not have to be a fiscal expert to comprehend public finances. Only common sense and the ability to probe are needed. Effective elected officials must learn to question financial documents and the conventional wisdom inside their governments. They also must learn to avoid some common financial misconceptions, including:
* Our budget is balanced. The fact that a budget is balanced does not mean that an agency is in satisfactory financial condition. How is the budget balanced? Is it being balanced with reserves or one-time money? For example, Miami masked its deficit for years by using bond money for operations. Municipal officials must make sure that their budget is being balanced by current revenues.
* We received an unqualified auditor’s opinion. Several years ago, a U.S. Senator was flabbergasted to learn that the District of Columbia received an unqualified audit opinion even though it had a massive $700 million deficit. The auditing firm replied that it had rendered a “clean” opinion because the financial statements were presented properly and “in accordance with generally accepted accounting principles.” Do not rely solely on the audit opinion. It must be read in conjunction with the information in financial statements.
* We rely upon the auditor. The city council in tiny Bradbury, Calif., was startled by the revelation that the city manager used the city’s credit cards to pay for a lavish shopping spree. Officials had trusted the auditor to expose improprieties, but the auditor had a different impression, maintaining that the city was responsible for putting controls in place, and the audit contract did not include fraud detection. Local governments must close the “audit expectation gap” – the difference between what the government believes the auditor really does and what the auditor actually does.
* We need to delve into the detail. Micro-management, defined as excessive attention to detail, blurs lines of responsibility. It undermines the organization by demoralizing staff and killing initiative. Whenever the governing body wallows in detail, a policy-making vacuum results, and staff members usually wind up filling that vacuum. Leaders need to exercise oversight by establishing policies and making sure they are properly carried out.
* My colleagues will ask questions. Perhaps the most lethal misconception is that, if something is wrong, other governing board members will raise a red flag. Los Angeles City Councilmember Gloria Molina once issued a challenge to her colleagues when they refused to ask questions about an issue. “It’s like the emperor who had no clothes,” she said. “Everybody’s afraid to say they don’t understand. I challenge any of my colleagues to stand up and explain just what we are about to vote on.”
You could have heard a pin drop, and no one took up her challenge. That is not unusual. Rather than risk embarrassment, councilmembers often refuse to probe and ask clarifying questions. They feel it is safer to clam up and go along with the group.
Governing body members are not elected to office for their fiscal acumen, but they are expected to learn. One of the best ways to learn is to set fears aside and ask questions. Elected and appointed officials can rest assured that their colleagues probably have the same questions on their minds.