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Auditing storys implications need some perspective

The Feb. 1 Lake Oswego Review provided considerable information on complaints … concerning my auditing of two Oregon governments. The article included much good information, but included several implications that should be put into perspective.

First, the theft from West Linn perpetrated by its finance director was as devastating to me as it was for the citizens of West Linn. I had known the thief for many years, as had many city employees, and had no reason to doubt her honesty.

Contrary to popular belief, professional standards require auditors to provide assurances that financial statements are fairly stated, not to ferret out fraud or assure financial statement users that no fraud exists. Auditors do not examine all transactions but rely on selective testing. Standards also require auditors to evaluate internal control compared to contemporary standards. I have found several inappropriate transactions in clients over my 30 years in auditing.

All auditors' approach to an audit is essentially to skeptically 'trust but verify.' Nothing indicated that the internal control situation at West Linn was appreciably different from many Oregon governments. The city had always tried to keep administrative costs to the lowest possible level. City officials officially stated that they understood a CPA's responsibility for fraud and that they did not know of any fraud in the city.

If someone is determined to steal, (he or she) can. There is no way an auditor can guarantee that theft will not occur or find all fraud. Even when the thief is caught and punished, others also pay a price: personal relationships are ended, professional careers devastated and reputations ruined.

On the advice of my attorney, I refused to provide auditors with prior audit documentation until any possible litigation is resolved. The new auditors regularly can and do go forward and reach an opinion on the financial statements without prior work papers.

In my response to the board, I said that the theft was well disguised. I have discussed this fraud with many professional auditors. Their overwhelming response has been that the fraud would not be detected using normal auditing procedures and was specifically designed to avoid audit detection. One telling issue is that in no year did a check clear in May, June or July - a strategy to keep the fraud evidence away from the standard fiscal year-end auditing procedures. Also stated in the forensic auditors' report, the fraud was not in the city's books, which we audited. Finding something that is not there is very difficult.

There are many other issues that affect this situation that the short length of this communication will not give me time to discuss.

In the case of the Portland Public Schools complaint, any issues with the government have been eliminated at my expense and without detriment to the district, other than taking their valuable time. It may be found that I made some mistakes in dealing with federal authorities, but I believe that the audits will be found to be within standards.

I have been practicing as a CPA since 1976, and these two issues are the first to initiate a complaint. I would ask that these issues, however they come out, be weighed along with my history and service to my profession and to the community of Lake Oswego, where I have lived for over 12 years.

L. Parry Ankersen is a CPA who lives in Lake Oswego. His office phone is 503-636-1157.