Academic journal article The Journal of Government Financial Management

DEVELOPING A Strategy FOR AUDITING OUTSOURCED PUBLIC SECTOR CONTRACTS

Academic journal article The Journal of Government Financial Management

DEVELOPING A Strategy FOR AUDITING OUTSOURCED PUBLIC SECTOR CONTRACTS

Article excerpt

At every level of the public sector, government officials are contracting with commercial sector firms at an ever-increasing pace to provide services previously delivered by their own employees.12 With the current emphasis on outsourcing for services,3 public sector managers may find themselves without adequate resources to assure that the quality, quantity, timing and cost of service delivery is meeting expectations. These managers are relying on their audit staffs to examine the issue of outsourced services to determine whether outsourcing is meeting service delivery requirements. Public sector audit organizations are preparing themselves to assume this recently expanded responsibility.

WHAT IS A PUBLIC SERVICE?

A public service generally satisfies an essential societal need, perceived by the electorate or their representatives as being in the public interest. Public services are generally provided for in legislation, and budgeted and usually paid for out of government coffers, financed by tax revenues. Members of society, individually or collectively, usually cannot deliver these services. In the recent past, federal, state and local government employees provided most of these services.

Some services are provided directly to designated clients or individual members of the public, like mass transit, education and training, housing, medical care and counseling. Yet others are delivered indirectly, like police and fire protection, road maintenance and aspects of the criminal justice system.

Services are also provided to government entities, including legal, accounting and auditing, engineering, security and maintenance services. These entities require services to support their primary activities and discharge their responsibilities to the public. Such services, within the scope of their core mission, are key to their ability to serve the public good, and government entity personnel very often perform these services. As with all public services, the electorate is the ultimate beneficiary.4

WHAT SERVICES CAN BE OUTSOURCED?

At first glance it may appear that few services should be entrusted to the private sector. Upon closer scrutiny of the vast array of services essential to satisfying society's needs, it appears that many can be easily and beneficially outsourced to the commercial sector for delivery. Services ranging from correctional facilities,5,6 to military housing,7 to shelters for the homeless,8 to computer support,9,10 to pest control,11 have all been outsourced with varying degrees of success.

A few specialized services remain within the exclusive domain of government. For example, the Federal Aviation Administration (FAA) planned to outsource functions performed by its 2,700 flight service specialists.

Concerns were expressed that these services were inherently governmental, and legislation is being considered to prevent the outsourcing of these activities.12 However, the U.S. Office of Management and Budget (OMB) Circular A-76, and the determination of the lowest-priced, most qualified service deliverer continue to prevail as a primary way to decide whether such services can be successfully delivered by the commercial sector.

ARE THERE RISKS IN OUTSOURCING SERVICE CONTRACTS?

Delivering public services has become increasing complex,13 and outsourcing brings with it inherent risks,14 unintended consequences not usually encountered when entity personnel deliver services. Such risks include:

* Loss of expertise. When a decision is made to outsource for a service, the government entity may no longer feel compelled to employ personnel with service delivery expertise.

* Dependence on service providers. Without service delivery expertise, the entity may develop an increasing and perhaps irreversible dependence on commercial providers.

* Potential for escalating costs. Absent service delivery expertise and increased dependence on private sector providers, the potential for an incremental growth in service costs may emerge. …

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