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“My View” - State Government Needs Integrity To Build Investor Confidence

I applaud Senator Ted Kanavas for his desire to align best business practices to state government. I was also pleasantly surprised to see the senator refer to the Sarbanes-Oxley Act of 2002 (Sarbox) in his recent WTN exclusive interview. Let’s look at this concept a little closer. President Bush signed Sarbox into law on July 30, 2002 in the wake of corporate accounting scandals, most notably Enron and WorldCom.

Sarbox was designed to raise standards of corporate accountability and prevent wrongdoing. Its impact is arguably the most far-reaching legislation affecting corporate governance and the accounting profession since the U.S. securities laws of the early 1930s. Sarbox was primarily aimed at publicly-held companies and their external auditors, however, it also impacts investment firms, shareholders, and countless private businesses.

While Sarbox does not directly impact state governments, states can draw lessons from it. After all, Sarbox was born to rebuild investor confidence. As citizens of Wisconsin, we are all investors in our state, and for many, our confidence has been shaken. State government is big business! With a Wisconsin state operating budget of $24 billion in our current fiscal year, we would be a Fortune 69 company, ahead of American Express at $23.8 billion, according to the 2003 Fortune 500 listing. Of course the Fortune 500 listing does not include privately-held businesses, non-profit, or governmental entities, so Wisconsin’s ranking would fall considerably if it were a comprehensive listing. Still, the point is that Wisconsin (like many states) is comparable to a Fortune 100 company in terms of operating budgets and employees. Therefore, the best practices of Sarbox centering on better communication, higher performance standards, mandated risk assessments, financial reporting transparency, and sound ethics are not far-fetched ideas for state governments.

Our challenge as a state is moving beyond the ideas to long-term action. Advances in information technology remain a key lever towards realizing many of the goals of Sarbox. The IT silos of individual state agencies must come down in the name of integration and real-time access to better serve our state investors and customers, who are state taxpayers, including Wisconsin businesses. The political reality of deep-partisan behavior will likely continue to make true performance gains in our state elusive. A short-term, budget-to-budget focus on fiscal responsibility is another culprit. To a large part, unrealistic quarterly earnings pressures were behind the corporate credibility meltdown. Corporate America, fueled to some degree by Sarbox, is now relearning the importance of long-term strategic planning, accountability, integrity, and listening to shareholders. Can state government also do this? It remains to be seen.

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Ronald Kral, MBA, CPA, CMA is a founding partner of Candela Solutions, LLC, (www.candelasolutions.com) a specialized public accounting firm focusing on governance, internal audit, and technology. Prior to founding Candela Solutions, Ron led Wisconsin’s lottery system and business for GTECH, a billion dollar publicly traded corporation on the NYSE. He can be reached at 608-204-0122, or rkral@candelasolutions.com.

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