By Douglas Pugh
It’s a good thing for accountants that I decided not to be one. Experiences that teach us what we shouldn’t do are as valuable as those that teach us what we should. I was an accountant for a time; enough to teach me I shouldn’t be one.
But I learned how to audit a scrap pile.
When I graduated from high school, I received an accounting scholarship to our community college from a local firm of Certified Public Accountants. The firm paid my tuition and provided part-time and summer employment.
In time, I was assigned to help the CPA’s with audits. One of those audits was of a local manufacturing firm that used scrap iron in its manufacturing process. The company had a scrap iron pile for which its accounts reflected a value. The CPA asked me how we could verify its validity.
I replied that we could compare the in- and out-scale receipts to determine the current weight of the pile, then determine the market price for that amount of material, or we could measure the dimensions of the pile and, using appropriate formulas, determine the weight and, from that, the corresponding value.
The CPA’s response was simple. “Follow me,” he said. We headed outside to the factory yard, and there it was — the scrap pile. He looked at me, I looked at him — he nodded. Then we went back inside; he put a check mark next to the scrap pile’s stated value.
As simple as this scrap-pile audit technique is, it eludes many.
Consider the Flint, Mich., water disaster of a few years ago, where the people of Flint were subjected to lead-contaminated water because those in charge of its purification failed to properly treat it and ignored the complaints of the people forced to drink it.
It was a failure to look, to simply check the lead content. The consequence was a public health disaster. A failure that cost the State of Michigan, which had assumed responsibility for the city’s water supply, $400 million in water line repair and $625 million in monetary damages, 80% of which went to lead-poisoned children.
Remember Billi Sal Estes? This goes back a few years, too, but Billi was a born dealer in things that did not exist.
He used tanks of stored fertilizer to secure substantial government-guaranteed loans, but no one looked to see if there was any fertilizer in those tanks. There wasn’t.
I could fill pages with current administration positions that don’t hold water. To look only is to find the lack of substance.
I suspect your surmise is that the originator of this cunning, Look-to-See audit technique was some shrewd, sharp-eyed accountant, likely an accounting professor at a notable university.
Not so. It was wily old farmers who developed the method.
When a new barn needed to be built, the neighborhood farmers would gather together and select one of their own — usually an older, experienced fellow who could cipher. This old guy would cut a stout stick to a predetermined dimension. Thereafter, he would employ it to guide the barn’s creation. Many a fine barn with walls true and sound was built using this old stick method.
Occasionally, prankish youth would conspire to whittle a little off the old man’s stick. But their mischief-causing efforts invariably failed. Those old farmers knew to look — they never failed to look — to confirm that, before their day began, the dimensions of their stick was accurate.
Only after that affirmation did the new day’s work begin.
Some folks maintain that problems won’t exist if you don’t go looking for them, and that you don’t need to go looking for problems said not to exist.
I can’t account for that, and neither can accountants.
Consider instead using the old Scrap Pile Audit Technique based on that tried and true Look-and-See methodology of barn-building farmers:
Get yourself up, have a look around, then measure the stick.
Always measure your stick.
Doug Pugh is a retired judge from northern Michigan. He and his wife are wintering on Fripp Island and are pleased to be there. He can be reached at pughda@gmail.com.