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Liability, quality and delusion.

I feel I must express my residual choler after (successful) completion of my first mandatory quality review and a carefully considered reaction to the review process.

As an experienced quality assurance inspector, supervisor, engineer and manager for three different employers and as long-time member of NSPA, I feel qualified to present an opinion.

That accounting thrives in a position of trust and that such trust is under attack via courts, regulators and political lobbyists seems inarguable. The answer programmed by the AICPA and its followers is similar to the initial reaction of manufacturers when they began to encounter quality and product liability problems: namely, the creation of formal quality inspection programs and lobbying to diminish legal responsibility.

Based on manufacturing history, that is likely to be ineffective and costly; we need much more thoughtful discourse if we are to provide an effective solution.

Driven by increasing jury awards for tort liability and the threat of government intervention, service providers such as accountants are following manufacturers into increasing managerial emphasis on quality assurance. As a genuine solution for the liability problem, this is likely to be an expensive blind alley if it continues in the direction it presently seems to be headed.

In manufacturing, quality assurance activities first measured product characteristics and then developed standards for product acceptance by setting desired levels for the distribution of those characteristics in product populations. That was statistical quality control. It was first based upon inspection of product. Manufacturers subsequently realized that making unacceptable product for inspectors to throw out was self-defeating and began emphasizing analysis and statistical controls of the manufacturing process so the appearance of defective product became a trigger for corrective action.

Organizational problems accompanied these developments. In the early phases, the inspectors were responsible for quality shipped while production people were responsible for quantity. Naturally, the two were at loggerheads; each perceived the other as the enemy. As process control developed, engineers complicated the relationships by imposing additional procedures and opinions on the manufacturing activities.

A new layer of complexity was added when large customers--particularly, government--imposed on their vendors not only their own quality acceptance criteria but also process control specifications and even organizational requirements by means of voluminous, detailed and complicated procurement specifications in contracts. These were enforced by customer inspection of vendor facilities as well as of product. Quality had evolved into a massive, formal bureaucracy mired in personnel and paper.

Some of the leading authorities in whose names much of this occurred, such as J. Juran, A. Feigenbaum and E. Deming, were not particularly happy with all of this. They pointed out (to a largely deaf audience) that quality is an idea, the result of an attitude and a primary responsibility of management. It is not something to be delegated to engineers and inspectors, then ignored until problems surface. Those voices were largely unheard except in one place--Japan, after the Second World War--and everyone now knows what resulted.

In the awareness of quality now taking shape in service industries, it would be very easy to follow the pattern of American manufacturers. Accountants particularly are at risk since they already share a strong orientation toward measurement, detailed procedures and recordkeeping.

Given this, it is very easy--even likely--for accountants to add a new layer of manuals, inspections and procedures and then believe that an improved quality program is in place. That would be a modern equivalent of the French confidence in the Maginot line at the beginning of World War II.

All these things add to costs and slow production. They also foster defensive work attitudes, which multiply the other effects. The existing methods and attitudes in auditing already support concern. As the leading quality writers have said, quality cannot be engineered or inspected into a process.

Quality is the result of thorough concern with results at every step, from the conception of a process to the end of its operation. It must begin with management and consciously involve every worker. Workers are too smart to pull the whistle cord stopping production unless they really believe management wants that done.

If accounting firms truly want to stop being sandbagged by juries after audits, it will be necessary to stop looking at audits as work papers and procedures and to construct an integrated management system just as the Japanese have done in manufacturing. The obstacle usually cited--costs--is an excuse, since Japanese (and now American) experience shows costs are reduced under such an approach. The real obstacle is attitude.

A visible parallel to the manufacturing experience is the development of practice procedural and work product inspections by peers or quality reviewers as a preventive measure. These raise costs and add bureaucracy, but they will no more improve quality than will the government-imposed controls the inspections are designed to avert. You still can't inspect quality into a process.

Practice review programs impose administrative fees and consume otherwise billable time in firms. Supporting bureaucracy is already springing into place; procedures are being written and manuals and courses published. This scratching around on the ground will raise clouds of dust (as well as costs) but it will not significantly improve quality. That is because it is not directed at the system elements that directly affect quality. A chocolate frosting will obscure a cake made from bad eggs--for a while--but it won't make it a good cake.

Each practice review performed results in documents to prepare, maintain, review and respond to. Practices are forced into more laborious and documented work formats because that is what reviewers will accept. And reviewers will always want more in the long run. It used to be called boiler plate in government contracting circles; it is the road toward $600 toilet seats.

Quality is basically the goodness of people's work product. Manufacturers are learning that it results only when everyone, most especially management, shows a strong, enduring commitment. The interest must be seen to extend into every phase of work and be constantly reinforced. Lip service doesn't do it; employees aren't fools. It often requires radical rethinking of an organization's structure as well as methods. That can be very threatening; it is not simple and not easy. However, where large quality improvements are needed, that is how to do it.

Let's construct a simple example: a sole practitioner. He has a bookkeeper to do write-ups and a tax season interviewer to help with returns. Let us agree that he sincerely wishes to improve the quality of his work product.

The best move that he can make is to sit down and write a quality manual, then populate his office with more and longer checklists, right? Of course not. The time he spends writing the manual (which will thereafter go unread) will make him late getting work out for an important client. The new checklists (which will be indifferently completed at best) will reduce the time his staff can apply to direct work. The work will get less attention as a result--there are still the same staff hours available in total--and quality may well be reduced.

Instead, if he really needs a sustained quality upgrade, he must first convey that to his staff and make them believe it. They will need to know why he requires it and that he is sincere about it. If he is wise, he will solicit means of improvement from them and use these suggestions. Further, he will have to show a continuing interest, altering his own work patterns as well as theirs in pursuit of the goal. And the goal will need to be clearly and specifically stated. Together, committed, the firm will do the job. Large organizations are no different.

In addition to performance process quality, accounting has another problem. It is no solution to perform work well if the work is not what the customer ordered. Though hired and paid by clients, in reality auditors work for the interests of the public, which licenses them and ultimately requires the audits. Unfortunately, the public in general does not share with clients and accountants an understanding of the purpose of an audit. Since the courts are increasingly applying the public definition rather than that of the profession, there is a work specification problem.

The specification problem is necessarily one of public and political relations. Perhaps for fear of imitating Pandora, accountants have been rather diffident about publicizing the reality of an audit except in court, which is proving to be too late. We need a clear exposition of our work product conveyed to the public and to Congress. If they feel that it is insufficient, so be it.

That is happening already. At least the debate will be about increasing our responsibilities, which will allow discussion of increasing costs and resources to accomplish the higher goal. If we leave things murky as they are now, we will have a higher goal forced upon us by people ignorant of the facts of their actions. They will believe they are merely forcing us to do what should have been done all along, and they will not expect to provide us with anything additional to do it. The probable result of that is worth pondering!

To sum things up: Quality comes from an organization's attitude--it cannot be imposed from without or from above. Accountants have their close acquaintance with the history of quality in manufacturing to study. We can either learn from that history or repeat it for ourselves.

Jack W. Curtis, MS, BS, an NSPA member, has served as a quality consultant for several companies, including manager of quality assurance at International Rectifier Corporation. He has been a sole practitioner for over 20 years.
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Title Annotation:Guest Column; the use of quality concepts in accounting
Author:Curtis, John W.
Publication:The National Public Accountant
Article Type:Column
Date:Jun 1, 1993
Words:1606
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