The Logic of FCA’s Conceptual Framework

Below, we again review the conceptual framework FCA uses to analyze data and reach conclusions.

Elements of the framework:
Objective
Criteria
Condition
Cause
Effect
Conclusion
Recommendation

We will now illustrate how this framework works in practice through a case study outside of FCA. This way, we won’t get bogged down in interpretations of the financial data.

We’re going to examine an operational audit by GAO of another government agency, the Environmental Protection Agency (EPA).

The EPA delegates authority to state-level EPAs to inspect facilities in their state that produce hazardous waste. Regulations outline that the inspections must be thorough and accurate.

At GAO, most audits start with a basic question (the Objective), and in this case the question is:

Objective: Are state EPA inspections of hazardous waste facilities thorough and accurate?

In FCA, the examination objective is similar:

Examination Question: Is the association financially sound?

The next step in the analysis is to identify the criteria by which to judge the situation.

In our case study there are federal regulations stating that when EPA inspections are delegated to the states, those inspections must be conducted effectively.

Criteria: Inspections by state EPA officials must be thorough and accurate.

Next up, we’ll consider condition.

To test whether state inspectors are doing thorough and accurate inspections, the agency conducting this review (GAO) hired an experienced inspector to inspect facilities in several states. Shortly after state inspectors inspected a facility, the GAO inspector went to the same facility and inspected it. The state inspectors found a total of 81 major violations, but the GAO inspector found another 134 major violations that the state inspectors had missed. So now we have the condition:

Condition: State inspectors found 80 major violations but missed another 134.

Why would state inspectors miss 134 major violations? Bribery was ruled out, but there were numerous other contributing factors. So, using the elements-of-a-finding framework, we review the causes:

Causes:

Inadequate hiring requirements—To be effective, an inspector must have a strong background in chemistry, but states did not require a chemistry background.

Inadequate training—States hired inspectors without a chemistry background, and then they did not provide training in chemistry and in methods of inspecting facilities.

Lack of checklists—To do a thorough job of inspecting, inspectors should have had checklists of all the items they should inspect, but they did not.

High staff turnover—Inspectors typically stayed only 31 months in that position because of stress and low pay, resulting in a staff of relatively inexperienced inspectors.

Unreasonable inspection goals—States required that inspectors inspect 20 facilities each week, and facilities were often large and far apart; as a result, inspectors had to rush through the inspection

If facilities are not inspected correctly, the workers continue to handle hazardous waste improperly, and the toxins leak into the soil, water, and atmosphere. In turn, humans and wildlife breathe pollutants, and toxins get into the food supply and drinking water and cause cancer and other diseases. Now we’re addressing effect.

Effect: Danger to human health and to the environment.

Once the elements of a finding are discerned, we can make a conclusion.

Now the answer to the basic question posed initially can be determined—are state inspections of hazardous waste facilities thorough and accurate?

Conclusion: State inspections of hazardous waste facilities are not thorough or accurate.

Once the conclusion or finding is determined, the next obvious step is to recommend a solution to the problems identified. To determine the solution, we look back at the causes we’ve identified and recommend removing those causes.

To write up the evidence and findings of the operational audit, we would use a deductive structure, stating the overall finding in a charge paragraph.