Point Lookout: a free weekly publication of Chaco Canyon Consulting
Volume 3, Issue 20;   May 14, 2003: Budget Shenanigans: Swaps

Budget Shenanigans: Swaps

by

When projects run over budget, managers face a temptation to use creative accounting to address the problem. The budget swap is one technique for making ends meet. It distorts organizational data, and it's just plain unethical.
MX Missile

A test launch of an MX missile on 26 November 2002 by the U.S. Air Force. These missiles have all been decommissioned. One of the launch configurations of this missile was to have been mobile and land-based, though it was never deployed in that manner. The idea was patterned after the "shell game." That is, the number of launch silos was to have been far greater than the number of missiles, which would have made attacking them difficult, because the enemy would not know which silos actually contained missiles. This strategy would have reduced the need to harden them against nuclear attack. It's likely that the plan was abandoned, in part, because of advances in sensor technology that would have made detection of missile movements effective enough to degrade the advantages of this launch configuration.

What happened to MX is an example of the predator/prey pattern. As the predator develops new capabilities, the prey develops new defenses, in an endless cycle. So it is with budget swaps. You might get away with it when the amounts involved are small, but eventually, budget auditors will develop methods of detection.

Photo courtesy U.S. Air Force via Wikimedia.

The meeting ended. Will picked up his pad, stood up, tossed his paper cup into the wastebasket, and stepped through the doorway right behind Janet. But before he could get her attention, Ed got his.

"Will, just one thing to button up — can you stop by my office a minute?" Ed asked.

"Sure," Will replied.

It was a short walk to Ed's office. They stepped in. Ed closed the door quietly. "Just want to give you the charge numbers for this week and next," he began. He handed Will a slip of paper that had two account numbers on it.

"Here they are. Top one's for this week, the other's for next."

"OK," said Will. "That it?"

"Yep. See you."

Will opened the door, went around the corner to his own office, set his pad and the slip of paper on his desk and sat. Odd, he thought. Why the secrecy? And why split the work across two accounts, when it was exactly the same work? He wondered what was going on.

Knowing budgetary
deception techniques
helps you stay out of
the gray area
Will never did find out. Perhaps it was legitimate, but it might have been a "budget swap."

In organizations that track expended effort, people charge their time to various accounts, represented by charge numbers. When "actuals" deviate too far from projections, the manager is often considered to have erred. Managers of overspent (or underspent) accounts are tempted to move charges across accounts to compensate.

In effect, they "swap" money across accounts. Here are just a few forms swaps can take.

Altering time sheets
This approach is less common today, because so many organizations now use electronic time reporting systems. Systems that still use hardcopy are the most vulnerable.
Directed or conspiratorial misreporting
Ed and Will might be a case of directed misreporting. Typically, this requires a level of naiveté or fear on the part of the person who's being directed. Conspiratorial misreporting occurs when all parties are aware that they're reporting false data.
Parking
In Parking, team members are temporarily detached from Project A, and then attached to Project B, which has adequate funding. Once parked, they may continue to do "just a little" work on A — a meeting, or a quick phone call, or more — but they charge all their time to B.
Out and in
When two budgets use the same external vendor for labor, equipment, or materials, the vendor can overcharge one of the budgets, and undercharge the other to compensate. Usually, this requires collaboration between the vendor and the managers. It's much easier to arrange when both budgets are controlled by the same manager.

Managers who use budget swaps to conceal problems do real harm to their organizations. But they harm themselves, too, because of another, less visible swap — their budgets for their integrity. Go to top Top  Next issue: When You Think They've Made Up Their Minds  Next Issue

For more about budgetary deception in the wider context, check out M. Jensen, "Paying People to Lie: The Truth About the Budgeting Process," European Financial Management, Vol. 9, pp. 379-406, September 2003. Available at SSRN.

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