Tests: too hard, too easy, and the world of cheating

This past week saw a few articles appear dealing with test taking. The WSJ reported on teachers who cheat for their students, so that the students' scores on standardized tests are higher, presumably so that the teachers can qualify for monetary benefits (or perhaps to avoid being terminated). The article cited one student who refused to take the test, but somehow managed to pass! Sadly, even in the Garden State (New Jersey), home of some of the most corrupt politicians in the States, apparently is also home of some corrupt teachers, as we are seeing evidence of cheating, revealed in last Saturday's Home News Tribune.

At the other end of the spectrum we learned of EU Bank exams that are apparently so easy that too many banks refused to fail them, as reported in this past weekend's Wall Street Journal.

An exam that's near and dear to many of us in GIPS(R)-land (Global Investment Performance Standards) is the Performance Examination, which can be done alongside, or after a firm undergoes, a verification. The GIPS Executive Committee has presented us with a proposed revised version of the Examination Guidance that suggests that verifiers perhaps should get the required account details (holdings and transactions) from an independent external party (e.g., custodians or brokers), offering three levels for your consideration:

• “preferable” to obtain from independent external parties
• “must make every reasonable effort” to obtain from independent external parties
• “must” obtain from independent external parties.

I consider these rather extreme measures, that appear to be aimed at the likes of the currently incarcerated Bernard Madoff; must we all suffer as a result of his misbehavior?

In this month's soon-to-be-published newsletter, I go into some detail on the exposure draft (the draft is available for public comment until August 31). In addition, I will discuss performance examinations in general, as well as the exposure draft, at this month's webinar (Monday, July 25, @ 11:00 AM, EST). If you're interested in participating in the webinar, please contact Patrick Fowler. And please review the draft so that you can comment; this document affects both verifiers and asset managers.