|
A few weeks ago Mike Zapler, a reporter for the Las Vegas Review Journal, called me and said that he would like to talk with me about audit committee structures. He indicated that there had been some controversy about the audit function in Las Vegas and a proposal had been put forward to provide for an audit committee for the city auditor to report to where none had existed before. I get this kind of call from time to time and try to get an understanding of what is going on in the community and perhaps talk to the auditor there before I comment to the reporter. I told Zapler this and he said that the auditor had been fired, but that if I wanted to read what he had written to date I could look it up at www.lvrj.com. What I read made my blood boil. In fact, I was surprised that I was so angry.
Susan Toohey, the City Auditor for the city of Las Vegas, was fired in March. Management gave her no reason for her termination, although courageous unnamed sources told the newspaper she was abrasive, confrontational and difficult to work with. The city had suppressed 14 of her audit reports over the past two and a half years. These reports indicated, among other things, that city staff had issued a contract for hundreds of thousands of dollars of computer work without bids, apparently in violation of state law, and without notifying the city council although city ordinances require council approval of contracts over $25,000. There were other issues, some major and some minor, but nothing that would shock an experienced government auditor. They were, however, embarrassing to top management and so management quashed the reports. And when Susan advocated for a reporting structure that would assure that such information was communicated to the city council and the public, she was fired.
Management told her she was fired three days after they found out she had been diagnosed with breast cancer. Maybe they thought the stress would be such that she would just fold, go away and not make a fuss. They obviously misjudged. Good auditors, and Susan Toohey clearly seems to be one, are made of far sterner stuff. Conflict is part of what we do. War is bad and peace is good but fighting is often what we do. She's suing the city for $3.8 million.
The council-manager form of government in the United States is the most common form of city government. Susan Toohey found herself in a position that occurs frequently in local government. In most cases top management may not so flagrantly abuse its relationship to the audit function, but the potential is always there and surely causes many auditors to edit to a greater or lesser degree what they examine and report.
The reporting structure in Las Vegas is that the auditor reports to the city manager. According to our 1997 association directory, this is the most frequently occurring reporting relationship for local government auditors. Eighty-nine of our members report to the chief executive officer, 82 report to the legislative body, 47 are elected and 77 indicate "other" as their reporting structure.
There is real confusion about the issue of independence and the distinction between internal and independent auditors in government. In part this confusion exists because the state of the art is still evolving and we have work to do to develop and refine the concepts. In addition there is the influence of the commercial sector which confuses the issue. In commercial auditing the independent auditor is the public accounting firm that is hired on contract to do financial statement audits, and increasingly, management consulting work. All auditors who are employees of commercial businesses are deemed internal auditors. There is no equivalent in the commercial sector to the independent government auditor who is an employee of the government he or she serves, but is independent of the management they audit. This is because of the ways in which government is different from the commercial world. In government the opportunities for abuse of power are far greater, the risks of inefficiency and ineffectiveness are greater and the need for accountability is crucial.
This distinction in Government Auditing Standards is clear, but it is not one that all government auditors have reflected deeply on. I have seen elected auditors and auditors appointed by the legislative body refer to themselves and their organizations as internal audit functions. Under government audit standards they are independent. Any auditor appointed by the chief executive is an internal auditor, regardless of reporting structure. In both cases there are proper structures relating to independence. But the role and function, within government auditing is different between internal and independent auditing.
Every local government of any size needs an independent government audit function. An internal audit function is also useful and a good chief executive officer would obviously want one. But the internal audit function is less imperative than the independent government auditor and will not suffice for such a function in its absence. The internal audit function is, in a sense, a second step that a government can take after it has established a strong independent government audit function. In a sense, this is exactly what Susan Toohey was trying to do in Las Vegas. Hers was an internal audit structure, and recognizing the abuse that existed in the absence of an independent auditor, she was attempting to transform the function into an independent audit structure.
So what should ALGA do? I believe that we as an organization should confront the distinctions that I have drawn and begin to make clear choices. We should decide what we as an organization think about these issues so that we can begin to speak with one voice to the other actors on the stage that we must work on. We should, once we have decided what we think, sit down with the ICMA, the GFOA and similar organizations and explain the world of audit to them. We should point out that codes of ethics such as that of the American Society for Public Administration, to which many city managers belong, support an independent audit function. We should seek to educate these other organizations and attempt through their publications and forums to educate their members. We should communicate quickly with each other when an incident like the one in Las Vegas occurs, and we should vigorously defend our principles and support our members.
|
Funkhouser on Auditing