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by Jerry Shaubel
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Wal-mart fails to meet needs of 23 percent of its customers!
Who could believe such a headline? A large successful organization is unable to meet the needs of 23 percent of its customers! Could this possibly be true for Wal-mart? I don't know the answer to that question but think it highly unlikely given the company's position in regard to customer service, as stated on their web site:
"We're nothing without our customers".
So, if the lead-in mock headline doesn't apply to Wal-mart, can you imagine an organization where it might apply? One such organization is ALGA in the area of peer reviews. Don't misunderstand this. ALGA's peer review program is excellent; it just needs to be expanded.
As you may be aware ALGA's peer review teams only perform reviews using Yellow Book standards. Yet according to ALGA's 2002 Benchmarking survey, 23 percent of the respondents, all ALGA members, do not use Yellow Book standards. While hard data is not currently available, it is generally known that many of those not using Yellow Book standards have opted instead for Red Book, or Institute of Internal Auditors, (IIA) standards.
Since ALGA's current peer review program only contemplates Yellow Book reviews, member organisations using the Red Book cannot have a peer review done through ALGA. In recognition of this, ALGA is distributing a survey to members trying to gauge demand from members for Red Book peer reviews. The responses to this survey will determine whether ALGA expands the peer review program to meet the needs of all of its members who use the Red Book, or retains the current program that excludes a significant percentage of current members.
One of the arguments against expanding the peer review program is that it might appear to be endorsing standards other than Yellow Book, which is clearly the preferred set of standards for our members. In my view, going back to the Wal-mart example, this is like saying Wal-mart should not sell any brand name products because it would draw sales from its own line of products. Just as there will always be consumers who want name brand products, there will always be ALGA members and other local government auditors who are not yet members, who use standards other than the Yellow Book.
There are many reasons why ALGA's members may not be using Yellow Book standards. These reasons vary from political, for members in countries other than the United States, to statutory or charter for many members, including those in the U.S. Despite their respective circumstances, shouldn't these members be able to avail themselves of one of the significant benefits of ALGA membership? My answer to this question, as you may have guessed, is yes. ALGA should do everything reasonably possible to enhance audit quality and professional development, including offering Red Book peer reviews.
Expanding the excellent ALGA peer review program to encompass Red Book reviews would have many benefits. First of all, it would dramatically increase the number of member organisations eligible for peer review. As we all know, peer reviews are extremely beneficial in ensuring that our members operate in accordance with the highest standards available. As noted earlier, in some cases Yellow Book standards are not used because of external or organisational impairment or limitations. The Red Book provides an avenue for those unable to comply with the GAO's Yellow Book standards.
A second advantage of ALGA performing Red Book peer reviews is that there are many small audit shops that might want peer review but cannot afford a traditional Red Book review. ALGA's peer review program is very cost effective and has removed the cost barrier for many small audit shops that have already undergone peer review. Expanding the peer review program would not only advance the practise of auditing in these small shops but might have a fringe benefit of attracting more members to ALGA thus providing more audit shops with the other advantages of membership.
While there are certain philosophical differences between proponents of the two sets of standards this is not really the issue. The real issue is that ALGA, as an organization, should provide services to all of its members to help them achieve the high standards that we aspire to as auditors.
When 23 percent of your members can't take advantage of a key service, it's time to re-evaluate. The ALGA Peer Review Program Survey will be sent to members in the next few weeks. When completing that survey, please think of your colleagues using Red Book standards and the benefits they would realize should ALGA decide to offer peer reviews for local government audit shops using those standards.
Counterpoint
By Jerry Heer and Doug Jenkins
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Simply stated, our view is an unequivocal “no.” Perhaps the strongest link bonding the hundreds of member organizations of ALGA is not our common pursuit of excellence in our chosen field, but rather the environment in which we make the pursuit. In the March 2004 issue of the LGAQ, Jerry Silva, City Auditor of San Jose, California, made a compelling case for all local government auditors to follow Generally Accepted Government Auditing Standards (Yellow Book) rather than standards issued by the Institute of Internal Auditors (Red Book). Jerry argued that Yellow Book standards are superior to Red Book standards in three critical areas:
• Specific applicability to government auditing.
• Greater credibility for government audit shops.
• Yellow Book standards provide additional assurance that audit organizations will not only be independent in fact but, just as importantly, in appearance.
We understand that several ALGA members are legally required to follow both sets of standards, and that our good neighbors to the north may be reluctant to adopt standards promulgated by the U.S. Government Accountability Office. However, we believe adherence to Yellow Book standards has been and should be the officially sanctioned position of the Association of Local Government Auditors, and that audit shops seeking (by choice or by circumstance) peer review services tailored to non-Yellow Book standard should look elsewhere.
In preparation for writing this article, we searched the Constitution and By-Laws of ALGA for a reference to Yellow Book standards, and were surprised to learn that no such reference exists. However, a review of the formally adopted Guidelines and Model Legislation for Local Government Auditors produces the following recommended guideline for establishment of a government auditing function:
“2. Authorize the auditor to conduct financial and performance audits in accordance with government auditing standards as promulgated by the United States General Accounting Office.” (sic)
Further, ALGA’s entire Peer Review Program was founded, developed and has evolved entirely around the concept of assessing compliance with Generally Accepted Government Auditing Standards. It is our opinion that, along with the annual conferences, the Peer Review Program has been one of the two pre-eminent achievements of our organization, thanks in no small part to Doug Norman, Joanne Griggs and many others who identified a need and filled a void by creating a first-class peer review program, virtually out of thin air. Along the way, countless volunteer hours and a fair amount of ALGA’s scarce resources have been dedicated toward development of the smoothly run program we have today under the leadership of Amanda Noble.
The notion that ALGA should provide a parallel peer review service under the Red Book standards is, again in our view, a repudiation of the essence of our organization, that common link of the governmental setting in which we all pursue professional excellence. We are not discounting the value or integrity of Red Book standards; rather, we are advocating that ALGA retain its identity as an organization of local government auditors. There is no void to fill here. The IIA has a peer review program, and there are many private firms capable of providing peer review services using Red Book standards.
In closing, we remind members of the origin of the Association of Local Government Auditors. A small group of local government auditors attending National Intergovernmental Audit Forums found their particular interests and needs were not being fully met by that organization, which was geared more heavily towards a federal and state perspective (for more on the origin of ALGA, see the publication, The History, Association of Local Government Auditors 1985—2001). As was the case in the later development of the peer review program, a need was identified, and a void was filled. Broadening ALGA’s Peer Review Program to include Red Book standards seems to us a step backward in the development of our organization. To broaden our identity outside the governmental setting, to make internal auditing the common link among members, rather than our local government affiliations, is just not a logical step from whence ALGA came.
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