The irony is that local governments with an audit function face a greater penalty than those governments that are less accountable. How can that be? Let’s talk about a city, Diligent, that has a capable Yellow Book performance auditor, and Oblivious County, which spends not a dime on performance auditing. If the Diligent auditor discovers misspending of federal dollars she is bound by standards to report it. In reporting it, Diligent City may be required to pay back those misspent funds, at the cost of local tax dollars and reduced services elsewhere. In contrast, Oblivious County may have misspent in the very same way, but if there is no auditor to report it, the Federal government may never know, or seek reimbursement.
Pete Raiskums raised this issue at our Pacific Northwest Governmental Audit Forum Roundtable discussion in Anchorage. He questioned the fairness of penalties imposed on a jurisdiction when its auditor reports a problem.
This can act as a disincentive for a local, or even state government to support an independent Yellow Book audit function. An effective performance audit function improves management throughout the organization which provides greater assurance that all dollars -- local, state, and federal -- are better spent. Every day, the threat of an audit can also inspire greater efforts, and act as a deterrent for fraud, waste, and abuse. My office audits the management of federal money with as much concern as our local dollars, because we want to ensure the best value for our community. I think that’s what is expected of me by the citizens, the GAO, and audit standards.
Over the past thirty years the GAO has worked to raise the professionalism of government auditing, at all levels, in many ways. Foremost, by establishing and updating the Government Auditing Standards, which are as relevant at the local level as the Federal level. Another example is the National Governmental Audit Forum, raising audit issues among its professionals at all levels. (The Forum also subsidized the founding of ALGA in the interest of better local government auditing, and I think it was a wise investment.)
We now have clear expectations about professional auditing with the Government Auditing Standards. We now have ALGA, which offers training, peer reviews, and promotes performance auditing to local jurisdictions. I think the next step is developing incentives and rewards for city and county governments like Diligent that have an independent, professional auditor. (Alternately, we could develop some means of penalizing jurisdictions like Oblivious that operate with less scrutiny.)
ALGA isn’t in a position to reward or penalize jurisdictions, but a simple change in Federal grants and revenue sharing could help. If violations are found by that jurisdiction’s auditor, then the local jurisdiction should not have to return the funds. If a problem is found and corrected, then a government committed to self-correction should not be penalized. Naturally, the audit shop should meet all Yellow Book Standards and the findings would have to be identified in the course of its routine auditing. (Otherwise the auditor could just be used as a façade for scrubbing down a violation before Federal auditors happen upon it.) The audit shop should also conduct a follow-up audit to ensure that corrections have been made.
Here is my proposal for a second step: Maybe those federal audit agencies should visit with the local auditors in the course of their planning and fieldwork. In 20 years, I have received only one contact by federal auditors when they have been auditing in my county or city. I asked another esteemed colleague and he had nearly the same experience, except that it covered more years, with no contacts. I would be happy to spend time explaining our knowledge of the organization we audit, its control environment, key contacts, data sources, and other information. Not only would I be happy, I would be professionally bound. The Yellow Book states, “7.32. Auditors should determine whether other auditors have previously done, or are doing, audits of the program or the entity that operates it.”
Please don’t read this as unhappiness with the GAO or our Comptroller General. I am very excited about the new leadership and direction of GAO. I just think we are missing an opportunity to be more effective, by building a bigger alliance, developing a reward system for compatriots in accountability, and committing to better coordination.
Gary Blackmer is Portland City Auditor and the ALGA Webmaster.
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