Association of Local Government Auditors - Point/Counterpoint Elected vs. Appointed Auditors

Mike Taylor, City Auditor of Stockton, CA and Ann-Marie Hogan, City Auditor of Berkeley, CA, attempted to agree to disagree for a Local Government Audit Quarterly column. In this quarterly discussion, they argue the question of “which is better, an elected auditor or an appointed auditor.”

Point from Mike Taylor, CPA, CIA, Council-appointed City Auditor of Stockton, California:

Are localities better served by elected or appointed auditors? Ann-Marie and I have been asked to do battle over the question of which structure is better. For a number of reasons, this has not been an easy task. Once I began to build my case for an appointed auditor, I realized that many of the differences between appointed and elected auditors are not particularly significant. Many of the elected auditors I know don’t fit my theories about elected auditors. And, I think that various factors in some localities do make an elected auditor a better choice. Having admitted to that up front, I’ll state my case for an appointed auditor, and then explain why in some cases, an elected auditor may be a better structure.

Candidate Pool – When a locality seeks an auditor director, where do they look? For an elected position, candidates must reside in the locality. For an appointed position, the locality can recruit from as far as their advertising will go (think World Wide Web). The best person for the job may live within the shadow of city hall, but I think it’s best to have a choice from as many qualified candidates as possible.

Governing Body Support – Ann-Marie actually suggested this one to me from the perspective of budget and salary support. In my experience, this has been a huge benefit of reporting to the City Council. I think there’s another way that governing body support is a positive for appointed auditors, and that is the pressure to implement corrective action in response to audit findings. An appointed auditor who is and acts independent of management can turn to the governing body when management ignores audit findings. An elected auditor who is and acts independent of the organization runs the risk of becoming insignificant if the governing body and management ignore audit findings.

Reelection – Elections are about name recognition. It seems to me that one way for elected auditors to maintain name recognition is to issue audit reports that get media attention. Yes, appointed auditors can and do issue reports that the media love. But, if an elected auditor is facing a challenger, it seems to me that the auditor might choose audits, and time the release of their report, based on the probability that the report will attract media attention (e.g. cell phone usage, travel expenses). Such topics might allow for campaigning along the lines of “cleaning up the mess in city hall,” but not be of as much use to the organization as other audits.

Qualifications – Browse through the jobs page of the ALGA web site and you typically see positions that require a college degree, professional certification, several years experience, and a list of skills such as written and oral communications, leadership, and software proficiency. Elected auditors may be required to have a degree and in some cases a professional certification. Sometimes all that is required is to have remained alive for at least 18 years and be a resident of the locality. When making hiring decisions, the face-to-face interview is a valuable tool, yet most voters will be checking a box based on little more than a few sound bites and a paragraph in the voter guide.

Oversight – Okay, unless you have a board or council of micromanagers, the appointed auditor won’t get much in the way of supervision. There will likely be some supervision, however. For me, the City Council reviews my performance every six months. Elected auditors answer to the people, and the people don’t really schedule regular performance evaluations. What about poor performance? There are mechanisms for removing poor performing auditors, whether they are appointed or elected. But, it is much more difficult to remove a poor performer who is elected. The community must either recall the auditor or vote them out of office in the next election. Recalls are not easy and the next election may be 2 or 3 years away. If my performance falls far enough below expectation, the city council has the power to apply progressive discipline to correct the situation quickly, or send me on my way. How do the people apply progressive discipline to an elected auditor?

So, when might an elected auditor be better for a community than an appointed auditor? If a jurisdiction has a long history of an unstable or corrupt council, an appointed auditor may be ineffective. Those who try to make a difference may soon give up in frustration or be dismissed by the council. If the council is run by management rather than the other way around, the structure would not really be independent. It is also possible that a city council doesn’t want any bad news getting out, so they muzzle the auditor. Under these circumstances, I would likely argue for an elected auditor.

I imagine Ann-Marie will take exception with some of what I’ve written. I look forward to seeing her comments. There is an area, however, where I expect that Ann-Marie and I would strongly agree. Both elected and appointed positions are preferable to internal audit structures as defined by GAS.

There are many fine internal auditors working in local government who have done important work with no more management interference than elected and appointed auditors face. Structurally, however, they face greater risks. When auditors report to management, there is greater potential for being gagged, assigned less useful tasks, assigned non-audit activities, and eliminated during lean times. Also, auditors who report internally are at risk of a major shift in direction with turnover of one person (e.g. City Manager, Finance Director), where elected auditors are not and appointed auditors have several bosses that typically serve staggered terms.

As an organization, ALGA should advocate for the creation and maintenance of independent local government audit functions, both elected and appointed. Actually, ALGA does. If you haven’t seen it, take a look at ALGA’s model legislation at http://www.nalga.org/reports/modlegis.html.

Counter point from Ann-Marie Hogan, CIA, CGAP, elected Auditor of Berkeley, California:

As my esteemed colleague from the City of Stockton has noted, it was hard to talk us into point/counterpoint since we know that we pretty much agree with the yellow book on the subject: both elected and legislatively appointed auditors meet the standards for independence, all else being equal. I’ll do my best to get a little contentious by starting with Mike’s weakest arguments first:

Re-election

If an audit shop is headed by an auditor who would base the annual audit plan on the best way to support a re-election bid, then that shop is in big trouble. We are now talking about a fundamentally unethical individual who has no business being auditor of anything.

In the real world, development of the audit plan is a dynamic process involving the audit team, management, the legislative body, and the auditor’s risk assessment. Personally, I’ve always been more worried about the legislatively appointed auditor who is unable to select those audits that have the most value because each legislator is lobbying for an audit that will support personal pet ideas or constituencies or make trouble for the opponents’.

Governing Body Support

I do have to agree with my own statement that a City Council is more likely to generously compensate an auditor who works for Council than an elected auditor. To raise the issue of ethics again, that would be a poor argument to make when the City Council asks one of the ALGA Advocacy team to educate them on the pros and cons of elected and appointed auditors.

My one further quibble here is with the risk of a truly independent elected auditor “becoming insignificant” if audit findings are ignored. The elected auditor has a freedom to “speak truth to power” directly and without censorship, whether to the press or in a public meeting. I don’t think we need to worry too much about the powerlessness of the poor independent elected auditor, and I guess the support of our fellow auditors just becomes all the more important to the electeds.

Oversight

I agree that it might be harder to remove a poorly performing elected auditor. However, I’ve seen poorly performing appointed auditors and, more frequently, poorly performing, even abusive city/county managers who don’t get removed from office because Council or the Supervisors just don’t have the skeptical attitude or the political will to take action. Of course, we’ve perhaps more frequently seen the reverse: auditors and managers who are removed from office when they are doing a pretty good job in a difficult environment. This is why the political skills that some of the audit community is so shy about are very much needed by the appointed chief audit executive.

Candidate Pool and Qualifications

I agree with Mike that difficulty of ensuring a large pool of qualified candidates is an argument in favor of legislatively appointed, rather than elected, auditors. A further problem is that, when specific qualifications are required for auditors, the most usual is “must be a CPA”, “must be a CPA or CIA” or even “must be a CPA or currently employed at the deputy level in that Auditor’s office”! Many of our performance audit shops prefer to hire folks with non-traditional backgrounds, and possession of a CPA and audit experience is no guarantee that one has the management skills and the persuasiveness (read: political skills) to thrive as auditor in a small city or county government, so the qualifications requirement may sometimes actually be a negative.

As Mike and I decided in a recent ALGA Advocacy engagement, a very small jurisdiction (and one that is not a University town with a constant supply of public administration graduates) should probably not consider an elected auditor if it seems that the applicant pool might be too limited. The city council (and the city manager) took our advice, after much discussion, and ordained that the auditor be appointed by council and removed from office only by a super-majority.

In this particular case, there had been a move by city residents to establish an elected audit function; at one point (before our information was persuasively presented) the city manager wanted a manager-appointed auditor; finally, the manager recommended what the council perhaps wanted all along – a council appointment. This is a good illustration of a major factor in establishing the reporting relationship: if there is going to be an auditor, each player wants to be the appointing authority!

What to Do?

We just can’t help reaching agreement that every city and county of a certain size should have an auditor who is either elected by the residents or appointed by the legislative body. In my opinion, the most significant step in creating the audit function is making sure that comprehensive legislation, based on the yellow book and the ALGA guidelines, is enacted to mitigate risks to independence on one hand and to quality control (competence) on the other. The audit shops in trouble that I’ve seen have frequently failed to take this important step.

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Written by Mike Taylor and Ann-Marie Hogan,

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