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​It's Your Government, Too

Blogs Mike Jacka, CIA, CPA, CPCU, CLU May 24, 2019

An interesting thing happened in Glendale, Arizona, last week. In a 5-2 vote the city council eliminated the existing internal audit department, instead opting for outside contractors to perform audits and establish an audit committee to oversee the operations.

Now, I have to admit, I don’t know a ton of the details. As Will Rogers said, I only know what I read in the papers. But what I read paints a fascinating picture.

At face value, some of what is being proposed does not seem particularly egregious. In their article on the subject, the Arizona Republic quotes city officials as saying the move is intended to strengthen accountability of city business. The audit committee will be comprised of three council members and two city residents. Internal audit work will be done by outside contractors with the intent of allowing “the city to perform more complex audits.” And all of this is intended to be accomplished within the existing budget.

However, a closer look should cause any good internal auditor to give pause. As Richard Chambers noted earlier this week in his blog post on the subject, “The action is being promoted as a way to strengthen accountability, but I fear it will have the opposite effect.”

The concerns start with the use of outside contractors to do the work currently being completed by (soon-to-be-laid-off) internal audit employees. As Richard went on to say, “What drives my concern most is that outsourcing internal audit in the way envisioned in Glendale can undermine the independent assurance that an internal audit function provides.” The city is claiming that the same number of audits — more complex audits — can be completed within the existing budget. We all recognize that the expertise for complexity does not come cheap, and I think it is a bit naïve to believe that more, better work can be accomplished without additional cost.

The questions continue coming thick and fast (at least in my mind) when the new audit committee is examined more closely. An audit committee, in and of itself, is a good thing. However, when three-fifths of that committee includes individuals who will often be the focus of internal audits (as Glendale has proposed), independence is negatively impacted in a significant way.

In addition, there is evidence that city leadership does not fully understand the crucial role an independent audit committee plays in providing necessary oversight…or simply does not want such independent oversight. This is based on the initial proposal for the audit committee, which also had “the city manager and budget and finance director as voting members of the new committee.” This is not independence, and it does not allow an internal audit department — even an outsourced one — to function effectively.

But, the real eye-opener — the part of this process that makes even the most casual observer sit up and take notice — relates to the work that was being completed by the city’s existing internal audit department. As noted in the article, the most recent audit — the one completed just before the move to eliminate the existing internal audit department — pointed out that “Mayor Jerry Weiers failed to properly document his Europe trip in a timely manner.” (It should be noted that many in the public are raising various questions about the trip, but internal audit only reported this specific issue.)

In the city’s defense (again, quoting from the article), they had been “considering changes to the auditor’s office long before that audit was completed.” However, it still raises questions about how much trouble the internal audit department was causing the mayor and other councilmembers, and whether that was part of the impetus for changing how internal audit worked within the city. This is even more troubling when you consider that there are a number of internal audits that were in various stages of completion — including an audit of the organizational culture — that will now never see the light of day.

Kind of makes you wonder what was in those audits, doesn’t it?

Look, this is the kind of thing that happens. Internal audit departments are formed, they are supported, they are not supported, they are disbanded, they go through metamorphoses (some because the audit department wants to change, some because they are forced to do so), they find themselves in a new world, they find themselves back in the old world, things change. But that does not mean we, as a profession, have to stand back and accept such occurrences when there are significant questions about why they have occurred.

First, if there is anyone reading this who lives in the city of Glendale, Arizona, step up and be heard. Contact your city councilmember and your mayor and let them know your concerns. In fact, see what it takes to become a member of that new audit committee, become a member, and see if you can’t make a real impact on the internal audit services for the city.

And even if you do not live in Glendale, it doesn’t mean you cannot make your voice (and the voice of the profession) be heard. Step forward and let this particular city’s leadership understand the role, impact, and importance of an independent internal audit function. Who better than the members of the profession to tell them? The contact information for those individuals can be found on the city’s website.

But here is the broader lesson for all of us. It is easy to forget that internal auditors working in the public sector endure a fishbowl existence the rest of us can only imagine. But that curse is also a blessing, because that means anyone — internal auditors and the public-at-large — can gain insight into the inner workings of local municipalities. We can see the actual work internal audit is doing – we can see their reports, we can see the issues, and, most importantly, we can see how our representatives are responding.

We all have a duty, as professional auditors and as citizens, to find out what is occurring. Go search out the work being done by internal auditors within your city, your county, your state, your whatever-you-call-the-local-jurisdiction, and determine 1) is internal audit being allowed to do the work that it should be doing and 2) are the internal auditors respected as professionals.

If you don’t like what you are seeing, start contacting those local representatives. Write to them, show up at meetings, and let them know that the profession of internal audit is out there — that we are citizens and voters who are watching to ensure there are independent and objective reviews of the work that is being done. And remind those representatives that they ignore the profession at their own peril.

It happened in Glendale, Arizona; it can happen anywhere.

Mike Jacka, CIA, CPA, CPCU, CLU

Co-founder and Chief Creative Pilot, Flying Pig Audit, Consulting, and Training Services (FPACTS), based in Phoenix.