IIA Summit for Government Auditors Exposes Common Concerns
Although internal audit professionals working in government experience many of the same obstacles as their private-sector counterparts, they have a unique set of guidelines, circumstances, and challenges. The highly political environment in which they work is challenging, to say the least; and their stakeholders include not only those at the top of their agency, but each and every stakeholder throughout their city, municipality, county, state, or country.
Government auditors are a diverse group. Some members are elected to their posts. Others report to an audit committee, a legislative body, or management. Based on their reporting structure, their autonomy and ability to work without interference varies.
The Institute of Internal Auditors (IIA) recently hosted the 2012 National Summit for Government Auditors, where a diverse group from the public sector discussed issues specific to their role. Attendees from the United States and Canada participated in an interactive panel discussion on issues such as auditor independence, resolving conflicts, and resource limitations.
Facilitated by IIA President and CEO Richard Chambers, summit panelists included Tallahassee City Auditor Sam McCall, PhD, CIA, CGAP; Berkeley City Auditor Harriet Richardson, CIA, CGAP; and Atlanta City Chief Audit Executive Leslie Ward, CIA, CGAP. The event was held on Sunday, August 19, just prior to the Governance, Risk, and Control Conference at The Breakers hotel in West Palm Beach, Fla.
Critical to the success of any audit function, the issue of auditor independence — and how it is maintained and protected — is described and explained in The IIA’s authoritative guidance, The International Professional Practices Framework (IPPF). The concept of independence is always an important topic of discussion among internal auditors — especially those working for government organizations, as they are considered by many to be “guardians of public trust.”
During the summit, Richardson explained that independence in the public sector is well-established when legislation or a charter is approved by voters to create a structure under which the audit function is functionally independent from management and sufficiently guarded from political pressure. “Following a recognized set of standards that provides for auditor protection, credibility, and independence allows the auditors to objectively select what to audit and report their findings and conclusions without fear of reprisal,” she said.
McCall said his independence is enhanced through an open and candid line of communication with management, which allows him to do his job without interference or pressure. He further explained that his audit function remains independent by having clear responsibilities as laid out in the charter, laws, ordinances, and policies and procedures for the governing body, the chief audit executive (CAE), the audit committee, and executive management.
Additional actions that promote auditor independence include adherence to professional audit standards, audit topic planning and approval, the process followed for issuing a report, and obtaining feedback from those audited, he said. “While the auditor cannot necessarily be management’s partner, it is important to find a way to be useful and provide value-added services without sacrificing independence,” said McCall
Ward discussed the importance of the audit committee and its role in appointing the CAE, and she stated that removal for cause should require the approval of a super-majority of committee members. “It is also important that the audit committee approve the audit plan, comment on audit objectives, and review the audit report before it’s released,” she explained.
Because auditors often have to reveal bad news and expose bad behavior, they sometimes feel under attack — either through subtle impairment or outright retaliation. The panelists discussed this issue and provided their opinions on how government auditors might navigate the rough waters of impairment.
McCall pointed out that there are two sides to every story and that following lines of command is important. “I would first try to resolve the issue by talking with the person making the attack. If that did not work, I would talk to the mayor and city manager, while honestly considering whether I might be at fault,” said McCall. He went on to say that, if all his efforts to achieve resolution failed, he would seek advice from the audit committee.
Auditors under attack should tap into the valuable guidance and resources provided by professional associations such as The IIA and the Association of Local Government Auditors (ALGA), advised Richardson. The Institute recently published several pieces of guidance for public sector auditors and has provided a comparison of both the “red book” (International Professional Practices Framework) and the “yellow book” (the government auditing standards published by the Government Accountability Office) to help government auditors comply with both.
Because the recent economic downturn has impacted government revenues significantly, many internal audit staffing and training budgets have been reduced. Ward, who is a past president of ALGA, pointed out that significant resource constraints are a fact of life for local government auditors — even in a thriving economy.
For example, most of the audit functions that belong to ALGA have five or fewer auditors — many have only one or two. “These numbers don’t correlate highly with the size of the jurisdiction,” she said, “nor is this a recent phenomenon that coincides with the onset of the recession and sketchy recovery.” She went on to say that the current sluggish economy likely has worsened the situation somewhat.
Richardson cited adequate funding as a factor in ensuring that auditors receive sufficient and appropriate training so they can maintain and improve their professional competence. She sees this issue as increasingly challenging for government auditors. “Many auditors must meet minimum continuing professional education requirements to comply either with the standards they follow in performing their work or to maintain their professional certifications,” she said.
The panelists agreed that continued professional development is essential not only to auditors meeting their professional requirements, but to ensuring audit excellence and providing high-quality, value-added contributions to their organizations. Still, Richardson put into perspective the heavy competition for government dollars: “The need for auditor training is not sufficient enough to persuade a legislative body that making an exception for auditors is more important than keeping police officers on the streets, repaving severely deteriorated roads, or reducing an unfunded pension liability,” she said.
Should funding limitations lead to a reduction in the number of internal audit staff positions, Ward noted that management and the board should be made fully aware of the consequences. “The CAE should point out which audits the department will not be able to perform,” she said.
Internal auditors can demonstrate their value by helping management with decision-making, said Richardson. “Internal auditors can develop an analysis process and show departments how to perform it themselves,” she explained. To make her point, she elaborated on how an analysis performed on deferred street maintenance showcased the financial benefits of shoring up the program sooner rather than later.
In regard to the organization’s perception of auditor value, Ward noted that sometimes audit clients appreciate and value the internal auditors’ work, and sometimes they don’t. “We don’t have to ‘be political,’” she said, “but we have to deal with politics in ways that help to ensure that our work is respected and taken seriously.” She cited a large project about which the internal auditors had expressed doubts and concerns. After the project failed to deliver, the client gained a new appreciation for internal auditing’s value. Later, when the project was restarted, the internal auditors were involved from the very beginning.
Advocating the Auditor’s Role
Throughout the summit, panelists noted the importance of good communication to the practice of internal auditing, but especially with regard to helping the organization, management, and its stakeholders understand the value of the internal audit function. They discussed several ways to deliver key messages about internal auditing’s value, including:
Discussing recommendations for improvement, reporting on implementation, and publicizing the results.
Performing a quality assurance review and communicating its results.
Marketing the internal audit activity to stakeholders.
Advocating internal auditing’s role in good governance and helping the organization meet its goals and develop public trust.
Acquiring and maintaining adequate audit resources.
As the panel discussion ended, McCall challenged attendees to use communications to advance the profession. “Internal auditing needs to increase its visibility by marketing itself,” he said. “Don’t be a hermit; be proud of what you do!”