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A Q&A on auditor independence
Given the tensions that face auditors, we thought this was a good time to talk with Tina Adams, the new president of the Association of Local Government Auditors (ALGA) about auditor independence. ALGA has 340 member organizations in the United States and Canada and focuses largely on performance auditing, as opposed to financial auditing. Adams took over the one-year presidency term in May. She is the deputy city auditor in the internal audit office of Charlotte, N.C., and has been in the profession for two decades.
B&G: Why can’t performance auditing be handled on a contract basis rather than having an internal office? What are the reasons that you believe an internal office is preferable?
Adams: Internal auditing is a basic cornerstone for good public governance. Internal auditors meet with department heads on a regular basis, understand their concerns and what they see as risks and help them address or mitigate those risks. That’s something that an internal auditor brings to the table that an external auditor may not.
As internal auditors, we develop an annual audit plan partly based on areas where we see opportunities for improvement. Management and council may review and make suggestions for our audit plan, but in the end, we decide what to audit. Contractors may be steered to certain topics and away from other ones that could reflect negatively on management.
B&G: What do you see as the goal of internal audit offices?
Adams: When establishing an audit shop, one goal should be to maximize transparency and accountability to the public. Depending upon what the local organization does, whether it’s a city or county government or a school district or an authority, you want to give some assurance to the public that the organization is achieving its mission effectively and efficiently and ethically.
B&G: What are the major issues that cause local auditors to lose sleep?
Adams: For me, it’s threats to independence. That causes me to lose sleep. That’s the core and then all of the issues that come along with that threat – am I going to be able to report what I find honestly without fear of retribution. Will I be able to exercise my professional judgment?
B&G: Why is auditor independence so important?
Adams: I think it’s important because of public perception. Auditors have to be independent, both in appearance and in fact. If the public does not perceive that an auditor has integrity and is objective or if they think the auditor has been compromised in some way, it can erode the confidence they have in the organization.
Having an independent auditor in-house helps with the public perception that the organization is trustworthy accountable and transparent.
B&G: What are the key elements that build auditor independence?
Adams: For a lot of our members it’s who the auditor reports to – the placement of the internal shop within the organization. You don’t want an internal auditor placed within an operating department of a city or county. It should be reporting to those charged with governance.
A lot of people indicate that the best way to provide independence is to have it legislatively mandated, whether in a city charter or through some other authoritative law.
B&G: In Lawrence, Kansas, it’s been suggested that setting up an audit committee will help protect the city auditor’s office. What do you see as the advantage of having an audit committee?
Adams: Having an audit committee provides more time to hear the details of an audit. Otherwise, you may end up with five minutes at the end of a four-hour council meeting. An audit committee can also help to make sure that recommendations are implemented.
Audit committees can ensure the quality of audits and help to resolve problems caused by a lack of resources.
B&G: Are there disadvantages?
Adams: Sometimes the members of the committee have a conflict between supporting internal audit and management. Those conflicts could be a challenge for an audit committee member.