If there is one thing our city needs for the new year, it’s auditor independence. While everyone would likely agree that the city auditor needs to be free from external interference, how that is defined and ultimately accomplished remains open to debate.
It used to be that the city manager appointed the auditor and the city council confirmed the appointment, but that changed under the strong mayor form of government. Now, the mayor appoints and the city council confirms the city auditor. The mayor also can fire the city auditor, but that decision can be appealed to the city council. In addition, the city auditor takes direction from and reports directly to the mayor or his designee.
It’s a bad system that assures a lack of independence and directly conflicts with common sense and best practices. And little will change if the city of San Diego Audit Committee votes this Monday, January 7, to support the recommendation of the city Charter Review Committee, allowing the mayor to appoint the city auditor.
One need only go back a year to see how this doesn’t work. Last January, then city auditor, John Torell, issued his annual Internal Controls Report. His original executive summary had been changed from:
“…we conclude that the City’s internal controls over financial reporting, as of this report date, are minimally adequate to assure timely and accurate preparation of the City’s annual financial statements.”
to
“The City’s internal controls over financial reporting, as of this report date, have improved to permit timely and accurate preparation of the City’s annual financial statements.”
This is a textbook case of an external impairment that is to be avoided, and is discussed explicitly in the July 2007 Government Auditing Standards commonly referred to as the “Yellow Book.” Section 3.10 states in part that, “External impairments to independence occur when auditors are deterred from acting objectively and exercising professional skepticism by pressures, actual or perceived, from management and employees of the audited entity…”
I know there are those who believe that the city council appointment of the audit committee and their involvement in the selection of the auditor will somehow “mitigate” the independence issue. I disagree. Allowing the mayor to appoint the city auditor, even with the participation of the city council and audit committee, muddies the already contaminated pool of city audits.
— DONNA FRYE