Monday, June 20, 2011

Does Richardson Need An Independent Auditor?

Does the City of Richardson need an independent auditor? I'm sure some readers are already saying, "D'oh, yes." But bear with me as I think out loud. The answer is not self-evident to me.

After the jump, some pros and cons.

Recently, I commented on the practice of conducting audits by the City of Richardson. I said the auditing firm of KPMG checks that the city's books follow standard accounting practices. They do not express judgment on the wisdom of city expenditures. They do not attempt to root out petty fraud.

This led reader Jeff Littlejohn to tweet: "Strange that Richardson does not have a single internal auditor, whereas neighboring burbs have whole IA depts."

I don't know how Garland, Plano, Carrollton, Allen, etc., all are organized, but in the City of Richardson, there is a Finance Department but no independent internal audit department. The City Manager assigns responsibility for internal audits to city staff or contracted professional services.

If you don't trust the City Manager, then you might see this practice as similar to having the fox guard the hen house. Creating a position of auditor reporting directly to the City Council would provide a more independent check on the City Manager. From a checks and balances perspective, that could prove useful. But there are limitations and even downsides to this idea.

A new position of auditor reporting to the City Council would be a check on the City Manager, but not on the City Council. If it's the City Council itself that you don't trust, then you might suspect any auditor hired by the City Council to be part of a grand conspiracy along with the City Manager. This question of independence is very difficult to overcome in practice.

There's a cost issue as well. An independent auditor would be another position with added cost. Given that perceived excessive spending is partly what's driving all this in the first place, spending even more money is hardly likely to be seen as a solution.

Adding checks and balances also adds opportunities for new divisions to arise inside city government. It's not hard to imagine the City Auditor and the City Manager butting heads, each trying to bend the ear of the City Council. Internal disputes can lead to a reduction in transparency, the opposite of what the city's critics want to achieve and not in the public interest.

Because of all this, I can understand why a City Council that believes city government is well run already, a City Council with a good working relationship with the City Manager, a City Council trying to be good stewards of the taxpayers' money, would see the costs and risks of creating an internal audit department outweighing the benefits. Without the City Council believing there's a problem to fix, I can understand why the City Council is not eager to go down this route.

I can also understand why a different City Council, one with an adversarial attitude to the City Manager, might have come to a different conclusion. That's what elections are for, I guess.

1 comment:

Nathan Morgan said...

The question of the need/desire for arm's length, independent audits is best answered by disinterested parties. Those having an interest in the outcome of such examinations have the highest propensity to fudge the process. As to whether we can trust the actions of our City Manager, anybody can be trusted to do what they are known to do. You can trust they will probably do the same as they usually do. I will leave it to your judgement as to what our City Manager normally does when backed into a corner. You can trust those inclined to portray utopia and having an interest in the outcome of such examinations will do whatever is necessary to paint the best picture, emphasizing the good and trivializing, or even obfuscating the not so good. Thus, the need for true independence, when not only doing the math to make sure the numbers add up, but especially when evaluating the prudence with which every public penny is spent. Reliable accountability cannot be achieved by those having an interest in the outcome of the report. That is why the laws call for real independence when it comes to examining the spending of public resources, which is something Richardson has never experienced. An inside job is not sufficient. Doing the math and concluding the numbers add up is a much different question than was the money specifically spent on the items lined out in the adopted budget presented to the citizens.