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