How Impactful Audits Can Help Make Local Government Work For Everyone
By Mark Funkhouser
At the invitation of Maura Hayes-Chaffe, New York City’s deputy comptroller for audits, I spoke last week with the comptroller office’s audit staff. My core message was that as cities face the challenges of the day, auditors are responsible for holding government accountable and also for managing those challenges efficiently, effectively, and equitably.
In this era of extreme polarization, it might feel that important audit work gets drowned out by the much louder noise generated by political posturing and partisan gamesmanship. But it’s exactly this environment that makes the role of the auditor so vital. For auditors to be effective, we need them to embrace their role of improving government outcomes and making democracy work. They can do that through meaningful, impactful audits that make a difference in people’s lives.
Looking back on my years as a state auditor, a city auditor and then as mayor of Kansas City, there are three elements that I think are crucial to auditing for impact:
- Selecting the right audits – those that take on the most important issues
- Targeting audits at the purpose of the program or function being audited
- Writing with authority
The biggest risk is not taking a risk
Auditors tend to look at risk in terms of not making a mistake. But many ignore a potentially bigger risk: audits that shy away from thorny issues.
I learned this lesson the hard way. Early in my career as a state auditor, I was tasked with auditing the Tennessee Department of Banking. One of the department’s core functions was bank examinations, but when I began the audit I was chased away by the department’s lawyer, who claimed that that type of sensitive information was off-limits.
So instead I looked at other things like the banks’ claims process and whether employees were getting the required continuing education. Just days after I released that audit, the Butcher brothers’ banking empire — which controlled some 40 banks in Tennessee — collapsed.
Dozens of banks went under and I was hauled before the legislature and yelled at, and rightly so. Bank examinations were central to the functioning of the department, and the millions of dollars at stake were certainly material enough to warrant examination. I should not have changed the focus of the audit without being legally compelled to. As it turned out, even cursory audit work would have discovered key weaknesses, which the Federal Deposit Insurance Corporation and the FBI later found in their investigations. This experience shaped the way in which I did audit planning afterward.
In planning an audit, consider these three factors when examining the purpose of a government department — the reason for its existence and its mission:
Centrality: What is at the core of their work?
Materiality: What do they do that impacts a lot of people and a lot of money?
Sensitivity: What would the public care about?
Audit organizations have limited resources, so to maximize their impact they need to pick big targets. For example, Atlanta City Auditor Amanda Noble’s office has enough resources for only about a dozen audits each year for a city government that handles billions of dollars annually. In 2017, if she had decided to stick to her original airport-contracts audit plan even after learning of a federal bribery investigation into City Hall procurement, she wouldn’t have expanded it to discover red flags for roughly $1 billion in contracts. That audit and investigation led to federal corruption convictions and an overhaul of city procurement.
Investigate the use of both money and power
One way to increase the chances that an audit will be relevant is to consider all the resources of the auditee — that is, the money and the power they are given.
Traditionally we have focused too narrowly on the money, looking only at efficiency and effectiveness and not enough at the power factor. But public agencies are given both money and power to do their jobs. Therefore, auditors are responsible for considering not just how an organization spends taxpayer resources but also how it uses its authority.
Investigating how agencies wield power brings equity to the forefront of the audit work, and focusing on equity is a good way to increase the relevance of audits. There’s precedent: The federal Government Accountability Office, which sets the standards for the government auditing profession, recently added equity to its list of audit considerations.
Misuse or abuse of power is every bit as detrimental to people and their trust in government as misallocation of tax dollars. Therefore, auditors are responsible for both using the criteria presented and understanding how those criteria play out in reality. Racial inequities identified in audits of the Seattle probation system and how well Long Beach, California’s library system was serving the city’s ethnically and socioeconomically diverse communities prompted meaningful changes.
Putting an equity lens on the criteria developed for your audit starts with asking the question, “Good for whom?” The costs of services, the way services are delivered, and the powers of coercion of government agencies, including but not only in the area of public safety, are experienced differently by different communities within a city.
Spend your words wisely
Auditors know their work has to be irrefutable, and in response they tend to pile on the evidence. But in doing so they can undermine their own work by burying the most important points.
Retired Portland City Auditor Gary Blackmer notes that auditors must balance the strength of evidence with the significance of the conclusions and the risk of error. Things like background information, results that conform to expectations or banal political context — these are all known quantities that don’t need a lot of evidence. Instead, auditors should devote more time and energy in their reports to discoveries like major agency malfunctions, surprise findings and controversial political context. As journalists put it, don’t bury the lede.
Be direct about who did what and what the implications or consequences are. In my audits, I learned to use the active voice, which replaces the stale “regular maintenance on the Broadway Bridge needs to be improved” with the more damning “the public works department’s failure to maintain the Broadway Bridge has led to the risk of collapsing.”
My advice comes with a warning: Auditors who follow it will face significant headwinds. That’s as it should be. Unlike elected officials, auditors hold a unique position in government in that ideally they are truly independent protectors of the public interest. When the people who run government make decisions based on their own or other special interests, auditors are intended to be a powerful institutional asset to restore trust by not just exposing problems but in demanding accountability and holding their government counterparts responsible for making things right.
It’s inevitable that impactful audits will ruffle feathers. But while conflict comes with the territory, auditing for impact, if done well, will have the positive effect of getting government leaders and agencies to row in the same direction: toward serving the interests of their communities.