Audit Function in Bexley City Government – Best Practices?
By the Most Sensitive Man in Bexley, Simon Doer
RECENT AUDIT LORE IN BEXLEY.An August 28, 2009 news article by Dean Narciso for The Columbus Dispatch reported that “among the notable candidates to be bumped” in the removal by the Franklin County Board of Elections of “26 candidates from the Nov. 3 general election for failing to properly fill out paperwork or gather enough signatures” was “Bexley Auditor Larry A. Heiser, who didn't complete circulator statements as required by law. Heiser was running unopposed for his second term.”
While simply an introduction to the fact that Bexley has an auditor, that event (without in any way reflecting on the audit services provided by Mr. Heiser or his most recent predecessors, Gary Qualmann and Richard Al Levin) may also suggest an opportunity to examine best practices in city government related to proper auditing oversight.
THE RISE OF THE AUDIT COMMITTEE IN THE PRIVATE SECTOR.
In the private sector a crisis in corporate governance led to Sarbanes Oxley legislation and requirements that public companies focus on establishing Audit Committees on corporate boards of directors to ensure proper oversight.
In 2002 Congress enacted the Sarbanes-Oxley Act in response to allegations of corporate ethics issues, problems with financial statements and business failures. A focus of the Act known as Section 404 requires management to acknowledge, establish and maintain adequate internal controls. The auditor and senior management must separately and respectively attest or assert in writing that the controls are effective.
MUNICIPALITIES MIMIC BUSINESS AND ESTABLISH AUDIT COMMITTEES.Similarly the governance of many cities has required Audit Committees for proper oversight. For example, the City of Cleveland in 2000 established an Audit Committee composed of seven (7) members as a requirement of Chapter 154 of its Administrative Code:
The City Audit Committee members consist of the following:
“the Mayor, or his designee; the President of Council, or the Chairman of the Finance Committee as his designee; the Director of Law; one member appointed by the Mayor; and two members appointed by the President of Council. The final member, who shall serve as Chair of the City Audit Committee, shall be chosen jointly by the Mayor and Council President, shall have at least ten years experience in auditing or financial accounting, including some experience in governmental finance or auditing, and shall have no financial or contractual interest with the City of Cleveland in accordance with the ethics provisions of the Ohio Revised Code. In addition, the Chair shall not have had any duties pertaining to the audit of the City of Cleveland for at least five years prior to his appointment.”
The stated purpose of the Audit Committee in Cleveland “is to serve as the focal point for communication between the legislative and executive branches of the City of Cleveland, the independent auditor retained by the City, the Department of Finance, and the Division of Internal Auditing as their duties relate to financial accounting, reporting, internal controls, and compliance with applicable laws and regulations. The City Audit Committee is to assist the staff and employees of the City in fulfilling its responsibilities as to accounting policies and reporting practices of the City of Cleveland and sufficiency of auditing relative thereto. The City Audit Committee shall be the principal agent in ensuring the independence of independent auditors, the integrity of management and the adequacy of disclosures to the public.”
STATE AUDITOR ENDORSES AUDIT COMMITTEE.
In the Winter of 2006 then Auditor of State, Betty Montgomery, in the Ohio State Auditor’s Best Practices publication endorsed audit committees by city councils:
“Audit Committees – Governments should establish audit committees to oversee internal and external audit functions.”
The article continued:
“The National Committee on Fraudulent Financial Reporting (i.e., The Treadway Commission) has stated that audit committees can serve as “informed, vigilant and effective overseers of the…reporting and internal controls process.” To be an effective independent overseer, the audit committee must be positioned between senior management and the external auditors. The audit committee should serve as a liaison between management and independent auditors. Although the committee could include officials from the entity, it is preferable that the committee include representation that is independent from elected officials and management. Thus, such committees provide an independent perspective on an organization’s control environment, which greatly bolsters an organization’s ability to mitigate fraud even at the highest organizational levels.”
(As further stated in the Ohio State Auditor’s Best Practices publication: “For an extensive discussion on audit committees, please see the Spring 2005 issue of Best Practices at www.auditor.state.oh.us/Publications/. Additionally, by visiting the AOS website, governments can access a toolkit developed by the American Institute of Certified Public Accountants (AIC-PA) that is designed to help government audit committees operate as efficiently and effectively
as possible.”)
PRECEDENT BY BEXLEY’S SISTER CITY.Even Bexley’s sister city, Bexley in England has an Internal Audit Committee. It has been active. A September 11, 2009 Bexley Times article reported that Audit Committee exonerated former Bexley Council leader, Ian Clement, on August 10 in connection with his use of a council credit card when he agreed to pay back charges he claimed on that card (however, continues to face other charges under the British Fraud Act related to credit card use).
SHOULD BEXLEY ESTABLISH AN AUDIT COMMITTEE?Just as Sarbanes-Oxley was intended to increase investor confidence, hold corporate leaders accountable and focus on effective financial controls, it may suggest that public confidence in city government can be similarly addressed by the Bexley City Council seriously considering and establishing an Audit Committee to oversee internal and external audit functions. An advantage may also be the engagement of properly qualified residents to serve on the audit committee as active citizen participation in that aspect of oversight of city governance.
That is one sensitive man’s opinion. What is yours?
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