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Opportunities for Improvement: Independence and Worldly Attachments
By Gary Blackmer

Independence is not always simple to determine because some threats are hypothetical (appearance to others), or a situation may occur somewhere on a continuum with no obvious line of acceptable and unacceptable independence. When we discuss Government Auditing Standards we like to talk about unambiguous situations (e.g., accepting gifts from auditees) but it’s unusual to encounter them.
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I’ve encountered threats in several categories over the years: appearance, external, self-interest, or familiarity threats. Some were easy decisions; an auditor who applied for a job with the agency being audited — removed from the audit; an agency’s absolute refusal to provide data — reported as a scope limit in the report; an auditor’s cousin working in the audited agency — not assigned to the audit.

Elected and legislative auditors have somewhat stronger assurance of independence, though threats can still occur. Local government audit offices are dependent upon their government’s support services like information technology, personnel, and finance, all of which they also audit. While never acknowledging it, one of those departments could retaliate for a negative audit with poor service on a software upgrade, or a slow hiring process, or sloppy design of a custom financial report. An auditor who berates an agency for dragging its feet about assistance could also create the appearance that a subsequent audit was “punishment.” Mary Hull Caballero recently took steps to allow her office greater independence from these situations, but it required that Portland voters approve a change to the city charter.

We have no softer terms for something short of “threat.” I think “bias” is too strong for some of the situations that local government auditors encounter. Auditors regularly see the people they’ve audited during the day-to-day business of government, unlike many federal or state auditors who move on to other programs or departments. This can be good when an auditor gets informal progress reports about agency actions on previous recommendations. It can also educate an auditor to hear that a recommendation was infeasible. Sometimes an agency director will even compliment the auditor. These are practical, common attachments that develop in our working world.

I think the word “detached” is a more meaningful way to describe independence. It encompasses the idea that your considerations of the audit are separate from your personal circumstances. Beyond all the worldly associations we make, this is also a state of mind. We understand detachment through examples such as in “blind justice” or religious ascetics. We also know from news and history that many people fail in their efforts to be completely detached from temptations or prejudice. We hear about the most serious failings and their consequences, but there are less serious diminishments of independence as well. We seldom discuss those lesser attachments that could encumber an auditor.

When I see a report I often wonder where an organization, an auditor, or even an audit would be placed on the continuum of detachment. The bad end of the continuum fails to meet audit standards. The other extreme — complete detachment, which is the ideal — is talked about less in the standards than the threats. The standards are mostly about “must nots” as opposed to “shoulds,” and the "should"s are really buried in the language, or discussed many pages earlier in the introduction. Here are some "should"s that can be found in the independence section:

3.47 A threat to independence is not at an acceptable level if it either

a. could affect the auditors’ ability to conduct an engagement without being affected by influences that compromise professional judgment or

b. could expose the auditors or audit organization to circumstances that would cause a reasonable and informed third party to conclude that the integrity, objectivity, or professional skepticism of the audit organization, or an auditor, had been compromised.

The most detached auditors freely exercise professional judgment, integrity, objectivity, and professional skepticism. I think we should always be aware of these aspirational goals because they are more universal than the many rules that we must write to capture all the prohibitions and threats. Also, the continuum of independence has a large range of situations between violating those rules at one end and being totally detached at the other. In some ways, we can never be totally detached from the world around us, but we can strive for that frame of mind, beyond adequate auditing to better auditing.

In our careers we’ve probably seen reports by consultants or program staff that strained credibility, when we might have questioned their competence, or their independence. The reports might misrepresent facts, rely upon adjectives to exaggerate or disparage a situation, apply false logical arguments, provide recommendations that the agency wants to hear, or offer any number of other signs that the conclusions may not be entirely based upon professional judgment, integrity, and objectivity.

Years ago, as our contract financial auditors were presenting their results to our audit committee, one of the senior partners joined in by speaker phone. He noted they were completing the final year of their three-year contract and then he said, “Was there anything in this audit that would adversely affect our chances of being selected for another contract?” The wording of his question could be interpreted several ways; some innocent, some lacking in integrity. I think it was carefully worded to mean them all. Contract auditors are dependent upon the next contracts to sustain their cash flow. It’s understandable and I sympathize with them, but it does not show detachment.

Independence or detachment is a state of mind that insulates our professional judgment from our worldly needs. Maslow proposed a hierarchy of needs, starting from the most basic like food and shelter. The next important need is safety, followed by being loved and belonging, then self-esteem, and finally personal actualization.

Which of Maslow’s needs are more important than your professional judgment, integrity, objectivity and professional skepticism? Which can you most easily detach from? Let’s start with the basics. There are plenty of examples where people do shady, illegal things when they are desperate for food or shelter. We can understand the temptation for a young auditor with a newly purchased house whose employer makes her decide between professional standards and a paycheck. Detachment would mean losing the house. We would certainly understand an inappropriate compromise, but also expect her to begin a quiet search for a better employer. And we would certainly understand compromise for her own safety if a brick with a threatening note were thrown through that house window because of her audit efforts. The first two rungs of Maslow’s hierarchy are important enough that we can rationalize departures from auditing standards, however unlikely they are.

The next, being loved and belonging, is perilous. Of course, we can joke about auditors never getting love, or being “the skunk at the picnic,” but we can’t deny Maslow’s insight that these are human needs. The intimate familial connections, the close friends, and the more expansive organizational networks offer support, and help define us.

Independence standards categorize this as a “familiarity threat” and true detachment would require a one-person local government auditor to commit to the self-imposed life of a hermit. People in the organization might simply ostracize the auditor, making detachment easier but work life more difficult. Audits that leverage change are discomfiting, and the effective auditor could be shunned. The enticements for auditors are common: collaborative associations with department personnel, “membership” in the government’s identity, and a shared sense of trust. In these ways some auditors choose to be slightly complicit rather than to be an outcast. (Incidentally, I quickly learned that the annual ALGA conferences are a great cure for the loneliness of auditors.)

Professionals who describe themselves as internal auditors may select topics important to the organization, and report their results objectively. But I’ve also encountered internal auditors who seem to curtail their role and audits to safe topics about back office procedures. I’ve also sent our auditors into those organizations who proceeded to find much more serious problems. The internal auditors meet the structural independence tests with the ability to report problems directly to an audit committee, but they also answer to the chief executive or treasurer who may influence their states of mind. And I’ve also urged a government internal auditor to submit their audit abstracts to ALGA but they responded that the reports weren’t intended for the public. While it may not be overt, there could be undue influence affecting their audit decisions. I can surmise that these auditors serve a purpose, and define their client as the organization in which they belong, though the accountability interests may not completely align with the public’s interests.

It is one thing to be friendly, and another to be friends. Local government auditors and internal auditors are especially challenged by this need and must work to avoid the temptation.

So we have Maslow’s final rung to consider, self-actualization, which to me is the most interesting. This need encompasses both inward-looking and external aspects of fulfillment. We seek opportunities for personal, professional development and advancement, but just as importantly, we want to make a difference for others, and in the world. These are noteworthy goals, but not critical needs. As such, we are less expectant that every day and every audit will fulfill our self-actualization needs. Even so, there may be situations when the independence of our audit reports is affected by this need. Not to the point of violating standards, but letting those needs influence decisions about our audits, often without any outward indications. Because detachment is a state of mind, we may never know an auditor’s intentions in these gray areas. For professional development reasons, an auditor might seek out a potential topic because he wants to apply a newly-learned software skill, while avoiding other more critical audit areas. An auditor may believe that a hard-hitting audit will earn a promotion, with self-interest affecting his independence. These self-interest threats are misplaced priorities and worrisome because they are difficult to detect.

I am most intrigued by self-actualization because it also recognizes a need that many auditors have — making a difference in the world. There is no independence standard threatened by this need. It is a need I hope we all embrace as auditors.

So, one final question: Is it possible to be too independent? I could argue that an audit with slightly diluted independence can sometimes produce better results than pure independence would. My rationale in all these examples was to achieve better audit results, part of the self-actualization need.

I’ve written before about using the minimum force necessary to get an agency to agree to implement recommendations, after you have appraised the agency’s attitude during the audit. Auditors have many options for exerting force, from the force of reason in the audit report to the stronger impacts of visits to editorial boards. We should apply this range in the same way that a court approaches sentencing after finding someone guilty of a crime. We recognize that the punishment is dependent upon various considerations such as the convicted person’s remorse or criminal history. By that principle, using the same harsh tone for every audit, whether the agency defies the audit or willingly accepts it, offers no incentive for it to cooperate or seek future audits as a strategy for improvement. The audit relationship with the agency during the audit process can affect tone and balance, though it should never alter the findings.

“Auditors should use professional judgment when applying the conceptual framework,” the standards say, and we have bargained away some independence for a greater good. One can point out that the standards about objectivity also apply in these examples, and indeed questions of objectivity arise when independence is compromised.

Complete independence can also be an impediment if you are introducing broader scope audits to your government. I discourage newly empowered auditors from an early audit that tackles controversial or complex topics because they first need to establish public credibility and build competence in the office on easier topics.

It is most prudent to push as much change with an audit that the agency can implement, and plan to return later for the other topics. You may find many deficiencies in an agency that is struggling to achieve its mission. Handing a director 60 recommendations is overwhelming, especially if they are already struggling with day-to-day responsibilities. Instead, audit the topic that can leverage the best outcome for the public and also develop a longer-term plan of staged audits to improve agency management practices.

Detachment may make audits less persuasive. Years ago I hired a trainer who gave us the Meyers-Briggs test. We auditors all fell in close to the INTJ category. The trainer read the characteristics of that category and we nodded. Then she read another category’s description and we all groaned; “social services people.” She pointed out that they were the opposite of us. She said they didn’t engage with our audits because they cared about people more than data, that their decisions had an emotional tie, and so forth. Years later we were auditing a social service agency and found extremely high client costs compared to similar agencies elsewhere, and a large waiting list of needy clients. These were dollars restricted for that purpose that couldn’t be reallocated. Rather than highlight wasted money and emphasize cost savings, we defined the effect as all the unmet needs of people on their waiting list. We altered the effect element of the finding, personalizing it, to be much more persuasive.
  
In the ideal world, independence means total detachment from anything that could adversely affect an auditor’s professional judgment, integrity, objectivity, and professional skepticism. We can aspire to that ideal, but we should also consider small adaptations for the practical realities we face as auditors. There is room for us to be more effective by adapting to some of the unavoidable worldly attachments, without violating our auditing standards.


ABOUT THE AUTHOR

Gary Blackmer has been conducting audits for 30 years and recently retired from his position as Director of the Oregon Audits Division. The Division conducts performance, financial, and information technology audits, monitors financial audits of local governments, and responds to hotline allegations. Previously, Blackmer served 10 years as the elected Portland City Auditor, eight years as elected Multnomah County Auditor, a management auditor, and analyst for a variety of state and local agencies. Blackmer is a past-Chair of the Pacific Northwest Intergovernmental Audit Forum, and past-President of the Association of Local Government Auditors. He received the ALGA Lifetime Achievement Award in 2015.