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Challenge to Our Organizational Independence
By Jerry Heer

Prior to the adoption of 2011 Wisconsin Act 62, the Milwaukee County Department of Audit never had a concern with organizational independence. As the only department reporting to the legislative branch—the Milwaukee County Board of Supervisors—we were not under the direction of the elected county executive or any other statutory or constitutional administrator. The director and deputy director of audits were civil service positions reporting to the county board chair for administrative purposes. The audit committee charged with receiving and acting on our reports was a standing committee of the board. Organizational independence was never something we had to think about. All of that changed in November 2011 with the passage of Act 62 (aka the Milwaukee County Comptroller Bill).
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The general purpose of the comptroller bill was to establish an elected comptroller position in place of an appointed controller. The primary duty of the new comptroller was to serve as the chief financial officer of Milwaukee County government. One of the specific duties of the new comptroller was to become the auditor for Milwaukee County. Throwing the audit function into the long list of other responsibilities of the comptroller sent up a red flag for many. Of course, it was a significant concern to me, as I had been the director of audits for 16 years at the time that Act 62 was proposed.


REASONS FOR THE PROPOSED CHANGES

The motivation behind the comptroller bill was never clear. Publicly, the stated purpose was to mirror the independence of the elected comptroller of the City of Milwaukee. The city’s comptroller had a strong reputation for good fiscal management. While the city audit office was cited in a peer review for issues of organizational independence, the matter was addressed and their audit reports reflected the overall quality of the office. At face, it made sense to attempt to emulate a well-respected city function. And it made more sense to some in light of the pension scandal that has dogged county government since 2002. However, several points cut against the arguments that we should adopt the city model. First, Milwaukee County already had a highly regarded controller, albeit not an elected one. Second, reforms that were adopted early in 2002 had given the controller authority and responsibility for pension fiscal notes. Had this policy been in effect, we would not have had the pension crisis; we have had no problems of that nature ever since the reforms.

As for the specific audit function, one motivation that has been suggested for moving audit duties away from the board is that it was part of a broader attempt to diminish the power of the board. A bill that was adopted in June 2013 gives some credence to that argument, as the legislature cut the board members’ salary in half, removed their pension and health insurance benefits, capped their budget, transferred their research staff to the comptroller, and shifted their committee staff to another elected office. The legislature also took separate action to remove board oversight of the county’s mental health facility.

The environment for state involvement in all of these local issues was, in part, driven by what many would agree was a shift in the state legislature to a more politically conservative agenda, and in the county board to a more liberal agenda. The Wisconsin governor elected in 2010 was the former Milwaukee County executive who had a number of conflicts with the county board during his eight years as executive. His administration had also been audited and investigated by county auditors during those years.


THE LEGISLATIVE PROCESS

Because of the serious concerns about the impact on our independence, I reached out to ALGA for support. Advocacy Committee Chair Craig Kinton and President Ross Tate provided a timely and powerful message on audit standards and the importance of an independent audit office. Their message arrived in time for the legislative hearing on the bill and I was able to reference it in my testimony. Although we were not able to kill the audit provisions, we were able to obtain a strange and valuable amendment to the bill.

Several legislators were interested in the Generally Accepted Government Auditing Standards referenced in Craig’s letter. So they amended the bill to include a requirement that the comptroller conduct audit work according to the Yellow Book. In effect, the bill altered our organizational independence, but it also included a requirement that we be organizationally independent. We had lost the battle to remove the audit duties from the comptroller, but we won a key provision that would hopefully allow us to move forward.


THE CAMPAIGN TO ELECT THE NEW COMPTROLLER

Act 62 required that the first Milwaukee County Comptroller election be held in the spring of 2012. The bill was published in November 2011 and nomination papers were due by the end of December 2011 for the April 2012 election. One other provision of the legislation was critical—any candidate for Milwaukee county comptroller had to be a certified public accountant or possess a master’s or Ph.D. in Accounting or Finance. With the field thus narrowed, the usual potential candidates for county offices were not in play. Ultimately only three candidates filed nomination papers. One had experience in a private school setting. He was ultimately not placed on the ballot because he had not established legal residency in the county. One had experience in a small engineering firm and had some tax preparation experience. The third was the Milwaukee County controller who had 20 years of experience with county accounting, payroll, accounts payable, and fiscal analysis. His prior work included a stint with a large CPA firm. One of his larger clients while an auditor with the CPA firm was…Milwaukee County. Much of the anxiety of Act 62 disappeared when the controller, Scott Manske, decided to run for the comptroller position. In his 20 years as controller and nine years as an external auditor, Scott had established a reputation for honesty, fairness, competence, and hard work. The public acknowledged this too, and Scott won 61 percent of their votes. And when he filed for re-election in 2016, he did not draw an opponent.


THE SOLUTION

With the election of Scott Manske, we knew we would be able to continue our work under the audit standards. He committed to keeping me on as the director of audits in charge of the new comptroller’s Audit Services Division. He also challenged us to figure out how to resolve concerns about our organizational independence. To frame our position in the context of the current 2018 Yellow Book, we were charged with transitioning from a legislative audit function defined in 3.53 b to an internal audit function using safeguards in 3.53 a-e. The language in the standards applicable in 2012 was the same. We scoured through dozens of ALGA peer reviews. We also debated the provisions of the Yellow Book among our staff and with colleagues from other offices. The result was a memorandum of understanding (MOU) between the comptroller and the director of audits.

Several key provisions of the MOU include: Prior to undertaking any project, the director of audits will consult with the comptroller to ensure that the project is addressed in a manner that protects the independence of the audit function. In those instances where there may be impairment or where the nature of the project involves services other than those traditionally provided by county auditors, the comptroller may choose to have work conducted by other Comptroller’s Office staff outside of the Audit Services Division.

The following are basic tenants of the Audit Services Division, under the Office of the Comptroller:

  1. The director of audits is accountable directly to the comptroller.
  2. The relevant county board standing committee for audit issues is charged by ordinance with reviewing audit reports and ensuring that recommendations are implemented.
  3. All audit results will be reported to both the comptroller and to the Milwaukee County Board of Supervisors. Audit reports will be public documents unless restricted by law or as allowed under auditing standards.
  4. The director of audits and staff of the Audit Services Division are located organizationally outside of the staff and line-management function of the comptroller’s Office and all other administrative functions of county government.
  5. The director of audits and staff of the Audit Services Division have unrestricted access to those charged with governance and administration of all county programs.
  6. The director of audits and the deputy director of audits are civil service employees and, as such, they are sufficiently protected from political pressures affecting any audit issues. The comptroller will not exert such political pressure and will work vigorously to deter any such pressure by others. The Audit Services Division is free to audit any function of county government.
  7. Audit reports will be prepared under the direction of, and signed by, either the director or deputy director of audits. As a professional commitment to keep the comptroller informed, and in keeping with the ultimate responsibility for audits, the comptroller will be provided with final audit reports prior to publication.
  8. The contract for the countywide audits of Milwaukee County (audit of financial statements, single audit, commentary report and other required reports) will be the sole responsibility of the Audit Services Division.


We signed the MOU after each comptroller election, and another was signed by the comptroller and current director, Jennifer Folliard, when she took over after my retirement.

We have passed two ALGA peer reviews under the terms of the MOU and have had no concerns from the review teams related to organizational independence.


LESSONS LEARNED

We never saw the audit provisions of Act 62 coming. Our office had been organizationally independent since 1974. We attempted to implement local versions of two premiere legislative post-audit offices—the U.S. Government Accountability Office and the Wisconsin Legislative Audit Bureau. We labored under the misguided belief that everyone would understand and value an independent audit function. We were wrong. And, although it worked out well so far, we recommend that audit offices take advantage of any opportunity to remind the public how important independence is to the audit mission. Highlight it in your reports, newsletters, testimony, press releases, speeches, and however else you interact with your citizens and elected officials. Don’t take your independence for granted. Guard it like your profession depends on it. Because it does depend on it.


ABOUT THE AUTHOR

Jerry Heer was the director of audits for Milwaukee County, Wisconsin from 1995 through 2017. Jerry’s prior positions included deputy director of audits, Milwaukee County, Wisconsin; audit manager, Waukesha County, Wisconsin; program analyst for the State of Wisconsin Legislative Audit Bureau and regional planner for the Wisconsin Council on Criminal Justice. He obtained a masters degree from Marquette University and his bachelor’s degree from the University of Wisconsin-Eau Claire.

Jerry is a charter member, a past president, and lifetime achievement award recipient of the Association of Local Government Auditors. Jerry was involved with the Midwestern Intergovernmental Audit Forum and served as the regional chairperson and a local government regional representative to the National Audit Forum and a member of the National Forum Executive Committee. He also served two terms as a member of the U.S. Comptroller General’s Advisory Council on Government Auditing Standards and a local government representative to the Comptroller General’s Domestic Accountability Working Group. In 2009, Jerry was awarded the David M. Walker Award for Excellence in Government Performance and Accountability.