The Garden Island columnist Walter Lewis’s article on Oct. 21, “Understanding the OCA” (Office of the County Auditor) voiced organizational issues. Mr. Lewis writes excellent articles on county operations and management. He keeps our citizens informed on potential and existing
The Garden Island columnist Walter Lewis’s article on Oct. 21, “Understanding the OCA” (Office of the County Auditor) voiced organizational issues. Mr. Lewis writes excellent articles on county operations and management. He keeps our citizens informed on potential and existing problems.
In this most recent article, he discusses a structural problem within the OCA as having no power to enforce reported findings and recommendations. Further, he promotes the need for a functioning audit committee. These issues and others require more discussion because of the importance of the OCA independence to perform quality audits and adherence to best professional practices and standards.
There are two applicable guides established by the auditing profession: 1. Generally Accepted Government Auditing Standards, published by the Government Accountability Office (GAO); and 2. International Standards for the Professional Practice of Internal Auditing, published by the Institute of Internal Auditing (IIA). Audit organizations residing within a company or agency, such as the OCA, perform internal audit functions and are encouraged to use the IIA standards in conjunction with the GAO standards.
The IIA standards define independence as the freedom from conditions that threaten the ability to carry out responsibilities in an unbiased manner. OCA meets the standards being under direction of the County Council and not under the direction of the managers being audited. What this means in practice is that to maintain independent the auditor should not become a part of the management control loop.
Simply, the management control loop can be viewed as a hierarchical triangle with planning at the top, doing or execution at the base and reviewing and measuring the activity feeding back to the top to assure a closed loop to accomplish the planned objective.
If OCA has a finding and recommendation concerning the adequacy of the management loop, the audit report goes to the senior manager responsible for the function audited. Mr. Lewis is correct that the auditor’s job is a difficult one in that he must convince management to take action. However, if the auditor was responsible to enforce the corrections required as suggested by Mr. Lewis, he becomes a part of the management loop and would no longer be unbiased and independent.
The IIA standards do require auditors to establish a follow-up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action. When the OCA concludes that management has elected to maintain a level of risk that is unacceptable, the County Council must be kept informed.
Mr. Lewis is also questioning if the Audit Committee’s lack of appointments is appropriate, and that if staffed would be supportive of the function. But as the committee is established to have five members with only one council member and four third parties, this arrangement does not comply with the IIA standards. That may be the reason the State Auditor and O‘ahu have no committee. The committee should be staffed solely by the council in that the OCA per the County Charter is solely responsible to that body. Per the IIA standards, the council can have approval authority of the plans and budgets, but there should be no interference by the council in the conduct of audits or the audit process and reporting.
The Audit Committee, as presently established by the County Charter, goes beyond approval authority and permits formulation of plans and audits. With four members at large, it could become a political football if one or all had personal agendas against management or individual mangers, or wanted to disrupt or eliminate certain county departments.
Other areas for discussion to better understand the role of the OCA is staffing the office. Mr. Lewis alluded to the original appointments. IIA standards require internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities.
The standards further require continuing professional development and establishing a quality assurance and improvement program.
Our county citizens are so fortunate to have a council with the foresight to establish a conservative approach to govern, as it is said that if you can’t measure you can’t manage. Empowered to make performance audits of the efficiency and economy of operations, effectiveness of results, compliance with laws and financial accountability, is a difficult audit plan. We must continue these discussions for an effective audit process. Moreover, applaud Mr. Lewis to continue his enlightened coverage of our county processes and encourage other citizens to publicly discuss issues as they surface in this media.
• Ron Holte is a resident of Kapa‘a, previously a supervisory auditor with GAO, and later an audit manager with a large state agency and a part-time FEMA auditor on moving to Kaua‘i. He is now a financial consultant with Quest Capital Strategies Inc. and past chairman of the Kaua‘i Republican Party.
