Why Bureau of Audits should be strengthened, not abolished
Operation Clean Government strongly opposes Governor Chafee’s proposal to abolish Rhode Island’s Bureau of Audits. We join with other responsible individuals (such as the president of the Rhode Island Society of CPAs and former state auditor general Ernest Almonte) in decrying this latest attempt to eliminate a watchdog function at a time when Rhode Islander taxpayers need it most.
Coming on the heels of the General Assembly’s ongoing refusal to allow voters to decide whether or not state legislators should be subject to the state’s Code of Ethics, this proposal from the executive branch will further weaken our ability to detect fraud or misappropriation of funds by state agencies and employees.
Early this year, Director of Administration Richard Licht told the head of the audit bureau, Chris Der Vartanian, that his agency was being defunded, and that the 10 staff members might be transferred to a new department called the Office of Management and Budget (OMB), which would perform some of the audit bureau’s functions.
When Mr. Der Vartanian, a 21-year state employee, was unable to get a hearing on this decision, or even an opportunity to discuss this decision directly with Governor Chafee, he resigned his post in protest.
According to the Chafee administration, the purported reason for abolishing the Bureau of Audits is to save $1.5 million. This makes no sense. According to Der Vartanian, the entire annual budget for the Bureau of Audits is now about $1.2 million, of which well over 90 percent is in personnel costs.
However, Director Licht promised the Bureau’s staff that each of them would be provided a job in state government. Add in the new positions that will be needed to deploy the new OMB, and it is difficult for us to understand where the savings of $1.5 million comes in.
This is the type of creative bookkeeping we can expect from a state soon to be without an independent auditor.
Perhaps more important is the opportunity cost. Just one audit review of the RI Resource and Recovery Corporation (state landfill) resulted in a net recovery of more than $9 million for the state. In other words, the Bureau of Audits pays for itself many times over.
Mr. Licht’s plan appears to be modeled after states such as Massachusetts and Maryland. However, both of those states have an independent auditor general performing the internal audit function. This protection of the public would not exist under the Rhode Island plan.
The non-partisan Center for Public Integrity, in cooperation with Global Integrity and Public Radio international, conducted a State Integrity Investigation survey of all 50 states, and gave each a Corruption Risk Report Card. Partly due to a B+ grade for Internal Auditing, Rhode Island ranked ninth best of all 50 states, attaining an overall grade of C. (See www.stateintegrity.org/rhode_island).
However, Global Integrity has indicated this rating would drop to a D if the Bureau of Audits were to be eliminated, and Rhode Island’s rank would plummet from 9th to 33rd.
On March 22, this newspaper reported on the governor’s plan (“CPAs have issues with plan to eliminate Bureau of Audits”). In response to this and other editorials and letters to the editor, Director Licht rationalized the creation of a new agency by saying that "budgeting has become an accounting exercise." Licht expects the new OMB director to "set priorities for the state."
Set priorities for the state? We contend that should be the governor’s job, not the responsibility of some un-elected budget officer buried within the department of administration.
Licht concluded that this reorganization would provide more transparency and accountability in state government. Operation Clean Government believes the opposite is likely to happen if this unwise Chafee/Licht proposal is allowed to move forward.
The redirected focus of this new OMB would be on performance audits i.e., measuring how well an agency is performing against its objectives. This has little to do with waste or fraud. An agency or department might be quite successful in meeting its goals, and still be rife with corruption.
Currently, the professionally qualified staff members of the Bureau of Audits perform internal audits, evaluating risk and assessing the internal controls of state agencies of the quasi-public corporations (such as the Economic Development Corporation and the Rhode Island Airport Corporation). These assessments could result in the detection of fraud or misappropriation of funds.
That capability could disappear if this proposal goes through.
Finally, the governor’s office stated this week that the newly formed OMB would perform more audits, albeit without professional auditors. To suggest that audit function can be improved by hiring individuals without the proper experience and credentials is absurd, Der Vartanian concludes.
At the Bureau of Audits, Der Vartanian supervised a staff of 10 people, who were responsible for monitoring a $7.5 billion budget, and overseeing the financial performance of 150 departments, agencies, quasi-agencies and programs. In addition, they were responsible for oversight of certain types of federal grants, vendor reviews, inventory testing, internal control assessments, ethics and fraud training and other functions too numerous to list here.
In conclusion, Operation Clean Government opposes the elimination of the Bureau of Audits and the creation of this new OMB bureaucracy within the executive branch. In fact, we believe the Bureau of Audits should be strengthened, and should be removed from the control of the Department of Administration.
The accounting profession has long held that independence is the linchpin of an audit function, whether external or internal. The American Institute of CPAs writes, “Independence is fundamental to the reliability of auditors’ reports. These reports would not be credible if auditors were not independent in both fact and appearance.”
The current Bureau of Audits reports to the Director of Administration, as would the proposed OMB. This structure brings the independence of this internal audit function into question, because once again the fox is watching the henhouse.
Operation Clean Government supports the creation of an independent committee to which the Bureau of Audits would report, following the model of states such as Ohio and Oregon and a bill recently introduced in the State Senate (S2924).
Only in this way can the independence of the state internal audit function and accountability and transparency in government operations be protected
Margaret Kane is president of Operation Clean Government. Richard J. August is a director of Operation Clean Government and former chairman of the North Kingstown Audit Committee.