OPINION: Annual audits should be more aggressive than they are now

When auditors — hired by cities and counties to perform annual audits on those political entities — get up before those city councils and fiscal courts to talk about the result of their work, I’ve learned to tune out what they are saying and just dig into the actual numbers.

It’s not that what they are saying is necessarily wrong; it’s just that it really isn’t very instructive.

I’ve often complained about the soft nature of these audits. They don’t really dig into the meat of what’s going on with a political entity in the way that a more thorough exam by the state auditor does.

That’s why leaders for the city of Somerset are in a fight right now with Kentucky Auditor of Public Accounts Adam Edelen over his authority to probe into their inner workings because it represents REAL scrutiny. The kind taxpayers actually probably think they are getting with regular annual audits, but they aren’t.

Somerset is all in a tizzy because they think Edelen is going to be critical of their decision to open a city-run gas station, which was indeed a dumb idea.

Here’s what’s wrong with run-of-the-mill annual audits.

For one thing, the expectations of and standards being used by auditors from these CPA firms hired by cities, counties and commissions doesn’t line up with our own.

When they say an audit is “good” or “clean” everyone immediately takes that to mean that the entity being audited is on good financial footing. Everything is A OK!

Not so.

To use analogies, the financial ship can be on stormy seas and on the verge of crashing into rocks, but still get a passing grade from auditors!

Why?

Because they aren’t necessarily looking to see if a city or county is on a sustainable financial course or is spending money wisely. Instead, they just are looking to see that things are properly documented according to current accounting standards. As long as no one is literally seen carting off a wheelbarrow of money from the public coffers, it’s all good. End of story.

That narrow focus confuses people. They hear or see officials and auditors in news stories saying things are “good” and just take that at face value. This is the problem we’ve encountered with the city of Corbin’s audits in recent years. At the News Journal, we’ve gone beyond the words and did the work of plowing into the undeniable numbers to give you a true picture of what is going on. Our competitor hasn’t bothered to scratch the surface, which has led to unnecessary confusion.

The second problem is that auditors have every incentive to try to please the officials that hired them to do the audit.

These audit contracts are valuable. They don’t want to lose them. If they give opinions or candid financial advice, particularly in public, that seem the least bit critical … well … you can bet your bottom dollar another firm will be getting the audit contract the next year.

That’s too bad.

Candor and facing the truth should be encouraged, not discouraged.

I actually spoke to Edelen about this problem when he visited Corbin some time back, and he acknowledged what I’d always suspected. These audits are too weak. The relationships too cozy. He suggested that he might introduce legislation that would require auditing services be put up for bid regularly, or require a change in firms every so many years. I think it would be best, maybe, if firms outside the area with no ties to those who hire them be sought out as well.

What we are getting right now, I believe, just doesn’t cut the mustard.