Originally posted at the California Special Districts Association.
The word “audit” can strike fear in some – personally and professionally. But State Auditor Elaine Howle doesn’t believe it has to be that way. As the State’s independent external auditor, the California State Auditor’s office provides nonpartisan, accurate, and timely assessments of California governments’ financial and operational activities in compliance with generally accepted government auditing standards. Its efforts work to improve government in California by assuring the performance, accountability, and transparency that its citizens call for. It holds performance audits, financial and compliance audits, and investigations to ensure governments are operating effectively with efficiency.
Elaine Howle has served as State Auditor since 2000. In that time, the State Auditor’s office has worked extensively with government at all levels, and Auditor Howle believes the audit process can be a collaborative one that benefits the State of California, its residents, and local agencies themselves. California Special District asked the Auditor to explain the responsibilities of her office, tell us about the High Risk Local Government Agency Audit Program, and advise special districts as to what they could expect in event of an audit.
What are your duties as California’s State Auditor?
As the independent external auditor, it is my duty to serve the State of California by providing accurate, unbiased, and timely assessments of state and local government entities. The work from my office serves an important role in the State’s system of checks and balances by examining the fiscal health and performance of state and local entities to ensure that government provides the essential services to the public in the most efficient and effective manner. We report our findings to the Legislature and decision makers, recommending actions that lead to improvement of government operations, saving the state and taxpayers millions of dollars.
I am frequently called upon to provide testimony in legislative hearings and to brief members on the results of my office’s work. Our performance audits provide information to improve public accountability and facilitate decision making by parties with responsibility for overseeing or initiating corrective action. Our office conducts the annual financial audit of California’s large, complex financial system and provides an opinion on the financial statements. The office also annually audits the State’s compliance with federal regulations governing the administration of billions of dollars in federal funds California receives each year. Moreover, the office investigates received allegations and reports substantiated claims of fraud and abuse in state government. Further, the office audits and reports on state agencies that it has identified as being at high risk for waste, fraud, abuse, and mismanagement or that have major challenges related to efficiency or effectiveness.
More recently, legislation permits my office to establish and develop a High Risk Local Government Agency Audit Program for the purpose of identifying, auditing, and issuing reports on any local government agency, including a city, county, special district, or other publicly created entity, that the State Auditor identifies as being at high risk for the potential of waste, fraud, abuse, and mismanagement or that has major challenges associated with its economy, efficiency, or effectiveness. Regulations for this program became effective July 1, 2015.
[divider] [/divider]
What should special districts specifically be aware of in regard to the work of your office? What are some examples of interactions your office has with special districts?
We’ve conducted audits over 40 years and are required to conduct all our work in compliance with appropriate professional standards—in particular, the Government Auditing Standards issued by the U.S. Comptroller General. Those standards require us to conduct all our work independently and in an unbiased manner. They also drive how we plan and perform our work and how we report conclusions. As such, my staff conduct their reviews in a nonpartisan manner, free from outside influence, including that of the Legislature, governor, any elected officials, and the subjects of our audits and investigations. We base findings, conclusions, and recommendations upon reliable evidence and will not allow preconceived notions or personal opinions to influence our work. We strictly adhere to the standards of the auditing profession and exercise the highest standards of ethics.
Our performance audits provide information to improve public accountability and facilitate decision making by parties with responsibility for overseeing or initiating corrective action.
Because our office has authority to audit any publicly created entity, my office has over the years conducted numerous audits at the local level such as auditing the performance of cities, counties, school districts, water districts, and other special districts. This experience, along with our broad state-level knowledge and involvement with national organizations that allows for sharing of ideas, places our office in a unique position to assist local governments—in an objective and fair manner—in striving for efficiency and effectiveness in delivering goods and services.
[divider] [/divider]
Since you were appointed as State Auditor in 2000, what have been some of your office’s biggest challenges? Successes?
One of the biggest challenges and biggest successes was implementing the Voters’ First Initiative. In 2008, California voters approved the Voters FIRST Act, which essentially transferred the responsibility of redrawing district lines after the census (redistricting) from the Legislature to a 14-member independent Citizens Redistricting Commission. The initiative called for five of the members of the commission to be from each of the two largest parties (i.e., five Republicans and five Democrats) and the other four to be either decline-to-state or come from one of the other parties. The application process for the commission was to commence by January 1, 2010, and the commission to be fully formed by December 31, 2010.
We had a lot of work to do in a very short time period and on a shoestring budget. We had to develop regulations and solicit input from the public for selecting the commission; educate the public about redistricting to generate interest; develop and maintain an application process; reach out to all Californians so as to afford all qualified individuals the opportunity to serve on the commission; work with the press and media to get our message out; engage in a grassroots campaign to promote the commission (working with interested groups to help spread the word, developing media campaigns, speaking at meetings/forums/conferences, etc); conduct workshops to assist individuals in the application process; create an applicant selection panel to review all applications and conduct interviews; hold and make available public meetings for selecting the commission; and assist the first commissioners in the selection process to fully form the commission.
All of this while being in the public eye and constantly scrutinized by the press, interest groups, political figures, and the public. We had many who thought it couldn’t be done and many who made it more challenging. We decided to be as transparent as possible. We created a website (wedrawthelines.ca.gov) and installed a dedicated phone line for carrying out our responsibilities. Everything was posted to the website—the timelines, entire plan, informational materials, regulations, and all comments we received—the good, bad, and ugly. The entire application process and just about everything in the applications were also available online. All public meetings were streamed live online and videos and transcripts were made available on the website.
It was quite a bit of work but we established California’s first Citizens Redistricting Commission before December 31, 2010. Some of our most vocal critics became our biggest supporters, and those who said it couldn’t be done commended us.
[divider] [/divider]
Explain the High Risk Local Government Agency Audit Program. What are the goals of the program? How does it work?
Legislation, which went into effect in January 2012, permits the California State Auditor to develop (as described earlier) a High Risk Local Government Agency Audit Program for the purpose of identifying, auditing, and issuing reports on any local government agency, including a city, county, special district, or other publicly created entity, that the State Auditor identifies as being at high risk for waste, fraud, abuse, and mismanagement or as having major challenges associated with its economy, efficiency, or effectiveness. However, any audit that the State Auditor wishes to perform under this authority must be authorized by the Legislature’s Joint Legislative Audit Committee before it may move forward.
Our office embarked on establishing regulations to roll out the program last year and those regulations went into effect on July 1, 2015.
[divider] [/divider]
What benefits do you hope to see come from the program?
The overall goal of the program is to promote effective and efficient local government while recognizing and respecting the unique status of local governments in California and their relationship to the State. The Legislature, in creating the program, hoped to use the expertise and experience of my office to identify a local government agency that is at high risk so that we could inform the audit committee, and conduct an audit of a high risk local government agency upon the audit committee’s approval. What we hope to see come from the program is to be able to do the following:
- To assist in preventing fiscal distress to promote local government health, my office will identify local governments that are potentially at high risk and that will encourage local government agencies to take effective preventative measures to avoid fiscal or other types of crises.
- To create a collaborative and positive partnership between my office and local government agencies and thus achieve greater efficiency and effectiveness at the local level, which will have statewide benefits. With our extensive experience auditing the performance of local government agencies throughout the State and at the broad state level, my office is well poised to assist local government agencies in identifying areas of risk and taking appropriate action to remedy the difficult problems confronting them.
- To share best practices amongst local agencies and make solutions to problems faced by local agencies publicly available so that other local governments facing similar issues, or confronting the same challenges, can learn from each other.
In April 2015, we issued an audit report on the Ross Valley Sanitation District (Report number 2014-122). The results are an example of the benefits that can come from the collaborative and positive partnership between my office and a special district.
[divider] [/divider]
Is there anything special district officials can or should proactively do to prepare for this new program, and to ensure their districts are running in a way that meets your department’s standards?
I encourage all to look at our regulations—available online (www.auditor.ca.gov). They describe our program and the intent of the program. I also encourage them to read some of our reports—any time you can read about issues noted in other programs is an opportunity for self-reflection into your own program. Recommendations may be made to one entity, but could easily be applied or modified to be used for various programs.
I would also recommend that they take advantage of other resources that provide opportunities for networking and learning from other districts. We will make our reports public so that we too can be a resource to local governments and special districts as a vehicle for learning from others that may be facing similar issues or constraints.
[divider] [/divider]
What resources would you suggest?
As stated above, I would recommend that they work with organizations that afford them the opportunity to network. Additionally, standard-setting bodies—such as the American Institute of Certified Public Accountants, the Government Finance Officers’ Association, the Governmental Accounting Standards Board, the Financial Accounting Standards Board, etc.— provide much guidance on fiscal processes, fiscal measures, checks and balances, and appropriate management controls to prevent errors and irregularities. Also, the “California Local Government Finance Almanac” website contains a tool that local governments can use to self-assess their financial health. There is a link to the tool on the website under the heading “Diagnosing and Managing Fiscal Health” (www.californiacityfinance.com)
[divider] [/divider]
How frequently does your office collaborate with other state offices, like the Controller? With the Legislature?
We do at times have discussions (without disclosing any particulars of the audit) with others. When appropriate, we may meet with certain control agencies when we are in our “scoping” phase—the preliminary part of our work—to determine if they have a role in the program under audit.
Additionally, any time we commence an audit, one of the first steps we take is determine what work has been done in the area and review the work of others so that we can take that into consideration as we conduct our work. We certainly don’t want to duplicate efforts and if other credible agencies have conducted some work that we can rely on (in accordance with audit standards) to minimize the burden on the auditee, we would certainly do that. However, as the independent auditor, we must conduct our work in a nonpartisan and unbiased manner and thus limit those discussions so that our work is not influenced by others.
[divider] [/divider]
Based on your experience auditing state and local agencies over the last 15 years, what are some of the strengths you have found with regard to special districts? What are some of the challenges?
Strengths: Special districts are typically formed to provide specific services and serve certain areas or regions that are not necessarily tied to a city or a county and thus, often understand their constituents’ needs better than a government entity that provides many services and may be a bit further removed from the constituents. Special districts may be able to customize services and provide more tailored services to their customers.
Challenges: Special districts may have less resources or administrative staff than a city, county or state entity. With limited resources it is sometimes difficult to incorporate management controls and proper oversight that mitigate errors, irregularities, or mismanagement.
[divider] [/divider]
If a special district found itself as the subject of one of your audits, what advice would you give?
To be open to the process—be honest and frank about what is happening. They are the experts—they live and breathe their program every day. We come in with less knowledge about your specific situation, but come equipped with a breadth of knowledge of having worked with other local governments, special districts, and state programs. We come in without the history or ownership of processes that is natural to develop over time and thus are in a position to question how things are done and offer perhaps faster or less costly approaches.
We too will be honest and frank about our work. My staff will discuss what they are looking at, what they are finding, and what they may be recommending. The special district staff will have the opportunity to ask questions, to provide information, and to provide perspective every step of the way. The program is very much intended to be a collaborative process. I truly believe that we are all working toward the same goals: to ensure that government provides the essential services to the public in the most efficient and effective manner.