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  To Audit and Audit Again
December 17, 2004
 

On December 14, 2004, the Richmond City Council approved a new ordinance providing for an independent auditor who will be hired by and report directly to the City Council. This move is a direct result of the recent budget fiasco that will continue to plague Richmond for the foreseeable future until at least such time that we can eliminate our cumulative deficit.

 

I voted against the proposal not because I donít believe Richmond desperately needs improved financial management but because I didnít think the proposal was the most effective way to do it. Richmond already has an annual independent audit. The Charter, Section 9(d) requires the following:

ďThe Council shall provide for an annual audit of all accounts and books of all the departments of the City by an independent certified public accountant who is in no way connected with the City by a contract for a period not to exceed three (3) years. Such contract shall be in accordance with specifications recommended and submitted to the Council by the City Manager.Ē

 

There have been two problems with the audit in the past. The first is that Richmondís financial management has been so defective that it takes over a year to get the past yearís financial data together in a way that the audit can be completed. The annual audits, which should be completed no more than six months after the end of the fiscal year, have been running over a year late. By then, itís too late to make meaningful course corrections. The second problem is that the auditors have been to close to the city manager and finance director and not close enough to the City Council. Ultimately, even though they uncover problems, the auditors have simply accepted on face value the responses of the city manager and finance director to the operational deficiencies listed in the audits. The auditors have not been vocal and proactive in focusing City Council attention on defects.

 

The City Councilís response to this history was to hire at least two more full-time employees, an internal auditor and an assistant. City government is amazing indeed. We hire a city manager to run the city, and the city manager hires a finance director. But because we donít trust them, we hire two more people full time to make sure they do their job. Then we hire an independent contract auditor to check all four of them to make sure they all did their job. If we had the right people in the first place, we could use the money for something tangible like paving your street.

 

My suggestion was to expand the duties of our outside contract auditor to provide ongoing reviews of the cityís financial management practices throughout the year, then if they didnít get a sound set of books at the end of the year, they had no one to blame  but themselves. It would probably be cheaper and more efficient because the external auditorís team has to become familiar with the City of Richmond anyway in order to perform the annual audit. The other thing I didnít like about the new auditor ordinance is that it takes only five City Council members to hire that person, but it takes six to terminate. The idea was that the City Council may not like bad news the auditor may bring and may want to ďkillĒ the messenger. This is even crazier. By hiring an auditor, we are already acknowledging we donít trust the city manager and the finance director, which is probably right based on recent experience. But by requiring a supermajority to terminate, we are now acknowledging we canít even trust ourselves. This may also be right, but it sure is jaded.

 

Anyway, I wanted to explain why I voted against the ordinance, but I still support the concept. The West County Times article on this matter follows:

 

Richmond council OKs auditor job
Posted on Thu, Dec. 16, 2004

Richmond gained another of several controls proposed by its interim city manager when the City Council authorized an internal auditor who will answer directly to the council and work with a professional auditing advisory committee.

The new employee, who will have an at-will contract that can be revoked without cause, will review accounts payable and receivable and cash management. The auditor also will scrutinize the city's credit card policies, which have been increasingly called into question in recent weeks.

The council, with members Nat Bates and Tom Butt dissenting, approved the new position on Tuesday night.

The position is one of 26 organizational changes proposed this fall by interim City Manager Phil Batchelor to stabilize the city's financial operations.

Richmond officials in March revealed a $35 million deficit, an amount comparable to more than a third of its general fund, and a predicted shortfall of $21 million for 2004-2005. Drastic cost-cutting measures have since shrunk that number.

In recent days, Batchelor described the ideal auditor candidate as having no conflict of interest, no outside work to exert a secondary pull, and a will strong enough to resist taking direction from any one member of the council.

"This individual must be above reproach," he said.

Bates balked at both the position and a provision calling for six council votes to terminate the auditor's tenure.

"I don't see any reason for a permanent, full-time auditor to be on the payroll ... to satisfy some psychological need," he said.

Councilman Jim Rogers said the two-thirds requirement would prove "confusing" to residents.

But the council trounced a motion by Vice Mayor Richard Griffin to eliminate the provision.

"We are trying to make this position as independent as possible," said Councilwoman Mindell Penn. "In order to make it independent, the person cannot be influenced by the mere fact that a majority of the council can move at once if it hears something it doesn't want to hear. We need to be sure that person has the ability to give us the information we need and not be fearful of retaliation."

Finance Director Pat Samsell said the city would likely get many more applicants with a super-majority rule.

Soon after his arrival, Batchelor issued a detailed report on the city's fiscal meltdown. It included 170 recommendations for change that ranged from adopting basic business practices to a ground-up overhaul of city services. A month later, he issued an action plan in which he advised moving the internal auditor from the finance department to the purview of the council.

A state audit released earlier this month pinned the blame for Richmond's multimillion-dollar fiscal meltdown on poor financial reporting and overspending -- some intentional, such as when the City Council handed public safety unions costly retirement benefits and salary hikes -- and called for an organizational overhaul.

 

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