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Local IG Makes Charges About Campaign Treasurer Acting As Auditor
Monday, July 29th, 2013
Robert Wechsler
On Friday, New Orleans' Inspector General, who works for the city's ethics board, sent off two
letters relating to the auditor for the Orleans Parish sheriff's
office. One
letter was sent to the state's ethics board, which has
jurisdiction over local officials, requesting that it take
"appropriate action." The
other letter, in the form of a complaint, was sent to the
state's CPA board.
The subject of both letters was the conflict of interest that arose from the hiring by the sheriff's office of an auditing firm whose lead partner was the sheriff's campaign treasurer.
What is most interesting about these letters is that no local or state ethics provision is cited for the conflict. That is because this is not a typical conflict situation. The reason is that the auditor's relationship with the sheriff is political, not financial (although it might also be personal). Generally, political relationships do not give rise to a conflict situation that may be enforced by a government ethics program.
And yet no one wants to see a government office audited by someone this close to the head of that office. No one could get before a public audience and defend what occurred. He would be booed or laughed at, or both.
State Law and Auditing Standards
So what is to be done? Fortunately, auditors' conflicts are prohibited by auditing standards. And these auditing standards are recognized by state law.
Therefore, the IG cites a state law requiring that an audit filed with the Legislative Auditor (as sheriff office audits must be) attests that it was performed “in accordance with auditing standards generally accepted in the United States of America."
The letters cite Government Auditing Standards that require auditors to decline work “if one or more of these impairments affects or can be perceived to affect independence." Such "personal impairments ... result from relationships or beliefs that might cause auditors to limit the extent of the inquiry, limit disclosure, or weaken or slant audit findings in any way.”
The IG argues that the auditor could not attest to his independence, because he has "a financial incentive to provide positive audit reports for Sheriff Gusman so that Sheriff Gusman will continue being re-elected."
Arguably, any auditor hired by a government office headed by an elected official has a financial incentive to provide a positive report to allow the official to be re-elected and re-hire the auditor. But here, the impairment is more powerful. There is the possibility that the auditor felt obliged to be campaign treasurer in order to get the auditing job. And there is the possibility that, as is so often the case, the sheriff already had a relationship with the auditor, which led to the campaign treasurer position.
Of course, the actual story could be that the auditor was recommended to the sheriff, did a good job as campaign treasurer, and was therefore hired to audit the office. This would be a good thing. But there is no way for the public to know that this was the story. The appearance is that the auditor got the job due to a political and possibly personal relationship, and that the auditor might weaken the extent of his inquiry and his findings in order to help his friend and political ally. However false this may be, it is the way the world sees this situation, and beyond what any law says, it is the principal reason the auditor should have declined the job.
How could such an impairment become concrete in a harmful way? An article in the New Orleans Times-Picayune on Friday states that the auditor "testified that his audit found the sheriff paid $3.8 million [in legal claims and judgments in 2012]. Earlier, however, the sheriff's accounting manager ... testified that legal settlements cost only about $195,000." Since there is a big controversy, in which the sheriff is arguing that he already paid a lot to deal with, there is a strong incentive for a friend or political ally to fudge numbers in the sheriff's interest.
It's worth noting that the big issue at the center of this big controversy that led to the IG's investigation is one that I wrote about a year ago: the treatment of Louisiana local inmates as commodities. One kind of serious ethical misconduct often leads to other kinds of ethical misconduct.
Problems with Firewalls
The IG backs off a little from his position in the final paragraph of his letters. He says that "the firm should have taken measures to keep [the campaign treasurer] isolated from Sheriff Gusman’s audits." Would such a firewall really cure the conflict situation? I don't think so. There would still be the appearance that the firm got the job due to its partner's special relationship with the sheriff. And there would still be the appearance that the firm might weaken the extent of the inquiry and the findings in order to help its partner's friend and political ally. Finally, even if the partner had stayed out of any public aspects of the audit, there is no way for the public to know how much influence he had on the extent of the inquiry or on the audit's findings.
An Independent IG Accused of Being Dependent
According to the Times-Picayune article, the sheriff's response to the letters was an accusation that the IG was acting for the city, to help it in the big controversy with the sheriff. What makes this so wrongheaded and damaging an accusation is that the New Orleans IG is the most independent local IG in the U.S. He is selected by the ethics board, and six of the seven ethics board's members are selected from a list submitted to the mayor by the heads of five private universities in the city. No official, especially a sheriff, should falsely put into question an ethics program that has been provided with so much independence.
The sheriff owes the ethics program a correction and apology.
Robert Wechsler
Director of Research-Retired, City Ethics
---
The subject of both letters was the conflict of interest that arose from the hiring by the sheriff's office of an auditing firm whose lead partner was the sheriff's campaign treasurer.
What is most interesting about these letters is that no local or state ethics provision is cited for the conflict. That is because this is not a typical conflict situation. The reason is that the auditor's relationship with the sheriff is political, not financial (although it might also be personal). Generally, political relationships do not give rise to a conflict situation that may be enforced by a government ethics program.
And yet no one wants to see a government office audited by someone this close to the head of that office. No one could get before a public audience and defend what occurred. He would be booed or laughed at, or both.
State Law and Auditing Standards
So what is to be done? Fortunately, auditors' conflicts are prohibited by auditing standards. And these auditing standards are recognized by state law.
Therefore, the IG cites a state law requiring that an audit filed with the Legislative Auditor (as sheriff office audits must be) attests that it was performed “in accordance with auditing standards generally accepted in the United States of America."
The letters cite Government Auditing Standards that require auditors to decline work “if one or more of these impairments affects or can be perceived to affect independence." Such "personal impairments ... result from relationships or beliefs that might cause auditors to limit the extent of the inquiry, limit disclosure, or weaken or slant audit findings in any way.”
The IG argues that the auditor could not attest to his independence, because he has "a financial incentive to provide positive audit reports for Sheriff Gusman so that Sheriff Gusman will continue being re-elected."
Arguably, any auditor hired by a government office headed by an elected official has a financial incentive to provide a positive report to allow the official to be re-elected and re-hire the auditor. But here, the impairment is more powerful. There is the possibility that the auditor felt obliged to be campaign treasurer in order to get the auditing job. And there is the possibility that, as is so often the case, the sheriff already had a relationship with the auditor, which led to the campaign treasurer position.
Of course, the actual story could be that the auditor was recommended to the sheriff, did a good job as campaign treasurer, and was therefore hired to audit the office. This would be a good thing. But there is no way for the public to know that this was the story. The appearance is that the auditor got the job due to a political and possibly personal relationship, and that the auditor might weaken the extent of his inquiry and his findings in order to help his friend and political ally. However false this may be, it is the way the world sees this situation, and beyond what any law says, it is the principal reason the auditor should have declined the job.
How could such an impairment become concrete in a harmful way? An article in the New Orleans Times-Picayune on Friday states that the auditor "testified that his audit found the sheriff paid $3.8 million [in legal claims and judgments in 2012]. Earlier, however, the sheriff's accounting manager ... testified that legal settlements cost only about $195,000." Since there is a big controversy, in which the sheriff is arguing that he already paid a lot to deal with, there is a strong incentive for a friend or political ally to fudge numbers in the sheriff's interest.
It's worth noting that the big issue at the center of this big controversy that led to the IG's investigation is one that I wrote about a year ago: the treatment of Louisiana local inmates as commodities. One kind of serious ethical misconduct often leads to other kinds of ethical misconduct.
Problems with Firewalls
The IG backs off a little from his position in the final paragraph of his letters. He says that "the firm should have taken measures to keep [the campaign treasurer] isolated from Sheriff Gusman’s audits." Would such a firewall really cure the conflict situation? I don't think so. There would still be the appearance that the firm got the job due to its partner's special relationship with the sheriff. And there would still be the appearance that the firm might weaken the extent of the inquiry and the findings in order to help its partner's friend and political ally. Finally, even if the partner had stayed out of any public aspects of the audit, there is no way for the public to know how much influence he had on the extent of the inquiry or on the audit's findings.
An Independent IG Accused of Being Dependent
According to the Times-Picayune article, the sheriff's response to the letters was an accusation that the IG was acting for the city, to help it in the big controversy with the sheriff. What makes this so wrongheaded and damaging an accusation is that the New Orleans IG is the most independent local IG in the U.S. He is selected by the ethics board, and six of the seven ethics board's members are selected from a list submitted to the mayor by the heads of five private universities in the city. No official, especially a sheriff, should falsely put into question an ethics program that has been provided with so much independence.
The sheriff owes the ethics program a correction and apology.
Robert Wechsler
Director of Research-Retired, City Ethics
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