Submitted by:
Susan Hockenberry
Local Government Academy, Executive Director
Phone: 412-237-3171
E-mail: shockenberry@localgovernmentacademy.org
Earlier this year the GFOA Western Pennsylvania Chapter and LGA hosted a session on the steps auditors now need to take to perform risk assessment as part of the independent audit process. The implication of the new standard is to “expand the quality of depth of the auditor’s required understanding of the entity and its environment.” While this understanding is developed in a variety of ways, one of the most compelling items to be addressed is the auditor’s assessment of the “tone of the organization.”
Focusing on the tone of the organization moves issues of ethics from the category of concerns that were once considered items we should be focused on to items we must be focused on. The tone of the organization is assessed as part of the control environment. This means it is part of the system that is in place to protect public assets. The tone of your organization is set by your organization’s:
- Integrity and Ethical Values
- Competency
- Governance, as measured by:
- Experience and knowledge
- Stature within the entity and business community
- Genuine interest in internal control
- Independence of managemen
- Active interaction with the external auditor
- Philosophy and operating style
- Authority and responsibility
- Human Resources System
With the tone of the organization among the elements used by auditors to develop audit assurances, your annual audit becomes an opportunity for your local government to work on the ethical environment of your organization as part and parcel of the management of your community. By adopting a commitment to good government in your community you directly improve the prospects of favorable judgments made about your communities by external examiners. Furthermore, the inclusion of such concerns into the financial auditing process presents the opportunity to fulfill a broader expectation for good government within the community.
What is the tone of your municipality? Can you identify your ethical values? Are they clearly articulated to citizens and is your organization’s performance measured against them? Is your governance, operating style and human resource system ready for the glare of public scrutiny? These are important issues for elected officials to address regardless of the auditing environment. However, in the future these issues will become part and parcel of the auditing activity. Spending time improving the tone of your organization is not only worthwhile, but necessary.
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