An Attack on Auditor Independence Jeopardizes One State’s Fiscal Future

Last week, the Iowa Senate passed a bill that would effectively neuter the state auditor. Though the timing for a vote is uncertain, if the House approves the bill, the ramifications could be debilitating for the state’s fiscal health.

The Senate bill, which had originally been somewhat less severe, was amended—just 10 hours before it was voted on—in a way that constrains the auditor’s ability to require that state agencies relinquish documents in a wide variety of areas, including records pertaining to education, criminal justice, medicine and more.

“These are things that we have to look at in order to do our job,” says Rob Sand, the state’s auditor (and the only statewide official to be a member of the Democratic party.) “What’s the point of an audit if the auditee can tell the auditor where they aren’t allowed to look?”

Says Ann-Marie Hogan, a retired city auditor and member of the Association of Local Government Auditors (ALGA) advocacy committee, “I have never heard of state legislators taking away powers from an auditor in my 20-plus years of being on ALGA’s advocacy committee. It’s usually the other way around, and auditors will get legislation passed that enhances their independence and effectiveness. This one just destroys it. They might just as well have gotten rid of the state auditor’s office.”

The bill does provide the auditor with a form of recourse if an agency refuses to hand over necessary documents. But the system that’s been put into place appears to leave the deck stacked against the auditor. As the legislation explains, all disputes would be submitted to a board of arbitration consisting of three members: the auditor, the agency and a third party to be appointed by the governor. The latter member could be predisposed to side with an agency head who was also appointed by the governor.

Making matters worse, the last sentence of the legislation says that “the decision of the board shall be final.” This means that the auditor’s office wouldn’t be able to go to the courts to make a final decision about access to documents that an agency wants to withhold. Argues Sand in a fact sheet, “the bill guts judicial review.” It makes the decision of the agency and the governors’ appointee final, “no matter how baseless or unreasonable. Currently, the auditor has access to courts and has used it to get documentation government officials have tried to hide.”

“That’s my concern,” says Dave Walker, former U.S. comptroller general. “The mechanism that the bill provides for settling disputes could work, but the courts have to be available if only as a last resort.”

If passed, the bill could easily cost Iowa’s taxpayers large sums of money.

Particularly hazardous to the state is the risk that if the auditor isn’t comfortable that the information, he has is correct—and he is unable to access additional information from a state agency—"he may have to issue a qualified opinion on the state’s financial statements,” says John Geragosian, Connecticut state auditor and president of the National State Auditors Association (NSAA). “That could hurt the state’s bond ratings and in turn cost the state’s taxpayers more money because they’d be paying a higher rate for the money they’re borrowing.”

What’s more, there’s a legitimate concern that federal funds that flow to the state could be cut off. “The federal government wants the states to do oversight and it tells us to make determinations using these records.” says Geragosian.

Sands worries that “federal dollars related to road construction, public safety, medical care, medical research, student loans, education funding and the like could be lost if related records are not audited.”

Without the proper documentation, he argues, it could be close to impossible to do these vital audits.

The Yellow Book, a publication from the Government Accountability Office, spells out the requirements for entities that receive government awards. It calls for auditor independence including “the absence of circumstances that would cause a reasonable and informed third party to reasonably conclude that the integrity, objectivity or professional skepticism of an audit organization … had been compromised.”

A number of third parties have come to just that conclusion. Within 24 hours of passage, about half of the state auditors signed a letter from Geragosian on behalf of NSAA that stated that “this bill will negatively impact Auditor Sand’s ability to independently and sufficiently perform his audit work. State auditors should have unfettered access to confidential records to ensure that state agencies are following their policies and procedures and state and federal law.”

It’s unclear why the Senate decided to approve the bill. Requests for an interview to the senator who authored the amendment were unanswered. But some speculate that the vote was influenced by ignorance about what the auditor’s office does.

As Hogan, the ALGA advocacy committee member, says, “Generally speaking there aren’t many elected officials at any level who understand what an auditor does unless they were an auditor themselves.”

A far less benign possibility has been raised in the Iowa press, which indicated that the Senate bill was passed in retaliation for Sand’s call for the University of Iowa’s athletic director to resign or be fired. Though Sand speculates that this may have provoked the Senate’s move, he sees it as immaterial to where the state stands now. “It’s a sideshow that can distract from the impact of the bill. I’m guessing what the motivation is, but I don’t have to guess what the impact of the bill is.”