Local IG Makes Charges About Campaign Treasurer Acting As Auditor

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. <a href="http://www.nolaoig.org/uploads/File/Public%20Letters/Ltr%20La%20Ethics%…; target="”_blank”">One
letter was sent to the state's ethics board</a>, which has
jurisdiction over local officials, requesting that it take
"appropriate action." <a href="http://www.nolaoig.org/uploads/File/Public%20Letters/Ltr%20La%20CPA%20B…; target="”_blank”">The
other letter, in the form of a complaint</a>, was sent to the
state's CPA board.<br>
<br>
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.<br>
<br>
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.<br>
<br>

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.<br>
<br>
<b>State Law and Auditing Standards</b><br>
So what is to be done? Fortunately, auditors' conflicts are prohibited by auditing
standards. And these auditing standards are recognized by state law.<br>
<br>
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."<br>
<br>
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.” <br>
<br>
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."<br>
<br>
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.<br>
<br>
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.<br>
<br>
How could such an impairment become concrete in a harmful way? <a href="http://www.nola.com/crime/index.ssf/2013/07/new_orleans_inspector_gener…; target="”_blank”">An
article in the New Orleans <i>Times-Picayune</i></a> 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.<br>
<br>
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 <a href="http://www.cityethics.org/content/treating-inmates-commodities-louisian…; target="”_blank”">I
wrote about a year ago</a>:  the treatment of Louisiana local
inmates as commodities. One kind of serious ethical misconduct often
leads to other kinds of ethical misconduct.<br>
<br>
<b>Problems with Firewalls</b><br>
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.<br>
<br>
<b>An Independent IG Accused of Being Dependent</b><br>
According to the <i>Times-Picayune</i> 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.<br>
<br>
The sheriff owes the ethics program a correction and apology.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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