The Structural Threat

We have a problem in Texas. State statute requires that every county have a County Auditor. However, the County Auditor is not an ‘auditor’ at all. Instead, the County Auditor acts as a chief financial officer for the county.

If there’s an audit function, the auditor often reports to the County Auditor. Because, hey, an audit function should report to the head auditor, right?

Wrong! The audit function should report to the board of commissioners. Why? Because the County Auditor’s activities might be the subject of the audit function’s audit and the County Auditor could silence the auditors, thereby keeping the truth from the board of commissioners.

Fortunately, in many of the larger counties, the audit function does report directly to the board of commissioners. So, not every audit function in every county is suffering from a structural threat to their independence.

Structural Threat to Independence Definition

The GAO states that when auditors do not report to the governing body, but instead report to the auditee, they are suffering a structural threat to independence. Here is the formal definition in the 2021 Yellow Book:

3.30 g. Structural threat: The threat that an audit organization’s placement within a government entity, in combination with the structure of the government entity being audited, will affect the audit organization’s ability to perform work and report results objectively.

Here are examples:

3.44 Examples of circumstances that create structural threats for an auditor follow:

1. For both external and internal audit organizations, structural placement of the audit function within the reporting line of the areas under audit.
2. For internal audit organizations, administrative direction from the audited entity’s management.

How did this happen?

Now, how did this happen? I don’t really know since the law has been around for decades. I imagine whoever wrote the County Auditor role into Texas law didn’t really understand what auditors do and how auditors need to be shielded from negative repercussions when telling the truth about finances, compliance or operations.

As we auditors know, most people – including most county commissioners – don’t understand the power the county commissioners have with an audit function. It provides them with an objective and fact-based viewpoint of activities all over the county, including the goings on at the County Auditor’s office.

The GAO tries to address everyone’s situation when it comes to structural threats to independence

The GAO does its best to address each audit shop’s unique situation in the standards. If you believe you’re suffering a structural threat, please read sections 3.52 to 3.58 of the 2021 Yellow Book.

What should happen instead?

In order to resolve this issue, the audit function needs to convince the commissioners to ratify an audit charter clearly stating the County Auditor has no control over the audit function.

Ultimately, to prevent confusion and to keep the public from being mislead, the Texas legislature should revise the law so the title County Auditor is changed to something more accurate, like County Finance Officer.

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