Auditing What Matters

1. Auditing What Matters Sharon Erickson, San Jose City Auditor Contact info: sharon.erickson@sanjoseca.gov (408) 535-1238

2. Why audit? “Legislators, government officials, and the public need to know whether (1) government manages public resources and uses its authority properly and in compliance with laws and regulations; (2) government programs are achieving their objectives and desired outcomes; (3) government services are provided effectively, efficiently, economically, ethically, and equitably; and (4) government managers are held accountable for their use of public resources.” – Government Auditing Standards Auditing What Matters

3. The role of the auditor • “Auditing is essential to government accountability to the public.” • – Government Auditing Standards • Responsibility to the public • Asking uncomfortable questions • Are we just testing controls OR are we providing independent, objective assessment of performance Auditing What Matters

4. Selecting audit subjects that matter • Important, relevant, timely • The first of many decision points • Annual citywide risk assessment • Role of suggestions and organizational knowledge • EXAMPLES: • Employee health benefits • Pension sustainability • Take home vehicles • Animal services • Street maintenance Auditing What Matters

5. Decision points every day • Choices in direction • Audit selection • Audit scope and objectives • Allocating resources (staff and time) • Prioritizing • Testing • Extending testing • Interpreting results • Reporting results Auditing What Matters

6. Deciding what’s important Important = consequential, significant, far-reaching, critical, crucial, pivotal, momentous, serious, grave, urgent, substantial, weighty, valuable, relevant, influential Auditing What Matters

7. A question of judgment • Importance of independence, objectivity, and due professional care • Balanced • Realistic • Open-minded, objective evaluation • Experience diagnosing problems • Little details; big picture • Tough, but fair Auditing What Matters

8. Gauging significance • Looking for patterns • Frequency • Significance • Materiality • Risk • EXAMPLES: • Pension Sustainability • Retirement Travel • Airport Concessions Auditing What Matters

9. Audits that challenge existing policy • Selecting audit subjects that matter • Have you asked why? • Do you stop once you’ve audited to the current policy? • The next logical inference • A question of judgment • EXAMPLES: • Pension Reform • Health Benefits • Police Civilianization • Team San Jose Auditing What Matters

10. Audits that are relevant and timely • Role of the auditor • Aware of your surroundings • Upcoming issues facing your jurisdiction • Responsive • EXAMPLES: • Recovery Act • Cardroom Licensing • Take-home Vehicles Auditing What Matters

11. Importance of audit planning • Start with broad overview • Preliminary survey • Risk assessment • Professional skepticism • Significance • Deciding the type and extent of audit work • Sufficient and appropriate audit evidence • Audit risk • EXAMPLE: • Health Benefits Auditing What Matters

12. Thinking critically • Evaluating evidence • Professional skepticism • Attitude • Accepting – Open-minded – Overly critical • Optimistic – Realistic – Pessimistic • Disinterested – Curious – Suspicious • Hard work • Pulling the thread • Questioning attitude • No coasting Auditing What Matters

13. Thinking strategically • Selecting audit subjects that matter • What interests you? • What piece seems most important? • Why? • Being aware of your surroundings • Changing environment • Timing • What will be deemed relevant and actionable? • A question of judgment Auditing What Matters

14. Formulating audit conclusions that matter • Allowing sufficient time to interpret results • Distilling the main idea • Balancing details and big picture • Not just that the writing process takes too long • Thinking critically about the overall/combined result • Assessing materiality and impact • Relevant and actionable recommendations • EXAMPLE: • Animal Services Auditing What Matters

15. Writing audit reports that matter • Focus on what’s important • Use definite, specific, concrete language • Clear, persuasive conclusions • Clear, actionable recommendations  Impact • Avoiding confusion • Use of graphics • Whose story is it? • Placing yourself in the background • Avoid overwriting or overstating conclusions Auditing What Matters

16. Recommendations that matter • Actionable • Impact service delivery • Will this recommendation make a difference? • Talk to people on the front line • Quantifying audit benefits • Calling out recommendations with potential budget impacts • Relentless follow-up • EXAMPLES: • Pension Sustainability (SRBR) • Police Civilianization $5.1 million Auditing What Matters

17. SUMMARY • Select audit subjects that matter • Decision points every day • A question of judgment • Gauging significance • Thinking critically • Thinking strategically • Formulating audit conclusions that matter • Writing audit reports that matter • Recommendations that matter Auditing What Matters