The Pennsylvania Department of the Auditor General is tasked with keeping track of more than $30 billion a year in state spending. But as the state budget grows larger and more complex, the auditor’s resources keep shrinking. The agency incurred sharp funding reductions for a few years starting in fiscal 2010, and next year’s state budget calls for another cut of nearly 8 percent. The department’s staff is smaller by about a third than it was a decade ago.
Pennsylvania is not unique. At a time when governments are trying to get a better grip on their finances, many states have cut funds for auditing and oversight. Such positions were sometimes among the first casualties in the aftermath of the recession. “I find it interesting that there is this nationwide trend of cutting back on the independent watchdog’s budget,” says Pennsylvania Auditor General Eugene DePasquale. “I’ve yet to find a taxpayer or a legislator who doesn’t want less waste, fraud and abuse in state government.”
To measure the changes across the country, Governing reviewed annual surveys of filled staff positions reported by the National Association of State Auditors, Comptrollers and Treasurers. The data shows an aggregate decline for all state-level auditing offices of about 7 percent over the decade ending in fiscal 2017, with 30 of 47 agencies reporting that their staff was smaller than in 2007.
One agency that has seen its budget trimmed year after year is the New Mexico Auditor’s Office. State Auditor Tim Keller equates his team’s work to that of law enforcement officers or attorneys general, but he says they’re viewed differently when it comes to appropriations. “Everyone pays a lot of verbal homage to the importance of cracking down on corruption, fraud, waste and abuse,” he says, echoing DePasquale. “But budgetarily, they treat us like the back office.” The agency has incurred a nearly 10 percent cut from its 2013 budget.
As a result, Keller’s office can’t take on as many audits. And the agency’s budget for outside contracting, where most of the cuts have occurred, has been eliminated almost completely. This, Keller says, has meant that it often can’t move on major fraud or corruption cases until funding is approved in its next budget.
States or municipalities with reduced staff can contract auditing work out, as New Mexico had done over the years, but this typically costs more than completing audits in-house. “We’re seeing this all across government,” says Keller. “Local governments trim their own internal audit division, but six months or a year later, they have to contract out with a private firm that’s actually more expensive.” In Minnesota, State Auditor Rebecca Otto has challenged the constitutionality of a recent law permitting counties to hire private firms instead of her office.
When arguing for more resources, auditing agencies often emphasize their return on investment. “The only response you can give is to highlight what the audit function brings to the organization, such as cost-saving measures and revenue enhancements,” says Tina Adams, president of the Association of Local Government Auditors.
The state auditing agencies with the steepest staffing declines over the past 10 years, according to the survey data, are, in order, Pennsylvania, Massachusetts and Alabama. It’s hard to say whether staffing in local government auditing offices has mirrored reductions at the state level, as no comprehensive local data exists. Anecdotally, Tazewell County, Ill., and the city of Lawrence, Kan., have recently considered eliminating auditor posts entirely. Attempts to expand local auditing functions often trigger political resistance. Mike Pantelides, the mayor of Annapolis, Md., pushed back on a proposal earlier this year to establish an independent auditor reporting to the city manager. Pantelides argued that doing so would change the city’s power structure. Where local auditing positions are elected, or established in city charters, they appear to be less vulnerable.
In some cases, state agencies are responsible for fiscal oversight or fraud investigations of municipalities. The Indiana State Board of Accounts oversees auditing of local governments and, as with similar agencies, its budget was cut after the recession hit. That resulted in some jurisdictions going more than four years without a financial audit. “You could either cut compliance, push audits off or do substandard work,” says Paul Joyce, who heads the agency. “Doing substandard work is not an option.”
Faced with a backlog of audits, Joyce decided a few years ago to ask the state associations representing localities to accept more of the costs. The State Board of Accounts charges local governments for the audits it conducts, but those fees had covered only a small fraction of the audit expenses. The municipalities subsequently agreed to a new funding formula that substantially increased reimbursements, which has helped the state agency add back some staff in recent years.
In Pennsylvania, DePasquale says he responded to staffing and budget cutbacks by conducting an audit of his own agency. They’ve pursued a variety of cost-saving measures in addition to trimming staff. Rather than work in regional offices, for example, more employees work from home. The agency eliminated its vehicle fleet and modernized its human resources department.
Varying funding models explain a lot of the differences in auditors’ budgets across states. One of the few state auditing agencies that’s been able to staff up significantly is the one in Washington state. That agency is somewhat unusual in that it doesn’t rely on the state general fund for operations; fees cover all the costs of auditing local jurisdictions, and a ballot initiative approved in 2005 sets aside a portion of sales and use taxes to pay for performance audits.
The Washington auditor’s office offers assistance to its local governments in the form of training, forecasting tools and a dedicated support team. “The public’s perception of government is at an all-time low,” says Washington State Auditor Pat McCarthy. “We have a tremendous role to play in setting the record straight and putting facts out there.”