Supervisors Relinquish Control Over Internal Audit Office

Orange County supervisors this week reversed a major reform from the county’s 1994 bankruptcy, relinquishing their oversight of the county’s internal audit office and handing that authority back to the elected auditor-controller.

The unanimous vote Tuesday also moves management of the county’s fraud hotline from the internal audit office to the County Counsel’s office, keeping it under the purview of an official who reports to the supervisors.

Under the new model, the auditor-controller would also be consulted on the hotline calls, which handle reports by whistleblowers of fraud at the county government, misuse of county resources, and major violations of county policy.

Supervisors’ Chairman Todd Spitzer said the change was in reaction to a state bill by Assemblyman Tom Daly (D-Anaheim) that, if passed, would mandate the shift in auditing authority.

But to longtime county Audit Oversight Committee member Dave Carlson, the move is a dangerous one, because 75 percent of the internal audits are of the auditor-controller’s operations.

“Auditors cannot audit themselves,” said Carlson, who has served as a public member of the committee since 1997 and has been chair or vice-chair for 12 of those years.

This “returns the county to a structure that is dangerously close to the structure” that had a lack of controls that resulted in the bankruptcy in first place, he added.

Spitzer then turned to the issue of Daly’s legislation, which is proceeding through the state Legislature. “You think we five members” of the Board of Supervisors can stop Daly’s bill? Spitzer asked.

Carlson said he does not have the expertise to comment on the likelihood of Daly’s bill passing, but that it “would just be absolutely wrong” for the state to change Orange County’s structure absent some kind of clear problem with it.

Auditor-Controller Eric Woolery, meanwhile, contended that with the new model, “we will actually have a stronger auditor oversight” than other counties. That’s because in other areas like San Bernardino County, the Auditor-Controller appoints members of Audit Oversight Committee, which isn’t the case in Orange County.

Under the new model, Woolery would be demoted to a non-voting member of the committee, and suggested that all five supervisors serve on the panel.

Supervisor Do said he supported that suggestion, and agreed to address the next committee meeting about it.

The latest changes go into effect on Aug. 21.

The internal audit office, which now has 16 employees, is tasked with probing some of the most sensitive cases of fraud, waste and abuse at the $5.8 billion county government. Among its functions is investigating the county’s financial accounting processes to minimize the risk that public funds are wasted or stolen.

It changed to its current form after the 1994 bankruptcy when Orange County District Attorney’s office investigators concluded that internal auditors were too close to their colleagues at the Treasurer-Tax Collector’s office and did a poor job of overseeing their questionable investment purchases.  And county supervisors took on oversight of the office.

But the model has faced significant opposition from Daly, who had been the subject of a critical internal audit report regarding his past oversight of the county clerk-recorder’s office.

Many say Daly’s bills represent political payback for the 2013 that found that a restricted fund was badly mismanaged under Daly’s tenure.

The audit centered on Fund 12D, which is financed by document recording fees and under state law can only be used for specific expenses, such as modernizing birth, death and marriage record systems.

Under Daly’s term as clerk-recorder, accounting of the fund was so bad that a record trail couldn’t be generated to legally justify nearly $7 million in spending over a two-year period, the audit found.

Last year, Daly introduced a budget trailer bill that took away the internal audit authority from supervisors.  And a follow-up bill this year to strip the supervisors’ authority made its way out of committee.

You can contact Nick Gerda at ngerda@gmail.com, and follow him on Twitter: @nicholasgerda.