Consideration of Auditor Independence
In accordance with Professional Auditing Standards Independence considerations are discussed and documented annually with the Financial Oversight Committee (FOC) and Audit Sub-Committee. The discussion is documented in the meeting minutes. Additionally, in accordance with professional standards, consideration of independence, threats, and safeguards are part of the engagement process and the results documented. Further, beginning in FY18/19 a statement regarding organizational independence is included in each published report.
Potential/Perceived Threats of Independence:
The Division of Internal Audits is an affiliated entity within the organization or affiliated entities of which we may perform or conduct audits, reviews, analysis, non-audit and/or consulting related projects. The Division of internal Audit held as a division of the Department of Financial Services.
The following safeguards have been implemented and in fact provide assurance that the Division of Internal Audit and the auditors’ have independence over work performed, where independence would be required:
- To achieve the degree of independence necessary to effectively carry out the responsibilities of the internal audit activity, the internal audit manager of the division of internal audit has direct and unrestricted access to the senior management and the board. This is achieved through a dual-reporting relationship. Threats to objectivity are also managed at the individual auditor, engagement, functional, and organizational levels.
- The internal audit manager reports functionally to the Board of Supervisors through the Financial Oversight Committee (FOC). The FOC Members include members of the public, the Board of Supervisors, cities, special districts, and the Board of Education. The dual-reporting structure within the organization allows the internal audit activity to fulfill its responsibilities. Further, the chief confirms to the board, at least annually, the organizational independence of the internal audit activity.
- The internal audit activity is free from interference when determining the scope of internal auditing, performing work, and communicating results.
- The FOC plays an oversight role in approving the internal audit charter; approving the risk based internal audit plan; discussion of the internal audit budget and resource plan; receiving communications from the internal audit manager on the internal audit activity relative to the plan and other matters; and making appropriate inquiries of management and the internal audit manager of the to ensure that there are no inappropriate scope or resource limitations.
- The Internal auditors refrain from assessing specific operations for which they were previously responsible (note: Objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the internal auditor had responsibility within the previous year).
- Assurance engagements for functions over which the internal audit manager has responsibility will be overseen by a party outside the internal audit activity.
It should clarified that Internal auditors may provide consulting services relating to operations for which they had previous responsibilities. However, if internal auditors have potential impairments to independence or objectivity relating to proposed consulting services, a disclosure will be made to the engagement client prior to accepting the engagement.