Lack of auditors puts Minneapolis at risk, report says

  • Article by: STEVE BRANDT , Star Tribune
  • Updated: October 28, 2009 - 10:58 PM

Auditors tell the city it lags similar-size cities in internal audit staffing, increasing the risk of fraud. Voters will decide whether to shift auditing, other powers to City Council.

Minneapolis is at risk for fraud and penalties because it has short-staffed the job of self-auditing, a group of outside auditors told the city Wednesday.

Their draft report to the city's Board of Estimate and Taxation, which oversees the city's internal audits, said that cities of comparable size employ far more people to guard against fraud, make sure that laws and regulations are followed, and evaluate programs.

Minneapolis employs only one internal auditor, and he's retiring next week without a replacement hired. Hennepin County employs 11.

Representatives of the Institute of Internal Auditors recommended the city employ at least three internal auditors and as many as five. Auditors typically save more money than they cost to employ and set a tone that can discourage fraud attempts, said Katie Shea, internal audit director for the Metropolitan Council, who presented the report.

The report comes as voters are deciding in a charter referendum whether to revamp the traditional makeup of the Board of Estimate and Taxation by shifting its powers dealing with auditing, taxing and borrowing for the city to the City Council.

Board Member Carol Becker opposes that shift and wants to beef up internal auditing. The board asked for the review by the outside auditors. Becker said the report indicates that the oversight of audits shouldn't shift to a group such as the council that is being audited. But another board member, Council Member Paul Ostrow, who proposed the shift, said that it's the operating departments of the city that report to the council that are being checked up on, not the council itself, so the council should direct those audits.

Typically, governments are audited both internally and externally. External audits examine financial controls and opine on whether financial statements accurately depict city finances. The state auditor performs this role for the city, but internal auditors also delve into problem areas.

The report said internal auditors can help the city know if it complies with state or federal financial requirements accompanying grants. Not doing so, it said, "leaves the city vulnerable to 'gotcha' situations and potential penalties." The auditors also said that fraud increases when the economy worsens and officials within City Hall are worried about their potential exposure to such incidents.

In contrast to Minneapolis, with one auditor and a budget of $1.4 billion, Hennepin County employs 11 internal auditors for its budget of $1.7 billion. Ostrow, the council's budget chairman, said he'll bring the issue before his committee. "We need to take recommendations like this seriously," he said. A spokesman for R.T. Rybak, who left the presentation early, said that the mayor thinks that taxpayers would be better served by stronger internal auditing and is working to find ways to do so despite the city's tight budget.

Steve Brandt • 612-673-4438

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