Dear Editor,
There’s a lot of talk about election “audits” in our country right now. Some people are demanding them, others are trying to block them, but mostly there’s a lot of confusion, innuendo, and outright misstatements that need to be addressed. After earning my Master’s degree in Financial Accounting and becoming a CPA, I spent the first decade of my career in Big 4 Public Accounting as an external auditor, and then in Fortune 500 Financial Services as an internal auditor. With that in mind, I want to take a moment to offer some insight on what audits are and why they serve an important function in our economy.
For most Americans, the word “audit” is inextricably linked to the IRS and income taxes, but there are in fact many other types of and purposes for audits. Other types of audits include financial, operational, IT and cybersecurity, regulatory compliance, and so on. Regardless of the type of audit, the purpose and objective are the same: to provide a reasonable degree of assurance that a claim being put forth is both substantiated and accurate. Examples of “claims” made which audits seek to verify include the following: “Revenue in 2020 was X dollars”, “personally identifiable information is secure”, “all regulations pertaining to debit/credit card processing were followed”, and yes, even, “X candidate won”.
Self-auditing, or internal auditing, serves many valid and valuable purposes. It helps entities keep a much tighter pulse on their operations, identify financial discrepancies before they become material, identify unmitigated risks or control breakdowns, and so on so that these things can be rectified quickly, and ideally, before an external (third-party) auditor finds them and has to disclose them in their final report. It’s important to understand that by definition, self-auditing does not and cannot provide the same degree of assurance as that provided by a neutral third-party. That’s what’s known as a conflict of interest or the “fox watching the hen house”.
Third-party (external) audits are a core pillar of establishing trust in our economy. Publicly traded corporations are required to undergo annual external audits. Financial institutions and vendors often require reports from third-party auditors as a requirement of conducting business with companies or individuals. Would you be comfortable investing in a company that only self-audits? Or better yet, do you think the IRS would allow you to say, “I paid all my taxes, trust me, no need to verify that yourselves”?
As an auditor, especially an external one, there are certain “red flags” that indicate something needs to be investigated further. Examples of these include evasive answers, withholding information or documentation, insistence that X or Y does not need to be examined, management won’t allow auditors to interview certain personnel, management tries to provide summary reports instead of raw data, destruction of source records so that they can’t be re-examined, and so on. If any one of these indicators is present – much less if they are all present! – a good auditor’s “Spidey” senses that something isn’t right should be off the charts.
We as a country can quibble until the cows come home about the 2020 election results, but what we can’t quibble about, and what we should not abide our elected officials trying to shame us into silence about, is the importance of a third-party audit to provide assurance about the results.
Becky Olson
Custer County