Newell: Internal Audit function under previous SWBNO leadership "a sham"

Report finds pre-Korban management team interfered with internal checks & balances

Newell Normand
August 15, 2019 - 5:27 pm

A lot of people don't know exactly what the function of an Internal Auditor is. They're utilized as a management tool, set out strategically to annually check various parts of an organization and conduct an audit. Of course, there has to be some independence from the head of the agency, because it very well could be that the head of the agency ends up being a problem in the audit. Independence is crucial.

The New Orleans Sewerage and Water Board has an Internal Auditor, but the New Orleans Inspector General Derry Harper has a new report out that shows that shows a troubling lack of independence between the Internal Auditor and agency management. IG Harper joined Newell on his program today to talk about what he found.

"In the spring of last year, we did a review," Harper said, "And it was apparent that the Internal Audit department was not operating according to standards, and that there was a concern this office was not producing any meaningful work. It's taken several months for various reasons to complete the audit, but the conclusions are that the audit department was not operating according to standards, primarily due to a flawed governance structure that allowed management, for an extended period of time, to interfere with the performance of it's responsibility and duties."  

"So it would be safe to say," Newell replied, "The former executive director, when he instructed the Internal Auditor 'only take on what I have specifically authorized,' is it fair to characterize that as significant and problematic?"

Harper confirmed that this represented a major problem, and his office went the extra mile to make sure the right people knew about it. "We took it so seriously that we confirmed that no work was being done - in other words, the Director said 'don't do anything without my approval,' and there was never any meaningful work done after that date. We thought that was serious, and it is, because the objectivity and independence of an Internal Audit function is critical to an organizations' ability to demonstrate accountability. So since no work was being done, we thought that was so serious that we made a preliminary disclosure, so that management (in this case the current Executive Director and the Mayor) would have an opportunity to try to address that."

"Having served on audit committees in the past and understanding the role of the Internal Auditor, and having actually utilized one as well, it is a very important management tool. When you think historically about the Sewerage and Water Board and problems in billing in the water department and collections - wouldn't those be ripe issues for an Internal Auditor to go in and see what the deficiencies are?" Newell asked.  

"Exactly!" was the response from Harper. "In this instance, during the time we covered in our audit, that was not being done... our report didn't conclude that they systematically did that but the work products that were released during our audit didn't have any evidence to support the reports that were issued - in other words, they were neither planned, nor was there any evidence gathered."

Incredulous, Newell asked "How do you have a report with no evidence? Were they just reporting things out for the sake of appearance?"

In his role as IG, Harper couldn't say what was in the minds of those issuing these empty reports but he did confirm: "These documents being issued had nothing to back them up... there was no engagement planning or work papers. There was no documentation or evidence to support whatever they said."

Newell added a little color where Harper could not. "Reading your report, I kept coming up with this thought - 'this was a sham!' You don't issue reports with no substance to it, no findings, no data, nothing. Everyone in this business knows that!"

"I'll leave it to you to react," Harper laughed, "but I will say that our review and interaction with the current management team has been very good."

"That was the impression I got too," Newell said. "I think everyone is thankful for that, that current Executive Director Ghassan Korban has tried to make sure the spirit of transparency is alive and well... I would expect that you would expect to see a remediation plan outlined and performed by SWBNO?"

"In their response, which is included in our final report, they go through in some detail the steps they have taken, including hiring a Chief Audit Executive and trying to see if the Audit Committee charter and Internal Audit charter need to be changed. Our role, is after 6-8 months to go back in for a follow up and see if those changes have been implemented."

Listen to the full interview in the audio player below.

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