For immediate release

Minneapolis, MN, October 28, 2009 –  The City of Minneapolis Board of Estimate has “Draft Audit Report Conclusions” on the agenda for today's 4:30 meeting at city hall, in Room 225.

A draft copy of the City of Minneapolis Internal Audit Function: Quality Assessment and Recommendations report was obtained today by Bob Carney Jr., Moderate Progressive Republican candidate for Mayor of Minneapolis. Carney will be at the meeting, and plans to videotape at least part of it.

“This report demonstrates that insurgent Minneapolis Mayoral and City Council candidates have been justified in raising the audit function as a serious issue in this campaign,” Carney said. “A claim that there has been no audit of any kind is overstated,” Carney acknowledged. “But here's the bottom line: We must demand accountability from Mayor Rybak and the City Council regarding what appear to be woeful inadequacies in our City's financial controls and oversight.  This problem has gone uncorrected for years. The draft report is evidence that Mayor Rybak has excellent political reasons to run from his challengers. But he can't run from the Citizens,” Carney continued.  Carney's wide ranging background includes nine months as interim Finance Director at The City, Inc., a Minneapolis non-profit organization.  During that time, he managed the selection of a new external auditor.

The Draft Audit Report is a “peer review” report, completed by two Internal Audit professionals (from the Metropolitan Council and the University of Minnesota), and three members of Deloitte and Touche with internal audit experience. Although the focus of the report is on the future, it also reviews the adequacy of the current internal audit function. The City's Internal Audit staffing consists of one individual, who is retiring next month.

The following are excerpts from the draft report (emphasis is as rendered in the report):

“Opinion as to Conformance with the Standards”

“Based on the review and the observations described in the main section of this report, Minneapolis Internal Audit does not comply with the Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing. Several deficiencies were found that show non-conformance. Many of the problem areas may be related to an ongoing lack of adequate resources for the function. The office is understaffed and does not have effective oversight. Some of the other observations relate to structure and function, while some deal more specifically with the practice of conducting audits.”

“...there is virtually no relationship, formal or informal, between Internal Audit and the head of the executive departments, the City Coordinator.”

“... the Standards require the [Chief Audit Executive] to report regularly to the Senior Management and the Board on the status of Internal Audit. Specifically, the standard states that the report must also include significant risk exposures and control issues, including fraud risk, governance issues and other matters needed or required by the Board. The Minneapolis Internal Audit function is not in compliance with this standard.”

“First, the current Auditor does not have regular meetings with either senior management for the city or with the City Council (the board)... The Auditor appears before the City Council only if and when requested to do so, which is fairly rare. There is little communication flowing in either direction between the Auditor and key decision makers at the City, to the detriment of everyone involved.”

“Second, although it is widely acknowledged, according to all of our interviewees, that Internal Audit is significantly under-resourced, there has been very little discussion at the City of the potential ramifications of an inadequate internal audit function. In this review, almost all interviewees brought up areas of concern that result from inadequate internal audit coverage due to under-staffing. Issues include the following:”

• “Compliance risk – are there areas where the City is out of compliance...? It leaves the City vulnerable to 'gotcha' situations and potential penalties...”

• “Fraud risk – In an economic downturn, incidents of fraud generally go up... there is concern that with only one auditor Internal Audit does not have sufficient resources to assist in this high-priority effort.”

• “Program/Performance Audits – More Internal Audit 'customers' are seeking recommendations for potential improvements in efficiency and effectiveness. This too would require more auditors...”

“In looking at cities with similar sized budgets and their internal audit functions, all had more staff than Minneapolis has. Some examples are as follows:”

• “Atlanta, Ga 8 FTE”

• “Charlotte, NC 9 FTE”

• “Mesa, AZ 4 FTE”

• “Portland, OR 11-15 FTE”

• “Seattle, OR 6-10 FTE”

“The Minneapolis Internal Audit Charter, originally written in 1986 and, as far as could be determined from the records, not reviewed any time recently, lacks key elements required under the IIA Standards. The definition of Internal Audit is not current and does not reference the standards. The Audit Charter does not discuss i) attributes, ii) responsibilities, or iii) standards of Internal Audit. It also lacks signatures and dates or other evidence of approval by the Board of Estimate and Taxation...”

“An external review of Internal Audit's compliance with the Standards is required every five years. Generally, this is a peer review performed by either the IIA, the Twin Cities chapter or another professional organization. The first of these reviews was due by the end of 2006 and another is required every five years after. Minneapolis has never had one up to this point”

“Internal Audit is out of compliance with the requirement for an external review, which has never been performed.”

“Based on this review and the observations described in this report, Minneapolis Internal Audit does not comply with the Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing. Several deficiencies in meeting the Standards were discussed in the previous two sections of this report. Many of the problem areas may be related to the chronic lack of resources for the function. However, some relate to structure and function, while others deal more specifically with the practice of conducting audits.”

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