In The Shadow Of Corporate Scandal: The Use Of Audit Committees In U.S. Local Governments

Abstract

Recent financial scandals in the private sector have led to widespread speculation that public organizations may be susceptible to similar events of financial misconduct and should, therefore, be required to adopt similar strategies to those that are mandated of private-sector corporations under the Sarbanes-Oxley Act of 2002. This paper looks at one of those strategies by examining the use of audit committees in U.S. local governments. Specifically, this paper explores (1) why local governments have heretofore voluntarily created audit committees, (2) the perceived benefits and problems of audit committees, and (3) whether the use of audit committees is compatible with the principal-agent logic that underlies their promotion.