Peer Review: More Than A Look Over Your Shoulder
What is Peer Review?
The term peer review is commonly used to describe the formal process for monitoring compliance with quality control policies and procedures of CPA firms and governmental audit organizations. The process is also known as a quality control review or quality assessment review.
The accounting profession’s first uniform peer review program was created in 1977 by the American Institute of Certified Public Accountants (AICPA). The program required all member firms conducting attestation functions to adhere to a single set of generally accepted auditing standards. The most important requirement—peer review every three years—would monitor adherence to those standards. The peer review process was initially designed as an educational and remedial program to prevent recurrences of problems and correct deficiencies in the practices of member firms.
The Government Accountability Office (GAO), established in 1921 as the General Accounting Office, promulgated the Government Auditing Standards (“Yellow Book”) that have been adopted in the peer review process. The GAO disseminated the first Yellow Book in 1972. In 1991, the National Association of Local Government Auditors (NALGA) established a peer review program to assist member organizations in complying with the Yellow Book standards. NLAGA expanded the peer review program in 2005 to include “Red Book” reviews, or peer reviews for audit organizations utilizing the International Standards for the Professional Practice of Internal Auditing (“Red Book”), adopted by the Institute of Internal Auditing (IIA). For Red Book reviews, audit organizations are required to have an external assessment completed every five years.
A peer review team is engaged by the CPA firm or governmental audit organization to perform the review. Each member of the peer review team is required to be independent of the CPA firm or governmental audit organization and must be qualified to perform the review. The peer review team evaluates the firm’s or organization’s internal quality control policies and procedures and selects audits and attestation engagements to evaluate whether the firm or organization followed its internal quality control policies and procedures when performing those engagements. The results of the peer review team’s evaluation are submitted in a peer review report. The reviewed CPA firm or governmental audit organization responds in writing to the peer review team’s comments on matters in the peer review report and/or in the letter of comments. The response describes the actions taken or planned with respect to each matter in the report and/or the letter.
Peer Reviews of NLPES Member Offices
Forty-five states have NLPES member offices that conduct performance evaluations and audits and most of these offices receive a peer review on a regular basis. Over half of the offices—twenty-six—have adopted the Government Auditing Standards (Yellow Book) that require the offices to receive a peer review at least once every three years but do not require a peer review to be conducted by any specific organization. Many of these offices conduct both financial audits and program evaluations and, in the past, have chosen to receive peer reviews conducted by the National State Auditors’ Association (NSAA), which was organized as an associate of the National Association of State Auditors, Comptrollers, and Treasurers (NASACT). NSAA provides peer reviews that cover both financial audits and performance evaluations.
Offices must be members of NASACT to request a peer review from this organization. Therefore, NSAA peer reviews are not accessible to many NLPES member offices such as the nineteen offices that have not adopted the Government Auditing Standards and that are not NASACT members. In addition to the nineteen unaffiliated member offices, there are NLPES member offices with NASACT affiliation that have expressed a desire to receive peer reviews from another source. A primary reservation with reviews conducted by NSAA is that the organization’s emphasis is on financial auditing. NSAA peer reviewers may not sufficiently understand how state legislative performance evaluation and audit offices operate.
NCSL-Coordinated Peer Reviews of NLPES Member Offices
NCSL, with assistance from more than 30 performance evaluators and auditors from NLPES member offices, has conducted 10 peer reviews:
Florida Office of Program Policy and Government Accountability (2002 and 2006)
Hawaii Office of the Auditor (2007 and 2010)
Nebraska Legislative Performance Audit Section (2008 and 2012)
Utah Office of the Legislative Auditor General (2011)
Washington Joint Legislative Audit and Review Committee (2007 and 2011)
Wyoming Program Evaluation Section of the Legislative Service Office (2010)
Executive directors of the reviewed offices, as well as the NLPES peer reviewers, report that they received benefits from participating in NCSL coordinated peer reviews. Prior to the arrival of the NLPES peer reviewers, the offices being reviewed were able to take the opportunity to re-examine how their offices operated. The offices being reviewed were given the opportunity to learn from the peer reviewers on how other NLPES offices function and how to incorporate these practices into their own operations. The reviews also provided feedback and recommendations on how the reviewed offices could improve their structure and processes from an objective group of “outsiders.”
In addition to meeting one office’s statutory requirements for a peer review, the review also provided suggestions on the supervision of projects, project management and the quality control process. Overall, the external review affirmed the offices’ credibility and validated their ability to meet the needs of their legislatures and legislative committees. The NLPES peer reviewers also benefited from the reviews. Similarly to the reviewed organizations, the peer reviewers had the opportunity to see how other states’ legislative program evaluation and audit agencies were organized and brought back ideas from these states to their own offices. These ideas were used to improve processes of the reviewers’ home offices. The interaction between the peer review team members and the reviewed offices provided a learning experience and training to the external peer review teams.
Future Peer Reviews of NLPES Member Offices
For the past several years, there has been interest among NLPES member offices for the NLPES Executive Committee to establish a peer review process that is similar in design and implementation to the NCSL-coordinated peer reviews. Because NLPES members understand the unique nature of the work completed by state legislative performance evaluation and audit offices, these offices could receive peer reviews that more specifically address improvements for performing qualitative-oriented work. The Professional Development and Training Subcommittee of the NLPES Executive Committee is currently in the process of researching and designing a peer review process for member offices. The Executive Committee has an NLPES-authorized peer review process finalized and available for use by member offices.