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[underlined]] States, Cities and Municipalities [[/underlined]]

This group is clearly the most concerned about the rotation of auditors, and the use of RFPs in the selection process. The study of New York State practices was previously mentioned. Two professors at St. John's University with "Big Eight" experience sent out 120 questionnaires; sixty-six were returned. Two-thirds of the respondents were audited by an external firm; 46% of the respondents were legally mandated to have such an audit while another 21% submitted voluntarily. 

The study further showed that only 20% of those legally mandated to use an outside audit firm were required to competitively bid the selection or to adhere to a rotation policy.

The Treasurer's Office set out to talk to the Comptrollers of eleven of the nation's largest cities. Only six interviews were completed: Washington, D.C., Miami, Boston, Atlanta, San Diego, and New York. All had rotation policies of three to five years; all used RFPs although the ultimate decision process varied.

[[underlined]] Further Words on Rotation [[/underlined]]

The Commission on Auditors' Responsibilities established by the American Institute of Certified Public Accountants and headed by Manuel F. Cohen before his death in 1977 comments as follows on the rotation of auditors: "Another frequently made proposal is to require companies to rotate independent auditors so that a new one is appointed every three to five years. Since the tenure of the independent auditor would be limited, the auditors' incentive for resisting pressure from management would be increased. Also, it is argued that a new independent auditor would bring a fresh viewpoint."

The Commission Report continues "Rotation would considerably increase the cost of audits because of the frequent duplication of the start-up and learning time necessary to gain familiarity with a company and its operations that is necessary for an effective audit. More important, in the Commission's study of cases of substandard performance by auditors, several of the problem cases were first- or second-year audits. While not conclusive, this indicates the higher peril associated with new clients. Once an auditor becomes well acquainted with the operations of a client, audit risks are reduced..." 


[[underlined]] Smithsonian External Audit History [[/underlined]]

As previously indicated, Coopers & Lybrand were first retained in FY 1979 to audit Trust funds. Their mandate was expanded to Federal funds with FY 1981. Fees have held steady at 0.03% of Smithsonian expenditures and are comparatively modest vis-a-vis those charged like organizations. The audit staff has been rotated regularly; William Mann, the Partner-In-Charge of the account since inception, stepped down at the end of FY 1986. Peat Marwick had serviced the Smithsonian for over twenty-five years previous to Coopers & Lybrand's selection.