Public Accountability and Bureaucratic Discretion: Why do Internal Auditors Stretch the Boundaries of Their Role?

• Published date: 01 November 2024
• DOI: http://doi.org/10.1177/02750740241265893
• Author: Dana Natan-Krup,Shlomo Mizrahi
• Date: 01 November 2024

Public Accountability and Bureaucratic

Discretion: Why do Internal Auditors

Stretch the Boundaries of Their Role?

Dana Natan-Krup

1

and Shlomo Mizrahi

1

Abstract

Our goal is to identify the factors that encourage internal auditors in the public sector to use their discretion when conducting

audits. By investigating multiple relationships between principals and agents, we show how comp lex structural conditions and

accountability pressures inf‌luence public auditors’discretion in the choice of audits they decide to conduct. To test our the-

oretical model and hypotheses, we created a closed-ended questionnaire distributed to a sample group of Israeli auditors. Our

f‌indings reveal a conditional effect between the factors related to the internal and external work environments of internal

auditors. Our analysis indicates that internal support for internal auditors’professional authority is signif‌icantly related to

their inclination to stretch the boundaries of their role when they strongly believe that their direct principals are concerned

about the expectations of the public and the audit committee regarding accountability. Nonetheless, individual auditing expe-

rience in the public sector was not signif‌icantly related to their professional approach. Our bottom-up approach emphasizes

the role of citizens’democratic awareness and their demand to support the broad scope of gatekeepers, rather than just

explanations about the role of elites. Moreover, our conclusions emphasize the role of internal support for the auditors’pro-

fessional authority and question the role of their perceived independence in the approach they adopt to auditing.

Keywords

public sector auditing, accountability, principal-agent, organizational culture, bureaucratic discretion

Introduction

In recent decades many democracies have faced declining

public trust in governments, which undermines the core prin-

ciples of the social contract between citizens and the state and

threatens their stability (Rothstein, 2021). One leading factor

in such dynamics is the declining effectiveness of account-

ability mechanisms, in which public servants must explain

and justify their decisions and actions to the public, and

may face consequences for them (Bovens, 2007; Ferry &

Midgley, 2021).

Given that citizens have limited professional knowledge

and resources to actively monitor the political and adminis-

trative systems, they may rely on public off‌icials or gatekeep-

ers such as auditors and judges to supervise and monitor these

systems and strengthen their accountability (Morin &

Hazgui, 2016; Schweitzer & Saks, 2009; Thomasson,

2018). The legal and professional mandate granted to these

gatekeepers gives them some level of discretion about how

to do their jobs (Evans & Hupe, 2020). While they might

decide to increase their supervision, doing so may undermine

the ability of public off‌icials to implement policies, which

may lead to signif‌icant administrative costs (Liston-Heyes

& Juillet, 2021; Weingast & Moran, 1983).

Thus, public off‌icials who monitor the political and

bureaucratic systems may be criticized for their actions and

risk their positions. For example, the former President of

the U.S., Donald Trump, and the Prime Minister of Israel,

Benjamin Netanyahu, blame the judicial systems in their

countries for being hostile to them (Navot & Goldshmidt,

2022; Nelson & Gibson, 2018). Similarly, in 1995–1997, fol-

lowing an increase in policy-oriented audit reports of the U.S.

General Accounting Off‌ice (GAO), Congress slashed the

state auditors’budget (Grasso & Sharkansky, 2001).

This paper focuses on the factors that inf‌luence the percep-

tions of internal auditors (IAs) in the public sector that, in

turn, affect their decisions about the type of audit they

conduct. IAs usually have limited independence because,

unlike judicial systems and state auditors who have more

autonomy and independence, IAs report to senior public

1

Department of Public Administration and Policy, School of PoliticalScience,

University of Haifa, Haifa, Israel

Corresponding Author:

Dana Natan-Krup, Department of Public Administration and Policy, School

of Political Science, University of Haifa, Haifa, Israel.

Email: danakrup13@gmail.com

Article

The American Review of Public Administration

2024, Vol. 54(8) 699–716

© The Author(s) 2024

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/02750740241265893

journals.sagepub.com/home/arp

off‌icials (Alzeban & Gwilliam, 2014; Asiedu & Deffor,

2017; Liston-Heyes & Juillet, 2020). Thus, a conf‌lict may

arise when IAs try to monitor the actions of senior public off‌i-

cials, because they are actually auditing those who supervise

them.

We suggest that the scope of the discretion of these audi-

tors is expressed in their inclination to adopt a broad-based

systems audit (BBSA) approach. In such an audit, the audi-

tors consider the organization or system in its entirety as a

complex of interacting elements. They conduct large-scale

audits of the organizations’managerial and control systems

before and/or during the audited activity.

Such an approach may strengthen accountability and safe-

guard the public interest by balancing the power of different

players (Ferry & Midgley, 2021; Funnell, 2008). However, a

BBSA approach maydamage the reputation of public off‌icials

and thus have negati ve consequences for politicians a nd senior

public off‌icials in their relationship with citizens. Given that

IAs depend on senior public off‌icials, the latter may limit the

auditors and undermine their position in response to audit

practices that harm their public reputation. Therefore, we

seek to identify the factors that motivate auditors to improve

their supervision of decision-making by conducting a BBSA.

In this paper, we focus on the impact of citizens’percep-

tions and expectations on the professional choices that IAs

make regarding their auditing approach. Assuming that

public off‌icials want to prove to the public that they are

acting in its best interests and build their reputations, they

care about the public’s demands and expectations, which

may inf‌luence their choices in doing their jobs (Busuioc &

Lodge, 2016; Mizrahi & Minchuk, 2019a; Rivera & Knox,

2023). Hence, the costs and risks depend on citizens’percep-

tions regarding their role in democracies and their demand for

and willingness to promote accountability actively, all of

which may vary between systems and over time (Dalton

et al., 2007; Fuchs & Roller, 2018; Mizrahi & Minchuk,

2019b). Therefore, in this paper we focus on bottom-up inf‌lu-

ences on the auditors’approach. We control for the relation-

ships that are most common in the auditing literature in order

to test alternative explanations. We investigate the role of the

IAs’assessments about the demands of the public in their

decision about how broad an audit to conduct.

Based on the principal-agent model and accountability lit-

erature, we suggest that IAs in the public sector are agents

who have relationships with multiple principals—politicians,

senior public off‌icials, audit committees, and the public.

Applying the ideas of multiple accountabilities and felt

accountability, we assume that IAs feel a certain degree of

accountability toward each of these account holders and

assess their expectations about their auditing (Aleksovska

et al., 2022; Hall et al., 2017; Overman & Schillemans,

2022). Specif‌ically, we focus on subjective variables that

provide insights into how the IAs’perceptions and subjective

experience inf‌luence their professional considerations in

these relationships. This approach allows us to understand

how multiple pressures in hierarchical systems regarding

accountability inf‌luence the auditors’professional discretion,

and the conditional effect of factors related to the internal and

external work environments of IAs. To test our framework,

we distributed questionnaires to a sample group of Israeli

auditors. We also conducted in-depth interviews and a pilot

survey to validate the questionnaire’s results.

Our empirical analysis focuses on the Israeli case, which is

extremely relevant because of the current lack of consensus

in the country about the role of public off‌icials who

monitor and supervise democratic systems. This case is

also ideal for this type of study because of the ambiguity of

the legal mandate granted to Israeli IAs. Furthermore, in

the absence of centralized audit mechanisms, each public

organization is free to decide how to comply with the law

(Schwartz & Sulitzeanu-Kenan, 2002). In these circum-

stances, IAs may face signif‌icant consequences if they

choose to audit senior public off‌icials.

Our study makes several contributions. First, we expand the

analysis of bureaucratic discretion, which generally focuses on

the direct relationship between street-level bureaucrats and citi-

zens (Lipsky, 1980). Rather than focusing on street-level

bureaucrats, we include gatekeepers in general and IAs in par-

ticular in that discussion. Given the unique position of gatekeep-

ers, they have relatively more autonomy than other bureaucrats,

but they also depend on public legitimacy. Thus, we emphasize

that the choices that bureaucrats make are based as much on the

demands of the public as on considerations about representing

specif‌ic issues (see Marvel & Resh, 2015).

Second, we show how the public environment inf‌luences

the perceptions of IAs. The auditing literature tends to focus

on the relationships between public off‌icials and auditors,

emphasizing factors such as top management’s support,

IAs’independence, their feelings of isolation, and the organi-

zation’s culture and openness to change (Cohen & Sayag,

2010; Hay & Cordery, 2018; Liston-Heyes & Juillet, 2019;

Vashdi et al., 2022; Yang, 2020). Our bottom-up approach

highlights the need to investigate public auditing in the

context of the civic culture and the social environment.

Third, this study expands our knowledge about the charac-

teristics of the supportive environment required to enable IAs

to function effectively and improve the control and account-

ability of public organizations. Our conclusions emphasize

the role of internal support for the auditors’professional

authority. They also highlight questions about the complex

relationship between this factor and auditors’perceptions

about their informal independence.

Theoretical Framework

A complex View of the BBSA Approach in the Context

of Bureaucratic Discretion

What does broad discretion mean in the case of auditing? The

literature offers various typologies of approaches to auditing,

700 The American Review of Public Administration 54(8)