Are inspectors auditors like any other ?

Michael Power is Professor of Accounting at London School of Economics and Political Science. 

He draws upon organization theories to understand the roles of accounting in economy and society. He wrote several books, includingThe Audit Society: Rituals of Verification (1997) and Riskwork: Essays on the Organizational Life of Risk Management (2016)

The book highlights a form of coexistence, at least in France, between inspection services and the various audit and consulting services, both public and private. It shows how inspectors manage to maintain their legitimacy despite the recurring criticisms they face. What parallels can you draw with the British case? Have inspection services kept a number of areas under their jurisdiction despite the boom of audit and consultancy firms over the last 30 years?

Reading the book, it seems to me as if inspectors have managed to sustain their jurisdiction in France more effectively than in the UK, where they have weaker grounding as independent agencies of the State. It may also be cultural. While there are dangers of stereotypes, the UK is an environment where auditor generalists thrive and where sector-specific experts have, until the Pandemic perhaps, been viewed with suspicion. My impression is that in France there is greater respect for expertise and field-specific technical knowledge which gives the inspector more authority and cultural security to act as a critic. That said, it is dangerous to generalize. Certain areas in the UK have proud autonomous traditions. Her Majesty’s Inspectorate (HMI) of prisons is one such, perhaps because its jurisdiction and purpose are well defined. However, where fields like health care are subject to multiple inspections and audits, then “jusrisdictional drift” and confusion is evident. 

Among the issues highlighted in the book are the management of the distances between inspector, principal and inspectee, and the ability of inspectors to "enter" the organizations they inspect. It seemed to us that these two elements could perhaps help interpret the differences between internal and external audit. To what extent is this true?

This is a very important question but I am unsure of the answer. « Distance » is often associated with the idea of formal-legal independence from the organization being inspected or audited. Yet, it is multi-dimensional. External auditors are paid directly by the organizations that they audit; inspectors are not. This makes inspectors more economically distant/ independent from the inspectee. In The Audit Society I also argued that independence and distance can be thought of as epistemological, meaning not just to do with an independent state of mind at the individual level, as is commonly thought, but also implicating an independent body of inspection knowledge grounded in science and law. Here the distinction between inspectors and auditors is less clear empirically. Inspectors are likely to be stronger on field-specific knowledge as compared with auditors’ more abstract knowledge. Inspectors are generally restricted to a field because of this, whereas auditors are in principle more mobile.

Furthermore, both inspectors and auditors are to a large extent operationally dependent on the cooperation of the auditee/ inspectee. However, some inspectorates also have the power of the « surprise visit » giving them yet another kind of distance from the inspected organization, but also a very unique ability to enter the organization at short notice, which the police also have. Of course it is an empirical question as to which inspectors have this power and whether and how they use it.

We can provisionally map inspectors in relation to auditors in terms of these two dimensions of ability to enter the organization and distance from it.

Of course, this matrix is a simplification but it highlights how the inspector may be contrasted with both the internal and external auditor. The inspector has a high degree of knowledge affinity for the inspected organization, but also has high structural and moral independence. The external auditor is, very surprisingly perhaps,in the Low/ Low cell relative to the inspector because they only have structural-formal independence and can only enter the organization in a planned manner and with permission. 

The interesting outcome of this analysis, although it is simple, is an answer to your question about how to interpret the difference between the internal and external auditor. Traditionally, this distinction emphasises the independence of the external auditor, yet they may not be so different in substance on this dimension. Only the internal auditor is uniquely an insider. Clearly there needs to be more thinking about these issues, but it is useful to suggest that the contrasts between inspectors and auditors (internal and external) are multi-dimensional.

Your works pay attention to risk management as a routine practice. In this respect, inspectorates are in a quite paradoxical situation: each crisis leads to their public questioning - since inspectorates supposedly prevent crises from happening. Yet, each crisis is an opportunity for public authorities to launch inspections to report on it. Isn’t this apparent paradox common to any crisis management system/ device? Does it occur again in the context of the Covid-19 outbreak?

Yes, inspectors are in the same position as any agency which “regulates risk”. It is worth noting that the pressure for more risk-based approaches within both inspection and audit is a source of convergence between the two practice-forms. They may take different risks as their primary object of interest, but their methodologies will be increasingly similar according to general templates of the risk management process. We also know that the routineness and predictability of inspection and audit work can be a risk in itself. Thus the randomness and non-predictability of some forms of inspections (“surprise visits”) can be an effective strategy for inspectors to police service quality and avoid this kind of risk.

In a recent paper with colleagues, I argue that there is a “risk cycle” characterized by three temporal modes of organizing risk: anticipatory and preventative; real-time and responsive; and restrospective and forensic. These temporal modes need not be purely sequential and may overlap e.g. retrospective enquiries may begin while crystallised risks are still being managed. Inspectors find themselves mainly in the anticipatory part of the cycle, engaged in routine risk work and looking to intervene within their powers to prevent serious risk events from crystallizing. But their specific forensic skills are also in demand after the event to produce reviews and reports which enable the state to learn from risk crystallization. The work of WHO specialists in China to investigate the outbreak of Covid-19 at ground zero is an interesting case of an investigation happening while the event is still hot. It is also a case study of how the “ability to enter” noted earlier can be significantly constrained for political reasons.

Specific inspectorates may find themselves criticized after serious events and be subject to reform but, as you imply, paradoxically they cannot be criticized too much but must be reconstituted and relegitimised. Often this is achieved by superficial reforms, such as change of name and organizational structure. However, just like auditors, inspectors may face an “expectation gap” whereby the public may not understand that the precise scope of an inspector’s work may be narrower than they would like. Hence, inspectors can be blamed for failing to prevent negative events.

Finally, if this risk cycle continuously “moves”, then a critical issue is how regulators and inspectors make the transition between different phases of it. The experience of Covid-19 has taught us that, in the face of risk crystallization, reactions may be delayed as key political actors find it hard to accept that the world has fundamentally changed and that emergency conditions prevail. From a normative point of view, strong independent, expert inspectorates are more likely to be capable of giving the advice that accelerates transition than generalists. In this respect, Covid-19 may lead to a reevaluation and revival of inspection as a mode of risk management. 

Interview realised by Sylvain Brunier & Olivier Pilmis- 2021