Voluntary formation of audit committees by large municipal governments

The Sarbanes–Oxley Act of 2002 requires that publicly-traded U.S. corporations have an audit committee in their internal control structure. In contrast to publicly-traded commercial firms, municipal governments are not required to form audit committees. Given that regulators believe it is a crucial aspect of internal control, we examine the extent to which city governments feature audit committees in the internal control structure. Based on a survey of financial managers from cities with populations greater than 100,000, we find that approximately 58% of the municipalities have such committees. Results indicate that larger and more financially viable cities are more likely to have audit committees. However, the form of municipal government and the quality of the local government’s financial reporting and audit processes are not significant determinants of the presence of an audit committee.