Financial Condition and Internal Control Deficiencies: Evidence from New York Counties

Abstract

In recent years, significant attention has been given to measuring the financial condition of local governments, predicting when those governments will experience fiscal distress, and understanding how public managers navigate financial shortfalls. Researchers have given less focus, however, to understanding how financial condition affects other financial management practices—such as the administrative systems used to ensure financial accountability. This study uses a 19‐year panel of county‐level data from New York State to examine whether financial condition affects the likelihood of internal control deficiencies. The findings indicate that the incidence and severity of internal control deficiencies increase as financial condition deteriorates.