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We investigate whether the presence of municipal audit committees is associated with internal control quality in the municipal setting. The evidence shows that only 20 percent of municipalities in our sample voluntarily maintained an audit committee during the sample period of 2001 through 2004. Our results highlight that municipalities with audit committees are associated with fewer internal control problems, which in turn suggests these cities should be less likely to experience future significant financial reporting failures. These results persist in specifications that use econometric procedures to address concerns about self-selection. Overall, our findings suggest that audit committee presence plays an important role in municipal financial oversight.

SYNOPSIS We examine whether unfunded public pension liabilities are associated with citizen oversight through legislative and electoral means in local governments. Our focus on municipal pension plans is timely and relevant, given the prevalence of underfunded pension plans and the GASB's recently issued statements on state and local pension reporting. Using a sample of 84 locally administered municipal defined benefit pension plans in 2009, we find evidence that the level of unfunded pension obligations is negatively associated with both provisions allowing direct citizen participation in the legislative process and electoral voter activism in the form of recent recall attempts. Overall, our empirical evidence is consistent with citizen oversight mechanisms playing an important role in the pension funding decisions of municipal governments. JEL Classifications: G34; H55; H72.