This study examines the association between governance and internal control deficiencies in the municipal government sector using cities with populations over 50,000. I hypothesize that municipalities with governance structures consistent with greater allocative efficiency (i.e., how well services produced match citizens' preferences) and lower productive efficiency (i.e., how effectively services are produced and provided given a level of resources) will have more internal control deficiencies. To test my hypothesis, I develop a new measure of municipal governance based on the following eight governance mechanisms: form of government, presence of a chief appointed official, shared budget-setting authority, election or appointment of department heads, direct democracy, council voting power of chief elected official, presence of chief elected official on council, and council terms. As predicted, I find that city governments with a combination of governance mechanisms consistent with greater allocative efficiency are more likely to report an internal control deficiency than cities that have adopted governance mechanisms consistent with greater productive efficiency.
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