Most local government agencies and quasi-public organization (local auditee) employees try to be good stewards of public funds. They implement good internal controls over their processes. They follow the laws and regulations applicable to their agency. If a finding is included it in in their annual financial report, they correct it as soon as they can.
Unfortunately, some local auditees have the same findings repeated year after year in their audit, review/attestation or compilation reports, and never make any apparent effort to correct them. Writing repeat findings is frustrating to the CPA having to write them, and is equally frustrating to the taxpayers whose money goes to support an agency whose employees are not fulfilling their fiduciary responsibilities.
The problem of unresolved, repeated findings in local auditees’ reports was addressed by Act 462 of the 2015 Legislative Session. Act 462 amended the audit law (Louisiana Revised Statute (R.S.) 24:554 (B)) to authorize the Legislative Audit Advisory Council (LAAC) to direct the state treasurer to withhold funds from any local auditee that has failed for three consecutive years, and without appropriate cause, to resolve the findings contained in the local auditee’s annual financial report (“without appropriate cause” means there is no apparent reason that the finding hasn't been corrected). Act 462 of the 2015 Legislative Session is also referred to as the three strikes law.
The Louisiana Legislative Auditor (LLA) has developed a system for tracking report findings that have remained unresolved for three years or more. As a CPA submits each local auditee’s report through the web portal on LLA’s website, the CPA inputs information into the portal about any findings and management letter comments that are included in the report. These findings are evaluated by LLA in order to make recommendations to LAAC regarding the local auditees whose findings have remained unresolved, without cause, for three years or more.
In order to avoid the repercussions of the three strikes law, including loss of state funding to their agency, local auditees should resolve their findings as soon as they possibly can. If the local auditee is not sure how a finding can be resolved, the CPA who performs the agency’s audit will be able to give them guidance.
- Will LLA refer a local auditee to LAAC if a finding has been repeated in its audit reports for three years or more that is with appropriate cause – that is, if there is a legitimate reason it has not been resolved?
- The CPA that performs my agency’s audit also prepares our financial statements. We have chosen to do this because there is no one in our organization who has the skill to prepare our financial statements in accordance with generally accepted accounting principles. The CPA writes a finding on this every year; he has explained to us that he is required to do so by the auditing standards he has to follow, and we understand his reasoning. Will this kind of finding be referred to LAAC? The reason we ask him to prepare our financial statements is to make sure they are correct.
- My agency is very careful every year to adjust our budget so that any variances are within the percentage allowed by law. Every year it seems that the CPA who performs the audit proposes adjustments to my agency’s financial statements that cause our budget variances to exceed the allowed percentage, and the CPA writes a finding. Will this kind of finding be referred to LAAC?
- What are the consequences to my agency if the CPA reports findings involving fraud, misappropriations, ethics violations or other matters?