A certified public accountant (CPA) is required by generally accepted auditing standards to plan and perform their audit to obtain reasonable (but not absolute) assurance that a local auditee’s financial statements are free of material misstatement, whether caused by error or fraud.

What does a CPA do when they find fraud while performing an audit, review/attestation, or compilation engagement for a local auditee?

1. The CPA should ensure that the agency head has sent a written notification regarding the fraud to the Louisiana Legislative Auditor (LLA) and the District Attorney in the parish in which the agency is domiciled, if required to do so by Louisiana Revised Statute (R.S.) 24:523. If the local auditee has not sent the required notification, or if the CPA cannot confirm that notification has been sent, the CPA should include a finding in the local auditee’s report for the matter of noncompliance with R.S. 24:523. For additional information, see Reporting Fraud to the Legislative Auditor.
2. If the local auditee is not required by R.S. 24:523 to notify LLA of the fraud or misappropriation, the CPA should advise the local auditee to do so anyway. If the local auditee chooses not to notify LLA, the CPA should notify LLA of the misappropriation.
3. The CPA should advise the local auditee to contact the appropriate law enforcement agency, which may be the local police department, the parish sheriff, or state police.
4. The CPA should advise the local auditee to contact their legal counsel to determine the action that should be taken regarding the person believed to have perpetrated the fraud or misappropriation, if known.
5. The CPA should determine what tests need to be performed regarding the fraud or misappropriation, and how the fraud or misappropriation should be reported in the related audit (or review/attestation or compilation) report. They may wish to consult with LLA’s Director of Investigative Audit and/or Director of Local Government Services for guidance. See also Special Reporting – Fraud and Misappropriations.
6. If the CPA feels that the fraud or misappropriation is an indication that the local auditee’s financial statements may be materially misstated, he or she should consider modifying his or her opinion, or withdrawing from the engagement. See Cancelling An Engagement.

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