Findings And Management Letter Comments

Most audit reports that are submitted to the Louisiana Legislative Auditor (LLA) are performed under generally accepted government auditing standards or GAGAS.

During the performance of a GAGAS audit, the CPA firm will perform tests of the local auditee’s internal controls over financial reporting. The CPA firm will also perform tests of the local auditee’s compliance with laws, regulations, contracts, and grant agreements. The CPA firm will perform special tests of the local auditee’s federal programs if the local auditee spent $750,000 or more in federal assistance.

Sometimes the CPA finds there are problems in internal control that he or she believes may lead to an error in the local auditee’s financial statements. The CPA evaluates each of these problems to determine if it is a deficiency, a significant deficiency, or a material weakness in internal control.

• A deficiency in internal control is a problem or condition that the CPA firm feels could cause the financial statements to be misstated, and the misstatement will not be detected.
• A significant deficiency in internal control is a deficiency, or a combination of deficiencies that is less severe than a material weakness, but the CPA firm feels is important enough to bring to the attention of the local auditee
• A material weakness in internal control is a deficiency or a combination of deficiencies such that there is a reasonable possibility that a material misstatement in the financial statements will not be prevented or detected and corrected timely.

The CPA is required by GAGAS to communicate significant deficiencies and material weaknesses in internal control over financial reporting to the local auditee’s management; along with any material noncompliance with laws, regulations, contracts and grant agreements; and material instances of fraud.

The type of communication required by GAGAS is a report that is included with the audit report and called the Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (or the Yellow Book report). The report references the CPA’s findings relating to the significant deficiencies, material weaknesses, and matters of noncompliance that are included in a separate schedule in the report.

Findings relating to federal awards are reported in a similar report called the Independent Auditor’s Report on Compliance for Each Major Program and On Internal Control Over Compliance Required by the Uniform Guidance (also known as the Single Audit report).

Although deficiencies in internal control are not required to be reported to management by GAGAS, many CPAs choose to do so through a less formal report called the management letter.

The CPA will ask the local auditee to provide its response to any findings in the Yellow Book report, the Single Audit report, or the management letter.

The CPA firm will also ask the local auditee to provide a schedule with the status of any prior year findings. This schedule is included in the report as well.