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)(opens in new tab)) 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.
Unresolved Findings And The Three Strikes Rule
The Louisiana Governmental Audit Guide (LAGAG) is authorized by Louisiana Revised Statute 24:513 A. (5) (a) (i) to set forth the standards by which the engagements of local governments and quasi-public organizations (local auditees) are to be performed. The LAGAG is jointly produced by the Louisiana Legislative Auditor (LLA) and the Society of Louisiana Certified Public Accountants.
Although the LAGAG is intended to assist CPAs in performing their audits and other engagements for local auditees, it does not include a detailed analysis of the professional auditing and accounting standards a CPA must consider during his or her audit, review/attestation or compilation engagements; nor is it a substitute for professional judgment. CPAs must reach their own conclusions through research of all applicable auditing and accounting standards, in addition to the LAGAG, in the performance of their local auditee engagements.
In addition, although the LAGAG is intended to assist local auditees, it does not include all the legal and accounting information an agency needs to perform its operations; nor is it a substitute for professional, legal or accounting advice; or professional or personal judgment. Local auditees should use the information in the LAGAG, in conjunction with the guidance of the professionals most familiar with the particular facts and circumstances regarding their agency, in the performance of their operations.
For questions and comments about the LAGAG, please contact LLA at (225) 339-3800.