Additional Audit Procedures Expected To Provide More Transparency, Greater Accountability

The Legislative Auditor has expanded the focus of audits for local governmental entities to include the evaluation of financial areas more prone to fraud, waste, and abuse. To achieve that goal, the auditor issued a set of statewide agreed-upon procedures (AUPs) last month that represent the minimum level of additional work to be performed during these local audits.

These AUPs affect only local entities that are required by law to have an audit. Local entities that do not fall under the audit law, state entities that are included in the Comprehensive Annual Report of the State of Louisiana, and St. Tammany Parish governmental entities subject to Act 774 of 2014 are exempt from the new AUPs. The new procedures will take effect beginning with audits for those entities whose fiscal year ends June 30, 2017.

Each year, the Legislative Auditor contracts with independent CPAs to perform more than 2,000 audits of local governments and quasi-public organizations. For many years, the Legislative Auditor has worked to address the concerns created by what taxpayers, legislators, and others believe is being examined in an audit and what is actually being provided. Under professional standards, contract auditors are allowed to choose which financial areas to focus on during their audits. In general, the CPAs tend to focus only on those financial areas that have the highest dollar impact. Consequently, financial areas that have relatively smaller dollar impacts, but that may have a higher risk of fraud, waste, or abuse, receive only limited analysis. These higher risk areas are the ones the new AUPs are intended to address.

The procedures were developed by a working group that included the Legislative Auditor’s office, small and large CPA firms, and the Society of Louisiana CPAs. The goal of the AUPs is to help local entities strengthen their internal controls so as to lessen the risk of fraud, waste, and abuse and to increase operational efficiency. While the new AUPs may result initially in additional costs for the audited entities, Legislative Auditor Daryl Purpera said he firmly believes the procedures will improve accountability and transparency and, over time, yield cost savings for local governments as the risk of fraud, waste, and abuse is reduced, as well as overall operating costs.

The Legislative Auditor’s office is working now to develop resources to address frequently asked questions, and to provide example documents and best practices for the contract CPAs and local governments. These resources are expected to be completed in the next few weeks.