Assurance Services • Published 4/06/2017 New Statewide Agreed-Upon Procedures for Quasi-Public Entities, including Nonprofits

The Louisiana Legislative Auditor has prescribed statewide agreed-upon procedures for governmental and quasi-public entities, including nonprofits. These procedures are effective beginning with those entities that have a June 30, 2017 fiscal year-end and are only required to be performed when the entity must have an audit in accordance with LA R.S. 24:513 (the audit law).

The procedures are directed toward specific areas of operations where fraud and abuse, noncompliance, or internal control deficiencies have been found to be at higher risk by the Legislative Auditor. Such areas include credit card purchases, contracting, travel costs, ethics law matters and others. These agreed-upon procedures (AUPs) are intended to represent a minimum level of additional work to be performed. These procedures may be considered to be “complementary” rather than “additive,” depending on the extent to which previous audits considered these areas in development of the auditor’s opinion on the financial statements as required by generally accepted auditing standards.

How does this affect you and your entity?

As a nonprofit, these procedures may or may not apply to you.  It will depend on whether you meet the definition of a quasi-public agency. A quasi-public entity is considered an agent of public entities. In other words, the quasi-public stands in the shoes of public entities, performing governmental functions. The quasi-public, therefore, must report in detail on the public funds it receives and how those funds are expended. If public funds are commingled with private funds, a quasi-public must report all funds it receives. 

Quasi-public defined – do I meet the definition?

For your consideration in determining whether you are a quasi-public agency, a quasi-public agency is defined as follows:

• An organization, either nonprofit or for profit, created by the state of Louisiana or any political subdivision or agency thereof, any special district or authority, or unit of local government to perform a public purpose.
• An organization, either nonprofit or for profit, that is a component unit of a governmental reporting entity, as defined under generally accepted accounting principles.
• An organization, either nonprofit or for profit, created to perform a public purpose and having one or more of the following characteristics:
  • The governing body is elected by the general public.
  • A majority of the governing body is appointed by or authorized to be appointed by a governmental entity or individual governmental official as a part of his official duties.
  • The entity is the recipient of the proceeds of an ad valorem tax or general sales tax levied specifically for its operations.
  • The entity is able to directly issue debt, the interest on which is exempt from federal taxation.
  • The entity can be dissolved unilaterally by a governmental entity and its net assets assumed without compensation by that governmental entity.
• Any nonprofit organization that receives or expends any local or state assistance in any fiscal year. Assistance shall include grants, loans, and transfer of property, awards, and direct appropriations of state or local public funds. Assistance shall not include guarantees, membership dues, vendor contracts for goods and services related to administrative support for a local or state assistance program, assistance to private or parochial schools, assistance to private colleges and universities, or benefits to individuals.
• Any organization, either nonprofit or for profit, which is subject to the open meetings law and derives a portion of its income from payments received from any public agency or body.

You are a quasi-public entity – which funds should be included for these procedures?

For nonprofit entities that are considered to be quasi-public entities, only those AUPs relevant to public monies (and only to the extent that the AUPs are applicable) are required to be included in the scope of the AUP engagement. For example, if a nonprofit receives $10 million in non-public funds and also receives $600,000 in public funds, only the $600,000 would be subject to these AUPs if the funds are not otherwise commingled.

In this example, if the nonprofit did not use the $600,000 in public funds for payroll or travel expenses, the portions of the AUPs relating to these areas are not required to be included in the scope of the AUP engagement or report.  If, however, these funds were commingled, and a separate accounting is not maintained by the organization these agreed upon procedures should be applied to all funds of the organization.

For example, if a nonprofit receives $10 million in non-public funds and also receives $600,000 in public funds, all $10,600,000 of funds would be subject to these AUPs and all related procedures as it relates to all expenses of the organization are would be considered in the populations used in performing them. 

Ultimate effect – what can I anticipate as a result of these procedures?

These procedures may increase the time and effort required to complete the audit and potentially its costs. Additionally, since the auditor’s scope is now enhanced, increased detection by the auditor of fraud, abuse, noncompliance and internal control matters could occur. You should review the agreed-upon procedures closely to address areas of operations and internal controls subject to the procedures.