Presentation on theme: "1 Office of the Utah State Auditor Compliance Requirements For Federal Awards Audits."— Presentation transcript:
1 Office of the Utah State Auditor Compliance Requirements For Federal Awards Audits
Background Single Audit Act of 1984 (amended 1996) Standardized audit requirements Objectives: improve grant administration, report on SEFA, audit compliance of federal awards Cost Principle Circulars (i.e. A-21, A-87, A-121, etc.) OMB Circular A-133: Audits of State, Local Governments, and Non-Profit Organizations http://www.whitehouse.gov/omb/circulars/a133_compliance_supplem ent_2013
3 Office of the Utah State Auditor Changes to Single Audit Requirements Office of Management and Budget issued Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule on December 26, 2013. Document and the related crosswalks can be obtained at: http://www.whitehouse.gov/omb/grants_doc s#final http://www.whitehouse.gov/omb/grants_doc s#final
4 Office of the Utah State Auditor Effective / Applicability Date §200.110 December 26, 2014 Federal Agencies Implement policies & procedures by promulgating regulations Non-Federal Entities Implement new administrative and cost principle requirements Audits of Awards Subpart F Audit Requirements applicable for fiscal years beginning on or after 12/26/14
5 Office of the Utah State Auditor OMB’s Stated Goals in Federal Register Notice 5...more effectively focus Federal resources on improving performance and outcomes while ensuring the financial integrity of taxpayer dollars in partnership with non-Federal stakeholders....strengthen oversight of Federal funds to reduce the risk of waste, fraud and abuse....deliver on the promise of a 21st-Century government that is more efficient, effective and transparent....streamline our guidance for Federal awards to ease administrative burden...
6 Office of the Utah State Auditor Structure of Uniform Guidance New Uniform GuidancePrevious Circular(s) Subpart A:Acronyms and DefinitionsAll Subpart B: General ProvisionsAll Subpart C:Pre-Federal Award Requirements and Contents of Federal Awards A-89 and A-110 Subpart D:Post Federal Award RequirementsA-102 and A-110 Subpart E:Cost PrinciplesA-21, A-87, and A-122 Subpart F:Audit RequirementsA-133 Appendices A section by section crosswalk to the existing guidance as well as various text comparisons can be found at: http://www.whitehouse.gov/omb/grants_docs#final
7 Office of the Utah State Auditor Applicability of Uniform Guidance 7 Applies to Federal agencies making Federal awards and non- Federal entities receiving Federal awards Subpart B –Includes chart by Subpart on applicability to different types of awards (i.e., loans, grants) –Indicates terms and conditions of Federal awards (including the Uniform Guidance) and how it flows down to subrecipients unless section of the Uniform Guidance or award specifically indicates otherwise –Indicates Federal agencies may apply Subparts A to E to for-profit entities and foreign organizations –Lists other exemptions for specific programs
8 Office of the Utah State Auditor Revisions to Pre-Award Policies Before making awards, awarding agencies must evaluate the risks to the program posed by each applicant, and each applicant’s merits and eligibility. These requirements are designed to ensure applicants for Federal assistance receive a fair and consistent review prior to an award decision.
9 Office of the Utah State Auditor Post Award Administration (Subpart D) Key changes include a new section that explicitly outlines the Government’s expectation of recipients in terms of their internal controls and more stringent requirements.
10 Office of the Utah State Auditor Internal Control Requirements Non-Federal entities must establish and maintain effective internal control that provides reasonable assurance that entity is managing Federal award in compliance with Federal statutes, regulations, and terms and conditions of Federal award. Internal controls should be in compliance with: –COSO (Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission), and/or –Green Book (Standards for Internal Control in the Federal Government, issued by the Comptroller General of the United States) 10
11 Office of the Utah State Auditor COSO Components and Principles For effective internal control: Each of the five components and 17 principles must be present and functioning. The five components must operate together in an integrated manner
12 Office of the Utah State Auditor COSO Components and Principles Control Environment –Demonstrates commitment to integrity and ethical values –Exercises oversight responsibility –Establishes structure, authority and responsibility –Demonstrates commitment to competence –Enforces accountability
13 Office of the Utah State Auditor COSO Components and Principles Risk Assessment –Specifies suitable objectives –Identifies and analyzes risk –Assesses fraud risk –Identities and analyzes significant change
14 Office of the Utah State Auditor COSO Components and Principles Control Activities –Selects and develops control activities –Selects and develops general controls over technology –Deploys through policies and procedures
15 Office of the Utah State Auditor COSO Components and Principles Information and Communication –Uses relevant information –Communicates internally –Communicates externally Monitoring Activities –Conducts ongoing and/or separate evaluations –Evaluates and communicated deficiencies
16 Office of the Utah State Auditor GAO-Green Book The Government Accountability Office is updating the Green Book. What is the Green Book and should I care? It reflects federal internal control standards and is written primarily for the federal government. It provides criteria for auditors of federal agencies. COSO and Green Book are cited as “best practices” for establishing and maintaining internal controls.
17 Office of the Utah State Auditor Revisions Related to Cost Principles (Subpart E of Uniform Guidance The guidance incorporates a number of changes to existing cost principles. Consolidates OMB Circular A-21, A-87, and A-122. These changes may significantly impact award recipients.
18 Office of the Utah State Auditor Revisions to Cost Principles Compensation-Personal Services – Significant differences in time and effort documentation requirements under the three existing cost circulars (A-21, A-87, and A-122) –A-21 is based on estimates that produce a reasonable approximation of the activity –A-87 and A-122 are based on periodic (at least monthly) time and effort reporting of employees –Uniform Guidance loosely based on concepts from all three circulars
19 Office of the Utah State Auditor Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes Direct Charges for Computers –Computing devices are now subject to less burdensome administrative requirements of supplies (as opposed to equipment) if the acquisition cost is less than the capitalization level of the non-Federal entity or $5000 –Uniform Guidance specifically allows direct charging non-capitalized “computing devices” that are essential and allowable but not solely dedicated to the performance of a Federal award
20 Office of the Utah State Auditor Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes Indirect (F&A) Costs –Negotiated rates may be extended for up to four years if no major changes in F&A costs, with cognizant agency approval. –Federal agencies are required to use negotiated F&A rates for all awards, unless limited by law or regulation –De minimus rate of 10% MTDC may be used by entities that have never had negotiated indirect cost rate
21 Office of the Utah State Auditor Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes Additionally, for state and local governments –Must use cost allocation plan for central services (e.g., motor pools, computer centers, purchasing, accounting, etc –For interagency costs (excluding central services), a standard indirect cost allowance of 10% of direct salary and wage costs may be used in lieu of determining actual indirect costs
22 Office of the Utah State Auditor Subpart F – Audit Requirements Increased single audit threshold from $500,000 to $750,000 Based on single audits submitted to the FAC for 2012, there would be approximately 6,200 fewer entities subject to a single audit, but there would only be a reduction in dollars covered of approximately $3.9 billion, or less than 1% OMB’s goal is to concentrate audit resolution and oversight resources on higher dollar and higher risk awards. §200.501
23 Office of the Utah State Auditor Subpart F – Audit Requirements Major Program Determination (Step 1) –Identify larger Federal programs (Type A) §200.518 Total Federal awards expendedType A threshold $750,000 - $25,000,000$750,000 > $25 million - $100 million0.03 of total expended > $100 million - $1 billion$3,000,000 > $1 billion - $10 billion0.003 of total expended > $10 billion - $20 billion$30,000,000 > $20 billion0.0015 of total expended
24 Office of the Utah State Auditor Subpart F – Audit Requirements Major Program Determination (Step 2) –Identify Type A programs that are low-risk Must have been audited as a major program in at least one of the two most recent audit periods No internal control deficiencies identified as material weaknesses No modified opinion related to compliance No known or likely questioned costs exceeding 5% of the program’s Federal awards expended §200.518
25 Office of the Utah State Auditor Subpart F – Audit Requirements Major Program Determination (Step 3) –Identify Type B programs that are high-risk Use professional judgment and criteria in §200.519 Not required to identify more high-risk Type B programs than at least ¼ of the number of low-risk Type A programs identified under Step 2 Perform risk assessments on Type B programs that exceed 25% of the Type A threshold §200.518
26 Office of the Utah State Auditor Subpart F – Audit Requirements Major Program Determination (Step 4) –Audit the following as major programs: All Type A programs not identified as low-risk All Type B programs identified as high-risk Additional programs necessary to comply with the percent of coverage rule §200.518 Type of AuditeeA-133 GuidanceNew Guidance Low-risk25%20% Non low-risk50%40%
27 Office of the Utah State Auditor Major Program Determination OMB believes the changes to the major program determination will result in the following: 27 A more targeted audit coverage of programs with internal control weaknesses. Appropriate burden relief for entities that materially comply as evidenced by an unqualified audit opinion and no material weaknesses in internal controls or material questioned costs. Incentive for entities to focus on correcting the deficiencies that indicate underlying weaknesses in internal controls.
28 Office of the Utah State Auditor Subpart F – Audit Requirements Scope of Audit –Conducted in accordance with GAGAS –Cover entire operations of the auditee –Determine auditee’s financial statements are fairly presented in accordance with GAAP –Determine auditee’s SEFA is stated fairly in relation to financial statements as a whole §200.514
29 Office of the Utah State Auditor Subpart F – Audit Requirements Scope of Audit –Internal Control Based upon the Green Book and COSO Obtain understanding to support a low assessed level of control risk of noncompliance Plan testing to support a low assessed level of control risk for relevant assertions to the compliance requirement Perform testing of internal control §200.514
30 Office of the Utah State Auditor Subpart F – Audit Requirements Scope of Audit –Compliance Determine compliance with Federal statutes, regulations, terms and conditions Test transactions and perform other necessary procedures to support opinion on compliance Follow-up on prior audit findings Complete & sign specified sections of data collection form §200.514
31 Office of the Utah State Auditor Compliance Requirements Current Compliance RequirementsProposed Changes A.Activities allowed or unallowedRetained B.Allowable costs/cost principlesIncorporated into A C.Cash managementRetained D.Davis-Bacon ActFed agency may include in N E.EligibilityRetained F.Equipment & real property managementFed agency may include in N G.Matching, level of effort, earmarkingMatching into A, others in N H.Period of availabilityIncorporated into A I.Procurement & suspension and debarmentFed agency may include in N J.Program incomeFed agency may include in N K.Real property acquisition & relocation assistanceFed agency may include in N L.ReportingRetained M.Subrecipient monitoringRetained N.Special tests and provisionsRetained
32 Office of the Utah State Auditor Subpart F – Audit Requirements Audit Findings Reported –Significant deficiencies and material weaknesses in internal control and significant instances of abuse related to major programs –Material noncompliance with provisions of Federal statutes, regulations, terms & conditions –Known or likely questioned costs greater than $25,000 (increase from $10,000) §200.516
33 Office of the Utah State Auditor Subpart F – Audit Requirements Audit Findings Reported –Circumstances concerning why report on compliance is other than unmodified (unless otherwise reported as finding) –Known or likely fraud affecting the Federal award (unless otherwise reported as finding) –Status of prior audit finding that are materially misrepresented on the summary schedule of prior audit findings §200.516
34 Office of the Utah State Auditor Subpart F – Audit Requirements Audit Findings Must Include 1. Federal program award information2. Criteria or specific requirement3. Condition found4. Cause identifying reason or explanation 5. Effect of condition §200.516
35 Office of the Utah State Auditor Subpart F – Audit Requirements Audit Findings Must Include 6. Identification of questioned costs7. Proper perspective for judging8. Repeat finding9. Recommendation 10. Views of responsible officials §200.516
36 Office of the Utah State Auditor Subpart F – Audit Requirements Criteria for low-risk auditee 1. Single audit performed on annual basis2. Unmodified opinions on financial statements and SEFA3. No material internal control deficiencies identified under GAGAS requirements4. No substantial doubt about auditee’s ability to continue as a going concern5. Identify in notes the balances outstanding for loan or loan guarantee programs6. No material IC weaknesses, modified opinion on compliance, or QCs in excess of 5% §200.520
37 Office of the Utah State Auditor Next Steps 37 Read Uniform GuidanceDevelop implementation planParticipate in industry implementation groupsIdentify changes to policies and proceduresDevelop training plan
38 Office of the Utah State Auditor Questions? Jolene Cooley, MBA Office of the Utah State Auditor (801) 808-0749 firstname.lastname@example.org