Presentation on theme: "Small Business and Nonprofit Training, Consulting and Technical Assistance Solutions to Business Problems and Strategies for Success ASharpe Consulting."— Presentation transcript:
Small Business and Nonprofit Training, Consulting and Technical Assistance Solutions to Business Problems and Strategies for Success ASharpe Consulting Small Business and Nonprofit Training, Consulting and Technical Assistance Solutions to Business Problems and Strategies for Success ASharpe Consulting Welcome to A-133 Audit
Presenter Angela D. Sharpe
The A-133 audit is the method of testing that internal controls are effective. Internal controls consists of all measures taken by the organization for the purpose of protecting its resources against waste, fraud, and inefficiencies; thus ensuring accuracy and reliability in accounting and operating data; securing compliance with the policies of the organization; and evaluating the level of performance in all units of the organization Simply put, internal controls are good business practices.
OMB Office of Management & Budget – Oversees and coordinates the Administration's procurement, financial management, information and regulatory policies – Coordinates mechanisms to reduce waste.… – Assures that grants are managed properly and that Federal dollars are spent in accordance with applicable laws and regulations.
OMB Circulars OMB A-110 – Administrative Requirements for (Federal) Grants OMB A-133 – Audits of…Non-Profit Organizations or recipients of Federal Funds exceeding $500,000
A-133 Audit Requirements Who? – Organizations that expend more than $500,000 of Federal assistance during the year as Prime, sub-recipient or both – Must be completed and submitted within 9 months of the close of the fiscal year – Written response to any audit findings, including corrective action plan, if not submitted, must be done within 30 days after the audit is issued – failure can result in withholding, suspending and/or termination of Federal award
A-133 Audit Requirements Independent auditor – Audit must be performed by independent auditor – Audit includes the Operational Audit – Auditors tests receipts for compliance with award restrictions – Auditors test internal controls for regulatory compliance – Auditor attests to compliance with laws, regulations, rules, award conditions – Zero tolerance for errors
A-133 Audit Requirements Independent auditor – Reviews organization’s processes – Reaffirms that oversight exist and is appropriate – Recommends improvements to institutional procedures – Confirms benefits of procedures to recipient and sponsor
A-133 Audit Requirements Independent auditor – Establish there is compliance with laws, regulations and award conditions – Ensure organization can adequately demonstrate compliance with applicable laws – Assess organizations internal controls and determine if sufficient to ensure assets are safeguarded and financial reporting is accurate
A-133 Audit Requirements Independent auditor – Make certain financial statements are presented fairly in accordance with GAAP – Confirm the SEFA (Schedule of Expenditures and Federal Awards) is fairly presented in all material aspects
A-133 Audit Requirements What? – All federal grants received and still open in the current year Direct and indirect funds that are federal are included – A report of all revenues and expenses incurred in the current year are reviewed – Tracking system is validated for accuracy of cost allocations – Expenses reviewed for rates and compliance
A-133 Audit Requirements When should you prepare? – Begin preparation as soon as you receive the award and continue until closeout of the award – Identify and prepare resources that will be needed by the auditor and make available – Notify any agents that have been recipients of the award
A-133 Audit Requirements Prepare an Audit Book – New Award notifications – Subcontract payment schedule – List of all organizations with contact names that are required to give A-133 notification – Copy of facilities and Administrative Rate proposal and approval if indirect cost method Monthly rate analysis which verifies rate is applied correctly Monthly fringe benefit rate analysis
A-133 Audit Requirements Question and Answer Time
OMB A-133 Supplement Issued
Bonding Insurance 1.Basic rules the government will not require additional insurance of bonding, but will follow agency’s practice. 2.For construction grants of $100,000 a.If federal oversight agency determines that the government interest is protected then the agency policies and procedures are acceptable b.If determination is made that government’s interests are not protected the government will require bonding
Retention and Custodial 1.In general – financial records, supporting documentation, statistical records and any other pertinent records must be retained for 3 years from date of final expense report. 2.Authorization needed to use microfilm, fiche, scans or other storage mechanisms 3.Gov’t duly authorized representative may audit, examine, excerpt or transcribe any of this information
Program Income 1. Agencies are required to account for program income. 2. Program income is gross income earned by the agency from federally supported activities, and includes, but is not limited to, rental fees, service fees and sales of equipment. 3.Program income can be retained by the agency, with approval, and: a.Added to the project to be used to further the program objectives, b.Used to finance the non-federal share of the project (requires approval), and c.Deducted from the total project costs when determining the federal share of the project.
Cost Sharing and Matching 1.Cost sharing and matching represents that portion of the project or program not borne by the Agency. 2.Cost sharing or matching may consist of: a.Project costs incurred by the agency. b.Costs financed from non-federal sources such as contributions and donations. c.Project costs represented by services, and real or personal property or use thereof from non-federal sources (a.k.a. “In Kind” contributions).
Cost Sharing and Matching 4.Valuation of in-kind contributions should be based on applicable cost principles. a.Value of services should be consistent with those paid for similar work. b.Value of property must be at fair market value. c.Volunteer services must be documented. d.Basis for determining the value of personal services, material, equipment, land and buildings must be documented.
Financial Management Systems
Monitoring and Reporting 1.Agencies must monitor and report on technical performance (programmatic) through a report which presents: a.Comparison of actual accomplishments to goals. b.Findings of investigator if appropriate. c.Reasons why goals were not met. d.Other pertinent data. 2.Problems or unfavorable developments should be reported promptly. This includes changes in budgetary needs.
Revision of Financial Plans 1.Agencies are required to immediately report deviations from financial plans and to request approval for financial plan revisions involving: a.A change in scope or objective. b.The need for additional federal funds. c.Other budget modifications or changes that exceed $100, None of the substantive programmatic work under the grant or other agreement may be subcontracted or transferred without prior approval of the federal sponsoring agency.
Suspension and Termination 1.Definitions: a.Termination – Cancellation b.Suspension - Temporary removal of support until corrective action or termination. 2. Each federal sponsoring agency must have procedures for suspension or termination when agency has not complied with conditions of a program. 3.Termination may be: a.For cause - failure to comply. b.For convenience - mutual agreement.
Property Management Standards Adequate Property Management System a.Unique identification number b.Description c.Funding source d.Acquisition cost e.Federal participation percentage f.Title Assignment g.Location, use and condition h.Disposition data i.Other data to support cost allocation Property Management Process 1.Federal property must be marked as such. 2.Physical inventory to be taken every two years. 3.Property must be made available for shared usage with other federal projects. 4.Control system to be in effect to safeguard against loss, damage or theft of property. 5.Adequate maintenance procedures to be implemented. 6.Disposal procedures require authorization, competitive sales, and highest possible return.
INTERNAL CONTROLS OMB CIRCULAR A-133
COSO framework Committee of Sponsoring Organizations CHARACTERISTICS OF INTERNAL CONTROLS
COSO Framework Control Environment Risk Assessment Control Activities Information and Communication Monitoring
Control Environment Sets the tone of an organization influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure
Control Environment Ethical Conduct – evidenced by code of conduct or other verbal or written directive Governing Board – audit committee or equivalent to receive and review reports, communicate with auditor and ensure audit findings and recommendations are addressed Management response to prior questioned costs & control recommendations Management adherence to program compliance requirements Key manager responsibilities clearly defined Key managers have adequate knowledge and experience to perform duties Staff knowledgeable of compliance requirements and directive to discuss all instances of noncompliance with management Management commitment to competence and staff receive adequate training to perform duties Management support of adequate information system
Risk Assessment Entity’s identification and analysis of risks relevant to achievement of its goals and objectives Forming a basis for determining how the risks should be mitigated, managed and eliminated Monitoring on a regular basis
Risk Assessment Program managers and staff understand and have identified key compliance objectives Process established to implement changes in program objectives and procedures Organization structure provides identification of noncompliance: – Key managers have been given responsibility to identify and communicate changes – Employees who require close supervision (e.g. inexperienced) are identified – Management has identified and assessed complex operations, programs or projects – Management is aware of results of monitoring, audits, reviews and related risks of noncompliance
Control Activities Policies and procedures that help ensure that management objectives are met and manager directives are fulfilled
Control Activities Operating policies and procedures clearly written and communicated Procedures in place to implement changes in laws, regulations, guidance and funding agreements affecting Federal Awards Management prohibits intervention or overriding established controls Adequate segregation of duties between performance, review and recordkeeping tasks Supervision of employee compensation with level of competence Personnel with adequate knowledge and experience perform responsibilities Equipment, inventory, cash and other assets are secured physically and periodically counted and compared to recorded amounts Governing Board conducts regular meetings, financial matters reviewed, program activities discussed and written documentation of meeting is maintained Computer and program controls should include: – Data entry controls, e.g. edit checks – Exception Reporting – Access controls – Reviews of input and output data – Computer general controls and security
Information and Communication The identification, capture and exchange of information in a form and time frame that enable people to perform their duties and responsibilities
Information and Communication Accounting system provides for separate identification of Federal and non- federal transactions and allocation of transactions applicable to both Adequate source documentation exists to support amounts reported Recordkeeping system is established to ensure that records and documentation retained for the time period required Reports provided timely to managers for review and appropriate action Accurate information is accessible to those who need it Reconciliations and reviews done to ensure accuracy of reports Established internal and external communication channels: – Staff Meetings – Bulletin Boards – Memos, circulation files, – Surveys, suggestion box
Information and Communication Employee duties and control responsibilities effectively communicated Channels of communication for people to report suspected improprieties established (Whistleblower Policy) Actions taken as a result of communications received Established channels of communication between pass-thru entity and sub-recipients
Monitoring Process that assesses the quality for internal control performance over a period of time
Monitoring Ongoing monitoring built-in through independent reconciliations, staff meeting feedback, rotating staff, supervisory review and management review of reports Periodic site visits performed at decentralized locations (including sub-recipients) and checks performed to determine whether procedures are being followed as intended Follow-up on irregularities and deficiencies to determine cause Internal quality control reviews performed Management meets with program monitors, auditors and reviewers to evaluate the condition of the program and controls Internal audit routinely tests for compliance with Federal requirements Board reviews results of all monitoring or audit reports and periodically assesses the adequacy of corrective action
Audit Responsibilities: Audit Requirements Opinion Financial Statements Footnotes Supplementary Information Finding and Recommendations
Auditor’s Opinion Unqualified Opinion – Auditor's judgment that he or she has no reservation as to the fairness of presentation of a company's financial statements and their conformity with Generally Accepted Accounting Principles (GAAP) also termed clean opinion. In the auditor's opinion, the company has presented fairly its financial position, results of operations, and changes in cash flows.Generally Accepted Accounting Principles (GAAP) – In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in (the country where the report is issued).
Auditor’s Opinion Qualified Opinion – Auditor's Qualified Opinion is issued when the auditor encounters one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are: Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP – “In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to perform proper tests and procedures on the Company’s inventory, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of…” PAUSE
Auditor’s Opinion Adverse Opinion – Auditor's Adverse Opinion is issued when the auditor determines that the financial statements are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the company’s financial position and results of operations. – Investors, lending institutions, and governments very rarely accept an company’s financial statements if the auditor issued an adverse opinion, and usually request the company to correct the financial statements and obtain another audit report. – “In our opinion, because of the situations mentioned above (in the explanatory paragraph), the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of…” STOP
Auditor’s Opinion Disclaimer Opinion – A Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion – (SAS) provide certain situations where a disclaimer of opinion may be appropriate: A lack of independence, or material conflict(s) of interest, exist between the auditor and the auditee (SAS No. 26) There are significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing procedures (SAS No. 58); There is a substantial doubt about the auditee’s ability to continue as a going concern or, in other words, continue operating (SAS No. 59)going concern There are significant uncertainties within the auditee (SAS No. 79). – The Company does not maintain adequate accounting records to provide sufficient information for the preparation of the basic financial statements. The Company’s accounting records do not constitute a double-entry system which can produce financial statements. Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion of the financial statements referred to in the first paragraph.double-entry system STOP
Auditor’s Opinion Internal Controls – Included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Committee of Sponsoring Organizations of the Treadway Commission – A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures : (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. – In our opinion, management’s assessment the Company maintained effective internal control over financial reporting as of December 31, 20XX, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Furthermore, in our opinion, ABC Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by COSO.
Auditor’s Opinion Going Concern Disclosure – This is a term which means that an entity will continue to operate in the near future, which is generally more than next 12 months, so long as it generates or obtains enough resources to operate. If the auditor considers that the auditee is not a going concern, or will not be a going concern in the near future, then the auditor is required to include an explanatory paragraph before the opinion paragraph or following the opinion paragraph, in the audit report explaining the situation. As for the actual wording of the auditor’s report, when a lack of going concern is determined by the auditor, the disclosure paragraph should state the situation, state the auditor’s determination, and state the auditee’s plan to correct the situation. The disclosure paragraph should immediately follow the opinion paragraph. The following is the most widely used format of the paragraph which, in this case, deals with a company that has recurring losses: – Company will continue as a going concern. As discussed in Note (X) to the financial statements, the Company has suffered recurring losses and has a net capital deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note (X). The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. STOP
Definitions Caution– ask questions to be sure there’s no issue that cannot be easily resolved Upon review, a yellow flag may be a mild recommendation to the process Changes will prevent future problems or more serious issues Significant deficiencies Stop – ask very sharp, probing questions before going any further Get clarity on the issues Red flags often mean a serious problem that could affect funding Material weaknesses Yellow FlagRed Flag
OMB Circular A-133 TYPE OF REPORTREQUIRED BY Report on the Financial Statements Statement of Financial Position Statement of Activities Statement of Cash Flows Statement of Functional Expenses Generally Accepted Accounting Principles (GAAP) FAS 117 Schedule of Expenditures of Federal Awards (SEFA)OMB Circular A-133 Internal Controls over Federal AwardsOMB Circular A-133 Compliance with Laws and RegulationsOMB Circular A-133 Findings and RecommendationsOMB Circular A-133 Managements Comments and Corrective ActionsOMB Circular A-133 Status of Prior FindingsOMB Circular A-133 Data Collection Form (SF-SAC)OMB Circular A
The Balance Sheet ASSETS Usually positive What you own LIABILTIES Usually negative What you owe 54 NET WORTH Assets less Liabilities
Assets Assets are property owned by an individual or a business Assets have monetary exchange value Assets may consist of specific goods or claims against others Assets appear on a Balance Sheet – Also called Statement of Financial Position
Liabilities A Liability is a legal claim on the property of an entity that requires payment or some monetary exchange of equal value Liabilities are debts and other financial obligations Liabilities are found on the Balance Sheet
Net Assets Net Assets is total assets less total liabilities sometimes described as Net Worth Net Assets are found on the Balance Sheet – Net Assets are also known as Fund Balance – Consists of Unrestricted, Temporarily Restricted and Permanently Restricted – Change in Net Asset is the current year earnings or (loss)
Cash vs. Accrual Cash Statements Revenue is recorded when cash is received Based on the money trail Small Business - cash accounting Accrual Statements Revenue is recorded when earned, regardless whether cash was received Based on the paper trail Medium to larger businesses use accrual based system
Short term vs. Long Term ASSETS – includes cash and assets that will convert to cash within 12 months LIABILITIES – will be paid within 12 months ASSETS – will last more than one year (“mortgages, notes, FF&E, less LLR and depreciation”) LIABILITIES – time to pay exceeds 12 months
Revenue & Expenses Revenue is income that a company receives from its normal business activities Expense or expenditure is an outflow of money to another person or company to pay for an item or service, costs Revenue & Expenses are found on a Report – Sometimes called Revenue and Expense – Sometimes called Operating Statement – Sometimes called Statement of Activities – Sometimes called Revenue, Expenditures and changes in Net Assets
Statement of Financial Position Assets are property owned that has monetary exchange value Liabilities are debts or legal claims on the property of an entity that requires payment or some monetary exchange of equal value Net Assets is total assets less total liabilities sometimes described as Net Worth. It is the cumulative effect of all transactions in the organization. – Change in Net Asset is the current year earnings or (loss) – Unrestricted, Temp Restricted and Perm Restricted
Statement of Activities Revenue is income that a company receives from its normal business activities. These earnings are generated from the delivery of a service or contributions. – Consists of Unrestricted, Temporarily Restricted and Permanently Restricted Expense is an outflow of money to another person or company to pay for an item or services - costs as a result of service delivery or administrative overhead
Statement of Cash Flow Definition – A Cash Flow Statement identifies the sources and uses of cash – It is measured during a specified or finite period of time Components – Traditional – Operating Cash Flow – Investing Cash Flow – Financing Cash Flow
Current Assets 64 Current Assets Cash - Operating$21,489 Cash – Temp Restricted13,165 Grant/Contract Rec.$78,660 Less Reserve Bad Debt(10,000)68,660 Due From9,000 Prepaid Expenses9,310 Notes Receivable (CP)20,000 Other5,000 $146,624
Long Term (Fixed) Assets Long Term Assets Investments$519,726 Furniture & Equip, net18,769 Buildings1,328,500 Depreciation(66,425)1,262,075 Endowment150,000 TOTAL LONG-TERM$1,950,570 TOTAL ASSETS$2,097,194
Current Liabilities Current Liabilities Accounts Payable$14,046 Payroll Taxes Payable12,084 Interest Payable2,042 Line of Credit25,000 CP of Notes Payable75,000 $128,172
Long-Term Liabilities Notes Payable$950,000 Deferred Revenue160,000 Investors Payable0 Grant Payable300,000 TOTAL L/T$1,410,000 TOTAL LIABILTIES$1,538,172
Revenue/Expense Revenue Federal Grants2,300,000 Non-Federal Grants160,000 Contracts1,040,000 Program Fees140,000 TOTAL REVENUE$3,640,000 Expense Salaries2,200,000 Operating Expense1,030,978 TOTAL EXPENSE$3,230,978 Earnings/Carry Forward$409,022
Net Worth Total Assets $2,097,194 Total Liabilities $1,538,172 Net Worth $ 559,022 Unrestricted $ 273,344 Temp Restricted $ 135,678 Perm Restricted $ 150,000
A-133 Audit Areas of Testing and Review
Effective for audits of fiscal years - begin June 30, 2008 Transaction Testing Allowed/Disallowed Should not exceed market for similar costs or goods Prudent Consistent treatment of expenses Significant deviation is documented Costs are in alignment with contract specifications Supporting documentation available
Additional Audit Testing Davis-Bacon Act Procurement, Suspension and Debarment Reporting Sub-recipient Monitoring Special Test and Provisions
Compliance Requirements cont’d Davis – Bacon Act and compliance Contracts and agreements over $2000 contain language regarding Davis-Bacon Act Evidence sub-recipients notified of requirements Evidence of prevailing wages on projects Documentation of compliance Weekly submission of payroll with statement of compliance (alternative - Form WH-347)
Compliance Requirements cont’d Reporting Form completed when required SF-425 if electronic submission and funds request Interest earned remitted to Dept. of Health and Human Services thru PMS (Payment Management System) After September 2009 SF-425 supersedes 269, 272
Reporting Requirements FFR’s will be submitted on a quarterly, semi- annual and annual basis Final FFR submitted on completion of award agreement Semi-annual report due 30 days after end of reporting period Annual submitted 90 days after end of reporting period Final submitted 90 days after project or grant period end date
Compliance Requirements cont’d Reporting Submitted timely and in compliance with requirements Performance Reporting Annually and not more than quarterly
– Be Prepared Schedule an exit interview – Discuss preliminary findings – Clear up misconceptions or erroneous information – Have a procedure for audit review – Prepare written response with new processes to eliminate weakness or deficiency – Follow-up Action Plan Meeting
Catalog of Federal Domestic Assistance Data Collection Form Frequently asked questions Office of Management and Budget Circulars Single Audit Database Single Audit reference information