Single audits History, Purpose, and Improvements

Objectives Today – You’ll get an overview of single audits You’ll be introduced to the OMB’s new grants management supercircular and its: administrative requirements cost principles, and audit requirements THERE ARE A LOT OF CHANGES HAPPENING RIGHT NOW IN GRANTS MANAGEMENT THEY’RE MOSTLY HAPPENING WITH ONE DOCUMENT – GOOD BUT THE DOCUMENT IS 250 PAGES LONG EASILY HAVE A 3 DAY TRAINING – BUT TODAY WE’RE ONLY DOING 1 HOUR I ALWAYS FEEL LUCKY THAT I CAN DO HIGH LEVEL OVERVIEWS – I THINK THEY’RE KIND OF FUN THE DETAIL CLASSES MIGHT BE FUN TOO, BUT IN A DIFFERENT WAY TO HELP US UNDERSTAND THE REFORMS AND WHERE WE’RE GOING, I THOUGHT IT MIGHT BE HELPFUL TO TALK A BIT ABOUT WHERE WE STARTED FROM AND KIND OF AN OVERVIEW OF WHAT SINGLE AUDITS ARE ALL ABOUT. GRANTS MANAGEMENT REFORM IS HAPPENING IN THREE AREAS ADMINISTRATIVE REQUIREMENTS COST PRINCIPLES AUDIT REQUIREMENTS I’M AN AUDITOR SO I’LL COVER THOSE CHANGES IN A LITTLE MORE DETAIL. I HAVE TO KNOW A BIT ABOUT ADMIN AND CP, BUT I CAN ALWAYS LOOK THEM UP AFTER THE FACT. I DON’T HAVE TO DESIGN SYSTEMS THAT ENSURE COMPLIANCE, THAT WOULD TAKE MORE KNOWLEDGE THAN I HAVE OR WANT TO HAVE… I’LL SHARE A FEW OF THE CHANGES IN ADMIN AND COST PRINCIPLES

OMB’s New Guidance Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards December 26, 2013 Document and the related crosswalks can be obtained at: http://www.whitehouse.gov/omb/grants_docs#final Document, crosswalks, slide shows, FAQs, and video discussion links can be obtained at: https://cfo.gov/cofar/ WE’RE NOT MAKING ANY GUIDANCE HERE TODAY – OR REGULATIONS EITHER GUIDANCE IS WHAT OMB PROVIDES TO AGENCIES, REGULATIONS ARE WHAT AGENCIES MAKE AND PUT IN THE FEDERAL REGISTER.

Federal Agency Non Federal Entity Why Single Audit? Financial-related Payments Receipts Purchasing Payroll Equipment Accounting Reporting Other Performance Non Federal Entity Federal Agency Financial-related Payments Receipts Purchasing Payroll Equipment Accounting Reporting Other Performance Financial-related Payments Receipts Purchasing Payroll Equipment Accounting Reporting Other Performance

Federal Agency Single Auditor Why Single Audit? Non Federal Entity Other Oversight Other Oversight Non Federal Entity Single Auditor Federal Agency Financial-related Payments Receipts Purchasing Payroll Equipment Accounting Reporting Other Oversight

Single audit Objectives and requirements Single Audit Act OMB Circular A-133 OMB Compliance Supplement Objectives Financial statement audit Provide SEFA opinion Understand and test internal control Determine major program compliance

SEFA Schedule of Expenditures of Federal Awards

Single Audit Report

Single Audit Finding

Basic Structure of Single Audit Audit threshold (200.501) Subrecipient vs. Contractor (200.501(f) & 200.330) Non-Federal entity selects auditor (200.509) Auditee prepares financial statements & SEFA (200.510) Audit follow-up & corrective action (200.511 & 200.521) 9 month due date (set in law) (200.512(a)) Reporting to Federal Audit Clearinghouse (200.512) Major programs determined based on risk (200.518) Compliance Supplement overall format

Fixing Single Audits Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards December 26, 2013

What’s Wrong? Administrative Requirements Cost Principles A-102, Grants and Cooperative Agreements with State and Local Governments A-110, Uniform Administrative Requirements for Grants and Other Agreements with Higher Education, Hospitals, and Non-Profits A-89, Catalog of Federal Domestic Assistance Cost Principles A-21, Cost Principles for Educational Institutions A-87, Cost Principles for State, Local, and Indian Tribal Governments A-122, Cost Principles for Non-Profit Organizations Audit Requirements A-133, Audits of States, Local Governments, and Non-Profits A-50, Audit Follow-up UNIFORM GUIDANCE

Objectives of uniform guidance Eliminate duplication and conflicting guidance Focus on performance over compliance for accountability Encourage efficient use of information technology and shared services Provide for consistent and transparent treatment of costs Limit allowable costs to make the best use of federal resources Set standard business processes using data definitions Encourage non-federal entities to have family-friendly policies Strengthen oversight Target audit requirements on risk of waste, fraud, and abuse

Structure of Uniform Guidance Subpart Old Circular A: Acronyms and Definitions All B: General Provisions C: Pre-Federal Award Requirements and contents of Federal Awards A-110 and A-89 D: Post-Federal Award Requirements A-110 and A-102 E: Cost Principles A-21, A-87, and A-122 F: Audit Requirements A-133 Appendices Subparts B, C, D are the Administrative Requirements

EFFECTIVE DATES Federal agencies must implement policies and procedures by promulgating regulations to be effective December 26, 2014. Upon implementation, the guidance will be in effect for all Federal awards or funding increments provided after the effective date. Standards in Subpart F (Audit Requirements) effective for fiscal years beginning on or after December 26, 2014

ADMINISTRATIVE Requirements (Subparts B, C, and D of the Uniform Guidance)

Significant administrative reforms Not a Complete List Supplies Cost < $5,000 computers Risk Review framework Pre-award Procurement Written procedures Contractor oversight 5 methods Performance Measurement Financial data related to performance goals Internal Controls ‘must’ have ‘should’ use COSO, Green Book Cost Sharing Voluntary cost sharing not expected Pass-Through Grants Risk assessment to determine monitoring Audit follow-up Mandatory Disclosures All violations of federal criminal law

(Subpart E of the Uniform Guidance) COST PRINCIPLES (Subpart E of the Uniform Guidance)

Significant cost principles reforms Admin Costs Can be direct Indirect Costs Fed negotiated rate must be accepted 10% de minimis 4-year extension Profits Can’t keep Compensation – Personal Services Controlled alternates Blended/Braided maybe Adjusted estimates Not a Complete List Employee Morale maybe Supplies Costs Can be direct Recruiting Costs Unreasonable is unallowable Resign<12 months - refund Travel Costs Temp dependent care allowed for conferences

(Subpart F of Uniform Guidance) Audit Requirements (Subpart F of Uniform Guidance)

Basic Structure of Single Audit unchanged Audit threshold (200.501) Subrecipient vs. Contractor (200.501(f) & 200.330) Non-Federal entity selects auditor (200.509) Auditee prepares financial statements & SEFA (200.510) Audit follow-up & corrective action (200.511 & 200.521) 9 month due date (set in law) (200.512(a)) Reporting to Federal Audit Clearinghouse (200.512) Major programs determined based on risk (200.518) Compliance Supplement overall format

Single Audit Threshold Increases 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%

Type A threshold change Groupings are based on dollars — Type A programs are those above the dollar threshold, Type B are those below The minimum threshold is increased from $300,000 to $750,000. If total Federal awards expended is: Then Type A programs are those with Federal awards expended of the greater of $750K thousand to $25 million $750,000 $25 million to $100 million (.03) of total awards expended $100 million to $1 billion $3 million $1 billion to $10 billion (.003) of total awards expended $10 billion to $20 billion $30 million $20 billion or more (.0015) of total awards expended

Excluding large loan programs Incorporates the guidance on the inclusion or exclusion of large loan or loan guarantee programs in determining the Type A threshold that is currently in the Compliance Supplement Guidance related to a cluster of programs was modified as follows: A cluster of programs is treated as one program in determining Type A programs. For the purposes of excluding large loan programs in the determination of other Type A programs, a cluster of programs is not considered to be a loan program if the individual loan programs within the cluster comprise less than 50% of the expenditures of the cluster.

Type A Program Risk Assessment Current default criteria: Revised default criteria : Not audited as a major program in 1 of 2 most recent audit periods In most recent period, had any of the following for program: Significant deficiency in internal control Material weakness in internal control Material noncompliance finding Has ARRA expenditures in current year Written request by Federal awarding agency to audit as major (180 days notice) Not audited as a major program in 1 of 2 most recent audit periods In most recent period, had any of the following for program: Modified opinion Material weakness in internal control Known or likely questioned costs that exceed 5% of the total expenditures of the program Written request by Federal awarding agency to audit as major (180 days notice) Focuses risk assessment on whether the program received a modified opinion or material weakness over internal control, rather than less significant findings.

Selecting high risk b programs Current Option 1 - Perform risk assessments on all Type B programs* and select one half of Type B programs identified as high risk up to number of low-risk Type A programs Option 2 - Perform risk assessments on Type B programs until as many high-risk Type B programs have been identified as there are low-risk Type A programs Revised Perform risk assessments on Type B programs until high-risk Type B programs have been identified up to 25% of low-risk Type A programs

Minimum coverage Type of Auditee Current Revised Not Low Risk 50% 40% 25% 20%

Low-risk auditee Low Risk Auditee if meet all criteria for the last two years: Annual audits in accordance with A-133 Single audit reporting package and data collection form submitted (accepted) within required timeframe Financial statements prepared in accordance with GAAP or based on accounting prescribed by applicable state law Unmodified opinion on FS and SEFA Auditor did not report substantial doubt about going concern No material weaknesses in internal control over financial reporting No Type A program had: Material weakness Modified opinion on compliance Questioned costs > 5% of Federal awards expended

OMB Goals for Major program changes OMB believes the changes to the major program determination will result in: A more targeted audit coverage focusing on programs with material 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.

Compliance requirements Current Proposed in February 2013 A. Activities Allowed or Unallowed  B. Allowable Costs/Cost Principles Incorporated into A. C. Cash Management D. Davis – Bacon Act Agency could request to be part of N. E. Eligibility F. Equipment G. Matching, Level of Effort, Earmarking Matching incorporated in A. Agency could request the remainder be part of N. H. Period of Availability of Federal Funds I. Procurement, Suspension, Debarment J. Program Income K. Real Property L. Reporting M. Subrecipient Monitoring N. Special Tests and Provisions No changes were proposed in the Final Guidance REMEMBER: THERE WAS AN INITIAL DOCUMENT CIRCULATED WITH SOME IDEAS AND COFAR GOT COMMENTS ON THAT AND THEN THEY ISSUED THE PROPOSED GUIDANCE IN FEBRUARY 2013

Current status of compliance requirements Many commenters of the proposal were concerned about: Uniform Guidance does not list compliance requirements COFAR recommended further public outreach Changes likely to be issued in 2015 Compliance Supplement Process to eliminate compliance requirements Adding back compliance requirements through special tests Increased administrative burden Not being subject to public notice and comment period

Finding elements Finding Elements Program Information Criteria Condition Found Context Questioned Costs Cause & Effect Recommendation Views of Responsible Officials Whether Sampling was Statistically Valid Repeat Finding from Prior Year

Single Audit Reporting Face of the SEFA must include - Noncash assistance Loan programs, including outstanding balances Loan guarantee programs

Federal Agency Requirements Federal agencies must: develop a baseline, metrics, and targets to track the effectiveness of follow-up on audit findings designate single audit accountable official who must be: Responsible for ensuring agency fulfillment of responsibilities Held accountable to improve effectiveness of single audit process Responsible for designating a single audit liaison Single audit liaison must: Serve as agency management point of contact for single audit process Promote interagency coordination consistency, and sharing in areas such as audit follow-up Oversee training for Federal agency Ensure agency updates Compliance Supplement annually

summary What we should see if the Uniform Guidance is effective Complete, faster audit finding resolution More efficient audits better focused on FWA, improper payments, and recoverable noncompliance More applicants for grants Measured grant performance Similar cost treatment (and more fair) Similar grant application and administration More available information (electronically) Increased internal control

Questions or Comments? Thanks for your participation!!!