Federal Government Standards For Internal Control – Green Book Terenzio Volpicelli, CPA, Partner Tony Roselli, CPA, CGMA, Partner Roselli, Clark and Associates MA Municipal Accountants &Auditors Association Amherst, MA – March 13, 2017

Agenda Uniform Guidance Internal Controls Green Book/COSO How does a community implement Single Audit Report/Management Letter

Uniform Guidance Title 2 US “Code of Federal Regulations” (CFR) Part 200, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” Referred to as “The Uniform Guidance” Issued December 26, 2013 with an effective date for audits of fiscal years that begin after December 26, 2014 for non-Federal entities; (Massachusetts for fiscal years ending June 30, 2016 forward)

Uniform Guidance Non-Federal entities include: States and Commonwealths Agencies of States and Commonwealths United States possessions Indian Tribal Governments Cities Towns School Districts Special Purpose Districts Housing Authorities Redevelopment Authorities All other Authorities and Districts Non-Public Organizations

Uniform Guidance Replaces the requirements under OMB A-133 and all eight previous OMB circulars in place prior to December 26, 2013 Includes many major changes Objective of changes is to focus on higher dollar, higher risk rewards End goal is to reduce administrative burden and the risk of fraud, waste and abuse

Uniform Guidance Major changes include: Raised previous single audit requirement of $500,000 in federal expenditures to $750,000 Modified the manner in selecting major programs for audit Increased threshold for questioned costs from $10,000 to $25,000 Introduced new internal control requirements (200.61 and 200.62)

Uniform Guidance Evolution of Single Audit 1984 – OMB A-128 – threshold for audit was $100,000 in receipts; $25,000 for major programs 1997 – OMB A-133 – threshold for audit was $300,000 in expenditures; $100,000 for major programs 2003 – OMB A-133 increased threshold for audit to $500,000 in expenditures; $300,000 for major programs 2016 – The Uniform Guidance increased threshold for audit to $750,000 in expenditures; $750,000 for major programs Expected to reduce number of required audits by 5,000

Uniform Guidance

Internal Control

Internal Control The Uniform Guidance recommends that this internal control system be based on a recognized internal control framework GAO – Green Book COSO – Committee of Sponsoring Organizations – Treadway Commission

Internal Control

Internal Control The use of the word “should” has raised some concern as it seems to imply that adopting an internal control framework is optional. However, Federal officials [and the AICPA] have made it clear that where Federal programs require effective internal controls, the expectation is that these systems meet or exceed the standards set by GAO. Source: National Grant Management Association

Internal Control

Green Book/COSO Green Book defines internal controls as a process affected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity are achieved. It is the first line of defense in safeguarding public resources.

Green Book/COSO

Green Book/COSO What are the objectives the Green Book is speaking to? Operations – effectiveness and efficiency of operations Reporting – reliability of reporting for internal and external use Compliance – compliance with applicable laws and regulations [including The Uniform Guidance]   The Green Book’s internal control framework, which consists of five components of internal control, is remarkably consistent with the COSO internal control framework as illustrated on the following slide:

Green Book/COSO

Green Book/COSO

Green Book/COSO

How does a Community Implement How does my community implement? Become familiar with Green Book Understand the 5 components Understand the 17 principles Review handout with guidelines

How does a Community Implement Common inquiry So, I have this Internal Control Manual for Federal Grants template that MASBO provided by School Business Manager. Can’t I just change the names in this report and be done with this? The MASBO controls manual is very good. However, it is one component of the internal control system. It addresses the Control Activities component of internal control. It does not address the other 4 components. The MASBO controls manual likely doesn’t cover your CDBG, public safety and other significant grants.

Single Audit Report/ Management Letter Impact of non-compliance Informational item - warning in fiscal year 2016 (just passed) Management Letter finding in fiscal year 2017 Management Letter finding and Single Audit significant deficiency in fiscal year 2018

Questions