The Super Circular – Will It Be A Game Changer? April 14, 2015 Beth A. Wood, CPA, State Auditor 1 NASACT Middle Management Conference

The Super Circular North Carolina’s Perspective $22.3B - Federal Expenditures $3.3B – Expended by Subrecipients 2

The Super Circular North Carolina’s Perspective State Agencies – 26+ Universities - 17 Community Colleges – 58 Clerks of Courts

The Super Circular North Carolina’s Perspective County Governments – 100 Cities/Towns – 552 Local School Boards Authorities – Water/Sewer/

The Super Circular Why? Objective: Strengthen Oversight and Focus Audits Where There is The Greatest Risk of Waste, Fraud and Abuse of Taxpayer Dollars….. 5

The Super Circular Revisions Focus Audit on Risk Increases Audit Threshold Strengthens Risk-Based Approach to Determine Major Programs Provides for Greater Transparency of Audit Results Strengthens Agency Use of the Single Audit Process 6

The Super Circular Basic Structure of Audit Process Unchanged Audit Threshold Subrecipient vs Contractor Biennial & Program Specific Audits Non-Federal Entity Selects Auditor Auditee Prepares Financial Statements 7

The Super Circular Basic Structure of Audit Process Unchanged Audit Follow-up & Corrective Action 9 Month Due Date Reporting to Federal Audit Clearinghouse Major programs determined based on risk Compliance Supplement overall format 8

The Super Circular Audit Threshold Allows Federal Agencies to Focus Audit Resolution Depending on: Pre-Award Review of Risks, Standards for Program Management Subrecipient Monitoring Remedies for Noncompliance 9

The Super Circular Audit Threshold Increases Audit Threshold from $500,000 to $750,000 Depending on: Pre-Award Review of Risks, Standards for Program Management Subrecipient Monitoring Remedies for Noncompliance 10

The Super Circular Major Program Determination Focuses Audits on the areas with internal control deficiencies that have been identified as material weaknesses 11

Major Program Determination Type A/B Threshold – Step 1 Programs are grouped based on dollars Type A programs are those at/above the threshold Type B are those below the threshold Type A/B threshold is sliding scale Minimum increases from $300,000 to $750,000 12

Major Program Determination Type A/B Threshold – Step 1 Type A/B ThresholdTotal Federal Awards Expended $750,000Equal to $750,000 but <= $25M Total FAE times.03Exceed $25M but <= $100M $3,000,000Exceed $100M but <= $1B Total FAE times.003Exceed $1B but <= $10B $30MExceed $10B but <= $20B Total FAE times.0015Exceed $20B 13

Major Program Determination High-Risk Type A - Step 2 Programs are grouped based on dollars Type A programs are those above the threshold Type B are those below the threshold Type A/B threshold is sliding scale Minimum increases from $300,000 to $750, Current A-133 Criteria Not audited as major program in 1 of 2 most recent audit periods In most recent period had ANY AUDIT FINDINGS: Provided for auditor Judgement in limited cases Other – Auditor Judgement Federal Oversight Exercised Audit follow-up Personnel changes which increased risk Uniform Guidance SAME In most recent period had a HIGH RISK AJUDIT FINDING Modified Opinion Material weakness in Internal Control Known or likely questioned costs exceeding 5% of total program expenditures Other – Auditor Judgement Basically unchanged

Major Program Determination High-Risk Type B Programs New Criteria: Perform risk assessments on Type B Programs until high-risk Type B programs have been identified UP TO at least 25% of number of low-risk Type A programs. 15

Major Program Determination Percentage of Coverage Rule 16 Type of AuditeeCurrentNew Not low-risk50%40% Low-risk25%20%

The Super Circular Low-Risk Auditee 17 Current (2 prior years)New (2 prior years) Annual Single Audits Unmodified opinion on financial statements in accordance with GAAP Unmodified SEFA in relation to opinion No GAGAS material weaknesses In either of proceeding 2 years, none of Type a Programs had: Materials Weakness Material noncompliance QC that exceed 5% Timely filing with FAC Auditor reporting going concern not preclude low-risk Waivers SAME Unmodified opinions on statements in accordance with GAAP or basis of accounting required by state law SAME NO Audit reporting of going concern NO Waivers

The Super Circular Single Audit Accountable Official Responsibilities: Requires Federal Awarding Agencies to designate a Senior Accountable Official who will be responsible for overseeing effective use of the Single Audit process and implementing metrics to evaluate audit follow-up. 18

The Super Circular Single Audit Accountable Official Ensure agency effectively uses the single audit process, Develop a baseline, metrics, and targets to track, over time, the effectiveness of: –Agency’s process to follow up on audit findings Single audits in: –Improving non-Federal entity accountability for Federal Awards –Use by the agency in making award decisions Designate the agency’s Key Management Single Audit Liaison 19

The Super Circular Audit Findings Increases the Threshold for reporting known/likely questioned costs from $10,000 to $25,000 Requires Questioned Costs by Identified by CFDA number and applicable award Requires Identification of Findings as repeat from the immediately prior audit and the finding number from prior audit Prescribes audit finding numbers in the format prescribed by data collection form 20

State Auditor’s Update Affects of Super Circular On the Horizon: Going From 14 Compliance Requirements to 6 Compliance Requirements 21

The Super Circular Compliance Requirements A.Activities Allowed/Unallowed B.Allowable Cost/Cost Principles C.Cash Management D.Davis-Bacon Act E.Eligibility F.Equipment and Real Property Management G.Matching, Level of Effort, Earmarking H.Period of Availability Federal Funds I.Procurement, Suspension & Debarment J.Program Income K.Real Property Acquisition, Relocation Assistance L.Reporting M.Subrecipient Monitoring N.Special Tests and Provisions 22

The Super Circular Compliance Requirements A.Activities Allowed/Unallowed, B. Allowable Cost/Cost Principles; G. Matching, H. Availability of Federal Funds C. Cash Management E. Eligibility L.Reporting M. Subrecipient Monitoring N. Special Tests and Provisions 23

The Super Circular NASACT Middle Management Conference Questions? 24