1. The Recovery Act: Information You Need to Plan and Perform Your 2010 Single Audits A GAQC Web Event May 19, 2010

2. Governmental Audit Quality Center Administrative Notes If you encounter any technical difficulties (e.g., audio issues) during this event please take the following steps: Press the F5 key on your computer to refresh Close and re-start your browser Check your speakers, ensure they are not on mute Turn off your pop-up blocker Re-start you computer Call Genesys Tech support 866. 871.4881, Conf ID# 1457070 If none of the above work, submit a request for help on the “Send a Question Box” located on the left hand side of your screen. If are unable to get assistance from Genesys for some reason, e-mail gaqc@aicpa.org or call 202-434- 9207gaqc@aicpa.org 2

3. Governmental Audit Quality Center Administrative Notes We encourage you to submit your technical questions – please limit your questions to the content of today’s program To submit a question, type it into the “Send a Question” box on left side of your screen; we will answer as many as possible You can also submit questions to the GAQC member forum for consideration by other members This event is being recorded and will be posted in an archive format to the GAQC Web site 3

4. Governmental Audit Quality Center Continuing Professional Education Must have registered for CPE credit prior to this event; a link to the CPE Credit Approval Form was e- mailed to you Listen for announcement of 4 CPE codes (7 digit codes: ALL_ _ _ _ ) and 4 polling questions during the event Record CPE Codes on CPE Credit Approval Form and return completed form (by fax or mail) to AICPA Service Center for record of attendance; keep a copy for your records If you are not receiving CPE for this call, ignore the CPE codes that we announce, but please answer the polling questions 4

5. Governmental Audit Quality Center 5 Today’s Presenter Mandy Nelson, CPA KPMG LLP Moderating: Mary Foelster, CPA AICPA

6. Governmental Audit Quality Center Today’s Agenda ARRA – American Recovery and Reinvestment Act 2010 Compliance Supplement – Appendix VII (draft) Identification of ARRA expenditures Separate ARRA presentation ARRA Major Program Determination Other Appendix VII Issues 2010 Compliance Supplement (CS) This presentation is based on the most recent drafts of the 2010 CS and discussions with OMB as of May 13, 2010 6

7. Governmental Audit Quality Center ARRA – American Recovery and Reinvestment Act of 2009 7

8. Governmental Audit Quality Center American Recovery and Reinvestment Act of 2009 (ARRA) (The Recovery Act) The American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5) (ARRA) and the related OMB Guidance have significant implications for audits performed under OMB Circular A-133. The ARRA imposes new transparency and accountability requirements on Federal awarding agencies and their recipients. 8

9. Governmental Audit Quality Center American Recovery and Reinvestment Act of 2009 History to Date: Recovery Act passed February 2009; significant impact expected for 2010 and 2011 year-end audits Accountability and Transparency are key features of the law -QCRs built into the OMB guidance – results to be placed on Recovery.gov (unclear how this will be done) -Auditees significantly affected by Section 1512 reporting -New body, Recovery Act Transparency Board (RATB), monitoring activity and looking for fraud, waste, and abuse Much more interest in single audits by federal agencies and Congress 9

10. Governmental Audit Quality Center ARRA and CFDA Numbers Federal agencies are required to specifically identify ARRA awards, regardless of whether the funding is provided under a new or existing CFDA number. The CFDA number should be included in the grant award documents. 10

11. Governmental Audit Quality Center ARRA Programs not subject to A-133 Build America Bonds Subsidy payment should not be included on the Schedule of Expenditures of Federal Awards (SEFA) therefore not included in the scope of the single audit. COBRA Tax credits to employers should not be presented by auditees on the SEFA, and they should not be included in the scope of the single audit. 11

12. Governmental Audit Quality Center 2010 Compliance Supplement – Appendix VII (draft) 12 This information is based on the most recent drafts of the 2010 CS and discussions with OMB as of May 13, 2010

13. Governmental Audit Quality Center Identification of ARRA Funding Early identification is critical Should be separate award Revised terms and conditions Subrecipients – more challenging Client should separately track ARRA expenditures 13

14. Governmental Audit Quality Center Identification of ARRA Funding Direct recipients – Look to: CDFA # Federal awards terms -Stating ARRA funded -Requiring separate SEFA presentation -Requiring notification of ARRA funding to1st tier subrecipients -At sub-award dates -At disbursement of funds 14

15. Governmental Audit Quality Center Identification of ARRA Funding 1st tier subrecipients - Look to: CFDA # Awards terms -Stating ARRA funded -Requiring separate SEFA presentation 15

16. Governmental Audit Quality Center Identification of ARRA Funding Lower tier subrecipients Look to -CFDA # -Award terms stating ARRA funding Separate SEFA presentation required by Appendix VII

17. Governmental Audit Quality Center Separate ARRA Presentation Separate presentation on Schedule of Expenditures Federal Awards (SEFA) Even if same CFDA # New level of detail for Research and Development (RD) Separate presentation on Data Collection Form (DCF) Revised DCF 17

18. Governmental Audit Quality Center Single Audits for Periods Ending Before June 30, 2010 2009 Compliance Supplement, Appendix VII Addendum #1 to 2009 Compliance Supplement – Issued August 2009 GAQC Alert #123 – Clarifying Guidance on Effect of Recovery Act Funds on Major Program Determination 18

19. Governmental Audit Quality Center Single Audits for Periods Ending on/after June 30, 2010 Impact of Recovery Act on 2010 Compliance Supplement: Guidance from 2009 CS Addendum #1 incorporated (e.g., in Part 3) Updated Appendix VII -Low-Risk Auditee Status -Extensions -Loans -Major program determination for ARRA funded awards Part 3, 4, and 5 19

20. Governmental Audit Quality Center Low Risk Auditee and Extensions M-10-14, Updated Guidance on the American Recovery and Reinvestment ActM-10-14, Updated Guidance on the American Recovery and Reinvestment Act (March 22, 2010) - See also GAQC Alert #141 “Due to the importance of the Single Audits and the reliance of Federal agencies on the audit results to monitor the accountability of Recovery Act programs, agencies should not grant any extension request to grantees for fiscal years 2009 through 2011. In order to meet the criteria for a low-risk auditee (OMB Circular A- 133 §__.530) in the current year, the prior two years audits must have met the requirements of OMB Circular A-133, including report submission to the FAC by the due date (OMB Circular A-133 § __.320).” 20

21. Governmental Audit Quality Center When applying the risk-based approach to determine which Federal programs are major programs: The inclusion of large loan and loan guarantees (loans) should not result in the exclusion of other programs as Type A programs. When a Federal program providing loans significantly affects the number or size of Type A programs, the auditor shall consider this Federal program as a Type A program and exclude its values in determining other Type A programs. Impact of Loan Programs 21

22. Governmental Audit Quality Center Impact of Loan Programs Safe Harbor for Treatment of a Large Loan and Loan Guarantee Programs in Type A Program Determination Each individual loan and loan guarantee program that does not exceed four times the largest non-loan program is not considered to be large. Largest Non- Loan Program Balance x 4 Large Loan Program Include Loan Program included in Type A Calculation Largest Non- Loan Program Balance x 4 Large Loan Program Do not include Loan Program not included in Type A Calculation 22

23. Governmental Audit Quality Center Impact of Loan Programs Example #1 University Step 1 – Identify the largest non-loan program: 23

24. Governmental Audit Quality Center Step 2 – Calculate if loan program is greater than 4X largest non-loan program: Impact of Loan Programs Example #1 University (Continued) R&D $2,000,000 x 4 = $8,000,000 SFA Cluster 12,900,000 Do not include SFA not included in Type A Calculation 24

25. Governmental Audit Quality Center Impact of Loan Programs Example #1 University (Continued) R&D Cluster2,000,000 TRIO Cluster300,000 Sum of Programs used to calculate Type A 2,300,000 Calculated Type A Threshold*$300,000 Step 3 – Calculate Type A Threshold * Calculated to be $69,000, therefore defaulted to minimum of $300,000 25

26. Governmental Audit Quality Center Impact of Loan Programs Example #2 Governmental Entity Step 1 – Identify the largest non-loan program: Program NameAmount CDBG (Loan Program) Loans12,000,000 Grant Expenditure3,000,000 Sub-total CDBG15,000,000 Home (Loan Program) Loans9,600,000 Grant Expenditures400,000 Sub-total HOME10,000,000 WIC2,600,000 26

27. Governmental Audit Quality Center Impact of Loan Programs Example #2 Governmental Entity (Continued) Step 2 – Calculate if loan program is greater than 4X largest non-loan program: WIC $2,600,000 x 4 = $10,400,000 CDBG $15,000,000 Do not include CDBG not included in Type A Calculation WIC $2,600,000 x 4 = $10,400,000 HOME $10,000,000 Include HOME included in Type A Calculation 27

28. Governmental Audit Quality Center Impact of Loan Programs Example #2 Governmental Entity (Continued) Step 3 – Calculate Type A Threshold 28

29. Governmental Audit Quality Center Clusters of programs specifically listed in the Supplement with a new ARRA CFDA number added during the current year that also has current year expenditures, should be considered a new program and would not qualify as a low-risk Type A program Cluster will not meet the requirement of having been audited as a major program in at least one of the two most recent audit periods as the Federal program funded under the ARRA did not previously exist. The Research and Development cluster (R&D) is not subject to this guidance due to its nature (e.g., CFDA numbers are not listed in Supplement for R&D and in some cases R&D is not assigned a CFDA number). The Student Financial Aid (SFA) Cluster is also not subject to this guidance Effect of ARRA Awards on Major Program Determination - Clusters 29

30. Governmental Audit Quality Center Effect of ARRA Awards on Major Program Determination - Type A Programs Even though a Type A program otherwise meets the criteria as low-risk under Section 520(c) of OMB Circular A-133, due to the inherent risk associated with the transparency and accountability requirements governing expenditures of ARRA awards, any program or cluster with expenditures of ARRA awards would not qualify as a low-risk Type A. Even a de minimus amount of ARRA expenditures would not support identifying the program as low risk. See next slide for exception. However SFA is excluded from this guidance 30

31. Governmental Audit Quality Center Effect of ARRA Awards on Major Program Determination -Type A Programs (Continued) 31

32. Governmental Audit Quality Center Effect of ARRA Awards on Major Program Determination – Type A Example 2009 State Fiscal Stabilization Fund (SFSF) Audited as a Major Program No Control Deficiencies No Noncompliance 2010 State Fiscal Stabilization Fund (SFSF) Can this be assessed as a low risk Type A in 2010? Did not meet 1 of the 4 criteria to be assessed as low risk: (3) current year ARRA expenditures are more than 20% of program cluster [since 100% of expenditures are ARRA] 32

33. Governmental Audit Quality Center Effect of ARRA Awards on Major Program Determination - Type B Programs The auditor should consider all Type B programs and clusters with expenditures of ARRA awards to be programs of higher risk in accordance with Section 525(d) of OMB Circular A-133. The presumption is that Type B programs or clusters with ARRA expenditures would be audited as major when applying the provisions of Section 520(e)(2). However, the auditor is not precluded from selecting an especially risky Type B program that does not contain ARRA expenditures to audit as a major program in lieu of a Type B program or cluster with ARRA expenditures. 33

34. Governmental Audit Quality Center Appendix VII (draft): SFA and Major Program Determination Appendix VII section: Effect of Expenditures of ARRA Awards on Major Program Determination Clusters of Programs -- SFA Excluded Type A Programs With ARRA Expenditures -- SFA Excluded Use pre-ARRA rules for risk assessment 34

35. Governmental Audit Quality Center 2010 Compliance Supplement (CS) 35

36. Governmental Audit Quality Center Reporting Testing1512 reports Subrecipient monitoring Verification of subrecipients filing their A-133’s with Clearinghouse Strong push on identifying pass-through entity information on SEFA and amounts passed-through in SEFA footnotes 2010 Compliance Supplement - Part 3 Changes 36

37. Governmental Audit Quality Center Part 4 Incorporated information from 2009 Addendum #1 Part 5 Many new clusters and additions to existing clusters 2010 Compliance Supplement - Parts 4 and 5 Changes 37

38. Governmental Audit Quality Center Remember R&D definition in Section.105 Very broad NSF believes its programs are RD -Based on its CFDA #’s -NSF acknowledges rare instances can arise where not R&D. Clients need to carefully read award agreement. 2010 Compliance Supplement – R&D Changes (draft) 38

39. Governmental Audit Quality Center Exempt from ARRA provisions for separate presentation Likely will require an extra item in representation letter regarding whether college is under Zone Alternative Changes to FFELP will generally be a 2011 single audit issue. 2010 Compliance Supplement - SFA Changes (draft) 39

40. Governmental Audit Quality Center Electronic medical records In discussions with HHS due to unusual funding pattern Energy grants to for-profits Likely need program-specific audits Pre-award certifications Generally not possible under auditing standards Determining if new/unusual programs are subject to Single Audit Other Future ARRA Issues 40

41. Governmental Audit Quality Center 41 Questions ???