Transcript Slide 1


Federal agencies must implement policies and procedures
by promulgating regulations to be effective December 26,
2014
◦ Accomplished with issuance of recent Joint Interim Final Rule

Non-federal entities will need to implement the new
administrative requirements and cost principles for all new
Federal awards made after December 26, 2014, and to
additional funding to existing awards (referred to as
funding increments) made after that date
◦ Non-federal entities wishing to implement entity-wide system
changes to comply with the guidance after December 26, 2014,
will not be penalized for doing so

Audit requirements effective for fiscal years beginning on
or after December 26, 2014
◦ Not permitted to early implement any of the audit provisions
2

March 31, 2015, June 30, 2015, and September
30, 2015 year-ends
◦ Non-federal entities will have to adopt new administrative
requirements and cost principles relating to all new federal
awards and to funding increments to existing awards
◦ Single audit requirements continue to use “old” regulation
◦ Auditor compliance testing will be affected by client adoption
of “new” requirements (i.e., will likely have to test some awards
subject to the “old” requirements and some the “new”
requirements)

December 31, 2015, year-ends and beyond
◦ New single audit requirements apply
◦ Auditors may have to test some awards subject to the “old”
requirements and some the “new” requirements for several
years
3

COFAR FAQ .110-11
◦ Subrecipients & Subawards
 Effective date for subawards is the same as the
effective date of the Federal award from which the
subaward is made.
 The requirements for a subaward, no matter when
made, flow from the requirements of the original
Federal award from the Federal awarding agency.
4

Why are we seeing modifications to 8
different Circulars?
◦ Executive Order 13520 “Reducing Improper Payments”
◦ Presidential Memorandum “Administrative Flexibility,
Lower Costs, & Better Results for State, Local , & Tribal
Governments”
◦ Goal is to increase efficiency and effectiveness of the
grant process and better focus the Single Audit to
reduce fraud, waste, and abuse
5
Audits of Federal
Awards
(OMB Circular A-133)
6

Effective date to be challenging for
compliance testing
◦ Likely to take several years for “old” funding to
run out
◦ Challenges related to funds received by
subrecipients from pass-through entities (PTE)


2015 Compliance Supplement will be key
Federal agency implementation actions in
the Joint Interim Final Rule need to be
understood
7



2015 Supplement will be used for audits
performed under Circular A-133 and the
Uniform Guidance
Federal workgroups working to develop new
and updated guidance
There will be two Part 3 sections in 2015
◦ One for testing awards subject to UG administrative
and cost principle requirements
◦ One for testing awards subject to “old” rules
◦ Transitional information will be included

Parts 4 and 5 may be affected as well
8

Summary of changes from the current
requirements
◦ Increases audit threshold from $500,000 to $750,000
◦ Type A/B threshold – minimum increases from $300,000
to $750,000
◦ Loan/loan guarantee treatment in major program
determination
◦ High-risk Type A program criteria
◦ High-risk Type B program criteria
◦ Percentage of coverage from 50/25% to 40/20%
◦ Low-risk auditee criteria
◦ Schedule of expenditures of federal awards changes
◦ Audit findings (threshold from $10,000 to $25,000)
9
Current A-133 criteria:



Not audited as major program in
1 of 2 most recent audit periods
In most recent period had Any
Audit Finding
◦ Provided for auditor judgment
in limited cases, e.g., very small
questioned costs
Auditor considered risk related to:
◦ Federal or PTE oversight
◦ Inherent risk
◦ Results of audit follow-up
◦ Changes in personnel or
systems
Key – An entity with strong internal
controls and few audit findings will
have fewer high-risk Type A programs
Uniform Guidance:
 SAME “two year look-back”
 In most recent period had a High
Risk Audit Finding identified as:
 Modified opinion
 Material weakness in internal
control
 Known or likely questioned costs
exceeding 5% of total program
expenditures
 Auditor only considers risk related to:
 Federal or PTE oversight
 Results of audit follow-up
 Changes in personnel or systems.
10
Current A-133 criteria:

Currently there are two Type
B risk assessment options:
◦ Option 1 – Perform risk
assessments on all Type B
programs and select at least
50% of Type B programs
identified as high risk up to
number of low-risk Type A
programs
◦ Option 2 – Perform risk
assessments on all Type B
programs until as many highrisk Type B programs have
been identified as there are
low-risk Type A programs.
Uniform Guidance:
 Perform risk assessments on Type
B programs until high-risk Type B
programs have been identified up
to at least 1/4th of number of lowrisk Type A programs
 Type B program de minimis
consideration (new criteria is 25%
of Type A threshold)
11
Current A-133 criteria (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 preceding two years, none
of Type A programs had:
◦ Material Weakness
◦ Material noncompliance
◦ QC that exceed 5%



Timely filing with FAC
Auditor reporting of going concern
would not preclude low-risk
Waivers
Uniform Guidance (2 prior
years)





Annual single audits
Unmodified opinion on financial
statements in accordance with GAAP
or basis of accounting required by
state law **
Unmodified SEFA in-relation-to
opinion
No GAGAS material weaknesses
In either of preceding two years,
none of Type A programs had:
◦
◦
◦



Material Weakness
Material noncompliance
QC that exceed 5%
Timely filing with FAC **
No auditor reporting of going
concern
No waivers
12



If state law permits but does not require an
auditee to prepare financial statements in
accordance with a basis that is not GAAP (e.g.,
cash, regulatory), auditee cannot be considered
low-risk auditee
If the non-GAAP basis of accounting is required
by state law, auditee can be considered low-risk
auditee
If auditee voluntarily prepares financial
statements on a non-GAAP basis of accounting
(e.g., cash or modified cash), auditee cannot be
considered low-risk auditee
13

Coverage Rule - Old
 High Risk = 50% of Total Federal Awards Expended
 Low Risk = 25% of Total Federal Awards Expended

Coverage Rule - New
 High Risk = 40% of Total Federal Awards Expended
 Low Risk = 20% of Total Federal Awards Expended
◦ Scenario
 A high risk entity which has $1,000,000 in federal
expenditures would require a minimum coverage
amount of what
14
The City of Notmanygrants received an unmodified
opinion on their last audit of federal awards for FY
2014. The City did receive a finding related to a lack of
segregation of duties to cash collections (F.S. finding);
classified as a significant deficiency by the predecessor
auditor. During fiscal year 2016 the city was a
recipient of $500 thousand of CDBG (CFDA # 14.218) of
which the city had spent $350 thousand during the
fiscal year. The City also was reimbursed $500
thousand related to Disaster Grants – Public Assistance
(CFDA # 97.036).
The City also prepares their financial statements in
accordance with generally accepted accounting
practices.
15

You have been awarded the audit during
Fiscal Year 2016; based on the information
provide would you classify the City as a low
or high risk entity?
16
Wantalotta Grants County has received a Single Audit in the
prior three years with all years receiving unmodified
opinions. A material weakness was reported in Fiscal Year
2013 regarding financial reporting but they have not had
any material weakness or material noncompliance findings
in regards to their Type A programs since Fiscal Year 2013.
The County has requested the reports and auditors opinions
be issued by 2/28/2017 for the fiscal year-end June 30,
2016. As part of planning purposes you’ve reviewed the
prior three audit report dates and filings with the federal
clearing house and noted that two of three years have been
completed and filed by January 15th and the prior year was
completed by April 15th. The Counties preliminary SEFA
reports $2.5 million in federal expenditures.
17

Based on the information provide would you
classify this entity as a low or high risk entity?
18
Town of ImaTiredofCaseStudies has received a
Single Audit in the prior three years with all years
receiving unmodified opinions. They also have not
received any findings reported as a material
weakness and no reporting of any going concern.
The Town has a fiscal year end of June 30, and has
filed with the Federal Audit Clearinghouse on time
in each of the last 3 years.
.
19


Based on the information provide would you
classify this entity as a low or high risk entity?
Based on your assessment calculate the
number of programs required to meet the
coverage rules in the following slide.
20

Federal awards
Program 1
Program 2
Program 3
Program 4
Program 5
Program 6
Program 7
Program 8
Total
expended:
Type A/B
$1,200,000
$1,000,000
$2,000,000
$ 800,000
$ 600,000
$ 450,000
$ 250,000
$ 150,000
$6,450,000
High/Low
H
H
L
L
H
L
H
H
21
What if we had changed the previous case study to say the
following:
Town of ImaTiredofCaseStudies has received a Single Audit
in the prior three years with all years receiving unmodified
opinions. They also have not received any findings reported
as material weaknesses. However, they are in extreme
financial distress and received a paragraph in their audit
report expressing a going concern.
The Town has a fiscal year end of June 30, and has filed with
the Federal Audit Clearinghouse on time in each of the last 3
years.
22


Based on the information provide would you
classify this entity as a low or high risk entity?
Based on your assessment calculate the
number of programs required to meet the
coverage rules in the following slide.
23

Federal awards
Program 1
Program 2
Program 3
Program 4
Program 5
Program 6
Program 7
Program 8
Total
expended:
Type A/B
$1,200,000
$1,000,000
$2,000,000
$ 800,000
$ 600,000
$ 450,000
$ 250,000
$ 150,000
$6,450,000
High/Low
H
H
L
L
H
L
H
H
24




Provide cluster of programs total
Total amount provided to subrecipients
from each federal program
For loans and loan guarantees, identify in
the notes to the SEFA loan balances
outstanding at the end of the audit period
Include in the notes to the SEFA whether or
not non-federal entity elected to use the
10% de minimis cost rate
25

Loans
◦ Current –
“…inclusion of large loan and loan guarantees
(loans)should not result in the exclusion of other programs as Type A
programs…”
◦ New –
“…Federal program providing loans exceeds four times the
largest non-loan program it is considered large, and the auditor shall
consider this Federal program as a Type A program and exclude its
values in determining other Type A programs…”
 Was a safe harbor inclusion in the compliance supplement
26


Initial thought was to reduce the # of
requirements and streamlining the remaining
Current proposal:
◦ No Changes
◦ Any changes would need additional further public
outreach before making changes to the Compliance
Supplement
◦ AICPA doesn’t expect changes until 2015 C.S.
27

Current Questioned Costs:


Auditor shall report known/likely questioned costs
greater then $10,000
Proposed Questioned Costs:
◦ Auditor shall report known/likely questioned costs
greater than $25,000

Why the change in reporting threshold?
28

New language related to the specific information to
include in audit findings:
◦ Federal Award Identification
 CFDA Title & Name
 Award Identification number & Year
 Federal Agency & Pass-through entity
◦ Criteria
◦ Condition
◦ Statement of cause
◦ Statement of the effect or potential effect
◦ Known QC must include the CFDA #(s) and the award number(s)
◦ Perspective section (isolated, prevalent, type of sampling used)
◦ Identify if the finding is a repeat finding (and the prior year audit
finding #)
◦ Recommendation
◦ Views of Responsible Officials
29

Change to responsibilities for cognizant
agency:
◦ To advise independent auditors of noteworthy or
factual trends related to the quality of audits (based
on quality control reviews)
◦ Significant problems/quality issues identified shall
be referred to the state licensing agency &
professional body
◦ Cognizant agency = Awarding agency, Management
decisions will be sent the Clearinghouse & made
available electronically.
30

Follow-up to audit findings
◦ Issue Mgmt Decision & submit to the Audit
Clearinghouse
◦ Monitor corrective action (timely/appropriate)
◦ Develop a mechanism to evaluate effectiveness of
the audit follow-up process
◦ Provide Compliance Supplement Updates
 Remember fraud, waste, & abuse
31

Single Audit Accountability official
◦ Reported by each awarding agency to OMB
◦ Point of contact for single audit
(federal & non-federal)
◦ Promote interagency coordination, consistency, &
sharing of information
◦ Oversee training of agency personnel involved in
the S.A process
◦ Ensure timely & appropriate follow-up & Corrective
Action to findings
32

Part 6 - Internal Control
◦ Updates needed for new COSO internal
control guidance
◦ Auditees (and auditors) consider looking to
updated COSO or Government Accountability
Office Green Book
◦ Expect part to be updated in future
supplements
33
Topic
•Strong Emphasis on
Internal Controls
•Mentioned 103 times in the
12/26/2013 Federal
Register notice
Uniform Guidance Synopsis
What Does This Mean?
•References “Standards for
Internal Controls in the
Federal Government”,
issued by the Comptroller
General (also known as the
“Green Book”) and “Internal
Control Integrated
Framework”, issued by the
Committee of Sponsoring
Organizations of the
Treadway Commission
(COSO)
•While OMB has clarified in
an FAQ that there is no
expectation that we have to
explicitly follow these
referenced guidelines (as
long as we have effective
internal controls in place),
it is unclear what the audit
community will expect.
34


The non-Federal entity must:
◦ (a) Establish and maintain effective internal control over the
Federal award that provides reasonable assurance that the
non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award. These internal
controls should be in compliance with guidance in
“Standards for Internal Control in the Federal Government”
issued by the Comptroller General of the United States or
the “Internal Control Integrated Framework”, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
COFAR FAQ 303-1, 2, and 3 clarifies that should
indicates a “best practice” and is not a
presumptively mandatory requirement.
35
Control Environment
Risk Assessment
1.
2.
3.
4.
5.
Demonstrates commitment to integrity and ethical values
Exercises oversight responsibility
Establishes structure, authority and responsibility
Demonstrates commitment to competence
Enforces accountability
6.
7.
8.
9.
Specifies suitable objectives
Identifies and analyzes risk
Assesses fraud risk
Identifies and analyzes significant change
Control Activities
10.Selects and develops control activities
11. Selects and develops general controls over technology
12.Deploys through policies and procedures
Information &
Communication
13.Uses relevant information
14.Communicates internally
15.Communicates externally
Monitoring Activities
16.Conducts ongoing and/or separate evaluations
17.Evaluates and communicates deficiencies
36

Guidance on subrecipient versus contractor
determination expanded and relocated to
administrative requirements
◦ Criteria for determination basically unchanged

New requirements for PTEs with regard to monitoring
activities
◦ UG contains much more detailed than guidance previously
contained in Compliance Supplement
◦ PTEs required to perform a risk assessment of subrecipient
37

Under the Super Circular – Agreements are
required to include 15 specific data elements,
including (§ 200.331) :
◦ Subrecipient name (which must match registered
name in DUNS)
◦ Federal award identification number (FAIN)
◦ Federal award date (see § 200.39, “Federal award
date”)
◦ CFDA number/name
◦ Amount of Federal funds obligated
 (Continued)
38
◦
◦
◦
◦
◦
Project description
General & Specific Terms/Conditions
Identification of whether the award is for R&D
Access to records
Indirect cost rate for the Federal award (including if
the de minimis rate is charged per § 200.414,
“Indirect (F&A) costs”)
39

Pass-through entities are required to do the
following:
◦ Perform risk assessments to determine appropriate
subrecipient monitoring.
◦ Perform appropriate and ongoing monitoring of each
subrecipient. On-site reviews, training, technical assistance,
and contracting for an agreed-upon procedure engagement for
monitoring are all examples of various monitoring efforts
organizations may employ.
◦ Review reports that the pass-through entities require of
the subrecipient
◦ Verify subrecipients have audits, as needed
◦ Consider how to address subrecipient noncompliance
◦ Issue a management decision for audit findings of the
subrecipient within six months
40

Discussion of reducing audit deadline from 9
months to 6 or 3 months after year-end.
◦ Will this occur?

Publication of Single Audit Reports online
with safeguards for protected personally
identifiable information (Audit Clearinghouse)
◦ Auditees & Auditors must ensure PPI is not included
◦ Exception for Indian Tribes
41
COST PRINCIPLES
42

Affects Circulars:
◦ A-21 – Educational Institutions
◦ A-87 – State, Local & Indian Tribal Governments
◦ A-122 – Non-Profit Organizations
◦ 45 CFR Part 75 – Hospitals
• Consolidate Cost Circulars into one Streamlined
document.


Aimed at eliminating confusion for entities (including Federal
agencies).
Benefit auditors whom audit multiple types of grant recipient
entities.
43

Changes/Initiatives:
◦ Indirect Cost Rates
 Option of requesting extension of negotiated rate
for a four (4) year period.
 Can you request a rate review once the extension
has been granted?
 Can the Federal agency opt out or force
renegotiation of the rate?
44

Entities that never received or do not have a
negotiated IDCR?
◦ Opt to use a minimum flat rate of 10% of modified
total direct cost (MTDC)
◦ MTDC = Salaries/wages, benefits, supplies, travel,
sub-grants, subcontracts.
45

Pass-Through Entities must honor as the
IDCR:
◦ IDCR negotiated between the subrecipient and the
Federal government
◦ A negotiated rate between the pass-through &
subrecepient (using federal guidelines)
◦ Or the de minimis IDCR (10%)

Allowing costs for efforts to collect improper
payment recoveries (remember fraud, waste and abuse)
46

Added to encourage recipient entities to
assist in recovery
◦ Cost may be Direct or Indirect
◦ If recovered amounts exceed cost must be treated
in accordance with cash management standards.
47

Consolidate language between circulars

Focus on strong internal controls to justify costs of salaries and
wages

When charges are based on budgeted amounts, IC must exist to
ensure adjustments are made to amounts charged to Fed Awards



There is a requirement that charges must be based on records
that accurately reflect the work performed and there are
requirements for such records
Auditors need to focus on understanding how this change will
impact their clients and consider how this area will be audited in
the future
Removal of specific examples of compliance
◦ Informally have become a rule vs example
48
Administrative
Requirements
49

Affects Primarily Circulars:
◦ A-89 – Catalog of Federal Domestic Assistance
◦ A-102 – Grants & Cooperative Agreements with
State and Local Govts.
◦ A-110 – Uniform Admin Requirements for
Grants/Agreements with Higher Educ., Hospitals,
& Non-Profit Organizations.
• Consolidate Administrative Circulars into one
Streamlined document.
50

Requiring pre-award consideration of each
proposal's merit and each applicant's
financial risk
◦ Considered pro-active prevention of fraud, waste,
and abuse
 Why?
◦ Requires Federal Agencies to est. merit-based
review process & Disclosure criteria for the view
 Flexibility in the process/review is given to the Federal
Agencies
51

Require all notices of funding be open for a
minimum of 30 days
◦ Notification of funding will be made through the
Catalog of Federal Financial Assistance

Clarify record retention requirements
◦ Three years from date of submission of the last
expenditure report
 Annual/quarterly renewed awards – date of submission
of quarterly/annual financial report
52







Use documented procurement procedures
Maintain oversight
Written standards of conduct - No conflicts of
interest
Most economical purchase option
Maintain records on history of procurement
Must conduct in a manner providing full and
open competition
Methods (Next slide)
53

Five methods prescribed in great detail
◦ Procurement by micro-purchase (<$3,000)
◦ Procurement by small purchase ($3,000 to $150,000)
 Evaluation your policy and ensure it is not in conflict with threshold –
requires price or rate quotations from an adequate number of constitute
◦ Procurement by sealed bids (formal advertising)
◦ Procurement by competitive proposal
◦ Procurement by noncompetitive proposal

Micro-purchases only new method under
guidance; no requirement to obtain competitive
quotes.
54
55
56


For compliance with the new procurement
standards only, the federal government is
providing a grace period of one full fiscal
year after the effective date of the Uniform
Guidance
The COFAR FAQ goes on to provide
information on certain documentation that
the non-federal entity will have to provide in
this regard and how it will affect the single
audit in its first year.
57

UG requires federal study of quality once
every six years beginning in 2018
◦ Statistically reliable estimate of the extent that
single audits conform to applicable requirements,
standards, and procedures
◦ Will result in recommendations to address noted
audit quality issues


Results of reviews must be made public
2018 timing may result in audits
implementing the UG for the first time being
selected as part of the review
58



Computer Equipment under $5,000 or the
non-federal entity capitalization level are
considered supplies and not equipment.
(200.94)
Program Income – not previously defined in
Circular A-133 is now included (200.80)
More specific language related to
Subreceipient Monitoring & Management
(200.330 - .32)
59