Transcript Slide 1
HELLO & WELCOME TO THE 57
th
2012 PASBO CONFERENCE March 8, 2012
SINGLE AUDIT UPDATES AND DEVELOPMENTS
PRESENTED BY: DENISE LOVEJOY, CGFM COMMONWEALTH AUDIT MANAGER
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Denise Lovejoy’s Contact Information
Denise Lovejoy, CGFM Bureau of Audits Special Audit Services Division Forum Place -- 8 th Floor 555 Walnut Street Harrisburg, PA 17101 717-783-9120 (Single Audit Line) 717-703-3949 (Fax Line) 717-425-6433 (Denise’s Desk Line) dlovejoy@ pa.gov (E-mail) 2
SINGLE AUDIT UPDATES AND DEVELOPMENTS
AGENDA
Updates With: Government Auditing Standards OMB Circular A-133 OMB Circular A-133 Compliance Supplement, American Recovery and Reinvestment Act (ARRA) Federal Funding Accountability and Transparency Act (FFATA) Statements on Auditing Standards Questions and Answers Session
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Updates With Government Auditing Standards
The Government Accountability Office has issued the final version of the revised 2011 Government Auditing Standards (GAGAS), amending the list of safeguard examples from an interim version posted online last summer, and making other minor changes. The 2011 GAGAS, also known as the Yellow Book, is effective for financial audits and attestation engagements for periods ending on or after Dec. 15, 2012, and for performance audits beginning on or after Dec. 15, 2011. The final version includes an updated list of independence safeguards, which are controls designed to eliminate any threats to independence or reduce them to an acceptable level. 4
Updates With Government Auditing Standards
Under the Yellow Book's new conceptual framework, an auditor would apply safeguards that address the specific facts and circumstances under which threats to independence exist. In some cases, an auditor may need to apply multiple safeguards to address a threat. Chapter 3.17 of the finalized 2011 GAGAS lists four examples of independence safeguards:
Consulting an independent third party, such as a professional organization, a professional regulatory body or another auditor; 5
Updates With Government Auditing Standards
Having another audit organization perform or re-perform part of the audit;
Having a professional staff member who was not a member of the audit team review the work performed; and
Removing an individual from an audit team when that individual's financial or other interests or relationships pose a threat to independence.
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Updates With Government Auditing Standards The last of those safeguards is new, and two safeguards from the interim version related to discussions with those charged with governance have been removed. Using the revised Yellow Book's new conceptual framework approach, auditors should identify threats to independence; evaluate the significance of those threats; and apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level.
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Updates With Government Auditing Standards The final version of the 2011 Yellow Book was delayed while the American Institute of Certified Public Accountants worked on clarifying revisions to its auditing standards (see "GAO Issues Interim Version of 2011 Government Auditing Standards," September 2011). In the final version, the GAO explained the changes to the AICPA Codification of Statements on Auditing Standards. In footnote 14 of the Yellow Book, GAO states that a new "AU-C" identifier is used to refer to the clarified SASs, instead of the traditional "AU" identifier.
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Updates With Government Auditing Standards The AU-C identifier will be used temporarily to avoid confusion with references to the existing AU sections, which will remain effective through 2013. All AU-C identifiers will revert to AU in the 2014 AICPA Codification of Statements on Auditing Standards, by which time the clarified SASs will become fully effective for all engagements. The 2011 revised Yellow Book is available at
http://www.gao.gov/assets/590/587281.pdf. 9
Updates With OMB Circular A-133 Office of Management and Budget (OMB) posted an Advance Notice of Proposed Guidance entitled “Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Requirements (including the Single Audit Act)” to its website at: http://www.whitehouse.gov/sites/default/files/ omb/financial/fr-notice-grant-reform-2012.pdf
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Updates With OMB Circular A-133
Included in the handouts, please find the Federal Register Vol. 77, No. 39, which provides further detail on OMB’s proposals. The document can also be obtained by visiting
http://www.gpo.gov/fdsys/pkg/FR-2012-02 28/pdf/2012-4521.pdf
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Updates With OMB Circular A-133 The Advance Notice includes the following ideas, among others, for consideration: Changing the Single Audit Framework; Increasing the threshold from $500,000 to $1 million; Creating a focused (reduced) version of the Single Audit for entities that expend between $1 million and $3 million.
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Updates With OMB Circular A-133 The Advance Notice includes the following ideas, among others, for consideration (Continued): Creating a focused (reduced) version of the Single Audit for entities that expend between $1 million and $3 million. What does this mean Test only two compliance requirements for a major program by implementing the following: a) Allowable costs are always tested; b) c) Second compliance requirement is selected by the federal agencies; and Target risk of improper payments, waste, fraud and abuse.
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Updates With OMB Circular A-133 The Advance Notice includes the following ideas, among others, for consideration (Continued): Maintaining the full Single Audit for entities that expend greater than $5 million, but concentrate the compliance requirements by streamlining compliance requirements; Strengthening the follow-up by federal agencies; Consolidating the cost principles;
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Updates With OMB Circular A-133 The Advance Notice includes the following ideas, among others, for consideration (Continued): Using flat rates instead of negotiated rates for indirect costs; Exploring alternatives to the effort reporting requirements; and Consolidating the administrative principles.
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Updates With OMB Circular A-133
Definition of Streamlining Compliance
Requirements for Full Single Audits
Focus on stewardship of Federal Funds by:
Emphasize elements that address improper payments, waste, fraud, and abuse;
Streamline (reduce) other elements to reduce audit burden;
Compliance requirements are no longer considered universal; 16
Updates With OMB Circular A-133
Definition of Streamlining Compliance
Requirements for Full Single Audits
Target subset of compliance requirements for increased testing, larger samples, and/or lower levels of materiality: 1.
Allowable or unallowable activities and costs; 2.
3.
4.
5.
6.
7.
Eligibility Period of availability; Procurement, suspension, and debarment Reporting Selection of subrecipients and subrecipient monitoring Special tests and provisions.
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Updates With OMB Circular A-133
Definition of Streamlining Compliance
Requirements for Full Single Audits
Reduce testing of other requirements by making them optional, smaller samples, and/or higher levels of materiality:
Cash Management
Davis-Bacon Act
Equipment and Real Property Management
Matching, Level of Effort and Earmarking
Program Income
Real Property and Relocation Assistance 18
Updates With OMB Circular A-133 Through the Advance Notice, OMB is seeking input on a variety of grant related reform concepts. The Advance notice does not include the detailed changes to OMB Circulars that would be necessary to implement these concepts. Those are expected to be published for comment later this year based on response to the Advance Notice. Until this entire process is complete, all current Circulars remain in effect.
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Updates With OMB Circular A-133
This notice is the first step in the process of reform and is intended to garner your reaction and feedback. Your input is extremely important as these proposals could result in substantial changes to the way your office conducts business. We urge you to carefully consider the proposed reforms and provide comments.
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Updates With OMB Circular A-133
OMB has posed a series of questions in Part III of the Federal Register titled, Questions for Comments, which are of greatest interest to OMB. OMB’s deadline for comments will be thirty days from publication date of the Federal Register, which was February 28, 2012. It is encouraged to provide comments. 21
Updates With OMB Circular A-133
The proposed comments must be received via one of the addresses, no later than 5:00 P.M. Eastern Standard Time (EST) March 29, 2012.
By Electronically: You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions under the “More Search Options” tab.
~~OR~~
By regular mail: You may mail written comments to Office of Management and Budget; 725 17 th St. NW; Washington, DC 20500; Attention: Office of Federal Financial Management “Grant Reform” 22
Updates With OMB Circular A-133
~~OR~~~
By express or overnight mail: You may send written comments to Office of Management and Budget; 725 17 th St. NW; Washington, DC 20025 Attention: Office of Federal Financial Management “Grant Reform” Due to potential delays in OMB’s receipt and processing of regular mail sent through the U.S. Postal Service, it is strongly encouraged that respondents submit their comments electronically. It cannot be guaranteed that regular mail will be received before the closing date.
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Updates With OMB Circular A-133
OMB’s aim is to concentrate audit resolution or oversight resources on higher dollar and high risk awards 24
Thompson
Insight You Trust
The above slides were created from the Single Audit Information Service Newsletters from January 2012 through March 2012 published by Thompson Publishing Group, Washington D. C. | [email protected]
; Copyright © 2012 The newsletter for the Single Audit Information Service includes a loose leaf update to the Service. For subscription service, call 800-677 3789. For editorial information, call 202-872-4000. 25
KPMG Cutting Through Complexity
™
These next slides are from the courtesy of KPMG and with the permission to incorporate into this presentation.
©2011 KMPG LLP, a Delaware limited liability partnership and the U. S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 26
Single Audit Update
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms a ffiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FOR INTERNAL USE ONLY.
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Agenda
OMB Circular A-133 Compliance Supplement for 2011 - ARRA
Federal Funding Accountability and Transparency Act (FFATA)
Recent Developments in Auditing Standards
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OMB 2011 Compliance Supplement
Updated Part 3 I, Procurement and Suspension and Debarment, to include additional information on international agreements and the Buy-American Act
Updated Part 3 L, Reporting to: 1.
Add Federal Funding Accountability and Transparency Act (FFATA) 2.
Provide transitional guidance for moving from use of SF 269, Financial Status Report, and SF 272, Federal Cash Transactions Report, to use of SF-425, Federal Financial Report 3.
a) b) Clarify 1512 reporting issue Using estimates ok – must make corrections Using lag methodology not appropriate 29
OMB 2011 Compliance Supplement (continued)
Updated Part 4 to:
Add 19 new programs (some Recovery Act specific), delete 2 programs, add 5 new programs to clusters (some Recovery Act specific)
Make numerous changes to existing programs
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OMB 2011 Compliance Supplement (continued)
Updated Appendix 3, Federal Agency Contacts for A-133 Audits, to: 1.
Add new table to provide contact information by federal program 2.
Provide up-to-date contact information for each agency Single Audit Coordinator also available at Federal Audit Clearinghouse Web site at: https://harvester.census.gov/fac/imagemgmt/NSACConta
ctList.pdf
Updated Appendix 5, List of Changes for the 2011 Compliance Supplement, to identify all changes to the 2011 Supplement.
Updated Appendix 7, Other OMB Circular A-133 Advisories, to include: 1.
List of Recovery Act programs not covered by Parts 4 or 5 subject to a single audit 2.
3.
List of Recovery Act programs not subject to single audit Finding detail relating to Recovery Act funds
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Federal Funding Accountability and Transparency Act (FFATA)
New required federal award reporting process (similar to Recovery Act 1512 reporting) – www.USASpending.gov Extends to non-Recovery Act federal awards (including grants and sub-grants) and federal contracts Beginning 10/1/2010 prime grant awardees of federal grants of $25K or more must report “first-tier” subgrants of $25K or more by end of month following the month subaward or obligation made Indication in each program section in Part 4 as to whether reporting under FFATA applies When awards contain both Recovery Act and non-Recovery Act funding, an indication that FFATA only applies to the non-Recovery Act funding
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Federal Funding Accountability and Transparency Act (FFATA) – Required Data Elements
Name of the entity receiving the award
Amount of the award
Information on the award including transaction type, funding agency, the North American Industry Classifications System code or Catalog of Federal Domestic Assistance number, program income, and an award title descriptive of the purpose of each funding action
Location of the entity receiving and the primary location of performance under the award including the city, state, congressional district, and country 33
Federal Funding Accountability and Transparency Act (FFATA) – Required Data Elements
DUNS number of the entity receiving the award and of the parent entity of the recipient, should the entity be owned by another entity
The names and total compensation of the five most highly compensated officers of the entity if in the prior fiscal year, the entity received: 80% or more of the entities annual gross revenues in federal awards $25 million or more of its annual gross revenues from federal awards The public does not have information about the compensation of the senior executives from another source (SEC or IRS)
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Federal Funding Accountability and Transparency Act (FFATA) – Data Elements Subject to Testing
Subaward Date Amount of Subaward Subaward obligation/action date (date agreement was signed) Date of report submission Subaward number Auditors do not need to test executive compensation
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ARRA – Section 1512 Reporting
Common findings identified in 2010 audits: 1.
Reporting a period of time inconsistent with reporting period (best available information concept) 2.
3.
4.
Amounts reported did not agree to supporting documentation Amounts reported were not consistent with other financial reports Untimely submission of reports
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ARRA – Reporting Findings
2011 OMB Compliance Supplement included the following new language:
Auditor Identification of ARRA Findings The audit finding detail as described in § ___.510(b)(1) of OMB Circular A-133 is required to include Federal program and specific Federal award identification including the CFDA title and number. The auditor should include in the audit finding detail explicit identification of applicable ARRA programs.
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Recovery Act…..It’s not over until it’s over!
Continued Recovery Act implications 1.
2.
3.
4.
5.
6.
Major program determination More federal agency follow-up on findings More quality control reviews Auditors should focus on Compliance Supplement Appendix 7 and related information added to Parts 3 and 4 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
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American Recovery and Reinvestment Act of 2009
Effect of recovery act awards on major program determination Clusters of programs specifically listed in the Supplement with a new Recovery Act 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 a.
Would fail the two year look-back rule b.
R&D and SFA clusters are not subject to this guidance
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American Recovery and Reinvestment Act of 2009
Although a Type A program otherwise meets the Circular A-133 criteria as low-risk, any program or cluster (excluding SFA) with expenditures of Recovery Act awards would not qualify as a low-risk Type A a.
Even a small amount of Recovery Act expenditures would not support identifying the program as low risk.
b.
See next slide for exception.
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American Recovery and Reinvestment Act of 2009 (continued)
Effect of recovery act awards on major program determination
However, the auditor may consider a Type A program or clustor to be low-risk if all of the following conditions are met: (1) Program or cluster had ARRA expenditures in the prior audit period; (2) Program or cluster was audited as a major program in the prior audit period; (3) ARRA expenditures in the current audit period are less than 20% of the total program or cluster expenditure; and (4) Auditor has followed Section 520(c) and 525 of OMB Circular A-133 and determined that the program or cluster is otherwise low-risk
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Effect of recovery act awards on Type B programs 1.
All Type B programs and clusters with Recovery Act expenditures to be considered higher risk 2.
American Recovery and Reinvestment Act of 2009 (continued) However, not precluded from selecting Type B programs with no Recovery Act expenditures in lieu of a Type B program or cluster with Recovery Act expenditures
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Recent Developments in Auditing Standards
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SAS No. 117, Compliance Auditing
SAS responds to federal study on single audit quality Superseded SAS 74, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance Issued in December 2009; was effective for first time for June 30, 2010 year-ends In new clarity format Applicable when performing a compliance audit in accordance with all of the following: 1.
2.
GAAS The standards for financial audits under Government Auditing Standards (AKA: Yellow Book or GAGAS) 3.
A governmental audit requirement requiring the auditor to express an opinion on compliance A compliance examination under AT 601 performed when above criteria not met
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SAS No. 117, Compliance Auditing (continued)
Revises AU sec. 801 by : 1. Clarifying its applicability.
2. Updating it for changes in the compliance audit environment.
3. Establishing a requirement for the auditor to adapt and apply GAAS, including the risk assessment and fraud standards (all of which primarily address audits of financial statements), to a compliance audit and providing guidance on how to do so.
4. Identifying the AU sections that are applicable to a compliance audit and those that are not applicable .
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SAS No. 117, Compliance Auditing (continued)
5. Defining terms related to a compliance audit.
6. Identifying auditor requirements that are unique to a compliance audit.
7. Providing guidance on the factors an auditor may consider in evaluating whether an entity has materially complied with the applicable compliance requirements.
8. Identifying the elements to be included in an auditor’s report on compliance.
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Omnibus SAS Exposure Draft
Revisions to SAS 117 1.
Appendix regarding what auditing standards do NOT apply to compliance audit to be revised 2.
Reporting changes New communication requirement (previously from SAS 74)
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SAS No. 119 , Supplementary Information in
Relation to the Financial Statements as a Whole
Effective for audits of financial statements for periods beginning on or after 12/15/10 Early application is permitted; however, KPMG is not early adopting Supersedes (along with SAS No. 118) AU 551 Certain conditions must be met to report “in-relation to” Required procedures Reporting Dating
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SAS No. 119 (continued)
Auditor should determine that all of the following conditions are met: SI was derived from, and relates directly to, the underlying accounting and other records used to prepare the FS a) SI relates to the same period as the FS FS were audited, and auditor served as the principal auditor in that engagement Neither an adverse opinion nor a disclaimer of opinion was issued on the FS SI will accompany the entity’s FS or such FS will be made readily available by the entity Auditor is required to obtain management’s acknowledgement that it is responsible to present the SI with the FS or make the FS readily available no later than the date of issuance of the SI
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SAS No. 119 (continued) – Required Procedures
Inquiry to management about the purpose of the SI and the criteria used by management to prepare the supplementary information Determine whether the form and content of the SI complies with the applicable criteria Obtain an understanding about the methods of preparing the SI and determine whether the methods of preparing the SI have changed from those used in the prior period and, if the methods have changed, the reasons for such changes .
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SAS No. 119 (continued) – Required Procedures
Compare and reconcile the SI to the underlying accounting and other records used in preparing the FS or the FS themselves Inquiry to management about any significant assumptions or interpretations underlying the measurement or presentation of the SI Evaluate the appropriateness and completeness of the SI, considering the results of the procedures performed and other knowledge obtained during the audit of the FS.
Obtain written representations from management
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SAS No. 119 (continued)
When SI is presented with F/S, the auditor reports on SI either: In an explanatory paragraph in the report on the F/S In a separate report If SI is not presented with the F/S, then the auditor reports separately on the SI Report includes a reference to the report on the F/S (date of that report, nature of opinion expressed, and any report modifications) If adverse opinion or disclaimer on F/S, the auditor can issue a report on SI stating that it is inappropriate to express an opinion on it Report on SI is not dated earlier than when procedures are completed
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SAS No. 119 and the Single Audit
SEFA is covered by an “in-relation-to” the opinion Until the firm adopts SAS 119 for 12/31/11 year ends, the in-relation-to will continue to carry the FS date Audit procedures for the SEFA will go beyond those in SAS 119 as the SEFA is also the basis on which the Single Audit is prepared
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SINGLE AUDIT UPDATES AND DEVELOPMENTS
Basically, this is an overview pertaining to:
Government Auditing Standards
OMB Circular A-133
OMB Circular A-133 Compliance Supplement, American Recovery and Reinvestment Act (ARRA)
Federal Funding Accountability and Transparency Act (FFATA)
Statements on Auditing Standards
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Questions and Answers 55
…THANK YOU FOR YOUR TIME AND ATTENDANCE
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