Transcript Single Audit Fundamentals Part I: Basic Background

AICPA
Governmental Audit Quality Center
Member Event
Single Audit Fundamentals Part I:
Basic Background & Overview of the Single Audit
February 25, 2010
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Single Audit Fundamentals Series
Sponsored by the GAQC
• What is GAQC?
– Voluntary membership Center for CPA firms and State Audit
Organizations (SAOs), with approximately 1,400 members
– Designed to help CPAs meet the challenges of performing
quality governmental audits, including single audits
– Member benefits/membership requirements
– For more information, please visit the membership section at
www.aicpa.org/GAQC or call Cynthia Dillon at 202-434-9207
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Today’s Presenters
Barbara Cevallos, CPA
PricewaterhouseCoopers LLP
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Kim McCormick, CPA
Grant Thornton LLP
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Moderator
Mary Foelster, CPA
AICPA Governmental Audit Quality Center (GAQC)
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Single Audit Fundamentals
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Single Audit Fundamentals Events
• Part I – Basic Background & Overview of the Single Audit
– Scope of the Single Audit
– Auditee & Auditor Responsibilities
– Unique Requirements & Provisions of OMB Circular A-133
– Description & Characteristics of Federal Awards
– Pass-through Awards and Subrecipients
• Part II – Understanding Major Program Determination (March 4, 2010,
from 1:00pm – 3:00pm Eastern)
– Applying the Risk-Based Approach for Determining Major
Programs
– Low-Risk Auditee Determination and Distinguishing from Other
Risk Assessments Performed in a Single Audit
– Communications with Cognizant or Oversight Agency
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Single Audit Fundamentals Events
• Part III - Understanding Compliance Testing & IC over Compliance
Requirements (March 11, 2010, from 1:00pm – 3:00pm Eastern)
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Description & Characteristics of the 14 Compliance Requirements
Description & Characteristics of Internal Control over Compliance
Substantive Tests of Applicable Compliance Requirements
Tests of Internal Control over Compliance
Documentation Requirements
Introduction to and Using the Annual OMB Compliance Supplement
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Single Audit Fundamentals Events
• Part IV - Reporting Requirements and an Overview of Available
Circular A-133 Resources (March 18, 2010, from 1:00pm – 3:00pm
Eastern)
– Reporting Requirements of the Single Audit
– Overview and Use of the AICPA Audit Guide, Government Auditing
Standards and Circular A-133 Audits (GAS-A-133 Guide), and related
Audit Risk Alert
– Understanding the OMB Cost Circulars and their Applicability to Audit
Procedures
– Use of www.cfda.gov and Other Web Sites to Facilitate a Single Audit
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TOPICS to be COVERED
• Scope of the Single Audit
• Auditee & Auditor Responsibilities
• Unique Requirements & Provisions of OMB
Circular A-133
• Description & Characteristics of Federal Awards
• Pass-through Awards and Subrecipients
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Scope of the Single Audit
• When is a Single Audit required?
– When an entity expends federal awards (either direct
or indirect awards) in excess of $500,000 in their
fiscal year, they are subject to the provisions of OMB
Circular A-133.
– What qualifies as a Federal Award?
• Discussed later in this presentation
– What is the basis for determining when federal
awards are expended?
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Scope of the Single Audit
Federal Awards
Basis for Determining When Expended
Grants, cost reimbursement contracts,
cooperative agreements, and direct
appropriations
When the expenditure or expense transactions occur
Amounts passed through to subrecipients
When the disbursement is made to the subrecipient
Loan and loan guarantees
When the loan proceeds are used – further discussion in
GAS-A133 Audit Guide
Donated property, including donated surplus
property
When the property is received
Food commodities
When the food commodities are distributed or consumed
Interest subsidies
When amounts are disbursed entitling the entity to the
subsidy
Insurance
When the insurance is in force
Program income
When received or used
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Scope of the Single Audit
• Objectives of a Single Audit
– To determine if the entity has complied with direct and
material compliance requirements of each major
program
– Used as a report card by federal funding agencies
and pass-through entities
– Gives comfort to readers regarding compliance and
internal control over compliance
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Impact of Recovery Act
• In February 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was passed
• Approximately $300 billion additional federal funds being passed
down; much of which subject to single audits
• Federal agencies looking at single audits as an important
accountability mechanism to help them ascertain that ARRA
funds spent appropriately
• Congress is following this very closely as well; many hearings
have focused on tracking ARRA funds and single audits
discussed as one accountability mechanism
• High quality of the audits is of utmost importance
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Scope of the Single Audit
• Conducted in accordance with Generally
Accepted Government Auditing Standards
(GAGAS)
• Covers entire operations of the entity
• Financial statements are presented fairly
• Adequate internal control structure
• Compliance with laws and regulations
• Follow-up on prior audit findings
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Scope of the Single Audit
• Circular A-133 audit is meant to be in lieu of any
financial audit of federal awards that an entity is
required to undergo under any other federal law
or regulation.
• However, federal agencies may conduct or
arrange for additional audits to carry out their
responsibilities under federal law or regulation.
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TOPICS to be COVERED
• Scope of the Single Audit
• Auditee & Auditor Responsibilities
• Unique Requirements & Provisions of OMB
Circular A-133
• Description & Characteristics of Federal Awards
• Pass-through Awards and Subrecipients
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Auditee and Auditor Responsibilities
• Auditee Responsibilities
– Defined in OMB Circular A-133 Subpart C
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Financial statements
Schedule of expenditures of federal awards
Summary schedule of prior audit findings
Management’s views and corrective action plan
Identify Federal awards received/expended; under
which program
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Auditee and Auditor Responsibilities
• Auditee Responsibilities, con’t
• Maintain IC over federal programs
• Comply with laws, regulations, provisions of
contracts/grants
• Ensure Single Audit is performed and submitted
when due
• Follow up and take corrective action on audit
findings
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Auditee and Auditor Responsibilities
• Auditor Responsibilities
– Defined in OMB Circular A-133 Subpart E
• Audit the financial statements in accordance with GAAS,
GAGAS
• Understand internal control over Federal programs to plan
the audit to support low level of control risk
• Test compliance with laws, regulations, provisions of contract
and grant agreements that are direct and material to each
major program
• Report findings in A-133 report
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Auditee and Auditor Responsibilities
• Auditor Responsibilities, con’t
– Audit of the Schedule of Expenditures of
Federal Awards
• In relation to the financial statements taken as a whole
• As a basis for the selection of major programs
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TOPICS to be COVERED
• Scope of the Single Audit
• Auditee & Auditor Responsibilities
• Unique Requirements & Provisions of OMB
Circular A-133
• Description & Characteristics of Federal Awards
• Pass-through Awards and Subrecipients
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Unique Requirements & Provisions of OMB
Circular A-133
Timing of the Single Audit
• Audit should be annual
• Biennial audits allowed under limited circumstances
• Must be submitted to Federal Audit Clearinghouse (FAC)
within the earlier of 30 days after receipt of the auditors
reports or 9 months after year end of the auditee
• This deadline may change, so stay tuned to GAQC for
updates
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Unique Requirements & Provisions of OMB
Circular A-133
Contents of the Single Audit Submission
• Report on the financial statements of the entity
• Report on the schedule of expenditures of federal
awards
• Audited financial statements
• Schedule of expenditures of federal awards
• Reports on internal control over financial reporting and
on compliance and other matters – GAGAS
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Unique Requirements & Provisions of OMB
Circular A-133
Contents of the Audit Submission, con’t
• Reports on compliance and internal control over
compliance – major programs
• Schedule of findings and questioned costs
• Summary schedule of prior audit findings
• Management’s views and corrective action plan
• All gets submitted electronically, to FAC, with Data
Collection Form
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Unique Requirements & Provisions of OMB
Circular A-133
Data Collection Form
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Joint responsibility of auditee and auditor
Electronic summary of the Single Audit reports
Summarizes audit opinions
Includes contact information for auditee and auditor
Includes SEFA information, references to findings, and
relevant compliance requirements
• Public document
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Unique Requirements & Provisions of OMB
Circular A-133
Schedule of Expenditures of Federal Awards
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Prepared by management
Includes all federal expenditures, or in notes to SEFA
Reconciles to the general ledger
Specifies pass-through awards
Includes CFDA or identifying number for each grant
Auditor uses this document to perform risk assessments and
selection of major programs
– Completeness critical to avoid over testing or missed
programs
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Unique Requirements & Provisions of OMB
Circular A-133
Risk Assessment and Major Program Determination
• Major programs are the programs we will audit
• At a high level – we audit the programs that are large, risky, and new
• Major program determination is a prescription for assessing the size, risk
and newness of programs
• Basis for our budgets and thus our fees, so must be done accurately,
and done early in the process
• Additional programs can add large chunks of time to the audit, so must
keep the client informed of any changes to major program determination
• GAQC Web event #2 will cover major program determination in detail
(March 4, 2010, from 1:00pm – 3:00pm Eastern)
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TOPICS to be COVERED
• Scope of the Single Audit
• Auditee & Auditor Responsibilities
• Unique Requirements & Provisions of OMB
Circular A-133
• Description & Characteristics of Federal
Awards
• Pass-through Awards and Subrecipients
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Description & Characteristics of Federal
Awards
Federal Awards - Definition
• Federal financial assistance and Federal costreimbursement contracts that non-Federal
entities receive directly from Federal awarding
agencies or indirectly from pass-through entities.
– Does not include procurements under grants or contracts, used to buy
goods or services.
– Analysis completed by the client to determine if a vendor relationship
exists.
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Characteristics of Federal Awards examples
• Grants
• Insurance
• Contracts
• Direct Appropriations
• Cooperative Agreements
• Endowments
• Loans
• Other Non-Cash
Assistance
• Loan Guarantees
• Property
• Interest Subsidies
• Indirect State or Local
Government Transfers of
Federal Funds
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Characteristics of Federal Awards:
Grants vs. Contracts
• Grants
– Given to an entity to support an activity (research, clinical, public
service)
– Outcome can be uncertain
• Contracts
– Between two entities
– Defined service to be provided
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Characteristics of Federal Awards:
What is a Federal Expenditure?
• Based on when the activity related to the award
occurs:
– Expenditure/expense transactions related to
grants/contracts
– Other examples: disbursement of funds passed
through to subrecipients; use of loan proceeds under
loan and loan guarantee programs; receipt of
property; receipt or use of program income;
distribution or consumption of food commodities;
period when insurance is in force.
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Characteristics of Federal Awards:
Clusters
• Definition: A grouping of closely related
programs that share common compliance
requirements
• Treated as one program for major program
determination and testing
– Most common:
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Research and Development
Student Financial Aid
TRIO
Child Nutrition
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Characteristics of Federal Awards:
Clusters
• Part 5 of the Compliance Supplement lists each cluster
and specific, unique requirements for each
• Research & Development is the only cluster where
specific CFDA numbers are not identified in the
Supplement
• For R&D, determination of inclusion in the cluster is a
matter of auditee judgment
• For all other clusters, inclusion in the cluster is defined
by OMB.
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TOPICS to be COVERED
• Scope of the Single Audit
• Auditee & Auditor Responsibilities
• Unique Requirements & Provisions of OMB
Circular A-133
• Description & Characteristics of Federal Awards
• Pass-through Awards and Subrecipients
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Pass-through Awards and
Subrecipients
• Many nonfederal entities receiving federal
awards make pass-through payments of federal
awards to other entities that are considered
subrecipients.
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Pass-through Awards and Subrecipients:
Definitions
• Pass-through entity—A nonfederal entity that provides a
federal award to a subrecipient to carry out a federal
program.
• Subrecipient—A nonfederal entity that expends federal
awards received from a pass-through entity to carry out
a federal program.
• Vendor—A dealer, distributor, merchant, or other seller
providing goods or services that are required for the
conduct of a federal program.
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Pass-through Awards and Subrecipients:
Applicability
• Circular A-133 applies to both recipients and
subrecipients of federal awards.
• Payments received by a vendor for goods or services
provided in connection with a federal program are not
considered federal awards.
• Medicaid payments to a subrecipient for providing
patient care services are not considered federal awards.
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Pass-through Awards and Subrecipients:
A Subrecipient…
• determines who is eligible to receive what federal
financial assistance.
• has its performance measured against whether the
objectives of the federal program are met.
• has responsibility for programmatic decision making.
• has responsibility for adherence to applicable federal
program compliance requirements.
• uses the federal funds to carry out a program of the
entity
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Pass-through Awards and Subrecipients:
A Vendor…
• provides the goods and services within normal business
operations.
• provides similar goods or services to many different
purchasers.
• operates in a competitive environment.
• provides goods or services that are ancillary to the
operation of the federal program.
• is not subject to the compliance requirements of the
federal program.
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Pass-through Awards and Subrecipients:
Subrecipient Monitoring
• If a pass-through entity provides federal awards to
subrecipients, the pass-through entity should monitor the
subrecipients' activities to provide reasonable assurance
that the subrecipients administer federal awards in
compliance with federal requirements.
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Pass-through Awards and Subrecipients:
Key Subrecipient Monitoring Requirements
• Inform each subrecipient of the CFDA title and number,
the award's name, number, award year, whether the
award is for research and development, and the name of
the federal agency.
• Advise subrecipients of the requirements imposed on
them
• Monitor the activities of subrecipients
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Pass-through Awards and Subrecipients:
Key Subrecipient Monitoring Requirements
• Ensure that subrecipients expending $500,000 or more
in federal awards during the subrecipient's fiscal year
have met the audit requirements of Circular A-133 for
that fiscal year.
• Issue management decisions on audit findings within six
months after receipt of subrecipients‘ audit reports
• See chapter 12 of GAS-A133 Audit Guide for more
details
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Pass-through Awards and Subrecipients:
Audit Considerations
• Auditors should consider subrecipient monitoring
in a compliance audit of an entity that disburses
to subrecipients federal awards that are material
to a major program.
– Does the pass-through monitor subrecipients?
– Does the pass-through have internal control over
compliance in place to monitor subs that are material
to the pass-through’s major programs?
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Recap – Topics Covered
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Scope of the Single Audit
Auditee & Auditor Responsibilities
Basic Requirements of OMB Circular A-133
Characteristics of Federal Awards
Pass-through Awards and Subrecipients
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Questions ?????
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