federal & state single audit issues presented by william blend, cpa, cfe

Federal & State Single Audit Issues

Presented ByWilliam Blend, CPA, CFE

Topics• Single Audit Basics• Recipient’s Danger Areas• Single Audit Findings• SEFA Issues• Grant Auditing• OMB Reform Ideas for Comment• Tips to Help Avoid Trouble

SINGLE AUDIT BASICS

Single Audit Basics (Con’t.)

• 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


• To set standards for obtaining consistency and uniformity among federal agencies for the audit of non-federal entities expending federal awards

– Provides a snapshot into an organization’s financial and grant program operations

– Focus on compliance requirements that have a direct and material effect on major programs or state projects

– Not all programs and projects are tested


Frequency of Audits• All audits required by OMB A-133 shall be performed

annually (exceptions)

• Submission to federal audit clearinghouse– Within one month after completion of the single audit– No later than 9 months after auditee’s fiscal year


1. Audit of financial statements and reporting on the SEFA

2. Compliance audit of federal awards• The term “single audit” could be perceived as

misleading by some, since it appears reporting is done related to “two” audits; one on the fair presentation of the financial statements, and the other on compliance with major federal programs…


• Conducted in accordance with Government Auditing Standards (GAS)

• Covers entire operations of the organization• Fairly presented financial statements• Adequate internal control structure• Compliance with laws and regulations• Follow-up on prior audit findings


Section 1

Summary of auditor’s results

Section 2

Financial statement

findings

Section 3

Federal award findings and questioned

costs

Components of the SEFA


• Auditee Responsibilities– Defined in OMB Circular A-133 Subpart C and FL

Single Audit Act• Financial statements• Schedule of expenditures of federal awards• Summary schedule of prior audit findings• Management’s views and corrective action plan• Identify all awards received/expended; under

which program


• Auditee Responsibilities– Defined in OMB Circular A-133 and FL Single Audit

Act• Financial statements• Schedule of expenditures of federal awards• Summary schedule of prior audit findings• Management’s views and corrective action plan• Identify all awards received/expended; under

which program


• 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


Single audit reporting package• Financial statements• Schedule of expenditures of federal awards (SEFA)• All applicable footnotes to both F/S and SEFA• Auditor's reports• Schedule of findings and questioned costs• Summary Schedule of Prior Audit Findings (if

applicable)• Corrective Action Plan (if applicable)• Data Collection Form (technically not part but

required to be filed)


• Auditor Responsibilities– Defined in OMB Circular A-133 and FL Single Audit Act

• 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


• 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


Auditor’s Required Reports Financial Statement opinion(s)

Compliance and I/C and over financial reporting and other matters (Yellow Book)

Compliance and I/C over major programs(A-133 report)

RECIPIENT’S DANGER AREAS

Recipient’s Danger Areas

• Lack of understanding of Program/Project compliance requirements– Federal Regulations– State Statutes / FAC– Grant Agreements

• Lack of internal controls over compliance– Prevent controls– Detect controls

Recipient’s Danger Areas (Con’t.)

• Untimely or lack of reconciliation between program reporting and accounting records– General ledger– Program/project reporting

• Failure to monitor subrecipients– External audits do not eliminate responsibility

SINGLE AUDIT FINDINGS

Common Findings

• Schedule of Expenditures of Federal Awards– Errors in information reported– Amounts not reconciled to general ledger or financial

statements– No centralized function to ensure completeness

• Federal Suspension & Debarment– Lack of documentation

• Federal/State Reporting– Reports not filed timely– Reports not reconciled to general ledger

Common Findings (Con’t.)

• Eligibility– Individuals not qualified– Documentation inadequate

• Activities Allowed or Unallowed– Overpayments not corrected– No certification that work was completed– Lack of documentation to support activities– Lack of documentation to support acquisition of capital

assets under state contract– Lack of support to document review

Common Findings (Con’t.)

• Subrecipients– Lack of monitoring

• Program Income– Netted against expenditures on SEFA– Not considered in subsequent draw downs

• Property Acquired– Capital assets not identified as acquired with Federal

or state dollars• Matching

– Wrong amounts allocated

Florida Auditor General on NFPs

• Finding No 1: Licensing of Auditors– Verify that auditors hold active licenses

• Finding No. 2: Audit Report Reviews– Ensure reports and schedules are submitted in

accordance with reporting requirements

Florida Auditor General on Local Governments

• Notes describing accounting polices and procedures not included.

• Auditor’s opinion on schedule of state assistance not included.

• Incorrect reference in report on compliance to Executive Office of Governor vs. Florida Department of Financial Services

Florida Auditor General on Local Governments

• Type of opinion issued on state projects not disclosed.

• Statement as to whether or not FS audit disclosed other findings not included in the schedule of findings and questioned costs as required by Section 10.557 Rules of Auditor General.

• Incorrect threshold reported to distinguish between Type A and B state projects.

SEFA ISSUES

Schedule of Expenditures of Federal Awards and State Financial Assistance (SEFA)• SEFA is a client-prepared schedule• Reports the total expenditures of federal awards and

state projects and serves as the primary basis for the auditor’s major program/project determination

• Circular A-133 §.310(b) includes the requirements for Federal Awards

• FAC Chapter 69I-5.003 includes the requirements for State Financial Assistance

SEFA TermsFederal Florida State

Federal Award State Financial Assistance

Federal Program State Project

Catalog of Federal Domestic Assistance (CFDA)

Catalog of State Financial Assistance (CSFA)

Federal Agency State Agency

Pass-through Entity Pass-through Entity

Expenditures Expenditures

Direct Programs Direct Projects

Indirect Programs Indirect Projects

Contract/Grant No. Contract/Grant No.

Transfers to Subrecipients Transfers to Subrecipients

SEFA Type A and B DeterminationFederal Florida State

Type (A): Type (A):

$300,000 or 3% - If total federal awards = or >$300,000 and = or <$100 million

$100,000 or 30% - If total state awards are between $300,000 and $1,000,000

3 million or .3% - If total federal awards >$100 million and = or <$10 billion

$300,000 or 3% - If total state awards > $100 million

$30 million or .15% - If total federal awards exceed $100 million

Type (B): Type (B) (requrie risk evaluation):

$100,000 or .3% - If total federal awards = or <$100 million

$50,000 or 10% - If total state awardsbetween $300,000 and $1,000,000

$300,000 or .03% - If total federal awards >$100 million

$100,000 or 1% - If total state awards >$100 ,000,000 million

Example EntitySchedule of Expenditures of Federal Awards

For the Year Ended June 30, 20x1

Federal Grantor/Pass-through Grantor/Program or Cluster Title

Federal CFDA

Number

Pass-Through Entity

Identifying Number Federal Expenditures

Department of Agriculture Direct ProgramsSummer Food Service Program for Children - Commodities 10.559 $ 46,000

Total Department of Agriculture Direct Programs 46,000

Department of Housing and Urban Development Direct ProgramsCommunity Development Block Grants/Entitlement Grants 14.218 1,235,632 Section 8 Housing Choice Vouchers 14.871 800,534

Total Department of Housing and Urban Development Direct Programs 2,036,166

Department of Education Direct Programs Impact Aid 84.041 372,555

Literacy Through School Libraries 84.364 28,655 Subtotal Department of Education Direct Programs 401,210

Department of Education Pass Through Programs From: State Department of Education - Title I Grants to Local Educational Agencies 84.010 23-8345-7612 1,239,398 Total Department of Education 1,640,608

Total Expenditures of Federal Awards $ 3,722,774

Note that footnotes have been excluded.

SEFA Expenditure when to record

Federal Awards/State Financial Assistance Basis for Determining When Expended

Grants, cost-reimbursement contracts, cooperative agreements, and direct appropriations

When the expenditure or expense transactions occur (incurred vs. disbursed)

Amounts passed through to subrecipients When the disbursement is made to the subrecipient

Loan and loan guarantees When the loan proceeds are used

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

Endowments When federally restricted amounts are held

Program income When received or used

SEFA Reporting of Expenditures

Based on amounts paid (full accrual) Should be reconciled to financial statements Commodities reflected at fair value Loans reflected at outstanding balances If program involves both federal and state dollars:

Report separately, if separate program/project Report federal expenditures ONLY, if state is used for

matching Do not report in state section, if federal program

GRANT AUDITING

Audit Considerations

• Major programs are the programs we will audit• Generally 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

Entity Low-Risk, High-Risk Evaluation

• Determine if entity is a low-risk auditee– Considerations for the two preceding years include:

• A-133 audit performed• Unqualified opinion on Financial Statements and SEFA• No Material Weaknesses noted• No compliance findings that have a material impact on

a Type A program • No known/likely question costs > 5% of total awards

expended on Type A program

Entity Low-Risk, High-Risk Evaluation

• Low-risk auditee determination dictates coverage of SEFA required to be obtained by the auditor– Low-Risk Auditee = 25%– High-Risk Auditee = 50%

• After this is determined, auditor can begin the process of selection of major programs

• Not applicable to state grants

Significance of Low-Risk Determination

Major Program Flow Chart

Identify "Type A" programs

Identify low-risk "Type

A" programs

Identify high-risk "Type B" programs

Determine major

programs to audit

Step 1 Step 2 Step 3 Step 4

Audit Process

Identify Grant for Testing

Review Grant

Documents

Review Applicable

Compliance Supplemen

t

Determine Direct

and Material Identify

Population to Test

Determine/Create Testing

Procedures

Perform

Tests

Evaluate

Results

Risk Considerations

• Considerations for Assessing Risk:– Weakness in internal control over compliance– Skill level of those responsible for program compliance– Administration under multiple internal control structures– System for monitoring subrecipients– Information systems utilized– Prior audit findings– Audited as a major program in the past– Reviews by oversight agency or pass-thru entity completed

recently– Auditor judgment

What Determines Direct & Material

• First, Determine Applicable Compliance Requirements– Part 2 – Matrix of Compliance Requirements– Part 7 – Guidance for Auditing Programs Not Included

• Subjective Factors– Personal views / auditor judgment– Experience – Accepted risk– Industry expectation

• Qualitative and quantitative factors

Cluster Consideration• Similar requirements but different CFDA numbers can be clustered

based on the compliance supplement• Treated as one program for major program determination and testing• Awards with the same CFDA number will also be clustered together• Most common:

– Research and Development– Student Financial Aid– Homeland Security– Special Education

• Part 5 of the Compliance Supplement for information on clusters

Finding Requirements

• Information to be included in findings:– Information on program– Criteria or specific requirement– Condition– Questioned Cost– Context– Effect– Cause– Recommendation– Response of responsible officials and Corrective Action Plan

Audit Quality

Steps to help ensure a quality Single Audit

• Audit firm must have quality, knowledgeable staff with the right skills for your Yellow Book and single audits

• Access to all grant financial and program records

• Identification of all federal programs

Audit Quality

Steps to help ensure a quality Single Audit

• Access to key staff both financial and program level

• Clients should be actively involved – show interest in process and ask questions

• Maintain open communications through all phases of the process

AICPA Audit Guide: GAS/A-133 Audits

• Two main sections of the guide– Chapters 2-4: Yellow Book audits– Chapters 5-13: A-133 audits– Chapter 14: Program-specific audits

• Appendices– Single Audit Act– Circular A-133– Risk Assessment Standards– Schedule of changes from prior edition

Audit Quality

AICPA – Governmental Audit Quality Center (GAQC)

• Dedicated Center Web site with a complete listing of CPA firm members in your state

• Illustrative Auditor’s Reports with examples of Government Auditing Standards, OMB Circular A-133 and HUD reports

• Web seminars, webcasts, and teleconferences updating you on a variety of technical, legislative, regulatory, and practice management subjects

OMB REFORM IDEAS

Background

Improving Regulation and Regulatory Review

• Tailor regulations to impose the least burden, while being consistent with obtaining regulatory objectives

• Eliminate unnecessary and reforming requirements that are overly burdensome

• Culmination of a year of work by the Fed and non-Fed financial assistance community

• Currently federal reforms only

OMB Reform Ideas for Comment

A. Reforms to Audit Requirements

B. Reforms to Cost Principles

C. Reforms to Administrative Requirements

A. Reforms to Audit Requirements

• <$1 million in federal awards would not be required to conduct a Single Audit

• $1 million to $3 million in federal awards requires more focused version of the Single Audit

• >$3 million in federal awards requires a full Single Audit

Concentrating audit resolution and oversight resources on higher-dollar, higher-risk awards

Streamlining the universal compliance requirements in the Circular A-133 Compliance Supplement

• The universal compliance requirements could be streamlined to focus on proper stewardship of Federal Funds

• Allows agencies to concentrate on the requirements most essential to managing waste, fraud, and abuse, and reducing improper payments

• Subset of compliance requirements would be targeted (discussion of two)

A. Reforms to Audit Requirements (Con’t.)

Strengthening the guidance on audit follow-up for Federal awarding agencies

• Designate a senior accountable agency official to oversee the audit resolution process

• Implement audit-risk metrics• Encourage agencies to engage in cooperative audit

resolution with recipients; and• Take a proactive approach to resolving weaknesses and

deficiencies


Reducing burdens on pass-through entities and subrecipients from audit follow-up

• Applicable to entities that receive grants and funds through subawards

• Conduct audit follow-up of the subawards• Eliminates duplicate audit follow-up work performed

by a pass-through entity


• For indirect (“facilities and administrative”) costs, using flat rates instead of negotiated rates

• Exploring alternatives to time-and-effort reporting requirements for salaries and wages

• Charging directly allocable administrative support as a direct cost

B. Reforms to Cost Principles

• Including the cost of certain computing devices as allowable direct cost supplies

• Clarifying the threshold for an allowable, maximum residual inventory of unused supplies

• Eliminating requirements to conduct studies of cost reasonableness for large research facilities

B. Reforms to Cost Principles (Con’t.)

• Eliminating restrictions on use of indirect costs recovered for depreciation or use allowances

• Eliminating requirements to conduct a lease-purchase analysis for interest costs and to provide notice before relocating federally sponsored activities from a debt-financed facility

• Eliminate requirements that printed “help-wanted” advertising comply with particular specifications


• Allowing for the budgeting for contingency funds for certain awards

• Allowing for excess or idle capacity for certain facilities, in anticipation of usage increases

• Allowing costs for efforts to collect improper payment recoveries


• Specifying that gains and/or losses due to speculative financing arrangements are unallowable

• Providing nonprofit organizations an example for the Certificate of Indirect Costs

• Providing nonprofit organizations with an example of indirect cost proposal documentation requirements


• Creating a consolidated, uniform set of administrative requirements

• Requiring pre-award consideration of each proposal's merit and each applicant’s financial risk

• Requiring agencies to provide 90-days’ notice of funding opportunities

•

C. Reforms to Administrative Requirements

• Providing a standard format for announcements of funding opportunities

• Reiterating that information collections are subject to Paperwork Reduction Act approval

C. Reforms to Administrative Requirements (Con’t.)

TIPS TO AVOID TROUBLE

General Tips to Help Ensure Compliance

• Identify all federal awards received and expended by program

• Maintain internal control over federal programs

• Comply with laws, regulations, and provisions of contracts or grant agreements

• Prepare appropriate financial statements • Ensure audits are properly performed and submitted when

due• Prepare schedule of prior audit findings and corrective action

plan

– Ensure rigorous procurement processes– Develop robust governance structures that support the

benefit of audits– Consider the qualifications of your audit firm– Evaluate the reasonableness of the firm’s anticipated

hours in relation to the proposed fee based on the work to be performed

– Be well-educated about the Single Audit process and what it requires of both auditees and auditors

General Tips to Help Ensure Compliance (Con’t.)

Tips for Grant Managers

• Document your controls using COSO• Make sure everyone in your organization knows

your control system• Periodically, review the internal control system and

see if it is working• Closely monitor new employees for strict

compliance with policies

First Step to ComplianceWhich Circular Do I Follow?Although there are six grant circulars, you are only covered by three of them, depending on type of entity:States, local governments, and Indian Tribes follow:

– A-87 for cost principles, Relocated to 2CFR, Part 225– A-102 for administrative requirements (common rule), and– A-133 for audit requirements

Educational Institutions (even if part of a State or local government) follow:– A-21 for cost principles, Relocated to 2CFR, Part 200– A-110 for administrative requirements, Relocated to 2 CFR, Part 215, and– A-133 for audit requirements

First Step to Compliance (Con’t.)

Which Circular Do I Follow? (Con’t)Non-Profit Organizations follow:

– A-122 for cost principles, Relocated to 2 CFR, Part 230– A-110 for administrative requirements, Relocated to 2 CFR, Part 215 and– A-133 for audit requirements

Subrecipient Monitoring

• Document Subrecipient vs. Vendor A-133 .210– Determine eligibility– Performance measured against federal program objectives– Programmatic decision-making– Responsibility to adherence to federal compliance requirements– Carryout program of organization

vs.– Provides goods and services in normal course of business– Provides similar goods/services to many different purchasers– Operates in competitive environment– Goods/services are ancillary to operation of the federal program– Not subject to compliance requirements

Subrecipient Monitoring (Con’t.)

• Pass-through Entity Responsibility A-133 .400– Identify CFDA # for each Subrecipient– Advise Subrecipient of federal and other requirements– Monitor activities of Subrecipient– Ensure that Subs that spend more than $500,0000 have Single

Audit– Make management decisions on all findings within 6 months of

issuance– Consider impact on own records of Subs’ findings– Require Subs to permit access to records– Keep Subs’ report submissions

Subrecipient Monitoring (Con’t.)

• Identify all subrecipients/federal pass-throughs• Develop monitoring file

– Site visits– Contracts– Cross-agency info– A-133 reports– Correspondence on issue resolution

Tips on Time and Effort

• Time and Effort Reports:

– Get your employees into the habit of completing after-the-fact, timely, credible documentation that represents a reasonable estimate of the time worked on each grant project

• Timely, Accurate Financial and Performance Reports:– Late reports often indicate weaknesses in grant

management systems– Late reports are ‘red flags’ that may invite scrutiny

Tips Cost Transfers and Credits

• Cost Transfers:– Shifts of costs between programs look suspicious– Those occurring close to the end of a project are particularly

suspect

• Applicable Credits:– Don’t forget to subtract credits from your grant charges

before submitting to the awarding agencies• Purchase discounts• Rebates & refunds• Contract settlements

Tips Cash Management & Property Records

• Cash Management:– Minimize the time elapsing between drawing down federal

cash under your letter of credit and disbursing it by check– Credit any interest earned back to the federal government

• Property Records:– Make sure your property records include all of the required

data elements outlined in Circulars A-102 and A-110

Tips Equipment Inventory and Procurement

• Equipment Inventory:– Take inventory of all equipment that has been acquired

with federal funds (at least once every two years)– Reconcile the inventory count to your property records

• Noncompetitive Procurement:– If you award any contracts for goods or services on a sole-

source basis, prepare a written justification as to why you proceeded with the transaction

• Example: Emergency, no responses

Tips on In-kind Contributions

• Over-Valuation of Third-Party, In-kind Contributions:– Carefully and reasonably estimate the fair market

value of services, supplies, equipment, and facilities that you receive from third parties and employ in a grant as part of your matching or cost sharing

Results of Noncompliance

• Percentage of federal awards withheld until audit completion

• Withholding/disallowing overhead costs

• Suspend federal awards

• Terminating federal award

QUESTIONS?

federal & state single audit issues presented by william blend, cpa, cfe

Documents

term single audit

audit of financial statements

federal audit clearinghouse

audit of nonfederal

compliance slide

sefa slide

program slide

federal awards sefa