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The Recovery Act: Information You Need to Plan and Perform Your 2010 Single Audits. A GAQC Web Event May 19, 2010. Administrative Notes. If you encounter any technical difficulties (e.g., audio issues) during this event please take the following steps:

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The Recovery Act: Information You Need to Plan and Perform Your 2010 Single Audits

A GAQC Web Event

May 19, 2010


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Administrative Notes

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Administrative Notes

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  • 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


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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

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Today’s Presenter

  • Mandy Nelson, CPA

  • KPMG LLP

  • Moderating:

  • Mary Foelster, CPA

  • AICPA


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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


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ARRA – American Recovery and Reinvestment Act of 2009


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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.


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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


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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.


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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.


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2010 Compliance Supplement – Appendix VII (draft)

This information is based on the most recent drafts of the 2010 CS and discussions with OMB as of May 13, 2010


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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


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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


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Identification of ARRA Funding

1st tier subrecipients - Look to:

CFDA #

Awards terms

Stating ARRA funded

Requiring separate SEFA presentation


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Identification of ARRA Funding

Lower tier subrecipients

Look to

CFDA #

Award terms stating ARRA funding

Separate SEFA presentation required by Appendix VII


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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


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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


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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


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Low Risk Auditee and Extensions

M-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).”


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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


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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.


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Impact of Loan ProgramsExample #1 University

Step 1 – Identify the largest non-loan program:


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Step 2 – Calculate if loan program is greater than 4X

largest non-loan program:

Impact of Loan Programs Example #1 University (Continued)


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Impact of Loan ProgramsExample #1 University (Continued)

Step 3 – Calculate Type A Threshold

* Calculated to be $69,000, therefore defaulted to minimum of $300,000


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Impact of Loan Programs Example #2 Governmental Entity

Step 1 – Identify the largest non-loan program:


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Impact of Loan Programs Example #2 Governmental Entity (Continued)

Step 2 – Calculate if loan program is greater than 4X

largest non-loan program:


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Impact of Loan Programs Example #2 Governmental Entity (Continued)

Step 3 – Calculate Type A Threshold


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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


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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


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Effect of ARRA Awards on Major Program Determination -Type A Programs (Continued)


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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]


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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.


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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


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2010 Compliance Supplement (CS)


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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


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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


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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)


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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)


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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


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Questions ???


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