Compliance Requirements For Federal Awards Audits

1. Compliance RequirementsForFederal Awards Audits

2. Background Single Audit Act of 1984 (amended 1996) Standardized audit requirements Objectives: improve grant administration, report on SEFA, audit compliance of federal awards Cost Principle Circulars (i.e. A-21, A-87, A-121, etc.) OMB Circular A-133: Audits of State, Local Governments, and Non-Profit Organizations http://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2013

3. Changes to Single Audit Requirements Office of Management and Budget issued Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule on December 26, 2013. Document and the related crosswalks can be obtained at: http://www.whitehouse.gov/omb/grants_docs#final

4. Effective / Applicability Date §200.110

5. OMB’s Stated Goals in Federal Register Notice

6. Structure of Uniform Guidance A section by section crosswalk to the existing guidance as well as various text comparisons can be found at: http://www.whitehouse.gov/omb/grants_docs#final

7. Applicability of Uniform Guidance • Applies to Federal agencies making Federal awards and non-Federal entities receiving Federal awards • Subpart B • Includes chart by Subpart on applicability to different types of awards (i.e., loans, grants) • Indicates terms and conditions of Federal awards (including the Uniform Guidance) and how it flows down to subrecipients unless section of the Uniform Guidance or award specifically indicates otherwise • Indicates Federal agencies may apply Subparts A to E to for-profit entities and foreign organizations • Lists other exemptions for specific programs

8. Revisions to Pre-Award Policies Before making awards, awarding agencies must evaluate the risks to the program posed by each applicant, and each applicant’s merits and eligibility. These requirements are designed to ensure applicants for Federal assistance receive a fair and consistent review prior to an award decision.

9. Post Award Administration (Subpart D) Key changes include a new section that explicitly outlines the Government’s expectation of recipients in terms of their internal controls and more stringent requirements.

10. Non-Federal entities must establish and maintain effective internal control that provides reasonable assurance that entity is managing Federal award in compliance with Federal statutes, regulations, and terms and conditions of Federal award. Internal controls should be in compliance with: COSO (Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission), and/or Green Book (Standards for Internal Control in the Federal Government, issued by the Comptroller General of the United States) Internal Control Requirements 10

11. COSO Components and Principles • For effective internal control: Each of the five components and 17 principles must be present and functioning. • The five components must operate together in an integrated manner

12. COSO Components and Principles • Control Environment • Demonstrates commitment to integrity and ethical values • Exercises oversight responsibility • Establishes structure, authority and responsibility • Demonstrates commitment to competence • Enforces accountability

13. COSO Components and Principles • Risk Assessment • Specifies suitable objectives • Identifies and analyzes risk • Assesses fraud risk • Identities and analyzes significant change

14. COSO Components and Principles • Control Activities • Selects and develops control activities • Selects and develops general controls over technology • Deploys through policies and procedures

15. COSO Components and Principles • Information and Communication • Uses relevant information • Communicates internally • Communicates externally • Monitoring Activities • Conducts ongoing and/or separate evaluations • Evaluates and communicated deficiencies

16. GAO-Green Book The Government Accountability Office is updating the Green Book. What is the Green Book and should I care? • It reflects federal internal control standards and is written primarily for the federal government. It provides criteria for auditors of federal agencies. COSO and Green Book are cited as “best practices” for establishing and maintaining internal controls.

17. Revisions Related to Cost Principles (Subpart E of Uniform Guidance The guidance incorporates a number of changes to existing cost principles. Consolidates OMB Circular A-21, A-87, and A-122. These changes may significantly impact award recipients.

18. Revisions to Cost Principles Compensation-Personal Services • Significant differences in time and effort documentation requirements under the three existing cost circulars (A-21, A-87, and A- 122) • A-21 is based on estimates that produce a reasonable approximation of the activity • A-87 and A-122 are based on periodic (at least monthly) time and effort reporting of employees • Uniform Guidance loosely based on concepts from all three circulars

19. Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes • Direct Charges for Computers • Computing devices are now subject to less burdensome administrative requirements of supplies (as opposed to equipment) if the acquisition cost is less than the capitalization level of the non-Federal entity or $5000 • Uniform Guidance specifically allows direct charging non-capitalized “computing devices” that are essential and allowable but not solely dedicated to the performance of a Federal award

20. Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes • Indirect (F&A) Costs • Negotiated rates may be extended for up to four years if no major changes in F&A costs, with cognizant agency approval. • Federal agencies are required to use negotiated F&A rates for all awards, unless limited by law or regulation • De minimus rate of 10% MTDC may be used by entities that have never had negotiated indirect cost rate

21. Cost Principles (Subpart E of Uniform Guidance) Consolidated Cost Principle Changes • Additionally, for state and local governments • Must use cost allocation plan for central services (e.g., motor pools, computer centers, purchasing, accounting, etc • For interagency costs (excluding central services), a standard indirect cost allowance of 10% of direct salary and wage costs may be used in lieu of determining actual indirect costs

22. Subpart F – Audit Requirements • Increased single audit threshold from $500,000 to $750,000 • Based on single audits submitted to the FAC for 2012, there would be approximately 6,200 fewer entities subject to a single audit, but there would only be a reduction in dollars covered of approximately $3.9 billion, or less than 1% • OMB’s goal is to concentrate audit resolution and oversight resources on higher dollar and higher risk awards. §200.501

23. Subpart F – Audit Requirements • Major Program Determination (Step 1) • Identify larger Federal programs (Type A) §200.518

24. Subpart F – Audit Requirements • Major Program Determination (Step 2) • Identify Type A programs that are low-risk • Must have been audited as a major program in at least one of the two most recent audit periods • No internal control deficiencies identified as material weaknesses • No modified opinion related to compliance • No known or likely questioned costs exceeding 5% of the program’s Federal awards expended §200.518

25. Subpart F – Audit Requirements • Major Program Determination (Step 3) • Identify Type B programs that are high-risk • Use professional judgment and criteria in §200.519 • Not required to identify more high-risk Type B programs than at least ¼ of the number of low-risk Type A programs identified under Step 2 • Perform risk assessments on Type B programs that exceed 25% of the Type A threshold §200.518

26. Subpart F – Audit Requirements • Major Program Determination (Step 4) • Audit the following as major programs: • All Type A programs not identified as low-risk • All Type B programs identified as high-risk • Additional programs necessary to comply with the percent of coverage rule §200.518

27. Major Program Determination • OMB believes the changes to the major program determination will result in the following:

28. Subpart F – Audit Requirements • Scope of Audit • Conducted in accordance with GAGAS • Cover entire operations of the auditee • Determine auditee’s financial statements are fairly presented in accordance with GAAP • Determine auditee’s SEFA is stated fairly in relation to financial statements as a whole §200.514

29. Subpart F – Audit Requirements • Scope of Audit • Internal Control • Based upon the Green Book and COSO • Obtain understanding to support a low assessed level of control risk of noncompliance • Plan testing to support a low assessed level of control risk for relevant assertions to the compliance requirement • Perform testing of internal control §200.514

30. Subpart F – Audit Requirements • Scope of Audit • Compliance • Determine compliance with Federal statutes, regulations, terms and conditions • Test transactions and perform other necessary procedures to support opinion on compliance • Follow-up on prior audit findings • Complete & sign specified sections of data collection form §200.514

31. Compliance Requirements

32. Subpart F – Audit Requirements • Audit Findings Reported • Significant deficiencies and material weaknesses in internal control and significant instances of abuse related to major programs • Material noncompliance with provisions of Federal statutes, regulations, terms & conditions • Known or likely questioned costs greater than $25,000 (increase from $10,000) §200.516

33. Subpart F – Audit Requirements • Audit Findings Reported • Circumstances concerning why report on compliance is other than unmodified (unless otherwise reported as finding) • Known or likely fraud affecting the Federal award (unless otherwise reported as finding) • Status of prior audit finding that are materially misrepresented on the summary schedule of prior audit findings §200.516

34. Subpart F – Audit Requirements §200.516

35. Subpart F – Audit Requirements §200.516

36. Subpart F – Audit Requirements §200.520

37. Next Steps

38. Questions? Jolene Cooley, MBA Office of the Utah State Auditor (801) 808-0749 jcooley@utah.gov