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American Recovery and Reinvestment Act . Impact on the Single Audit August 27 th , 2009. Today’s Presenters. Douglas E. Zimmerman, CPA, Director with Toski, Schaefer & Co., P.C. Theresa Carpenter, CPA, Director with Toski, Schaefer & Co., P.C. Recovery Act Background .

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American Recovery and Reinvestment Act

Impact on the Single Audit

August 27th, 2009


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Today’s Presenters

  • Douglas E. Zimmerman, CPA, Director with Toski, Schaefer & Co., P.C.

  • Theresa Carpenter, CPA, Director with Toski, Schaefer & Co., P.C.


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Recovery Act Background

  • On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (“ARRA”)which has $787 billion in spending and tax relief.

  • The $580 billion in public funds are to be expended responsibly and in a transparent manner.

  • New York State is to receive $26.7 billion of ARRA funding.

  • Invest one-time ARRA funds thoughtfully to minimize “funding cliff”.

  • Funds should be focused on job creation and economic recovery.

  • There will be unprecedented monitoring of the ARRA funds.


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Single Audit Background

  • Governmental and Non-profit organizations who receive over $500,000 of Federal Awards are required to have a Single Audit

  • Single Audit includes:

    • Schedule of Expenditures of Federal Awards.

    • Reporting on internal controls.

    • Reporting on compliance requirements

  • There are 14 types of compliance requirements that may be applicable to a Federal program.


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Activities Allowed or Unallowed

Allowable Costs/Cost Principles

Cash Management

Davis-Bacon Act

Eligibility

Equipment and Real Property Management

Matching, Level of Effort, Earmarking

Period of Availability of Federal Funds

Procurement and Suspension and Debarment

Program Income

Real Property Acquisition/Relocation Assistance

Reporting

Subrecipient Monitoring

Special Tests and Provisions

Compliance Requirements


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Federal Programs Selected for Audit (Major Programs)

  • Not all programs are audited as part of the Single Audit.

  • Type A and Type B programs

  • Type A Threshold

    • $71.8 million for the 2009 New York State Single Audit

    • Projected to be $93 million for the 2010 New York State Single Audit.


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Increased Publicity of Single Audit Reports

  • Federal Audit Clearinghouse is required to make public all single audit reports filed for the year ending September 30, 2009 and thereafter.

  • Therefore, the Schedule of Findings and Questioned costs will be made available to the public.

  • Federal Agencies will prepare and submit to OMB synopses of single audit findings relating to obligations and expenditures of ARRA funding.

  • OIG will also be increasing their monitoring of Single Audits with a focus on ARRA funds. Results of these audits will also be made public.


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What does this mean for recipients?

  • Increase in transparency and monitoring of ARRA funds.

  • Increased interest by Congress and the federal agencies in ensuring funds are spent appropriately.

  • New controls in place for ARRA funds.

  • New reporting and compliance requirements.

  • Significant changes to the Single Audit.


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OMB Circular A-133 Compliance Supplement

  • The compliance supplement was previously issued on an annual basis.

  • The March 2009 compliance supplement was issued on May 26, 2009.

  • As a result of ARRA, OMB will issue periodic compliance supplement addendums.

  • Addendum No. 1, dated June 30, 2009, was issued on August 4, 2009.

  • Addendum No. 1 provides additional guidance for programs with expenditures of ARRA funding.


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ARRA Impact on the Single Audit

  • Estimated that 90% to 95% of New York State ARRA funding will be tested as part of the State’s Single Audit.

  • Documentation and testing of internal controls over ARRA and Non-ARRA funded programs.

  • Compliance Testing of the applicable 14 compliance requirements will be performed for both ARRA and non-ARRA funded programs.


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Risk Assessment

  • OMB has stated that all ARRA funds should be considered High-Risk.

  • Clusters in which there is a new ARRA CFDA number should be considered as a new program and not qualify as a low-risk Type A.


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Single Auditor’s New Testing Requirements

  • Internal Control

    • Management must establish and maintain internal control designed to reasonably ensure compliance with Federal Laws, regulations, and program compliance requirements, including internal control designed to ensure compliance with ARRA requirements.

    • Auditor will then perform and document test work related to internal control as required by OMB Circular A-133.


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Single Auditor’s New Testing Requirements

  • Internal Control

    • Risks arising from ARRA funding.

    • Risks due to rapid growth of a program.

    • New and/or increased activities under a program.

    • Changes in the regulatory environment.

    • New Personnel.

    • Expanded/New program for subrecipients.


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Single Auditor’s New Testing Requirements

  • Internal Control

    • The effects of ARRA on audits under OMB Circular A-133 will increase significantly during calendar year 2009 as awards and expenditures under ARRA programs increase.

    • It is imperative that deficiencies in internal control be corrected by management as soon as possible to ensure proper accountability for expenditures of federal awards.


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Single Auditor’s New Testing Requirements

  • Internal Control

    • Auditor will be required to communicate ARRA-related significant deficiencies or material weaknesses via the normal reporting process (Schedule of Findings and Questioned Costs)


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Single Auditor’s New Testing Requirements

  • Internal Control

    • Consider whether control procedures in place over ARRA funds are appropriate, working properly and designed to prevent unallowable expenditures.

    • Consider whether additional controls and system requirements will be needed to ensure that ARRA funds are able to be separately identified and tracked.

    • If applicable, consider whether new controls are needed to meet the stringent reporting requirements back to federal agencies.

    • If ARRA funds will be passed down to subrecipients, make sure that controls are in place to ensure appropriate subrecipient monitoring and also whether any new controls will need to be established related to new subrecipient reportingresponsibilities.


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Single Auditor’s New Testing Requirements

  • Activities Allowed or Unallowed

    • None of the funds appropriated or otherwise made available in ARRA may be used for any casino or other gaming establishment, aquarium, zoo, golf course or swimming pool.

    • The auditor will sample vouchers to determine that funds were not expended on the items listed above.


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Single Auditor’s New Testing Requirements

  • Davis-Bacon Act

    • All laborers and mechanics employed by contractors and sub-contractors on projects in excess of $2,000 that are funded directly by or assisted in whole or in part by the ARRA are to be paid prevailing wages under the Davis-Bacon Act.


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Single Auditor’s New Testing Requirements

  • Procurement and Suspension and Debarment

    • None of the funds appropriated or otherwise made available by the ARRA may be used for the construction, alteration, maintenance or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. Exceptions are as follows:

      • (a) Iron, steel, or relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality;

      • (b) Inclusion of iron, steel, or manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent; or

      • (c) Applying the domestic preference would be inconsistent with the public interest.


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Single Auditor’s New Testing Requirements

  • Procurement and Suspension and Debarment

    • A Buy-American award term is required in all awards for construction, alteration, maintenance, or repair of a public building or public work.

    • Exceptions to the above can be found in the Code of Federal Regulations

    • Auditors will review contracts to determine that the award term has been included.


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Single Auditor’s New Testing Requirements

  • Reporting

    • The first reporting period for reports required by Section 1512 of ARRA will end on September 30, 2009 and the reports must be submitted by October 10, 2009.

    • OMB plans to issue an addendum identifying compliance requirements, audit objectives and suggested audit procedures relating to the reporting requirement by September 30, 2009.


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Single Auditor’s New Testing Requirements

  • Reporting

    • Specific and stricter reporting requirements for ARRA funds.

    • The first reporting period for reports required by Section 1512 of ARRA will end on September 30, 2009 and the reports must be submitted by October 10, 2009.

    • Recipients are required to report for themselves and their first-tier subrecipients.

    • Recipients must require their subrecipients to properly report ARRA funds.

    • Detailed reporting instructions are available at www.FederalReporting.gov.

    • Registration is currently open and should be completed promptly.


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Single Auditor’s New Testing Requirements

  • Reporting

    • Recipients and “First-tier” recipients will be required to identify ARRA funds separately in their SEFA.

    • “First-tier” subrecipients are those that receive an award directly from a recipient (i.e. county that receives money directly from the State who received their money from the Federal government.)


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Single Auditor’s New Testing Requirements

  • Subrecipient Monitoring

    • Identify to first-tier subrecipients the requirements to register in the Central Contractor Registration (“CCR”), including obtaining a Dun and Bradstreet Universal Numbering System number.

    • Pass through entities must determine that the subrecipients have current CCR registrations prior to making subawards and perform periodic checks to ensure that subrecipients are updating information, as necessary.


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Single Auditor’s New Testing Requirements

  • Special Tests and Provisions

    • Recipients and subrecipients need to maintain records that adequately identify the source and application of ARRA funds. The auditor will determine whether accounting records for ARRA funds provide for the separate identification and accounting required for ARRA awards and activity.


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Single Auditor’s New Testing Requirements

  • Special Tests and Provisions

    • Recipients are required to separately identify ARRA awards in their Schedule of Expenditures of Federal Awards (“SEFA”) and in their SF-SAC (Data Collection Form). Also, the reported expenditures need to be supported by accounting records.


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Single Auditor’s New Testing Requirements

  • Special Tests and Provisions

    • Recipients are required to separately identify to each subrecipient, and document at the time of the subaward and disbursement of funds, the Federal award number, CFDA number, and the amount of ARRA funds and require their subrecipients to provide similar identification in their SEFA and SF-SAC.


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Impact on CFDA numbers

  • Federal agencies are required to specifically identify Recovery Act awards, regardless of whether the funding is provided under a new or existing CFDA number.

  • New programs will receive a new CFDA number.

  • Existing programs – new CFDA number is optional

  • CFDA numbers should be included in grant award documents.


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Impact on CFDA numbers

  • Examples

    • New program

      • 14.258 Tax Credit Assistance Program

    • Old Program

      • 84.027 Special Education –Grants to States

      • 84.391 Special Education – Grants to States (Recovery Act Funded)

      • 17.225 Unemployment Insurance


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Impact on Clusters

  • The OMB has issued the list of new clusters at: http://www.whitehouse.gov/omb/assets/a133_compliance/arra_addendum_1.pdf

  • The majority of the new clusters are old programs that include the old CFDA number plus the new CFDA number of the ARRA program.

  • Clusters are effective for audits of the fiscal period ending June 30, 2009 and thereafter.


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Impact on Clusters

  • Examples of New Clusters:

    • Immunization Cluster (ARRA program added to existing program to form new cluster)

      • 93.268 Immunization

      • 93.712 Immunization (Recovery Act Funded)

    • State Fiscal Stabilization Fund Cluster (ARRA programs/new cluster)

      • 84.394 State Fiscal Stabilization Fund – Education State Grants, Recovery Act

      • 84.397 State Fiscal Stabilization Fund – Government Services, Recovery Act


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Impact on Compliance Supplement

  • For the individual programs, the compliance supplements have been updated to include recovery act specific guidance.

  • Example – Rehabilitation Services (84.126 and 84.390 (Recovery Act Funded)

    • The regular Rehabilitation Services program (non-recovery) requires the federal share of expenditures made for the construction of a facility not be more than 50% of the total cost of the project.

    • The ARRA Rehabilitation Services program (Recovery Act funded) has no matching requirement.


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Impact on Compliance Supplement

  • Recipients should review the award documents and the OMB website to gain a complete understanding of the requirements of each grant.

  • OMB issued a list of current changes to the 2009 compliance supplements.

    http://www.whitehouse.gov/omb/assets/a133_compliance/arra_addendum_1.pdf


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Best Practices

  • U.S. Department of Commerce issued a list of lessons learned from past recovery acts.

  • Addition of staff in the field enhance support and oversight.

  • Document any deviations from regular procedures to provide assurance that Agency exercised due diligence.

  • Identify struggling projects so they can be terminated and the funds can be transferred to other projects.

  • Limit the outsourcing of management responsibilities.


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Resources

  • www.recovery.gov

  • http://www.whitehouse.gov/omb/circulars_a133_compliance_09toc/

  • www.gao.gov

  • http://gaqc.aicpa.org/

  • Federal Agency Recovery Act Sites

  • Code of Federal Regulations