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Federal & State Single Audit Issues

Federal & State Single Audit Issues

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Federal & State Single Audit Issues

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  1. Federal & State Single Audit Issues Presented By William Blend, CPA, CFE

  2. 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

  3. Single Audit basics

  4. 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

  5. Single Audit Basics (Con’t.) • 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

  6. Single Audit Basics (Con’t.) 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

  7. Single Audit Basics (Con’t.) • Audit of financial statements and reporting on the SEFA • 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…

  8. Single Audit Basics (Con’t.) • 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

  9. Single Audit Basics (Con’t.) Components of the SEFA Section 1 Summary of auditor’s results Section 2 Financial statement findings Section 3 Federal award findings and questioned costs

  10. Single Audit Basics (Con’t.) • 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

  11. Single Audit Basics (Con’t.) • 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

  12. Single Audit Basics (Con’t.) • 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

  13. Single Audit Basics (Con’t.) 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)

  14. Single Audit Basics (Con’t.) • 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

  15. Single Audit Basics (Con’t.) • 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

  16. Single Audit Basics (Con’t.) 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)

  17. Recipient’s Danger areas

  18. 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

  19. 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

  20. Single audit findings

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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.

  27. SEFA issues

  28. 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

  29. SEFA Terms

  30. SEFA Type A and B Determination

  31. Note that footnotes have been excluded.

  32. SEFA Expenditure when to record

  33. 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

  34. Grant Auditing

  35. 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

  36. 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

  37. Entity Low-Risk, High-Risk Evaluation Significance of Low-Risk Determination • 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

  38. Major Program Flow Chart Step 1Step 2Step 3Step 4 Identify "Type A" programs Identify low-risk "Type A" programs Identify high-risk "Type B" programs Determine major programs to audit

  39. Audit Process

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. OMB Reform Ideas

  49. 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

  50. OMB Reform Ideas for Comment • Reforms to Audit Requirements • Reforms to Cost Principles • Reforms to Administrative Requirements