Single Audit Update
Jack Reagan, Audit Partner
Grant Thornton LLP
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Challenge & Impact
Challenge Under Previous Guidance
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Impact of New Uniform Guidance
1. Eight Overlapping Sets of Compliance
Requirements
Eliminate Duplicative and Conflicting Guidance
2. High Levels of Administrative Burden
Performance and International Controls Over
Compliance for Accountability
3. Hundreds of Forms with Non-Standard
Data Definitions
Provides Framework for Standard Business
Processes & Data Definition
4. Outdated Guidance Does Not Account for
Modern Electronic Work Environment
Promotes Efficient Use of IT and Shared
Services
5. Inconsistent and Non-Transparent
Treatment of Costs
Requires Consistent and Transparent
Treatment of Costs
6. Lack of Support for Policies with Work-Life
Balance
Encourages Non-Federal Entities to Have
Family-Friendly Policies
7. Audit Findings Repeated Each Year =
Waste
Stronger Oversight & Target Audits on Risk of
Waste, Fraud, and Abuse
8. Lack of Accountability for Effectively
Correcting
Financial
Grant
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reserved. Integrity Weakness
Increased Accountability for Effective
Resolution of Weaknesses
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Guidance Reform History
Nov. 2009:
Feb. 2012:
Dec. 2013:
Executive Order:
Reduce Improper
Payments
Advance Notice of
Proposed Guidance
(public comments)
Final Uniform
Guidance
Feb. 2011:
Feb. 2013:
Presidential Memo:
Reduce
Administrative Burden
Notice of Proposed
Guidance
(public comments)
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Eliminating Duplicative and Conflicting Guidance
Then:
Grantee/Grantor
must follow
Now: all OMB guidance
streamlined in 2 CFR 200.
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•
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Awards
Received
A-102 & A-89
A-87
A-133 & A-50
Subawards
to
universities
Subawards
to
nonprofits
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•
A-110
A-21
A-110
A-122
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Process Changes Driven by New Guidance
• Internal Control – Section 200.303
• Procurement – Section 200.318, 319 and 320
• Personnel Costs – Section 200.430i
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Internal Control
• must establish and maintain effective internal control over federal award in
accordance with COSO
• comply with federal statutes, regulations and terms of awards
• evaluate and monitor the recipient's compliance with statute, regulations
and terms and conditions of federal awards
• take prompt actions when instances of noncompliance are identified,
including noncompliance identified in audit findings
• take reasonable measures to protect personally identifiable information
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Procurement
• must use its own DOCUMENTED policies and procedures which reflect
applicable federal, state and local laws
• must maintain oversight to ensure contractors perform in accordance with
terms of the contracts
• procedures must be designed to avoid acquisition of unnecessary or
duplicative items, including documenting an analysis of lease vs. buy
considerations
• encouraged to use intergovernmental agreements where appropriate
• encouraged to use federal surplus property in lieu of purchasing
• encouraged to use "value engineering" clauses in construction projects of
sufficient size
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Procurement
• must maintain records sufficient to detail the history of the procurement
– rationale for method of procurement
– selection of contract type
– contractor selection or rejection
– basis for contract price
• may use time and materials only under certain circumstances
– no other contract manner is suitable
– terms include a contract ceiling that the contractor exceeds at its own
risk
• must include a clear and accurate description of the technical requirements
of the material, product or service
• identify all requirements which must be fulfilled in evaluation of bids
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Procurement Competition
• must be conducted in a manner providing full and open competition
• the following are considered restrictive of competition
– placing unreasonable requirements on firms in order to qualify
– requiring unnecessary experience or bonding
– noncompetitive contracts to consultants that are on retainer
– organizational conflicts of interest
– specifying only "brand name" products instead of allowing an "equal"
product to be offered
• must be conducted in a manner that prohibits the use of statutorily or
administratively imposed state or local geographic preference in evaluation
of bids and proposals
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Documentation of Personnel Costs
• must be based on records that accurately reflect the work performed
– be supported by a system of internal control providing reasonable
assurance that charges are accurate, allowable and properly allocated
– be incorporated into the official records
– reasonably reflect the total activity for which employee is compensated
– encompass both federally assisted and all other activities compensating
the employee
– comply with established accounting policies and procedures
– support the distribution of salary among specific activities
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Documentation of Personnel Costs
• budgeted estimates before the activity alone do not qualify but may be used
for interim reporting provided:
– system produces reasonable estimates
– significant changes from budget are identified and updated in
accounting records in a timely manner
– short term fluctuation (one or two month) need not be considered as
long as the distribution of salaries is reasonable over longer term
– includes processes to review after the fact interim charges made to a
federal award based on budget estimates
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Audit Applicability
• Audits of fiscal years beginning after December 26, 2014
– Calendar year 2015
– Fiscal year 2016
• Very long lead time
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Audit Threshold
• Raise audit threshold from $500K to $750K.
• Still will cover 99.7% of all federal awards with a Single
Audit
• 81% of all recipients will still receive a Single Audit
• 5,000 out of 37,500 entities that previously received a
Single Audit will no longer get one
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Major Program Determination
Federal Awards Expended
Type A/B Threshold
>$750,000 but < $25 Million
$750,000
>$25 Million but < $100 Million
.03 x federal awards expended
>$100 million but < $1 Billion
$3 Million
>$1 Billion but < $10 Billion
.003 x federal awards expended
>$10 Billion but < $20 Billion
$30 Million
>$20 Billion
.0015 x federal awards expended
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Low Risk Type A Programs
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Audited as major at least once in prior two years
No material weaknesses in program internal control
No modified opinion on compliance
Known or likely questioned costs must not exceed 5% of
federal program expenditures
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Type B Program Risk Assessments
• Must only do risk assessments on Type B programs until
arrive at ¼ the number of low risk type A programs
• Need only perform risk assessments on the Type B
programs that exceed 25% of the Type A program
threshold
• other historical Type B risk assessment considerations
apply
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Low Risk Auditee Status
Two year lookback on the following:
• single audits performed
– including whether submitted to clearinghouse timely
• unmodified GAAP opinion
• no GAGAS material weaknesses
• no material weaknesses on internal control at major program
level
• no modified opinion on compliance at major program level
• no known or likely questioned costs that exceed 5% of
program expenditures
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Percentage of Coverage
• High risk auditee – 40% of federal awards expended
• Low risk auditee – 20% of federal awards expended
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Pass Through Entities Must
• Ensure every subaward is clearly identified:
– Federal award identification
– Subrecipient name
– Federal award identification number
– Federal award date
– Subaward period of performance
– Total amount of federal award
– Federal award project description
– Name of federal awarding agency and contact official
– CFDA number and name
– Indirect cost rate applicable for the award
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New Subrecipient Definition
• Determines who is eligible to receive what federal assistance
• Has its performance measured in relation to whether federal
program objectives were met
• Has responsibility for programmatic decision making
• Is responsible for adherence to applicable federal program
requirements
• Uses the federal funds to carry out a program for a public
purpose specified as opposed to providing goods or services
for benefit of pass through entity
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Pass Through Entities Must
• Evaluate each subrecipients risk of noncompliance
– Subrecipient’s prior experience with same award
– Results of previous audits
– Whether subrecipient has new personnel or new systems
– Extent and results of federal monitoring
• Monitoring activities should include
– Reviewing financial and programmatic reports
– Follow up on deficiencies detected through audits and on site
reviews
– Issuing management decisions for audit findings
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Effort Reporting Documentation Must
• Be supported by a system of internal control which provides
reasonable assurance that the charges are accurate, allowable,
and properly allocated;
• Be incorporated into the official records
• Reasonably reflect the total activity for which the employee is
compensated
• Encompass both federally assisted and all other activities
compensated
• Comply with the established accounting policies
• Support the distribution of the employee’s salary or wages
among specific activities or cost objectives if the employee works
on more than one Federal award
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Use of Budgeted Payroll Amounts
•
Budget estimates (i.e., estimates determined before the services are
performed) alone do not qualify as support for charges to Federal awards, but
may be used for interim accounting purposes, provided that:
– The system for establishing the estimates produces reasonable
approximations of the activity actually performed;
– Significant changes in the corresponding work activity are identified and
entered into the records in a timely manner. Short term (such as one or
two months) fluctuation between workload categories need not be
considered as long as the distribution of salaries and wages is reasonable
over the longer term; and
– The system of internal controls includes processes to review after-the-fact
interim charges made to a Federal awards based on budget estimates. All
necessary adjustment must be made such that the final amount charged
to the Federal award is accurate, allowable, and properly allocated.
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Use of Statistical Sampling for Payroll Allocation
• The sampling universe must include all of the employees
whose salaries and wages are to be allocated based on
sample results
• The entire time period involved must be covered by the
sample
• The results must be statistically valid and applied to the
period being sampled
• Allocating charges for the sampled employees’ supervisors,
clerical and support staffs, based on the results of the
sampled employees, will be acceptable
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Financial Statements
• Single Audit Entity must match financial statement entity
• SEFA Required Elements
– Individual federal programs by federal agency
– For awards received as subrecipient, name of pass
through entity and identifying number assigned
– Include total amount provided to subrecipient
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Audit Findings Follow Up by Auditee
• Must prepare a summary schedule of prior audit findings
– If corrected, list the prior finding and state corrective action
was taken
– If partially corrected or not corrected, must describe the
reasons for the finding’s recurrence and planned corrective
action taken.
– If auditee believes finding is no longer valid, must describe
position why no longer valid and must include:
o Two years have passed since finding reported to FAC
o Federal agency is not following up with auditee on finding
o Management decision was not issued
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Audit Findings Follow Up by Auditee
• Corrective Action Plan elements
– Address each audit finding in current year report
– Name of contact person responsible for remediation
– The remediation plan
– Completion date for remediation plan
– If disagree with audit finding, reasons behind
disagreement must be disclosed
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Single Audits on the Web
• Subrecipient only required to submit report to FAC & no
longer required to submit to recipient
• PTE no longer required to retain copy of subrecipient audit
as on Web
• Require FAC to make the reporting packages available to
the public
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Single Audit Reporting Package
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Financial Statements
Auditors’ Reports
Summary Schedule of Prior Audit Findings
Corrective Action Plan
Data Collection Form
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Audit Findings
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Federal program name and CFDA #
Criteria - what is requirement
Condition – what did you find
Statement of Cause
Possible asserted effect
Questioned costs
Information to provide proper perspective - # of errors, size of
sample, size of population
• Whether or not repeat finding
• Recommendations
• Views of responsible officials
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Questioned Costs
• Known questioned costs > $25k
• Likely questioned costs > $25k
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Other Major Changes
• Indirect cost rates
– combined 4 circulars with different guidance into a
single piece of guidance
– generally will result in lower rates as rules are tightened
• Single Audit Coordinator at each federal agency
– single point of contact at each federal agency
– will drive subrecipient monitoring
– faster management decisions
– more robust oversight
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Compliance Supplement - Tentative
• Based on prior proposed revisions
• Official guidance will arrive when Compliance Supplement
is officially released
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Key Types of Compliance Requirements
• A. Activities Allowed or Unallowed & B. Allowable
Costs/Cost Principles including:
– H. Period of Availability in allowability.
– G. Matching for whether costs claimed are RAA.
• C. Cash Management.
• E. Eligibility.
• L. Reporting.
– G. Matching for appropriate matching claimed.
• M. Subrecipient Monitoring.
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Moved to
Special Tests with Justification
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D. Davis Bacon
F. Equipment & Real Property Management
G. Level of Effort & Earmarking
I. Period of Availability of Federal Funds
I. Procurement and Suspension and Debarment
J. Program Income
K. Real Property Acquisition & Relocation Assist
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Contact
Jack Reagan
Audit Partner
Grant Thornton LLP
333 John Carlyle, Suite 400
Alexandria, VA 22314
jack.Reagan@us.gt.com
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