What to Expect on an A-133 Audit
Ellie Thedford, CGAP, Senior Auditor
Parsons Townsend, CGAP, CICA, Senior Auditor
Texas State Auditor’s Office
October 9, 2013
John Keel, CPA
Objectives
 Single Audit Overview
 Initial Project Planning
 Preparing for an Audit
 Fieldwork
 Findings and Management Responses
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John Keel, CPA
SINGLE AUDIT OVERVIEW
John Keel, CPA
Single Audit Background
• Established by the Single Audit Act of
1984 (amended in 1996).
• Applies to non-profit and government
entities that expend $500,000 or more in
federal awards annually.
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John Keel, CPA
Single Audit Background
• Components of the Single Audit.
• Financial statement opinion audit.
• Report on compliance and internal control over
•
compliance for each major program.
Schedule of Expenditures of Federal Awards
(SEFA).
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John Keel, CPA
Single Audit Background
• Compliance Portion Objectives:
•
Obtain understanding of internal controls over
compliance for each major program, assess control risk
of noncompliance, and perform tests of controls.
•
Determine whether the entity complied with laws
and regulations that may have a direct and material
effect on each major program.
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John Keel, CPA
Single Audit Background
• SEFA Objective
• Determine whether the Schedule of Expenditures
of Federal Awards (SEFA) is fairly presented in
relation to the entity’s financial statements as a
whole.
Note: Because the SEFA serves as the primary basis for major
program determination, the accuracy and completeness of the
SEFA is very important to the Single Audit.
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John Keel, CPA
Single Audit in Texas
For fiscal year 2012, the State expended:
 $50.2 billion in federal funds.
 $4 billion in Student Financial Assistance (SFA)
cluster federal funds.
The state audit covers all entities included in the
State’s Comprehensive Annual Financial Report
(CAFR).
 Does not include community colleges or private
institutions.
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John Keel, CPA
Proposed Changes to the Single
Audit
• Consolidation of Circulars (8 into 1).
• Change in selection of Type A and Type B
major program determinations.
• Reduction and consolidation of required
compliance areas for testing.
• Additional findings requirements:
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• Repeat finding
• Sample size support for statistical samples
John Keel, CPA
Student Financial Assistance
Cluster
84.007 Federal Supplementation 93.264 Nurse Faculty Loan
Educational Opportunity Grant
Program
84.033 Federal Work Study
84.038 Federal Perkins Loans
84.063 Federal Pell Grant Program
84.268 Federal Direct Student
Loans
84.379 Teacher Education
Assistance for College and
Higher Education Grant
93.342 Health Professions Student
Loans, including Primary Care
Loans and Loans for
Disadvantaged Students
93.364 Nursing Student Loans
93.408 ARRA- Nurse Faculty Loan
Program
93.925 SDS
84.408 Iraq and Afghanistan
Service Grants
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John Keel, CPA
Audit Time Line
Initial
Planning
April- May
Report
February
Fieldwork
June- August
Findings and
Management
Responses
DecemberJanuary
Complete
Fieldwork
and Review
AugustOctober
SEFA Audit
Work
NovemberDecember
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John Keel, CPA
INITIAL PROJECT PLANNING
John Keel, CPA
Major Program Determination
Process to determine which programs should be
included in annual A-133 audit.
Required to cover at least 50 percent of federal
expenditures each year.
For State of Texas, the determination is done by
the State Auditor Office’s contractor.
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John Keel, CPA
Major Program Coverage
• To obtain sufficient audit coverage for the SFA
cluster, we must audit multiple higher
education institutions each year.
• We perform limited procedures for some of the
higher education institutions with lower SFA
cluster expenditures each year.
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John Keel, CPA
Site Selection Considerations
• SFA cluster expenditures
• Larger institutions audited annually
• Designation of tiers
• Prior audit results.
• Fraud complaints.
• Other risk notes, including other internal or external
audits.
• Time since last audit.
• Southern Association of Colleges and Schools (SACS)
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accreditation cycle.
John Keel, CPA
Initial Planning
• Initial contact.
• Engagement letter and expectations memo.
• Scheduling on-site fieldwork.
• Control questionnaires or documents
• Separate questionnaires or documents for each
compliance area.
• Information and population requests.
• Multiple populations required.
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John Keel, CPA
Common Planning Issues
• Difficulty obtaining populations.
• No query or support provided to prove
•
•
population completeness.
Unofficial withdrawals.
All cash draws made in year, rather than only
draws on current awards.
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John Keel, CPA
PREPARING FOR AN AUDIT
John Keel, CPA
Preparing for an Audit
• Establish and update written policies or
procedures
• Maintain evidence of reviews or approvals
• Monitor critical activities, including student
determinations and adjustments
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John Keel, CPA
FIELDWORK
John Keel, CPA
Internal Controls Over Compliance
• Auditors gain an understanding of internal controls
related to SFA cluster.
• Perform assessment of controls based on the
Committee of Sponsoring Organizations of the
Treadway Commission (COSO) model.
• Test internal controls that are key to SFA processes.
• Test information technology general controls.
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John Keel, CPA
Information Technology General
Controls
• Information Security Policies
• User Access
•
•
•
Passwords.
High-profile Roles.
Periodic Review of User Access.
•
Change Management
• Authorization and Testing.
• Migration of Changes.
• Configuration and Emergency Changes.
•
Operations
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John Keel, CPA
Common General Control Issues
• Lack of documentation of development testing and
insufficient approval of system changes.
• User Access
• More access than necessary.
• Terminated or transferred employees.
• Shared generic accounts.
• No review of user access.
•
Segregation of Duties
•
•
Programmers with access to production.
Users who can initiate, submit, and approve critical
transactions.
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John Keel, CPA
Compliance Testing
• Typically done on a sample basis.
• If exceptions, auditors may attempt to quantify
the exceptions for the entire population.
• For some compliance areas, auditors will
perform data analysis to review the entire
population.
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John Keel, CPA
Audit Procedures
• Office of Management and Budget Circular A-
133 Compliance Supplement
• Details requirements for each federal program.
• Guides the audit procedures and requirements
tested for each program.
• Catalog of Federal Domestic Assistance
(CFDA) number identifies each federal
program.
• 2013 Supplement was published in July 2013.
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John Keel, CPA
Compliance Sample Sizes
• American Institute of Certified Public
Accountants’ (AICPA) Sample Size Guidance.
• Based on inherent risk and control risk for each
compliance area.
• Sample sizes are increased when control
weaknesses and/or compliance exceptions are
identified.
• Sample sizes are typically 25, 40, or 60.
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John Keel, CPA
Key Compliance Requirements
• 13 primary compliance requirements.
• Special Tests and Provisions.
•
Additional areas that can be added by the federal awarding
agency for each program or cluster.
•
Limited vs. Full Scope Higher Education
Institutions.
•
Not all compliance areas are considered direct and
material based on quantitative and/or qualitative
considerations. Therefore, some compliance areas
may not be included in our audit work.
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John Keel, CPA
Cash Management
• Objective: Determine whether, for advance
payments, the recipient has minimized the time
between transfer of funds and their
disbursement.
• Test that disbursements were made within
three business days of receipt of funds.
• Determine whether the higher education
institution earned interest on federal funds.
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John Keel, CPA
Eligibility
• Objectives:
• Determine whether eligibility determinations
•
were made, individual participants were
determined to be eligible, and only eligible
individuals participated.
Determine whether amounts provided to
participants were calculated according to
requirements.
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John Keel, CPA
Eligibility
• Student met general SFA requirements.
• Enrolled in eligible, degree seeking program.
• U.S. citizen or national.
• Maintained satisfactory academic progress.
• Student met program specific requirements.
•
For example, enrolled at least half-time for Direct
Loans.
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John Keel, CPA
Eligibility
• Student had financial need.
• Cost of attendance correctly calculated, based
•
•
•
on actual or expected enrollment.
Correct expected family contribution.
Awards made within annual and aggregate
limits.
Awards did not exceed student need.
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John Keel, CPA
Common Eligibility Issues
• Cost of Attendance Calculations
•
•
•
•
•
Satisfactory Academic Progress (SAP)
•
•
•
•
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Errors in manual calculations or adjustments.
Institution does not have less than full-time budgets.
Institution does not budget based on actual or
expected enrollment.
Documentation of professional judgment.
No documentation of appeal process.
Process to assess SAP is not consistent with policy.
Assistance awarded to students who did not
maintain SAP.
Data Analysis results
•
•
Grad students receiving subsidized loans
Incorrect awards for Pell, FSEOG, etc.
John Keel, CPA
Reporting
Objective: Determine whether required reports
include all activity, are supported by
accounting records, and are fairly presented in
accordance with requirements.
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John Keel, CPA
Reporting
• Common Origination and Disbursement (COD)
System
•
•
•
Test origination and disbursement records to
determine accuracy and completeness.
Test timeliness of reporting.
Key items include disbursement date and
disbursement amount.
• Fiscal Operations Report and Application to
Participate (FISAP)
•
Test that FISAP amounts are accurately
supported.
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John Keel, CPA
Common Reporting Issues
• Pell or Direct Loan disbursement records not
submitted to the COD system in timely manner.
• Incorrect disbursement amount or date
reported.
• Amounts reported on FISAP do not match
supporting documentation.
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John Keel, CPA
Verification
• Objective: Determine whether the higher
education institution established verification
policies and verified all required information for
selected students.
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John Keel, CPA
Verification
• Review verification policies to ensure they
contain all required elements.
• Test that the higher education institution:
•
•
•
•
•
Verified information for selected students.
Obtained acceptable documentation.
Matched information to the student application.
Submitted corrections when required.
Adjusted awards based on corrections, if
applicable.
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John Keel, CPA
Common Verification Issues
• Verification policies do not meet federal
requirements.
• Incorrect verification of information due to
manual verification process
•
•
•
Household size
Number in college
Income tax paid
• Lack of follow-up on required corrections (new
Institutional Student Information Record,
award adjustments)
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John Keel, CPA
Changes in Verification
• 2012-2013 U.S. Department of Education
Changes in Verification
• $25 threshold for corrections
• No more 30% requirement
• Federal Register
• Limited Scope Compliance Area in Fiscal Year
2013
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John Keel, CPA
Disbursements
• Objective: Determine whether disbursements to
students were made within required time
frames and whether required documents and
approvals were obtained before disbursing SFA
funds.
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John Keel, CPA
Disbursements
• Test that disbursements were not made more
than 10 days before start of semester.
• Test that all eligibility requirements were met
before disbursements.
• Test that disbursement notifications for loans
and certain grants were sent within the required
time frames, as required.
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John Keel, CPA
Return of Title IV Funds
• Objective: Determine whether the higher
education institution is making returns in the
proper amount and in a timely manner and is
applying the returns to federal programs as
required.
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John Keel, CPA
Return of Title IV Funds
• Test that return calculations or determinations
were accurate for students who withdrew,
dropped out, or never began attendance.
• For students who received all Fs, determine
whether returns were made, if applicable.
• Test that returns were made in a timely manner.
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John Keel, CPA
Common Return of Title IV Funds
Issues
• Payment period determined incorrectly.
• Insufficient process for determining whether
student ever attended during a term.
• All “F“ report not capturing a combination of
•
•
“Fs,” withdrawals, etc.
Insufficient documentation of attendance
Using wrong date for calculation
• Determinations of withdrawal date for
unofficial withdrawals not done in a timely
manner.
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John Keel, CPA
Enrollment Reporting
• Objective: Determine whether the higher
education institution is notifying the U.S.
Department of Education and the National
Student Loan Data System (NSLDS) of changes
in student status in a timely and accurate
manner.
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John Keel, CPA
Enrollment Reporting
• Test that student status changes were
accurately reported to NSLDS within the
required time frames.
• Higher education institution is responsible for
timeliness even if it uses the National Student
Clearinghouse for submissions.
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John Keel, CPA
Common Enrollment Reporting
Issues
• Failure to report status changes to NSLDS.
• Incorrectly reporting graduated students as
enrolled or withdrawn.
• For unofficially withdrawn students, not
reporting students as withdrawn based on
determined withdrawal date.
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John Keel, CPA
Institutional Eligibility
• Objective: Determine whether the higher
education institution meets applicable
institutional eligibility requirements.
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John Keel, CPA
Institutional Eligibility
• Test that higher education institution:
•
Maintained and met required ratios for
correspondence courses, incarcerated students,
and ability-to-benefit students.
• Did not pay commission or bonuses.
• Established reasonable SAP standards.
• Received approval for additional locations on
Eligibility and Certification Approval Report
(ECAR).
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John Keel, CPA
Common Institutional Eligibility
Issues
• Ratio calculations are not maintained, or there
is no process to calculate the ratios.
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John Keel, CPA
Other Compliance Areas
• Activities Allowed or Unallowed.
• Matching, Level of Effort, Earmarking.
• Period of Availability.
• Program Income.
• Separate Funds.
• Student Loan Repayments.
• Federal Work Study.
• Written Arrangements.
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John Keel, CPA
FINDINGS AND MANAGEMENT
RESPONSES
John Keel, CPA
Potential Finding Classifications
• Internal Controls Over Compliance.
• Significant Deficiency.
• Material Weakness.
• Compliance.
• Non-Compliance.
• Material Non-Compliance.
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John Keel, CPA
Management Responses
• Written findings sent to higher education
institutions.
• Generally have 10 working days for responses.
• Responses include corrective action plan,
responsible person and implementation date.
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John Keel, CPA
Report
• Statewide Single Audit report.
• Separate SAO report on SFA Cluster findings.
• Fiscal year 2012 Reports:
• http://www.sao.state.tx.us/reports/main/13-
•
322.pdf
http://www.sao.state.tx.us/reports/main/13019.pdf
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John Keel, CPA
Available Resources
• OMB Circular A-133
• 2013 Compliance Supplement, Parts 3 and 5
• http://www.whitehouse.gov/omb/circulars/a133_co
mpliance_supplement_2013
• Catalog of Federal Domestic Assistance
• https://www.cfda.gov
•
Code of Federal Regulations
•
•
Title 34- Education
Title 42- Public Health
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John Keel, CPA
Questions?
John Keel, CPA
Contact Information
Ellie Thedford
(512) 936-9305
ethedford@sao.state.tx.us
Parsons Townsend
(512) 936-9734
ptownsend@sao.state.tx.us
John Keel, CPA