Compliance Requirements
For
Federal Awards Audits
Office of the
Utah State Auditor
1
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_supplem
ent_2013
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_doc
s#final
Office of the
Utah State Auditor
3
Effective / Applicability Date
December 26, 2014
Federal
Agencies
• Implement
policies &
procedures by
promulgating
regulations
Non-Federal
Entities
• Implement new • Subpart F Audit
administrative
Requirements
and cost
applicable for
principle
fiscal years
requirements
beginning on or
after 12/26/14
§200.110
Office of the
Utah State Auditor
Audits of
Awards
4
OMB’s Stated Goals in Federal Register Notice
. . .more effectively focus Federal
resources on improving
performance and outcomes while
ensuring the financial integrity of
taxpayer dollars in partnership with
non-Federal stakeholders.
. . .strengthen oversight of
Federal funds to reduce the risk of
waste, fraud and abuse.
. . .deliver on the promise of
a 21st-Century government that is
more efficient, effective and
transparent.
. . .streamline our guidance for
Federal awards to ease
administrative burden. . .
Office of the
Utah State Auditor
5
5
Structure of Uniform Guidance
New Uniform Guidance
Previous Circular(s)
Subpart A: Acronyms and Definitions
All
Subpart B: General Provisions
All
Subpart C: Pre-Federal Award Requirements and
Contents of Federal Awards
A-89 and A-110
Subpart D: Post Federal Award Requirements
A-102 and A-110
Subpart E: Cost Principles
A-21, A-87, and A-122
Subpart F: Audit Requirements
A-133
Appendices
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
Office of the
Utah State Auditor
6
Applicability of Uniform Guidance
• Applies to Federal agencies making Federal awards and nonFederal 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
Office of the
Utah State Auditor
7
7
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.
Office of the
Utah State Auditor
8
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.
Office of the
Utah State Auditor
9
Internal Control Requirements
• 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)
Office of the
Utah State Auditor
10
10
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
Office of the
Utah State Auditor
11
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
Office of the
Utah State Auditor
12
COSO Components and Principles
• Risk Assessment
– Specifies suitable objectives
– Identifies and analyzes risk
– Assesses fraud risk
– Identities and analyzes significant
change
Office of the
Utah State Auditor
13
COSO Components and Principles
• Control Activities
– Selects and develops control activities
– Selects and develops general controls
over technology
– Deploys through policies and
procedures
Office of the
Utah State Auditor
14
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
Office of the
Utah State Auditor
15
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.
Office of the
Utah State Auditor
16
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.
Office of the
Utah State Auditor
17
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
Office of the
Utah State Auditor
18
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
Office of the
Utah State Auditor
19
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
Office of the
Utah State Auditor
20
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
Office of the
Utah State Auditor
21
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
Office of the
Utah State Auditor
22
Subpart F – Audit Requirements
• Major Program Determination (Step 1)
– Identify larger Federal programs (Type A)
Total Federal awards expended
Type A threshold
$750,000 - $25,000,000
$750,000
> $25 million - $100 million
0.03 of total expended
> $100 million - $1 billion
$3,000,000
> $1 billion - $10 billion
0.003 of total expended
> $10 billion - $20 billion
$30,000,000
> $20 billion
0.0015 of total expended
§200.518
Office of the
Utah State Auditor
23
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
Office of the
Utah State Auditor
24
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
Office of the
Utah State Auditor
25
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
Type of Auditee
A-133 Guidance
New Guidance
Low-risk
25%
20%
Non low-risk
50%
40%
§200.518
Office of the
Utah State Auditor
26
Major Program Determination
• OMB believes the changes to the major program
determination will result in the following:
Appropriate burden relief for
entities that materially comply as
evidenced by an unqualified
audit opinion and no material
weaknesses in internal controls
or material questioned costs.
A more targeted audit coverage
of programs with internal control
weaknesses.
Incentive for entities to focus on
correcting the deficiencies that
indicate underlying weaknesses
in internal controls.
Office of the
Utah State Auditor
27
27
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
Office of the
Utah State Auditor
28
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
Office of the
Utah State Auditor
29
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
Office of the
Utah State Auditor
30
Compliance Requirements
Current Compliance Requirements
Proposed Changes
A.
Activities allowed or unallowed
Retained
B.
Allowable costs/cost principles
Incorporated into A
C.
Cash management
Retained
D.
Davis-Bacon Act
Fed agency may include in N
E.
Eligibility
Retained
F.
Equipment & real property management
Fed agency may include in N
G.
Matching, level of effort, earmarking
Matching into A, others in N
H.
Period of availability
Incorporated into A
I.
Procurement & suspension and debarment
Fed agency may include in N
J.
Program income
Fed agency may include in N
K.
Real property acquisition & relocation assistance
Fed agency may include in N
L.
Reporting
Retained
M.
Subrecipient monitoring
Retained
N.
Special tests and provisions
Retained
Office of the
Utah State Auditor
31
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
Office of the
Utah State Auditor
32
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
Office of the
Utah State Auditor
33
Subpart F – Audit Requirements
Audit Findings Must Include
1. Federal program award information
2. Criteria or specific requirement
3. Condition found
4. Cause identifying reason or explanation
5. Effect of condition
§200.516
Office of the
Utah State Auditor
34
Subpart F – Audit Requirements
Audit Findings Must Include
6. Identification of questioned costs
7. Proper perspective for judging
8. Repeat finding
9. Recommendation
10. Views of responsible officials
§200.516
Office of the
Utah State Auditor
35
Subpart F – Audit Requirements
Criteria for low-risk auditee
1. Single audit performed on annual basis
2. Unmodified opinions on financial statements and SEFA
3. No material internal control deficiencies identified under GAGAS requirements
4. No substantial doubt about auditee’s ability to continue as a going concern
5. Identify in notes the balances outstanding for loan or loan guarantee programs
6. No material IC weaknesses, modified opinion on compliance, or QCs in excess of 5%
§200.520
Office of the
Utah State Auditor
36
Next Steps
Read Uniform Guidance
Develop implementation plan
Participate in industry implementation groups
Identify changes to policies and procedures
Develop training plan
Office of the
Utah State Auditor
37
37
Questions?
Jolene Cooley, MBA
Office of the Utah State Auditor
(801) 808-0749
jcooley@utah.gov
Office of the
Utah State Auditor
38