The Recovery Act:
Information You Need to Plan and
Perform Your 2010 Single Audits
A GAQC Web Event
May 19, 2010
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Today’s Presenter
Mandy Nelson, CPA
KPMG LLP
Moderating:
Mary Foelster, CPA
AICPA
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Today’s Agenda
ARRA – American Recovery and Reinvestment Act
2010 Compliance Supplement – Appendix VII (draft)
• Identification of ARRA expenditures
• Separate ARRA presentation
• ARRA Major Program Determination
• Other Appendix VII Issues
2010 Compliance Supplement (CS)
This presentation is based on the most recent drafts of the 2010
CS and discussions with OMB as of May 13, 2010
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ARRA – American Recovery
and Reinvestment Act of 2009
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American Recovery and Reinvestment Act of
2009 (ARRA) (The Recovery Act)
The American Recovery and
Reinvestment Act of 2009
(Pub. L. No. 111-5) (ARRA) and the
related OMB Guidance have
significant implications for audits
performed under OMB Circular
A-133.
The ARRA imposes new transparency and accountability
requirements on Federal awarding agencies and their recipients.
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American Recovery and Reinvestment
Act of 2009
History to Date:
• Recovery Act passed February 2009; significant impact expected
for 2010 and 2011 year-end audits
• Accountability and Transparency are key features of the law
- QCRs built into the OMB guidance – results to be placed on
Recovery.gov (unclear how this will be done)
- Auditees significantly affected by Section 1512 reporting
- New body, Recovery Act Transparency Board (RATB),
monitoring activity and looking for fraud, waste, and abuse
• Much more interest in single audits by federal agencies and
Congress
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ARRA and CFDA Numbers
Federal agencies are required to specifically identify
ARRA awards, regardless of whether the funding is
provided under a new or existing CFDA number. The
CFDA number should be included in the grant award
documents.
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ARRA Programs not subject to A-133
Build America Bonds
• Subsidy payment should not be included on the Schedule of
Expenditures of Federal Awards (SEFA) therefore not included in
the scope of the single audit.
COBRA
• Tax credits to employers should not be presented by auditees on
the SEFA, and they should not be included in the scope of the
single audit.
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2010 Compliance Supplement –
Appendix VII (draft)
This information is based on the most recent drafts of the
2010 CS and discussions with OMB as of May 13, 2010
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Identification of ARRA Funding
Early identification is critical
• Should be separate award
• Revised terms and conditions
• Subrecipients – more challenging
Client should separately track ARRA
expenditures
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Identification of ARRA Funding
Direct recipients – Look to:
• CDFA #
• Federal awards terms
- Stating ARRA funded
- Requiring separate SEFA presentation
- Requiring notification of ARRA funding to1st tier
subrecipients
- At sub-award dates
- At disbursement of funds
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Identification of ARRA Funding
1st tier subrecipients - Look to:
• CFDA #
• Awards terms
- Stating ARRA funded
- Requiring separate SEFA presentation
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Identification of ARRA Funding
Lower tier subrecipients
• Look to
- CFDA #
- Award terms stating ARRA funding
• Separate SEFA presentation required by Appendix VII
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Separate ARRA Presentation
Separate presentation on Schedule of Expenditures
Federal Awards (SEFA)
• Even if same CFDA #
• New level of detail for Research and Development (RD)
Separate presentation on Data Collection Form
(DCF)
• Revised DCF
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Single Audits for Periods Ending Before
June 30, 2010
2009 Compliance Supplement, Appendix VII
Addendum #1 to 2009 Compliance Supplement –
Issued August 2009
GAQC Alert #123 – Clarifying Guidance on Effect of
Recovery Act Funds on Major Program
Determination
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Single Audits for Periods Ending on/after
June 30, 2010
Impact of Recovery Act on 2010 Compliance Supplement:
• Guidance from 2009 CS Addendum #1 incorporated (e.g., in Part 3)
• Updated Appendix VII
- Low-Risk Auditee Status
- Extensions
- Loans
- Major program determination for ARRA funded awards
• Part 3, 4, and 5
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Low Risk Auditee and Extensions
M-10-14, Updated Guidance on the American Recovery and
Reinvestment Act (March 22, 2010) - See also GAQC Alert #141
“Due to the importance of the Single Audits and the reliance of
Federal agencies on the audit results to monitor the accountability
of Recovery Act programs, agencies should not grant any
extension request to grantees for fiscal years 2009 through 2011.
In order to meet the criteria for a low-risk auditee (OMB Circular A133 §__.530) in the current year, the prior two years audits must
have met the requirements of OMB Circular A-133, including
report submission to the FAC by the due date (OMB Circular A-133
§ __.320).”
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Impact of Loan Programs
When applying the risk-based approach to
determine which Federal programs are major
programs:
• The inclusion of large loan and loan guarantees (loans) should
not result in the exclusion of other programs as Type A
programs.
• When a Federal program providing loans significantly affects the
number or size of Type A programs, the auditor shall consider
this Federal program as a Type A program and exclude its values
in determining other Type A programs.
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Impact of Loan Programs
Safe Harbor for Treatment of a Large Loan and Loan
Guarantee Programs in Type A Program
Determination
• Each individual loan and loan guarantee program that does not exceed
four times the largest non-loan program is not considered to be large.
Largest NonLoan Program
Balance x 4
Largest NonLoan Program
Balance x 4
Governmental Audit Quality Center
Large Loan
Program
Large Loan
Program
Include
Loan Program
included in
Type A
Calculation
Do not include
Loan Program
not included in
Type A
Calculation
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Impact of Loan Programs
Example #1 University
Step 1 – Identify the largest non-loan program:
Program Name
Amount
SFA Cluster (Loan Program)
Pell Grants
4,000,000
Perkins – Current Year Loans
500,000
Beginning Loans
5,800,000
FFEL – Current Year Loans
2,100,000
FWS
500,000
Total SFA Cluster
12,900,000
R&D Cluster (non-loan program)
2,000,000
TRIO Cluster(non-loan program)
300,000
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Impact of Loan Programs
Example #1 University (Continued)
Step 2 – Calculate if loan program is greater than 4X
largest non-loan program:
R&D $2,000,000
x4=
$8,000,000
Governmental Audit Quality Center
SFA Cluster
12,900,000
Do not
include
SFA not included
in Type A
Calculation
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Impact of Loan Programs
Example #1 University (Continued)
Step 3 – Calculate Type A Threshold
R&D Cluster
2,000,000
TRIO Cluster
300,000
Sum of Programs used to calculate
Type A
2,300,000
Calculated Type A Threshold*
$300,000
* Calculated to be $69,000, therefore defaulted to minimum of $300,000
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Impact of Loan Programs
Example #2 Governmental Entity
Step 1 – Identify the largest non-loan program:
Program Name
Amount
CDBG (Loan Program)
Loans
Grant Expenditure
Sub-total CDBG
12,000,000
3,000,000
15,000,000
Home (Loan Program)
Loans
Grant Expenditures
Sub-total HOME
WIC
Governmental Audit Quality Center
9,600,000
400,000
10,000,000
2,600,000
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Impact of Loan Programs
Example #2 Governmental Entity (Continued)
Step 2 – Calculate if loan program is greater than 4X
largest non-loan program:
WIC $2,600,000
x4=
$10,400,000
WIC $2,600,000
x4=
$10,400,000
Governmental Audit Quality Center
CDBG
$15,000,000
Do not
include
CDBG not
included in Type
A Calculation
Include
HOME included in
Type A
Calculation
HOME
$10,000,000
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Impact of Loan Programs Example #2
Governmental Entity (Continued)
Step 3 – Calculate Type A Threshold
CDBG
Not included
HOME
10,000,000
WIC
Sum of Programs used to calculate Type
A
Type A Factor
(Expenditures $300K to $100M)
Calculated Type A Threshold
Governmental Audit Quality Center
2,600,000
12,600,000
.03
$378,000
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Effect of ARRA Awards on Major Program
Determination - Clusters
Clusters of programs specifically listed in the Supplement with
a new ARRA CFDA number added during the current year that
also has current year expenditures, should be considered a
new program and would not qualify as a low-risk Type A
program
• Cluster will not meet the requirement of having been audited as a major
program in at least one of the two most recent audit periods as the
Federal program funded under the ARRA did not previously exist.
• The Research and Development cluster (R&D) is not subject to this
guidance due to its nature (e.g., CFDA numbers are not listed in
Supplement for R&D and in some cases R&D is not assigned a CFDA
number).
• The Student Financial Aid (SFA) Cluster is also not subject to this
guidance
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Effect of ARRA Awards on Major Program
Determination - Type A Programs
Even though a Type A program otherwise meets the
criteria as low-risk under Section 520(c) of OMB Circular
A-133, due to the inherent risk associated with the
transparency and accountability requirements governing
expenditures of ARRA awards, any program or cluster
with expenditures of ARRA awards would not qualify as a
low-risk Type A.
• Even a de minimus amount of ARRA expenditures would not
support identifying the program as low risk.
• See next slide for exception.
• However SFA is excluded from this guidance
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Effect of ARRA Awards on Major Program
Determination -Type A Programs (Continued)
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Effect of ARRA Awards on Major Program
Determination – Type A Example
2009 State Fiscal Stabilization
Fund (SFSF)
Audited as a Major Program
No Control Deficiencies
No Noncompliance
CFDA
Program
Name
84.394 ARRAEducation
Stabilization
2010 State Fiscal Stabilization
Fund (SFSF)
Can this be assessed as a low
risk Type A in 2010?
Program
Name
Expenses
CFDA
$1,000,000
84.394 ARRA Education
Stabilization
Expenses
$2,000,000
Did not meet 1 of the 4 criteria to be assessed as low risk:
(3) current year ARRA expenditures are more than 20%
of program cluster [since 100% of expenditures are ARRA]
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Effect of ARRA Awards on Major Program
Determination - Type B Programs
The auditor should consider all Type B programs
and clusters with expenditures of ARRA awards to
be programs of higher risk in accordance with
Section 525(d) of OMB Circular A-133.
The presumption is that Type B programs or clusters
with ARRA expenditures would be audited as major
when applying the provisions of Section 520(e)(2).
However, the auditor is not precluded from selecting
an especially risky Type B program that does not
contain ARRA expenditures to audit as a major
program in lieu of a Type B program or cluster with
ARRA expenditures.
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Appendix VII (draft): SFA and Major
Program Determination
Appendix VII section: Effect of Expenditures of
ARRA Awards on Major Program Determination
• Clusters of Programs -- SFA Excluded
• Type A Programs With ARRA Expenditures -- SFA
Excluded
• Use pre-ARRA rules for risk assessment
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2010 Compliance Supplement (CS)
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2010 Compliance Supplement - Part 3
Changes
Reporting
• Testing1512 reports
Subrecipient monitoring
• Verification of subrecipients filing their A-133’s with
Clearinghouse
• Strong push on identifying pass-through entity information on
SEFA and amounts passed-through in SEFA footnotes
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2010 Compliance Supplement - Parts 4
and 5 Changes
Part 4
Incorporated information from 2009 Addendum #1
Part 5
Many new clusters and additions to existing clusters
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2010 Compliance Supplement – R&D
Changes (draft)
Remember R&D definition in Section .105
• Very broad
• NSF believes its programs are RD
- Based on its CFDA #’s
- NSF acknowledges rare instances can arise where
not R&D. Clients need to carefully read award
agreement.
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2010 Compliance Supplement - SFA
Changes (draft)
Exempt from ARRA provisions for separate
presentation
Likely will require an extra item in representation
letter regarding whether college is under Zone
Alternative
Changes to FFELP will generally be a 2011 single
audit issue.
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Other Future ARRA Issues
Electronic medical records
• In discussions with HHS due to unusual funding pattern
Energy grants to for-profits
• Likely need program-specific audits
Pre-award certifications
• Generally not possible under auditing standards
Determining if new/unusual programs are subject
to Single Audit
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Questions ???
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