OFFICE
OF MANAGEMENT AND BUDGET
Audits
of States, Local Governments, and Non-Profit Organizations
AGENCY:
Office of Management and Budget
ACTION:
Proposed Revision of OMB Circular No. A-133 and Proposed Rescission
of OMB Circular No. A-128
SUMMARY:
This Notice offers interested parties an opportunity to comment
on further proposed revisions to Office of Management and Budget
(OMB) Circular No. A-133, "Audits of Institutions of Higher Education
and Other Non-Profit Institutions," and the proposed consolidation
of OMB Circular No. A-128, "Audits of State and Local Governments,"
into Circular No. A-133 (with Circular A-128 being rescinded). This
Notice also requests comment on two proposed information collections
contained in the proposed revision to Circular A-133. These actions
are being proposed to implement the Single Audit Act Amendments
of 1996 (1996 Amendments), which were signed into law on July 5,
1996 (P.L. 104-156).
In
the proposed revisions to Circular A-133, as published in the Federal
Register on March 17, 1995 (60 FR 14594), OMB stated an intent
to seek modifications to the Single Audit Act of 1984 (1984 Act)
and, upon passage, extend the provisions of Circular A-133 to include
audits of States and local governments and then rescind Circular
A-128. (Indian tribal governments are included under the definition
of States and are covered under the 1984 Act, Circular A-128, the
1996 Amendments, and this proposed revision.) The April 1996 revision
of Circular A-133 was coordinated with the 1996 Amendments such
that only minimum changes are now necessary to include States and
local governments under Circular A-133. When States and local governments
are covered under Circular A-133, OMB will rescind Circular A-128.
Interested
parties may wish to refer to the March 17, 1995, and April 30, 1996,
Federal Register (61 FR 19134) for a more detailed discussion
of the changes made during the recent revisions to Circular A-133.
DATES:
All comments on this proposal should be in writing, and must be
received by [60 days after publication]. Late comments will be considered
to the extent practicable.
ADDRESSES:
Comments should be mailed to Office of Management and Budget, Office
of Federal Financial Management, Financial Standards and Reporting
Branch, Room 6025, New Executive Office Building, Washington, DC
20503. Where possible, comments should reference applicable paragraph
or section numbers in the proposed revision. When comments are sent
in by facsimile (fax), they should be faxed to (202) 395-4915. Electronic
mail comments may be submitted via Internet to CONLEY_S@A1.EOP.GOV.
Please include the full body of electronic mail comments in the
text of the message and not as an attachment. Please include the
name, title, organization, postal address, and E-mail address in
the text of the message.
To
facilitate conversion of the comments into a computer format for
analysis, it would be helpful if respondents send a copy of comments
on either a 3.5 or 5.25 inch diskette in either WordPerfect 5.1,
WordPerfect for Windows, or ASCII format. When a diskette cannot
be provided, it would be helpful if the comments were printed in
pica or an equivalent 10 characters per inch type on white paper
so the document can be easily scanned into a computer format.
A
copy of the current Circulars A-128 and A-133 may be obtained from
the OMB fax information line, 202-395-9068, document numbers 1128
and 1133, respectively, or by writing or calling the Office of Administration,
Publications Office, Room 2200, New Executive Office Building, Washington,
DC 20503, telephone (202) 395-7332. Also, Circular A-133 and this
proposed revision are available on the OMB home page on the internet
which is currently located at /OMB.
FOR
FURTHER INFORMATION CONTACT: Sheila O. Conley, Office of Federal
Financial Management (OFFM), Financial Standards and Reporting Branch,
OMB telephone (202) 395-3993 and fax (202) 395-4915. A redlined/strikeout
version showing the detailed changes between the recently revised
OMB Circular A-133 and the further proposed revision is available
by written request to OFFM.
SUPPLEMENTARY
INFORMATION: Pursuant to the Single Audit Act Amendments of
1996 (P.L. 104-156), the proposed revision requires non-Federal
entities (States, local governments, and non-profit organizations)
expending $300,000 or more in a year in Federal awards to have an
audit, sets forth requirements for both the performance and reporting
of this audit, and provides for follow-up on audit findings. Each
non-Federal entity is responsible for having its audit conducted
and ensuring that subrecipients expending $300,000 or more in a
year meet the audit requirements of Office of Management and Budget
(OMB) Circular A-133 which will be renamed "Audits of States, Local
Governments, and Non-Profit Organizations."
Significant
Changes from Circular A-128 to Circular A-133
The Single
Audit Act Amendments of 1996, signed by the President on July 5, 1996,
called for uniform requirements for audits of all types of organizations.
As a consequence, OMB proposes to co-locate requirements for States,
local governments, and non-profit organizations in Circular A-133,
which currently addresses only non-profit organizations. At the same
time, OMB would rescind Circular A-128, "Audits of State and Local
Governments," which currently specifies audit requirements for States
and local governments.
The
April 1996 revision of Circular A-133 includes the following major
changes which are not reflected in Circular A-128 issued April 12,
1985:
(1)
increased the threshold that triggers an audit requirement under
the Circular from $25,000 to $300,000 (§___.200(a));
(2)
prescribed a risk-based approach to determine major programs (§___.520);
(3)
required a minimum major program coverage of 50 percent (25 percent
for low-risk auditees) of Federal awards expended (§___.520(f));
(4)
clarified the required level of internal control testing (§___.500(c));
(5)
provided minimum reporting requirements for the schedule of expenditures
of Federal awards (§___.310(b));
(6)
required auditees to prepare a summary schedule of prior audit findings
(§___.315) and a data collection form (§___.320(b));
(7)
required auditors to report audit findings and questioned costs
in a single schedule, including a summary of the auditor's results
(§___.505(a)(4));
(8)
prescribed criteria for reporting audit findings and questioned
costs (§___.510);
(9)
modified the method of determining the cognizant agency for audit
(§___.400(a));
(10)
after a two-year transition period, precluded the same auditor from
preparing the indirect cost proposal or cost allocation plan when
indirect costs exceeded $1 million in the prior year (§___.305(b));
(11)
after a two-year transition period, shortened the due date for submitting
reports from 13 months to nine months (§___.320(a));
(12)
streamlined the report submission process and expanded the role
of the Federal clearinghouse (§___.320);
(13)
changed the basis for determining the amount of Federal awards administered
by the non-Federal entity from receipts to expenditures (§___.200);
(14)
provided guidance for conducting program-specific audits (§___.235);
and,
(15)
reorganized the Circular into a "common rule" format to facilitate
codification by Federal agencies and improve the presentation of
information included in the Circular.
Significant
Proposed Revisions to Circular A-133
The most
significant difference between this proposed revision and the recently
revised Circular A-133 is the inclusion of States and local governments.
This proposed revision also includes changes relating to the effective
date (31 U.S.C. 7507), the provisions permitting biennial audits in
limited circumstances (31 U.S.C. 7502(b)(2) and (3)), and the allowability
of audit costs (31 U.S.C. 7505(b)(1)(A)(ii)) to conform the April
1996 revision of Circular A-133 to the 1996 Amendments. Aside from
these changes, the 1996 Amendments do not require other substantive
changes to Circular A-133.
The
following discussion is provided to describe the changes needed
to conform this proposed revision with the 1996 Amendments, solicit
input from interested parties, and summarize some of the other changes
included in this proposed revision. The readers' attention is directed
to section D. Proposed Requirement for the Auditor to Prepare and
Sign the Data Collection Form Required by Circular A-133, because
it is particularly important to OMB that commenters provide views
on the matters discussed in this section.
A.
Effective Dates
The 1996
Amendments apply to any non-Federal entity with respect to any of
its fiscal years which begin after June 30, 1996 (31 U.S.C. 7507).
Changes are proposed in paragraph 10 of the Circular, "Effective Dates,"
to reflect the effective dates mandated in the 1996 Amendments.
Inquirers
asked which circular applies for biennial audits when the biennial
period includes time before and after the effective date of the
proposed revision. The 1996 Amendments do not specifically address
the effective dates for biennial audits. OMB interprets the 1996
Amendments to be effective for any biennial periods which begin
after June 30, 1996. As with annual audits, the prior circulars
are in effect until this proposed revision is effective. Therefore,
a non-Federal entity which elects a biennial audit and has a biennial
period beginning on or before June 30, 1996, should apply the provisions
of Circular A-128 issued April 12, 1985 (for a State or local government)
or Circular A-133 issued March 8, 1990 (for a non-profit organization),
as applicable. The requirements of this proposed revision apply
to any biennial periods beginning after June 30, 1996.
Circular
A-133 shortened the report due date from 13 months to nine months
after the end of the audit period (§___.320(a)). However, the
1996 Amendments (31 U.S.C. 7502(h)) provide for a transition period
of at least two years during which the report due date would remain
at 13 months. The proposed revision at §___.320(a) incorporates
this transition period such that the due date of nine months after
the end of the audit period is not effective until audits of fiscal
years beginning after June 30, 1998. Cognizant or oversight agencies
may still provide extensions.
Paragraphs
6 and 10 of the April 1996 revision of Circular A-133 instructed
Federal agencies to adopt the standards set forth in the Circular
in codified regulations not later than November 30, 1996. As a result
of the 1996 Amendments, the April 1996 revision of Circular A-133,
which applies only to non-profit organizations, will not become
operable unless this proposed revision is not finalized by June
30, 1997 (i.e., OMB expects that Circular A-133 issued March 8,
1990, will apply to non-profit organizations and Circular A-128
issued April 12, 1985, will apply to States and local governments
prior to the effective dates of the 1996 Amendments, and this proposed
revision will apply to these types of organizations when the 1996
Amendments become effective). Therefore, Federal agencies may forgo
the requirement under the April 1996 revision of Circular A-133
to adopt the standards set forth in the Circular in codified regulations
not later than November 30, 1996. However, the 1996 Amendments (31
U.S.C. 7505(a)) require each Federal agency to promulgate such revisions
to its regulations as may be necessary to conform such regulations
to the requirements of the 1996 Amendments and OMB implementing
guidance. Accordingly, the proposed revision includes a provision
in paragraphs 6 and 10 of the Circular whereby Federal agencies
shall adopt the standards set forth in the Circular in codified
regulations not later than six months after publication of the final
revision in the Federal Register.
B.
Biennial Audits in Limited Circumstances
Changes
are proposed at §___.220 to permit biennial audits in limited
circumstances in accordance with the 1996 Amendments. The provisions
in the 1996 Amendments which allow non-Federal entities to elect a
biennial audit are very specific (31 U.S.C. 7502(b)(2)and (3)). For
a State or local government to qualify for a biennial audit election,
there must be a requirement (as opposed to authorization) in a State's
constitution or State or local law which was in effect on January
1, 1987. Also, this requirement must still be in effect. Only non-profit
organizations that had biennial audits for all biennial periods ending
between July 1, 1992, and January 1, 1995, may elect a biennial audit.
OMB expects that very few States, local governments, or non-profit
organizations meet this criteria. Nonetheless, all auditees are encouraged
to have annual audits which provide increased accountability.
The
April 1996 revision of Circular A-133 includes a provision whereby
a Federal agency or pass-through agency may allow a non-profit organization
that elects a program-specific audit under §___.200(c) to perform
the audit every two years. This provision was removed from the proposed
revision to conform with the biennial audit requirements specified
in the 1996 Amendments.
Changes
are also proposed at §___.520 and §___.530(a) to the major
program determination process and the criteria for low-risk auditee
for situations which are unique to single audits which are performed
on a biennial basis.
C.
Audit Costs Prohibited for Subrecipients with Federal Awards Expended
of Less Than $300,000 Annually
The 1996
Amendments discourage pass-through entities from requiring single
audits of subrecipients with total Federal awards expended of less
than $300,000 annually. This is done by prohibiting charges to Federal
awards for audit costs under these circumstances (31 U.S.C. 7505(b)(1)(A)(ii)).
However, pass-through entities are not prohibited from charging subrecipient
monitoring costs, provided those procedures are of lesser scope than
a single audit.
For
example, if a pass-through entity requires a subrecipient which
expends less than $300,000 annually in total Federal awards to have
a single audit conducted in accordance with the 1996 Amendments,
this audit must be paid for with other than Federal funds. However,
the 1996 Amendments do not prohibit charging Federal awards for
limited scope audits and other subrecipient monitoring procedures.
Pass-through
entities would need to make appropriate changes in their agreements
with subrecipients to reflect that audits will no longer be required
for non-Federal entities with total Federal awards expended of less
than $300,000 annually. Pass-through entities will need to review
their overall subrecipient monitoring process, and decide what,
if any, additional monitoring procedures may be necessary to ensure
subrecipient compliance. Monitoring procedures, which include limited
scope audits, can be more targeted and less costly than a full Circular
A-133 audit. Subrecipient monitoring procedures include: on-site
visits, reviews of documentation supporting requests for reimbursement,
limited scope audits of specific compliance areas (e.g., eligibility
determinations made by subrecipients), and financial statement audits
in accordance with generally accepted government auditing standards.
A pass-through entity should consider the cost-effectiveness of
monitoring procedures compared to the relative size and complexity
of the Federal awards administered by subrecipients in determining
the appropriateness of monitoring procedures.
D.
Proposed Requirement for the Auditor to Prepare and Sign the Data
Collection Form Required by Circular A-133
To streamline
the distribution of audit reports and improve the governmentwide collection
and analysis of single audit results, Circular A-133 provides for
a machine-readable form (§___.320(b)) to be prepared at the completion
of each audit and submitted to the Federal clearinghouse designated
by OMB and pass-through entities. The data collection form will provide
key information about the non-Federal entity, the Federal awards it
administers, and the audit results. It will serve as the basis for
developing a governmentwide database on covered Federal awards administered
by non-Federal entities. The April 1996 revision of Circular A-133
provides for a data collection form to be submitted to the Federal
clearinghouse and each pass-through entity in lieu of sending the
full single audit reporting package when there are no audit findings.
The
April 1996 revision of Circular A-133 requires the auditee's management
to prepare the data collection form. Many auditees are concerned
about the additional burden this reporting requirement would place
on them. A more efficient and effective method could be to have
the auditor prepare the form and sign it as preparer. OMB believes
this would not significantly increase audit costs, since most of
the information requested on the form will be obtained directly
from the schedule of expenditures of Federal awards and the auditor's
reports. Since the auditor is most knowledgeable about the audit
results, OMB expects that it will be efficient for the auditor to
simply prepare the form at the completion of the audit. Also, OMB
believes that the incremental legal exposure faced by the auditor
as a result of signing the form can be minimized by restricting
its use to the Federal clearinghouse and pass-through entities for
the sole purpose of data collection and so stating on the form.
Under this method, the auditee would continue to be required to
provide assurance to the Federal Government and pass-through entities
that the auditee engaged an auditor to conduct an audit in accordance
with the Circular, that the audit was completed, and that the information
included on the form is accurate.
OMB
believes that the auditor's association with the data collection
form will add value to its usefulness, reduce the need for Federal
awarding agencies and pass-through entities to perform unnecessary
verification procedures, improve the accuracy of the governmentwide
database, streamline the single audit report submission process,
and reduce burden on auditees.
Therefore,
OMB is considering adding a provision that requires the auditor
to prepare the data collection form and sign it. If this change
is made, OMB will work with the auditing profession and other interested
parties to develop any necessary revisions to the form. Respondents
are encouraged to comment on this change, including: whether the
auditor should prepare and sign the data collection form; what would
be the estimated cost of the auditor's performing this service;
whether it would be beneficial to auditees, Federal agencies, and
pass-through entities; and, whether there are concerns over litigation
exposure.
The
name of the certification form required under §___.320(b) of
the April 1996 revision of Circular A-133 is changed to "Data Collection
Form" in the proposed revision to more appropriately characterize
the nature of the information request. This name change also affects
§___.235(c)(2), §___.235(c)(3), §___.320(c), §___.320(e)(i),
and §___.320(h).
E.
Audit Coverage Over the Allowability of Charges to Cost Pools
Changes
are proposed at §___.500(c), §___.500(d), §___.505(b),
§___.505(c), and §___.510(a) to clarify the auditor's responsibility
for testing and reporting on the allowability of costs charged to
cost pools: (1) used to support an indirect cost rate, or (2) allocated
through a State/local-wide central service cost allocation plan (as
fully described in Appendix C of Circular A-87, "Cost Principles for
State, Local and Indian Tribal Governments," issued May 4, 1995 (60
FR 26484), and hereinafter referred to as a "cost allocation plan").
The proposed language is added to address the timing of costs charged
to cost pools used to support an indirect cost rate or allocated through
a cost allocation plan. Indirect cost rates are based on costs incurred
in a base period and applied prospectively. Costs allocated through
a cost allocation plan are based on the actual costs incurred in two
previous years.
Because
it would not be practical to perform such tests retroactively, the
auditor is expected to perform tests of costs charged to cost pools
during the period that the actual costs were incurred, rather than
during the period in which the rate was applied or in which the
costs were allocated. For example, if the actual costs charged to
cost pools for 1997 form the basis for the indirect cost proposal
and the final negotiated indirect cost rate that will be applied
in 1998 and 1999, then the auditor should test actual costs charged
to cost pools during 1997 as part of the 1997 audit, since 1997
is the base year. The auditor would not be expected to test such
costs as part of the 1998 and 1999 audits.
F.
Pilot Project Authority
The 1996
Amendments (31 U.S.C. 7502(j)) authorize OMB, in consultation with
the Chair and Ranking Minority Member of the Committee on Governmental
Affairs of the Senate and the Chair and Ranking Minority Member of
the Committee on Government Reform and Oversight of the House of Representatives,
to approve pilot projects to test alternative methods of achieving
the purposes of the 1996 Amendments. Such pilot projects, which would
be voluntary undertakings by non-Federal entities, would provide a
means of assessing new ways of testing and reporting on Federal awards.
Suggestions
from auditees for pilot projects should be submitted first to Federal
funding agencies. If a Federal agency concludes that a suggested
pilot project has merit, the Federal agency may present the suggestion
to OMB for consideration. OMB will consult with the appropriate
members of the House and Senate prior to authorizing any pilot projects
under the 1996 Amendments.
G.
Other Changes to Comply with the 1996 Amendments
The revision
proposes the following other changes to comply with the 1996 Amendments
and include States and local governments under Circular A-133.
(1)
Retitles the Circular to include States and local governments. States
and local governments were also added to paragraph 1 of the Circular.
(2)
Deletes the references to Circular A-128 from paragraph 4 of the
Circular and sections §___.105(x)(2) and §___.400(d)(4)
of the attachment.
(3)
Changes definitions of "Federal award" (§___.105(j)), "Federal
financial assistance" (§___.105(l)), "Federal program" (§___.105(m)),
"internal control" (§___.105(q)), "internal control pertaining
to the compliance requirements over Federal programs" (§___.105(r)),
"pass-through entity" (§___.105(aa)), and "subrecipient" (§___.105(ii))
to conform with the definitions included in the 1996 Amendments.
(4)
Adds definitions for the terms "Indian tribe" (§___.105(p)),
"local government" (§___.105(t)), and "State" (§___.105(gg)),
which are defined terms in the 1996 Amendments.
(5)
Adds definitions for the term "non-Federal entity" (§___.105(w))
and replaces the term "non-profit organization" with "non-Federal
entity" in paragraphs 4, 6, and 10 of the Circular and sections
§___.100, §___.105(a), §___.105(s), §___.105(aa),
§___.105(dd), §___.105(ee), §___.200(d), §___.205(a),
and §___.205(h) of the attachment.
(6)
Replaces the term "non-profit organization" with "subrecipient"
in §___.205(i).
(7)
Adds "full" as a modifier of cost in §___.215(b).
(8)
Changes title of schedule in §___.235(b)(2) to "schedule of
expenditures of Federal awards."
(9)
Changes title of "central clearinghouse" to "Federal clearinghouse"
in §___.235(c)(2), §___.235(c)(3), §___.300(e), §___.315(b)(4)(i),
§___.320(b), §___.320(d), §___.320(g), §___.320(h),
§___.320(i), and §___.320(j).
(10)
Adds reference to Grants Management Common Rule in §___.305(a).
(11)
Drops "non-profit" as a modifier to pass-through entity and subrecipients
in §___.400(d) and §___.400(d)(4), respectively.
(12)
Adds a provision to cover a series of audits in §___.500(a).
(13)
Changes the schedule of findings and questioned costs (§___.505(d))
to include information from the audit of the financial statements
performed in accordance with generally accepted government auditing
standards. Consistency changes were made to §___.235(b)(4)(iv)
for program-specific audits.
(14)
Drops from §___.520(b)(3) the reference to insurance programs
because insurance programs are not specifically cited in the 1996
Amendments.
H.
Other Changes
The revision
proposes the following detailed changes.
(1)
Adds to §___.235(c)(3) a requirement that one copy of the data
collection form prepared in accordance with §___.320(b) be
submitted to each pass-through entity.
(2)
Adds to §___.320(b) a requirement that the auditee identify
the cognizant or oversight agency for audit on the data collection
form.
(3)
Changes the requirement in §___.400(a)(4) for the cognizant
agency for audit to report to other Federal agencies any direct
reporting of irregularities and illegal acts.
(4)
Simplifies the summary of the auditor's results in §___.505
by removing the requirement for a statement concerning the auditee's
ability to continue as a going concern and consolidating the reporting
of audit findings which were not reportable conditions or material
non-compliance.
(5)
Adds to the definition of audit findings reported (§___.510(a)(4))
known questioned costs greater than $10,000 for Federal programs
which are not audited as major programs. Consistent with this, adds
in §___.520(c) a reference to this requirement.
(6)
Removes from §___.510(a)(6) the definition of fraud because
this term is the same as in professional auditing standards.
(7)
Adds in §___.520(d) and §___.520(e) an option to allow
an auditor to minimize the risk assessment required for Type B programs
under certain circumstances.
(8)
Adds in §___.520(e) a statement to encourage auditors to use
an approach in identifying high-risk Type B program which provides
an opportunity for different high-risk Type B programs to be audited
as major over a period of time.
I.
Changes for Clarity
The revision
proposes the following changes for clarity.
(1)
Changes the title of the Circular to use the term "non-profit organizations"
in lieu of the phrase "institutions of higher education and other
non-profit institutions" since non-profit organization is the defined
term (§___.105(x)) which includes non-profit institutions of
higher education.
(2)
Changes the definitions of cluster of programs (§___.105(e))
and Federal programs (§___.105(m)) to clarify that research
and development (R&D) and student financial aid (SFA) are types
of clusters of programs. Based upon this change, the phrase "category
of programs" was replaced with "cluster of programs" in §___.105(m),
§___.310(b)(6), §___.320(b). Moves discussion of State
governments combining funding from definition of Federal programs
(§___.105(m)) to definition of cluster of programs (§___.105(e)).
Adds to §___.105(e) emphasis that when a State designates a
cluster of programs, the State must identify the Federal awards
and advise subrecipients of the applicable compliance requirements.
(3)
Replaces the reference to "Federal expenditures" with "Federal awards
expended" in §___.200(d), §___.310(b)(2), §___.310(b)(6),
§___.310(b)(7), §___.520(b)(1), §___.520(d)(2), §___.520(f),
§___.525(d)(4), §___.530(d)(3).
(4)
For consistency with the format of the effective date of the Circular,
changes the date format from fiscal years "ending" to fiscal years
"beginning" in §___.305(b).
(5)
Clarifies in §___.315(b) that follow-up on prior audit findings
is concerned with those relative to Federal awards as opposed to
those relative to the financial statements of the entity.
(6)
Clarifies in §___.500(a) that the entity's financial statements
and schedule of expenditures of Federal awards must be for the same
fiscal year.
(7)
Replaces in §___.500(c) the term "achieve" with "support."
(8)
Clarifies in §___.510(a)(2) that this reporting only relates
to major programs and removes discussion relating to auditor conclusions
which is included in generally accepted government auditing standards.
(9)
Clarifies in §___.510(a)(5) and §___.510(a)(6) that the
reference to the schedule of findings and questioned costs is to
the part of the schedule that deals with Federal awards.
(10)
Changes the term "50 percent rule" to "percentage of coverage rule"
in §___.520(d)(2), §___.520(e)(3), §___.520(f), §___.520(i).
(11)
Clarifies in §___.530(d) that this provision applies for either
of the preceding two years in which the program was classified as
a Type A program.
Information
Collection Activity Under OMB Review
In accordance
with the Paperwork Reduction Act (44 U.S.C. Chapter 35 et seq.), this
notice requests comment on the following two proposed information
collections contained in this proposed revision. The information collection
request involves two types of entities: (1) reports from auditors
to auditees concerning audit results, audit findings, and questioned
costs; and, (2) reports from auditees to the Federal Government providing
information about the auditees, the awards they administer, and the
audit results. The proposed revision specifies what auditors are required
to report to auditees, under §___.235(b)(4), for program-specific
audits, and §___.505, "Audit Reporting," for single audits. The
proposed revision also specifies what auditees are required to report
to the Federal clearinghouse designated by OMB and pass-through entities,
if applicable, under §___.235(c), for program-specific audits,
and §___.320, "Report Submission," for single audits.
The
information collection requests included in this proposal would
result in a decrease in overall reporting burden. Although the reporting
burden per audit will increase under this proposal from 26 to 34
hours (described in the following paragraphs), fewer entities will
be subject to the reporting requirements as a result of the proposal
to increase the threshold that triggers an audit requirement under
the Circular from $25,000 to $300,000. Based on available information,
OMB estimates that approximately 25,000 non-Federal entities would
be subject to the information collection requirement included in
this proposal; whereas, approximately 35,000 non-Federal entities
are subject to the current requirements under Circulars A-128 and
A-133. The overall reporting burden currently approximates 910,000
hours (35,000 non-Federal entities at 26 hours per audit). Under
the proposal, the overall reporting burden would be approximately
850,000 hours (25,000 non-Federal entities at 34 hours per audit),
or 60,000 hours less than the current reporting burden. In addition,
as more fully discussed below, there is an opportunity to reduce
further the overall reporting burden under the proposal from 850,000
to 800,000 hours by having auditors, rather than auditees, prepare
the data collection form discussed below.
Congress
intended to improve the contents of single audit reports to make
them more useful by enacting the 1996 Amendments. OMB believes that
the increase in reporting burden per audit is warranted because
several changes included in the proposed revision would improve
the usefulness and effectiveness of single audit reporting with
respect to information provided by both auditors and auditees.
OMB
estimates that reporting by auditors currently takes approximately
10 hours on the average per audit under Circulars A-128 and A-133,
and will take 14 hours under the proposal. The estimated increase
of 4 hours of reporting burden per audit on auditors is due primarily
to a provision in the 1996 Amendments (31 U.S.C. 7502(g)(2)) which
requires the auditor, for the first time, to prepare a summary of
audit results. In its report on the 1996 Amendments, the Committee
on Government Reform and Oversight stated that "the complexity of
the reports makes it difficult for the average reader to understand
what has been audited and reported ... A summary of the audit results
would highlight important information and thus enable users to quickly
discern the overall results of an audit" (H.R. Report 104-607, page
18).
OMB
estimates that reporting by auditees currently takes approximately
16 hours on the average per audit under Circulars A-128 and A-133,
and will take 20 hours under the proposal. The estimated increase
of 4 hours of reporting burden per audit on auditees is due primarily
to a proposed requirement whereby management would prepare two new
documents to improve the usefulness of single audit reports.
The
first of these reports is a summary schedule of prior audit findings
which will provide the current status of previously reported audit
findings until such findings are corrected. This information, which
is important to Federal funding agencies and pass-through entities,
is currently required under Circulars A-128 and A-133 but it is
not consistently provided in single audit reports. As a result,
Federal funding agencies and pass-through entities frequently request
this type of information long after a finding is reported, which
results in additional burden on Federal agencies, auditees, and
auditors. The proposed requirements provide additional guidance
to auditees on where and how to present information regarding prior
audit findings. While additional time may be required up-front for
certain auditees to prepare the summary schedule of prior audit
findings, the reporting burden for such entities should be offset
by the elimination of the inefficiencies caused by the current practice
of having to retrieve and provide information after-the-fact on
old audit findings.
The
second report management would be required to prepare is the "Data
Collection Form" prescribed in §___.320(b) of the proposed
revision and discussed previously in Section D (Proposed Requirement
for the Auditor to Prepare and Sign the Data Collection Form Required
by Circular A-133). The data collection form will facilitate streamlining
the report distribution process and improve the governmentwide collection
and analysis of single audit results.
OMB
believes that the overall reporting burden under the proposed revision
could be further reduced by having the auditor prepare the data
collection form. Specifically, OMB estimates that if auditors, rather
than auditees, prepare the data collection form then the estimate
of reporting burden on auditors would increase by two hours (that
is, from 14 hours to 16 hours), and the estimate of reporting burden
on auditees would decrease by four hours (that is, from 20 hours
to 16 hours) per audit under the proposal. This would result in
a net decrease of 2 hours per audit, or 50,000 hours in overall
reporting burden (25,000 non-Federal entities at 2 hours savings
per audit). As a result of having auditors, rather than auditees,
prepare the data collection form, overall reporting burden could
be reduced from 850,000 to 800,000 hours.
Comments
are invited on: (a) whether the proposed information collection
is necessary for the proper performance of the functions of the
agencies, including whether the information has practical utility;
(b) the accuracy of the estimate of the burden of the collection
of the information; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden related to the collection of information on respondents,
including the use of automated collection techniques or other forms
of information technology.
G.
Edward DeSeve
Controller
- OMB
proposes to rescind Circular A-128 upon issuance of a revised
Circular A-133 that covers States and local governments.
- OMB
proposes to revise Circular A-133 to read as follows:
Circular No. A-133
Revised
TO
THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT:
Audits of States, Local Governments, and Non-Profit Organizations
1.
Purpose. This Circular is issued pursuant to the Single Audit
Act of 1984, P.L. 98-502, and the Single Audit Act Amendments of
1996, P.L. 104-156. It sets forth standards for obtaining consistency
and uniformity among Federal agencies for the audit of States, local
governments, and non-profit organizations expending Federal awards.
2.
Authority. Circular A-133 is issued under the authority of
sections 503, 1111, and 7501 et seq. of title 31, United States
Code, and Executive Orders 8248 and 11541.
3.
Rescission and Supersession. This Circular rescinds Circular
A-128, "Audits of State and Local Governments," issued April 12,
1985, and supersedes the prior Circular A-133, "Audits of Institutions
of Higher Education and Other Non-Profit Institutions," issued April
22, 1996. For effective dates, see paragraph 10.
4.
Policy. Except as provided herein, the standards set forth
in this Circular shall be applied by all Federal agencies. If any
statute specifically prescribes policies or specific requirements
that differ from the standards provided herein, the provisions of
the statute shall govern.
Federal
agencies shall apply the provisions of the sections of this Circular
to non-Federal entities, whether they are recipients expending Federal
awards received directly from Federal awarding agencies, or are
subrecipients expending Federal awards received from a pass-through
entity (a recipient or another subrecipient).
This
Circular does not apply to non-U.S. based entities expending Federal
awards received either directly as a recipient or indirectly as
a subrecipient.
5.
Definitions. The definitions of key terms used in this Circular
are contained in §___.105 in the Attachment to this Circular.
6.
Required Action. The specific requirements and responsibilities
of Federal agencies and non-Federal entities are set forth in the
Attachment to this Circular. Federal agencies making awards to non-Federal
entities, either directly or indirectly, shall adopt the language
in the Circular in codified regulations as provided in Section 10
(below), unless different provisions are required by Federal statute
or are approved by OMB.
7.
OMB Responsibilities. OMB will review Federal agency regulations
and implementation of this Circular, and will provide interpretations
of policy requirements and assistance to ensure uniform, effective
and efficient implementation.
8.
Information Contact. Further information concerning Circular
A-133 may be obtained by contacting the Financial Standards and
Reporting Branch, Office of Federal Financial Management, Office
of Management and Budget, Washington, DC 20503, telephone (202)
395-3993.
9.
Review Date. This Circular will have a policy review three
years from the date of issuance.
10.
Effective Dates. The standards set forth in §___.400
of the Attachment to this Circular, which apply directly to Federal
agencies, shall be effective July 1, 1996, and shall apply to audits
of fiscal years beginning after June 30, 1996.
The
standards set forth in this Circular that Federal agencies are to
apply to non-Federal entities shall be adopted by Federal agencies
in codified regulations not later than six months after publication
of the final revision in the Federal Register, so that they will
apply to audits of fiscal years beginning after June 30, 1996, with
the exception that §___.305(b) of the Attachment applies to
audits of fiscal years beginning after June 30, 1998. In the interim
period, until the standards in this Circular are adopted and become
applicable, the audit provisions of Circular A-128 issued April
12, 1985, and Circular A-133, issued April 22, 1996, shall continue
in effect.
Franklin
D. Raines
Director
Attachment
PART__ |
--AUDITS
OF STATES, LOCAL GOVERNMENTS, AND NON-PROFIT ORGANIZATIONS
|
Subpart
A--General |
__.100 |
Purpose. |
__.105 |
Definitions. |
Subpart
B--Audits |
__.200 |
Audit
requirements. |
__.205 |
Basis
for determining Federal awards expended. |
__.210 |
Subrecipient
and vendor determinations. |
__.215 |
Relation
to other audit requirements. |
__.220 |
Frequency
of audits. |
__.225 |
Sanctions. |
__.230 |
Audit
costs. |
__.235 |
Program-specific
audits. |
Subpart
C--Auditees |
__.300 |
Auditee
responsibilities. |
__.305 |
Auditor
selection. |
__.310 |
Financial
statements. |
__.315 |
Audit
findings follow-up. |
__.320 |
Report
submission. |
Subpart
D--Federal Agencies and Pass-Through Entities |
__.400 |
Responsibilities. |
__.405 |
Management
decision. |
Subpart
E--Auditors |
__.500 |
Scope
of audit. |
__.505 |
Audit
reporting. |
__.510 |
Audit
findings. |
__.515 |
Audit
working papers. |
__.520 |
Major
program determination. |
__.525 |
Criteria
for Federal program risk. |
__.530 |
Criteria
for a low-risk auditee. |
Subpart
A--General
§___.100 Purpose.
This part
sets forth standards for obtaining consistency and uniformity among
Federal agencies for the audit of non-Federal entities expending Federal
awards.
§___.105
Definitions.
(a)
Auditee means any non-Federal entity that expends Federal
awards which must be audited under this part.
(b)
Auditor means an auditor, that is a public accountant or
a Federal, State or local government audit organization, which meets
the general standards specified in generally accepted government
auditing standards (GAGAS). The term auditor does not include internal
auditors of non-profit organizations.
(c)
Audit finding means deficiencies which the auditor is required
by §___.510(a) to report in the schedule of findings and questioned
costs.
(d)
CFDA number means the number assigned to a Federal program
in the Catalog of Federal Domestic Assistance (CFDA).
(e)
Cluster of programs means a grouping of closely related programs
that share common compliance requirements. The types of clusters
of programs are research and development (R&D), student financial
aid (SFA), and other clusters. "Other clusters" are as defined by
the Office of Management and Budget (OMB) in the compliance supplements
or as designated by a State for Federal awards the State provides
to its subrecipients that meet the definition of a cluster of programs.
When designating an "other cluster," a State shall identify the
Federal awards included in the cluster and advise the subrecipients
of compliance requirements applicable to the cluster, consistent
with §___.400(d)(1) and §___.400(d)(2), respectively.
A cluster of programs shall be considered as one program for determining
major programs, as described in §___.520, and, with the exception
of R&D as described in §___.200(c), whether a program-specific
audit may be elected.
(f)
Cognizant agency for audit means the Federal agency designated
to carry out the responsibilities described in §___.400(a).
(g)
Compliance supplements refers to the Compliance Supplement
for Audits of Institutions of Higher Learning and Other Non-Profit
Institutions and the Compliance Supplement for Single Audits of
State and Local Governments or such documents as OMB or its
designee may issue to replace them. These documents are available
from the Government Printing Office, Superintendent of Documents,
P.O. Box 371954, Pittsburgh, PA 15250-7954, telephone (202) 512-1800.
(h)
Corrective action means action taken by the auditee that:
(1)
Corrects identified deficiencies;
(2) Produces recommended improvements; or
(3) Demonstrates that audit findings are either invalid or do
not warrant auditee action.
(i)
Federal agency has the same meaning as the term agency in
Section 551(1) of title 5, United States Code.
(j)
Federal award means Federal financial assistance and Federal
cost-reimbursement contracts that non-Federal entities receive directly
from Federal awarding agencies or indirectly from pass-through entities.
It does not include procurement contracts, under grants or contracts,
used to buy goods or services from vendors. Any audits of such vendors
shall be covered by the terms and conditions of the contract. Contracts
to operate Federal Government owned, contractor operated facilities
(GOCOs) are excluded from the requirements of this part.
(k)
Federal awarding agency means the Federal agency that provides
an award directly to the recipient.
(l)
Federal financial assistance means assistance that non-Federal
entities receive or administer in the form of grants, loans, loan
guarantees, property (including donated surplus property), cooperative
agreements, interest subsidies, insurance, food commodities, direct
appropriations, and other assistance, but does not include amounts
received as reimbursement for services rendered to individuals as
described in §___.205(h) and §___.205(i).
(m)
Federal program means:
(1)
All Federal awards to a non-Federal entity assigned a single number
in the CFDA.
(2) When no CFDA number is assigned, all Federal awards from the
same agency made for the same purpose should be combined and considered
one program.
(3) Notwithstanding paragraphs (1) and (2) of this definition,
a cluster of programs. The types of clusters of programs are:
(i)
Research and development (R&D);
(ii) Student financial aid (SFA); and
(iii) "Other clusters," as described in the definition of cluster
of programs in §___.105(e).
(n)
GAGAS means generally accepted government auditing standards
issued by the Comptroller General of the United States, which are
applicable to financial audits.
(o)
Generally accepted accounting principles has the meaning
specified in generally accepted auditing standards issued by the
American Institute of Certified Public Accountants (AICPA).
(p)
Indian tribe means any Indian tribe, band, nation, or other
organized group or community, including any Alaskan Native village
or regional or village corporation (as defined in, or established
under, the Alaskan Native Claims Settlement Act) that is recognized
by the United States as eligible for the special programs and services
provided by the United States to Indians because of their status
as Indians.
(q)
Internal control means a process, effected by an entity's
management and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the following categories:
(1)
Effectiveness and efficiency of operations;
(2) Reliability of financial reporting; and
(3) Compliance with applicable laws and regulations.
(r)
Internal control pertaining to the compliance requirements for
Federal programs (Internal control over Federal programs) means
a process--effected by an entity's management and other personnel--designed
to provide reasonable assurance regarding the achievement of the
following objectives for Federal programs:
(1)
Transactions are properly recorded and accounted for to:
(i)
Permit the preparation of reliable financial statements and Federal
reports;
(ii) Maintain accountability over assets; and
(iii) Demonstrate compliance with laws, regulations, and other
compliance requirements;
(2) Transactions are executed in compliance with:
(3) Funds, property, and other assets are safeguarded against
loss from unauthorized use or disposition.
(s)
Loan means a Federal loan or loan guarantee received or administered
by a non-Federal entity.
(t)
Local government means any unit of local government within
a State, including a county, borough, municipality, city, town,
township, parish, local public authority, special district, school
district, intrastate district, council of governments, and any other
instrumentality of local government.
(u)
Major program means a Federal program determined by the auditor
to be a major program in accordance with §___.520 or a program
identified as a major program by a Federal agency or pass-through
entity in accordance with §___.215(c).
(v)
Management decision means the evaluation by the Federal awarding
agency or pass-through entity of the audit findings and corrective
action plan and the issuance of a written decision as to what corrective
action is necessary.
(w)
Non-Federal entity means a State, local government, or non-profit
organization.
(x)
Non-profit organization means:
(1)
any corporation, trust, association, cooperative, or other organization
that:
(i)
Is operated primarily for scientific, educational, service, charitable,
or similar purposes in the public interest;
(ii) Is not organized primarily for profit; and
(iii) Uses its net proceeds to maintain, improve, or expand
its operations; and
(2) The term non-profit organization includes non-profit institutions
of higher education and hospitals.
(y)
OMB means the Executive Office of the President, Office of
Management and Budget.
(z)
Oversight agency for audit means the Federal awarding agency
that provides the predominant amount of direct funding to a recipient
not assigned a cognizant agency for audit. When there is no direct
funding, the Federal agency with the predominant indirect funding
shall assume the oversight responsibilities. The duties of the oversight
agency for audit are described in §___.400(b).
(aa)
Pass-through entity means a non-Federal entity that provides
a Federal award to a subrecipient to carry out a Federal program.
(bb)
Program-specific audit means an audit of one Federal program
as provided for in §___.200(c) and §___.235.
(cc)
Questioned cost means a cost that is questioned by the auditor
because of an audit finding:
(1)
Which resulted from a possible violation of a provision of a law,
regulation, contract, grant, cooperative agreement, or other agreement
or document governing the use of Federal funds, including funds
used to match Federal funds;
(2) Where the costs, at the time of the audit, are not supported
by adequate documentation; or
(3) Where the costs incurred appear unreasonable and do not reflect
the actions a prudent person would take in the circumstances.
(dd)
Recipient means a non-Federal entity that expends Federal
awards received directly from a Federal awarding agency to carry
out a Federal program.
(ee)
Research and development (R&D) means all research activities,
both basic and applied, and all development activities that are
performed by a non-Federal entity. Research is defined as
a systematic study directed toward fuller scientific knowledge or
understanding of the subject studied. The term research also includes
activities involving the training of individuals in research techniques
where such activities utilize the same facilities as other research
and development activities and where such activities are not included
in the instruction function. Development is the systematic
use of knowledge and understanding gained from research directed
toward the production of useful materials, devices, systems, or
methods, including design and development of prototypes and processes.
(ff)
Single audit means an audit which includes both the entity's
financial statements and the Federal awards as described in §___.500.
(gg)
State means any State of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,
and the Trust Territory of the Pacific Islands, any instrumentality
thereof, any multi-State, regional, or interstate entity which has
governmental functions, and any Indian tribe as defined in §___.105(p).
(hh)
Student Financial Aid (SFA) includes those programs of general
student assistance, such as those authorized by Title IV of the
Higher Education Act of 1965, as amended, (20 U.S.C. 1070 et seq.)
which is administered by the U.S. Department of Education, and similar
programs provided by other Federal agencies. It does not include
programs which provide fellowships or similar Federal awards to
students on a competitive basis, or for specified studies or research.
(ii)
Subrecipient means a non-Federal entity that expends Federal
awards received from a pass-through entity to carry out a Federal
program, but does not include an individual that is a beneficiary
of such a program. A subrecipient may also be a recipient of other
Federal awards directly from a Federal awarding agency. Guidance
on distinguishing between a subrecipient and a vendor is provided
in §___.210.
(jj)
Types of compliance requirements refers to the types of compliance
requirements listed in the compliance supplements. Examples include
cash management, Federal financial reporting, allowable costs/cost
principles, types of services allowed or unallowed, eligibility,
and matching.
(kk)
Vendor means a dealer, distributor, merchant, or other seller
providing goods or services that are required for the conduct of
a Federal program. These goods or services may be for an organization's
own use or for the use of beneficiaries of the Federal program.
Additional guidance on distinguishing between a subrecipient and
a vendor is provided in §___.210.
Subpart
B--Audits
§___.200 Audit requirements.
(a) Audit
required. Non-Federal entities that expend $300,000 or more in
a year in Federal awards shall have a single or program-specific audit
conducted for that year in accordance with the provisions of this
part. Guidance on determining Federal awards expended is provided
in §___.205.
(b)
Single audit. Non-Federal entities that expend $300,000 or
more in a year in Federal awards shall have a single audit conducted
in accordance with §___.500 except when they elect to have
a program-specific audit conducted in accordance with paragraph
(c) of this section.
(c)
Program-specific audit election. When an auditee expends
Federal awards under only one Federal program (excluding R&D) and
the Federal program's laws, regulations, or grant agreements do
not require a financial statement audit of the auditee, the auditee
may elect to have a program-specific audit conducted in accordance
with §___.235. A program-specific audit may not be elected
for R&D unless all of the Federal awards expended were received
from the same Federal agency, or the same Federal agency and the
same pass-through entity, and that Federal agency, or pass-through
entity in the case of a subrecipient, approves in advance a program-specific
audit.
(d)
Exemption when Federal awards expended are less than $300,000.
Non-Federal entities that expend less than $300,000 a year in Federal
awards are exempt from Federal audit requirements for that year,
except as noted in §___.215(a), but records must be available
for review or audit by appropriate officials of the Federal agency,
pass-through entity, and General Accounting Office (GAO).
(e)
Federally Funded Research and Development Centers (FFRDC).
Management of an auditee that owns or operates a FFRDC may elect
to treat the FFRDC as a separate entity for purposes of this part.
§___.205
Basis for determining Federal awards expended.
(a) Determining
Federal awards expended. The determination of when an award is
expended should be based on when the activity related to the award
occurs. Generally, the activity pertains to events that require the
non-Federal entity to comply with laws, regulations, and the provisions
of contracts or grant agreements, such as: expenditure/expense transactions
associated with grants, cost-reimbursement contracts, cooperative
agreements, and direct appropriations; the disbursement of funds passed
through to subrecipients; the use of loan proceeds under loan and
loan guarantee programs; the receipt of property; the receipt of surplus
property; the receipt or use of program income; the distribution or
consumption of food commodities; the disbursement of amounts entitling
the non-Federal entity to an interest subsidy; and, the period when
insurance is in force.
(b)
Loan and loan guarantees (loans). Since the Federal Government
is at risk for loans until the debt is repaid, the following guidelines
shall be used to calculate the value of Federal awards expended
under loan programs, except as noted in paragraphs (c) and (d) of
this section:
(1)
Value of new loans made or received during the fiscal year; plus
(2) Balance of loans from previous years for which the Federal
Government imposes continuing compliance requirements; plus
(3) Any interest subsidy, cash, or administrative cost allowance
received.
(c)
Loan and loan guarantees (loans) at institutions of higher education.
When loans are made to students of an institution of higher education
but the institution does not make the loans, then only the value
of loans made during the year shall be considered Federal awards
expended in that year. The balance of loans for previous years is
not included as Federal awards expended because the lender accounts
for the prior balances.
(d)
Prior loan and loan guarantees (loans). Loans, the proceeds
of which were received and expended in prior-years, are not considered
Federal awards expended under this part when the laws, regulations,
and the provisions of contracts or grant agreements pertaining to
such loans impose no continuing compliance requirements other than
to repay the loans.
(e)
Endowment funds. The cumulative balance of Federal awards
for endowment funds which are federally restricted are considered
awards expended in each year in which the funds are still restricted.
(f)
Free rent. Free rent received by itself is not considered
a Federal award expended under this part. However, free rent received
as part of an award to carry out a Federal program shall be included
in determining Federal awards expended and subject to audit under
this part.
(g)
Valuing non-cash assistance. Federal non-cash assistance,
such as free rent, food stamps, food commodities, donated property,
or donated surplus property, shall be valued at fair market value
at the time of receipt or the assessed value provided by the Federal
agency.
(h)
Medicare. Medicare payments to a non-Federal entity for providing
patient care services to Medicare eligible individuals are not considered
Federal awards expended under this part.
(i)
Medicaid. Medicaid payments to a subrecipient for providing
patient care services to Medicaid eligible individuals are not considered
Federal awards expended under this part unless a State requires
the funds to be treated as Federal awards expended because reimbursement
is on a cost-reimbursement basis.
§___.210
Subrecipient and vendor determinations.
(a) General.
An auditee may be a recipient, a subrecipient, and a vendor. Federal
awards expended as a recipient or a subrecipient would be subject
to audit under this part. The payments received for goods or services
provided as a vendor would not be considered Federal awards. The guidance
in paragraphs (b) and (c) of this section should be considered in
determining whether payments constitute a Federal award or a payment
for goods and services.
(b)
Federal award. Characteristics indicative of a Federal award
received by a subrecipient are when the organization:
(1)
Determines who is eligible to receive what Federal financial assistance;
(2) Has its performance measured against whether the objectives
of the Federal program are met;
(3) Has responsibility for programmatic decision making;
(4) Has responsibility for adherence to applicable Federal program
compliance requirements; and
(5) Uses the Federal funds to carry out a program of the organization
as compared to providing goods or services for a program of the
pass-through entity.
(c)
Payment for goods and services. Characteristics indicative
of a payment for goods and services received by a vendor are when
the organization:
(1)
Provides the goods and services within normal business operations;
(2) Provides similar goods or services to many different purchasers;
(3) Operates in a competitive environment;
(4) Provides goods or services that are ancillary to the operation
of the Federal program; and
(5) Is not subject to compliance requirements of the Federal program.
(d)
Use of judgment in making determination. There may be unusual
circumstances or exceptions to the listed characteristics. In making
the determination of whether a subrecipient or vendor relationship
exists, the substance of the relationship is more important than
the form of the agreement. It is not expected that all of the characteristics
will be present and judgment should be used in determining whether
an entity is a subrecipient or vendor.
(e)
For-profit subrecipient. Since this part does not apply to
for-profit subrecipients, the pass-through entity is responsible
for establishing requirements, as necessary, to ensure compliance
by for-profit subrecipients. The contract with the for-profit subrecipient
should describe applicable compliance requirements and the for-profit
subrecipient's compliance responsibility. Methods to ensure compliance
for Federal awards made to for-profit subrecipients may include
pre-award audits, monitoring during the contract, and post-award
audits.
(f)
Compliance responsibility for vendors. In most cases, the
auditee's compliance responsibility for vendors is only to ensure
that the procurement, receipt, and payment for goods and services
comply with laws, regulations, and the provisions of contracts or
grant agreements. Program compliance requirements normally do not
pass through to vendors. However, the auditee is responsible for
ensuring compliance for vendor transactions which are structured
such that the vendor is responsible for program compliance or the
vendor's records must be reviewed to determine program compliance.
Also, when these vendor transactions relate to a major program,
the scope of the audit shall include determining whether these transactions
are in compliance with laws, regulations, and the provisions of
contracts or grant agreements.
§___.215
Relation to other audit requirements.
(a) Audit
under this part in lieu of other audits. An audit made in accordance
with this part shall be in lieu of any financial audit required under
individual Federal awards. To the extent this audit meets a Federal
agency's needs, it shall rely upon and use such audits. The provisions
of this part neither limit the authority of Federal agencies, including
their Inspectors General, or GAO to conduct or arrange for additional
audits (e.g., financial audits, performance audits, evaluations, inspections,
or reviews) nor authorize any auditee to constrain Federal agencies
from carrying out additional audits. Any additional audits shall be
planned and performed in such a way as to build upon work performed
by other auditors.
(b)
Federal agency to pay for additional audits. A Federal agency
that conducts or contracts for additional audits shall, consistent
with other applicable laws and regulations, arrange for funding
the full cost of such additional audits.
(c)
Request for a program to be audited as a major program. A
Federal agency may request an auditee to have a particular Federal
program audited as a major program in lieu of the Federal agency
conducting or arranging for the additional audits. To allow for
planning, such requests should be made at least 180 days prior to
the end of the fiscal year to be audited. The auditee, after consultation
with its auditor, should promptly respond to such request by informing
the Federal agency whether the program would otherwise be audited
as a major program using the risk-based audit approach described
in §___.520 and, if not, the estimated incremental cost. The
Federal agency shall then promptly confirm to the auditee whether
it wants the program audited as a major program. If the program
is to be audited as a major program based upon this Federal agency
request, and the Federal agency agrees to pay the full incremental
costs, then the auditee shall have the program audited as a major
program. A pass-through entity may use the provisions of this paragraph
for a subrecipient.
§___.220
Frequency of audits.
Except
for the provisions for biennial audits provided in paragraphs (a)
and (b) of this section, audits required by this part shall be performed
annually. Any biennial audit shall cover both years within the biennial
period.
(a)
A State or local government that is required by constitution or
statute, in effect on January 1, 1987, to undergo its audits less
frequently than annually, is permitted to undergo its audits pursuant
to this part biennially. This requirement must still be in effect
for the biennial period under audit.
(b)
Any non-profit organization that had biennial audits for all biennial
periods ending between July 1, 1992, and January 1, 1995, is permitted
to undergo its audits pursuant to this part biennially.
§___.225
Sanctions.
No audit
costs may be charged to Federal awards when audits required by this
part have not been made or have been made but not in accordance with
this part. In cases of continued inability or unwillingness to have
an audit conducted in accordance with this part, Federal agencies
and pass-through entities shall take appropriate action using sanctions
such as:
(a)
Withholding a percentage of Federal awards until the audit is completed
satisfactorily;
(b)
Withholding or disallowing overhead costs;
(c)
Suspending Federal awards until the audit is conducted; or
(d)
Terminating the Federal award.
§___.230
Audit costs.
(a) Allowable
costs. Unless prohibited by law, the cost of audits made in accordance
with the provisions of this part are allowable charges to Federal
awards. The charges may be considered a direct cost or an allocated
indirect cost, as determined in accordance with the provisions of
applicable OMB cost principles circulars, the Federal Acquisition
Regulation (FAR) (48 CFR parts 30 and 31), or other applicable cost
principles or regulations.
(b)
Unallowable costs. A non-Federal entity shall not charge
the following to a Federal award:
(1)
The cost of any audit under the Single Audit Act Amendments of 1996
(31 U.S.C. 7501 et seq.) not conducted in accordance with this part.
(2) The cost of auditing a non-Federal entity which has Federal
awards expended of less than $300,000 per year and is thereby
exempted under §___.200(d) from having an audit conducted
under this part. However, this does not prohibit a pass-through
entity from charging Federal awards for the cost of limited scope
audits to monitor its subrecipients in accordance with §___.400(d)(3),
provided the subrecipient does not have a single audit.
§___.235
Program-specific audits.
(a) Program-specific
audit guide available. In many cases, a program-specific audit
guide will be available to provide specific guidance to the auditor
with respect to internal control, compliance requirements, suggested
audit procedures, and audit reporting requirements. The auditor should
contact the Office of Inspector General of the Federal agency to determine
whether such a guide is available. When a current program-specific
audit guide is available, the auditor shall follow GAGAS and the guide
when performing a program-specific audit.
(b)
Program-specific audit guide not available. (1) When a program-specific
audit guide is not available, the auditee and auditor shall have
basically the same responsibilities for the Federal program as they
would have for an audit of a major program in a single audit.
(2)
The auditee shall prepare the financial statement(s) for the Federal
program that includes, at a minimum, a schedule of expenditures
of Federal awards for the program and notes that describe the significant
accounting policies used in preparing the schedule, a summary schedule
of prior audit findings consistent with the requirements of §___.315(b),
and a corrective action plan consistent with the requirements of
§___.315(c).
(3) The auditor shall:
(i)
Perform an audit of the financial statement(s) for the Federal
program in accordance with GAGAS;
(ii) Obtain an understanding of internal control and perform
tests of internal control over the Federal program consistent
with the requirements of §___.500(c) for a major program;
(iii) Perform procedures to determine whether the auditee has
complied with laws, regulations, and the provisions of contracts
or grant agreements that could have a direct and material effect
on the Federal program consistent with the requirements of §___.500(d)
for a major program; and
(iv) Follow up on prior audit findings, perform procedures to
assess the reasonableness of the summary schedule of prior audit
findings prepared by the auditee, and report, as a current year
audit finding, when the auditor concludes that the summary schedule
of prior audit findings materially misrepresents the status
of any prior audit finding in accordance with the requirements
of §___.500(e).
(4) The auditor's report(s) may be in the form of either combined
or separate reports and may be organized differently from the
manner presented in this section. The auditor's report(s) shall
state that the audit was conducted in accordance with this part
and include the following:
(i)
An opinion (or disclaimer of opinion) as to whether the financial
statement(s) of the Federal program is presented fairly in all
material respects in accordance with the stated accounting policies;
(ii) A report on internal control related to the Federal program,
which shall describe the scope of testing of internal control
and the results of the tests;
(iii) A report on compliance which includes an opinion (or disclaimer
of opinion) as to whether the auditee complied with laws, regulations,
and the provisions of contracts or grant agreements which could
have a direct and material effect on the Federal program; and
(iv) A schedule of findings and questioned costs for the Federal
program that includes a summary of the auditor's results relative
to the Federal program in a format consistent with §___.505(d)(1)
and findings and questioned costs consistent with the requirements
of §___.505(d)(3).
(c)
Report submission for program-specific audits.
(1)
The audit shall be completed and the reporting required by paragraph
(c)(2) or (c)(3) of this section submitted within nine months after
the end of the audit period, unless a longer period is agreed to
in advance by the Federal agency that provided the funding or a
different period is specified in a program-specific audit guide.
(However, for fiscal years beginning on or before June 30, 1998,
auditees shall have 13 months after the end of the audit period
to complete the audit and submit the reporting package unless a
different period is specified in a program-specific audit guide.)
This required reporting shall be submitted within 30 days after
the issuance of the auditor's report(s) to the auditee. Unless restricted
by law or regulation, the auditee shall make report copies available
for public inspection.
(2) When a program-specific audit guide is available, the auditee
shall submit to the Federal clearinghouse designated by OMB one
copy of the data collection form prepared in accordance with §___.320(b),
as applicable to a program-specific audit, and the reporting required
by the program-specific audit guide to be retained as an archival
copy. Also, the auditee shall submit to the Federal awarding agency
or pass-through entity the reporting required by the program-specific
audit guide.
(3) When a program-specific audit guide is not available, the
reporting package for a program-specific audit shall consist of
the data collection form prepared in accordance with §___.320(b),
as applicable to a program-specific audit, the financial statement(s)
of the Federal program, a summary schedule of prior audit findings,
and a corrective action plan as described in paragraph (b)(2)
of this section, and the auditor's report(s) described in paragraph
(b)(4) of this section. One copy of this reporting package shall
be submitted to the Federal clearinghouse designated by OMB to
be retained as an archival copy and one copy of the data collection
form prepared in accordance with §___.320(b) shall be submitted
to each pass-through entity. Also, when the schedule of findings
and questioned costs disclosed audit findings or the summary schedule
of prior audit findings reported the status of any audit findings,
the auditee shall submit one copy of the reporting package to
the Federal clearinghouse on behalf of the Federal awarding agency,
or directly to the pass-through entity in the case of a subrecipient.
(d)
Other sections of this part may apply. Program-specific audits
are subject to §___.100 through §___.215(b), §___.220
through §___.230, §___.300 through §___.305, §___.315,
§___.320(f) through §___.320(j), §___.400 through
§___.405, §___.510 through §___.515, and other referenced
provisions of this part unless contrary to the provisions of this
section, a program-specific audit guide, or program laws and regulations.
Subpart
C--Auditees
§___.300 Auditee responsibilities.
The auditee
shall:
(a)
Identify, in its accounts, all Federal awards received and expended
and the Federal programs under which they were received. Federal
program and award identification shall include, as applicable, the
CFDA title and number, award number and year, name of the Federal
agency, and name of the pass-through entity.
(b)
Maintain internal control over Federal programs that provides reasonable
assurance that the auditee is managing Federal awards in compliance
with laws, regulations, and the provisions of contracts or grant
agreements that could have a material effect on each of its Federal
programs.
(c)
Comply with laws, regulations, and the provisions of contracts or
grant agreements related to each of its Federal programs.
(d)
Prepare appropriate financial statements, including the schedule
of expenditures of Federal awards in accordance with §___.310.
(e)
Ensure that the audits required by this part are properly performed
and submitted when due. When extensions to the report submission
due date required by §___.320(a) are granted by the cognizant
or oversight agency for audit, promptly notify the Federal clearinghouse
designated by OMB and each pass-through entity providing Federal
awards of the extension.
(f)
Follow up and take corrective action on audit findings, including
preparation of a summary schedule of prior audit findings and a
corrective action plan in accordance with §___.315(b) and §___.315(c),
respectively.
§___.305
Auditor selection.
(a) Auditor
procurement. In arranging for audit services, auditees shall follow
the procurement standards prescribed by the Grants Management Common
Rule (GMCR) published March 11, 1988 (53 FR 8034) and amended April
19, 1995 (60 FR 19638), Circular A-110, "Uniform Requirements for
Grants and Agreements with Institutions of Higher Education, Hospitals
and Other Non-Profit Organizations," or the FAR (48 CFR part 42),
as applicable. Whenever possible, auditees shall make positive efforts
to utilize small businesses, minority-owned firms, and women's business
enterprises, in procuring audit services as stated in GMCR, OMB Circular
A-110, or the FAR (48 CFR part 42), as applicable. In requesting proposals
for audit services, the objectives and scope of the audit should be
made clear. Factors to be considered in evaluating each proposal for
audit services include the responsiveness to the request for proposal,
relevant experience, availability of staff with professional qualifications
and technical abilities, the results of external quality control reviews,
and price.
(b)
Restriction on auditor preparing indirect cost proposals.
An auditor who prepares the indirect cost proposal or cost allocation
plan may not also be selected to perform the audit required by this
part when the indirect costs recovered by the auditee during the
prior year exceeded $1 million. This restriction applies to the
base year used in the preparation of the indirect cost proposal
or cost allocation plan and any subsequent years in which the resulting
indirect cost agreement or cost allocation plan is used to recover
costs. To minimize any disruption in existing contracts for audit
services, this paragraph applies to audits of fiscal years beginning
after June 30, 1998.
(c)
Use of Federal auditors. Federal auditors may perform all
or part of the work required under this part if they comply fully
with the requirements of this part.
§___.310
Financial statements.
(a) Financial
statements. The auditee shall prepare financial statements that
reflect its financial position, results of operations, and, where
appropriate, cash flows for the fiscal year audited. The financial
statements shall be for the same organizational unit and fiscal year
that is chosen to meet the requirements of this part.
(b)
Schedule of expenditures of Federal awards. The auditee shall
also prepare a schedule of expenditures of Federal awards for the
period covered by the auditee's financial statements. While not
required, it is appropriate for the auditee to provide information
requested to make the schedule easier to use by Federal awarding
agencies and pass-through entities. For example, when a Federal
program has multiple award years, the auditee may list the amount
of each award year separately. At a minimum, the schedule shall:
(1)
List individual Federal programs by Federal agency and major subdivision
within a Federal agency. For Federal awards received as a subrecipient,
the name of the pass-through entity and identifying number assigned
by the pass-through entity shall be included.
(2) Provide total Federal awards expended for each individual
Federal program and the CFDA number or other identifying number
when the CFDA information is not available.
(3) Identify major programs.
(4) Include notes that describe the significant accounting policies
used in preparing the schedule and identify in the notes the dollar
threshold used to distinguish between Type A and Type B programs,
as described in §___.520(b).
(5) To the extent practical, pass-through entities should identify
in the schedule the total amount provided to subrecipients from
each Type A program and from each Type B program which is audited
as a major program.
(6) List individual Federal awards within a cluster of programs.
However, when it is not practical to list each individual Federal
award for R&D, total Federal awards expended shall be shown by
Federal agency and major subdivision within the Federal agency.
For example, the National Institutes of Health is a major subdivision
in the Department of Health and Human Services.
(7) Include, in either the schedule or a note to the schedule,
the value of the Federal awards expended in the form of non-cash
assistance, insurance in effect during the year, and loans or
loan guarantees outstanding at year end.
§___.315
Audit findings follow-up.
(a) General.
The auditee is responsible for follow-up and corrective action on
all audit findings. As part of this responsibility, the auditee shall
prepare a summary schedule of prior audit findings. The auditee shall
also prepare a corrective action plan for current year audit findings.
The summary schedule of prior audit findings and the corrective action
plan shall include the reference numbers the auditor assigns to audit
findings under §___.510(c). Since the summary schedule may include
audit findings from multiple years, it shall include the fiscal year
in which the finding initially occurred.
(b)
Summary schedule of prior audit findings. The summary schedule
of prior audit findings shall report the status of all audit findings
included in the prior audit's schedule of findings and questioned
costs relative to Federal awards. The summary schedule shall also
include audit findings reported in the prior audit's summary schedule
of prior audit findings except audit findings listed as corrected
in accordance with paragraph (b)(1) of this section, or no longer
valid or not warranting further action in accordance with paragraph
(b)(4) of this section.
(1)
When audit findings were fully corrected, the summary schedule need
only list the audit findings and state that corrective action was
taken.
(2) When audit findings were not corrected or were only partially
corrected, the summary schedule shall describe the planned corrective
action as well as any partial corrective action taken.
(3) When corrective action taken is significantly different from
corrective action previously reported in a corrective action plan
or in the Federal agency's or pass-through entity's management
decision, the summary schedule shall provide an explanation.
(4) When the auditee believes the audit findings are no longer
valid or do not warrant further action, the reasons for this position
shall be described in the summary schedule. A valid reason for
considering an audit finding as not warranting further action
is that all of the following have occurred:
(i)
Two years have passed since the audit report in which the finding
occurred was submitted to the Federal clearinghouse;
(ii) The Federal agency or pass-through entity is not currently
following up with the auditee on the audit finding; and
(iii) A management decision was not issued.
(c)
Corrective action plan. At the completion of the audit, the
auditee shall prepare a corrective action plan to address each audit
finding included in the current year auditor's reports. The corrective
action plan shall provide the name(s) of the contact person(s) responsible
for corrective action, the corrective action planned, and the anticipated
completion date. If the auditee does not agree with the audit findings
or believes corrective action is not required, then the corrective
action plan shall include an explanation and specific reasons.
§___.320
Report submission.
(a) General.
The audit shall be completed and the reporting package described in
paragraph (c) of this section submitted within nine months after the
end of the audit period, unless a longer period is agreed to in advance
by the cognizant or oversight agency for audit. (However, for fiscal
years beginning on or before June 30, 1998, auditees shall have 13
months after the end of the audit period to complete the audit and
submit the reporting package.) The reporting package shall be submitted
within 30 days after issuance of the auditor's report(s) to the auditee.
Unless restricted by law or regulation, the auditee shall make copies
available for public inspection.
(b)
Data Collection. The auditee shall complete a data collection
form which states whether the audit was completed in accordance
with this part and provides information about the auditee, its Federal
programs, and the results of the audit. The form shall be approved
by OMB, available from the Federal clearinghouse designated by OMB,
include data elements similar to those presented in this paragraph,
and use a machine-readable format. The auditee's chief executive
officer or chief financial officer shall sign a statement that the
information on the form is accurate and complete as follows:
Certificate
of Audit
This is
to certify that, to the best of my knowledge and belief, the [specify
name of the auditee] has: (1) engaged an auditor to perform an audit
in accordance with the provisions of OMB Circular A-133 for the [specify
number] months ended [specify date]; (2) the auditor has completed
such audit and presented a signed audit report which states that the
audit was conducted in accordance with the provisions of the Circular;
and, (3) the information on the attached form is accurate and complete
and reflects the results of this audit, as presented in the auditor's
report. I declare that the foregoing is true and correct.
Attachment
Data
Collection Form
-
The type of report the auditor issued on the financial statements
of the auditee (i.e., unqualified opinion, qualified opinion,
adverse opinion, or disclaimer of opinion).
-
A yes or no statement as to whether the auditor's report on the
financial statements indicated that the auditor has substantial
doubt about the auditee's ability to continue as a going concern.
-
The type of report the auditor issued on compliance for major
programs (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion).
-
A list of the Federal awarding agencies and pass-through entities
which will receive a copy of the reporting package pursuant to
§___.320(d)(2) and §___.320(e)(2), respectively, of
OMB Circular A-133. An explanation should be provided if this
list is different from the communication the auditor provides
to the auditee under §___.500(f) of OMB Circular A-133.
-
A yes or no statement as to whether the auditee qualified as a
low-risk auditee under §___.530 of OMB Circular A-133.
-
The dollar threshold used to distinguish between Type A and Type
B programs as defined in §___.520(b) of OMB Circular A-133.
-
The Catalog of Federal Domestic Assistance (CFDA) number for each
Federal program, as applicable.
-
The name of each Federal program and identification of each major
program. Individual awards within a cluster of programs should
be listed in the same level of detail as they are listed in the
schedule of expenditures of Federal awards.
-
The amount of expenditures in the schedule of expenditures of
Federal awards associated with each Federal program.
-
A yes or no statement as to whether there are audit findings and
the amount of any questioned costs related to the following for
each Federal program:
a. Types of services allowed or unallowed
b. Eligibility
c. Matching, level of effort, or earmarking
d. Federal financial reporting
e. Program income
f. Procurement
g. Subrecipient monitoring
h. Allowable costs/cost principles
i. Other
-
Auditee Name: _________________
Employer Identification Number: _________________
Name and Title of Responsible Official: _________________
Telephone Number:_________________
Signature: _________________
Date: _________________
-
Auditor Name: _________________
Name and Title of Contact Person: _________________
Auditor Address: _________________
Auditor Telephone Number: _________________
-
Whether the auditee has a cognizant or oversight agency for audit.
-
The name of the cognizant or oversight agency for audit determined
in accordance with §___.400(a) and §___.400(b), respectively.
(c)
Reporting Package. The reporting package shall include the:
(1)
Data collection form discussed in paragraph (b) of this section;
(2) Financial statements and schedule of expenditures of Federal
awards discussed in §___.310(a) and §___.310(b), respectively;
(3) Summary schedule of prior audit findings discussed in §___.315(b);
(4) Auditor's report(s) discussed in §___.505; and
(5) Corrective action plan discussed in §___.315(c).
(d)
Submission to clearinghouse. All auditees shall submit to
the Federal clearinghouse designated by OMB one copy of the reporting
package described in paragraph (c) of this section for:
(1)
The Federal clearinghouse to retain as an archival copy; and
(2) Each Federal awarding agency when the schedule of findings
and questioned costs disclosed audit findings relating to Federal
awards that the Federal awarding agency provided directly or the
summary schedule of prior audit findings reported the status of
any audit findings relating to Federal awards that the Federal
awarding agency provided directly.
(e)
Additional submission by subrecipients. In addition to the
requirements discussed in paragraph (d) of this section, subrecipients
shall submit to each pass-through entity one copy of the:
(1)
Data collection form discussed in paragraph (b) of this section;
and
(2) Reporting package described in paragraph (c) of this section
for each pass-through entity when the schedule of findings and
questioned costs disclosed audit findings relating to Federal
awards that the pass-through entity provided or the summary schedule
of prior audit findings reported the status of any audit findings
relating to Federal awards that the pass-through entity provided.
(f)
Requests for report copies. In response to requests by a
Federal agency or pass-through entity, auditees shall submit the
appropriate copies of the reporting package described in paragraph
(c) of this section and, if requested, a copy of any management
letters issued by the auditor.
(g)
Report retention requirements. Auditees shall keep one copy
of the reporting package described in paragraph (c) of this section
on file for three years from the date of submission to the Federal
clearinghouse designated by OMB. Pass-through entities shall keep
subrecipients' submissions on file for three years from date of
receipt.
(h)
Clearinghouse responsibilities. The Federal clearinghouse
designated by OMB shall distribute the reporting packages received
in accordance with paragraph (d)(2) of this section and §___.235(c)(3)
to applicable Federal awarding agencies, maintain a data base of
completed audits, provide appropriate information to Federal agencies,
and follow up with known auditees which have not submitted the required
data collection forms and reporting packages.
(i)
Clearinghouse address. The address of the Federal clearinghouse
currently designated by OMB is Federal Audit Clearinghouse, Bureau
of the Census, 1201 E. 10th Street, Jeffersonville, IN 47132.
(j)
Electronic filing. Nothing in this part shall preclude electronic
submissions to the Federal clearinghouse in such manner as may be
approved by OMB. With OMB approval, the Federal clearinghouse may
pilot test methods of electronic submissions.
Subpart
D--Federal Agencies and Pass-Through Entities
§___.400 Responsibilities.
(a) Cognizant
agency for audit responsibilities. Recipients expending more than
$25 million a year in Federal awards shall have a cognizant agency
for audit. The designated cognizant agency for audit shall be the
Federal awarding agency that provides the predominant amount of direct
funding to a recipient unless OMB makes a specific cognizant agency
for audit assignment and provides notice in the Federal Register.
To provide for continuity of cognizance, the determination of the
predominant amount of direct funding shall be based upon direct Federal
awards expended in the recipient's fiscal years ending in 1995, 2000,
2005, and every fifth year thereafter. For example, audit cognizance
for periods ending in 1996 through 2000 will be determined based on
Federal awards expended in 1995. A Federal awarding agency with cognizance
for an auditee may reassign cognizance to another Federal awarding
agency which provides substantial direct funding and agrees to be
the cognizant agency for audit. Within 30 days after any reassignment,
both the old and the new cognizant agency for audit shall notify the
auditee, and, if known, the auditor of the reassignment. The cognizant
agency for audit shall:
(1)
Provide technical audit advice and liaison to auditees and auditors.
(2) Consider auditee requests for extensions to the report submission
due date required by §___.320(a). The cognizant agency for
audit may grant extensions for good cause.
(3) Obtain or conduct quality control reviews of selected audits
made by non-Federal auditors, and provide the results, when appropriate,
to other interested organizations.
(4) Promptly inform other affected Federal agencies and appropriate
Federal law enforcement officials of any direct reporting by the
auditee or its auditor of irregularities or illegal acts, as required
by GAGAS or laws and regulations.
(5) Advise the auditor and, where appropriate, the auditee of
any deficiencies found in the audits when the deficiencies require
corrective action by the auditor. When advised of deficiencies,
the auditee shall work with the auditor to take corrective action.
If corrective action is not taken, the cognizant agency for audit
shall notify the auditor, the auditee, and applicable Federal
awarding agencies and pass-through entities of the facts and make
recommendations for follow-up action. Major inadequacies or repetitive
substandard performance by auditors shall be referred to appropriate
State licensing agencies and professional bodies for disciplinary
action.
(6) Coordinate, to the extent practical, audits or reviews made
by or for Federal agencies that are in addition to the audits
made pursuant to this part, so that the additional audits or reviews
build upon audits performed in accordance with this part.
(7) Coordinate a management decision for audit findings that affect
the Federal programs of more than one agency.
(8) Coordinate the audit work and reporting responsibilities among
auditors to achieve the most cost-effective audit.
(b)
Oversight agency for audit responsibilities. An auditee which
does not have a designated cognizant agency for audit will be under
the general oversight of the Federal agency determined in accordance
with §___.105(z). The oversight agency for audit:
(1)
Shall provide technical advice to auditees and auditors as requested.
(2) May assume all or some of the responsibilities normally performed
by a cognizant agency for audit.
(c)
Federal awarding agency responsibilities. The Federal awarding
agency shall perform the following for the Federal awards it makes:
(1)
Identify Federal awards made by informing each recipient of the
CFDA title and number, award name and number, award year, and if
the award is for R&D. When some of this information is not available,
the Federal agency shall provide information necessary to clearly
describe the Federal award.
(2) Ensure that audits are completed and reports are received
in a timely manner and in accordance with the requirements of
this part.
(3) Provide technical advice and counsel to auditees and auditors
as requested.
(4) Issue a management decision on audit findings within six months
after receipt of the audit report and ensure that the recipient
takes appropriate and timely corrective action.
(5) Assign a person responsible to inform OMB annually of any
updates needed to the compliance supplements.
(d)
Pass-through entity responsibilities. A pass-through entity
shall perform the following for the Federal awards it makes:
(1)
Identify Federal awards made by informing each subrecipient of CFDA
title and number, award name and number, award year, if the award
is R&D, and name of Federal agency. When some of this information
is not available, the pass-through entity shall provide the best
information available to describe the Federal award.
(2) Advise subrecipients of requirements imposed on them by Federal
laws, regulations, and the provisions of contracts or grant agreements
as well as any supplemental requirements imposed by the pass-through
entity.
(3) Monitor the activities of subrecipients as necessary to ensure
that Federal awards are used for authorized purposes in compliance
with laws, regulations, and the provisions of contracts or grant
agreements and that performance goals are achieved.
(4) Ensure that subrecipients expending $300,000 or more in Federal
awards during the subrecipient's fiscal year have met the audit
requirements of this part for that fiscal year.
(5) Issue a management decision on audit findings within six months
after receipt of the subrecipient's audit report and ensure that
the subrecipient takes appropriate and timely corrective action.
(6) Consider whether subrecipient audits necessitate adjustment
of the pass-through entity's own records.
(7) Require each subrecipient to permit the pass-through entity
and auditors to have access to the records and financial statements
as necessary for the pass-through entity to comply with this part.
§___.405
Management decision.
(a) General.
The management decision shall clearly state whether or not the audit
finding is sustained, the reasons for the decision, and the expected
auditee action to repay disallowed costs, make financial adjustments,
or take other action. If the auditee has not completed corrective
action, a timetable for follow-up should be given. Prior to issuing
the management decision, the Federal agency or pass-through entity
may request additional information or documentation from the auditee,
including a request that the documentation be audited, as a way of
mitigating disallowed costs. The management decision should describe
any appeal process available to the auditee.
(b)
Federal agency. As provided in §___.400(a)(7), the cognizant
agency for audit shall be responsible for coordinating a management
decision for audit findings that affect the programs of more than
one Federal agency. As provided in §___.400(c)(4), a Federal
awarding agency is responsible for issuing a management decision
for findings that relate to Federal awards it makes to recipients.
Alternate arrangements may be made on a case-by-case basis by agreement
among the Federal agencies concerned.
(c)
Pass-through entity. As provided in §___.400(d)(5),
the pass-through entity shall be responsible for making the management
decision for audit findings that relate to Federal awards it makes
to subrecipients.
(d)
Time requirements. The entity responsible for making the
management decision shall do so within six months of receipt of
the audit report. Corrective action should be initiated within six
months and proceed as rapidly as possible.
(e)
Reference numbers. Management decisions shall include the
reference numbers the auditor assigned to each audit finding in
accordance with §___.510(c).
Subpart
E--Auditors
§___.500 Scope of audit.
(a) General.
The audit shall be conducted in accordance with GAGAS. The audit shall
cover the entire operations of the auditee; or, at the option of the
auditee, such audit shall include a series of audits that cover departments,
agencies, and other organizational units which expended or otherwise
administered Federal awards during such fiscal year, provided that
each such audit shall encompass the financial statements and schedule
of expenditures of Federal awards for each such department, agency,
and organizational unit, which shall be considered to be a non-Federal
entity. The financial statements and schedule of expenditures of Federal
awards shall be for the same fiscal year.
(b)
Financial statements. The auditor shall determine whether
the financial statements of the auditee are presented fairly in
all material respects in conformity with generally accepted accounting
principles. The auditor shall also determine whether the schedule
of expenditures of Federal awards is presented fairly in all material
respects in relation to the auditee's financial statements taken
as a whole.
(c)
Internal control.
(1)
In addition to the requirements of GAGAS, the auditor shall perform
procedures to obtain an understanding of internal control over Federal
programs sufficient to plan the audit to support a low assessed
level of control risk for major programs and the allowability of
costs charged to cost pools used to support an indirect cost rate
or allocated through a State/local-wide central service cost allocation
plan (as fully described in Appendix C of Circular A-87, "Cost Principles
for State, Local and Indian Tribal Governments," issued May 4, 1995
(60 FR 26484), and hereinafter referred to as a "cost allocation
plan").
(2) Except as provided in paragraph (c)(3) of this section, the
auditor shall:
(3) When internal control over some or all of the compliance requirements
for a major program and the allowability of costs charged to cost
pools used to support an indirect cost rate or allocated through
a cost allocation plan are likely to be ineffective in preventing
or detecting noncompliance, the planning and performing of testing
described in paragraph (c)(2) of this section are not required
for those compliance requirements. However, the auditor shall
report a reportable condition or a material weakness in accordance
with §___.510, assess the related control risk at the maximum,
and consider whether additional compliance tests are required
because of ineffective internal control.
(d)
Compliance.
(1)
In addition to the requirements of GAGAS, the auditor shall determine
whether the auditee has complied with laws, regulations, and the
provisions of contracts or grant agreements that may have a direct
and material effect on each of its major programs and the allowability
of costs charged to cost pools used to support an indirect cost
rate or allocated through a cost allocation plan.
(2) The principal compliance requirements common to most Federal
programs and the programmatic compliance requirements of the largest
Federal programs are included in the compliance supplements.
(3) For the compliance requirements (common and programmatic)
related to Federal programs contained in the compliance supplements,
an audit of these compliance requirements will meet the requirements
of this part. Where there have been changes to the compliance
requirements and the changes are not reflected in the compliance
supplements, the auditor shall determine the current compliance
requirements and modify the audit procedures accordingly. For
those Federal programs not covered in the compliance supplements,
the auditor should use the types of compliance requirements (e.g.,
cash management, Federal financial reporting, allowable costs/cost
principles, types of services allowed or unallowed, eligibility,
and matching) contained in the compliance supplements as guidance
for identifying the types of compliance requirements to test,
and determine the requirements governing the Federal program by
reviewing the provisions of contracts and grant agreements and
the laws and regulations referred to in such contracts and grant
agreements. The auditor should consult with the applicable Federal
agency to determine the availability of agency-prepared supplements
or audit guides.
(4) The compliance testing shall include tests of transactions,
including costs charged to cost pools used to support an indirect
cost rate or allocated through a cost allocation plan, and such
other auditing procedures necessary to provide the auditor sufficient
evidence to support an opinion on compliance.
(e)
Audit follow-up. The auditor shall follow-up on prior audit
findings, perform procedures to assess the reasonableness of the
summary schedule of prior audit findings prepared by the auditee
in accordance with §___.315(b), and report, as a current year
audit finding, when the auditor concludes that the summary schedule
of prior audit findings materially misrepresents the status of any
prior audit finding. The auditor shall perform audit follow-up procedures
regardless of whether a prior audit finding relates to a major program
or the allowability of costs charged to cost pools used to support
an indirect cost rate or allocated through a cost allocation plan
in the current year.
(f)
Communication. The auditor shall communicate, preferably
in writing, to the auditee which Federal awarding agencies and pass-through
entities are required to receive a copy of the reporting package
pursuant to §___.320(d)(2) and §___.320(e)(2), respectively.
The auditor shall retain a record of this communication in the auditor's
working papers.
§___.505
Audit reporting.
The auditor's
report(s) may be in the form of either combined or separate reports
and may be organized differently from the manner presented in this
section. The auditor's report(s) shall state that the audit was conducted
in accordance with this part and include the following:
(a)
An opinion (or disclaimer of opinion) as to whether the financial
statements are presented fairly in all material respects in conformity
with generally accepted accounting principles and an opinion (or
disclaimer of opinion) as to whether the schedule of expenditures
of Federal awards is presented fairly in all material respects in
relation to the financial statements taken as a whole.
(b)
A report on internal control related to the financial statements,
major programs, and the allowability of costs charged to cost pools
used to support an indirect cost rate or allocated through a cost
allocation plan. This report shall describe the scope of testing
of internal control and the results of the tests, and, where applicable,
refer to the separate schedule of findings and questioned costs
described in paragraph (d) of this section.
(c)
A report on compliance with laws, regulations, and the provisions
of contracts or grant agreements, noncompliance with which could
have a material effect on the financial statements. This report
shall also include an opinion (or disclaimer of opinion) as to whether
the auditee complied with laws, regulations, and the provisions
of contracts or grant agreements which could have a direct and material
effect on each major program and on the allowability of costs charged
to cost pools used to support an indirect cost rate or allocated
through a cost allocation plan, and, where applicable, refer to
the separate schedule of findings and questioned costs described
in paragraph (d) of this section.
(d)
A schedule of findings and questioned costs which shall include
the following three components:
(1)
A summary of the auditor's results which shall include:
(i)
The type of report the auditor issued on the financial statements
of the auditee (i.e., unqualified opinion, qualified opinion,
adverse opinion, or disclaimer of opinion);
(ii) Where applicable, a statement that reportable conditions
in internal control were disclosed by the audit of the financial
statements and whether any such conditions were material weaknesses;
(iii) A statement as to whether the audit disclosed any noncompliance
which is material to the financial statements of the auditee;
(iv) Where applicable, a statement that reportable conditions
in internal control over major programs and the allowability
of costs charged to cost pools used to support an indirect cost
rate or allocated through a cost allocation plan were disclosed
by the audit and whether any such conditions were material weaknesses;
(v) The type of report the auditor issued on compliance for
major programs and with the provisions of applicable OMB cost
principles circulars, the FAR (48 CFR parts 30 and 31), or other
applicable cost principles or regulations pertaining to the
allowability of costs charged to cost pools used to support
an indirect cost rate or allocated through a cost allocation
plan (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion); and
(vi) A statement as to whether the audit disclosed any audit
findings which the auditor is required to report under §___.510(a).
(2) Findings and questioned costs for the financial statements
which are required to be reported in accordance with GAGAS.
(3) Findings and questioned costs for Federal awards which shall
include audit findings as defined in §___.510(a).
(i)
Audit findings (e.g., internal control findings, compliance findings,
questioned costs, or fraud) which relate to the same issue should
be presented as a single audit finding. Where practical, audit
findings should be organized by Federal agency or pass-through
entity.
(ii) Audit findings which relate to both the financial statements
and Federal awards, as reported under paragraphs (d)(2) and
(d)(3) of this section, respectively, should be reported in
both schedules. However, the reporting in one schedule may be
in summary form with a reference to a detailed reporting in
the other schedule.
§___.510
Audit findings.
(a) Audit
findings reported. The auditor shall report the following as audit
findings in a schedule of findings and questioned costs:
(1)
Reportable conditions in internal control over major programs and
over the allowability of costs charged to cost pools used to support
an indirect cost rate or allocated through a cost allocation plan.
The auditor's determination of whether a deficiency in internal
control is a reportable condition for the purpose of reporting an
audit finding is in relation to a type of compliance requirement
for a major program, total costs charged to cost pools used to support
an indirect cost rate or allocated through a cost allocation plan,
or an audit objective identified in the compliance supplements.
The auditor shall identify reportable conditions which are individually
or cumulatively material weaknesses.
(2) Material noncompliance with the provisions of laws, regulations,
contracts, or grant agreements related to a major program and
the provisions of applicable OMB cost principles circulars, the
FAR, or other applicable cost principles or regulations pertaining
to the allowability of costs charged to cost pools used to support
an indirect cost rate or allocated through a cost allocation plan.
The auditor's determination of whether a noncompliance with the
provisions of laws, regulations, contracts, or grant agreements
is material for the purpose of reporting an audit finding is in
relation to a type of compliance requirement for a major program,
total costs charged to cost pools used to support an indirect
cost rate or allocated through a cost allocation plan, or an audit
objective identified in the compliance supplements.
(3) Known questioned costs which are greater than $10,000 for
a type of compliance requirement for a major program and costs
charged to cost pools used to support an indirect cost rate or
allocated through a cost allocation plan. Known questioned costs
are those specifically identified by the auditor. In evaluating
the effect of questioned costs on the opinion on compliance, the
auditor considers the best estimate of total costs questioned
(likely questioned costs), not just the questioned costs specifically
identified (known questioned costs). The auditor shall also report
known questioned costs when likely questioned costs are greater
than $10,000 for a type of compliance requirement for a major
program and costs charged to cost pools used to support an indirect
cost rate or allocated through a cost allocation plan. In reporting
questioned costs, the auditor shall include information to provide
proper perspective for judging the prevalence and consequences
of the questioned costs.
(4) Known questioned costs which are greater than $10,000 for
a Federal program which is not audited as a major program. Except
for audit follow-up, the auditor is not required under this part
to perform audit procedures for such a Federal program; therefore,
the auditor will normally not find questioned costs for a program
which is not audited as a major program. However, if the auditor
does become aware of questioned costs for a Federal program which
is not audited as a major program (e.g., as part of audit follow-up
or other audit procedures) and the known questioned costs are
greater than $10,000, then the auditor shall report this as an
audit finding.
(5) The circumstances concerning why the auditor's report on compliance
for major programs and the allowability of costs charged to cost
pools used to support an indirect cost rate or allocated through
a cost allocation plan is other than an unqualified opinion, unless
such circumstances are otherwise reported as audit findings in
the schedule of findings and questioned costs for Federal awards.
(6) Known fraud affecting a Federal award, unless such fraud is
otherwise reported as an audit finding in the schedule of findings
and questioned costs for Federal awards. This paragraph does not
require the auditor to make an additional reporting when the auditor
confirms that the fraud was reported outside of the auditor's
reports under the direct reporting requirements of GAGAS.
(7) Instances where the results of audit follow-up procedures
disclosed that the summary schedule of prior audit findings prepared
by the auditee in accordance with §___.315(b) materially
misrepresents the status of any prior audit finding.
(b)
Audit finding detail. Audit findings shall be presented in
sufficient detail for the auditee to prepare a corrective action
plan and take corrective action and for Federal agencies and pass-through
entities to arrive at a management decision. The following specific
information shall be included, as applicable, in audit findings:
(1)
Federal program and specific Federal award identification including
the CFDA title and number, Federal award number and year, name of
Federal agency, and name of the applicable pass-through entity.
When information, such as the CFDA title and number or Federal award
number, is not available, the auditor shall provide the best information
available to describe the Federal award.
(2) The criteria or specific requirement upon which the audit
finding is based, including statutory, regulatory, or other citation.
(3) The condition found, including facts that support the deficiency
identified in the audit finding.
(4) Identification of questioned costs and how they were computed.
(5) Information to provide proper perspective for judging the
prevalence and consequences of the audit findings, such as whether
the audit findings represent an isolated instance or a systemic
problem. Where appropriate, instances identified shall be related
to the universe and the number of cases examined and be quantified
in terms of dollar value.
(6) The possible asserted effect to provide sufficient information
to the auditee and Federal agency, or pass-through entity in the
case of a subrecipient, to permit them to determine the cause
and effect to facilitate prompt and proper corrective action.
(7) Recommendations to prevent future occurrences of the deficiency
identified in the audit finding.
(8) Views of responsible officials of the auditee when there is
disagreement with the audit findings, to the extent practical.
(c)
Reference numbers. Each audit finding in the schedule of
findings and questioned costs shall include a reference number to
allow for easy referencing of the audit findings during follow-up.
§___.515
Audit working papers.
(a) Retention
of working papers. The auditor shall retain working papers and
reports for a minimum of three years after the date of issuance of
the auditor's report(s) to the auditee, unless the auditor is notified
in writing by the cognizant agency for audit, oversight agency for
audit, or pass-through entity to extend the retention period. When
the auditor is aware that the Federal awarding agency, pass-through
entity, or auditee is contesting an audit finding, the auditor shall
contact the parties contesting the audit finding for guidance prior
to destruction of the working papers and reports.
(b)
Access to working papers. Audit working papers shall be made
available upon request to the cognizant or oversight agency for
audit or its designee, a Federal agency providing direct or indirect
funding, or GAO at the completion of the audit. Access to working
papers includes the right of Federal agencies to obtain copies of
working papers, as is reasonable and necessary.
§___.520
Major program determination.
(a) General.
The auditor shall use a risk-based approach to determine which Federal
programs are major programs. This risk-based approach shall include
consideration of: Current and prior audit experience, oversight by
Federal agencies and pass-through entities, and the inherent risk
of the Federal program. The process in paragraphs (b) through (i)
of this section shall be followed.
(b)
Step 1.
(1)
The auditor shall identify the larger Federal programs, which shall
be labeled Type A programs. Type A programs are defined as Federal
programs with Federal awards expended during the audit period exceeding
the larger of:
(i)
$300,000 or three percent (.03) of total Federal awards expended
in the case of an auditee for which total Federal awards expended
equal or exceed $300,000 but are less than or equal to $100 million.
(ii) $3 million or three-tenths of one percent (.003) of total
Federal awards expended in the case of an auditee for which
total Federal awards expended exceed $100 million but are less
than or equal to $10 billion.
(iii) $30 million or 15 hundredths of one percent (.0015) of
total Federal awards expended in the case of an auditee for
which total Federal awards expended exceed $10 billion.
(2) Federal programs not labeled Type A under paragraph (b)(1)
of this section shall be labeled Type B programs.
(3) 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.
(4) For biennial audits permitted under §___.220, the determination
of Type A and Type B programs shall be based upon the Federal
awards expended during the two-year period.
(c)
Step 2.
(1)
The auditor shall identify Type A programs which are low-risk. For
a Type A program to be considered low-risk, it shall have been audited
as a major program in at least one of the two most recent audit
periods (in the most recent audit period in the case of a biennial
audit), and, in the most recent audit period, it shall have had
no audit findings under §___.510(a). However, the auditor may
use judgment and consider that audit findings from questioned costs
under §___.510(a)(3) and §___.510(a)(4), fraud under §___.510(a)(6),
and audit follow-up for the summary schedule of prior audit findings
under §___.510(a)(7) do not preclude the Type A program from
being low-risk. The auditor shall consider: the criteria in §___.525(c),
§___.525(d)(1), §___.525(d)(2), and §___.525(d)(3);
the results of audit follow-up; whether any changes in personnel
or systems affecting a Type A program have significantly increased
risk; and apply professional judgment in determining whether a Type
A program is low-risk.
(2) Notwithstanding paragraph (c)(1) of this section, OMB may
approve a Federal awarding agency's request that a Type A program
at certain recipients may not be considered low-risk. For example,
it may be necessary for a large Type A program to be audited as
major each year at particular recipients to allow the Federal
agency to comply with the Government Management Reform Act of
1994 (31 U.S.C. 3515). The Federal agency shall notify the recipient
and, if known, the auditor at least 120 days prior to the end
of the fiscal year to be audited of OMB's approval.
(d)
Step 3.
(1)
The auditor shall identify Type B programs which are high-risk using
professional judgment and the criteria in §___.525. However,
should the auditor select Option 2 under Step 4 (paragraph (e)(2)(i)(B)
of this section), the auditor is not required to identify more high-risk
Type B programs than the number of low-risk Type A programs. Except
for known reportable conditions in internal control or compliance
problems as discussed in §___.525(b)(1), §___.525(b)(2),
and §___.525(c)(1), a single criteria in §___.525 would
seldom cause a Type B program to be considered high-risk.
(2) An audit under this part is not expected to test relatively
small Federal programs. Therefore, except to meet the percentage
of coverage rule discussed in paragraph (f) of this section, the
auditor is only required to perform risk assessments on Type B
programs that exceed the larger of:
(i)
$100,000 or three-tenths of one percent (.003) of total Federal
awards expended when the auditee has less than or equal to $100
million in total Federal awards expended.
(ii) $300,000 or three-hundredths of one percent (.0003) of
total Federal awards expended when the auditee has more than
$100 million in total Federal awards expended.
(e)
Step 4. At a minimum, the auditor shall audit all of the
following as major programs:
(1)
All Type A programs, except the auditor may exclude any Type A programs
identified as low-risk under Step 2 (paragraph (c)(1) of this section).
(2)
(i) High-risk Type B programs as identified under either of the
following two options:
(A) Option 1. At least one half of the Type B programs identified
as high-risk under Step 3 (paragraph (d) of this section), except
this paragraph (e)(2)(i)(A) does not require the auditor to
audit more high-risk Type B programs than the number of low-risk
Type A programs identified as low-risk under Step 2.
(B) Option 2. One high-risk Type B program for each Type A
program identified as low-risk under Step 2.
(ii) When identifying which high-risk Type B programs to audit
as major under either Option 1 or 2 in paragraph (a)(2)(i)(A)
or (B), the auditor is encouraged to use an approach which provides
an opportunity for different high-risk Type B programs to be
audited as major over a period of time.
(3) Such additional programs as may be necessary to comply with
the percentage of coverage rule discussed in paragraph (f) of
this section. This paragraph (e)(3) may require the auditor to
audit more programs as major than the number of Type A programs.
(f)
Percentage of coverage rule. The auditor shall audit as major
programs Federal programs with Federal awards expended that, in
the aggregate, encompass at least 50 percent of total Federal awards
expended. If the auditee meets the criteria in §___.530 for
a low-risk auditee, the auditor need only audit as major programs
Federal programs with Federal awards expended that, in the aggregate,
encompass at least 25 percent of total Federal awards expended.
(g)
Documentation of risk. The auditor shall document in the
working papers the risk analysis process used in determining major
programs.
(h)
Auditor's judgment. When the major program determination
was performed and documented in accordance with this part, the auditor's
judgment in applying the risk-based approach to determine major
programs shall be presumed correct. Challenges by Federal agencies
and pass-through entities shall only be for clearly improper use
of the guidance in this part. However, Federal agencies and pass-through
entities may provide auditors guidance about the risk of a particular
Federal program and the auditor shall consider this guidance in
determining major programs in audits not yet completed.
(i)
Deviation from use of risk criteria. For first-year audits,
the auditor may elect to determine major programs as all Type A
programs plus any Type B programs as necessary to meet the percentage
of coverage rule discussed in paragraph (f) of this section. Under
this option, the auditor would not be required to perform the procedures
discussed in paragraphs (c), (d), and (e) of this section.
(1)
A first-year audit is the first year the entity is audited under
this part or the first year of a change of auditors.
(2) To ensure that a frequent change of auditors would not preclude
audit of high-risk Type B programs, this election for first-year
audits may not be used by an auditee more than once in every three
years.
§___.525
Criteria for Federal program risk.
(a) General.
The auditor's determination should be based on an overall evaluation
of the risk of noncompliance occurring which could be material to
the Federal program. The auditor shall use auditor judgment and consider
criteria, such as described in paragraphs (b), (c), and (d) of this
section, to identify risk in Federal programs. Also, as part of the
risk analysis, the auditor may wish to discuss a particular Federal
program with auditee management and the Federal agency or pass-through
entity.
(b)
Current and prior audit experience. (1) Weaknesses in internal
control over Federal programs would indicate higher risk. Consideration
should be given to the control environment over Federal programs
and such factors as the expectation of management's adherence to
applicable laws and regulations and the provisions of contracts
and grant agreements and the competence and experience of personnel
who administer the Federal programs.
(i)
A Federal program administered under multiple internal control
structures may have higher risk. When assessing risk in a large
single audit, the auditor shall consider whether weaknesses are
isolated in a single operating unit (e.g., one college campus)
or pervasive throughout the entity.
(ii) When significant parts of a Federal program are passed
through to subrecipients, a weak system for monitoring subrecipients
would indicate higher risk.
(iii) The extent to which computer processing is used to administer
Federal programs, as well as the complexity of that processing,
should be considered by the auditor in assessing risk. New and
recently modified computer systems may also indicate risk.
(2) Prior audit findings would indicate higher risk, particularly
when the situations identified in the audit findings could have
a significant impact on a Federal program or have not been corrected.
(3) Federal programs not recently audited as major programs may
be of higher risk than Federal programs recently audited as major
programs without audit findings.
(c)
Oversight exercised by Federal agencies and pass-through entities.
(1) Oversight exercised by Federal agencies or pass-through entities
could indicate risk. For example, recent monitoring or other reviews
performed by an oversight entity which disclosed no significant
problems would indicate lower risk. However, monitoring which disclosed
significant problems would indicate higher risk.
(2)
Federal agencies, with the concurrence of OMB, may identify Federal
programs which are higher risk. OMB plans to provide this identification
in the compliance supplements.
(d)
Inherent risk of the Federal program. (1) The nature of a
Federal program may indicate risk. Consideration should be given
to the complexity of the program and the extent to which the Federal
program contracts for goods and services. For example, Federal programs
that disburse funds through third party contracts or have eligibility
criteria may be of higher risk. Federal programs primarily involving
staff payroll costs may have a high-risk for time and effort reporting,
but otherwise be at low-risk.
(2)
The phase of a Federal program in its life cycle at the Federal
agency may indicate risk. For example, a new Federal program with
new or interim regulations may have higher risk than an established
program with time-tested regulations. Also, significant changes
in Federal programs, laws, regulations, or the provisions of contracts
or grant agreements may increase risk.
(3) The phase of a Federal program in its life cycle at the auditee
may indicate risk. For example, during the first and last years
that an auditee participates in a Federal program, the risk may
be higher due to start-up or closeout of program activities and
staff.
(4) Type B programs with larger Federal awards expended would
be of higher risk than programs with substantially smaller Federal
awards expended.
§___.530
Criteria for a low-risk auditee.
An auditee
which meets all of the following conditions for each of the preceding
two years shall qualify as a low-risk auditee and be eligible for
reduced audit coverage in accordance with §___.520(f):
(a)
Single audits were performed on an annual basis in accordance with
the provisions of this part. A non-Federal entity that has biennial
audits does not qualify as a low-risk auditee.
(b)
The auditor's opinions on the financial statements and the schedule
of expenditures of Federal awards were unqualified. However, the
cognizant or oversight agency for audit may judge that an opinion
qualification does not affect the management of Federal awards and
provide a waiver.
(c)
There were no deficiencies in internal control which were identified
as material weaknesses under the requirements of GAGAS. However,
the cognizant or oversight agency for audit may judge that any identified
material weaknesses do not affect the management of Federal awards
and provide a waiver.
(d)
None of the Federal programs had audit findings from any of the
following in either of the preceding two years in which they were
classified as Type A programs:
(1)
Internal control deficiencies which were identified as material
weaknesses;
(2) Noncompliance with the provisions of laws, regulations, contracts,
or grant agreements which have a material effect on the Type A
program; or
(3) Known or likely questioned costs that exceed five percent
of the total Federal awards expended for a Type A program during
the year.
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