FOREWORD
Under the Legal Services Corporation (LSC) Act, LSC provides financial support to organizations that furnish legal assistance to eligible clients. Section 1009(c) of the LSC Act requires that LSC either conduct or require each recipient of LSC funds to provide for an annual financial statement audit. In 1995, LSC promulgated an Audit Guide to replace the audit portions of both the 1981 and the 1986 LSC Audit and Accounting Guide for Recipients and Auditors. The 1995 Guide required that recipient audits be conducted in accordance with Office of Management and Budget (OMB) Circular A-133, Audits of Institutions of Higher Education and Other Nonprofit Institutions.
In 1996, pursuant to 110 Stat. 1321 (1996) (Public Law 104-134), Congress:
- mandated that routine on-site monitoring of grantee compliance be accomplished through annual audits
conducted by independent public accountants (IPAs or auditors);
- provided that such audits be conducted in accordance with Government Auditing Standards issued by the
Comptroller General of the United States under the guidance established by the OIG;
- declared that audits conducted pursuant to the provisions of Section 509 shall be in lieu of the
financial audits otherwise required by Section 1009(c) of the LSC Act;
- increased the restrictions and prohibitions on the types of activities in which recipients may
engage; and
- established special requirements for interim reporting by recipients on noncompliance with laws and regulations identified by their IPAs during the course of the audits, thereby placing special emphasis on recipients' compliance with laws and regulations.
This legislation contains substantial and fundamental changes in the law governing grants to LSC
recipients. It incorporates restrictions in the legal work in which LSC recipients may participate,
and changes the way compliance with these restrictions will be monitored. The IPA's special attention
is directed to Appendix A, the Compliance Supplement, in planning the audit. The Compliance Supplement
identifies by asterisk (*) practice restrictions that are considered material to the LSC program.
Because of the increased reliance on IPAs for assessing recipients' compliance with these restrictions,
the OIG is planning a heightened quality assurance review program. The overall objective of the quality
assurance review program is to ensure the quality of the auditor's work, and it will focus on, among
other things, the auditor's testing of compliance with laws and regulations and related internal
controls.
Pursuant to the audit requirements of 110 Stat. 1321 (1996), LSC is promulgating this revised
Audit Guide. Seven appendices have been attached to this Audit Guide for use by recipients and
auditors, as follows:
| Appendix A |
The Compliance Supplement provides notice to both recipients and their auditors of the specific
LSC regulations which are to be tested for compliance. The Compliance Supplement will change as
LSC rules, regulations and guidelines are adopted, amended or revoked, but it establishes no new rules,
regulations or guidelines itself.
|
| Appendix B |
A Sample Audit Agreement contains mandatory and suggested provisions which recipients
should consider incorporating into their audit agreements.
|
| Appendix C |
A Guide for Procurement of Audit Services prepared by the LSC Office of Inspector
General (OIG) in the spring of 1994 and revised in 1995 and 1996. This Guide is intended to assist
recipients in planning and procuring audit services.
|
| Appendix D |
A Summary Report Form on Noncompliance with Laws and Regulations, Questioned Costs
and Reportable Conditions, along with instructions. This form provides a summary of the audit findings
contained in the audit reports and financial data concerning the LSC support, fund balance and
expenditures on Private Attorney Involvement (PAI).
|
| Appendix E |
The Recipient 5-day Letter to the OIG of the IPA's "Special Report on
Noncompliance with Laws and Regulations" ("Recipient 5-day Letter"). This is the
recipient's transmittal letter to the OIG accompanying the auditor's report.
|
Appendix F |
The Auditor 5-Day Letter to the OIG of the IPA's "Special Report on Noncompliance
with Laws and Regulations" not Reported by Recipient ("Auditor 5-Day Letter"). This
is the auditor's transmittal letter to the OIG accompanying the auditor's report.
|
| Appendix G |
The Auditor Notification on Cessation of Services. This a form letter notifying the
OIG that there has been a change in audit firms.
|
TABLE OF CONTENTS
1. INTRODUCTION
| I-1 |
Purpose. |
| I-2 |
Required Standards and Guidance |
| I-3 |
Applicability |
| I-4 |
Authority. |
| I-5 |
Effective Date |
I-6 |
Communicating with the OIG Regarding Audit Matters. |
| I-7 |
Revisions to the Guide |
| I-8 |
Cumulative Status of Revisions |
| I-9 |
Responsibilities of Recipients |
| I-9.A. |
Maintain Adequate Internal Controls |
| I-9.B. |
Provide Audited Financial Statements |
| I-9.C. |
Requirements for Recipient 5-Day "Special Report" to the OIG on Noncompliance
with Laws and Regulations
|
| I-9.D. |
Corrective Action Plans |
II. AUDIT PERFORMANCE REQUIREMENTS
| II-1
| Audit Requirements |
| II-1.A. |
Objectives |
| II-1.B. |
Reports |
| II-1.C. |
Qualifications of the IPA |
| II-1.D. |
Auditor Acccess to Records |
| II-1.E. |
Audit Working Papers |
| II-1.F. |
Access to Audit Working Papers |
| II-1.G. |
Disclosure of Irregularities, Illegal Acts and Other Noncompliance |
| II-1.H. |
Requirements for Auditor 5-Day "Special Report" to the OIG on Noncompliance
with Laws and Regulations |
| II-1.I. |
IPA Notification to OIG on Cessation of Audit Services |
| II-2 |
Review of Internal Controls |
| II-3 |
Assessing Compliance with Laws and Regulations |
| II-4 |
Audit Follow-up |
III. AUDIT REPORTING REQUIREMENTS
| III-1 |
Audit Reports and Distribution |
| III-2 |
Extension Requests for Audit Submissions |
| III-3 | Views of Responsible Officials |
V. REFERENCE MATERIALS
| APPENDIX A: | Compliance Supplement |
| APPENDIX B: | Sample Audit Agreement |
| APPENDIX C: | Guide for Procurement of Audit Services by Legal Services Corporation Grantees |
| APPENDIX D: | Summary Report Form on Noncompliance with Laws and Regulations, Questioned Costs and Reportable Conditions |
| APPENDIX E: | The Recipient 5-day Letter to the OIG of the IPA's "Special Report on Noncompliance with Laws and Regulations" ("Recipient 5-day Letter") |
| APPENDIX F: | The Auditor 5-Day Letter to the OIG of the IPA's "Special Report on Noncompliance with Laws and Regulations" not Reported by Recipient ("Auditor 5-Day Letter") |
| APPENDIX G: | Auditor Notification on Cessation of Services |
Federal Register/Vol. 61, No. 205/Tuesday, October 22, 1996/Notices, Legal Services Corporation, Audit
Guide for LSC Recipients and Auditors
AUTHORITIES: The Legal Services Corporation Act of 1974, as amended, § 1008(a) and (b)
,(42 USC2996g(a) and (b)); § 1009(c)(1),(42 USC 2996h(c)(1)); and § 1010(c), (42 USC 2996i(c)); The
Inspector General Act of 1978, as amended, 5 USC App. 3, § 4(a)(1); and § 4(b)(1); 110 Stat. 1321
§§ 501-509 (1996).
I. INTRODUCTION
The Office of Inspector General (OIG) of the Legal Services Corporation (LSC) is responsible for
establishing and interpreting LSC audit policy pursuant to the Inspector General Act of 1978, as
amended, and the LSC Board of Directors' resolution of May 13, 1995. In 1996, pursuant to the
requirements of Section 509 of 110 Stat. 1321 (1996), Congress: 1) mandated that routine on-site
monitoring of grantee compliance be accomplished through annual audits conducted by IPAs; 2)
increased the restrictions and prohibitions on the types of activities in which recipients may
engage; 3) increased the OIG responsibility for oversight; and 4) declared that the audits conducted
pursuant to Section 509 of 110 Stat. 1321 (1996) were in lieu of the financial audits otherwise
required by the LSC Act § 1009(c). This Guide incorporates those requirements. The OIG will examine
the audits to identify reported instances of noncompliance with laws and regulations, questioned costs
and control deficiencies, and will refer the findings and recommendations to management for action.
I-1. PURPOSE
The Audit Guide provides a uniform approach for audits of LSC recipients and describes recipients'
responsibilities with respect to the audit. The Audit Guide is to be used in conjunction with the
Compliance Supplement (Appendix A). The Audit Guide and the Compliance Supplement provide the auditor
flexibility in planning and performing the audit, encourage professional judgement in determining the
audit steps necessary to accomplish audit objectives, and do not supplant the auditor's judgment.
Auditors should be aware that all practice restrictions identified in the Compliance Supplement by
asterisk (*) are considered material to the program, and the failure of a recipient to comply with
the requirements may affect the recipient's eligibility for funding.
I-2. REQUIRED STANDARDS AND GUIDANCE
Audits of recipients, contractors, persons or entities receiving financial assistance from LSC
(all hereinafter referred to as "recipients") are to be performed in accordance with
Government Auditing Standards (GAS or GAGAS) issued by the Comptroller General of the United States;
Office of Management and Budget (OMB) Circular A-133, Audits of Institutions of Higher Education and
Other Nonprofit Organizations; and this Audit Guide.
For purposes of OMB Circular A-133, the LSC Compliance Supplement is to be followed for LSC funds
and includes the restrictions and prohibitions on the use of non-LSC funds. Accordingly, the OMB
Compliance Supplement for Audits of Institutions of Higher Education and Other Nonprofit Institutions
(OMB Compliance Supplement) does not apply to LSC funds. If the non-LSC funds (Federal or state) of
a recipient are subject to consideration under the OMB Circular A-133 audit, the OMB Compliance
Supplement may otherwise apply to those funds.
Each recipient of LSC funds is required to have an audit in accordance with the requirements of
this Guide. Such audit shall meet the objectives outlined in Section II-1.A, "Objectives",
which include an assessment of the recipient's compliance with the laws and regulations identified in
the Compliance Supplement (Appendix A).
I-3. APPLICABILITY
The requirements of this Audit Guide apply to all recipients and subrecipients of LSC funds, except
where specific provisions have been otherwise made through grant or subgrant agreements. This Audit
Guide does not apply to grants to law schools, universities or other special grants, which are covered
by special provisions of the respective grant agreements. Exceptions to these audit requirements are
determined by the OIG in consultation with LSC management.
I-4. AUTHORITY
This Audit Guide has been prepared under the authority provided by the following sections of the
LSC Act, the IG Act and 110 Stat. 1321 (1996): LSC Act § 1008(a),(b), 42 U.S.C §2996g(a),(b); LSC
Act § 1009(c)(1), 42 U.S.C §2996h(c)(1); and LSC Act § 1010(c), 42 U.S.C §2996i(c). IG Act § 4(a)(1),
4(b)(1), 5 U.S.C APP 3 § 4(a)(1), 4(b)(1). 110 Stat. 1321 (1996) §§ 509(a) to (l).
I-5. EFFECTIVE DATE
This Audit Guide is effective for audits of LSC programs for periods ending on or after December 31,
1996, except as otherwise authorized by the Corporation.
I-6. COMMUNICATING WITH THE OIG REGARDING AUDIT MATTERS
Recent legislation has brought a number of changes in the communication needs of recipients, IPAs, and
the OIG. Because of these changes, the OIG is making special efforts to facilitate the additional
communications needs. We are currently expanding reporting capabilities through electronic mail on
the Internet, as well as providing a World Wide Web page for interactive "Questions and
Answers."
In addition, the OIG also has a staff of auditors available to answer questions, or address audit
issues by telephone or facsimile. The phone numbers and addresses are:
I-7. REVISIONS TO THE GUIDE
The OIG will periodically revise the Audit Guide and its appendices through bulletins or replacement
sections. Revisions may reflect changes to public law, corporate regulations, auditing standards, or
other guidelines. Revisions should be incorporated into the recipient's copy of the Audit Guide, and
furnished to the IPA by the recipient. Questions relating to any revisions should be directed to the
OIG. Information concerning the Audit Guide and any revisions will be posted periodically and will
be available on the LSC OIG World Wide Web page.
I-8. CUMULATIVE STATUS OF REVISIONS
| Effective Date | Description |
|---|
| August 1976 | Original Edition of "Audit and Accounting Guide for Recipients and Auditors" issued. |
| June 1977 | Revised Original Edition of Audit and Accounting Guide issued. |
| September 1979 | Revision to Pages 4-1 and 6-6. |
| September 1981 | Revision to Pages ii, 4-1, 6-6, VIII-3, and addition of Page 4-2. |
| January 1, 1986 | Revised 1986 Edition of Audit and Accounting Guide Effective. |
| August 13, 1986 | Regulation 1630 Replaces Chapter 4 of both the Original and 1986 Edition of the Audit and Accounting Guide. |
| December 31, 1995 | Chapter 6 of both Original and 1986 Audit and Accounting Guide replaced by Audit Guide. |
| December 31, 1996 | Revision to November 1995 Audit Guide to adopt audit provisions of 110 Stat. 1321 (1996). |
I-9. RESPONSIBILITIES OF RECIPIENTS
I-9.A. Maintain Adequate Internal Controls
Recipients, under the direction of their boards of directors, are required to establish and maintain
adequate accounting records and internal control procedures. Until revised, guidance relating to these
responsibilities may be found in both the 1981 and 1986 editions of LSC's "Audit and Accounting
Guide for Recipients and Auditors," referred to above in Section I-8, "Cumulative Status of
Revisions."
Internal Control is defined as the process put in place by the recipient's board of directors,
management, and other personnel designed to provide reasonable assurance of achieving objectives
over:
- reliability of financial reporting;
- compliance with laws and regulations that have a direct and material effect on the program; and
any other laws so identified in the Compliance Supplement; and
- safeguarding of assets against unauthorized use or disposition.
I-9.B. Provide Audited Financial Statements
Recipients are responsible for preparing annual financial statements and arranging for audits of those
statements to be completed and submitted to the OIG within 120 days of the recipients' fiscal year ends.
While the recipients' boards of directors have the final responsibility for the appointment of the
auditor, pursuant to Section 509(d) of 110 Stat. 1321 (1996), the OIG has direct authority
to "...remove, suspend, or bar an independent public accountant, upon showing of good cause,
from performing audit services required by this section...", based upon rules of practice to be
promulgated by the OIG.
Pursuant to Section 509(c) of 110 Stat. 1321 (1996), the recipient's failure to provide an acceptable
audit in accordance with the guidance promulgated by the OIG may result in the following sanctions: 1)
the withholding of a percentage of the recipient's funding until the audit is completed satisfactorily;
or 2) the suspension of the recipient's funding until an acceptable audit is completed.
A written agreement between the recipient and the IPA must be executed and, at a minimum, should
specifically include all matters described below in Section II-1, Audit Requirements (Subsections A
through I). Contracts or engagement letters should also contain an escape clause that would allow,
without significant penalty, modification or cancellation made necessary by changes in law.
Appendix B is a sample audit agreement that includes the required matters described in Section II-1,
Audit Requirements, and additional provisions which can be used to document the understanding between
the recipient and the IPA. Recipients should consider incorporating these additional provisions in
their audit agreements.
In procuring audit services, recipients may refer to the Guide for Procurement of Audit Services
(Appendix C).
I-9.C. Requirements for Recipient 5-Day "Special Report" to the OIG on
Noncompliance with Laws and Regulations
Section 509(b) of 110 Stat. 1321 (1996) states that recipients "shall report in writing any
noncompliance found by the auditor during the audit ... within 5 business days to the Office of the
Inspector General and shall provide a copy of the report simultaneously to the auditor. If the
recipient fails to report the noncompliance, the auditor shall report the noncompliance directly to
the Office of the Inspector General within 5 business days of the recipient's failure to report.
The auditor shall not be liable in a private action for any finding, conclusion, or statement
expressed in a report made pursuant to this section."
In fulfilling this requirement, recipients are required to report to the OIG any instances of
noncompliance with respect to the practice restrictions identified in the Compliance Supplement
as reported by the auditor in accordance with Section II-1.H, Requirements for Auditor 5-Day
"Special Report" to the OIG on Noncompliance with Laws and Regulations. The recipient
must report to the OIG within five (5) business days after receiving the report of noncompliance
from the IPA. The recipient's submission to the OIG pursuant to this section is to include a
transmittal letter, and a copy of the auditor's "Special Report on Noncompliance with Laws
and Regulations" (see Appendix E for Recipient 5-Day Letter). Reports submitted pursuant to
the requirements of this section must be sent to the OIG by facsimile, Email or registered mail.
The recipient is also required to simultaneously provide a copy of its report to the OIG to the
auditor using the same manner of communication (facsimile, Email or registered mail).
I-9.D. Corrective Action Plans
Consistent with Section 509(j) of 110 Stat. 1321 (1996), recipient management is responsible for
expeditiously resolving all recommendations and audit findings which include: 1) material reportable
conditions in internal control; 2) material noncompliance with laws and regulations identified in the
LSC Compliance Supplement (Appendix A); and 3) questioned costs, including those of sub-recipients.
Recipients are required to develop and submit to the Corporation corrective action plans within 30
days of submission of the audit report to the OIG. The corrective action plan must describe the
corrective action taken or planned in response to the audit findings and recommendations identified
by the IPA. The corrective action plan must identify: 1) each finding as reported by the IPA; and 2)
the action that will be taken and the date by which it will be taken or completed. If the recipient
disagrees with the finding or believes corrective action is not required, it shall provide an
explanation and specific reason(s) (e.g. regulatory or legal requirements) that corrective action is
not required. If practical, and as an option, a recipient may incorporate its corrective action plan
in its response to the auditor's findings and recommendations. However, selection of this option
shall not preclude submission of the audit reports within the required time frame, nor serve as a
basis for an extension request.
Pursuant to the requirements of Section 509(k)(1) of 110 Stat. 1321 (1996), LSC management has the
responsibility for follow-up on "...significant reportable conditions, findings and
recommendations found by the independent public accountants and [referred] to the Corporation
management by the Office of Inspector General to ensure that instances of deficiencies and
noncompliance are resolved in a timely manner..." To facilitate the responsibilities of LSC
management and the OIG, recipients are required to submit the corrective action plans to the OIG;
the corrective actions plans will be forwarded to LSC management by the OIG.
II. AUDIT PERFORMANCE REQUIREMENTS
II-1. AUDIT REQUIREMENTS
II-1.A. Objectives
The primary audit objectives are to determine whether:
- the financial statements are presented fairly, in all material respects, in conformity with
Generally Accepted Accounting Principles (GAAP), or other Comprehensive Basis of Accounting;
- the internal control structure provides reasonable assurance that the recipient is managing funds,
regardless of source, in compliance with applicable Federal laws and regulations, and controls are in
place to ensure compliance with the laws and regulations which could have a material impact on the
financial statements; and
- the recipient has complied with applicable provisions of Federal law, Corporation regulations and
grant agreements, regardless of source of funds, which may have a direct and material effect on its
financial statement amounts and on the LSC program.
II-1.B. Reports
The IPA will prepare the audit reports required by GAS and OMB Circular A-133. Recipients
should ensure that management letters are included with the report submissions to LSC, as well as the
Summary Report Form on Noncompliance with Laws and Regulations, Questioned Costs and Reportable
Conditions (See Appendix D for form and content). The IPA has additional responsibility under Section
II-1.H, Requirements for Auditor 5-Day "Special Report" to the OIG on Noncompliance with
Laws and Regulations, for interim reporting of noncompliance with certain laws and regulations.
II-1.C. Qualifications of the IPA
The comprehensive nature of auditing performed in accordance with GAS places on the IPA the
responsibility for ensuring that: 1) the audit is conducted by personnel who collectively have
the necessary skills; 2) independence is maintained; 3) applicable standards are followed in
planning and conducting audits and reporting the results; 4) the IPA has an appropriate internal
quality control system in place; and 5) the IPA undergoes an external quality control review. IPAs
must meet the qualifications stated in GAS.
II-1.D. Auditor Access to Records
The IPA will be provided access to all records of the recipient the IPA reasonably believes to be
necessary to the performance of the audit.
II-1.E. Audit Working Papers
The audit working papers are to be prepared in accordance with GAS, and are to be retained by the
IPA for at least three years from the date of the final audit report.
II-1.F. Access to Audit Working Papers
The audit working papers are to be available for examination upon request by representatives of
LSC and the Comptroller General of the United States. The LSC Act, §1009(d), prohibits access by
the Corporation and the Comptroller General to any reports or records subject to the attorney-client
privilege. To the extent not protected by the attorney-client privilege, the Corporation, including
the OIG, is provided with access by Section 509 (h) of 110 Stat. 1321 (1996) to "...financial
records, time records, retainer agreements, client trust fund and eligibility records, and client
names ...." The audit working papers are subject to Quality Assurance Review by the LSC OIG.
II-1.G. Disclosure of Irregularities, Illegal Acts and Other
Noncompliance
During an audit, if matters are uncovered relative to actual, potential, or suspected defalcations,
or other similar irregularities, the IPA will comply with Statement on Auditing Standards (SAS)
Number 53, "The Auditor's Responsibility to Detect and Report Errors and Irregularities,"
and SAS Number 54, "Illegal Acts by Clients." While the auditor may contract directly
with the recipient for audit services, it is emphasized that any items considered by the auditor to
justify reporting to the recipient's program director and/or board of directors, should also be
included in the auditor's reports or management letter for LSC's consideration. IPAs should be aware
that the recipient, by grant assurance, has a responsibility to report to the OIG within specified
time periods on matters involving misappropriation, theft, embezzlement of any funds (LSC, non-LSC
and client escrow funds) and property, regardless of recovery. IPAs should also follow Government
Auditing Standards, Chapter 5, for guidance on direct reporting of irregularities and illegal acts
to the OIG. The reporting requirements under this section are separate and distinct from the special
reporting requirements discussed at Section II.1.H below.
II-1.H. Requirements for Auditor 5-Day "Special Report" to the OIG on
Noncompliance with Laws and Regulations
Section 509(b) of 110 Stat. 1321 (1996):
- recognizes the auditor's responsibility to select and test a representative number of transactions
and report any instances of noncompliance with laws and regulations;
- provides that the auditor shall not be liable in a private action for any finding, conclusion,
or statement expressed in a special report on noncompliance made pursuant to this section; and
- places additional responsibility on the auditor to report any instances of noncompliance directly
to the OIG, in the event the recipient fails to notify the OIG within five (5) business days of receipt
of the auditor's interim report on noncompliance.
The IPA is responsible for providing sufficient information to the recipient on the findings of
noncompliance to facilitate the recipient meeting its interim reporting responsibilities under Section
I-9.C, Requirements for Recipient 5-Day "Special Report" to the OIG on Noncompliance with
Laws and Regulations. The laws and regulations requiring special reporting are defined in the
Compliance Supplement (Appendix A). When a determination has been made, based on sufficient competent
evidential matter, that an instance of noncompliance has occurred, IPAs are to report immediately
to the recipient. The IPA's report to the recipient pursuant to this section should not await
completion of the audit reports identified below in Section III, Audit Reporting Requirements.
The IPA's special report to the recipient shall be in letter format and shall specifically contain,
at a minimum, the following: 1) a description of the particular instance(s) of noncompliance
discovered during the course of the audit; and 2) the circumstances surrounding the instance(s)
of noncompliance.
Within five (5) business days after issuance of the IPA's special report to the recipient, and in
accordance with Section I-9.C, Requirements for Recipient 5-Day "Special Report" to the
OIG on Noncompliance with Laws and Regulations, the auditor should receive from the recipient a copy
of the recipient's 5-day letter to the OIG. If no such copy is received, the IPA shall submit a
copy of the report directly to the OIG, within five (5) business days of the recipient's failure
to provide the required copy of its report to the OIG. This statutory procedure thus ensures that
the OIG will receive a copy of the IPA's special report on noncompliance within ten (10) business
days after the recipient's receipt of the report from its auditor (see Appendix F for the Auditor
5-Day Letter to the OIG). The auditor's submission to the OIG under this section must be transmitted
by facsimile, Email or registered mail.
II-1.I. IPA Notification to OIG on Cessation of Audit Services
Pursuant to Section 509(e) of 110 Stat. 1321 (1996), the IPA is required to notify the OIG when it
ceases to provide audit services to the recipient. The IPA shall notify the OIG within five (5)
business days of its termination or cessation of services to the recipient. (See Appendix G for the
notification form.)
II-2. REVIEW OF INTERNAL CONTROLS
In accepting LSC funds, recipient management asserts that its accounting system is adequate to
comply with LSC requirements. As part of the review of internal controls, the auditor is required
to evaluate the effectiveness of the recipient's accounting system and internal controls. The
primary objectives of this evaluation are to ensure that resources are safeguarded against waste,
loss and misuse, and that resources are used consistent with LSC regulations and grant conditions.
II-3. ASSESSING COMPLIANCE WITH LAWS AND REGULATIONS
The requirements set out in the Compliance Supplement (Appendix A) are those which could have a
material impact on the LSC program. Accordingly, examination of these compliance requirements is
part of the audit. As stated in Section I-1, "Purpose", Congress increased the restrictions
and prohibitions on the types of activities in which recipients may engage. The failure of a
recipient to comply with the practice restrictions contained in the Compliance Supplement may affect
the recipient's eligibility for LSC funding.
The Compliance Supplement specifies the compliance requirements and provides suggested procedures
to be considered in the auditor's assessment of a recipient's compliance with laws and regulations.
The suggested procedures can be used to test for compliance with laws and regulations, as well as
to evaluate the related controls. Auditors should use professional judgement in deciding which
procedures to apply, and the extent to which reviews and tests should be performed. Auditors are
required to select and test a representative number of transactions. If the reviews and evaluations
are performed as part of the internal control structure review, audit procedures should be
modified to avoid duplication. Auditors should also refer to the grant agreements for additional
requirements.
In certain cases, noncompliance may result in questioned costs. Auditors are to ensure that sufficient
information is obtained to support the amounts questioned. Working papers should adequately document
the basis for any questioned costs and the amounts reported.
II-4. AUDIT FOLLOW-UP
Consistent with GAS paragraph 4.10, Audit Follow-up, the auditor is required to follow-up on known
material findings and recommendations from previous audits that could affect the financial statement
audit and, in this case, the program. The objective is to determine whether timely and appropriate
corrective action has been taken. Auditors are required to report the status of uncorrected
material findings and recommendations from prior audits. These requirements are also applicable
to findings and recommendations issued in a management letter.
III. AUDIT REPORTING REQUIREMENTS
III-1. AUDIT REPORTS AND DISTRIBUTION
IPAs should follow the requirements of GAS, OMB Circular A-133, Statement on Auditing Standards (SAS)
74 and Statement of Position (SOP) 92-9 (and any revisions thereto) for guidance on the form and
content of reports. The OMB Circular A-133 reports must reference the LSC Audit Guide and its
Compliance Supplement. In addition to the reports required under OMB Circular A-133, IPAs are
required to submit a Summary Report Form on Noncompliance with Laws and Regulations, Questioned
Costs and Reportable Conditions (Appendix D). Three copies of the audit reports and the management
letter, where applicable, are to be submitted to the LSC OIG within 120 days of the recipient's year
end.
III-2. EXTENSION REQUESTS FOR AUDIT SUBMISSIONS
Under exceptional circumstances, an extension of the 120-day requirement may be granted. Requests
for extensions must be submitted in writing not later than two weeks prior to the report due date,
and directed to the Office of Inspector General. Requests not submitted in the required time frame
will be granted only for nforeseen, extraordinary and compelling reasons.
III-3. VIEWS OF RESPONSIBLE OFFICIALS
Consistent with GAS paragraph 7.38, Views of Responsible Officials, auditors are encouraged to report
the views of the responsible program officials concerning the auditors' findings, conclusions, and
recommendations, as well as planned corrective action, where practical.
IV. REFERENCE MATERIALS
- Title X - Legal Services Corporation Act of 1974, 42 USC 2996, to
2996.l.
- 45 Code of Federal Regulations Part 1600 to 1642.
- Government Auditing Standards, issued by the
Comptroller General of the United States, 1994 Revision.
- OMB Circular A-133, Audits of
Institutions of Higher Education and Other Nonprofit Institutions.
- AICPA Professional Standards, Volume I.
- AICPA Integrated Practice System, Not-For-Profit Organizations Audit Manual.
- Practitioners Publishing Company Guide to Audits of Nonprofit Organizations, Seventh Edition
(June 1994).
- AICPA Audit and Accounting Guide for Not-for-Profit Organizations, June 1, 1996.
- AICPA Statement of Position (SOP) 92-9, Audits of Not-for-Profit Organizations Receiving Federal
Awards, December 28, 1992.
- Pursuant to LSC Regulations, 45 C.F.R. 1630.4(g):
The Circulars of the Office of Management and Budget shall provide guidance for all
allowable cost questions arising under this part when relevant policies or criteria therein are not
inconsistent with the provisions of the Act, applicable appropriations acts, this part, the Audit and
Accounting Guide for Recipients and Auditors, and Corporation rules, regulations, guidelines, and
instructions.
Among the OMB Circulars which should be referred to if not inconsistent with LSC policies are:
Audit Guide for Recipients and Auditors
