OFFICE
OF MANAGEMENT AND BUDGET
Audits of
States, Local Governments, and Non-Profit Organizations
AGENCY:
Office of Management and Budget
ACTION:
Proposed revisions to OMB Circular A-133
SUMMARY:
This Notice proposes to revise Office of Management and Budget (OMB)
Circular A-133, "Audits of States, Local Governments, and Non-Profit
Organizations," by (1) increasing the threshold for audit from $300,000
to $500,000, (2) increasing the threshold for cognizant agency for
audit from $25 million to $50 million, and (3) making related
technical changes to facilitate the determination of cognizant agency
for audit and provide for Federal agency reassignment of oversight
agency for audit.
DATES:
All comments on this proposal should be in writing, and must be received
by October 11, 2002. It is planned that the proposed revisions shall apply
to audits of fiscal years ending after December 31, 2003, and earlier
implementation will not be permitted.
ADDRESSES:
Due to potential delays in OMB's receipt and processing of mail sent through
the U.S. Postal Service, we encourage respondents to submit comments electronically
to ensure timely receipt. We cannot guarantee that comments mailed will
be received before the comment closing date.
Electronic
mail comments may be submitted to: tramsey@omb.eop.gov.
Please include "A-133 Comments" in the subject line and the
full body of your comments in the text of the electronic message and as
an attachment. Please include your name, title, organization, postal address,
telephone number, and E-mail address in the text of the message. Comments
may also be submitted via facsimile to 202-395-4915.
Comments
may be mailed to Terrill W. Ramsey, Office of Federal Financial Management,
Office of Management and Budget, Room 6025, New Executive Office Building,
Washington, DC 20503.
A copy of
the current Circular A-133 published in the Federal Register on
June 30, 1997 (62 FR 35277), is available on the Internet at www.omb.gov
and then select "Grants Management."
FOR FURTHER
INFORMATION CONTACT: Terrill W. Ramsey, Office of Federal Financial
Management, Office of Management and Budget, telephone 202-395-3812 (direct)
or 202-395-3993 (main office) and e-mail: tramsey@omb.eop.gov.
SUPPLEMENTARY
INFORMATION:
A. Increase
the Threshold for Audit from $300,000 to $500,000 - OMB proposes to
increase the audit threshold amount from $300,000 to $500,000.
The Single
Audit Act Amendments of 1996, 31 U.S.C. 7502(a)(3), provide for the Director
of OMB to review the single audit threshold and increase it as appropriate.
The current audit threshold requires all non-Federal entities (States,
local governments, and non-profit organizations) that expend $300,000
or more in a year in Federal awards to have an audit conducted in accordance
with Circular A-133.
As shown
in the following table, an audit threshold increase from $300,000 to $500,000
would relieve almost 6,000 entities from the audit requirements of Circular
A-133 while only exempting from audit less than one half of one percent
of Federal awards expended (in dollars) by entities currently filing Circular
A-133 audits.
Federal
Awards Expended Range |
Number
of Entities Filing Reports |
Percent
of Entities
Filing Reports |
Percent
of Federal Awards Expended Within Range |
$300,000
to $500,000 |
6,000 |
18% |
.5% |
$500,000
and above |
28,000 |
82%
|
99.5% |
Total |
34,000 |
100% |
100.0% |
(The above
data was compiled by the Federal Audit Clearinghouse (FAC) from its database
of Circular A-133 audit submissions for non-Federal entity fiscal years
ending in 2000. The FAC database is publicly accessible on the Internet
at http://harvester.census.gov/sac.)
Many pass-through
entities use Circular A-133 audit results as a primary tool in ensuring
compliance for Federal awards passed through to a subrecipient. With the
proposed increase in the audit threshold, subrecipients expending between
$300,000 and $500,000 will no longer be required to have an audit under
Circular A-133 so their pass-through entities will not be able to use
the Circular A-133 audit as a monitoring tool.
However,
the Circular A-133 audit is only one of many subrecipient monitoring tools
available and subrecipient monitoring should occur throughout the year
rather than relying solely on a once-a-year audit. Monitoring activities
may take various forms; however, a first monitoring tool should be identifying
to the subrecipient the Federal award information (e.g., Catalog of Federal
Domestic Assistance (CFDA) title and number, award name, name of Federal
agency) and applicable compliance requirements. Other monitoring tools
include reviewing financial and performance reports submitted by the subrecipient,
performing site visits to the subrecipient to review financial and programmatic
records and observe operations, and arranging for agreed-upon procedures
engagements for certain aspects of subrecipient activities, such as eligibility
determinations as described in §___.230(b)(2) of Circular A-133.
Factors such as the size of awards, percentage of the pass-through entity's
total program funds awarded to subrecipients, the complexity of the compliance
requirements, and risk of subrecipient non-compliance as assessed by the
pass-through entity may influence the nature and extent of monitoring
procedures. Additionally, Federal laws or regulations may impose subrecipient
monitoring requirements specific to a Federal program.
The OMB Circular
A-133 Compliance Supplement, Chapter 6, provides a list of typical internal
controls for subrecipient monitoring. The Compliance Supplement is available
on the Internet at www.omb.gov and then select "Grants Management."
Additionally, OMB plans to request one or more single audit constituent
groups to volunteer to develop additional tools and techniques which pass-through
entities may use to monitor their subrecipients.
B. Increase
the Threshold for cognizant agency for audit from $25 Million to
$50 Million - OMB proposes to increase the threshold for cognizant
agency for audit from $25 million to $50 million.
Currently,
recipients (non-Federal entities that expend Federal awards received directly
from a Federal awarding agency) which expend more than $25 million a year
in Federal awards have a Federal agency designated as their cognizant
agency for audit. All other non-Federal entities have a Federal agency
as their oversight agency for audit. (cognizant agency for audit
and oversight agency for audit responsibilities are described in
paragraphs §___.400(a) and (b) of Circular A-133, respectively.)
The basic difference is that a cognizant agency for audit is required
to perform certain oversight functions as listed in Circular A-133 and
an oversight agency for audit is given the option to assume these responsibilities.
The only responsibility the oversight agency for audit is required to
perform is to provide technical advice to auditors and auditees upon request.
Of the approximately
34,000 non-Federal entities currently filing Circular A-133 audits, approximately
1,000 have a cognizant agency for audit. Increasing this threshold
from $25 million to $50 million will reduce the number of non-Federal
entities with a cognizant agency for audit assignments to approximately
500. This change will allow the Federal agencies to provide more focused
audit oversight where there is the greatest risk in terms of Federal awards
expended but still provide each non-Federal entity with an assigned oversight
agency for audit from which to request technical advice.
(Note, whether
an entity has a cognizant agency for audit for a fiscal year is
determined based on the expenditures for that fiscal year, not whether
they met the threshold for cognizant agency for audit in the base
year (see next paragraph for discussion of "base year"). For
example, under the current threshold of $25 million, if a non-Federal
entity had only $20 million Federal awards expended in 2002, they would
not have a cognizant agency for audit for that year even
if they had greater than $25 million in Federal awards expended in the
base year of 2000. Similarly, if the cognizant agency for audit
threshold is increased effective for fiscal years ending after December
31, 2003, only non-Federal entities with Federal awards expended greater
than $50 million will have a cognizant agency for audit for those
years. The cognizant agency for audit would continue to be the
Federal agency that provided the predominant amount of direct funding
in the base year.)
C. Technical
Change - Base Year for cognizant agency for audit Determination -
OMB proposes to change the base year for cognizant agency for audit
determination from one to two years before the start of the five year
audit cognizance period. This change is needed to provide sufficient time
to make cognizant agency for audit determinations before the start
of the audit cognizance period.
Cognizant
agency for audit is based upon which Federal agency provides the predominant
amount of direct Federal awards funding to a recipient in the base year.
For example, cognizant agency for audit determinations for the
years 2001 through 2005 were based upon which Federal agency provided
the predominant amount of Federal awards expended in the base years ending
in 2000. Since Circular A-133 reports for the non-Federal entities' fiscal
years ending December 31, 2000 were not required to be filed until September
30, 2001, it was not possible to produce a cognizant agency for audit
assignment list at the start of 2001.
Under the
proposed change, 2004 will be the base year for determining the cognizant
agency for audit for 2006 through 2010. All fiscal year 2004 Circular
A-133 reports are due to the FAC on or before September 30, 2005. This
will provide sufficient time for Federal agencies to use the FAC database
to produce a cognizant agency for audit list for the 2006 through
2010 audit cognizance period at the start of 2006. (Note, the base year
for 2001 through 2005 will remain at 2000.)
D. Technical
Change - Oversight Agency for Audit reassignment - OMB proposes to
change the definition of oversight agency for audit to permit Federal
agencies to make reassignments.
Currently
Circular A-133 definitions do not specifically provide for the reassignment
of oversight agency for audit. The proposed revision would explicitly
provide for the reassignment of oversight agency for audit by Federal
agencies similar to the reassignment of cognizant agency for audit.
Mark W.
Everson
Controller
Circular
A-133 is proposed to be revised as follows:
1. In the
following sections, replace $300,000 with $500,000: §___.200(a);
§___.200(b); §___.200(d); §___.230(b)(2); and §___.400(d)(4).
2. In section §___.400(a), first sentence, replace $25 million with
$50 million.
3. Replace section §___.400(a), third, forth, and fifth (parenthetical)
sentences with the following:
§___.400 Responsibilities.
(a) * * * 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 2004, 2009, 2014, and every fifth year thereafter.
For example, audit cognizance for periods ending in 2006 through 2010
will be determined based on Federal awards expended in 2004. (However,
for 2001 through 2005, cognizant agency for audit is determined based
on the predominant amount of direct Federal awards expended in the recipient's
fiscal year ending in 2000).
* * * * *
4. In section §___.105, definition of oversight agency for audit,
add the following at the end of the definition: "A Federal agency
with oversight for an auditee may reassign oversight to another Federal
agency which provides substantial funding and agrees to be the oversight
agency for audit. Within 30 days after any reassignment, both the old
and the new oversight agency for audit shall notify the auditee, and,
if known, the auditor of the reassignment."
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