Illinois ASBO School District Auditing Seminar

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Illinois ASBO School District Auditing Seminar

• Presented by the
• Illinois State Board of Education

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A-133 Federal Compliance Section
Presented by the Funding and Disbursement
Services Division Department of Financial
Services Illinois State Board of
Education Kimberly P. Beachy, CPA Larry Smith
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OMB A-133 applies to

• Non-Federal entities that expend 500,000 or more
  in Federal awards in a single fiscal year
  single or program-specific audit
• Program-specific audit can be conducted only when
  an auditee expends Federal awards under one
  Federal Program
• State or local governments that expend less than
  500,000 a year in federal awards are exempt from
  Compliance with the Single Audit

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ISBE Responsibilities as a Pass-Through Entity

• Ensure subrecipients have single audits, if
  required
• Must review audits for quality, content
  accuracy
• Must follow-up on findings and issue a management
  decision within 6 months of receipt of the audit

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Review process includes

• Checking for auditor qualifications
• Audit reports are correct and current (opinion
  letters follow the new language requirements of
  SAS 112)
• Audits have been submitted to the Federal Audit
  Clearinghouse
• Type A programs audited once every 3 years

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Review process includes

• of coverage tested adequate
• Audit Findings Corrective Action Plan contain
  correct components
• Reconciling Federal Revenues reported on the AFR
  to the SEFA
• Reconciling SEFA to ISBE records

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Auditor Requirements Government Auditing
Standards

• ISBE Administrative rules require that ALL School
  district and Joint Agreement audits must be
  performed under Generally Accepted Government
  Auditing Standards (GAGAS or GAS)
• Not just required for A-133 audits!

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Government Auditing Standards require that
auditors

• Meet appropriate state licensing requirements
• Are independent from personal, external and
  organizational impairments
• Have a record of responsible work

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Government Auditing Standards require that
auditors

• Have received a positive external quality control
  (peer) review within the last three years
• Submit the peer review report and acceptance
  letter to ISBE
• Have adequate qualifications, including
  experience with the type of entity being audited

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Government Auditing Standards require that
auditors

• Have completed required continuing instruction
• Have not been suspended or debarred from
  performing government audits
• Have not been the object of any disciplinary
  action during the past three years

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Requirements for Auditors

• CPA firms that perform school district audits
  must be qualified under Government Auditing
  Standards per ISBE rules if the firm is
  qualified under Government Auditing Standards, it
  should be qualified to do an A-133 audit
• A-133 audits submitted using a non-qualified
  auditor may be rejected by ISBE
• Additional information on A-133 audits and
  requirements for CPA firms performing A-133
  audits are available at
• http//www.isbe.net/funding/html/a133.htm
  http//www.isbe.net/funding/pdf/audit_qualificati
  ons.pdf

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Auditor Requirements -Peer Review

• Each audit organization should have an
  appropriate internal quality control system in
  place and undergo an external quality control
  review (peer review). Government Auditing
  Standards requires any CPA firm that performs
  governmental audits to have a quality control
  review once every three years by an organization
  not affiliated with their firm.

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Peer Review Documentation

• Requiring peer review report and acceptance
  letter
• Required for all A-133s submitted to ISBE
• Must be submitted as current peer review expires
• Peer review must cover the system of quality
  control for accounting and auditing practice
• Acceptance letter must show due date of next
  review

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Sample Acceptance Letter

• Dear XXXXX
• It is my pleasure to notify you that on January
  22, 2009 the Illinois Peer Review Report
  Acceptance Committee accepted the report on the
  most recent peer review of your firm. The due
  date for your next review is April 30, 2012. This
  is the date by which all review documents should
  be completed and submitted to the administering
  entity. Since your firm's due date falls between
  January and April, you may arrange to have your
  review a few months earlier to avoid having a
  review during tax season.
• As you know, the reviewer's opinion was
  unmodified. The Committee asked me to convey its
  congratulations to the firm.
  
  
• Sincerely,
• PAUL E. PIERSON, CPA
• Director, Peer Review

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Submit Peer Review Report and Acceptance Letter
to

• Kimberly Beachy, CPA or Larry Smith
• Illinois State Board of Education
• Funding and Disbursements Services Division,
  E-320
• 100 North First Street
• Springfield, Illinois 62777-0001

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New for 2009 Audit Cycle

• American Recovery and Reinvestment Act (ARRA) -
  Federal Stimulus Money
• USDA Fresh Fruits and Vegetables Grant
• Extensions for A-133 past 9 month deadline may
  not be granted

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ARRA funds may lead to additional audit
requirements

• A-133 audits are required for entities with
  Federal expenditures of 500,000 or more from all
  sources (direct and indirect)
• ARRA funds are Federal and must be included in
  determining if entity meets 500,000 threshold
• Many districts/joint agreements previously exempt
  may now be required to have an A-133 audit

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Types of ARRA funding

• Stabilization funds
• Formula funds
• Competitive grants available after July 1st, 2009
  (called Race to the Top)

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ARRA Stabilization Funds

• State of Illinois receiving 2 billion in
  federal funds from the ARRA State Fiscal
  Stabilization Fund (SFSF)
• This will be paid through General State Aid (GSA)
  as Federal Funds
• ARRA GSA SFSF Funds must be included in A-133
  determination, must be tested and reported on SEFA

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ARRA Stabilization Funds

• Final 5 GSA payments for FY 2009 paid with ARRA
  funds (CFDA 84.394 ISBE 4850)
• First GSA payments for FY 2010 also paid with
  ARRA funds (CFDA 84.394 and 84.397 ISBE 4850
  these will be distinguished by subproject codes)

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ARRA Stabilization Funds

• ISBE is expecting 200 more A-133 audits for FY09
  based on ARRA GSA payments alone
• For listing of districts potentially qualifying
  for an A-133 audit based on federal GSA funds
• http//www.isbe.net/funding/pdf/potential_A133_aud
  its.pdf

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ARRA Formula funds

• ISBE also receiving 1 billion in ARRA funding
  for existing programs
• Title I (Low Income, Neglected, Delinquent)
• Title I (School Improvement Part A and School
  Improvement 1003(g))
• IDEA (Preschool and Flowthrough)
• Title IID Technology (Formula and Competitive)
• McKinney Vento Homeless Ed
• Child Nutrition Equipment Assistance

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ARRA General requirements

• All ARRA funds need to be included in determining
  if entity qualified for an A-133 audit
• All ARRA funds have separate ISBE revenue code
• Most ARRA funds have their own CFDA number
• Need to be tested as major program
• ARRA funds have strict reporting requirements

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ARRA SEFA Requirements

• All ARRA funds must be identified and reported on
  SEFA
• Include correct CFDA number and ISBE Revenue code
• Shown separately on SEFA with prefix ARRA (e.g.
  ARRA Title I Low Income)

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(No Transcript)
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ARRA Guidance

• March 2009 Compliance Supplement includes some
  guidance for ARRA funds.
• Located in Appendix VII Other OMB Circular A-133
  Advisories

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March 2009 Compliance Supplement Appendix VII

• Single audit is seen as key factor in achieving
  the following accountability objectives
• The recipients and uses of all funds are
  transparent to the public, and the public
  benefits of these funds are reported clearly
• Funds are used for authorized purposes and
  instances of fraud, waste, error and abuse are
  mitigated.

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March 2009 Compliance Supplement Appendix VII

• Supplement has not been updated for revisions
  needed due to ARRA
• OMB plans to issue addenda to the Supplement to
  provide additional guidance
• Auditors should look first to Appendix VII of
  Supplement and to OMB Management website under
  heading Grants Management for any addenda

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March 2009 Compliance Supplement Appendix VII

• Clusters of Programs
• OMB will be updating clusters of programs
• Posted to OMB Management website under Grants
  Management
• OMB plans to post them as of the end of each
  month beginning June 2009

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March 2009 Compliance Supplement Appendix VII

• Auditors should
• Review the award documents, including the terms
  and conditions
• Check the OMB Management website under Grants
  Management for any addenda to this Supplement
• Use the framework provided by this Supplement as
  guidance to identify ARRA compliance requirements
  material to the Federal program and determine the
  appropriate audit procedures

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March 2009 Compliance Supplement Appendix VII

• Major Program Determination
• Auditor should consider all Federal programs with
  expenditures of ARRA awards to be programs of
  higher risk
• When performing risk-based approach, Type A
  programs with ARRA expenditures should not be
  considered low risk, except when the auditor
  determines and clearly documents that the ARRA
  expenditures are low risk

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March 2009 Compliance Supplement Appendix VII

• Major Program Determination
• Any cluster to which a Federal program with a new
  ARRA CFDA number has been added should be
  considered a new program and does not qualify as
  a low risk Type A program

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March 2009 Compliance Supplement Appendix VII

• ARRA expenditures must be separately identified
• On SEFA and Data Collection form
• Include the prefix ARRA in identifying the name
  of the Federal program
• As separate rows under Item 9 of Part III on the
  Data Collection SF-SAC form

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ARRA Funding

• More Information will be forthcoming -
• check these websites often for the latest
  information
• www.recovery.gov
• www.whitehouse.gov/omb/management
• www.isbe.net/arra/default.htm
• www.isbe.net/funding/html/a133.htm

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USDA Fresh Fruits and Vegetables Grant

• New program for FY2009
• Cash reimbursement program paid through FRIS
• CFDA 10.582
• ISBE Revenue Code 4240, put in 4299 on AFR
• Over 640,000 disbursed to 57 organizations
  (Districts, Joint Agreements, and Not-for-Profits)

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Please be aware..

• No extensions will be granted past 9 month
  deadline for A-133 audits
• Official word from Department of Health and Human
  Services
• Expect other Federal Agencies to follow suit

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Reminders..

• Checklist designed to prevent errors
• Highly recommended to use as a tool before
  submitting final audit
• Summarizes the key points of the ISBE review
  process
• 90 of all omissions/corrections letters are
  based on errors found within this checklist

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Reminders..

• Reconciliation Page AFR to SEFA
• Federal Revenues reported on AFR and SEFA should
  reconcile
• If differences are due to different accounting
  bases, please provide reconciliation by Federal
  program
• Unexplained differences will be followed up on
  during review process

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Reminders..

• Reconciliation Page AFR to SEFA
• Federal Revenue reported on AFR
• Sum of
• Account Summary 7-8, Line 7 (Account 4000)
• Revenues 9-14, Line 111 (Account 2200)
• Indirect Cost Info Page 31, Line 12 (Value of
  Commodities)
• Minus Medicaid Fee-for-Service
• Revenues 9-14, Line 267 (Account 4992)
• Federal Revenues reported on SEFA

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General Problems found

• A-133 template pages within the AFR must be
  completed and submitted electronically (not as an
  embedded file)
• Please make sure embedded files (opinion letters
  and notes) can be opened
• Letters for missing information
  errors/omissions please submit electronically
  if requested

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General Problems found

• Audits not submitted to the Federal Audit
  Clearinghouse
• Entire audit package must be submitted
  electronically
• Audits cannot be closed at ISBE until audit is
  shown on Clearinghouse website
• Additional verification needed for entities with
  Federal revenues of 500,000 or more with no
  A-133 audit submitted

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Auditors Reports

• Audit reports must be signed
• Audit reports must follow new language
  requirements mandated by SAS 112
• Opinion letters for audits with findings must
  include clause that the auditor offers no opinion
  on the management response because the response
  was not audited
• Applies to GAS letter and A-133 letter

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Summary of Auditors Results

• Audit opinions must match Summary of Auditors
  Results
• If two opinions have been given (Separately Bound
  FS and AFR), Summary of Auditors Results should
  detail both opinions
• Highly encourage submission of Separately Bound
  FS (if prepared)

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Summary of Auditors Results

• Major programs indicate all programs tested,
  not just Type A programs
• Make sure clusters are tested as directed by OMB
• Include value of commodities when determining
  amount to be tested
• Incorrect threshold used for distinguishing Type
  A Type B programs

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Dollar Threshold Used to distinguish Type A B
Programs Larger of

• 300,000 or 3 of total federal expenditures when
  federal expenditures 300,000 but lt 100
  million
• 3 million or three-tenths of one percent (.003)
  of total Federal expenditures when Federal awards
  gt 100 million but are 10 billion
• 30 million or 15 hundredths of one percent
  (.0015) of total Federal expenditures when
  federal awards gt 10 billion

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Audit Findings

• Cover of AFR Were any findings issued? answered
  incorrectly
• Refers to both financial statement and Federal
  awards findings
• Findings should be issued for all significant
  deficiencies noted in audit
• Complete a separate findings page for each
  finding
• Findings should not be lumped together on same
  page, especially with Questioned Costs (QC)

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Audit Findings

• Questioned costs must be completed
• All QC must be reported (do not use 10,000 as
  threshold)
• Interest earned must be calculated as questioned
  costs
• Interest earned in excess of 100 must be
  returned
• Interest is calculated based on actual interest
  earned

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Audit Findings

• Questioned costs (QC) must be broken down
• By Project year FY08, FY09, etc
• By Program 4600, 4620, 4300 etc
• By Subcodes 4600-01, 4600-02
• ISBE staff need breakdown in order to recover
  costs
• For programs that have ended do not suggest that
  the entity revise their final expenditure report
  to recover QC
• ISBE will address all QC that need to be recovered

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Audit Findings

• Check to see if External Assurance (EA) has
  audited district
• Did they report Questioned Costs (QC)?
• If so, A-133 audit findings should indicate
  either
• The QC reported in the A-133 audit represent the
  total amount of QC found and includes the QC
  reported by EA
• OR
• The QC reported in the A-133 audit need to be
  recovered in addition to the QC indicated by EA

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Corrective Action Plans

• Responsibility of district/auditee to complete
• Required components
• Detailed plan of action for EACH finding
• Anticipated Date of Completion
• Person Responsible
• Reasons for Disagreement (if any)

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Schedule of Expenditures of Federal Awards (SEFA)

• Purpose of SEFA Means for Federal and
  Pass-through entities to verify that Federal
  monies have been spent appropriately
• ISBE review process compares amounts reported on
  SEFA to
• AFR
• ISBE records (FRIS reports and commodity records)
  
• District expenditure reports (FRIS reports)

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Steps to a Successful SEFA

• Reconcile revenues on SEFA to Federal revenues
  reported on AFR (use our reconciliation form)
• Make sure all Federal Revenue from FRIS report
  0053 have been accounted for on SEFA
• Make sure commodity figures are complete and
  accurate
• Compare amounts on SEFA to district final
  expenditure reports (FRIS)
• Make sure all ARRA funds have been included and
  properly identified

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Steps to a Successful SEFA

• Special Education Room and Board Excess Costs
  (Account 4625-XC) are reported on SEFA
• Affects many districts w/out regular Room Board
• Account 4625-XC reflects cash received in
  audited year for expenses incurred in prior year
• Revenue for Acct 4625-XC for FY09 audits
• Received as Federal Revenue in FY09
• For expenditures incurred in FY08

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Steps to a Successful SEFA

• Use correct format
• Include previous years projects on current year
  schedule
• Report outstanding obligations/encumbrances
• Use separate lines for each project year of each
  program (i.e., do not commingle project years)

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Steps to a Successful SEFA

• Differences between amounts on SEFA and final
  expenditure reports should be issued as findings
  with QC for difference
• Names of Federal Granting Entity and Pass-through
  entity must be listed
• Totals must be included on SEFA
• Final status should be filled out
• Grand total for all Federal awards on schedule

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Steps to a Successful SEFA

• Impact Aid must be included on schedule
• E-rate reimbursements should not be included on
  the schedule
• Medicaid fee-for-service should not be included
  on schedule

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Steps to a Successful SEFA

• Notes to the Schedule must indicate basis of
  accounting used cash, modified cash, accrual,
  etc. (cannot indicate regulatory)

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Child Nutrition Programs

• Paid through FRIS
• National School Lunch Program
• Child and Adult Care Food Program
• Summer Food Service Program
• School Breakfast Program
• Special Milk Program
• Breakfast Start Up
• ARRA Child Nutrition Equipment Assistance
• USDA Fresh Fruits and Vegetables Grant

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Child Nutrition Programs

• Two non cash programs entities receive food
  rather than . Ask district for documentation
• USDA Commodity Program (Delivered through Lanter
  or Preferred Meal Systems)
• DOD Fresh Fruits and Vegetables Program
• Should be reported on Indirect Costs page of the
  AFR (Line 12)

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USDA Commodity Program

• If delivered by Lanter
• Amount can be accessed through the Illinois
  Commodity system
• Go to www.isbe.net
• Go to Nutrition
• Go to the Illinois Commodity System

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USDA Commodity Program

• If delivered by Lanter
• Use the April bulletin for year-end figures
• Total commodities
• Total PAL deductions
• Total Bonus Deductions

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USDA Commodity Program

• If delivered by Preferred Meal Systems
• Will not be included on the April commodity
  bulletin
• Districts must keep their own records of the
  amounts received
• Can contact the Child Nutrition Department at
  217-782-2491 for verification

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DoD Fresh Fruits and Vegetables Program

• Is not included on the April commodity bulletin
• Districts must keep their own records of the
  amounts received
• Can contact the Child Nutrition Department at
  217-782-2491 for verification

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Commodities

• Must be listed separately on SEFA as
• USDA passed through ISBE
• Non-cash Commodities
• CFDA 10.550
• USDA/DoD passed through ISBE
• Department of Defense Fresh Fruits and Vegetables
• CFDA 10.550

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Commodities

• Should be listed in schedule as opposed to in the
  notes to schedule
• Each program needs to be on a separate line do
  not combine with other Child Nutrition programs
• Both should be reported as CFDA 10.550
• Make sure to include it in determining of
  coverage tested

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Child Nutrition Programs

• Are verified for accuracy on SEFA
• Should have two different fiscal years reported
• Federal fiscal year runs from 10/1-9/30
• Report separate years on different lines
• Cannot report higher expenditures than federal
  revenues

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Fiscal Agent Core Duties

• Joint Agreements/Cooperatives with a Fiscal Agent
• Revenue is not shown as flow through funding on
  the Fiscal Agents books
• Should be shown directly on Cooperatives/Joint
  Agreements books
• A-133 would be submitted for Cooperative/Joint
  Agreement if Federal expenditures over 500,000

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Fiscal Agent Core Duties

• Joint Applicants
• Revenue is shown on Fiscal Agents books
• Amount kept by Fiscal Agent shown in appropriate
  IPAM account
• Amount passed through to other applicants shown
  in 2200 Flow Through Revenue from Federal Sources
• Expenditures of the flow through funds reported
  as 4000 Payments to Other Districts Gov. Units
• A-133 audit for Fiscal Agent must include Federal
  Revenue reported in Account 2200

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Date Range
CFDA Number
Total by Fiscal Year
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Questions?

• Funding and Disbursement Services Division
• 217-782-5256
• 217-782-3910 (fax)
• Kimberly P. Beachy
• kbeachy_at_isbe.net
• Larry Smith
• ismith_at_isbe.net