Audit Requirements

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Audit Requirements
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Objectives

• Purpose applicability
• Responsibilities of auditee DOL
• Components of a single audit
• WIA considerations
• Testing for compliance
• Exercise review questions

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Purpose of OMB Circular A-133Single Audit Act
(SAA)

• To set standards for obtaining consistency and
  uniformity among Federal agencies for the audit
  of non-Federal entities expending Federal awards
• Provides a snapshot into an organizations
  financial operations
• Is NOT intended to provide detailed financial
  coverage or in-depth review of individual
  programs/awards too cost prohibitive

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Requirements

• Required when any entity expends 500,000 or more
  in Federal awards in its fiscal year
• Agencies spending less than 500,000 are exempt
• Must make records available for audit or review
  by the federal agency or pass-through agency
• Alternatives program specific, limited scope or
  agreed-upon procedures

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ApplicabilityWho is required to have a Single
Audit?

• State and local governments, colleges and
  universities, hospitals, and non-profit
  organizations that are direct grant recipients
  sub recipients of Federal funds
• See the Single Audit Act Amendments of 1996

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Commercial Organizations Is the SAA applicable
to For-Profit entities?

• Direct grant recipients
• DOL (Secretary) has the responsibility for audits
  of grantees that are commercial organizations
• Sub-recipient of WIA Title I funds
• Commercial organizations that expend 500,000 or
  more and are a sub recipient under WIA Title I
  must adhere to OMB Circular A-133 Audit
  Requirements
• WIA Regulations at 20 CFR 667.200

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Frequency of Audits

• All audits required by OMB A-133 shall be
  performed annually (exceptions)
• Submission to Federal audit clearinghouse
• Within one month of completion
• No later than 9 months after auditees fiscal
  year

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Federal Audit Clearinghouse

• Send Single Audit Report Package Data
  Collection Form (SF-SAC) to
• Federal Audit Clearinghouse - FACBureau of the
  Census1201 East 10th Street Jeffersonville, IN
  47132
• Phone Numbers
• FAC (Census Bureau) 1-800-253-0696
• Processing Center (Jeffersonville) 1-888-222-9907
  
• Email govs.fac_at_census.gov
• FACs website allows users to query its audit
  database
• http//harvester.census.gov/sac

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Auditee Responsibilities

• Identify all Federal awards received and expended
  by program
• Maintain internal control over Federal programs
• Comply with laws, regulations, and provisions of
  contracts or grant agreements
• Prepare appropriate financial statements
• Ensure audits are properly performed and
  submitted when due
• Prepare schedule of prior audit findings and
  corrective action plan

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Auditee Responsibilities

• Always purchase audit services through a
  competitive procurement process
• Periodically review contract terms
• Suggest limiting contract extensions to 1-2 years
• Guidance How to Avoid a Substandard Audit
  Suggestions for Procuring an Audit
  http//www.gao.gov/govaud/niaf.pdf

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Auditee Responsibilities

• Entities that pass through federal funds to
  subrecipients are responsible for
• Ensuring that the requirements of A-133 and the
  grant are met
• Preparing management decisions on subrecipient
  audit findings

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Federal Awarding Agency Responsibilities

• Ensure audits and reports are complete and
  received in timely manner
• Make decisions on audit findings in a timely
  manner
• Ensure recipients take timely and appropriate
  corrective action

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DOLs Responsibilities

• From the Federal Audit Clearinghouse, reports are
  sent to OIG.
• OIG reviews distributes the reports to the
  appropriate agency for resolution
• For DOL-ETA funded programs/grants
• Resolution is completed through DOL-ETAs Grant
  Officers Determination Process
• Initial Determination
• Includes an informal resolution process
• Final Determination
• Debt Collection
• ALJ Hearing

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Components of a Single Audit Report

• Schedule of expenditures
• Management letter on internal controls, financial
  statements, compliance to major programs
• Provides auditors opinion
• Schedule of findings questioned costs
• Corrective action plan
• Summary of prior year findings
• Data collection form (SF-SAC)
• Major non-major programs identified
• Risk assessment high or low risk

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Components of a Single Audit Report Auditors
Opinions

• UNQUALIFIED OPINION states that the financial
  statements are presented fairly in conformity
  with GAAP.
• Auditors Clean Bill of Health
• QUALIFIED OPINION is issued when the financial
  statements present the entity's financial
  position, results of operations, and cash flows
  in conformity with GAAP except for the matter of
  the qualification. Qualified opinions are issued,
  in some cases, when (1) a scope limitation, or
  (2) a departure from GAAP exists.
• ADVERSE OPINION is issued when the auditor
  concludes that the financial statements do not
  present the entity's financial position, results
  of operations, and cash flows in conformity with
  GAAP. This type of opinion is only issued when
  the financial statements contain very material
  departures from GAAP.
• DISCLAIMER OF OPINION is issued when the auditor
  is unable to form an opinion on an entity's
  financial statements. A disclaimer may be issued
  in cases when (1) the auditor is not independent
  with respect to the entity under audit, (2) a
  material scope limitation exists, or (3) a
  significant uncertainty exists.

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Components of a Single Audit Report Opinions on
Internal Controls

• Material Weakness
• A material weakness is a significant deficiency
  in internal control, or combination of
  deficiencies that results in more than a remote
  likelihood that a material misstatement of the
  financial statements will not be prevented or
  detected. (GAGAS 5.13)
• Reportable Condition
• For audit periods prior to December 15, 2006
• AICPA standards define reportable conditions as
  significant deficiencies in the design or
  operation of internal control that could
  adversely affect the entity's ability to record,
  process, summarize, and report financial data
  consistent with the assertions of management in
  the financial statements.

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Recent ChangesFederal Register
6/26/2007Effective for audit periods after
December 15, 2006

• Significant Deficiency replaces Reportable
  Condition
• Is a control deficiency, or combination of
  control deficiencies such that there is more
  than a remote likelihood that a misstatement of
  the entitys financial statements that is more
  than inconsequential will not be prevented or
  detected.
• Control Deficiency - exists when the design or
  operation of a control does not allow management
  or employees, in the course of performing their
  assigned functions, to prevent or detect
  misstatements on a timely basis.
• Material Weakness definition has changed
• Is a significant deficiency, or combination of
  significant deficiencies, that results in more
  than a remote likelihood that a material
  misstatement of the financial statements will not
  be prevented or detected.

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Components of a Single Audit ReportRisk
Assessment

• Criteria for HIGH RISK or LOW RISK
• Current and prior audit experience
• Federal agency and pass-through entity oversight.
• Inherent risk of Federal program

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Low-Risk Auditee Criteria

• Single audits performed annually
• Opinion on financial statements are unqualified
• Opinion on schedule of expenditures of Federal
  awards is unqualified
• No deficiencies in internal control
• No Federal program had audit findings

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Audit Working Papers

• Retention
• Minimum 3 years after issuance of auditors
  report
• Access
• Available upon request
• Copies may be made as necessary and reasonable

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WIA Considerations

• Non-Federal Resolution
• Governor is responsible for resolving the audit
  findings related to LWIAs and other subrecipients
• Must use same resolution process, debt
  collection, and appeals procedures for WIA as
  used for other grant programs
• ETA Resolution Process
• 29 CFR Part 96

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Additional WIA Considerations

• Waiver of Liability
• Through DOLs Grant Officer, a Grantee may
  request a waiver of liability from disallowed
  costs
• 20 CFR 667.720(c)(1-5)
• Criteria for Waiver
• Occurred at the subrecipient level
• Not gross negligence, willful disregard or
  failure to follow standards
• If fraud, aggressive action pursued by grantee
• Debt established
• Formal request with supporting documents is
  submitted

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Additional WIA Considerations

• Advance Approval
• Contemplated corrective actions
• Including debt collection
• Grantee request of Grant Officer
• Criteria listed in 20 CFR 667.730(b)
• Nearly the same as Waiver of Liability

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Stand-In Costs

• Chapter 12, OneStop Financial Management TAG
• Comptroller General Decision
• B-208871.2, dated February 9, 1989

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What is Stand-In Costs?

• Non-Federal costs that may be substituted for
  disallowed grant costs when certain conditions
  are met.
• Must be for an allowable activity
• Within administrative and cost limitations
• Recognized in the financial system
• Occurred during the same appropriation year
• Incurred by the same entity proposing the
  substitution

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Conditions

• Must be allowable ETA costs that were actually
  incurred by the ETA-funded program and paid by a
  non-ETA fund source.
• Must have been included within the scope of the
  audit (not necessarily tested but potentially
  subject to testing).
• Must have been accounted for in the auditees
  financial system.
• Must be adequately documented in the same manner
  as all other ETA-funded program costs.

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Stand-In Costs are NOT

• Uncompensated overtime
• Unbilled premises costs associated with fully
  depreciated publicly owned buildings
• Allocated costs derived from an improper
  allocation methodology
• Discounts, refunds, rebates
• Any State share of the cost of State or community
  college tuition

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Testing for Compliance

• How do you ensure compliance with Federal audit
  requirements at the grantee and sub recipient
  level?
• Interview staff
• Review single audit reports

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Testing for Compliance

• Ask to see their audit files or log for their
  sub recipients. The file/log should provide at a
  minimum the following items of information
• Most recent audit report reviewed
• Fiscal year
• Number of findings
• Amount of questioned costs
• Current status of corrective action
• Missing audit reports
• Current status or sanction for non-compliance
• See Handout for a Sample Audit Resolution
  Tracking Checklist

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Sanctions for Non-Compliance

• Percentage of Federal awards withheld until audit
  completion
• Withholding/disallowing overhead costs
• Suspend Federal awards
• Terminating Federal award

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Regulatory References

• OMB Circular A-133
• Including the Compliance Supplement
• 29 CFR Part 96
• 29 CFR Part 99
• Government Auditing Standards Yellow Book

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Web Resources

• http//www.gao.gov/ - Government Auditing
  Standards (Yellow Book)
• http//www.oig.dol.gov/public/reports/oa/documents
  /singleauditcfoBrochure.pdf - DOLs Office of
  Inspector General (OIG) summarizes the audit
  requirements on their website
• http//harvester.census.gov/sac - FAC and Single
  Audit Database
• http//www.access.gpo.gov/nara/cfr/waisidx -
  Provides links to specific regulations, CFRs,
  Federal Register notices, public laws, and
  Privacy Act issuances
• http//www.whitehouse.gov/OMB/ - Provides links
  to all OMB circulars, compliance supplements, and
  OMB policy
• http//www.cfda.gov - Catalog of Federal Domestic
  Assistance (CFDA) website Provides CFDA and
  description of major federally funded programs

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More Web Resources

• http//www.doleta.gov/grants/ - One-Stop
  Financial Management TAG, Grant Closeout System,
  Workforce Tools of the Trade
• http//epls.arnet.gov/ - Debarment Suspension
  Listing
• http//www.dnb.com - Duns Bradstreet website
  DB number is needed to complete a SF-424 Grant
  Application
• http//thomas.loc.gov/ - Library of Congress
  THOMAS System that includes the status of federal
  appropriations, Congressional resources, and
  legislative Bills

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Questions?