Federal Grants AuditsOverview of Single Audit Process Oregon Department of Education

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Federal Grants Audits-Overview of Single Audit
ProcessOregon Department of Education

• Informational Videoconference
• Presented by
• HUGH M. MONAGHAN
• Director, Non-Federal Audits
• U.S. Department of Education
• April 12, 2005

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Presentation Objectives

• THAT WHEN YOU LEAVE, YOU UNDERSTAND
• What an A-133 Single Audit is.

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Presentation Objectives (Contd)

• THAT WHEN YOU LEAVE, YOU KNOW
• Which Federal Programs are Covered in the Single
  Audit, and how they are covered
• How No Child Left Behind Act programs are
  covered in a Single Audit
• What kind of records are audited during a Single
  Audit
• How a Single Audit is audit reported on

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Presentation Objectives (Contd)

• THAT WHEN YOU LEAVE, YOU KNOW
• How to be optimally prepared for a Single
  Audit
• How a School District should procure a Single
  Audit and
• What happens after a Single Audit is Completed.

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What is a Single Audit

• It is the annual audit required per the Single
  Audit Act, as amended in 1996
• It is a Financial and Compliance Audit

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An Annual Single Audit is Required of

• State and Local Government Entities
• AND
• Non-Profit Organizations, including
• Non-profit institutions of Higher Education
  and Hospitals
• which expend lt500,000 of Federal Awards
• received Directly and/or passed-through
• Note before 2004, the threshold was 300,000

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Single Audit Requirements are Set Forth in

• The Law Single Audit Act Amendments of 1996
• The Implementing Directive OMB Circular A-133 -
  Audits of State and Local Governments,
• and Non-Profit Organizations
• Key Audit Instructions Compliance Supplement
  published by OMB
• and (for auditors) AICPA Audit Guide

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Where to Obtain These Key Reference Items

• The Law Single Audit Act
• Amendments of 1996
• http//thomas.loc.gov/cgi-bin/query/z?c104S.1579.
  ENR
• The Implementing Directive
• OMB Circular A-133 - Audits of State and Local
  Governments,and Non-Profit Organizations
• http//www.whitehouse.gov/omb/circulars/a133/a133.
  html

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Where to Obtain These Key Reference Items

• Key Audit Instructions
• Compliance Supplement (2004 Edition)
• http//www.whitehouse.gov/omb/circulars/a133_compl
  iance/04/04toc.html
• AICPA Audit Guide- Obtain from from American
  Institute of CPAs

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Other important information source

• Single Audit Clearinghouse
• http//harvester.census.gov/sac/

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COGNIZANT/OVERSIGHT AGENCY

• The largest direct Federal funder
• Key functions
• Acts on behalf of Federal government to
  officially resolve
• issues with a Single Audit
• Considers requests for extension of report
  submission deadlines
• Performs quality control reviews
• of audits

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• What Federal Programs Are Covered in a Single
  Audit
• and How / How the No Child Left Behind
  Programs are Covered

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How Do I know to What Extent a Particular Program
is Covered?

• Does report say the program was covered as a
  Major Federal Program?
• If YES, the OMB Compliance Supplement for that
  Program should have been applied.
• If NO, then little or any testing is likely to
  have been performed of the program.

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How do I know if a program is a major Federal
Program for a Particular Audit?

• In the Federal Audit Clearinghouse database, look
  on the SF-SAC form, Page 3
• -Or-
• Look at Schedule of Findings and Questioned Costs
  in Single Audit Report itself

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If a program is major, then how is it covered?

• Major programs are covered per the OMB Compliance
  Supplement

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Where to Find - OMB Comp. Supplement

• Year 2004 Edition - for Fiscal Years Beginning
  July 1, 2003 or later
• http//www.whitehouse.gov/omb/circulars/a133_compl
  iance/04/04toc.html
• A New Edition is published annually
• For latest edition, check Circular A-133 listing
• at http//www.whitehouse.gov/omb/circulars/index.
  html

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So, what does the OMB Compliance Supplement
Coverage Entail?
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• Step One - Identify whether Program is Covered in
  OMB Comp. Supplement
• by consulting the Table of Contents

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If Program is Included in OMB Comp. Supp

• Step Two - Consult Compliance Supplement Matrix
  to Determine Which Types of Compliance
  Requirements Must be Tested
• See Part II of Compliance Supplement

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There are 14 Types of Compliance Requirements
included in the OMB Compliance Supplement

• A Activities Allowed or Disallowed
• B Allowable Costs/Cost Principles
• C Cash Management
• D Davis Bacon
• E Eligibility
• F Equip Real Property Mgmt
• G Matching, Level of Effort, Earmarking

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• H Period of Availability
• I Procurement Suspension/Debarment
• J Program Income
• K Real Property Acquisition
• L Reporting
• M Subrecipient Monitoring
• N Special Tests Provisions

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• Step Three Consult Parts Three and Four or
  Five, as applicable of the OMB Compliance
  Supplement for the Specific Compliance
  Requirements to be Covered and the Suggested
  Audit Procedures.

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OMB Compliance Supp. Part 3

• sets forth the Generic Compliance Requirements
  applicable to ALL Federal Programs, as
  applicable, per the Matrix. It is to be used in
  conjunction with Parts Four and Five

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OMB Compliance Supp. Part 4

• covers most Federal Programs
• The ED Section Beginning at Page 4-84.000.1
  starts with an
• ED Cross Cutting Section that applies to many ED
  programs
• See Handout
• Then, the individual ED programs are covered

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OMB Compliance Supp. Part 5

• This part covers large clusters of programs.
• The SFA Programs are Covered here.
• NOTE Part 5 generally is not used in audits
  of Local Educational Agencies

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OMB Comp. Supp. - Part 7

• Provides guidance to the auditor for Major
  Programs Not Otherwise Covered in OMB Compliance
  Supplement

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Summary What is Covered in Single Audit for a
Particular Program?

• If NOT a Major Federal Program, little or no
  specific coverage of the program is included in
  the Single Audit.
• If a Major federal Program, auditor should have
  addressed the Compliance Requirements applicable
  per the OMB Compliance Supplement.

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How is a Program Determined to be a Major Federal
Program and by Whom?

• The Auditor determines this applying the Rules
  set forth in OMB Circular A-133, Paragraph 520

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Circular A-133, Paragraph 520

• (1) The Auditor Categorizes Programs
• Type A (Larger) or Type B (Other), per the
  formula in Paragraph 520
• (2) Auditor then Identifies the low-risk Type A
  programs
• Generally, they are programs audited in one of
  the last two years and in the last year audited,
  had no reportable audit findings
• the other Type A programs are High Risk

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• (3) Auditor identifies the high-risk type B
  programs, per Circular A-133, Paragraph 525
  (e)(2)(1)(a)
• (4) The auditor then Applies the Rules to Select
  the Major Federal Programs

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Percentage of coverage of programs as Major
Federal Programs

• General Rule
• Always, all high risk Type A programs must be
  covered,
• but at least 50 of Federal expenditures must
  be covered as Major Federal Programs
• Exception For a low-risk auditee
• at least 25 coverage is required.
• See 520(f) of OMB Circular A-133)

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What is a Low-risk auditee (.530 of Circular
A-133)?

• Unqualified opinions on Financial Statement and
  Schedule of Federal Awards
• No material weaknesses in internal controls
• In past two Single Audits
• -no material weaknesses in internal controls
• -no material compliance findings for Type A
  programs
• -any questioned costs lt5 of Type A program
  Federal expenditures

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• How is a Single Audit Reported on?

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• Key Components of a Single Audit Report

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Report on Financial Statements and Schedule
of Federal Awards
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Financial Statements and Schedule of
Federal Awards
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Report on Compliance and on Internal
Control Over Financial Reporting Based on Audit
of Financial Statements
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Report on Compliance With Requirements Applicable
to Each Major Program and Internal Control Over
Compliance
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Schedule of Findings and Questioned Costs

• -summarizes the audit results
• -identifies major Federal Programs Covered
• -whether Auditee is a low-risk auditee
• -Sets forth audit findings

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• How can I be optimally prepared for an Audit?

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Being Audit Ready

• Audit Ready - Doing the right things the right
  way

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Important Aspects of Audit Readiness

• Overall Effective Control Environment
• Commitment to Ethics and Doing it Right and in
  accordance with the Law and Regulations
• Complete and Up-to-Date Records
• Timely Reconciliations of Records
• Competent Staff

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In accounting for Federal Funds

• Adherence to the Requirements of 34 CFR 80.20
• Education Department General
• Administrative Regulations (EDGAR)
• Standards for Financial Management Systems

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Key EDGAR Financial Management Systems
Requirements

• Permit Tracing of Funds to establish use in
  accordance with statutes
• Permit preparation of required reports
• Accurate, current and complete disclosure

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• Records identify the source and application of
  funds
• Effective control and accountability for all
  Federal assistance (cash and non-cash (property,
  commodities, etc.)
• Budget control

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• Costs charged per OMB Circulars, regulations, and
  grant /subgrant agreements
• Source documentation
• -cancelled checks
• -paid bills
• -payrolls
• -time and attendance records

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• Adherence to cash management requirements

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Adherence to grant specific requirements e.g.

• Title I Comparability
• Records relating to National School Lunch Program
• Participation of Private School Children

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• How does a School District Procure an Audit?

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• Per Paragraph 305 of OMB Circular A-133, factors
  to be considered in evaluating each proposal for
  audits should include
• Responsiveness to the Request for Proposal
• Relevant Experience
• Audit staff with Qualifications and Experience
• Results of External Quality Control Reviews
• Price

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Advisory GuidanceChoosing an External Auditor

• The Mid-America Intergovernmental Audit Forum
  published this useful guidance in March 2000.
• It is accessible on the Internet at
• http//www.auditforum.org/mid20america/midam_exau
  ditor.htm

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• What Happens After a Single Audit is Completed?

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Audit Resolution

• For findings at LEAs involving Federal awards
  that were passed-through the SEA, the SEA
  resolves the audit findings per their procedures.

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• For findings involving awards received directly
  from Federal agencies, they are resolved per the
  procedures of the Federal agency.

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• The U.S. Department of Education has implemented
  an approach of Cooperative Audit Resolution
• Full information about it may be found on the
  Internet at
• http//www.ed.gov/policy/gen/guid/caroi/index.html
  

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The Federal Audit Resolution Process, in General

• Federal Action Official solicits entity
  management comments on findings
• Considering this, the Federal Action Official
  then issues a Determination regarding findings,
  which
• directs corrective action needed and (if
  applicable)
• states whether funds must be returned, and if so,
  how much and how return is to be made

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• Determinations may be appealed within Federal
  Grantor Agency per Agency Procedures and
  Regulations
• Appeal may be made to the Federal Courts

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End of Presentation!

• Your Questions

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Thank You !

• Hugh M. Monaghan
• E-mail
• hugh.monaghan_at_ed.gov
• Telephone - 215-656-6246
• Fax - 215-656-8628