GAQC Member Conference Call The New GAQC Schedule of Expenditures of Federal Awards Practice Aids and Other Related Issues

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GAQC Member Conference CallThe New GAQC
Schedule of Expenditures of Federal Awards
Practice Aids and Other Related Issues
Corey Arvizu Heinfeld, Meech Co.
Barbara Cevallos PricewaterhouseCoopers LLP

• October 22, 2009

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TOPICS to be COVERED

• Context of the SEFA
• Background on the Development of the Practice
  Aids
• GAQC Developed Practice Aids
• Auditor Practice Aid Illustrative Audit Program
• Auditor Auditee Practice Aid Disclosure
  Checklist
• Auditee Practice Aid Worksheet for Identifying
  Federal Program Information
• Impact of the American Recovery and Reinvestment
  Act on SEFA Reporting

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Context of the SEFA
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Context of the SEFA

• Defined in OMB Circular A-133 _.310(b)
• Auditees responsibility _.300(d)
• Auditors responsibility _.505(a)
• Opinion (or disclaimer of opinion) as to whether
  the SEFA is presented fairly in all material
  respects in relation to the financial statements
  taken as whole.
• Considered supplementary information

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Context of the SEFA Auditee Responsibility

• SEFA is the primary responsibility of the auditee
• Encourage your clients to
• Contact pass-through awarding entities early in
  the planning process
• Understand the importance of the SEFA
• Consider control deficiencies

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Context of the SEFA - Opinion

• In relation to opinion
• AU 551 Reporting on Information Accompanying the
  Basic Financial Statements in Auditor-Submitted
  Documents (Undergoing revision)
• Opinion is based on the same materiality as that
  of the financial statements
• Dating concurrent with financial statement opinion

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Context of the SEFA Compliance Audit Objectives

• SEFA serves as the primary basis for major
  program determination thus making the accuracy
  completeness of the SEFA a critical factor
• Internal control over compliance procedures
  require the auditor to assess the auditees
  controls over the accuracy and completeness of
  the expenditure amounts accuracy of CFDA
  numbers
• Compliance procedures should be performed to
  determine whether the SEFA is complete, accurate
  and contains all required elements

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Background on the development of the practice aids
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Background

• Understand Quality Control Issues Associated with
  the SEFA
• AICPA Response

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QC Issues Associated with the SEFA

• PCIE Report Issued in June 2007
• Identified quality issues in many aspects of
  single audit engagements reviewed
• For more information
• Listen to the GAQC archived Webcast An Overview
  of the Results of the National Single Audit
  Sampling Project
• Read the PCIE Report available at the following
  site http//ignet.gov/pande/audit/NatSamProjRptFI
  NAL2.pdf
• Read the October 25, 2007 testimony presented at
  a Senate hearing on Single Audit Quality
  http//hsgac.senate.gov

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QC Issues Associated with the SEFA

• Audit documentation did not contain evidence that
  audit programs were used for auditing the SEFA
• Omission of required elements of the SEFA
• Audit documentation did not contain evidence that
  audit work relating to the SEFA was adequately
  performed
• Required opinion on the SEFA was omitted

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QC Issues - Audit Programs

• Expectation of use in accordance with audit
  standards
• Include adequate procedures (which go beyond
  those required for in-relation opinion)
• Consistent application of audit procedures on
  SEFA for all audits and all teams
• Help address other SEFA quality control issues
  noted

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QC Issues Required Elements

• Issue noted in over 45 of audits reviewed
• Clustering and correct CFDA numbers critical
• Use of review checklist for both auditors and
  auditees
• Correct SEFA content important for
• Determining major federal programs
• Determining compliance requirements of major
  programs
• Presenting required information for SEFA users

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QC Issues - Evidence

• Specifically identify audit procedures applied to
  the SEFA
• Procedures should identify assertions tested, in
  particular completeness, accuracy, and
  classification
• Utilization of audit program helps ensure
  adequate evidence
• Notes to the SEFA are a required element of the
  reporting package

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QC Issues - Opinion Omission

• Educate staff and partners working on single
  audits about the options on where to include the
  SEFA in relation to opinion
• Consider developing a template to illustrate the
  requirements of an A-133 report
• If your firm uses an audit completion checklist
  to assist in performing final documentation and
  report reviews, add a step to review the in
  relation to opinion on the SEFA before issuance

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AICPA Response

• Formation of the SEFA Reporting Issues Task Force
• Revisions made to AICPA GAS/A-133 Peer Review
  Checklists based on the findings
• Interaction with the Federal community to keep
  abreast of their responses

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SEFA Reporting Issues Task Force

• 7 member task force with representatives from
• GAQC member firms
• Diverse firm representation
• Practice Aids reviewed by
• State Auditor
• AICPA Audit Attest Standards staff
• OMB task force
• Practice Aids are considered an Other Auditing
  Publication

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Questions
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Gaqc developed practice aids
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GAQC Practice Aids

• Auditor Practice Aids
• Illustrative Audit Program for the SEFA
• Disclosure Checklist for the SEFA
• Auditee Practice Aids
• Worksheet for Identifying Federal Program
  Information
• Disclosure Checklist for the SEFA
• Practice aids are available through the GAQC
  website at GAQC Home gt Resources gt Research
  Tools and Aids

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Illustrative Audit Program for the SEFA

• Assertions related to the SEFA
• CM Completeness
• OC Occurrence
• AC Accuracy
• CT Cutoff
• CU Classification and Understandability

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Illustrative Audit Program for the SEFA

• Objectives of the Audit Program
• To determine whether the schedule of expenditures
  of federal awards (schedule) is fairly stated in
  all material respects in relation to the basic
  financial statements.
• To determine whether the schedule provides an
  appropriate basis for determining major programs.
  

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In Relation To Procedures

• AU 550, Other Information in Documents Containing
  Audited Financial Statements
• Provides guidance on the auditors consideration
  of supplementary information (SI), including
  auditor responsibilities and related procedures
• Read the SI and consider whether such
  information, or the manner of its presentation,
  is materially inconsistent with information, or
  the manner of its presentation, appearing in the
  financial statements.

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In Relation To Procedures

• AU 551, Reporting on Information Accompanying the
  Basic Financial Statements in Auditor-Submitted
  Documents
• Provides guidance on the form and content of the
  reporting when the auditor expresses an in
  relation to opinion.
• AU 550 and AU 551 are being revised
• Comments were due May 2009
• ASB currently deliberating
• GAQC will make its members aware when issued and
  will make any appropriate modifications needed to
  the audit program

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In Relation To Procedures

• Inquire of management whether the schedule was
  prepared in accordance with Circular A-133.
• Obtain an understanding about the methods of
  preparing the information, including whether the
  form and content complies with Circular A-133.
• Compare and reconcile information to the
  underlying accounting and other records used in
  preparing the financial statements or to the
  financial statements themselves.

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In Relation To Procedures

• Inquire of management whether there were any
  significant assumptions or interpretations
  underlying the measurement of presentation of the
  information.
• Evaluate the appropriateness and completeness of
  the information, considering procedures and other
  knowledge obtained during the audit of the
  financial statements.

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In Relation To Procedures

• Obtain the following management representations
• that it acknowledges its responsibility for the
  information
• that the form and content of the schedule is in
  accordance with Circular A-133 310.b
• that the methods of measurement or presentation
  have not changed from those used in the prior
  period or, if the methods of measurement have
  changed, the reasons for such changes and
• as to any significant assumptions underlying the
  measurement or presentation of the schedule.

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Procedures Related to A-133 Requirements

• Obtain an understanding of internal control over
  the preparation of the schedule.
• Determine whether the period covered by the
  schedule is the same as that covered by the
  financial statements.
• Determine whether the clusters reported in the
  schedule are correct by comparison to Part 5 of
  the Compliance Supplement

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Procedures Related to A-133 Requirements

• Test completeness of the schedule
• Test accuracy of CFDA numbers and names of
  awarding agencies by comparison to various source
  and other documents

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Procedures Related to A-133 Requirements

• Determine whether the schedule
• Properly identifies federal awards from
  pass-through entities and the federal portion of
  multi-funded awards, and assess potential finding
  if client is unable to determine these amounts.
• Properly includes direct and indirect costs, and
  excludes cost sharing or matching amounts.
• Presents the minimum data elements required by
  A-133, section 310(b).
• Presents in the notes to the schedule the
  significant accounting policies used and basis of
  presentation.

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Procedures Related to A-133 Requirements

• Determine whether the schedule (continued)
• Appropriately measures certain specific items,
  such as loans and loan guarantees, endowment
  funds, and noncash assistance, as provided in
  A-133, section 205(b) through (j).
• Uses measurements or presentations that differ
  from those in the prior period. (If so, evaluate
  the nature and reasonableness of the changes.)
• Has any significant assumptions or
  interpretations underlying the measurements or
  presentations. (If so, evaluate the
  appropriateness of those assumptions and
  interpretations.)

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Procedures Related to A-133 Requirements

• In addition to the other management
  representations noted obtain the following
• that it is managements responsibility for
  understanding and complying with the compliance
  requirements related to the preparation of the
  schedule
• that management has identified all of its
  government programs and related activities
  subject to Circular A-133 and has included
  expenditures made during the period being audited
  for all awards provided by federal agencies in
  the form of grants, federal cost-reimbursement
  contracts loans, loan guarantees, property
  (including donated surplus property), cooperative
  agreements, interest subsidies, insurance, food
  commodities, direct appropriations, and other
  direct assistance

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Procedures Related to A-133 Requirements

• In addition to the other management
  representations noted obtain the following
• that management has made available all contracts
  and grant agreements, including amendments, if
  any, and any other correspondence that have taken
  place with federal agencies or pass-through
  entities related to federal programs
• acknowledges managements responsibility for
  establishing and maintaining controls that
  provide reasonable assurance that the entity
  manages government programs in compliance
  requirements.

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Procedures Related to A-133 Requirements

• Evaluate identified control weaknesses pertaining
  to the auditees complete and accurate schedule
  and determine whether such deficiencies
  individually or in combination, are significant
  deficiencies or material weaknesses relating to
  internal control over financial reporting,
  internal control over compliance or both.
• Currently, apply SAS 112 definitions
• Consider the likelihood/magnitude of an error
  compared to financial statement AND A-133
  materiality
• Consider any linkage between the process used to
  compile the SEFA and recording of federal grant
  transactions

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Questions
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Disclosure Checklist for the SEFA

• Designed using the requirements of A-133 310.b
• Emphasize to clients that the preparation of the
  SEFA is an auditee responsibility as defined by
  A-133 300.d
• Communicate with clients who have difficulty
  preparing the SEFA early in the planning process
• Auditor Auditee practice aids are identical in
  terms of listing the required elements

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Disclosure Checklist for the SEFA

• Highlights
• If a CFDA number is not available, include the
  agency prefix and another identifying number and
  the name of the program
• Clusters must list individual awards
• Include, if applicable, awards received as a
  subrecipient, the name of the pass-through entity
  and identifying number assigned by the
  pass-through entity

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Disclosure Checklist for the SEFA

• Highlights
• Include non-cash assistance
• Inclusion of non-federal awards in the SEFA
• Clearly segregated
• Designated as non-federal
• Modify the title of the SEFA to indicate their
  inclusion

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Worksheet for Identifying Federal Program
Information

• Task Force wanted to emphasize that the
  preparation of the SEFA is an auditee
  responsibility
• Developed a tool to share with clients to help
  them compile information on each of their grants

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Worksheet for Identifying Federal Program
Information

• Help your clients understand
• CFDA numbers and their purpose
• Role of pass-through entities
• Noncash assistance
• Advance vs. reimbursement cash draws
• OMB Compliance Supplement
• Types of compliance requirements
• How to determine applicability to each grant
• Importance of all of this information on
  administering grants
• Potential impact on their report for failure to
  understand or apply (findings)

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Other Tools Resources

• Alert 126 Release of SEFA Practice Aids
• Forward to clients or use to format your own
  communication
• GAQC Member-only conference calls
• Auditee Preparation for Single Audits (open call)
• SEFA Reporting Improvements Suggested
  Procedures (discusses many deficiencies in
  detail)

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Other Tools Resources

• AICPA/CPA2BIZ (http//www.cpa2biz.com/)
• Government Auditing Standards Circular A-133
  Auditing Accounting Guide
• Government Auditing Standards Circular A-133
  Audit Risk Alert
• OMB (http//www.whitehouse.gov/omb/circulars/index
  .html)
• Circular A-133
• Current Years Compliance Supplement
• GAO (http//www.gao.gov/govaud/ybk01.htmcontacts)
  
• 2007 Yellow Book Government Auditing Standards

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Impact of the American recovery and reinvestment
act on sefa reporting
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Recovery Act

• American Recovery and Reinvestment Act of 2009
• Some June 30, 2009, audits impacted bigger
  impact likely on later 2009 year-ends and into
  2010 and 2011
• Accountability and Transparency
• QCRs built into the OMB guidance results to be
  placed on Recovery.gov
• Single audit reporting to be made available on
  the Internet
• Auditees significantly affected by Section 1512
  reporting auditor responsibility going forward?
• Non-static Compliance Supplement and other OMB
  guidance issued on continual basis
• Changes to major program determination process
• Watch GAQC communications and Web site for updates

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Recovery Act OMB Guidance

• OMB Guidance on Recovery Act Directly Relating to
  SEFA Requirements
• March 2009 OMB Compliance Supplement and Appendix
  VII
• August 2009 OMB Compliance Supplement Addendum 1
  (effective for June 30, 2009 audits)
• Both available through the following link
  http//www.whitehouse.gov/omb/grants_circulars/

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Recovery Act Compliance Supplement Appendix VII

• Effects on SEFA
• Auditors Should Be Alert for Recovery Act
  Awards.  Auditors should be alert to determine
  whether auditees (both recipients and
  subrecipients) have properly identified Recovery
  Act awards
• Impact on CFDA Numbers.  Federal agencies are
  required to specifically identify Recovery Act
  awards, regardless of whether the funding is
  provided under a new or existing CFDA number 
• Cluster Guidance to be Updated in Addendums.  OMB
  states that it will need to update the clustering
  guidance in Part 5 of the Compliance Supplement
  since many of the Recovery Act awards will have
  new CFDA numbers

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Recovery Act Compliance Supplement Appendix VII

• Effects on SEFA
• SEFA and Data Collection Form (DCF) Need to
  Identify Recovery Act Expenditures Separately 
• Specific Recovery Act requirements are being
  included in terms and conditions for Recovery Act
  awards to ensure separate identification in both
  the SEFA and the DCF.  This separate
  identification should also include the RD
  cluster regardless of the accommodation made in
  section .310(b)(1) of Circular A-133. 

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Recovery Act Addendum 1 to CS

• Effects on SEFA
• Addition of Special Tests Provisions for Awards
  with ARRA Funding
• R2 Separate presentation on the SEFA and DCF of
  ARRA awards
• Note that these are additive requirements
  (current requirements in A-133 still stand)

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Recovery Act

• Research Development Cluster Considerations
• New CFDA versus existing CFDA
• ARRA in title
• Reporting by agency

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Recovery Act (partial SEFA)
Federal Grantor Federal CFDA Number Federal Expenditures
Department of Health and Human Services Direct Programs
Foster Care Title IV-E 93.658 11,000,000
ARRA - Foster Care Title IV-E 93.658 1,099,000
Total Foster Care 12,099,000
ARRA - Bovines 93.999 7,567,543
Total Department of Health and Human Services Direct Programs 19,666,543

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Recovery Act (SF-SAC)
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GAQC Recovery Act Resource Center

• Watch the Resource Center for new Recovery Act
  guidance
• http//gaqc.aicpa.org/Resources/RecoveryActResou
  rceCenter.htm
• Archived GAQC member calls
• Recovery Act calls
• Auditee call on preparing for a single audit
• Links to Recovery Act GAQC Alerts
• Links to GAQC Recovery Act tools
• Nonauthoritative examples to illustrate the
  impact of the Recovery Act
• Talking points for auditors to use with clients
• The Resource Center is open to general public, so
  invite your staff and clients

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Questions