Changes to the A-133: Review Single Audits under the New ......Los Angeles Athletic Club Los...

Changes to the A-133: Review Single Audits under the New Uniform Administrative Requirements, Audit Requirements and Cost Principles

Wednesday, February 04, 2015 Los Angeles Athletic Club

Los Angeles, CA Presented by

Simpson & Simpson, CPAs

Simon Ho - Audit Manager / Single Audit Specialist

[email protected]

www.simpsonandsimpsoncpas.com

Agenda

• Challenges in Federal Grant Audits

• Council on Financial Assistance Reform

(COFAR)

• Overview of the Uniform Grant Guidance

• Cost Principles Subpart E - Highlights of

Changes

• Summary of Changes for Single Audit

Subpart F

• A Look at Compliance Requirements

• Questions & Answers

2

Challenges in Federal Grant

Audits

• Over 4,000 audited programs failed to receive clean

opinions in 2011

• Many major Federal programs receive repeated

“unclean” audit opinions from the same grantees

• No existing guidance hold agencies and recipients

accountable for effectively correcting financial integrity

weaknesses

• 8 different circulars provide duplicative and conflicting

guidance

• Compliance requirements add burden without

contributing to performance or reducing the risk of

waste, fraud and abuse

3

Council on Financial

Assistance Reform (COFAR)

• President Obama issued an executive order on June

13, 2011 to cut waste, to go after unnecessary,

inefficient or ineffective government spending

• To accomplish this, in October of 2011, OMB created

COFAR

• Purpose- improve delivery, management, coordination

and accountability of Federal Grants and cooperative

agreements

• Replaces two Federal boards- the Grants Policy

Council and the Grants Executive Board

4

Council on Financial Assistance

Reform (COFAR) Cont.

Members of the COFAR

• Department of Agriculture

• Department of Education

• Department of Energy

• Department of Health and Human Services

• Department of Homeland Security

• Department of Housing and Urban Development

• Department of Labor

• Department of Transportation

5

Council on Financial Assistance

Reform (COFAR) Cont.

• COFAR and OMB developed New Uniform Grant

Guidance (Super Circular) WHAT IS IT?

• Impact of the Reform

Eliminating duplicative and conflicting guidance

Focusing on performance over compliance for

accountability

Encouraging efficient use of information

technology and shared services

Providing for consistent and transparent treatment

of costs

Limiting allowable costs to make the best use of

Federal resources

Setting standard business processes using data

definitions

6

Overview of the Uniform Grant

Guidance

• The uniform guidance supersedes 8 circulars into one set of guidance:

Grant administrative circulars A-110 and A-102

Cost principle circulars A-122, A-87, A-21

Audit circulars A-133 and A-50

Circular A-89 (catalogue of federal financial assistance)

• Codified at 2 C.F.R. Part 200

• Each federal agency will adopt by regulation

7

Subtitle A, Chapter II Part 200 – key areas to focus on are:

• Subpart A – contains new acronyms and definitions

• Subpart B – covers general provisions

• Subpart C- covers new administrative requirements directed primarily to federal agencies including pre-award requirements for contents of federal awards

• Subpart D – covers new administrative requirements to include changes to procurement, internal control and subrecipient monitoring

8

Overview of the Uniform Grant Guidance (Con’t)

• Subpart E – includes reforms to the cost

principles previously found in OMB Circulars A-

21, A-87, and A-122

• Subpart F – includes reforms to the single audit

requirements which were previously found in A-

133

9


Guidance (Con’t)

• When Is the Super Circular Effective?

• Super Circular will apply to new awards and

additional funding to existing awards made after

Dec. 26, 2014

Effective date may be challenging as some

entities may end up having funding subject to

the old Cost Principles and the new Cost

principles within the same fiscal year

• Audit requirements (Subpart F) will apply to audits

of fiscal years that start on or after Dec. 26, 2014

• OMB plans to publish the 2014 Single Audit

Compliance supplement in April 2014

10


Guidance (Con’t)

Cost Principles Subpart E

Highlights of Changes

11


Highlights of Changes

• Consolidated Cost Principles into single document:

OMB Circular A-21 – Educational Institutions

OMB Circular A-87 - State, Local and Indian Tribal

Governments

OMB Circular A-122 – Nonprofit Organizations

OMB is conducting further review of the cost

principles for hospitals and will make a future

determination about the extent to which they

should be added to this guidance

12

Overview:

• General provisions

• Basic considerations

• Collection of unallowable costs

• Adjustment of previously negotiated ICR

containing unallowable costs

• Direct and indirect costs

• Special considerations for states, local

governments and Indian Tribes

• Special considerations for institutions of higher

education

• General provisions for selected items of costs

13


Highlights of Changes (Con’t)

• Charges must be based on records accurately reflecting work performed

• If meet following standards, no additional documentation required:

Supported by system of internal control

Incorporated in official records

Reasonably reflect the total compensated activity

Encompass all activities – federal and non federal

Comply with established accounting practices and policies

Support distribution of employee’s salary among specific activities or cost objective

14



• If use budget estimates (estimates determined

before services are performed) must:

Have system that produces reasonable

approximation of actual activity

Enter significant changes into records in a

timely manner

Follow processes to review after-the-fact

interim charges to estimate and ensure

final amount charged is accurate,

allowable and properly allocated

15



• For the first time, the cost principles address

blended funding in the Super Circular.

• For blended funding: allow to account for

combined use based on performance metrics if

all involved federal awarding agencies approve

• Must submit request for waiver of standards

based on documentation that:

Describes method of charging costs,

Relates charging of costs to a specific

activity applicable to all funding sources

and

Is based on quantifiable measures of the

activity in relation to time charged

16



Proposal Cost:

• Allowable as an indirect cost

Preparing proposals for both Federal and

non-Federal

Successful and not successful bids

Allocated to all activities of the organization

• Used to be permitted in higher education and

government cost circulars – now permitted for

all

17



Depreciation:

• No more use allowance

• When replacing use allowance with depreciation

method, depreciation must be computed as if

asset has been depreciated over its entire life

• Charges must be supported by adequate

property records and physical inventories (taken

at least every 2 yrs) to ensure assets useable,

used and needed

• Must maintain records showing that adequate

depreciation taken

18



Indirect Cost:

• Federal agencies and pass-through entities will

have to accept a non-federal entity’s negotiated

indirect cost rate

• Unless a statute or regulation allows for an

exception

• Non-federal entities will have a one-time option to

extend rate for up to four years

• For non-federal entities who have never received a

negotiated rate , de minimis rate of 10% of

modified total direct costs may be used indefinitely

19



Required Certifications:

• Expenditure certification required to assure

payments are proper and in accordance with:

Award terms and conditions

Approved project budgets

Annual and final fiscal reports or vouchers

requesting payment under the agreement

• Must be signed by an official authorized to legally

bind entity

• Sample certification language included in

regulation

• 20



Required Certifications (Con’t):

• Cost allocation plan or indirect cost rate proposal

certification must be:

• Maintained on file

• On forms in the appendices

• Signed by an individual no lower than VP or

CFO

• If don’t elect 10% rate or submit a certified rate

or plan proposal, Federal gov’t may disallow all

indirect costs or unilaterally establish a plan or

rate

• 21



SUMMARY OF CHANGES FOR

SINGLE AUDIT

SUBPART F

Summary of Changes for Single Audit (Subpart F)

• OMB A-133 Audit Requirements are now in Subpart F

• Single Audit Threshold for Audit Increased to

$750,000

• Major Program Threshold minimum increased from

$300,000 to $750,000

• Focuses on the area of internal control deficiencies

that have been identified or material weaknesses

• Changes to the Major Program Determination Process

- Type B Programs

• Percentage of Coverage Changes.

• Criteria for Low-Risk Auditee Status.

• Threshold for reporting known and likely questioned

cost increase from $10,000 to $25,000

23

Summary of Changes for Single Audit (Subpart F) Con’t

• Provides for federal agencies to approve alternative

methods of accounting for salaries and wages based

on achievement of performance outcomes

• Requires pass-through entities to provide an indirect

cost rate to subrecipients

• Provides a de minimis indirect cost rate of 10% of

Modified Total Direct Cost (MTDC)

24


25

Basic Structure of Single Audit Process (no change)

• Audit threshold (200.501).

• Subrecipient vs. Contractor (200.501(f) & 200.330).

• Biennial (200.504) & Program-specific (200.507) audits.

• Non-Federal entity selects auditor (200.509).

• Auditee prepares financial statements & SEFA (200.510).

• Audit follow-up & corrective action(200.511 & 200.521).

• 9 month due date (set in law) (200.512(a)).

• Reporting to Federal Audit Clearinghouse (200.512).

• Major programs determined based on risk (200.518).

• Compliance Supplement overall format.


Type A/B Threshold – Step 1

To identify Type A and Type B programs the

following procedures have not been changed:

• Programs are grouped based on dollars

• Type A programs are those above the threshold

• Type B are those below the threshold

• Type A/B threshold is a sliding scale with

minimum

• increases from $300,000 to $750,000

26

A-133 criteria (OLD):

• Not audited as major

program in 1 of 2 most

recent audit periods

• In most recent period had

ANY AUDIT FINDING

o Provided for auditor

judgment in limited

cases, e.g., very small

questioned costs

o Other – Auditor

judgment

Uniform Guidance (NEW):

• Same

• In most recent period had a

HIGH- RISK AUDIT

FINDING:

• Modified opinion

• Material weakness in

internal control

• Known or likely questioned

costs exceeding 5% of

total program expenditures

• Other – Auditor judgment

• Basically unchanged.

27


High Risk Type A Program – Step 2

A-133 criteria (OLD):

There are two Type B risk assessment options:

• Option 1 – Perform risk assessments on ALL Type B

programs and select at least 50% of Type B programs

identified as high risk up to number of low-risk Type A

programs

• Option 2 – Perform risk assessments on all Type B

programs until as many high-risk Type B programs have

been identified as there are low-risk Type A programs.


Perform risk assessments on Type B programs until high-

risk Type B programs have been identified UP TO at least

25% of number of low-risk Type A programs

28


High Risk Type B Program – Step 3



Coverage Rule - Step 4

Guidance reduces the minimum coverage as follows:

Type of Auditee Current New

Not low-risk 50% 40%

Low-risk 25% 20%

29


Low-Risk Auditee

Current (2 prior years) • Annual single audits • Unmodified opinion on

financial statements in accordance with GAAP

• Unmodified SEFA in relation to opinion.

• No GAGAS material weaknesses

• In either of preceding two years, none of Type A programs had: Material Weakness Material noncompliance Questioned costs that

exceed 5% • Timely filing with FAC. • Auditor reporting going

concern not preclude low-risk • Waivers.

New (2 prior years)

• SAME.

• Unmodified opinions on

statements in accordance

with GAAP or basis of

accounting required by state

law.

• SAME.

• SAME

• SAME

• SAME.

• No Audit reporting of going

concern.

• No waivers.

30


Single Audit Report Submission

31

• All auditees must submit the reporting package

and the data collection form electronically to

the Federal Audit Clearinghouse (FAC)

(200.512(d)).

• FAC submission process will be changed to

require that submissions be in text-based PDF

and unlocked to improve accessibility.

• FAC responsible to make the reports available

on a Web site (200.512(g)).

• Exception for Indian tribes


Single Audit Reports on the Web - PPII

• Auditors and auditees must ensure reports do not

include protected personally identifiable information

(PPII)

• Auditee must sign statement that:

Reports do not include PPII

Authorizes FAC to make reports available to

public on a Web site

• Exception for Indian tribes as defined in 200.54.

• No exception for tribal organization not meeting

the 200.54 definition

32

Summary of Changes for Single Audit

(Subpart F) Con’t Reporting Packages

• 33

• Federal agencies, pass-through entities, and

others obtain copies by accessing FAC website.

• Subrecipient only required to submit report to

FAC and no longer required to submit to pass-

through entity.

• Pass-through entity no longer required to retain

copy of subrecipient report as available on the

Web.

Summary of Changes for Single Audit (Subpart F) Con’t Audit Findings (200.516)

34

• Increases the threshold for reporting known and likely

questioned costs from $10,000 to $25,000 Requires

that questioned costs be identified by CFDA number

and applicable award number.

• Requires Identification of whether audit finding is a

repeat from the immediately prior audit and if so the

prior year audit finding number.

• Provides that audit finding numbers be in the format

prescribed by the data collection form (e.g. 2014-001)


Additional Audit Requirements

35

• List of program specific audit guides will be

provided beginning with the 2014 Supplement

including:

Agency contact information

Web site where copy of guide is available

• Clarified that if report due date is on a Saturday,

Sunday, or Federal legal holiday, report

submission is due the next business day

• Provides for a government-wide audit quality

project once every 6 years beginning in 2018.

• Made technical edits to align with current

auditing standards


Effective Date for Audit Requirements

• Subpart F will be effective for non-Federal entity

Fiscal Years (FY) or biennial periods beginning

on or after December 26, 2014

• First year examples:

FY beginning January 1, 2015 and ending

December 31, 2015

Biennial period beginning January 1, 2015 and

ending December 31, 2017

• Early implementation of Subpart F is not

permitted

36

A at Compliance

Requirements

Uniform Grant Guidance

Council of Financial Assistance Reform (COFAR) visit

www.cfo.gov/COFAR for recorded webcast on policy changes

OMB crosswalk and side-by-side that explain where to find

revised sections of old guidance is available at

http://www.whitehouse.gov/omb/grants_docs

Code of Federal Regulations (CFR)

2 CFR Part 200 -Non-Profit – Administrative requirements, cost

principles, and audit requirements available at

www.gpo.gov/.../CFR2

48 CFR Subpart 31.2 For-Profit Cost Principles – FAR

available on-line at http://gsa.gov/portal/content/104790).

45 CFR Part 74.26 (d) For-profit audit requirement available at

www.gpo.gov/.../CFR

37

http://www.cfo.gov/COFAR

http://www.whitehouse.gov/omb/grants_docs

http://www.gpo.gov/.../CFR2

http://gsa.gov/portal/content/104790

http://www.gpo.gov/.../CFR

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