Preparing for Your Annual Audit

Presented by Bob Lloyd

October 27, 2015

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Your Single Audit

• An engagement that satisfies the audit requirements you face as an organization and as a federal fund recipient and subrecipient

• The Single Audit Act of 1984 (as amended)

• OMB authority to issue policies, procedures, and guidelines to implement the Act

--- OMB Circular A-128 (1985-1997)

--- OMB Circular A-133 (1997-2015

--- Subpart F, 2 CFR 200 (2015-

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OMB Grant Reform Objectives Concerning Audit

• Concentrate audit resources, oversight, and resolution on higher dollar, higher risk federal awards, improve non-federal audit quality

• The means:--- Strengthen audit procurement procedures--- Increase dollar threshold triggering the required audit--- Adjust the number of compliance issues to be tested--- Clarify and streamline determination of federal programs to be tested--- Improve reporting of audit findings--- Achieve better findings resolution and corrective action, where warranted

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Federal Audit Policy

• Audits performed by federal auditors (GAO, IG’s, and their duly authorized representatives)

--- Budget and Accounting Act of 1921

--- Inspector General Act of 1978 (as amended)

• Audits performed by non-federal auditors

--- Single Audit Act of 1984 (as amended)

--- OMB prescribed implementation policies

• Required federal agency reliance of single audits

• “Audit leads”

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Auditor Selection

• Must be conducted pursuant to 2 CFR 200.317-326

• Solicitation of SBE, MBE, WBE, whenever possible

• Auditee must request and audit must provide most recent peer review report

• Criteria for selection identified (2 CFR 200.509(a))

• Restriction on auditor preparing indirect cost proposal when IDC recovery exceeds $1 million annually

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Audit Threshold

• Audit required for entities expending $500 in combined federal awards for FY beginning before 12/26/14

• Audit required for entities expending $750 in combined federal awards for FY beginning after 12/26/14

• Audit will examine expenditures against administrative and cost requirements that were in effect at the time of the expenditure

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Audit Vulnerability

• Why worry?

• Federal agency risk assessment (2 CFR 200.205)

--- Audit history

--- FAPIIS (FR, 7/22/15)

• Pass-through entity assessment (2 CFR 200.331(b)

--- Audit history

--- Extent of funding agency oversight

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Audit Vulnerability

• Newness and changed conditions

• Inherent risk

• Control risk

• Detection risk

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Criteria for Federal Program Risk

• 2 CFR 200.519 (Newness of changed conditions)

--- Phase of program at the federal level

--- Phase of program at the recipient and subrecipient level

• Implied—New policy requirements

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Criteria for Federal Program Risk

• 2 CFR 200.519 (Control-related matters)

--- Identified internal control weaknesses

--- Multiple internal control structures

--- Weak subrecipient monitoring (when pass-through awards are made)

--- Previous audit findings

--- programs not recently audited

--- Oversight exercised by other funding sources

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Criteria for Federal Program Risk

• 2 CFR 200.519 (Program design-related matters)

--- Program complexity

--- Extent of contracting

--- Beneficiary eligibility

--- Staff payroll documentation

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Single Audit Objectives

• Financial accuracy--- Organizational financial statements--- Schedule of expenditures of federal awards (SEFA)• Internal control--- Organizational level--- Federal program level----- New reference to guidance (2 CFR 200.303)• Compliance--- Organizational level--- Federal program level (direct and material effect)

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Financial Accuracy

• Auditor relies on generally accepted government auditing standards (GAGAS) to determine whether the financial statements and the schedule of expenditures of federal awards are presented fairly in accordance with generally accepted accounting principles (GAAP).

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Affected Federal Awards

• Direct federal awards--- Grants and cooperative agreements--- Cost-reimbursement contracts• Subawards (subgrants) to subrecipients• Other types of federal awards (2 CFR 200.502)

• Contracts under grants to contractors (regardless of organizational type) are not covered by this requirement but may be auditable for other reasons

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Subrecipient vs. Contractor

• Previous A-133 guidance migrated to 2 CFR 200.331• The term “vendor” has been eliminated• Pass-through entity makes a case-by-case

determination about the nature of the relationship• Concepts of assistance vs. procurement are introduced• Nature of relationship remains determinative• Not all identified characteristics must be present• RDO’s may be in different relationships under different

agreements• Factors not mentioned include lower tier

organizational type and agreement “pricing”

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Internal Controls

• Auditor’s assessment--- Design--- Implementation• Auditee’s response--- Obtain and review identified guidance material (2 CFR 200.303, 2 CFR 200.514(c)----- GAO “Green Book”----- COSO “Integrated Framework”----- OMB Compliance Supplement—Part 6--- Document review and accomplishment of any necessary adjustments

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Internal Control Elements

• Control environment

• Risk assessment

• Control activities

• Information and communication

• Monitoring

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Compliance

• Organizational level compliance requirements

--- Requirements imposed because of organizational status

--- Requirements imposed because of employer status

• Federal program level compliance requirements

--- Requirements identified in the OMB Compliance Supplement

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Identified Compliance Requirements

• Activities allowed and unallowed• Allowable cost/cost principles• Cash management• Eligibility• Equipment and real property management• Matching, level of effort, and earmarking• Period for availability of funds• Procurement and suspension and debarment• Program income• Reporting• Subrecipient monitoring• Special tests and provisions

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Key Documentation Challenges

• Effort reporting (2 CFR 200.430)

• Travel (2 CFR 200.474)

• Procurement (2 CFR 200.318(i))

• Equipment (2 CFR 200.313(d))

• Matching (2 CFR 200.306(j))

• Program income (2 CFR 200.305(b)(5))

• Prior approval/advance understanding (2 CFR 200.407)

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An Audit Readiness “Fire Drill”

• Review OMB 2015 Compliance Supplement—Chapter 3B (www. Federalfundmanagement.com/downloads)

• Conduct internal review using suggested procedures from Compliance Supplement

• Review external audit engagement (Peer review report, recent CPE)

• Review federal agency audit report archives and audit plans (www.ignet.gov)

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Presenter Contact Information

Bob Lloyd

Consultant on Public Management and Government Relations

Telephone: (864) 235-8680

Fax: (864) 235-1465

E-mail: consultlloyd@aol.com

On the web: www.federalfundmanagement.com

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