By Marnie Carlisle - Senior Audit Manager
Many state and local government entities, including school districts, are receiving federal funding through the American Recovery and Reinvestment Act of 2009 (ARRA). Whenever an entity expends federal awards (either direct or indirect awards) in excess of $500,000, that entity is subject to provisions of federal OMB Circular A 133. Because of this requirement and the distribution of ARRA funds, additional public entities in Ohio may qualify for a first-time single audit for fiscal year 2010.
Auditor of State Mary Taylor describes the single audit process as key to enforcing the accountability requirements of the ARRA and other laws. “A quality single audit can help assure everyone – the entity’s officials, state and federal governments and the public – of a federally funded program’s integrity,” she said. “Early detection of noncompliance can also permit more timely corrective action. Public officials who are subject to the single audit process for the first time can help ensure the success of that process by being well educated about the single audit.”
To assist affected entities with compliance, the Auditor of State’s office has prepared this brief overview of A-133 requirements. At the end of the article, there are links to additional support the Auditor of State’s office offers.
Federal program and award identification on the Schedule of Expenditures of Federal Awards (SEFA) must include, as applicable, the Catalog of Federal Domestic Assistance (CFDA) title and number, award number and year, name of the federal agency, and name of the pass-through entity. Also, auditees must separately identify ARRA expenditures in the SEFA pursuant to 2 CFR 176.210, Recovery Act Transactions Listed in Schedule of Expenditures of Federal Awards and Recipient Responsibilities for Informing Subrecipients.
Auditees are required to identify all federal awards received and expended in each federal program. The A-133 defines a “federal award” as “federal financial assistance and federal cost-reimbursement contracts that…entities receive directly from federal awarding agencies or indirectly from pass-through entities. It does not include procurement contracts…used to buy goods or services from vendors.”
Auditors will use the auditee-prepared SEFA to complete federal program risk assessments and determine major programs subject to a single audit. As part of this process, auditors will segregate major programs by size, analyze high-risk program indicators, determine the applicable percentage of coverage rule for the auditee and obtain an understanding of selected major programs for audit.
Accuracy and completeness of the SEFA, as prepared by management, is critical to avoid over-testing or missing federal programs. To help ensure completeness and accuracy, auditees should reconcile the SEFA to their general ledger/accounting system. Additionally, auditees should ensure they have appropriately identified and labeled applicable federal program clusters in the SEFA. For example, auditees should cluster together federal awards with the same CFDA number. Further more, certain federal programs have similar requirements but different CFDA numbers. Such programs should be “clustered” together based on the guidance in Part 5 of the federal OMB Compliance Supplement. Auditors then treat these program clusters as one program for major program determination and testing.
Before testing major programs, auditors must determine if the entity is a low-risk auditee by performing a two-year look back on past audit reports to determine if:
If an auditee qualifies as a low-risk auditee, the auditor needs 25 percent coverage of total federal award expenditures on the SEFA. If the auditee is not low risk, the auditor must obtain 50 percent coverage. After this determination, the auditor can begin the process of selecting major programs and assessing risk.
When testing major programs, auditors must test both the auditee’s design and implementation of internal controls over federal programs. Auditors must also test an auditee’s compliance with grant regulations and effectiveness of internal controls. The federal OMB Compliance Supplement includes a minimum of 14 compliance requirements that auditors must test, to the extent applicable, for each major program. The ARRA also mandates certain additional requirements that are applicable only to federal recovery programs.
Auditors must also review the terms and conditions of applicable grant documents and manuals to determine additional key compliance requirements that may need to be tested. Auditors need to test only those compliance requirements that are direct and material to the major federal program, but auditees are responsible for compliance with all applicable requirements. For this reason, auditees should not try to predict an auditor’s scope and should comply with all of the applicable requirements.
For more information regarding the single audit process, contact your regional Auditor of State’s office. Auditees can also refer to AOS Bulletins 2009-005 and 2009-007 for information regarding ARRA awards and the Auditor of State’s Ohio Stimulus Tracker. Frequently asked questions regarding the ARRA and the Ohio Stimulus Tracker are available at www.auditor.state.oh.us/recovery/faq.htm.