2010 Mauldin & Jenkins Single Audits for for Auditees

Transcription

1 2010 Mauldin & Jenkins Single Audits for Auditees

2 SINGLE AUDITS FOR AUDITEES Mauldin & Jenkins July 22, 2010 Macon August 3, Atlanta PRESENTER Hope Pendergrass Manager Macon Office hpendergrass@mjcpa.com SA - 2

3 TOPICS to be COVERED What is a Single Audit? Schedule of Expenditures of Federal Awards Understanding Compliance Requirements ARRA & the 2010 DRAFT compliance supplement Effective Internal Controls Common Deficiencies SA - 3

4 Group check How many have been through an OMB A-133 Single Audit? SA - 4

5 What is a Single Audit?? Anyone? Anyone? SA - 5

6 And the Answer Is.. Compliance audit of federal grants (which could be passed through other agencies, such as states) Grantors agencies have the right (and responsibility) to monitor and audit recipients to ensure funds are used properly Recipient agencies faced the problem of satisfying audit requirements of numerous grantors The Single Audit was created to create a somewhat uniform set of stringent requirements, whose performance was so standardized, that the need for an additional audit would be eliminated Federal grantor agencies are required to accept the Single Audit report without additional demands on grant recipient organizations. SA - 6

7 Official Definition The single audit is a governmental audit of the financial statements of state and local governments and of not-forprofit entities that expend federal awards. Established by federal legislation and regulation, the requirements of the single audit are very stringent. t The single audit must be conducted in accordance with all three levels of auditing standards to be acceptable to federal grantor agencies and other pass-through organizations. The three levels are: Generally accepted auditing standards (GAAS); Government Auditing Standards, issued by the U.S. Government Accountability Office (GAO); and OMB Circular A-133, which is issued by the Office of Management and Budget (OMB) to comply with the federal single audit requirements. SA - 7

8 Why Discuss Single Audits? With the addition of ARRA funding, the emphasis on and scrutiny of Single Audits is higher than ever Answer common questions CPE! SA - 8

9 Need for the A-133 Audit Federal financial assistance growth to over $100 billion Evolution of audits and auditors Grant by grant audits Over 100 audit guides Deficiencies of pre-single Audit practices Substantial duplication and overlap Gaps in audit coverage Varied approaches and guidelines Lack of coordinated audit effort SA - 9

10 Objectives of the A-133 Audit Financial statements presented fairly in accordance with GAAP Compliance with laws and regulations Establish adequate internal control policies and procedures (most important part) Federal financial assistance Compliance with laws and regulations material to major federal programs SA - 10

11 Entities Subject to A-133 Audit An entity is subject to the A-133 Audit if it spends $500,000 or more in federal awards. States and local governments Non-profit organizations Higher education institutions Hospitals SA - 11

12 Schedule of Expenditures of Federal Awards (SEFA) SA - 12

13 Schedule of Expenditures of Federal Awards (SEFA) List individual federal programs by federal agency Federal awards received as a subrecipient pass-through entity, and identifying number assigned by the pass-through entity Total federal awards expended by program CFDA number or other identifying number Watch out for clusters, especially clusters with ARRA funds Amount of pass-through awards from each federal program Noncash awards in either the schedule or a note to the schedule Include notes that describe the significant accounting policies used in preparing the schedule. Accrual or other disclosed basis of accounting Auditee s responsibility to prepare ARRA funds must be listed separately with ARRA prefix. SA - 13

14 Schedule of Expenditures of Federal Awards (SEFA) Remember that the schedule is a schedule of expenditures, NOT revenues (a common mistake made by clients AND auditors). Programs in a cluster should be identified as such, EVEN IF the auditee only receives funding under one program in the cluster. If revenues are less than expenditures for a given program, use the total amount of revenue (as additional expenditures were funded from another source). If expenditures are less than revenues, consider if there are unrecorded accrued expenditures, if funds have been drawn down in excess, etc. SA - 14

15 Schedule of Expenditures of Federal Awards (SEFA) Exercise Given the following details of revenues and expenditures by program, what amounts should be reported on the SEFA? Revenues Expenditures $105,218 $105,218 $119,954 $106,653 $195,305 $205,305 $85,000 $0 SA - 15

16 SEFA Current Requirements 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, i the name of the pass-through h entity and identifying number assigned by the pass-through entity SA - 16

17 SEFA Current Requirements Non Cash Awards Loans, loan guarantees, insurance, endowments, free rent, food stamps, donated property Non cash awards are important to identify as they impact major program determination Guidance Chapter 7 of the GAS/A-133 Audit Guide OMB Circular A SA - 17

18 SEFA Current Requirements Include the basis of accounting Must be GAAP or OCBOA Award basis is NOT a regulatory basis GAQC Issued an article on its Web site titled, Audit Quality Issue: Basis of Accounting which discusses award basis. ools+and+aids/article+on+basis+of+accoun ting.htm. SA - 18

19 Determining When a Federal Award is Expended Amount of federal awards expended basis for determining if A-133 audit is required Based on when the activities that require compliance with laws, regulations and the provisions i of the contracts t or grant agreement takes place Definition of expenditure may differ from GAAP SA - 19

20 Determining When a Federal Award is Expended Basis for Determining When Federal Awards Are Expended Federal Awards Basis for Determining When Expended Grants, cost reimbursement contracts, cooperative agreements, and direct appropriations When the expenditure or expense transactions occur Amounts passed through to subrecipients When the disbursement is made to the subrecipient Loan and loan guarantees When the loan proceeds are used Donated property, including donated surplus property When the property is received SA - 20

21 Determining When a Federal Award is Expended Basis for Determining When Federal Awards Are Expended Federal Awards Food commodities Basis for Determining When Expended When the food commodities are distributed or consumed Interest subsidies Insurance When amounts are disbursed entitling the entity to the subsidy When the insurance is in force Endowments When federally restricted amounts are held Program income When received or used SA - 21

22 SEFA Practice Aids & Tips Auditee tools Worksheet to identify federal programs Disclosure checklist GAS/Circular A-133 Audit Guide Improvements Additional discussion added to SEFA chapter New example SEFAs included SA - 22

23 Suggested Resources OMB ( Circular A-133 Current Year s Compliance Supplement DRAFT of 2010 Compliance Supplement available at: uditquality/resources/pages/draft2010complianc esupplement.aspx p Grant agreements and award letters SA - 23

24 Questions?

25 SEFA Exercise SA - 25

26 Understanding Compliance Requirements SA - 26

27 What are the 14 Potential Compliance Requirements?

28 14 Potential Compliance Requirements Allowable Activities Allowable Costs Cash Management Davis-Bacon Act Eligibilityibilit Real Property and Equipment Management Matching, LOE, and Earmarking Period of Availability Procurement Program Income Real Property Acquisition Reporting Subrecipient Monitoring Special Tests SA - 28

29 Activities Allowed/Unallowed & Allowable Costs/Cost Principles Allowable/Unallowable Activities are ones that can or cannot be funded under a specific program. Allowable Costs/Cost Principles describes the cost accounting requirements associated with federal awards. These include OMB Circular A-21, "Cost Principles for Educational Institutions;" Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments;" Circular A-122, "Cost Pi Principles i for Nonprofit fitorganizations;" SA - 29

30 Cash Management When entities are funded on a reimbursement basis, program costs must be paid for by entity funds before reimbursement is requested from the Federal Government. When funds are advanced, recipients must follow procedures to minimize i i the time elapsing between the transfer of funds from the U.S. Treasury and disbursement. Interest earned on advances by local government grantees and subgrantees is required to be submitted promptly, but at least quarterly, to the Federal agency. Up to $100 per year may be kept for administrative expenses SA - 30

31 Davis Bacon Act Requires that wages for "laborers and mechanics" employed by contractors (including subcontractors) of federally-funded construction in excess of $2,000 be paid in accordance with the prevailing local wage established by the Secretary of Labor. SA - 31

32 Eligibility Specifies the criteria for determining the individuals, groups of individuals, or subrecipients that can participate in the program and the amounts of assistance for which they qualify. Eligibility of those participating in the program funded by the grant or contract rather than the eligibility of the primary recipient. SA - 32

33 Equipment and Real Property Management Equipment and real property management provides standards for the use and disposition of equipment and real property purchased with federal funds. These requirements cover records and inventory management. Equipment means tangible nonexpendable property, including exempt property, charged directly to the award having a useful life of more than one year and an acquisition cost of $5000 or more per unit. Title vests with non-federal entity SA - 33

34 Matching, Level of Effort, Earmarking Matching is amount (or percentage) of grantee contributions ti or matching funds provided Matching, M t or cost sharing, includes requirements to provide contributions (usually non-federal) of a specified amount or percentage to match federal awards. Matching may be in the form of allowable costs incurred or in-kind contributions (including third-party in-kind contributions); SA - 34

35 Matching, Level of Effort, Earmarking Level of effort (LOE) is specified service or expenditure levels l maintained i from period to period Level L l of effort may include provisions i for funds to supplement and not supplant non-federal funding of services. (ARRA exceptions) Earmarking is minimum or maximum limits for specified purposes Earmarking may relate to amounts or types of participants covered. SA - 35

36 Questions? SA - 36

37 Period of Availability Time period during which the non-federal entity can use the grant funds Only costs incurred during the specified period may be charged to the grant award Sometimes pre-award costs are approved Can sometimes be carried over SA - 37

38 Procurement, Suspension & Debarment Procurement - States, and governmental subrecipients i of states, t shall use the same state t policies and procedures used for procurements from non-federal funds. Suspension & Debarment - Non-federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred or whose principals are suspended or debarred. Excluded Parties Listing SA - 38

39 Program Income Gross income received that is directly generated by the federally-funded f d d project during the grant period. Program P income includes, but tis not tlimited it dto, income from fees for services performed, the use or rental of real or personal property acquired with grant funds, the sale of commodities or items fabricated under a grant agreement, and payments of principal and interest on loans made with grant funds. SA - 39

40 Real Property Acquisition and Relocation Assistance The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended, (URA) provides for uniform and equitable treatment of persons displaced by federally-assisted programs from their homes, businesses, or farms. Federal requirements govern the determination of payments for replacement housing assistance, rental assistance, and down-payment assistance for individuals displaced by federally-funded projects. Common requirement for HUD Single Audits (HOME, CHIP, etc.) SA - 40

41 Reporting Grant recipients are required to use standard financial i reporting forms for submitting information to the grantor agency Many M times these reports are required of state agencies who develop their own reports for sub-grantees (local governments) Performance or special reports may be required SA - 41

42 Subrecipient Monitoring Subrecipient monitoring requires recipients to monitor the activities of subrecipients relative to their federal awards. An award recipient is responsible for: At the time of the award, identifying to the subrecipient the federal award information and applicable compliance requirements. Monitoring the subrecipient's use of federal awards Ensuring that subrecipients expending $500,000 or more in federal awards are audited Evaluating the impact of subrecipient activities on the passthrough entity s ability to comply with applicable federal regulations. SA - 42

43 Special Tests & Provisions Additional requirements set forth by federal agency Found in the laws, regulations, and the provisions of contract or grant agreements pertaining to the program. Not every federal program has special tests and/or provisions ARRA Special Tests Separate Accountability for ARRA funding Presentation on the Schedule of Expenditures of Federal Awards and Data Collection Form Subrecipient Monitoring SA - 43

44 Questions SA - 44

45 Case Study SA - 45

46 ARRA & the 2010 DRAFT Compliance Supplement SA - 46

47 Using the Compliance Supplement Provides information on required compliance requirements Usually issued in the Spring (note that only a draft has been issued for 2010) Normally available at toc/ (replace 09 with current yr Multiple parts (2, 3, 4, 5, 6 and 7) 2: Matrix of Compliance Requirements 3: Compliance Requirements 4: Agency Program Requirements 5: Clusters of Programs 6: Internal Control 7: Guidance for Auditing Programs not Included in the Compliance Supplement Use the correct year s supplement and watch for addendums SA - 47

48 Using the Compliance Supplement Serves as tool to identify those laws, regulations, and provisions of contract and grant agreements that may have a direct and material effect on each major program Limits need to research many laws and regulations for each major program under audit Provides information on federal program objectives, procedures, and compliance requirements SA - 48

49 Using the Compliance Supplement Current Requirements Part 2: Matrix of Compliance Requirements Which compliance requirements are generally applicable Define applicability Discuss program with appropriate members of management Possibly review contracts and grants SA - 49

50 Using the Compliance Supplement - Determining Material Requirements Part 2: Matrix of Compliance Requirements Which compliance requirements are generally applicable Ways to determine what compliance requirements apply to an auditee s specific grant: Program budget, other auditor reports, corrective action plan, federal and state correspondence Program documentation Program application and agreements Federal/state financial reports SA - 50

51 Using the Compliance Supplement Current Requirements & Practice Aids and Tips Part 3: Compliance Requirements Tip Generic compliance requirement information Generic audit procedures Refrain from using the Compliance Supplement as a checklist SA - 51

52 Using the Compliance Supplement Current Requirements & Practice Aids and Tips Parts 4 (Agency Program Requirements) and 5 (Clusters of Programs) Tips Program specific compliance regulation information Limited it program specific audit procedures Potential impact of ARRA on Clusters Cannot be used without parts 2 and 3 Cannot be your checklist One of the most common mistakes is to not address requirements in Part 3 (generic) in addition to Part 4 SA - 52

53 Using the Compliance Supplement Current Requirements Part 6: Internal Control Tips Internal control considerations for each compliance requirement for each major program Not intended as checklist SA - 53

54 Using the Compliance Supplement Current Requirements Part 7: Guidance for Auditing Programs not Included Tips Guidance for identifying the applicable compliance requirements for programs not included in the Supplement Will assist the auditee in answering the following questions: 1. What are the program objectives, program procedures, and compliance requirements for a specific program? 2. Which of the compliance requirements could have a direct and material effect on the program? 3. Into which h of the 14 types of compliance requirements does each compliance requirement fall? 4. For Special Tests and Provisions, what are the applicable audit objectives and audit procedures? SA - 54

55 DRAFT 2010 Compliance Supplement DRAFT 2010 Compliance Supplement is available at ources/pages/draft2010compliancesupplement.aspx DRAFT for use in planning 2010 engagements Required for audit periods beginning i after 6/30/09 Appendix V lists changes You should review in detail Appendix VII includes changes to major program determination including criteria for low risk auditee status and safe harbor provisions for loans or loan guarantee programs SA - 55

56 DRAFT 2010 Compliance Supplement Changes noted in the DRAFT include, but are not limited to: Clusters The addition of new ARRA programs both creating new clusters and adding to existing clusters essentially results in the auditee having a new program (regardless of whether the auditee received funding under other programs in the cluster in prior years) meaning that in most cases, clusters including ARRA programs will have to be audited. Data Collection Form Late filing of Data Collection Form with the Federal Audit Clearinghouse will preclude the auditee from being low-risk, which requires more major programs be audited. SA - 56

57 DRAFT 2010 Compliance Supplement Changes noted in the DRAFT include, but are not limited to: Changes made to programs based on ARRA For example Davis Bacon is now applicable for a few programs for which it didn t used to be. Special Test and Provisions is applicable for all programs with ARRA funding, based on the Part 3 additions related to SEFA and separate identification Data Collection Form Late filing of Data Collection Form with the Federal Audit Clearinghouse will preclude the auditee from being low-risk, which requires more major programs be audited. SA - 57

58 DRAFT 2010 Compliance Supplement Changes noted in the DRAFT include, but are not limited to: Allowable Activities Include limitations on activities funded with ARRA Davis Bacon Include coverage under ARRA Reporting General changes to certain standard reports based on agencies transitions to newer forms Testing 1512 reports and applicable testing (ARRA grant receipts & expenditure information not currently for jobs information) SA - 58

59 DRAFT 2010 Compliance Supplement Changes noted in the DRAFT include, but are not limited to: Subrecipient monitoring Added requirement for client review of subs CCRs and related follow-up Verification of subrecipients filing their A-133 s with Clearinghouse Strong push on identifying pass-through entity information on SEFA and amounts passed-through in SEFA footnotes SA - 59

60 DRAFT 2010 Compliance Supplement The following changes were not in the June 2009 Compliance Addendum but are included here for reference: Buy America - Section 1605 of ARRA prohibits the use of ARRA funds for a project for construction, alternation, maintenance, or repair of a public building or work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. ARRA does provide for waiver of these requirements under specified circumstances. SA - 60

61 DRAFT 2010 Compliance Supplement The following changes were not in the June 2009 Compliance Addendum but are included here for reference: Special Tests and Provisions Separate Accountability for ARRA Funding Presentation on the Schedule of Expenditures of Federal Awards and Data Collection Form Subrecipient Monitoring SA - 61

62 American Recovery and Reinvestment Act of 2009 (ARRA) (The Recovery Act) The American Recovery and Reinvestment Act of 2009 (Pub. L. No ) (ARRA) and the related OMB Guidance have significant implications for audits performed under OMB Circular A-133. The ARRA imposes new transparency and accountability requirements on Federal awarding agencies and their recipients. 62 SA - 62

63 American Recovery and Reinvestment Act of 2009 History to Date: Recovery Act passed February 2009; significant impact expected for 2010 and 2011 year-end audits Accountability and Transparency are key features of the law QCRs built into the OMB guidance results to be placed on Recovery.gov (unclear how this will be done) Auditees significantly affected by Section 1512 reporting New body, Recovery Act Transparency Board (RATB), monitoring activity and looking for fraud, waste, and abuse Much more interest in single audits by federal agencies and Congress 63 SA - 63

64 ARRA and CFDA Numbers Federal agencies are required to specifically identify ARRA awards, regardless of whether the funding is provided under a new or existing CFDA number. The CFDA number should be included in the grant award documents. 64 SA - 64

65 ARRA Programs not subject to A-133 Build America Bonds Subsidy payment should not be included on the Schedule of Expenditures of Federal Awards (SEFA) therefore not included d in the scope of the single audit. COBRA Tax credits to employers should not be presented by auditees on the SEFA, and they should not be included in the scope of the single audit. 65 SA - 65

66 Questions SA - 66

67 Effective Internal Controls SA - 67

68 SA - 68

69 What Is Internal Control? Process to provide reasonable assurance of Reliability Effectiveness/Efficiency Compliance SA - 69

70 What Is Internal Control? Control Environment Risk Assessment Control activities Information / Communication Monitoring SA - 70

71 What Is Internal Control? Control Environment Risk Assessment Control activities Information / Communication Sets the tone of an organization. Influences control consciousness Foundation for all other components Provides discipline and structure Monitoring SA - 71

72 What Is Internal Control? Control Environment Risk Assessment Control activities Identification and analysis Relevant risks to objective achievement Forms basis of risk management Information / Communication Monitoring SA - 72

73 What Is Internal Control? Control Environment Risk Assessment e Control activities Information / Communication Policies and procedures Help ensure achievement of management objectives Monitoring SA - 73

74 What Is Internal Control? Control Environment s ssess e t Information identification, capture, and exchange Risk Assessment Control activities Information / Communication Forms and time frames Enables people to carry out responsibilities Monitoring SA - 74

75 What Is Internal Control? Control Environment Risk Assessment Control activities Information / Communication Process that assesses quality of internal controls over time Monitoring SA - 75

76 Allowable Activities/Costs Testing Internal Control Examples of key controls for each of these compliance requirements? Manager approval PO process Others? SA - 76

77 Cash Mgt Testing Internal Control Examples of key controls for this compliance requirement? Manager approval Review of budget to actual G/L Others SA - 77

78 Davis Bacon Testing Internal Control Examples of key controls for this compliance requirement? Inclusion of language in contracts/bid documents Requirement to submit with pay request Others? SA - 78

79 Eligibility Testing Internal Control Examples of key controls for this compliance requirement? Training requirements for staff Checklist completed and signed off for each application Others? SA - 79

80 Equip Mgt Testing Internal Control Examples of key controls for this compliance requirement? Process for tracking assets purchased (and disposed) with federal funds Others? SA - 80

81 Matching Testing Internal Control Examples of key controls for this compliance requirement? Amounts included in budget Review of budget to actual reports by management Others? SA - 81

82 PoA Testing Internal Control Examples of key controls for this compliance requirement? Manager approval of expenditures Training and experience of personnel Others? SA - 82

83 Procurement, Suspension & Debarment Examples of key controls for this compliance requirement? Inclusion of consideration of federal grant fund in policy manual Inclusion of language regarding S&D in RFP or other bid documents Others? SA - 83

84 Program Income Examples of key controls for this compliance requirement? Management review of detail G/L and/or budget to actual Grant budget Knowledge/experience o e of management age e Others? SA - 84

85 Real Prop Acq Testing Internal Control Examples of key controls for this compliance requirement? Checklist for acquisitions Policies and procedures for Program Training and experience of staff Others? O? SA - 85

86 Reporting Testing Internal Control Examples of key controls for this compliance requirement? Manager approval of reports Existence of policies and procedures in regard to reports Others? SA - 86

87 Subrecipient Monitoring Testing Internal Control Examples of key controls for this compliance requirement? Inclusion of required communications in agreements/contracts between passthrough entity and subrecipient for Others? SA - 87

88 Special Tests Testing Internal Control Examples of key controls for this compliance requirement? Will vary according to special test requirements SA - 88

89 Common Deficiencies SA - 89

90 Common Deficiencies Cash Management Funds drawn in excessive advance of expenditure Davis Bacon Act Failure to include required language regarding prevailing wages and Department of Labor requirements in construction contracts t Davis Bacon Act Failure to obtain required certified payrolls from contractors SA - 90

91 Common Deficiencies Equipment and Real Property Management - Failure to appropriately identify on the books and records of the entity capital assets purchased with federal funds by funding source and other required identifying information Suspension & Debarment Failure to verify nonfederal entities paid with federal funds are not suspended or debarred. Subrecipient Monitoring Failure to properly monitor the activities of subrecipients SA - 91