American Recovery & Reinvestment Act Update and Effect on Federal Single Cherry, Bekaert & Holland, L.L.P. tmanning@cbh.com 1 Objectives Understand recent updates on the Recovery Act reporting requirements Understand your responsibilities and best practices relating to federal single audit including the effect of Recovery Act funding 2 Cherry, Bekaert & Holland, L.L.P. 1
Recovery Act Primary Goals Create and retain jobs Spur economic activity and invest in long-term economic growth Foster unprecedented levels of accountability and transparency in government spending 3 Recovery Act Funding Distribution Distribution of $787 billion of funding: $288 billion Tax benefits $275 billion Contract, grants and loans $224 billion Entitlements 4 Cherry, Bekaert & Holland, L.L.P. 2
Schedule of Expenditures of Federal Awards (SEFA) 5 Recovery Act Effect on SEFA Preparation is auditee s responsibility Identify Recovery Act expenditures separately Included in terms and conditions of Recovery Act awards Special test and provisions compliance requirements require verification of: Separate presentation on SEFA and Data Collection Form of Recovery Act awards Report expenditures are supported by accounting records 6 Cherry, Bekaert & Holland, L.L.P. 3
Recovery Act Effect on SEFA Impact on CFDA numbers Federal agencies are required to identify Recovery Act awards, regardless if funding is under a new or existing CFDA Cluster guidance Updated d by Addendum d 1, Compliance Supplement Identify clusters in SEFA CFDA Clusters 7 Recovery Act Partial SEFA Federal Grantor Federal Federal CFDA Expenditures Number 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 $ 12,099,000 000 ARRA - Bovines 93.999 7,567,543 Total Department of Health and Human Services Direct Programs $ 19,666,543 8 Cherry, Bekaert & Holland, L.L.P. 4
SEFA Identify Recovery Act Awards Build America Bonds are excluded 9 Recovery Act - Data Collection Form (SF-SAC) 10 Cherry, Bekaert & Holland, L.L.P. 5
Guidance - Preparation of SEFA Government Quality Center (GAQC) of AICPA developed practice aids to assist in accumulation and documentation of information for each federal award Worksheet for identifying federal program information ee disclosure checklist for SEFA program Archived conference call Practice Aid 11 Best Practice - SEFA Begin preparing SEFA early Reconcile expenditures to general ledger Establish internal control for completeness and accuracy Recognize that SEFA s accuracy is critical to auditors major program determination ti Use GAQC practice aid worksheet and disclosure checklist 12 Cherry, Bekaert & Holland, L.L.P. 6
Recovery Act Section 1512 Reporting 13 Remember... timely, complete and effective reporting under Section 1512 of the Recovery Act is a term and condition of receiving funding. 14 Cherry, Bekaert & Holland, L.L.P. 7
15 Recovery Act Testimony Nov. 19, 2009 Gene Dodaro, Acting Comptroller General of the U.S. He has led efforts to fulfill GAO s new audit responsibilities in connection with the Recovery Act. http://www.gao.gov/recovery/related-products/ 16 Cherry, Bekaert & Holland, L.L.P. 8
OMB (M-10-08) Data Quality Federal agencies should provide key award info in order to improve data quality and reduce inaccuracies in recipient reporting: Award type and number Order number for federally awarded contracts Funding agency code Awarding agency code Government contracting code Award date and amount of award CFDA # Activity code Program source (TAS) code 17 OMB (M-10-08) Data Quality Federal agencies certified notification of providing key info Future awards - key information to be provided at time of award by federal agency 18 Cherry, Bekaert & Holland, L.L.P. 9
OMB (M-10-08) Data Quality Defined minimum i data quality reviews methodology for federal agencies Significant errors key data fields Federal amount of the award Number of jobs retained or created Federal award # Recipient name 19 OMB (M-10-08) Data Quality Material omissions i Failure to report on a received award Data in a report that is not responsive to a specific data element Improving data quality by focusing on data anomalies 20 Cherry, Bekaert & Holland, L.L.P. 10
OMB (M-10-08) Data Quality Implications/consequence of uncorrected data quality problems by recipients and sub-recipients Federal agencies to identify recipients that demonstrate systemic or chronic reporting problems Can result in termination of federal funding Reporting of false information can result in civil and/or criminal penalties 21 OMB (M-10-08) Data Quality Federal agencies actions to improve compliance Establish control totals Identify range of awards for which reports were not submitted Identify non-compliant recipients Submit to OMB lists of non-compliance recipients i Efforts to reduce future non-compliance 22 Cherry, Bekaert & Holland, L.L.P. 11
OMB (M-10-08) Job Estimates Simplified manner in which job estimates are calculated and reported Report on a quarterly, rather than cumulative basis No subjective judgments on whether jobs were created or retained Be prepared p to justify your estimates Federal agencies to work closely with recipients to address challenges Recovery@omb.eop.gov 23 24 Cherry, Bekaert & Holland, L.L.P. 12
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Download Center 31 What are or s Responsibilities Relating to Section 1512 Reporting? Addendum 1 of Compliance Supplement Reporting requirements imposed by Section 1512 were not applicable for audit periods with ending dates in: June, July and August of 2009 OMB has not issued further guidance 32 Cherry, Bekaert & Holland, L.L.P. 16
State Fiscal Stabilization Fund Program 33 State Fiscal Stabilization Fund Program (SFSF) Purpose: Help stabilize state t and local l budgets to minimize and avoid reduction in education and other essential services in exchange for a state s commitment to advance essential education reforms. CFDA 84.394 Education Stabilization Fund CFDA 84.397 Government Services Funds SFSF Cluster 34 Cherry, Bekaert & Holland, L.L.P. 17
State Fiscal Stabilization Fund Education Stabilization ti Government Services 82% Transparency and accountability Minimize funding cliff 18% Improve student achievement Spend quickly 35 State Fiscal Stabilization Fund Program (SFSF) Supports a broad array of activities iti Indirect costs, operating expenditures, salaries and government services New guidance - GAQC Alert #133 (Dec. 2009) Program overview, use of funds, recordkeeping, documentation and reporting requirements 36 Cherry, Bekaert & Holland, L.L.P. 18
Governmental Quality Center (GAQC) www.gaqc.aicpa.org 37 AICPA Governmental Quality Center (GAQC) Promote the importance of quality governmental audits Launched Recovery Act Resource Center Provides updated information that could affect single audits GAQC 38 Cherry, Bekaert & Holland, L.L.P. 19
GAQC Alert #132 OMB has encouraged auditors to early communicate internal control deficiencies over compliance relating to the single audit Addendum 1 Compliance Supplement Interpretations No. 2 4 (AU Section 9325A) Can provide interim written communication Not appropriate to issue an interim communication stating there were no significant deficiencies were identified 39 GAQC Alert #132 Pilot project underway Volunteer state governments and auditors Requires auditors to issue early communication of significant deficiencies and material weaknesses 40 Cherry, Bekaert & Holland, L.L.P. 20
41 GAQC Alert #127 Build America Bonds Assist state t and local l governments in financing i capital projects at lower borrowing costs Stimulate economy and create jobs Direct federal subsidy payment for a portion of borrowing costs equal to 35% of total coupon interest paid to investors Not included in scope of federal single audit 42 Cherry, Bekaert & Holland, L.L.P. 21
GAQC Alert #123 Major Program Determination Inconsistent interpretations on treatment of Type A programs with a small amount of Recovery expenditures Archived conference call The Recovery Act and Its Potential Impact on 2009 Single s 43 Understand d Your Responsibilities 44 Cherry, Bekaert & Holland, L.L.P. 22
A Good Place to Start... Before applying for federal awards your government should have determined that it was willing and able to comply with the strict accounting, compliance, internal control and reporting requirements. 45 Best Practice - Identify Federal Awards Establish process for applying and accepting Recovery Act funding Carefully consider what is expended per OMB A-133 Establish process and internal controls to ensure all federal awards expended are identified and tracked Prepare Schedule of Expenditures of Federal Awards (SEFA) 46 Cherry, Bekaert & Holland, L.L.P. 23
Your Responsibility - Records Maintain records to separately identify the source and application of Recovery Act funds Its essential to have a financial management system that permits preparation of required reports (including Section 1512) 47 Your Responsibility Compliance and Internal Controls 1. Activities allowed or unallowed 2. Allowable costs/cost principles 3. Cash management 4. David-Bacon Act 5. Eligibility 6. Equipment and real property management 7. Matching, level of effort, earmarking 48 Cherry, Bekaert & Holland, L.L.P. 24
Your Responsibility Compliance and Internal Controls 8. Period of availability of federal funds 9. Procurement and suspension and debarment 10. Program income 11. Real property acquisition/ relocation assistance 12. Reporting 13. Subrecipient monitoring 14. Special tests and provisions 49 Your Responsibility - Compliance Activities allowed or unallowed Cross-cutting for all ARRA awards Funds cannot be used for any casino or other gambling establishment, aquarium, zoo, golf course or swimming pool Davis- Bacon Act ARRA Section 1606 2 CFR part 176, Subpart C www.gpoaccess.gov/ecfr/ 50 Cherry, Bekaert & Holland, L.L.P. 25
Your Responsibility - Compliance Procurement Buy-American whereby all iron, steel, and manufactured goods used for a project for construction, alteration, maintenance or repair of a public building are produced in the U.S. 2 CFR part 176, Subpart B Waiver granted 51 Your Responsibility - Compliance Reporting Section 1512 Begin preparing early Establish internal controls!! 52 Cherry, Bekaert & Holland, L.L.P. 26
Your Responsibility Subrecipients Identify ARRA awards and applicable requirements to subrecipients Communication with first-tier subrecipient the requirement to register with the Central Contractor Registration (CCR) Registration required prior to an award Update once a year 53 Your Responsibility Internal Controls Understand five elements of internal control Establish and maintain effective internal controls over use of ARRA funds is CRITICAL Identify risks relating to the current environment and mitigate risks 54 Cherry, Bekaert & Holland, L.L.P. 27
Risks of Current Environment Challenges facing local l governments Fiscal constraints Budget cuts and employee reductions New programs with potentially unfamiliar compliance requirements Capacity issues 55 Best Practice Internal controls Internal controls Internal controls Compliance Supplement 56 Cherry, Bekaert & Holland, L.L.P. 28
Five Elements of Internal Control 1. Control environment tone at top Management s respect for and adherence to program compliance requirements Key managers have adequate knowledge and experience to discharge responsibilities 2. Risk assessment your identification, analysis and management of risk: Key managers have responsibility to identify and communicate changes 57 Five Elements of Internal Control 3. Control activities iti policies i and procedures that t help ensure that management s directives are carried out: Policies and procedure are clearly written and communicated Adequate segregation g of duties Supervision of employees commensurate with their level of competence Personnel have adequate knowledge and experience to discharge responsibilities 58 Cherry, Bekaert & Holland, L.L.P. 29
Five Elements of Internal Control 4. Information and communication the identification, capture and exchange of info that enable people to carry out responsibilities: Accounting system provides for separate identification of federal and non-federal transactions Documentation exists to support amounts reported Employees duties and responsibilities effectively communicated 59 Five Elements of Internal Control 5. Monitoring is process to assess the quality of internal controls: Built-in through independent reconciliations, supervisory reviews, meetings Internal audit routinely tests for compliance with federal requirements Follow up on irregularities and deficiencies to determine the cause Governing board reviews results and corrective action 60 Cherry, Bekaert & Holland, L.L.P. 30
Best Practice Designate a point person or group Establish, maintain and monitor internal controls Update policies and procedures relating to Recovery Act funding Educate grant administrators Monitor updates and new developments 61 Best Practice Understand specific award terms and conditions 2 CFR part 176 Discuss and plan federal single audit with auditors early to avoid surprises Correct deficiencies in internal control as soon as possible 62 Cherry, Bekaert & Holland, L.L.P. 31
Best Practice Understand your auditors responsibilities Internal controls and compliance Review March 2009 compliance supplement including Appendix VII and Addendum #1 OMB intends not to issue updated information until the 2010 Compliance Supplement to be issued this spring (unofficial) 63 Contact Information Cherry, Bekaert, & Holland, L.L.P. Tampa, Florida 813-470-4874 4874 tmanning@cbh.com 64 Cherry, Bekaert & Holland, L.L.P. 32
Solutions. Character. Depth. Cherry, Bekaert & Holland, L.L.P. 33