changes to the a-133: review single audits under the new ......los angeles athletic club los...
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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
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
Overview of the Uniform Grant
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
Overview of the Uniform Grant
Guidance (Con’t)
Cost Principles Subpart E
Highlights of Changes
11
Cost Principles Subpart E
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
Cost Principles Subpart E
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
• 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
Cost Principles Subpart E
Highlights of Changes (Con’t)
• 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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Cost Principles Subpart E
Highlights of Changes (Con’t)
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
Summary of Changes for Single Audit (Subpart F) Con’t
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.
Summary of Changes for Single Audit (Subpart F) Con’t
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
Summary of Changes for Single Audit (Subpart F) Con’t
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.
Uniform Guidance (NEW):
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
Summary of Changes for Single Audit (Subpart F) Con’t
High Risk Type B Program – Step 3
Uniform Guidance (NEW):
Summary of Changes for Single Audit (Subpart F) Con’t
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
Summary of Changes for Single Audit (Subpart F) Con’t
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
Summary of Changes for Single Audit (Subpart F) Con’t
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
Summary of Changes for Single Audit (Subpart F) Con’t
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)
Summary of Changes for Single Audit (Subpart F) Con’t
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
Summary of Changes for Single Audit (Subpart F) Con’t
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