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Arizona Alliance for Community Health Centers

FQHCs and the Single Audit Act

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Learning Objectives

At the end of this session you will be

able to:

•Understand what the Uniform Guidance (UG) is and how to prepare for a UG audit

•Understand the importance of proper internal controls over compliance

•Understand requirements for time and effort reporting and procurement policies

•Recognize best practices related to grants management and compliance

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Why the need for this information?

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• Quality problems have been a point of focus for the AICPA and certain federal agencies for many years

• 2016 AICPA Peer Review Program study– Three factors that impacted overall audit quality

◊ Number of single audits performed by the firm (i.e. the more single audits performed = greater conformity percentage)

◊ Participation in governmental audit quality center (GAQC)◊ Qualifications of engagement partner

• Years of experience• Previous non-conformity• Amount of annual CPE

Single Audit Quality Concerns

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• AICPA Governmental Audit Quality Center (GAQC) – Voluntary membership organization within the AICPA with over

1100 member firms whose mission it is to improve the quality of single audits

– Center provides member firms resources to assist in enhancing their audit quality, particularly their single audit quality

– Member firms must adhere to membership requirements designed to enhance quality

– To learn more about the GAQC or to view a member listing, go to www.aicpa.org/GAQC

– The GAQC Web site (www.aicpa.org/GAQC) can also be used as a resource for auditees

AICPA Activities in Response to the Study

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• For significant improvements in single audit quality to occur, the audit profession, federal agencies, and auditees need to be involved in the solution

• Auditees can:– Ensure rigorous procurement processes– Develop robust governance structures that support the benefit of

audits, consider the qualifications of a firm during the hiring process, and evaluate the reasonableness of the firm’s anticipated hours in relation to the proposed fee based on the work to be performed

– Be well-educated about the single audit process and what it requires of both auditees and auditors (the reason for today’s meeting!!!)

Improving Single Audit Quality is a Group Effort

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Single Audit Quality5 Steps You Can Take to Help Ensure Quality• Make sure the audit firm has quality, knowledgeable staff with the right

skills for your Uniform Guidance audit• Grant your auditor access to all the necessary financial and program

records and be sure to identify all governmental financial assistance and federal programs in which you participate

• Ensure that your key staff persons are available to your auditor• Be actively involved – take the initiative to understand what your

auditor is doing and ask questions when you don’t• Make the most out of the exit process – ask questions about your

auditor’s work, the audit opinion, and other compliance reports

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Background and Overview of the

Uniform Guidance

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Uniform Guidance

The Uniform Administrative Requirements, Cost Principles, and

Audit Requirements for Federal Awards – previously referred to as the “Omni

Circular” or “Super Circular”

Consolidated and streamlined eight previous federal regulations into

comprehensive guidance codified at 2 CFR Part 200

(Subparts A – F)

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Uniform GuidancePr

evio

us G

uida

nce: A-21, A-87, A-122 Cost

CircularsA-133 Single Audit GuidanceA-89 Catalog of Federal Domestic AssistanceA-102, A-110 Uniform Administrative RequirementsA-50 Audit Follow-up

New

Gui

danc

e: Subpart A – Acronyms and DefinitionsSubpart B – General ProvisionsSubpart C - Pre Federal Award RequirementsSubpart D – Post Federal Award RequirementsSubpart E – Cost PrinciplesSubpart F – Audit Requirements

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Effective Dates

The effective date of the UG for subawards is the same as the effective date of the federal award from which the

subaward is made

Incremental funding after 12/26/14 that are opportunities to change award terms and conditions

New awards made after 12/26/14

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Must vs. Should

When the Uniform Guidance

references:

MUST = Requirement

SHOULD = Best Practice, Suggestion,

Recommendation

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Single Audits

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• Uniform Guidance audit performed (each of the past 2 years)• Unmodified opinion on Financial Statements and SEFA• No Material Weaknesses noted• No “substantial doubt” about continuing as a going concern• No compliance findings that have a material impact on a

Type A program. • Known/likely question costs > 5% of total awards expended

on Type A program

Low-Risk Auditee Criteria

• 20 percent for low-risk auditees • 40 percent for all others

Percentage of coverage rule

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Single Audits

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• Federal expenditures exceed $750,000Threshold for a single audit

• $750,000 for organizations with federal expenditures <$25M

• 3% of total expenditures for organizations >$25M (but <$100M)

Type A threshold

• Programs that exceed 25% of the Type A threshold. For orgs with federal expenditures below $25 million, threshold is $187,500 (increases as total expenditures increase).

Type B threshold

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Single Audits

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• Material weakness in internal control • Modified opinion on the program • Known or likely questioned costs that exceed 5% of

total program expenditures

High Risk Type A criteria

• At least one high risk Type B for every 4 low risk Type A programs.

High Risk Type B’s to be tested

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Definition of Federal Award• Federal financial assistance and Federal cost-

reimbursement contracts that non-Federal entities receive directly from Federal awarding agencies or indirectly from pass-through entities.

– It does not include procurement contracts, under grants or contracts, used to buy goods or services.

– Analysis completed by the client to determine if a vendor relationship exists.

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Schedule of Expenditures of Federal Awards (SEFA)• Prepared by management• Includes all federal expenditures • Reconciles to the general ledger (i.e. grant revenue)• Specify pass-through awards• Include CFDA or identifying number for each grant• Auditor uses this document to perform risk assessments

and selection of major programs– Completeness critical to avoid over testing or missed programs

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Cluster Consideration• Similar requirements but different CFDA numbers can be clustered

based on the compliance supplement• Treated as one program for major program determination and testing• Awards with the same CFDA number will also be clustered together• Most common:

– Health Centers Cluster (93.224/93.527)– Research and Development– Student Financial Aid– Homeland Security– Special Education

• Part 5 of the Compliance Supplement for information on clusters

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Internal Controls

What does this really mean?19

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Internal Controls

Requirements are highlighted in Uniform Guidance as extremely important

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Internal Controls

Organizations must establish and maintain effective internal controls over federal awards.

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What are Internal Controls over Compliance?

A process implemented by a nonfederal entity designed to provide reasonable assurance regarding the achievement of the following objectives for federal awards:

◊ Transactions are properly recorded and accounted for◊ Transactions are executed in compliance◊ Funds, property, and other assets are safeguarded

against loss from unauthorized use or disposition◊ Awards are being managed in compliance with laws

and regulations.

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Internal ControlsNon-federal entities will need to exercise judgment in determining the most appropriate and cost effective internal control in a given circumstance

Internal Control Framework issued by the Committee on Sponsoring Organizations(COSO) and the Standards for Internal Control in the Federal Government (Green Book) issued by the Comptroller General are best practices

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Internal Control Questions• Control Environment

– What is management’s attitude about internal control?

• Risk Assessment– How did you determine that (control activity) was necessary to ensure

compliance?

• Control Activities– How are you certain your organization is in compliance with (insert specific

compliance requirement)?

• Monitoring – What is the process used to ensure the (control activity) is performed

correctly and consistently?– Auditors cannot be part of the auditee’s internal controls!

• Information and Communication– How and when do you notify people the (control activity) is required?

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PoliciesWhat’s required and what’s not

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Required Documented Policies

Allowable Use of Funds

Policy

Payment and Billing Policy

Procurements Standards

Policy

Conflicts of Interest Policies

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Best Practice Policies

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Financial Management Systems Policy

Documentation of Internal Controls

Cost Sharing and Matching Policy

Program Income Policy

Budget and Program

Revisions Policy

Property and Equipment

Standards Policy

Monitoring and Reporting

Subrecipient Procedures Policy

Record Retention Policy

Grant Award and Closeout Policy

Annual Audit Policy

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Policy review and revisions

Make sure policies are easily accessible for all employees involved and they know that they are responsible for reviewing

these.

Regularly review policies for compliance and educate employees on changes to policies. Encourage open dialogue

regarding questions and decision making.

Designate key individual or team to monitor your policies over federal programs.

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Time and Effort Reporting

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Time and Effort Reporting

Final guidance allows for alternatives to

the current reporting requirements

Guidance is less prescriptive on

documentation and places more

emphasis on internal control

Changes made by OMB aimed at reducing the

administrative burden of

documenting time and effort

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Time and Effort ReportingCharges must be based on records that accurately

reflect the work performed and must:

Be supported by a system of internal controls which provides reasonable assurance that the charges are

accurate, allowable and properly allocated

Reasonably reflect the total activity for which the employee is compensated by the non-federal entity, not exceeding

100% of compensated activities

Comply with the established accounting policies and practices of the non-federal entity

Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee

works on more than one federal award

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Time and Effort Reporting

Budget estimates may be used for interim accounting purposes, provided that:

System for estimating must produce “reasonable approximations” of activity actually performed;

Significant changes in work activity (as defined in written policies) are identified and entered into records timely.

Must be a process to review the charges made based on budget and adjustments after the fact so that “the final

amount charged to the Federal award is accurate, allowable, and properly allocated.”

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Time and Effort Reporting

When records do not meet the standards, federal government may require personnel activity reports, including prescribed certifications, or equivalent documentation

Need to determine what is appropriate for your employees working on federal awards – not all individuals working on federal grants have the same situation

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ProcurementWhat are the requirements?

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Procurement

Grace period of three full fiscal years that begins on or after 12/26/14

Must document whether it is in compliance with the old or new standard, and must meet

the documented standard.

December 31 year end grace period would be through year ending 12/31/17.

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Procurement

Uniform Guidance allows for 5 acceptable

procurement methodologies

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• Question:Can/should an organization have different procurement procedures for federal and nonfederal procurements?

• Answer:The nonfederal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations, provided that the procurements conform to applicable federal law and the Uniform Guidance (Source – 2 CFR 200.318a)

Procurement

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Micro-Purchase

Small Purchases

Sealed Bids

Competitive Proposals

Sole Source

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Allowable Procurement Methods

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Aggregating Purchases• To aggregate or not• Written polices should cover

– What constitutes procurement?– Individual transaction/purchase vs. larger service contract

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1. Micro-Purchase– Currently $3,500 and under– No quotations, must be reasonable– Equitable distributions when possible

2. Small Purchases– Greater than micro-purchase ($3,500), not to exceed

Simplified Acquisition Threshold ($150,000)– Rate quotations from at least 2 sources– No cost or price analysis

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Allowable Procurement Methods

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3. Sealed Bids– > Simplified Acquisition Threshold ($150,000)– Usually for construction projects– Price is a major factor

4. Competitive Proposals– > Simplified Acquisition Threshold ($150,000)– RFP with evaluation methods– Bids from adequate # of sources

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Allowable Procurement Methods (cont.)

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5. Sole Source– Unique– Public emergency– Written approval by agency or PTE– Competition inadequate after soliciting proposals– Justification needs to be documented

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Allowable Procurement Methods (cont.)

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Procurement

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Organizations Must:

Have written Procurement Policies in accordance with UG requirements

Take all necessary affirmative steps to assure that minority businesses, women’s business enterprises, and labor surplus area firms are used

when possible (not just “positive efforts…whenever possible”

Engage in full and open competition

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Procurement “Musts” (cont.)

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Organizations Must:

Ask for representations regarding actual or potential conflicts of interest

Perform a cost or price analysis when purchase in excess of Simplified Acquisition Threshold

Keep procurement records that detail the history of all procurements, not just those over small purchase threshold

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Procurement “Musts” (cont.)

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Organizations Must Award Contracts Only to Responsible Contractors:

Contractors must possess the ability to perform successfully under the terms and conditions of a proposed procurement.

Consideration will be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical

resources.

Suspension and debarment checks for contracts over $25,000 should be made on the EPLS site – (www.sam.gov) and documented, or add in the clause in

the procurement contract

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Common Compliance Issues: Procurement• Understanding and documentation of the procurement grace

period • Lack of existing, written procurement procedures• Inadequate written procurement procedures

– Does not address the UG procurement “musts”– Procurement methods including noncompetitive procurements– Cost and price analysis– Small and minority businesses, and women’s business enterprises

(SMWBE) provisions• Implementation of procurement policy change

– Decentralized systems, existing procurement culture– Staff training– Monitoring

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Grants Management Best Practices

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What is Grant Compliance?

Effective grant compliance relies on having an in-depth understanding of the grant

requirements, and the resources and personnel to

meet them.

This includes having the proper policies and

procedures in place, and strong internal controls.

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Grant Compliance Responsibility

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Responsibility of all

departments involved

Accounting

Procurement / Purchasing

Contract / Legal

Program Personnel

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Possible Results of Improper Grant Compliance• Loss of funding!• Bad press• Audit Findings

– Result in more audit work in future years

• Designation as “High Risk Grantee” by awarding agency

– Could reduce future funding from other agencies

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Sources of Grant Compliance Requirements

2 CFR Part 200 “The Uniform Administrative Requirements,

Cost Principles, and Audit Requirements for Federal

Awards”

State Statues and Regulations

Terms and Conditions of

federal awards

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Grants Management

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Obtain proper training

Read through Uniform Grant Guidance

Read through grant agreement for terms and conditions

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Documentation of Compliance

Document compliance requirements

Document proper internal controls over compliance

CLA’s “Program Understanding and Internal Control Workbook” for each grant agreement

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Checklists

Develop checklists for all aspects of the grant process, such as:

Grant application

process

Preparation for the

single audit

Subrecipient risk

assessment and

monitoring

Submission of financial

and program reports

Grant close-out

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Tips for Grant Managers• Document your controls using COSO• Make sure everyone in your organization knows your

control system• Periodically, review the internal control system and see if

it is working• Closely monitor new employees for strict compliance

with policies

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Tips to Prepare for Your Uniform Guidance Audit• Identify all sub-recipients/Federal Pass-throughs• Develop monitoring file

– Site visits– Contracts– Cross-agency info– Uniform Guidance reports– Correspondence on issue resolution

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Tips to Prepare for Your Uniform Guidance Audit (continued)

• Time and Effort Reports:– Get your employees into the habit of completing after-the-

fact, timely, credible documentation that represents a reasonable estimate of the time worked on each grant project

• Timely Accurate Financial and Performance Reports:– Late reports often indicate weaknesses in grant

management systems– Late reports are ‘red flags’ that may invite scrutiny

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Tips to Prepare for Your Uniform Guidance Audit (continued)

• Cash Management:– Minimize the time elapsing between drawing down federal cash

under your letter of credit and disbursing it by check– Credit any interest earned back to the federal government

• Equipment Inventory:– Take inventory of all equipment that has been acquired

with Federal funds (at least once every two years)– Reconcile the inventory count to your property records

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Tips to Prepare for Your Uniform Guidance Audit (continued)

• Non-competitive Procurement:– If you award any contracts for goods or services on a sole source

basis, prepare a written justification as to why you proceeded with the transaction

◊ Example: emergency, no responses to solicitation, etc.

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Resources

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Key Single Audit Related Information• Uniform Guidance – Title 2 of CFR, Subtitle A, Chapter 2,

Part 200– Access at Electronic Code of Federal Regulations

• OMB Federal Financial Management Web Site– Compliance Supplement

https://www.whitehouse.gov/wp-content/uploads/2018/05/2018-Compliance-Supplement.pdf

– Office of Federal Financial Management Web page

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Grant Compliance Resources

Achieve Compliance with Proper Grant

Management

CLA's Uniform Guidance Workbook

Helps with Subrecipient Risk

Assessment

CLA's Uniform Guidance Checklist

Streamlines Implementation

Uniform Guidance Brings New Rules for International Entities

Uniform Guidance changes: Personal

Services and Fringe Benefits

How to Monitor Subrecipients of Higher Education

Grants

How Uniform Guidance Will Impact

Your Single Audit

Preparing for a DOE Onsite Review of Your

Federal Student Aid Program

Closing Out the Perkins Loan Program at

Colleges and Universities

OMB’s Compliance Supplement Can Make

Your Single Audit Easier

The Hidden Costs of Grant Noncompliance

for Governments

http://www.claconnect.com/resources/tools/resources-to-ease-the-burden-of-grant-compliance

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Chris Manderfield, CPAHealth Care Principal630-368-3695chris.manderfield@CLAconnect.com