omb circular a-133 your responsibilities · understanding the auditor’s role the auditor is...

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OMB CIRCULAR A-133YOUR RESPONSIBILITIES

February 13, 2014Tammy Michaud, CPA, Principal

THE OBJECTIVES FOR TODAY

• Provide an overview of the basic requirements of OMB Circular A-133, including highlights of recent changes

• Review auditee vs. auditor responsibilities

• Discuss common compliance audit findings

• Share best practices to assist auditees and grant managers in preparing for an OMB Circular A-133 audit

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DO YOU HAVE FEDERAL AWARDS?

Federal financial assistance or cost-reimbursement contracts received directly or indirectly from pass-through entities

Excludes procurement contracts to buy goods or services that are considered vendor relationships

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For Example:Grants Property LoansSubsidies Endowments Loan GuaranteesAppropriations Contracts Other Agreements

WHO NEEDS AN A-133 AUDIT?

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Organizations that expend more than $500,000 in total direct or indirect federal awards

THE CRITERIA ARE CHANGING!

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Revisions have recently been issued by OMB highlighted as follows:

• Eight OMB circulars have been consolidated into a comprehensive circular (nicknamed the Super Circular) for years beginning 12/26/14 and later

• Administrative requirements

• Greater focus on sub-recipient monitoring

• Expanded conflict-of-interest guidance

• Greater focus on internal controls

• Cost Principles

• Changes to indirect cost guidelines

• Alternatives to the current reporting for salaries and wages

THE CRITERIA ARE CHANGING!

Highlights Now Under the New Super Circular Effective for years beginning on or after 12/26/2014

Total Federal Expenditures (direct or indirect) $500,000 $750,000

Type A program Threshold $300,000 $750,000

Program Testing Coverage Low Risk 25%High Risk 50%

Low Risk 20%High Risk 40%

Questioned Costs $10,000 $25,000

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Audit requirements

AUDITEERESPONSIBILITIES

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AUDITEE RESPONSIBILITIES

• Understand the administrative, cost principles, pre- and post- award requirements

• Review the Compliance Supplement and understand the 14 compliance requirements. The Supplement is a resource which provides guidance on how to comply with federal requirements. It’s not just for the auditors

• Know the specific compliance requirements contained in grant documents for each Federal award

• Establish, document and implement internal control over financial reporting and program compliance using COSO framework

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COSO PRINCIPLES OF EFFECTIVE INTERNAL CONTROL

Control Environment

1. Demonstrates commitment to integrity and ethical values2. Exercises oversight responsibility3. Establishes structure, authority, and responsibility4. Demonstrates commitment to competence5. Enforces accountability

Risk Assessment

6. Specifies suitable objectives7. Identifies and analyzes risk8. Assesses fraud risk9. Identifies and analyzes significant change

Control Activities10. Selects and develops control activities11. Selects and develops general controls over technology12. Deploys through policies and procedures

Information & Communication13. Uses relevant information14. Communicates internally15. Communicates externally

Monitoring Activities 16. Conducts ongoing and/or separate evaluations17. Evaluates and communicates deficiencies

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Preparation of the SEFA

• Federal awarding agency

• Name of Federal program

• Identification if Federal funding is pass through or direct

• Expenditures incurred (reconciled to the general ledger)

• CFDA and pass-through numbers clearly identified

• Clusters identified and grouped

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• Prepare responses to findings

• Prepare corrective action plan for submission to Federal Agency

• Keep organized and centralized records

• Demonstrate compliance has been monitored and performed

• Prepare and Certify Data Collection Form

• Preparation of Financial Statements

• Summary Schedule of prior audit findings

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SEFAMajor

Program Identification

Test Internal Control

Test Compliance

Evaluate Findings

Prepare Reports

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UNDERSTANDING THE AUDITOR’S ROLE


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SEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports

It all begins with the Schedule of Expenditures of Federal Awards (SEFA) prepared by you

Having a complete and accurate SEFA is integral to the audit process


The auditor is required to select and audit Major Programs in accordance with the risk assessments established in OMB Circular A-133. Programs are selected based on the following basic criteria

• Type A/B Programs

• High Risk vs. Low Risk

• Percentage of Coverage

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SEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports


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UNDERSTANDING THE AUDITOR’S ROLESEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports

The auditor needs to plan the audit to obtain a low control risk

• Test existence and appropriateness of internal controls by gaining an understanding of controls in place

• Test effectiveness of key control attributes

• There must be evidence that controls exist and that they are effective


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UNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLESEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports

Auditors test compliance requirements that are direct and material to the selected programs

• Grant document

• Compliance supplement

• Matrix of Compliance Requirements (Part 5)

• Guidance for Auditing Programs not included (Part 7)

• Direct and Material

• Subjective

• Qualitative and quantitative factors


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14 Compliance Requirements

Activities Allowed or Unallowed Period of Availability of Federal Funds

Allowable Costs/Cost Principles Procurement, Suspension & Debarment

Cash Management Program Income

Davis-Bacon Act Real Property Acquisition & Relocation Assistance

Eligibility Reporting

Equipment & Real Property Mgt. Sub-recipient Monitoring

Matching, Level of Effort, Earmarking Special Tests


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UNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLESEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports

When the testing of Internal Control and Compliance is completed, the auditor must evaluate findings

• Significant deficiency or material weakness

• Material non-compliance

• Known or likely questioned costs

• Fraud, illegal act or abuse

• Obtain managements response to current year findings

• Follow up on the status of prior year findings


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UNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLEUNDERSTANDING THE AUDITOR’S ROLESEFAMajor



Test Compliance

Evaluate Findings

Prepare Reports

In addition to the audited financial statements in accordance with Government Auditing Standards, the auditor provides reports required by OMB Circular A-133

• Financial Statement internal control and compliance

• Major Program internal control and compliance

• SEFA

• Certify the Data Collection Form

COMMON FINDINGS

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COMMON FINDINGS

• Failure to prepare a complete SEFA

• Late submission of the Data Collection Form

• Charging unallowable costs to a grant

• Insufficient sub-recipient monitoring

• Not checking vendors and employees to the Excluded Parties List

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COMMON FINDINGS

• Lack of documentation regarding competitive bidding

• Ineligible participants or beneficiaries of federal funding

• Untimely reporting

• Lack of documented key controls

• Segregation of duties

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COMMON FINDINGS

• Level of effort reporting not performed and/or documented

• Student financial aid:

• Eligibility

• Calculation of return of Title IV funds

• Timely and accurate student status updates

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TIPS TO PREPARE FOR YOUR A-133 AUDIT

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HELPFUL TIPS TO PREPARE FOR YOUR AUDIT

• Be organized and be prepared prior to the auditor’s arrival

• Prepare a draft SEFA for auditor review during interim audit work that is as complete as possible

• Know the cost principles and specific compliance requirements of each grant

• Have a centralized grant repository and compliance officer

• Make sure program and finance teams are working together and grant reporting reconciles to the general ledger

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• Document and implement internal control policies and procedures over financial reporting and compliance with federal programs

• Review the documented policies regularly for updates

• Monitor compliance with policies and be sure all employees are aware. Emphasize the importance of compliance with everyone

• Provide evidence that controls are in place (through sign offs that 2 or more people were involved with key controls)

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• Test suspension and debarment regularly for vendors and employees and document that review to the Excluded Parties List System (http://epls.arnet.gov)

• Perform appropriate and adequate sub-recipient monitoring if you pass-through funds and provide pass-through agencies with the appropriate CFDA information. Maintain a monitoring file that includes contracts, correspondence, site visits, A-133 reports, etc.

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• Have a documented procurement policy that is followed

• If you award contracts on a “sole source” basis, prepare written justification as to why

• Have a documented capitalization policy and identify and track all assets purchased with federal dollars

• Perform documented fixed asset inventory for assets purchased with Federal funds at least once every two years

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• Have a tickler file for financial and performance reporting to granting agencies that requires documentation when a report has been completed and filed

• Maintain Level of Effort reports

• Review project progress throughout the year

• Reconcile and review grant costs monthly. Do not wait until year end to correct errors. Such transactions are suspect as cost shifting

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FOCUS ON A-133 SINGLE AUDIT QUALITY

Why is a quality audit important to you?

• Assists with program monitoring

• Discovery of non-compliance based on samples

• Institutes corrective action in a timely manner

• Risk management

• Consider the qualifications of the audit firm with compliance auditing to obtain the most value from the process

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INTERESTED IN MORE?

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Contact [email protected]

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DISCLAIMER

This presentation is not a comprehensive analysis of the subject matter. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenter and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered.

For additional information on matters covered in this presentation, contact a member of the BerryDunn team.

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CREDITS AND RESOURCES

Federal Circularshttp://www.whitehouse.gov/omb/circulars_index-ffm/

Government Audit Quality Centerhttp://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Pages/GAQC.aspx

Committee of Sponsoring Organizations of the Treadway Commission (COSO)http://www.coso.org/

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