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HELLO &WELCOME TOHELLO &WELCOME TOSINGLE AUDIT

REVISED AUDIT AND REPORTING REQUIREMENTSMarch 11, 2010PRESENTED BY:

DENISE LOVEJOY, CGFMCOMMONWEALTH AUDIT MANAGER

KRISTA SHOWERS, CPA, CEBS TROUT EBERSOLE & GROFF LLP

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AN OVERVIEW OF THE SINGLE AUDIT REVISED AUDIT & REPORTING

REQUIREMENTS

Brief Overview

Current Audit Developments & Updates of the Auditing & Reporting Requirements for OMB Circular A-133

New Online Submission of the Single Audit Reporting Package

Common Problems with the Single Audit Reporting Package

Updates of the American Reinvestment & Recovery Act of 2009

Conclusion

Questions and Answers

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Brief Overview

1979: Federal Audit RequirementAttachment P, Audit Requirements, to OMB

Circular A- 102, “Grants and Cooperative Agreements with State and Local Governments.”

1984: Single Audit Act Established uniform audit requirements and an organization wide audit process for state and

local government.

1996: Single Audit Act Amendment Raised the audit threshold from $25,000 to

$300,000; Revised the definition of “Major Program” to

incorporate the risk-based approach; & Created uniform requirements for all recipients.

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Brief Overview

1997 - OMB Circular A-133 Circular Revised and renamed “Audits of States, Local

Governments, and Non-profit Organization; Extended the statutory audit requirement to non-

profit organizations; Placed states, local governments, universities and

non-profit organizations under the same audit process;

Increased the expenditure level from $25,000 to $300,000; &

Set standards for consistency and uniformity for the audits required by the 1996 amendments.

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Brief Overview 2003 - OMB Circular A-133 Revised

Increased the threshold for Single Audit from $300,000 to $500,000

Increased the threshold for Cognizant Agency for audit from $25 million to $50 million

Provided for federal agency re-assignment of oversight agency for audit

2007 – OMB Circular A-133 Revised Updated the internal control terminology Simplified the audit reporting package submission

requirement to the Federal Audit Clearinghouse (FAC). The FAC serves as the central collection point, repository, and distribution center for single audit reports

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Brief OverviewOverview of the Single Audit Process

Auditees’ Responsibilities: Prepare the Financial Statements and a Schedule of Expenditures of

Federal Awards (SEFA). The statements and schedule must be prepared for the same audit period.

Select the auditor to conduct the audit. Non-governmental auditees normally must engage a certified public accountant (CPA) or CPA firm to conduct the audit.

A grantee is responsible for selecting an auditor under Circular A-133. An auditor can include an independent licensed CPA or a federal, state or local government audit organizations that meets the general standards specified in Government Auditing Standards (GAS), Chapter 3.

For example, many states and state agencies have their audits performed by state auditors. The term auditor does not include internal auditors.

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Brief Overview

Overview of the Single Audit Process (Continued)

Ensure the auditor has the professional qualifications and technical abilities to conduct the audit;

Preparing a Corrective Action Plan for current-year audit findings and take action to correct the reported findings;

Report on the Schedule of Prior Year Audit Findings the status of its corrective action for each prior-year finding until the finding has been corrected or the finding is no longer valid or warrants corrective action; &

Submission of Data Collection Form (SF-SAC Form) and the audit report to the Federal Audit Clearinghouse within 30 days of receipt of the auditor’s reports, but no later than 9 months after the end of the auditee’s fiscal year.

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Brief Overview of the Single Audit Process

Auditor’s Responsibilities: Perform the audit in accordance with the Government Auditing

Standards;

Apply risk assessment procedures to determine which programs will be audited;

Determine whether the financial statements and Schedule of Expenditures of Federal Awards (SEFA) are presented fairly;

Gain an understanding of internal control over Federal programs and test internal control over major programs;

Determine whether the auditee has complied with the compliance requirements, which may have a direct and material effect on each of its major programs; &

Follow-up on prior audit findings.

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Brief Overview of the Single Audit Process Audit Findings - Statement of Findings and Questioned Costs

Deficiency in internal control related to major programs tested ;

Material noncompliance with the laws, regulations, or contract or grant provisions related to the major programs tested;

For major programs tested, questioned costs which exceed, or are likely to exceed, $10,000 for each type of compliance requirement;

Detected fraud, which affects a program, and misrepresentation of the status of a prior audit finding; &

Prepare specific components of the audit report and sections of the SF-SAC.

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Current Audit Developments &Updates of the Auditing & Reporting Requirements for

OMB Circular A-133

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New Single Audit Reporting Package Submission

For the Commonwealth of PA and the Federal Audit Clearinghouse, there is a “New & Improved” Single Audit Reporting Package Submission Process.

A more detailed explanation will be provided further in this presentation.

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Current Updates for the Office of Management & Budget (OMB)

Circular A-133

Circular A-133 Compliance Supplement

Provides guidance to the auditor regarding testing Federal programs;

Provides audit guidance for Cluster of Programs identified by the CFDA (Catalog of Federal Domestic Assistance) number;

A cluster of programs is a group of closely related programs that share common compliance requirements and are considered one program for audit purposes. Clusters of programs are identified in Part 5 of the Compliance Supplement;

Provides a narrative description of each program and contains information to help the auditor understand the purpose of the program and how it operates; &

Provides guidance to the auditor on the auditing of programs not included in the supplement.

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2009 Compliance Supplement - Released May 26, 2009 -

Effective for audits of fiscal years beginning after June 30, 2008, which supersedes the Compliance

Supplement dated March 2008

Appendix V of the supplement “List of Changes for the 2009 Compliance Supplement”

The more significant changes in the 2009

Five new programs were added and five programs were deleted;

32 programs and 10 program clusters had significant changes through updates and/or corrections;

Significant changes were made to Part II, “Matrix of Compliance Requirements;”

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2009 Compliance Supplement - Released May 26, 2009 - Effective for audits of fiscal years beginning after June

30, 2008, which supersedes the Compliance Supplement dated March 2008 (Continued)

Changes were also made to Part III, Compliance requirement and Part VI, Internal Control;

Procurement, Suspension, and Debarment were also updated;

Updates made to Appendix VI, “ Disaster Waivers and Special Provision affecting Single Audits; and

A new Appendix VII - Other OMB Circular A-133 Advisories

The effect of the American Recovery and Reinvestment Act of 2009 (ARRA) on single audits based on currently available information List of the common audit deficiencies cited in the Federal study on “Single Audit Quality”

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AICPA Audit Guide for Government Auditing Standards and OMB Circular A-133 Audits – October 1, 2009.

The Guide’s purpose is to provide auditors with the basic understanding of the procedures they should perform and of the reports they should issue for single audits and audits performed in accordance with Government Auditing Standards

The AICPA publishes various Audit Risk Alerts. If you are performing a financial audit or a single audit of state, local government, or nonprofit organization, you can refer to the following

Audit Risk Alerts:

Audit Risk Alert – State and Local Governmental Developments

Audit Risk Alert – Non-Profit Organizations Industry Developments

Audit Risk Alert – Government Auditing Standards and Circular A-133 Developments

These alerts can be obtained by calling the AICPA at 888-777-7077 or visiting www.cpa2biz.com.

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Current Updates for the Office of Management & Budget (OMB) Circular A-133

The AICPA Revised the Internal Control Standards Adopted in the Yellow Book

According to the Single Audit Information Service (January 2009, Issue 289), in response to the AICPA’s recent revision of internal control definitions, the GAO issued interim guidance that alters the terms “significant deficiency” and “material weakness” in the Government Auditing Standards. The AICPA released SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit, effective for audits of financial statements for periods ending on or after December 15, 2009, although earlier implementation is permitted.

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Current Updates for the Office of Management & Budget (OMB) Circular A-133

SAS No. 115 supersedes SAS No. 112 and provides new definitions of “material weakness” and “significant deficiency.”

Material weakness is “a deficiency, or combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.”

Significant deficiency is “ a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.”

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Current Updates for the Office of Management & Budget (OMB) Circular A-

133

To help auditors comply with the Yellow Book until the next update, the GAO provided the following interim guidance for complying with the internal control reporting requirements:

Auditors may satisfy the internal control reporting requirements by including in the Yellow Book report on internal control all identified material weaknesses and significant deficiencies following the new definitions and requirements from SAS No. 115 and SSAE No. 15, as applicable, providing those definitions, and describing the scope of testing performed on the entity’s internal control over financial reporting.

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Current Updates for the Office of Management & Budget (OMB) Circular A-

133

AICPA officials added that auditors should note that the OMB has not updated Circular A-133 or other similar federal regulations to reflect the new internal control definitions. Therefore, it would not be appropriate for auditors to use definitions for reporting on internal control over compliance that may be consistent with the definitions found in SAS No. 115 until such time as Circular A-133 or other regulations or guides are amended to allow usage of new updated definitions.

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New Single Audit Reporting Package Submission

The Commonwealth of PA and the Federal Audit Clearinghouse, have a “New and Improved” Single Audit Reporting Package Submission Process.

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Effective July 1, 2009, Bureau of Audits will begin accepting electronic submission of single audit or program-specific audit reporting packages.  Electronic submission is required and mandatory for fiscal year ending December 31, 2008 and subsequent years. The reporting package must be submitted electronically in single Portable Document Format (PDF) file to an e-mail resource account. 

Commonwealth of PA Single Audit Submission Procedures

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The complete single audit or program-specific audit reporting package, must be submitted to:

RA-BOASingleAudit@state.pa.usThe subrecipient will receive an e-mail to confirm the receipt of the Checklist and the Single Auditor Program-Specific Audit Reporting Package.

Specific instructions on how to submit the single audit report or program-specific audit reporting package as a single PDF file to the e-mail address are provided on the following

website:www.budget.state.pa.us

Select “ Single Audit Submissions”

Commonwealth of PA Single Audit Submission Procedures

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Go to the website, www.budget.state.pa.us. Click on “SingleAudit Submissions”

The Single Audit or Program-Specific Audit Submission Method: Complete the checklist to ensure the single audit or

program-specific audit reporting package is completed.  Select the “Checklist” link. This link will provide a printable checklist for the subrecipient to input the information, complete and print the checklist.

Upload the complete Single Audit or Program-Specific Audit Reporting Package along with the checklist in a single PDF file.  Identify in the “Subject” of the e-mail the exact name on the single audit or program-specific audit reporting package and the year-end.

Commonwealth of PA Single Audit Submission Procedures

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Federal Audit Clearinghouse’s Contact Information

For Questions Concerning:

Form SF-SAC and A-133 submission questions, contact the telephone voice or toll free numbers, fax number or e-mail address.

301-763-1551 (Voice)

800-253-0696 (Toll Free)

301-763-6792 (Fax)

govs.fac@census.gov

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Single Audit or Program-Specific Audit Reporting Package

For A Single Audit: Financial Statements and

Notes Schedule of Expenditures of

Federal Awards (SEFA) and Notes

Auditor’s Report on F/S and SEFA

Auditor’s Reports on Internal Control and ComplianceIn Accordance with GASIn Accordance with A-133

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For A Single Audit (Continued):

Schedule of Findings and Questioned CostsIncluding Summary of

Auditor’s Results Summary Schedule of

Prior Audit Findings Corrective Action Plan Copy of Data Collection

Form

Single Audit or Program-Specific

Audit Reporting Package

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Single Audit or Program-Specific Audit Reporting Package

For A Program-Specific Audit:Financial Statements of the Federal Program and Notes

~~~And/Or~~~Schedule of Expenditures of Federal Awards (SEFA) and Notes Auditor’s Report on F/S and/or SEFAAuditor’s Report on Compliance with Requirements Applicable to the Federal Program and on Internal Control Over Compliance in Accordance with the Program-Specific Audit Option Under OMB Circular A-133.

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For A Program-Specific Audit(Continued): Schedule of Findings and

Questioned Costs Including Summary of

Auditor’s Results Summary Schedule of Prior

Audit Findings Corrective Action Plan Copy of Data Collection Form

Single Audit or Program-Specific

Audit Reporting Package

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Common Problems with the Single Audit Reporting Package

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Missing Components of Reporting PackageReport on the SEFASchedule of Findings and Questioned CostsSummary of Auditor’s ResultsSummary Schedule of Prior Audit FindingsCorrective Action Plan

Improper Application of Risk-Based Approach and Major Program Determination

Problems with SEFA

Common Problems with the

Single Audit Reporting Package

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Report on the SEFAUsually Included in

Auditor’s Report on the Financial Statements as a Paragraph on the Supplementary Information

The Paragraph Must Reference the SEFA and OMB Circular A-133

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Schedule of Findings and Questioned Costs

Include in the Schedule of Findings and Questioned Costs the Following Three Parts:Summary of Auditor’s ResultsFindings Related to the Financial

StatementsFindings and Questioned Costs for Federal

Awards

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Summary of Auditor’s Results

Include Items Such as the Following:

Types of Opinions on F/S and Major ProgramsSignificant Deficiencies (Control Deficiencies) or

Material WeaknessesNoncompliance Material to F/S or Major

ProgramsIdentification of Major ProgramsDollar Threshold to Distinguish Type A & B Whether Auditee Qualified as Low-risk

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Summary Schedule of Prior Audit Findings

Prepared by Auditee, Reviewed by Auditor

From latest prior audit - Status of All Prior Audit Findings Relative to Federal Awards (even if they have been resolved)

Also from any other prior audits - Status of any Findings Relative to Federal Awards that have not been resolved

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Corrective Action Plan

Address Each Finding in Schedule of Findings and Questioned Costs

Provide Contact Person, Corrective Action Planned, and Anticipated Completion Date

If Auditee Does Not Agree With Finding, Provide Explanation and Reasons

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Improper Application of the Risk-Based Approach & Major Program

Determination

Failure to Audit as Major --Type A Programs Not Low Risk

Failure to Substitute High Risk Type B for Low-Risk Type A

Failure to Meet the % of Coverage Rule

Failure to Audit All Programs in a Cluster

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SEFA Presentation

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Problems with the SEFA

Failure to Identify Pass-through Entities and/or Pass-through Grant Numbers

Failure to Identify Programs as Part of a “Cluster”

Failure to Include Notes to the SEFANot All Funds are Included on the SEFA(i.e. non-cash federal assistance)

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SEFA - Minimum Requirements

Federal Programs by Federal Grantor and Pass-through Grantor

Pass-through Grant Number Catalog of Federal Domestic Assistance

(CFDA) Name, CFDA # and Total Expenditures for Each Federal Program

Notes to the SEFA Including at the Minimum a Note That Describes the Significant Accounting Policies Used in Preparing the SEFA

Value of Non-Cash Assistance

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Clusters of ProgramsIdentify Cluster Title (Child Nutrition

Cluster, WIA Cluster, Aging Cluster, etc.) List Individual Programs Within a ClusterProvide Total Expenditures for ClusterTreat as One Program for Major Program

Determination The 2009 Compliance Supplement, Part 5

(Released May 26. 2009), provides a comprehensive section of cluster programs.

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SEFA - Additional Information

Not Required But May Be Requested by Pass-through Agencies:Federal Expenditures by Award Year

or ContractAward Amount and Grant PeriodBeginning and Ending BalancesReceipts or Revenue Recognized or

Revenue Deferred

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SEFA for Local Educational Agencies (LEA)

PA Department of Education (PDE) Requests Additional Information for LEAs (School Districts, Charter School, and Other Educational Institutions): Source Code (Direct or Indirect)Grant PeriodProgram or Award AmountTotal Received and Revenue RecognizedBeginning/Ending Balances

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SEFA AccountabilityIt is very important for the SEFA to contain reliable information because accountability becomes critical. Recipients and

Subrecipientsof federal dollars must properly manage andadminister the federal dollars and moreimportantly the vast sums of federal dollarsbeing doled out to the state and local government under the American Recovery and Reinvestment Act.

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Updates on the American Reinvestment andRecovery Act of 2009

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Overall Look at Single Audits Program Determination

Single Audit Act and OMB Circular No. A-133 require for a “risk based” approach to determine those programs will be included in Single Audit for major program determination and testing; &

Prescribed approach to determine those programs will be subject to a detailed compliance testing relies heavily on the following:

The amount of federal expenditures during a fiscal year; &

Whether findings were reported in the previous period.

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Overall Look at Single Audits Program Determination

Under the current approach for risk determination, certain risks may not receive full consideration

Unique challenges associated with Recovery Act funding:Sudden increase in funds that most

recipients are experiencing;New government programs and programs

that are new for the recipient entity; &Need for timely and efficient oversight in

response to the Recovery Act’s accountability requirements.

Additional Resources

Attachment 1 – Provides guidance on ARRA and implementation thereof; &

Attachment 2 – Provides ARRA Examples on planning a single audit.

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AN OVERVIEW OF THE SINGLE AUDIT DEVELOPMENTS AND UPDATESConclusion

Current Audit Developments & Updates of the Auditing & Reporting Requirements for OMB Circular A-133

New Online Submission of the Single Audit Reporting Package

Common Problems with the Single Audit Reporting Package

Updates of the American Reinvestment & Recovery Act of 2009

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Denise Lovejoy’sContact Information

Denise Lovejoy, CGFMBureau of Audits

Special Audit Services DivisionForum Place -- 8th Floor

555 Walnut StreetHarrisburg, PA 17101

717-783-9120 (Single Audit Line)717-703-3943 (Fax Line)

717-425-6433 (Denise’s Desk Line)dlovejoy@state.pa.us (personal e-mail)

Single Audit Report Submission E-mailRA-BOASingleAudit@state.pa.us

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Krista Showers’ Contact Information

Krista Showers, CPA, CEBSTrout Ebersole & Groff, LLP

1705 Oregon PikeLancaster, PA 17601

717-569-2900 , ext. 104717-569-0141 (Fax Line)

1-800-448-1384(Toll-free) kshowers@troutcpa.com (e-mail)

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Questions & Answers

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…THANK YOU FOR YOURTIME AND ATTENDANCE