GAQC Member Conference Call

The New GAQC Schedule of Expenditures of Federal Awards Practice Aids

and Other Related Issues

October 22, 2009

1

Corey ArvizuHeinfeld, Meech & Co.

Barbara CevallosPricewaterhouseCoopers LLP

TOPICS to be COVERED

Context of the SEFABackground on the Development of the Practice AidsGAQC Developed Practice Aids:

• Auditor Practice Aid: Illustrative Audit Program• Auditor & Auditee Practice Aid: Disclosure Checklist• Auditee Practice Aid: Worksheet for Identifying Federal

Program Information Impact of the American Recovery and Reinvestment

Act on SEFA Reporting

2

CONTEXT OF THE SEFA

3

Context of the SEFA

Defined in OMB Circular A-133 _.310(b)Auditee’s responsibility _.300(d)Auditor’s responsibility _.505(a)

• Opinion (or disclaimer of opinion) as to whether the SEFA is presented fairly in all material respects in relation to the financial statements taken as whole.

Considered supplementary information

4

Context of the SEFA – Auditee ResponsibilitySEFA is the primary responsibility of the

auditeeEncourage your clients to:

• Contact pass-through awarding entities early in the planning process

• Understand the importance of the SEFA

Consider control deficiencies

5

Context of the SEFA - Opinion

In relation to opinion • AU 551 Reporting on Information Accompanying

the Basic Financial Statements in Auditor-Submitted Documents (Undergoing revision)

• Opinion is based on the same materiality as that of the financial statements

• Dating concurrent with financial statement opinion

6

Context of the SEFA – Compliance Audit Objectives SEFA serves as the primary basis for major program

determination – thus making the accuracy & completeness of the SEFA a critical factor

Internal control over compliance procedures require the auditor to assess the auditee’s controls over the accuracy and completeness of the expenditure amounts & accuracy of CFDA numbers

Compliance procedures should be performed to determine whether the SEFA is complete, accurate and contains all required elements

7

BACKGROUND ON THE DEVELOPMENT OF THE

PRACTICE AIDS

8

9

Background

Understand Quality Control Issues Associated with the SEFA

AICPA Response

10

QC Issues Associated with the SEFA

PCIE Report Issued in June 2007 Identified quality issues in many aspects of single

audit engagements reviewedFor more information:

• Listen to the GAQC archived Webcast “An Overview of the Results of the National Single Audit Sampling Project”

• Read the PCIE Report available at the following site: http://ignet.gov/pande/audit/NatSamProjRptFINAL2.pdf

• Read the October 25, 2007 testimony presented at a Senate hearing on Single Audit Quality http://hsgac.senate.gov

11

QC Issues Associated with the SEFA

Audit documentation did not contain evidence that audit programs were used for auditing the SEFA

Omission of required elements of the SEFAAudit documentation did not contain evidence that

audit work relating to the SEFA was adequately performed

Required opinion on the SEFA was omitted

Expectation of use in accordance with audit standards

Include adequate procedures (which go beyond those required for “in-relation” opinion)

Consistent application of audit procedures on SEFA for all audits and all teams

Help address other SEFA quality control issues noted

QC Issues - Audit Programs

12

QC Issues – Required Elements

• Issue noted in over 45% of audits reviewed• Clustering and correct CFDA numbers critical • Use of review checklist for both auditors and

auditees • Correct SEFA content important for:

Determining major federal programs Determining compliance requirements of major

programs Presenting required information for SEFA users

13

QC Issues - EvidenceSpecifically identify audit procedures applied to the

SEFAProcedures should identify assertions tested, in

particular completeness, accuracy, and classificationUtilization of audit program helps ensure adequate

evidenceNotes to the SEFA are a required element of the

reporting package

14

QC Issues - Opinion OmissionEducate staff and partners working on single audits

about the options on where to include the SEFA in relation to opinion

Consider developing a template to illustrate the requirements of an A-133 report

If your firm uses an audit completion checklist to assist in performing final documentation and report reviews, add a step to review the in relation to opinion on the SEFA before issuance

15

AICPA Response

Formation of the SEFA Reporting Issues Task Force

Revisions made to AICPA GAS/A-133 Peer Review Checklists based on the findings

Interaction with the Federal community to keep abreast of their responses

16

SEFA Reporting Issues Task Force7 member task force with representatives from:

GAQC member firmsDiverse firm representation

Practice Aids reviewed by:State AuditorAICPA Audit & Attest Standards staffOMB task force

Practice Aids are considered an Other Auditing Publication

17

Questions

18

GAQC DEVELOPED PRACTICE AIDS

19

GAQC Practice Aids Auditor Practice Aids

Illustrative Audit Program for the SEFADisclosure Checklist for the SEFA

Auditee Practice AidsWorksheet for Identifying Federal Program InformationDisclosure Checklist for the SEFA

Practice aids are available through the GAQC website at: GAQC Home > Resources > Research Tools and Aids

20

Illustrative Audit Program for the SEFA

Assertions related to the SEFACM: CompletenessOC: Occurrence AC: AccuracyCT: CutoffCU: Classification and Understandability

21

Illustrative Audit Program for the SEFA

Objectives of the Audit ProgramA. To determine whether the schedule of

expenditures of federal awards (schedule) is fairly stated in all material respects in relation to the basic financial statements.

B. To determine whether the schedule provides an appropriate basis for determining major programs.

22

In Relation To Procedures

AU 550, Other Information in Documents Containing Audited Financial Statements Provides guidance on the auditor’s consideration of

supplementary information (SI), including auditor responsibilities and related procedures

Read the SI and consider whether such information, or the manner of its presentation, is materially inconsistent with information, or the manner of its presentation, appearing in the financial statements.

23

In Relation To ProceduresAU 551, Reporting on Information Accompanying the

Basic Financial Statements in Auditor-Submitted Documents Provides guidance on the form and content of the reporting

when the auditor expresses an “in relation to” opinion.

AU 550 and AU 551 are being revised Comments were due May 2009 ASB currently deliberating GAQC will make its members aware when issued and will

make any appropriate modifications needed to the audit program

24

In Relation To Procedures

Inquire of management whether the schedule was prepared in accordance with Circular A-133.

Obtain an understanding about the methods of preparing the information, including whether the form and content complies with Circular A-133.

Compare and reconcile information to the underlying accounting and other records used in preparing the financial statements or to the financial statements themselves.

25

In Relation To Procedures

Inquire of management whether there were any significant assumptions or interpretations underlying the measurement of presentation of the information.

Evaluate the appropriateness and completeness of the information, considering procedures and other knowledge obtained during the audit of the financial statements.

26

In Relation To ProceduresObtain the following management representations

that it acknowledges its responsibility for the information; that the form and content of the schedule is in accordance

with Circular A-133 §310.b; that the methods of measurement or presentation have not

changed from those used in the prior period or, if the methods of measurement have changed, the reasons for such changes; and

as to any significant assumptions underlying the measurement or presentation of the schedule.

27

Procedures Related to A-133 Requirements

Obtain an understanding of internal control over the preparation of the schedule.

Determine whether the period covered by the schedule is the same as that covered by the financial statements.

Determine whether the clusters reported in the schedule are correct by comparison to Part 5 of the Compliance Supplement

28

Procedures Related to A-133 Requirements

Test completeness of the scheduleTest accuracy of CFDA numbers and names

of awarding agencies by comparison to various source and other documents

29

Procedures Related to A-133 Requirements

Determine whether the schedule: Properly identifies federal awards from pass-through

entities and the federal portion of multi-funded awards, and assess potential finding if client is unable to determine these amounts.

Properly includes direct and indirect costs, and excludes cost sharing or matching amounts.

Presents the minimum data elements required by A-133, section 310(b).

Presents in the notes to the schedule the significant accounting policies used and basis of presentation.

30

Procedures Related to A-133 Requirements

Determine whether the schedule (continued): Appropriately measures certain specific items, such as

loans and loan guarantees, endowment funds, and noncash assistance, as provided in A-133, section 205(b) through (j).

Uses measurements or presentations that differ from those in the prior period. (If so, evaluate the nature and reasonableness of the changes.)

Has any significant assumptions or interpretations underlying the measurements or presentations. (If so, evaluate the appropriateness of those assumptions and interpretations.)

31

Procedures Related to A-133 Requirements

In addition to the other management representations noted – obtain the following: that it is management’s responsibility for understanding and

complying with the compliance requirements related to the preparation of the schedule;

that management has identified all of its government programs and related activities subject to Circular A-133 and has included expenditures made during the period being audited for all awards provided by federal agencies in the form of grants, federal cost-reimbursement contracts loans, loan guarantees, property (including donated surplus property), cooperative agreements, interest subsidies, insurance, food commodities, direct appropriations, and other direct assistance;

32

Procedures Related to A-133 Requirements

In addition to the other management representations noted – obtain the following: that management has made available all contracts and

grant agreements, including amendments, if any, and any other correspondence that have taken place with federal agencies or pass-through entities related to federal programs;

acknowledges management’s responsibility for establishing and maintaining controls that provide reasonable assurance that the entity manages government programs in

compliance requirements.

33

Procedures Related to A-133 Requirements

Evaluate identified control weaknesses pertaining to the auditee’s complete and accurate schedule and determine whether such deficiencies individually or in combination, are significant deficiencies or material weaknesses relating to internal control over financial reporting, internal control over compliance or both. Currently, apply SAS 112 definitions Consider the likelihood/magnitude of an error compared to

financial statement AND A-133 materiality Consider any linkage between the process used to compile

the SEFA and recording of federal grant transactions

34

Questions

35

Disclosure Checklist for the SEFADesigned using the requirements of A-133 § 310.bEmphasize to clients that the preparation of the

SEFA is an auditee responsibility as defined by A-133 § 300.d

Communicate with clients who have difficulty preparing the SEFA early in the planning process

Auditor & Auditee practice aids are identical in terms of listing the required elements

36

Disclosure Checklist for the SEFAHighlights:

If a CFDA number is not available, include the agency prefix and another identifying number and the name of the program

Clusters – must list individual awards Include, if applicable, awards received as a

subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity

37

Disclosure Checklist for the SEFAHighlights

Include non-cash assistance Inclusion of non-federal awards in the SEFA

Clearly segregated Designated as non-federal Modify the title of the SEFA to indicate their

inclusion

38

Worksheet for Identifying Federal Program InformationTask Force wanted to emphasize that the

preparation of the SEFA is an auditee responsibilityDeveloped a tool to share with clients to help them

compile information on each of their grants

39

Worksheet for Identifying Federal Program InformationHelp your clients understand

CFDA numbers and their purpose Role of pass-through entities Noncash assistance Advance vs. reimbursement cash draws OMB Compliance Supplement

Types of compliance requirements How to determine applicability to each grant

Importance of all of this information on administering grants Potential impact on their report for failure to understand or

apply (findings)

40

Other Tools & ResourcesAlert #126 Release of SEFA Practice Aids

Forward to clients or use to format your own communication

GAQC Member-only conference calls

Auditee Preparation for Single Audits (open call)

SEFA Reporting Improvements & Suggested Procedures (discusses many deficiencies in detail)

41

Other Tools & Resources

AICPA/CPA2BIZ (http://www.cpa2biz.com/)

• Government Auditing Standards & Circular A-133 Auditing & Accounting Guide

• Government Auditing Standards & Circular A-133 Audit Risk AlertOMB (http://www.whitehouse.gov/omb/circulars/index.html)

• Circular A-133• Current Year’s Compliance Supplement

GAO (http://www.gao.gov/govaud/ybk01.htm#contacts) • 2007 Yellow Book: Government Auditing Standards

42

IMPACT OF THE AMERICAN RECOVERY

AND REINVESTMENT ACT ON SEFA REPORTING

43

44

Recovery Act

American Recovery and Reinvestment Act of 2009 • Some June 30, 2009, audits impacted; bigger impact likely

on later 2009 year-ends and into 2010 and 2011• Accountability and Transparency

• QCRs built into the OMB guidance – results to be placed on Recovery.gov

• Single audit reporting to be made available on the Internet

• Auditees significantly affected by Section 1512 reporting; auditor responsibility going forward?

• Non-static Compliance Supplement and other OMB guidance issued on continual basis

• Changes to major program determination process• Watch GAQC communications and Web site for updates

45

Recovery Act – OMB Guidance

OMB Guidance on Recovery Act Directly Relating to SEFA Requirements:• March 2009 OMB Compliance Supplement and Appendix

VII• August 2009 OMB Compliance Supplement Addendum 1

(effective for June 30, 2009 audits)• Both available through the following link:

http://www.whitehouse.gov/omb/grants_circulars/

Recovery Act – Compliance Supplement Appendix VII

Effects on SEFA• Auditors Should Be Alert for Recovery Act Awards.  Auditors

should be alert to determine whether auditees (both recipients and subrecipients) have properly identified Recovery Act awards

• Impact on CFDA Numbers.  Federal agencies are required to

specifically identify Recovery Act awards, regardless of whether

the funding is provided under a new or existing CFDA number 

• Cluster Guidance to be Updated in Addendums.  OMB states

that it will need to update the clustering guidance in Part 5 of the

Compliance Supplement since many of the Recovery Act awards

will have new CFDA numbers

46

Recovery Act – Compliance Supplement Appendix VII

Effects on SEFA• SEFA and Data Collection Form (DCF) Need to Identify

Recovery Act Expenditures Separately 

– Specific Recovery Act requirements are being included in

terms and conditions for Recovery Act awards to ensure

separate identification in both the SEFA and the DCF.  This

separate identification should also include the R&D cluster

regardless of the accommodation made in section .310(b)(1) of

Circular A-133. 

47

Recovery Act – Addendum 1 to CS

Effects on SEFA• Addition of Special Tests & Provisions for Awards

with ARRA Funding• R2: Separate presentation on the SEFA and DCF

of ARRA awards

• Note that these are additive requirements (current requirements in A-133 still stand)

48

Recovery Act

Research & Development Cluster Considerations• New CFDA # versus existing CFDA #• ARRA in title• Reporting by agency

49

Recovery Act (partial SEFA)

50

Federal Grantor Federal CFDA

Number

Federal Expenditures

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

ARRA - Bovines 93.999 7,567,543

Total Department of Health and Human Services Direct Programs $ 19,666,543

Recovery Act (SF-SAC)

51

GAQC Recovery Act Resource CenterWatch the Resource Center for new Recovery Act guidance

http://gaqc.aicpa.org/Resources/Recovery+Act+Resource+Center.htm

Archived GAQC member calls Recovery Act calls Auditee call on preparing for a single audit Links to Recovery Act GAQC Alerts Links to GAQC Recovery Act tools Nonauthoritative examples to illustrate the impact of the Recovery Act Talking points for auditors to use with clients The Resource Center is open to general public, so invite your staff and

clients

52

Questions

53