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Sharpening Single Audit Practices and Avoiding

Audit DeficienciesTHURSDAY, MAY 23, 2019, 1:00-2:50 pm Eastern

FOR LIVE PROGRAM ONLY

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FOR LIVE PROGRAM ONLY

May 23, 2019

Sharpening Single Audit Practices and Avoiding Audit Deficiencies

Angie M. Hillestad, Partner

Eide Bailly

ahillestad@eidebailly.com

Kurt Schlicker, CPA, Manager

Eide Bailly

kschlicker@eidebailly.com

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

SHARPENING SINGLE AUDIT PRACTICES AND

AVOIDING AUDIT DEFICIENCIESMay 2019

PRESENTERS

Angie Hillestad, CPAPartner Eide Bailly LLPahillestad@eidebailly.com605-367-6703

Kurt Schlicker, CPAManager Eide Bailly LLPkschlicker@eidebailly.com775-689-9234

6

TODAY’S AGENDA

• Current authoritative guidance

• Title 2 U.S. Code of Federal Regulations Part 200, Uniform

Administrative Requirements, Cost Principles, and Audit

Requirements for Federal Awards (Uniform Guidance)

• Common areas of concern and avoiding common deficiencies

• Auditors• Factors impacting quality

• Low Risk vs High Risk Determinations

• Major Program Determination

• Internal Controls

• Reporting

• Auditees• Common findings

• Q&A

7

CURRENT

AUTHORITATIVE

GUIDANCE

8

UNIFORM GUIDANCE CODIFICATION

• Subpart A – Acronyms and Definitions

• Subpart B – General Provisions

• Subpart C – Pre-Federal Award Requirements and Contents of Federal Awards

• Subpart D – Post Federal Award Requirements

• Subpart E – Cost Principles

• Subpart F – Audit Requirements

• Appendixes I – XII (miscellaneous information that is often missed)

Title 2 CFR Part 200

9

COMMON AREAS OF

CONCERN AND

AVOIDING COMMON

DEFICIENCIES

10

AUDITORS

11

• Single Audit Experience• Firm

• Partner

• Managers/Staff

• Training/CPE• Not just limited to Partners

• Quality Control Systems• Subject to a 2nd review?

• Single Audit Technical Committee

• Developing expertise

• Familiarity with the audit guide

(see next slide)

PRIMARY FACTORS IMPACTING QUALITY

12

AICPA Audit Guide:

Government Auditing Standards

and Single AuditsKey resource for auditors; you should

be using this Guide!

Order now at:

http://www.aicpastore.com/

Covers internal control over financial

reporting in Government Auditing

Standards section.

Includes chapters on internal control

over compliance and compliance

requirements in a single audit under

the UG.

13

COMMON PROBLEM AREAS

• Low Risk vs High Risk Auditee

Problem Area:

• Timely DCF submission

• Unmodified opinion on the financial statements and SEFA

• No material weaknesses, material noncompliance, or QC > 5%

• No going concern

Criteria:

• Not based on judgment!

• Have a template that documents all the requirements (for prior 2 years)

Prevention:

14

COMMON PROBLEM AREAS

• Major Program Determination

Problem Area:

• Audited within prior 2 years

• Most recent audit results

• Results of follow-up or other significant changes

• Federal oversight

• Federal agency identifies as high-risk

Criteria:

• Determination of Type A is not judgment based

• Use the final SEFA to ensure coverage obtained

• Review compliance supplement for appropriate clusters

• Review the SEFA formatting to ensure CFDA’s are subtotaled appropriately

Prevention:

15

COMMON PROBLEM AREAS

• Internal Controls

Problem Area:

• Documentation of IC environment

• Control vs compliance testing

• Achieving low control risk

Criteria:

• Separate memo or document that evidences IC environment• Identify key controls for testing

• Training and understanding on control vs compliance• Compliance includes: Uniform Guidance, Grant Awards, and Compliance Supplement

as applicable

• Controls: The processes that provide reasonable assurance regarding compliance

• Workpapers that clearly identify control tests vs compliance tests

• Assessing risk appropriately

• Following suggested sample sizes in the audit guide

Prevention:

16

COMMON PROBLEM AREAS

• Reporting• Audit reports

• Findings

Problem Area:

• Requirements of findings (see 200.516)• Questioned costs

• Control vs compliance

Criteria:

• Use AICPA report illustrations and/or similar templates

• Separate workpaper that documents all deficiencies identified

• Proper evaluation and resolution on all identified deficiencies

Prevention:

17

AUDITEES

19

COMMON FINDINGS

Internal Controls:• Lack of review

• Review not detecting errors

• No control

Prevention:• Documented internal controls

that address areas of

potential non-compliance

• Understanding internal

controls

• Understanding compliance

requirements

20

COMMON FINDINGSAllowable Activities /

Allowable Costs:• Payroll:

• Time and effort tracking

• Fringe benefits

• Budget vs actual

• Internal controls on salaried

employees

21

COMMON FINDINGS

Allowable Activities/Allowable Costs:• Indirect Costs:

• Modified Total Direct Costs

• Costs not being allocated in accordance with

the cost allocation plan (CAP)

• Unallowed costs in the CAP

• Double dipping as an indirect and direct cost

• Internal controls in preparation and allocation

22

COMMON FINDINGS – ALLOWABLE COSTS

Alcoholic Beverages

Audit Costs Bad Debt

Bonding Costs

Contingency Donations

Depreciation Entertainment Fundraising

23

COMMON FINDINGS – ALLOWABLE COSTS

Interest MembershipsParticipant Support

Professional Services

Proposal Costs

Recruiting

Relocation Taxes Travel

24

COMMON FINDINGS

Allowable Activities/Allowable Costs Prevention:

• Supplemental timecards and true-up• Training or references available for allowable fringe

benefits• Monitoring changes to the CAP• Training on CAP preparation

• Simplified vs Multiple Allocation vs Special Method

• Independent review of CAP claims• Knowing where to look-up allowability!• Design and implement internal controls to monitor

compliance

25

COMMON FINDINGS

Cash Management

• Methodology of application of program income.

• Drawing in advance of immediate cash needs (i.e. drawdowns based on estimated disbursements or in advance for the entire year).

Prevention

• Reviewing expenditure and program income data.

• Understanding actual vs. pending transactions.

• Design and implement internal controls to monitor compliance.

26

COMMON FINDINGS

Eligibility:• Document retention

• Obtaining complete information

• Missing required re-

determinations

Prevention:• Case file checklists

• Independent review and

approval

• Re-determination notifications

• Design and implement internal

controls to monitor compliance

27

COMMON FINDINGS

Equipment and Real Property Management:• Identification of the federal asset

• Disposition without requesting instructions from the Federal agency

• Lack of physical inventory every two years

Prevention:• Addition & disposition checklists

• Independent review of additions and dispositions

• Training of non-grant personnel

• Design and implement internal controls to monitor compliance

28

COMMON FINDINGS

Matching, Level of Effort, Earmarking:

• Double dipping (using same costs for multiple awards)

• Using federal awards to match other federal awards

• Matching funds aren’t allowable

• Lack of monitoring for compliance (no process in place)

Prevention:

• Appropriate chart of accounts and grant cost tracking

• Training on requirements, including allowable costs

• Design and implement internal controls to monitor compliance

29

Period of Performance:• Incurring obligations in the liquidation period (and requesting reimbursement for them)

• Pre-award costs without approval

Prevention:• Training on obligation dates vs liquidation dates

• Written requests for pre-award costs

• Independent review and approval of costs

• Design and implement internal controls to monitor compliance

COMMON FINDINGS

30

COMMON FINDINGS

• Lack of written policies or policies that are not compliant

• Lack of documentation of quotes

• State vs Federal vs Local noncompliance

• Conflicts of interest that were not documented

• History of procurement was not adequately documented

• Contract provisions were not complete

• Inappropriate purchase method (aggregation)

Procurement, Suspension and Debarment:

32

COMMON FINDINGS

• Inappropriate factors impacting competition:• Geographical preferences

• Soliciting a pre-approved list only (not full and open)

• Inaccurate descriptions

• Unnecessary experience requirements

• Inappropriate use of sole source

• Suspension and Debarment was not verified (or not documented)

• Internal Controls for Purchasing Alliances

Procurement, Suspension and Debarment:

33

COMMON FINDINGS

• Designing and reviewing policy to ensure it is compliant

• Training employees on the procurement policy

• Several layers of review, depending on procurement type

• Design and implement internal controls to monitor compliance

• Gaining a full understanding of the entire procurement cycle

Procurement, Suspension and Debarment Prevention:

34

COMMON FINDINGS Program Income:

• Lack of identifying the income as federal (and subject to

federal compliance requirements)

• Spending program income on unallowable costs

Prevention:• Obtaining clarification of the grantor’s definition of program

income

• Training on how program income is applied (subtracted from

draws or spent in addition)

• Design and implement internal controls to monitor compliance

35

COMMON FINDINGSReporting:

• Lack of supporting

documentation or reconciliations

• Inaccurate reports

• Verifying prepopulated numbers

for accuracy

Prevention:• Independent review and

approval

• Document retention, including

supporting information (i.e. not

just the reports)

• Design and implement internal

controls to monitor compliance

36

COMMON FINDINGS

• Subawards not updated for U.G.

• No risk assessment policies or procedures

• Risk assessment policies/procedures but lack of performance

• Lack of review of subrecipient audit reports

• Lack of management decisions

• Lack of suspension and debarment verification on subrecipients (or not documented)

Subrecipient Monitoring

37

COMMON FINDINGS

Subrecipient Monitoring Prevention:

• Training, training, training

• Documented policies

• Document retention

• Calendar of monitoring

• Assignment of responsibilities

• Design and implement internal controls to monitor compliance38

COMMON FINDINGS

Special Tests - Overall:• Differ from grant to grant

• Understand the terms of grant

award

• Ensure appropriate training is

in place

• Implement internal controls as

appropriate

39

BRINGING IT ALL TOGETHER

• Auditees and auditors should be very familiar with Uniform Guidance• Advise clients where to read the requirements

• Advise clients how to find information

• Auditees and auditors should be aware of common findings

• Corrective Action Plans and Status of Prior Year Findings• Auditee prepared

• Something achievable

• Regulators on the look out for long standing findings

• Audit firms should have quality control systems in place

• Regulations continually change – CPE for single audits should be

ongoing!

40

This presentation is presented with the understanding that the information contained does not constitute legal, accounting or other professional advice.

It is not intended to be responsive to any individual situation or concerns, as the contents of this presentation are intended for general information

purposes only. Viewers are urged not to act upon the information contained in this presentation without first consulting competent legal, accounting or

other professional advice regarding implications of a particular factual situation. Questions and additional information can be submitted to your Eide

Bailly representative, or to the presenter of this session.

QUESTIONS?

41

THANK YOU

Angie Hillestad, CPA

Partner

ahillestad@eidebailly.com

605.367.6703

Kurt Schlicker, CPA

Manager

kschlicker@eidebailly.com

775.689.9234

42