March 8, 2013
In February 2013, as part of its grants improvement initiative, the Federal Office of Management and Budget (OMB) issued for comment its long-awaited major revisions to Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The OMB initiative is aimed at streamlining the Single Audit (A-133 audit) process "to make the most of taxpayer dollars and ensure financial integrity while delivering the right program outcomes."
If implemented, these changes would have a direct impact on organizations that receive Federal funding by eliminating the Single Audit requirement entirely for some, and reducing the amount of required testing for others. While the proposed regulations lift some of the burden of A-133 audit requirements, they emphasize timely and complete reporting of findings identified in the audits that do take place.
Key Features of the Proposed Revisions Affecting Your Organization
Here is an overview of the proposed changes most relevant to not-for-profit organizations:
- Threshold for Single Audit Raised to $750,000
Currently, an A-133 audit is required for any entity receiving $500,000 or more in Federal funds. The increased threshold would relieve some not-for-profits of the requirement for an A-133 audit. Entities receiving Federal funding totaling less than $750,000 must still make records available for review or audit by the Federal agency, pass-through entity or the Government Accountability Office.
- Threshold for Type A Programs Raised to $500,000
Under existing regulations, any program receiving $300,000 or more is considered a Type A program and therefore must be audited at least every three years. The proposed higher threshold for a Type A program could reduce the number of major programs that must be tested in any given year.
- Risk Assessment in Major Program Determination
The proposed guidance would narrow the definition of a high-risk Type A major program essentially to programs and/or financial statements receiving significant findings in the prior year, having a material weakness in internal control, or having questioned costs greater than five percent of the program's expenditures. It would also reduce the number of high-risk Type B (smaller programs) that must be tested. These changes are aimed at reducing the number of programs tested in a given year.
- Changes to Percent of Audit Coverage of Federal Funds
Currently, 25% of Federal funds for a low-risk auditee and 50% for a high-risk auditee must be tested. An auditee is considered high- or low-risk based on a two year history of Single Audits, the timely reporting of those audits, and the nature of any findings. In the proposed revisions, the percent of audit coverage of Federal funds would be reduced to 20% and 40% for low- and high-risk auditees, respectively, again likely reducing the number of programs to be tested.
- Reduction in Number of Compliance Requirements to be Tested
Currently, the Single Audit considers 14 types of compliance requirements. Over the years, many compliance requirements have become less applicable to many programs. In order to address this, under the proposed guidance, the number of compliance requirements to be tested would be reduced to six. However, Federal agencies could stipulate additional requirements to be tested if essential to compliance with the specific program.
- Higher Threshold for Reporting of Questioned Costs
The threshold for required reporting of questioned costs would increase from $10,000 to $25,000. However, more detail would be required in the auditors' reporting on findings.
- Codification of Guidance
All cost principles, administrative requirements and audit requirements now documented in OMB circulars A-21, A-87, A-89, A-102, A-110, A-122 and A-133 would be consolidated into one streamlined document.
- Other Areas
There are also proposed changes to the determination of indirect costs and time and effort reporting that could simplify the administrative burden of tracking and reporting these items.
You can find the full text of the proposed changes at: Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards. For information on how to comment on the proposed changes, please see: Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements (Including Single Audit Act). The comment period on the proposed revisions ends May 2, 2013.
At this time, no effective date has been identified for the implementation of the proposed guidance. Mayer Hoffman McCann will keep you up-to-date as we follow the development of these major changes to the Single Audit process.
For more information
If you have any questions or need further guidance on how the changes in the A-133 audit requirements may affect your organization, please contact Michelle Spriggs of MHM's Professional Standards Group or your MHM service professional. You can reach Michelle
at email@example.com or 774-206-8336.