Compliance Auditing Update Compliance Auditing Update NC Local Government Auditing, Reporting and Review NC Local Government Auditing, Reporting and Review June 14, 2016 June 14, 2016 Uniform Guidance Overview Course Objectives- Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards • Review the reasons why the Uniform Guidance was developed • Brief review of the goals of the Uniform Guidance • Review and discuss certain changes as they relate to the entity and to auditors • Review and discuss other changes related to NC • Briefly review Clarity Attestation Standards 2 North Carolina State Single Audit Authoritative Sources • Title 2 U.S. Code of Federal Regulations Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) ; • Audit Manual for Governmental Auditors in North Carolina - Discussion of Single Audit in North Carolina 3 1
State Single Audit Requirements • In accordance with federal requirements, beginning in fiscal years ending after December 26, 2015, local governments and public authorities that expend $750,000 or more in NEW federal financial assistance must have a single audit performed • Local governments with fiscal years ending June 30, 2016 or later that have expended $500,000 or more in State financial assistance must have a single audit performed in accordance with the State Single Audit Implementation Act. • Local governments and public authorities that expend $100,000 or more in combined Federal or State financial assistance must have an audit performed in accordance with Government Auditing Standards (GAGAS). The Federal threshold for a Single Audit increased from $500,000 to $750,000 under Uniform Guidance. There are no changes to the State threshold. 4 Uniform Guidance Sections that Apply to State Awards Subpart A - Definitions, as applicable 200.502 - Basis for determining awards expended 200.330 - Subrecipient and contractor determinations 200.503(a, b, c) - Relation to other audit requirements 200.505 - Sanctions 200.508 - Auditee responsibilities 200.509 - Auditor selection 200.510 - Financial statements 200.511 - Audit findings follow-up 200.331 - Requirements for pass-through entities 200.521(a, c, d, e) - Management decision 200.514 - Scope of audit 200.515 - Audit reporting 200.516 - Audit findings 200.517 - Audit documentation 5 LGC Review of Audit Reports • Number of audits reviewed by LGC for fiscal years ending in 2015: *1,213 audits 595 Single Audits (49%) 251 GAGAS only (21%) 367 GAAS only (30%) * received as of May 31, 2016 6 2
Uniform Guidance-How Did We Get Here? • Developed in response to the November 23, 2009 Executive Order 13520 on Reducing Improper Payments • President directed OMB to work with Executive Branch agencies; state, local, and tribal governments; and other key stakeholders to evaluate reforms to Federal grant policies • COFAR (Council on Financial Assistance Reform) was established in October 2011 to help lead the effort to improve management and accountability of Federal grants 7 Uniform Guidance-Impact of This Reform Major goal of Uniform Guidance is to reduce administrative burden and the risk of waste, fraud and abuse by: 1. Eliminating duplicated and conflicting guidance 2. Focusing on performance over compliance for accountability 3. Encouraging efficient use of information technology and shared services 4. Providing for consistent and transparent treatment of costs 5. Limiting allowable costs to make the best use of Federal resources 8 Uniform Guidance-Impact of This Reform 6. Setting standard business processes using data definitions 7. Encouraging entities to have family-friendly practices 8. Strengthening oversight 9. Targeting audit requirements on risk of waste, fraud, and abuse 9 3
Uniform Guidance-Impact of This Reform • One set of comprehensive regulations that should streamline requirements and supersedes eight existing circulars, including those applicable to State and Local Governments: o A-87, Cost Principles for State, Local and Tribal Governments o A-102, Grants and Cooperative Agreements with State and Local Governments o A-133, Audits of States, Local Governments, and Non-Profit Organizations 10 Uniform Guidance-Effective Dates Implement policies and procedures for Federal regulations to be effective December 31, 2014 Agencies Implement the new administrative requirements and cost principles for all new Federal awards Non-federal made on or after December 26, 2014, and to Entities incremental funding made after that date Effective for audits of fiscal years beginning on or Audit after December 26, 2014 Requirements Early implementation not allowed 11 Uniform Guidance-Key Sections • Subparts A through F o Subpart A-200.XX- Acronyms and Definitions o Subpart B-200.1XX- General Provisions o Subpart C-200.2XX- Pre-Federal Award Requirements & Contents of Federal Awards o Subpart D-200.3XX- Post Federal Award Requirements o Subpart E-200.4XX- Cost Principles o Subpart F-200.5XX- Audit Requirements o Appendices I through XI 12 4
Uniform Guidance-Audit Requirements Scope of the Audit §200.514 Determine if financial Determine if Schedule Gain an understanding statements are of Federal and State of internal controls reported in Awards (SEFSA) is and test those accordance with stated fairly controls GAAP Determine if auditee has complied with Follow-up on prior Report any current Federal and State audit findings year findings statutes, regulations and grant agreements Complete and sign specified sections of the data collection form 13 Uniform Guidance-Audit Requirements §200.518 Major Program Determination Identify Identify Determine Identify all low-risk high-risk major Type A Type A Type B programs programs programs programs to audit 14 Uniform Guidance-Audit Requirements §200.518 Major Program Determination Total Federal Awards Type A/B Threshold Expended Equal to $750,000 but < $ 25 billion $750,000 > $25 million but < $100 million .03 times total Federal awards expended > $100 million but < $1 billion $3 million > $1 billion but < $10 billion .003 times total Federal awards expended >$10 billion but < $20 billion $30 million >$20 billion .0015 times total Federal awards expended Major program determination for State awards is $500,000 Federal single audit threshold and single audit major programs determination amounts are now the same per Uniform Guidance. In the State Single Audit Implementation Act, these amounts are the same as well. 15 5
Uniform Guidance-Audit Requirements Major Program Determination §200.518 • High Risk Type A Programs o To be considered low risk, the program must not have had: o Internal control deficiencies identified as material weaknesses o A modified opinion on compliance o Known or likely known questioned costs that exceed five percent of the total Federal awards • High Risk Type B Programs o Single criteria in risk would seldom cause a Type B to be high risk (except material weaknesses) o The number of high risk Type B’s to be audited is one-quarter of the number of Type A’s o The threshold not to perform risk assessment on Type B’s is $187,500 (assuming a major program threshold of $750,000) 16 Uniform Guidance simplifies the process of determining high risk Type B programs. Uniform Guidance also encourages an approach that could lead to different high risk Type B programs audited as major in a given period. Uniform Guidance-Audit Requirements Major Program Determination §200.518 Special Considerations for Loans and Loan Guarantees • In identifying Type A programs, the inclusion of large loans and loan guarantees must not result in the exclusion of other Federal programs as Type A programs • Special calculation: o When a Federal loan program exceeds four times the largest non-loan program it is considered a “large loan program”. The auditor must consider this Federal program as Type A and exclude its values in determining the Type A threshold. For purposes of this calculation, a program is only considered to be a Federal program providing loans if the value of the Federal awards expended for loans within the program comprises fifty percent or more of the total Federal awards expended for the program. 17 Uniform Guidance-Audit Requirements §200.520 Major Program Determination-Low Risk Auditee • Entity must meet all of the following for each of the two preceding years: o Annual singe audits, including timely filing of the data collection form o Unmodified opinion on financial statements in accordance with GAAP or basis of accounting required by state law NEW o Unmodified in-relation-to opinion on the SEFSA NEW o No material weaknesses in internal control o No reporting of going concern NEW 18 6
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