Earlier this year, the U.S. Office of Management and Budget (OMB) proposed a number of significant changes to the way Single Audit engagements will be conducted going forward. In May, the OMB issued a second proposal regarding Single Audits which would revise the process of submitting the completed Single Audit report to the federal clearinghouse, as well as revise the format of the Data Collection Form (DCF) that is populated during the submission process. This article will update you on the status of both proposals.
Proposed Changes to Submission Process and Data Collection Form
On May 9, 2013, the OMB issued a Federal Register Notice which proposes changes to the clearinghouse submission process and the DCF for Single Audits of fiscal years ending in 2013, 2014, and 2015. The modifications to the submission process and to the content and presentation of the DCF represent an effort to standardize Single Audit information and to allow for better oversight and search capabilities by Federal agencies.
The most significant proposed changes are as follows:
- Beginning with 2013 audits, all Single Audit reports must follow a standard finding numbering system. The new format is the four-digit audit year, a hyphen and a three-digit sequence number (e.g. 2013-001, 2013-002....2013-999). This change will result in a consistent numbering convention for all Single Audit reports, and will facilitate some of the changes to the DCF as discussed below.
- Currently, Part III of the DCF (which lists each federal program on the schedule of expenditures of federal awards) requires the submitting entity to indicate whether or not each award is part of the research and development cluster, is funded by the American Reinvestment and Recovery Act (ARRA), and is a direct award. The OMB's proposed changes would additionally require entities to indicate whether the award is a loan or loan guarantee program. A new column will be added under Part III to capture a "yes" or "no" answer to this question for each award.
- Perhaps the most substantial change to the DCF is that additional information will be required on the number and types of findings included in the Single Audit report. Currently, Part III of the DCF only requires entities to indicate the types of compliance requirements for which findings were identified for a major program. No information on the number or severity of the findings is reported.
Under the OMB's proposal, Part III, Item 6K within the DCF has been revised to require entities to identify the number of findings for each major program. When a number other than zero is entered into this column (thus indicating there were findings for that major program), a new section of the DCF (Part III, Item 7) is automatically populated and additional information on the nature of the findings is requested. For each finding, entities will have to indicate the audit finding number, the types of compliance requirements to which the finding relates, and whether the finding results in a modified opinion, other noncompliance, a material weakness, a significant deficiency, an other deficiency, or questioned costs. Thus, the new DCF will provide much more detail on the nature of each Single Audit finding in comparison with past versions.
- Currently, Part I of the DCF requires the name and address of the audit firm to be identified. The revised DCF will also require audit firms to report their Employer Identification Number (EIN) in Part I. The American Institute of Certified Professional Accountants (AICPA) suggested the inclusion of EINs in order to make it easier to search for all DCF's completed by a specific firm as part of the peer review process.
- As part of the submission process, auditors and auditees will be required to certify that the reporting package does not contain Personally Identifiable Information (PII), or information which can be used to distinguish or trace an individual's identity. PII includes information such as an individual's name, social security number, biometric records, or date and place of birth. Accordingly, auditors and auditees should ensure that the findings contained within Single Audit reports do not mention individuals by name or provide any other form of PII.
- Financial statements and Single Audit reporting packages are submitted to the federal clearinghouse in PDF format. The proposals will require that pdf files submitted be unlocked, unencrypted, and at least 85% text-searchable. This will permit federal agencies to perform enhanced text searches of completed Single Audit reports and to copy and paste information from audit reports.
The new DCF and clearinghouse submission procedures are effective beginning with audits of fiscal years ending in 2013. However, since these proposed changes have not yet been approved and the new clearinghouse web-site is not yet operational, the OMB has granted an extension until September 30, 2013 for the submission of all 2013 Single Audit reporting packages to the Clearinghouse. The extension is automatic and there is no further approval required.
The full text of the proposal may be found here. The Federal Register notice of the proposed regulatory changes may be found here.
Proposed Changes to Single Audit Thresholds and Requirements
As we communicated in an article earlier this year, the OMB issued proposed regulations in February that would significantly modify the requirements associated with Single Audits. The proposed changes included increasing the federal expenditure threshold triggering the need for a Single Audit from $500,000 to $750,000; making a number of other threshold changes that will likely reduce the number of programs required to be audited as major each year; and reducing the number of compliance requirements from 14 to 6. The comment period for these proposed changes closed on June 2, 2013. The OMB will evaluate the comments received and issue the final regulations, likely before the end of the calendar year.
RubinBrown did submit a public comment letter to the OMB in response to these proposed changes. RubinBrown's letter expresses overall support for the OMB's proposed revisions. However, the letter does state some concerns in a number of areas and suggests that the OMB consider:
- Raising the expenditure threshold from the proposed $750,000 to $1 million
- Raising the threshold for Type A programs to $1 million or 3% of total federal expenditures from the proposed $500,000 or 3%
- Proceeding with the implementation criteria or expectations governing when and how a federal agency can add a special test or provision to the compliance requirements for a federal program
- Providing specific, visual examples of how Single Audit findings should be presented, including the format, layout, and section headings for a finding
We will continue to keep you appraised of the status of these proposed changes, and will let you know once the final regulations are issued and the effective date has been announced.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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