On January 31, 2013, the U.S. Office of Management and Budget (OMB) issued Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards, a publication which contains proposed regulations that would significantly modify the requirements associated with Single Audits conducted pursuant to OMB Circular A-133.
This proposal is part of an on-going effort by OMB to streamline the Single Audit process, reduce administrative burden, and focus auditing effort on the areas of greatest risk.
In February 2012, OMB issued an Advance Notice which put forth some initial suggestions of possible Single Audit modifications. The Proposed OMB Uniform Guidance issued on January 31 represents the next step in this process and contains the specific regulatory changes that OMB intends to enact. A 90-day public comment period will follow; and after reviewing the comments received, OMB will issue the final regulations, likely before the end of 2013.
The most significant changes to the Single Audit process contained in the proposal are as follows:
- Currently, entities expending more than $500,000 in federal funds during their fiscal year are required to undergo a Single Audit. The proposal would increase that threshold to $750,000.
- Under current regulations, for entities expending $100 million or less of federal funds in a given fiscal year, any federal program with expenditures that exceed $300,000 or 3% of the entity’s total federal expenditures (whichever is greater) is considered to be a Type A program. Auditors must perform risk assessments on all Type A programs and classify them as high-risk or low-risk.
Any high-risk Type A program must be selected as a major program; and, at a minimum, each Type A program must be audited at least once every three years. The proposal would increase the Type A threshold to $500,000 or 3% of the entity’s total federal expenditures. Additionally, the proposal would modify the criteria to make it easier for a Type A program to be deemed low-risk.
Federal programs with expenditures less than the threshold described above are considered to be Type B programs. Currently, the minimum number of high-risk Type B programs that an auditor must select as major is equal to one-half of the number of low-risk Type A programs. The proposal would reduce that threshold to one-fourth, meaning that fewer Type B programs would have to be audited as major each year.
- An entity may be deemed a low-risk auditee if it meets certain criteria, which include having a Single Audit performed in each of the two previous years, having unqualified financial statement and SEFA opinions in each of the two previous years; having no material weaknesses over financial reporting, no material noncompliance, and no questioned costs in each of the two previous years.
The proposal would modify these criteria to specify that the entity must have submitted its data collection form to the Single Audit Clearinghouse in advance of the submission deadline, and the auditors’ opinion on the financial statements must not have indicated that there is substantial doubt about the entity’s ability to continue as a going concern, in order for the entity to be a low-risk auditee.
- Currently, the major programs selected in a Single Audit must cover at least 25% of the total federal expenditures for low-risk auditees and 50% of the total federal expenditures for high-risk auditees. The proposal would reduce these thresholds to 20% and 40%, respectively.
- Under current rules, for each program selected as major, auditors must test for compliance with 14 different types of compliance requirements, to the extent they are direct and material to the program. The proposal would reduce the number of compliance requirements to the six listed below. The proposed guidance specifies that federal agencies could elect to add the deleted requirements to the special tests and provisions section for certain programs.
Under current regulations, auditors must report a finding within the Single Audit report for any issue involving $10,000 or more of known or likely questioned costs. Under the proposal, the threshold would increase to $25,000 and would relate to known questioned costs only.
- Activities allowed or unallowed and allowable costs/cost principles
- Cash management
- Subrecipient monitoring
- Special tests and provisions
The information required to be included in the schedule of findings and questioned costs would be expanded to include additional information such as the sampling techniques used by the auditors to test for compliance with the applicable requirement and an indication of whether the finding is repeated from the prior year (and if so, the finding number from the previous year’s Single Audit report).
The OMB has issued various cost circulars which articulate the cost principles to which organizations receiving federal funds must adhere.
Currently, colleges and universities follow OMB Circular A-21; state and local governments follow OMB Circular A-87; and not-for-profit organizations follow OMB Circular A-122. The proposal would consolidate these cost principles into a single document, and the variations in the cost principles that currently exist between the circulars would be reduced.
The full text of the proposal may be found by clicking here.
The Federal Register notice of the proposed regulatory changes may be found by clicking here.
Public comments on the proposal may be submitted at www.regulations.gov; the deadline for public comments is May 2, 2013.
It is uncertain when the proposed changes would be effective. However, it is likely that the earliest possible effective date would be for fiscal years ending June 30, 2014, since the 2013 Single Audit Compliance Supplement (which is applicable for June 30, 2013 fiscal year ends) has already been provided to the AICPA in draft form.
RubinBrown is committed to keeping not-for-profits, governmental entities, and colleges and universities up-to-date on Single Audit developments as more information becomes available.
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.
All Not-For-Profit News Not-For-Profit Overview