Single Audit Update Jack Reagan Audit Partner Grant

Challenge & Impact Challenge Under Previous Guidance © Impact of New Uniform Guidance 1.

Guidance Reform History Nov. 2009: Feb. 2012: Dec. 2013: Executive Order: Reduce Improper Payments

Eliminating Duplicative and Conflicting Guidance Then: Grantee/Grantor must follow Now: all OMB guidance streamlined

Process Changes Driven by New Guidance • Internal Control – Section 200. 303 •

Internal Control • must establish and maintain effective internal control over federal award in

Procurement • must use its own DOCUMENTED policies and procedures which reflect applicable federal,

Procurement • must maintain records sufficient to detail the history of the procurement –

Procurement Competition • must be conducted in a manner providing full and open competition

Documentation of Personnel Costs • must be based on records that accurately reflect the

Documentation of Personnel Costs • budgeted estimates before the activity alone do not qualify

Audit Applicability • Audits of fiscal years beginning after December 26, 2014 – Calendar

Audit Threshold • Raise audit threshold from $500 K to $750 K. • Still

Major Program Determination Federal Awards Expended Type A/B Threshold >$750, 000 but < $25

Low Risk Type A Programs • • Audited as major at least once in

Type B Program Risk Assessments • Must only do risk assessments on Type B

Low Risk Auditee Status Two year lookback on the following: • single audits performed

Percentage of Coverage • High risk auditee – 40% of federal awards expended •

Pass Through Entities Must • Ensure every subaward is clearly identified: – Federal award

New Subrecipient Definition • Determines who is eligible to receive what federal assistance •

Pass Through Entities Must • Evaluate each subrecipients risk of noncompliance – Subrecipient’s prior

Effort Reporting Documentation Must • Be supported by a system of internal control which

Use of Budgeted Payroll Amounts • Budget estimates (i. e. , estimates determined before

Use of Statistical Sampling for Payroll Allocation • The sampling universe must include all

Financial Statements • Single Audit Entity must match financial statement entity • SEFA Required

Audit Findings Follow Up by Auditee • Must prepare a summary schedule of prior

Audit Findings Follow Up by Auditee • Corrective Action Plan elements – Address each

Single Audits on the Web • Subrecipient only required to submit report to FAC

Single Audit Reporting Package • • • Financial Statements Auditors’ Reports Summary Schedule of

Audit Findings • • Federal program name and CFDA # Criteria - what is

Questioned Costs • Known questioned costs > $25 k • Likely questioned costs >

Other Major Changes • Indirect cost rates – combined 4 circulars with different guidance

Compliance Supplement - Tentative • Based on prior proposed revisions • Official guidance will

Key Types of Compliance Requirements • A. Activities Allowed or Unallowed & B. Allowable

Moved to Special Tests with Justification – – – – D. Davis Bacon F.

Contact Jack Reagan Audit Partner Grant Thornton LLP 333 John Carlyle, Suite 400 Alexandria,

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Challenge & Impact Challenge Under Previous Guidance © Impact of New Uniform Guidance 1. Eight Overlapping Sets of Compliance Requirements Eliminate Duplicative and Conflicting Guidance 2. High Levels of Administrative Burden Performance and International Controls Over Compliance for Accountability 3. Hundreds of Forms with Non-Standard Data Definitions Provides Framework for Standard Business Processes & Data Definition 4. Outdated Guidance Does Not Account for Modern Electronic Work Environment Promotes Efficient Use of IT and Shared Services 5. Inconsistent and Non-Transparent Treatment of Costs Requires Consistent and Transparent Treatment of Costs 6. Lack of Support for Policies with Work-Life Balance Encourages Non-Federal Entities to Have Family-Friendly Policies 7. Audit Findings Repeated Each Year = Waste Stronger Oversight & Target Audits on Risk of Waste, Fraud, and Abuse 8. Lack of Accountability for Effectively Correcting Financial Grant Thornton. All rights reserved. Integrity Weakness Increased Accountability for Effective Resolution of Weaknesses 2

Guidance Reform History Nov. 2009: Feb. 2012: Dec. 2013: Executive Order: Reduce Improper Payments Advance Notice of Proposed Guidance (public comments) Final Uniform Guidance Feb. 2011: Feb. 2013: Presidential Memo: Reduce Administrative Burden Notice of Proposed Guidance (public comments) 3 © Grant Thornton. All rights reserved.

Eliminating Duplicative and Conflicting Guidance Then: Grantee/Grantor must follow Now: all OMB guidance streamlined in 2 CFR 200. © Grant Thornton. All rights reserved. • • • Awards Received A-102 & A-89 A-87 A-133 & A-50 Subawards to universities Subawards to nonprofits • • A-110 A-21 A-110 A-122 4

Process Changes Driven by New Guidance • Internal Control – Section 200. 303 • Procurement – Section 200. 318, 319 and 320 • Personnel Costs – Section 200. 430 i 5 © Grant Thornton. All rights reserved.

Internal Control • must establish and maintain effective internal control over federal award in accordance with COSO • comply with federal statutes, regulations and terms of awards • evaluate and monitor the recipient's compliance with statute, regulations and terms and conditions of federal awards • take prompt actions when instances of noncompliance are identified, including noncompliance identified in audit findings • take reasonable measures to protect personally identifiable information 5 © Grant Thornton. All rights reserved.

Procurement • must use its own DOCUMENTED policies and procedures which reflect applicable federal, state and local laws • must maintain oversight to ensure contractors perform in accordance with terms of the contracts • procedures must be designed to avoid acquisition of unnecessary or duplicative items, including documenting an analysis of lease vs. buy considerations • encouraged to use intergovernmental agreements where appropriate • encouraged to use federal surplus property in lieu of purchasing • encouraged to use "value engineering" clauses in construction projects of sufficient size 5 © Grant Thornton. All rights reserved.

Procurement • must maintain records sufficient to detail the history of the procurement – rationale for method of procurement – selection of contract type – contractor selection or rejection – basis for contract price • may use time and materials only under certain circumstances – no other contract manner is suitable – terms include a contract ceiling that the contractor exceeds at its own risk • must include a clear and accurate description of the technical requirements of the material, product or service • identify all requirements which must be fulfilled in evaluation of bids 5 © Grant Thornton. All rights reserved.

Procurement Competition • must be conducted in a manner providing full and open competition • the following are considered restrictive of competition – placing unreasonable requirements on firms in order to qualify – requiring unnecessary experience or bonding – noncompetitive contracts to consultants that are on retainer – organizational conflicts of interest – specifying only "brand name" products instead of allowing an "equal" product to be offered • must be conducted in a manner that prohibits the use of statutorily or administratively imposed state or local geographic preference in evaluation of bids and proposals 5 © Grant Thornton. All rights reserved.

Documentation of Personnel Costs • must be based on records that accurately reflect the work performed – be supported by a system of internal control providing reasonable assurance that charges are accurate, allowable and properly allocated – be incorporated into the official records – reasonably reflect the total activity for which employee is compensated – encompass both federally assisted and all other activities compensating the employee – comply with established accounting policies and procedures – support the distribution of salary among specific activities 5 © Grant Thornton. All rights reserved.

Documentation of Personnel Costs • budgeted estimates before the activity alone do not qualify but may be used for interim reporting provided: – system produces reasonable estimates – significant changes from budget are identified and updated in accounting records in a timely manner – short term fluctuation (one or two month) need not be considered as long as the distribution of salaries is reasonable over longer term – includes processes to review after the fact interim charges made to a federal award based on budget estimates 5 © Grant Thornton. All rights reserved.

Audit Threshold • Raise audit threshold from $500 K to $750 K. • Still will cover 99. 7% of all federal awards with a Single Audit • 81% of all recipients will still receive a Single Audit • 5, 000 out of 37, 500 entities that previously received a Single Audit will no longer get one 6 © Grant Thornton. All rights reserved.

Major Program Determination Federal Awards Expended Type A/B Threshold >$750, 000 but < $25 Million $750, 000 >$25 Million but < $100 Million . 03 x federal awards expended >$100 million but < $1 Billion $3 Million >$1 Billion but < $10 Billion . 003 x federal awards expended >$10 Billion but < $20 Billion $30 Million >$20 Billion . 0015 x federal awards expended 7 © Grant Thornton. All rights reserved.

Low Risk Type A Programs • • Audited as major at least once in prior two years No material weaknesses in program internal control No modified opinion on compliance Known or likely questioned costs must not exceed 5% of federal program expenditures 8 © Grant Thornton. All rights reserved.

Type B Program Risk Assessments • Must only do risk assessments on Type B programs until arrive at ¼ the number of low risk type A programs • Need only perform risk assessments on the Type B programs that exceed 25% of the Type A program threshold • other historical Type B risk assessment considerations apply 9 © Grant Thornton. All rights reserved.

Low Risk Auditee Status Two year lookback on the following: • single audits performed – including whether submitted to clearinghouse timely • unmodified GAAP opinion • no GAGAS material weaknesses • no material weaknesses on internal control at major program level • no modified opinion on compliance at major program level • no known or likely questioned costs that exceed 5% of program expenditures 10 © Grant Thornton. All rights reserved.

Pass Through Entities Must • Ensure every subaward is clearly identified: – Federal award identification – Subrecipient name – Federal award identification number – Federal award date – Subaward period of performance – Total amount of federal award – Federal award project description – Name of federal awarding agency and contact official – CFDA number and name – Indirect cost rate applicable for the award © Grant Thornton. All rights reserved. 12

New Subrecipient Definition • Determines who is eligible to receive what federal assistance • Has its performance measured in relation to whether federal program objectives were met • Has responsibility for programmatic decision making • Is responsible for adherence to applicable federal program requirements • Uses the federal funds to carry out a program for a public purpose specified as opposed to providing goods or services for benefit of pass through entity 13 © Grant Thornton. All rights reserved.

Pass Through Entities Must • Evaluate each subrecipients risk of noncompliance – Subrecipient’s prior experience with same award – Results of previous audits – Whether subrecipient has new personnel or new systems – Extent and results of federal monitoring • Monitoring activities should include – Reviewing financial and programmatic reports – Follow up on deficiencies detected through audits and on site reviews – Issuing management decisions for audit findings 14 © Grant Thornton. All rights reserved.

Effort Reporting Documentation Must • Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; • Be incorporated into the official records • Reasonably reflect the total activity for which the employee is compensated • Encompass both federally assisted and all other activities compensated • Comply with the established accounting policies • Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award 15 © Grant Thornton. All rights reserved.

Use of Budgeted Payroll Amounts • Budget estimates (i. e. , estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: – The system for establishing the estimates produces reasonable approximations of the activity actually performed; – Significant changes in the corresponding work activity are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and – The system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. 16 © Grant Thornton. All rights reserved.

Use of Statistical Sampling for Payroll Allocation • The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results • The entire time period involved must be covered by the sample • The results must be statistically valid and applied to the period being sampled • Allocating charges for the sampled employees’ supervisors, clerical and support staffs, based on the results of the sampled employees, will be acceptable 17 © Grant Thornton. All rights reserved.

Financial Statements • Single Audit Entity must match financial statement entity • SEFA Required Elements – Individual federal programs by federal agency – For awards received as subrecipient, name of pass through entity and identifying number assigned – Include total amount provided to subrecipient 18 © Grant Thornton. All rights reserved.

Audit Findings Follow Up by Auditee • Must prepare a summary schedule of prior audit findings – If corrected, list the prior finding and state corrective action was taken – If partially corrected or not corrected, must describe the reasons for the finding’s recurrence and planned corrective action taken. – If auditee believes finding is no longer valid, must describe position why no longer valid and must include: o Two years have passed since finding reported to FAC o Federal agency is not following up with auditee on finding o Management decision was not issued 19 © Grant Thornton. All rights reserved.

Audit Findings Follow Up by Auditee • Corrective Action Plan elements – Address each audit finding in current year report – Name of contact person responsible for remediation – The remediation plan – Completion date for remediation plan – If disagree with audit finding, reasons behind disagreement must be disclosed 20 © Grant Thornton. All rights reserved.

Single Audits on the Web • Subrecipient only required to submit report to FAC & no longer required to submit to recipient • PTE no longer required to retain copy of subrecipient audit as on Web • Require FAC to make the reporting packages available to the public 21 © Grant Thornton. All rights reserved.

Single Audit Reporting Package • • • Financial Statements Auditors’ Reports Summary Schedule of Prior Audit Findings Corrective Action Plan Data Collection Form 22 © Grant Thornton. All rights reserved.

Audit Findings • • Federal program name and CFDA # Criteria - what is requirement Condition – what did you find Statement of Cause Possible asserted effect Questioned costs Information to provide proper perspective - # of errors, size of sample, size of population • Whether or not repeat finding • Recommendations • Views of responsible officials © Grant Thornton. All rights reserved. 23

Other Major Changes • Indirect cost rates – combined 4 circulars with different guidance into a single piece of guidance – generally will result in lower rates as rules are tightened • Single Audit Coordinator at each federal agency – single point of contact at each federal agency – will drive subrecipient monitoring – faster management decisions – more robust oversight 25 © Grant Thornton. All rights reserved.

Key Types of Compliance Requirements • A. Activities Allowed or Unallowed & B. Allowable Costs/Cost Principles including: – H. Period of Availability in allowability. – G. Matching for whether costs claimed are RAA. • C. Cash Management. • E. Eligibility. • L. Reporting. – G. Matching for appropriate matching claimed. • M. Subrecipient Monitoring. 27 © Grant Thornton. All rights reserved.

Moved to Special Tests with Justification – – – – D. Davis Bacon F. Equipment & Real Property Management G. Level of Effort & Earmarking I. Period of Availability of Federal Funds I. Procurement and Suspension and Debarment J. Program Income K. Real Property Acquisition & Relocation Assist 28 © Grant Thornton. All rights reserved.