AICPA Governmental Audit Quality Center Summary of OMB Proposed Guidance
Released January 31, 2013
The federal government spends more than $600 billion annually in the form of grants and cooperative agreements. The U.S. Office of Management and Budget (OMB) and the federal agencies have been talking for some time about how grant policies can be reformed to increase the efficiency and effectiveness of federal programs, as well as to eliminate unnecessary and duplicative requirements and focus in on areas that emphasize achieving better outcomes at a lower cost. OMB’s issuance of the Proposed Guidance is the culmination of the information gathering process that began when OMB issued the Advance Notice on this topic area in early 2012.
The Proposed Guidance document is over 200 pages long and the GAQC will be analyzing it in much greater detail over the next several weeks. In the meantime, the following describes some of the key areas of change covered in the Proposed Guidance:
Single Audit Threshold for Audit Proposed to Increase to $750,000. Entities that expend less than $750,000 in federal awards would not be required to undergo a single audit. This would represent an increase from the current $500,000 threshold for single audits which was established in 2003. The Proposed Guidance states that any entity that falls below the $750,000 threshold must make records available for review or audit by appropriate officials of the Federal agency, pass-through entity, and the Government Accountability Office.
Changes to teh Major Program Determination Process – Type A/B Threshold. The OMB is proposing to “tinker” with several key provisions of the major program determination process. For example, the minimum threshold for the Type A/B program determination would be revised from $300,000 to $500,000.
Changes to the Major Program Determination Process – High-Risk Type A Programs. The criteria for Type A programs to qualify as high-risk are being revised such that for a Type A program to be designated as high-risk it must have, in the most recent period, failed to receive an unqualified opinion; had a material weakness in internal control; or had questioned costs exceeding five percent of the program’s expenditures.
Changes to the Major Program Determination Process – Type B Programs. The criteria for Type A programs to qualify as high-risk are being revised such that for a Type A program to be designated as high-risk it must have, in the most recent period, failed to receive an unqualified opinion; had a material weakness in internal control; or had questioned costs exceeding five percent of the program’s expenditures.
Percentage of Coverage Changes. The percentage of coverage required in a single audit is proposed to be reduced from the current 50% (normal) and 25% (low-risk auditees) to 40% (normal) and 20% (low-risk auditees).
Criteria for Low-Risk Auditee Status. The criteria for low-risk auditee status has been revised. For example, it would now more clearly include data collection form submission within required timeframes as a criteria and adds a criteria that the auditor did not report a substantial doubt about the auditee’s ability to continue as a going concern. It also removes the previous options for waivers in this area.
Reduction in Types of Compliance Requirements to be Tested. The Federal Register notice indicates that OMB is also proposing that the number of types of compliance requirements to be tested in a single audit be reduced from the current 14 types of compliance requirements to 6 types of compliance requirements. Those requirements include: (1) Activities Allowed or Unallowed and Allowable Costs/Costs Principles (the Proposed Guidance does note that this requirement could include some testing of Period of Availability and Matching); (2) Cash Management; (3) Eligibility; (4) Reporting; (5) Subrecipient Monitoring; and (6) Special Tests & Provisions. The proposal would permit the federal agencies to request that certain of the deleted types of compliance requirements be added to the Special Tests & Provisions requirement for programs where they could be considered essential to the oversight of the program. The Federal Register notice states that this change is not reflected in the draft proposal but would be implemented through the first OMB Compliance Supplement to be issued after the proposed change becomes final.
Findings.More detail will be required to be reported in auditor findings. However, the questioned cost threshold for reporting will be increased from $10,000 to $25,000.
Streamlining of Related Circulars and Guidance. The proposal streamlines eight existing OMB Circulars into one document including Circular A-133 and the various Cost Principles. Additionally, the Proposed Guidance would consolidate the cost principles into a single document with limited variations by type of entity. OMB states that the Proposed Guidance will supersede the following OMB Circulars:
- A-21, Cost Principles for Educational Institutions
- A-87, Cost Principles for State, Local, and Indian Tribal Governments
- A-89, Federal Domestic Assistance Program Information
- A-102, Awards and Cooperative Agreements with State and Local Governments
- A-110, Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals and Other Nonprofit Organizations
- A-122, Cost Principles for Non-Profit Organizations
- A-133, Audits of States, Local Governments and Non-Profit Organizations
- It will also supersede those sections of A-50, Audit Follow-Up, related to Single Audits
Indirect Costs and Time and Effort Reporting. A number of changes are being proposed in these complex areas that the GAQC will be analyzing over the upcoming weeks to determine any impact on auditors performing single audits.
Administrative Requirements. A number of changes are being proposed in this area as well. The GAQC will be analyzing this area within the Proposed Guidance over the upcoming weeks to determine any impact on auditors performing single audits.
The ATA Team will keep you informed as more information is available on this Proposed Guidance. If you have questions, please let us know.