Draft A-133 Compliance Supplement Released
June 16, 2010
Due to an unusual number of updates related to the American Recovery and Reinvestment Act (ARRA), the Office of Management and Budget (OMB) has been delayed in releasing the annual Compliance Supplement to Circular A-133, which provides detailed guidance for auditors on conducting single audits of states, local governments, and nonprofit organizations. A draft of the Compliance Supplement, made available to help auditors plan engagements, provides a new safe harbor for determining major programs that may impact audits of colleges and universities. The 2010 Compliance Supplement applies to single audits for fiscal years beginning after June 30, 2009.
Appendix VII of the 2010 Compliance Supplement, "Other OMB Circular A-133 Advisories," provides guidance on special considerations for ARRA awards and several other issues discussed below.
Safe Harbor Calculation Can Increase Number of Type A Programs
Auditors are required to use a risk-based approach to determine which federal programs are major (Type A) programs for the purposes of the single audit under §__.520 of Circular A-133. A long-standing provision states that the inclusion of large loan or loan guarantee programs should not exclude other programs from being designated as Type A. Further, if loan programs significantly affect the number and size of Type A programs, auditors should exclude loan programs when determining other Type A programs.
The draft 2010 Compliance Supplement lays out a safe harbor calculation that auditors may use to determine whether the presence of a loan or loan guarantee program is affecting the major program designations of other programs (see page 8-7-5). A loan program is considered to significantly affect the number and size of Type A programs and be "large" if its total dollars exceed four times that of the next largest program. If a loan or loan guarantee program is determined to be "large," the auditor would need to recalculate the threshold for Type A programs without including the loan program.
For A-133, most federal student aid programs are grouped together in a "cluster" that is considered one program for purposes of major program designation. Under the instructions laid out for the safe harbor, if any of the programs included in the Student Financial Aid (SFA) cluster is a loan or loan guarantee program, the total dollars for the entire cluster count as a loan or loan guarantee program. As a result, auditors would subtract the entire SFA cluster, not just individual loan or loan guarantee programs, from total federal assistance when calculating the threshold for major programs. For institutions where student aid dollars represent the lion's share of federal dollars, this will mean that other much smaller programs will need to be audited as Type A programs.
Auditors are not required to follow the safe harbor procedures, but if they do, agencies will not be able to require them to alter their major program designations after the fact. There have been a number of instances in recent years when certain agencies have disagreed with auditors' inclusion of loan programs in their major program determinations and made them go back and redo a single audit. OMB is providing the safe harbor to provide greater comfort to auditors and auditees that their determinations will not be subject to second-guessing. To determine the impact on your institution, those with single audit responsibilities should review the examples presented in the compliance supplement.
No Deadline Extensions for Submission of Single Audits
An earlier OMB directive is reiterated: federal agencies are not allowed to give extensions for submission of single audits (which are due nine months after the end of the organization's fiscal year). Although this directive is explicitly tied to the importance of single audits in oversight of ARRA funds and is in effect for fiscal years 2009, 2010, and 2011, it applies to all organizations - even those that received no ARRA funds. This does not mean that late audits will not be accepted, but that if an entity's audit is tardy, it will no longer qualify as a low-risk auditee.
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