Several changes to the Office of Management and Budget's guidance on grants management will impact the audits of federal awards, including an increase to the audit threshold and alterations to the process of determining major programs
This article, the final in a four-part series, focuses on the significant reforms to the audit requirements (formerly circulars A-133 and A-50) in Subpart F of the uniform guidance. The first article provided an overview of the new uniform guidance, the second covered administrative requirements, and the third reviewed changes to the cost principles.
As it had proposed, OMB raised the single audit threshold to $750,000, up from the existing $500,000 threshold. The agency estimates this will maintain single audit oversight over 99.7 percent of federal award dollars and 81 percent of the entities subject to the requirement. This eliminates the requirement for approximately 5,000 of the 37,500 entities that currently undergo a single audit.
The types of findings reported in the Schedule of Findings and Questioned Costs remained the same in the final guidance, with the exception of the threshold for reporting questioned costs, which was raised from $10,000 to $25,000.
Major Program Determination
As in the existing guidance, auditors must use a risk-based approach to determine which federal programs are major programs. The final guidance includes a table that makes it easier to determine if a program is Type A or Type B.
|Total Federal Awards Expended
||Type A/B Threshold
|Equal to $750,000 but ≤ $25 million
|> $25 million but ≤ $100 million
||.03 time total federal awards expended
|> $100 million but ≤ $1 billion
|> $1 billion but ≤ $10 billion
||.003 times total federal awards expended
|> $10 billion but ≤ $20 billion
|> $20 billion
||.0015 times total federal awards expended
High Risk Type A Programs
OMB made changes to the A-133 guidance relating to high/low risk Type A programs. Now, to be considered low-risk, the program must have not had internal control deficiencies identified as material weaknesses, a modified opinion on compliance, or known or likely questioned costs that exceed five percent of the total federal awards expended for the program. The requirement that a Type A program must be audited as a major program in at least one of the two most recent audit periods remains in the guidance.
Essentially, this means that an entity with strong internal controls and few audit findings will have fewer high-risk Type A programs.
High Risk Type B Programs
The uniform guidance simplifies the criteria for considering high-risk Type B programs as "major." The risk assessment will be based on the current guidance's general criteria. The only single criterion that would automatically result in an assessment of high risk for a Type B program would be a material weakness or compliance problems. The final guidance reduces the number of high-risk Type B programs to be audited to at least one-fourth of the number of low-risk Type A programs. This is a decrease from at least one-half the number of low-risk Type A programs in the existing guidance.
In addition, the final guidance uses a flat 25 percent of the Type A program threshold to identify small Type B programs that would not be assessed for risk. The final guidance encourages auditors to audit different high-risk Type B programs each year. These changes should result in fewer programs being selected as "major."
"Percentage of Coverage" Rule
The Single Audit Act requires the auditor to test a minimum percentage of total federal awards expended as major programs. This is referred to as the "percentage of coverage" rule.
Those levels have decreased from 25 percent to 20 percent of total federal awards expended for low-risk auditees (see below) and from 50 percent to 40 percent for all others.
Low-Risk Auditee Criteria
Auditees that meet all of the following conditions for each of the preceding two audit periods qualify as low-risk auditees:
- Single audits were performed annually. This includes submitting in a timely manner the data collection form and the reporting package to the Federal Audit Clearinghouse. Entities that have biennial audits do not qualify as low-risk auditees.
- The auditor's opinion on whether the financial statements were prepared in accordance with GAAP (or a basis of accounting required by state law) and the auditor's in relation to opinion on the schedule of expenditures of awards were unmodified.
- There were no Generally Accepted Governmental Accounting Standards (GAGAS) material weaknesses.
- The auditor did not report a substantial doubt about the auditee's ability to continue as a going concern.
- In either of the preceding two years, none of the Type A programs had internal control deficiencies identified as material weaknesses, questioned costs that exceeded five percent, or a modified opinion on a major program in the auditor's report.
In this final guidance, OMB did not include changes to the compliance requirements that would appear in the annual Compliance Supplement. The agency had eliminated half of the requirements in the proposed guidance. Because the compliance supplement is published as part of a separate process, no changes were made in the final guidance, though a preview of the modified 2015 requirements is expected to appear in the 2014 edition, which could be available as early as April.
COFAR has recommended, "Any future changes to the compliance supplement be made based on available evidence on past findings and the potential impact of non-compliance for each type of compliance requirement." Additionally, COFAR asked OMB to conduct outreach to stakeholders before changing the compliance supplement's format.
COFAR offered online training sessions on the Administrative Requirements, Cost Principles, and Audit Requirements on January 27. Archived video of these sessions, as well as an FAQ document, are available on COFAR's website.