OMB CIRCULAR A-133 COMPLIANCE SUPPLEMENTS INCLUDING ARRA AWARDS Georgia Loidl, CPA Long Chilton, LLP 1
The Auditor s Roadmap... SINGLE AUDITS TABLE OF CONTENTS Statement on Auditing Standards (SAS 117) Yellow Book Internal Control OMB A-133 Compliance Supplement 14 Compliance requirements ARRA & SFSF Awards 1
STATEMENT ON AUDITING STDS 117 Compliance Audits Issued December 2009 Fiscal years ending on or after 6/15/2010 YELLOW BOOK Government Auditing Standards Latest is 2007; 2010 Exposure Draft If there is a single audit then the audit must be performed in accordance with government auditing standards Auditors will issue a report on internal control and compliance with laws and regulations 2
INTERNAL CONTROL Written procedures Financial Reporting Accounting Records Internal Control Budget Control Cash Management To ensure proper accountability and transparency for expenditures of ARRA funds OMB A-133 COMPLIANCE SUPPLEMENT The OMB A-133 Compliance Supplement is divided into 7 divisions: Part I: Background, Purpose, and Applicability Presents a brief description of the history of the Single Audit, defines the purpose of the OMB Circular A-133, and establishes where and why the Single Audit applies. 3
OMB A-133 COMPLIANCE SUPPLEMENT (continued) Part II: Matrix of Compliance Requirements This section is a table which details the federal programs which are common within the US and specifies which compliance requirement applies to each program. Part III: Compliance Requirements This section provides guidance and description on the 14 types of compliance guidelines established by federal agencies which summarize the compliance with federal laws and regulations in a general way. It also provides the auditor with certain audit objectives and suggested audit procedures to facilitate the audit. All federal programs, recipients, and auditors are required to follow these guidelines. Part IV: Agency Program Requirements By far the largest section of the Supplement, this section is similar to Part III with the exception that it provides the information program by program in substantial detail. Whereas Part III simply discusses the 14 compliance requirements, this section discusses how each requirement applies to a particular program. This section also provides a brief history of the program, discusses program objectives and operations, and provides the auditor with much more specific suggested audit procedures. OMB A-133 COMPLIANCE SUPPLEMENT (continued) Part V: Clusters of Programs This section is similar to Part IV, with the exception that it discusses clusters of programs, which are a grouping of closely related programs that have similar compliance requirements, such as Research and Development (R&D), Student Financial Aid (SFA), and other clusters. Although the programs within a cluster are administered as separate programs, a cluster of programs is treated as a single program for the purpose of meeting the audit requirements of OMB Circular A-133. Part VI: Internal Control Federal guidelines require recipients to implement an internal control system to manage federal funds in keeping with compliance requirements. They also require auditors to obtain an understanding of the recipient s system as well as verify if it is operating correctly. This section helps recipients and auditors by describing, for each type of compliance requirement, the objectives and certain characteristics of internal control that, when present and operating effectively, may ensure compliance with program requirements. This is especially helpful for auditors because it describes characteristics of internal control which may be implemented and used by the recipient and verified and audited by the auditor to reasonably ensure compliance with the types of compliance requirements in Part III. Part VII: Guidance for Auditing Programs Not Included in This Compliance Supplement This section provides guidance to auditors regarding federal programs that were not covered in Part II, Part IV and Part V of the Supplement, including providing suggestions on how to research for laws and regulations applicable to that particular program and suggesting audit procedures to perform. 4
COMPLIANCE REQUIREMENTS Compliance requirements are series of directives established by US federal government agencies that guide recipients and auditors on how federal assistance should be managed. The OMB created 14 basic requirements which group all those compliance requirements and provided extensive array of information about them in the Compliance Supplement. 14 COMPLIANCE REQUIREMENTS Contents 1 Activities Allowed or Unallowed (A) 2 Allowable Costs/Cost Principles (B) 3 Cash Management (C) 4 Davis-Bacon Act (D) 5 Eligibility (E) 6 Equipment and Real Property Management (F) 6.1 Equipment Management 6.2 Real Property Management 7 Matching, Level of Effort, Earmarking (G) 7.1 Matching 7.2 Level of Effort 7.3 Earmarking 8 Period of Availability of Federal Funds (H) 9 Procurement and Suspension and Debarment (I) 10 Program Income (J) 11 Real Property Acquisition and Relocation Assistance (K) 12 Reporting (L) 13 Subrecipient Monitoring (M) 14 Special Tests and Provisions (N) 5
APPLICABILITY? These 14 requirements may not be applicable to each of your federal grants. Need to refer to a matrix provided. MATRIX OF COMPLIANCE REQUIREMENTS 6
ACTIVITIES ALLOWED OR UNALLOWED This compliance requirement establishes that each program operates for a specific purpose (such as the care of elderly persons or the education of children), and that funds provided for the program should only be used in activities which benefit that purpose. Therefore, Federal assistance provided to a recipient for a specific purpose must be expended for such purpose only. ALLOWABLE COSTS/COST PRINCIPLES This covers the cost accounting policies, expenses and expenditures, and actual use of Federal funds. It provides the basis and principles which recipients must adhere to when expending the assistance they have received. 7
ALLOWABLE COSTS/COST PRINCIPLES (Continued) Due to the different types of recipients, the Federal government has categorized them into three groups: State, local, and Indian tribal governments Institutions of higher education Non-profit organizations. The cost principles applicable to a type of recipient apply to all Federal assistance received by that entity, regardless of whether the awards are received directly from the Federal government or indirectly through a passthrough entity. The OMB has issued a Cost Principle Circular for each of the categories. Serves as a guide for expending Federal assistance in accordance with laws and regulations. COST PRINCIPLES OMB Circular A-21, Cost Principles for Educational Institutions OMB Circular A 87, Cost Principles for State, Local, and Indian Tribal Governments OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations OMB Circular A-122, Cost Principles for Non-Profit Organizations 8
OMB A-87 ATTACHMENT A GENERAL PRINCIPLES FOR DETERMINING ALLOWABLE COSTS Basic Guidelines 1. Factors affecting allowability of costs. To be allowable under Federal awards, costs must meet the following general criteria: Be necessary and reasonable for proper and efficient performance and administration of Federal awards. Be allocable to Federal awards under the provisions of this Circular. Be authorized or not prohibited under State or local laws or regulations. Conform to any limitations or exclusions set forth in these principles, Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit. Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. Except as otherwise provided for in this Circular, be determined in accordance with generally accepted accounting principles. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period, except as specifically provided by Federal law or regulation. Be the net of all applicable credits. Be adequately documented. OMB A-87 ATTACHMENT A GENERAL PRINCIPLES FOR DETERMINING ALLOWABLE COSTS (continued) 2. Reasonable costs. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when governmental units or components are predominately federally funded. In determining reasonableness of a given cost, consideration shall be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award. The restraints or requirements imposed by such factors as: sound business practices; arms length bargaining; Federal, State and other laws and regulations; and, terms and conditions of the Federal award. Market prices for comparable goods or services. Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government. Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award's cost. 9
OMB A-87 ATTACHMENT A GENERAL PRINCIPLES FOR DETERMINING ALLOWABLE COSTS (continued) 3. Allocable costs. A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received. All activities which benefit from the governmental unit's indirect cost, including unallowable activities and services donated to the governmental unit by third parties, will receive an appropriate allocation of indirect costs. Any cost allocable to a particular Federal award or cost objective under the principles provided for in this Circular may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other reasons. Where an accumulation of indirect costs will ultimately result in charges to a Federal award, a cost allocation plan will be required as described in Attachments C, D, and E. 4. Applicable credits. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to Federal awards as direct or indirect costs. Examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the governmental unit relate to allowable costs, they shall be credited to the Federal award either as a cost reduction or cash refund, as appropriate. In some instances, the amounts received from the Federal Government to finance activities or service operations of the governmental unit should be treated as applicable credits. Specifically, the concept of netting such credit items (including any amounts used to meet cost sharing or matching requirements) should be recognized in determining the rates or amounts to be charged to Federal awards. (See Attachment B, item 11, "Depreciation and use allowances," for areas of potential application in the matter of Federal financing of activities.) OMB A-87 ATTACHMENT B SELECTED ITEMS OF COST Advertising and public relations costs Advisory councils Alcoholic beverages Audit costs and related services Bad debts Bonding costs Communication costs Compensation for personal services Contingency provisions Defense and prosecution of criminal and civil proceedings, and claims Depreciation and use allowances Donations and contributions ti Employee morale, health, and welfare costs Entertainment costs Equipment and other capital expenditures Fines and penalties Fund raising and investment management costs Gains and losses on disposition of depreciable property and other capital assets and substantial relocation of Federal programs General government expenses Goods or services for personal use Idle facilities and idle capacity Insurance and indemnification Interest Lobbying Maintenance, operations, and repairs Materials and supplies costs Meetings and conferences Memberships, subscriptions, and professional activity costs Patent costs Plant and homeland security costs Pre award costs Professional service costs Proposal costs Publication and printing costs Rearrangement and alteration costs Reconversion costs Rental costs of building and equipment Royalties and other costs for the use of patents Selling and marketing Taxes Termination costs applicable to sponsored agreements Training costs Travel costs 10
SOME SPECIFIC GUIDANCE PROVIDED, e.g. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets the standards Such documentary support will be required where employees work on: (a) More than one Federal award, (b) A Federal award and a non Federal award, (c) An indirect cost activity and a direct cost activity, (d) Two or more indirect activities which are allocated using different allocation bases, or (e) An unallowable activity and a direct or indirect cost activity. (5) Personnel activity reports or equivalent documentation must meet standards spelled out in the guidance. So, refer to these cost principles for further guidance. Many times these details are incorporated in the Texas Education Agency Handbook for completing the federal applications. CASH MANAGEMENT Reimbursement of funds. Recipients prepare and send reimbursement requests, and maintain supporting documentation showing that the costs for which reimbursement was requested were paid prior to the date of the reimbursement request. 11
DAVIS-BACON ACT Relates to construction generally not applicable to schools, however, with Stimulus funds may have some construction. Applicable on Special Ed cluster & SFSF Award if funds were used for construction, modernization, renovation and repair activities ELIGIBILITY Eligible Individuals or Organizations. Criterion varies program to program; not applicable to many programs. 12
EQUIPMENT AND REAL PROPERTY MANAGEMENT How a recipient should manage equipment and real property of a Federal program. MATCHING, LEVEL OF EFFORT, EARMARKING Usually specific or not applicable to an award. A LEA may treat SFSF that are used for elementary, secondary, or postsecondary education as non-federal funds for the purpose of any requirement to maintain fiscal effort 13
PERIOD OF AVAILABILITY OF FEDERAL FUNDS Federal regulations prohibit the use of funds from a grant award outside its specified timeframe unless authorized by a Federal agency. The ARRA funds will remain available for obligation by SEAs and LEAs until September 30, 2011. PROCUREMENT AND SUSPENSION AND DEBARMENT Ensure that such goods and services are obtained in an effective manner and in compliance laws and regulations, including the prohibition of conflicts of interest, the fair selection of vendors, provide open and free competition among vendors, etc. Vendor, supplier, provider or their respective principals (e.g., owners, top management, etc.) are not suspended, debarred or otherwise excluded by the Federal government. 14
PROGRAM INCOME Program income is sometimes directly generated by the Federally funded program. Doesn t include interest, rebates, discounts, refunds. REAL PROPERTY ACQUISITION AND RELOCATION ASSISTANCE Provides for uniform and equitable treatment of persons displaced by a Federal program from their homes. 15
REPORTING This section establishes that all recipients must submit reports (whether financial, performance-related, or of special nature). The time deadlines for submitting them vary Section 1512 of ARRA includes reporting requirements applicable to recipients of awards under ARRA to report quarterly on the use of the funds. SUBRECIPIENT MONITORING Responsible to monitor the Federal assistance activities of that subrecipient, as well as assure that they are complying with laws and regulations. 16
SPECIAL TESTS AND PROVISIONS Unique compliance requirements. Review contract and grant agreements and referenced laws and regulations to identify the unique compliance requirements. Special tests and provisions applicable to all programs with expenditures of ARRA: 1) Separate accountability for ARRA Funding 2) Presentation of the Schedule of Expenditures of Federal Awards and Data Collection Form 3) Subrecipient Monitoring ARRA & SFSF AWARDS Recovery Act awards are considered programs of HIGHER RISK in accordance with sections 525(c)(2) and 525(d) of OMB Circular A-133. So auditors have to look to more awards than in the past. 17
CIRCULARS Department of Education Cross-Cutting Section Title I Part A and ARRA (CFDA 84.010 & 84.389) State Fiscal Stabilization Fund (SFSF) (CFDA 84.394 & 84.397) IDEA B Cluster and ARRA (CFDA 84.027, 84.173, 84.391 & 84.392) Title II Part D and ARRA (CFDA 84.318 & 84.386) OTHER GUIDANCE http://www2.ed.gov/policy/gen/leg/recovery/in dex.html http://www.tea.state.tx.us/arrastimulus/ http://www.recovery.gov/about/pages/the_a ct.aspx 18