Uniform Guidance Overview

Compliance Auditing Update NC Local Government Auditing, Reporting and Review June 14, 2016 Uniform Guidance Overview Course Objectives-Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Review the reasons why the Uniform Guidance was developed Brief review of the goals of the Uniform Guidance Review and discuss certain changes as they relate to the entity and to auditors Review and discuss other changes related to NC Briefly review Clarity Attestation Standards 2 North Carolina State Single Audit Authoritative Sources Title 2 U.S. Code of Federal Regulations Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance); Audit Manual for Governmental Auditors in North Carolina - Discussion of Single Audit in North Carolina 3 1

State Single Audit Requirements In accordance with federal requirements, beginning in fiscal years ending after December 26, 2015, local governments and public authorities that expend $750,000 or more in NEW federal financial assistance must have a single audit performed Local governments with fiscal years ending June 30, 2016 or later that have expended $500,000 or more in State financial assistance must have a single audit performed in accordance with the State Single Audit Implementation Act. Local governments and public authorities that expend $100,000 or more in combined Federal or State financial assistance must have an audit performed in accordance with Government Auditing Standards (GAGAS). The Federal threshold for a Single Audit increased from $500,000 to $750,000 under Uniform Guidance. There are no changes to the State threshold. 4 Uniform Guidance Sections that Apply to State Awards Subpart A - Definitions, as applicable 200.502 - Basis for determining awards expended 200.330 - Subrecipient and contractor determinations 200.503(a, b, c) - Relation to other audit requirements 200.505 - Sanctions 200.508 - Auditee responsibilities 200.509 - Auditor selection 200.510 - Financial statements 200.511 - Audit findings follow-up 200.331 - Requirements for pass-through entities 200.521(a, c, d, e) - Management decision 200.514 - Scope of audit 200.515 - Audit reporting 200.516 - Audit findings 200.517 - Audit documentation 5 LGC Review of Audit Reports Number of audits reviewed by LGC for fiscal years ending in 2015: *1,213 audits 595 Single Audits (49%) 251 GAGAS only (21%) 367 GAAS only (30%) * received as of May 31, 2016 6 2

Uniform Guidance-How Did We Get Here? Developed in response to the November 23, 2009 Executive Order 13520 on Reducing Improper Payments President directed OMB to work with Executive Branch agencies; state, local, and tribal governments; and other key stakeholders to evaluate reforms to Federal grant policies COFAR (Council on Financial Assistance Reform) was established in October 2011 to help lead the effort to improve management and accountability of Federal grants 7 Uniform Guidance-Impact of This Reform Major goal of Uniform Guidance is to reduce administrative burden and the risk of waste, fraud and abuse by: 1. Eliminating duplicated and conflicting guidance 2. Focusing on performance over compliance for accountability 3. Encouraging efficient use of information technology and shared services 4. Providing for consistent and transparent treatment of costs 5. Limiting allowable costs to make the best use of Federal resources 8 Uniform Guidance-Impact of This Reform 6. Setting standard business processes using data definitions 7. Encouraging entities to have family-friendly practices 8. Strengthening oversight 9. Targeting audit requirements on risk of waste, fraud, and abuse 9 3

Uniform Guidance-Impact of This Reform One set of comprehensive regulations that should streamline requirements and supersedes eight existing circulars, including those applicable to State and Local Governments: o A-87, Cost Principles for State, Local and Tribal Governments o A-102, Grants and Cooperative Agreements with State and Local Governments o A-133, Audits of States, Local Governments, and Non-Profit Organizations 10 Uniform Guidance-Effective Dates Federal Agencies Non-federal Entities Audit Requirements Implement policies and procedures for regulations to be effective December 31, 2014 Implement the new administrative requirements and cost principles for all new Federal awards made on or after December 26, 2014, and to incremental funding made after that date Effective for audits of fiscal years beginning on or after December 26, 2014 Early implementation not allowed 11 Uniform Guidance-Key Sections Subparts A through F o Subpart A-200.XX- Acronyms and Definitions o Subpart B-200.1XX- General Provisions o Subpart C-200.2XX- Pre-Federal Award Requirements & Contents of Federal Awards o Subpart D-200.3XX- Post Federal Award Requirements o Subpart E-200.4XX- Cost Principles o Subpart F-200.5XX- Audit Requirements o Appendices I through XI 12 4

Scope of the Audit 200.514 Determine if financial statements are reported in accordance with GAAP Determine if Schedule of Federal and State Awards (SEFSA) is stated fairly Gain an understanding of internal controls and test those controls Determine if auditee has complied with Federal and State statutes, regulations and grant agreements Follow-up on prior audit findings Report any current year findings Complete and sign specified sections of the data collection form 13 Major Program Determination 200.518 Identify all Type A programs Identify low-risk Type A programs Identify high-risk Type B programs Determine major programs to audit 14 Major Program Determination 200.518 Total Federal Awards Expended Type A/B Threshold Equal to $750,000 but < $ 25 billion $750,000 > $25 million but < $100 million.03 times total Federal awards expended > $100 million but < $1 billion $3 million > $1 billion but < $10 billion.003 times total Federal awards expended >$10 billion but < $20 billion $30 million >$20 billion.0015 times total Federal awards expended Major program determination for State awards is $500,000 Federal single audit threshold and single audit major programs determination amounts are now the same per Uniform Guidance. In the State Single Audit Implementation Act, these amounts are the same as well. 15 5

Major Program Determination High Risk Type A Programs 200.518 o To be considered low risk, the program must not have had: o Internal control deficiencies identified as material weaknesses o A modified opinion on compliance o Known or likely known questioned costs that exceed five percent of the total Federal awards High Risk Type B Programs o Single criteria in risk would seldom cause a Type B to be high risk (except material weaknesses) o The number of high risk Type B s to be audited is one-quarter of the number of Type A s o The threshold not to perform risk assessment on Type B s is $187,500 (assuming a major program threshold of $750,000) Uniform Guidance simplifies the process of determining high risk Type B programs. Uniform Guidance also encourages an approach that could lead to different high risk Type B programs audited as major in a given period. 16 200.518 Major Program Determination Special Considerations for Loans and Loan Guarantees In identifying Type A programs, the inclusion of large loans and loan guarantees must not result in the exclusion of other Federal programs as Type A programs Special calculation: o When a Federal loan program exceeds four times the largest non-loan program it is considered a large loan program. The auditor must consider this Federal program as Type A and exclude its values in determining the Type A threshold. For purposes of this calculation, a program is only considered to be a Federal program providing loans if the value of the Federal awards expended for loans within the program comprises fifty percent or more of the total Federal awards expended for the program. 17 200.520 Major Program Determination-Low Risk Auditee Entity must meet all of the following for each of the two preceding years: o Annual singe audits, including timely filing of the data collection form o Unmodified opinion on financial statements in accordance with GAAP or basis of accounting NEW required by state law NEW o Unmodified in-relation-to opinion on the SEFSA o No material weaknesses in internal control o No reporting of going concern NEW 18 6

Major Program Determination-Low Risk Auditee 200.520/521 No Type A program had any of the following in either of the two preceding years o Material weaknesses in internal control over compliance o Modified opinion on a major program o Known or likely questioned costs >5% of expenditures Percentage of Coverage Rule o The minimum percentage of total Federal awards to be tested as major decreased from 25% to 20% for low risk auditees and from 50% to 40% for all others o The percentage of coverage for State awards has been reduced from 50% to 40% There is still no low-risk auditee determination for State Awards 19 Uniform Guidance-Auditee Responsibilities 200.508 Arrange for Single Audit in accordance with 200.509 Prepare appropriate financial statements in accordance with 200.510 Prepare Schedule of Expenditures of Federal and State Awards in accordance with 200.510 Provide the auditor with access to personnel, accounts, records, supporting documentation Follow-up and take corrective action on findings Prepare summary of Schedule of Prior Audit Findings Prepare corrective action plan 20 Uniform Guidance-Auditee Responsibilities Auditor Selection 200.509 Objective is to obtain a high-quality audit The objectives and scope of the audit must be clear in the proposal Auditee must follow procurement standards in 200.317 through 200.326 Auditee must request a copy of he audit firm s peer review Auditor who prepares an indirect cost proposal cannot perform the audit if the indirect costs recovered in the previous year exceeds $1 million. 21 7

Uniform Guidance-Auditee Responsibilities Financial Statements 200.510 Must prepare financial statements for the fiscal year audited that reflect current: o Financial position o Results of operations of changes in net assets o If appropriate, cash flows Must be for the same unit and fiscal year that is chosen to meet the requirements of Uniform Guidance May include departments, agencies, and other units that have separate audits under Uniform Guidance 22 Uniform Guidance-Auditee Responsibilities Schedule of Expenditures of Federal and State Awards (SEFSA) 200.510 Must prepare a SEFSA for the period covered by the entity s financial statements SEFSA includes the total Federal awards expended in accordance with 200.502, Basis for Determining Federal Awards Expended. Should reconcile to accounting records or the financial statements themselves Completeness and accuracy are critical to avoid missed programs The State Single Audit Implementation Act follows that same guidance in 200.502 in determining State awards expended. 23 Uniform Guidance-Auditee Responsibilities What Qualifies as a Federal and/ or State Award? 200.38 Financial assistance and cost-reimbursement contracts that non-federal entities receive directly from awarding agencies or indirectly from pass-through entities o Does not include procurement contracts used to buy goods or services o Entity has to determine if a vendor relationship exists 24 8

Uniform Guidance-Auditee Responsibilities When Does the Expenditure Occur? 200.502 Determination should be based on when the activity related to the award occurs Other examples: o Disbursement of funds passed through to subrecipients o Use of loan proceeds under loan and loan guarantees o Receipt of property o Receipt or use of program income (potential) o Disbursement of amounts entitling the entity to an interest subsidy o Distribution or consumption of food commodities o Period when insurance is in force 25 Uniform Guidance-Auditee Responsibilities When Does the Expenditure Occur? Loans and Loan Guarantees 200.502 Because the government is at risk for loans until the debt is repaid, a formula is used to calculate the amount of the loan expended. The value is equal to the sum of: 1. The value of new loans made or received during the audit period 2. Beginning balance of loans from previous years for which the government imposes continuing compliance requirements 3. Any interest subsidy, cash, or administrative cost allowance received 26 Uniform Guidance-Auditee Responsibilities SEFSA-Required Elements 200.510 List of individual programs by Federal or State agency For clusters, provide the cluster name, a list of the individual programs within the cluster, and provide the applicable Federal or State agency. A total for each cluster should also be provided. For Federal awards received as a subrecipient, the name of the passthrough entity and identifying number assigned by the pass-through entity Total awards expended for each Federal or State program and the CFDA or other identifying number when CFDA is not available The total amount provided to subrecipients for each Federal program SEFSA must include the total awards expended for loans and loan guarantees NEW NEW Prior year loans and loan guarantees expended in prior years are not considered awards expended when statutes, regulations, and terms and conditions impose no continuing compliance requirements, other than to repay the loans. Therefore these amounts should not appear on the SEFSA. 27 9

Uniform Guidance-Auditee Responsibilities 200.510 SEFSA-Footnote Disclosures For loans and loan guarantees, identify the balances outstanding at the end of the audit period Notes that describe the significant accounting policies used in preparing the SEFSA Note whether the entity elected to use the 10% de NEW minimis cost rate 28 Uniform Guidance-Auditee Responsibilities SEFSA-Auditor Considerations Remember that the SEFSA is the responsibility of the entity Auditor must be familiar with changes to the SEFSA as a result of Uniform Guidance Determine that clusters and programs are identified correctly Determine whether information required on the face of the SEFSA is there and that all required disclosures included Reconciliation of SEFSA to the financial records 29 Uniform Guidance-Auditee Responsibilities 200.508 Providing Access Uniform Guidance states that entities must provide access of the following to auditors: o Personnel o Accounts o Books o Records o Supporting Documentation o Other information as needed 30 10

Uniform Guidance-Auditee Responsibilities Internal Controls and Compliance Requirements 200.303 Establish and maintain internal control over Federal programs Comply with Federal statutes, regulations, and terms of the Federal award Evaluate and monitor compliance Take prompt action when noncompliance is identified Safeguard protected personally identifiable information (PPI) 31 Uniform Guidance-Auditee Requirements Internal Controls 200.303 Internal control requirements under Uniform Guidance are not significantly different from those reflected in the OMB Circulars Moved from the audit requirements section into post federal award of administrative requirements to encourage entities to better structure their internal controls 32 Uniform Guidance-Auditee Requirements Internal Controls 200.303 The internal control process should be designed to provide reasonable assurance regarding the achievement of the following objectives: o Effectiveness and efficiency of operations o Reliability of reporting for internal and external use o Compliance with applicable laws and regulations 33 11

Uniform Guidance-Auditee Requirements Internal Controls 200.303 The entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Internal controls should be in compliance with guidance in: o Standards for Internal Control in the Federal Government [Green Book] issued by the Comptroller General of the United States, US Government Accountability Office o Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 34 Uniform Guidance-Auditee Requirements Internal Controls-Sample Questions Control Activities: How are you certain that your entity is in compliance with (Allowable Costs)? Risk Assessment: How did you determine that (authorization and approval) was necessary to ensure compliance? Monitoring: What is the process used to ensure that (authorization and approval) is performed correctly and consistently? Information and Communication: How and when do you notify people that (authorization and approval) is required? Control Environment: What is management s attitude about internal control? 35 Uniform Guidance-Auditee Requirements Internal Controls-Example Activities Allowed or Unallowed and Allowable Costs/Cost Principles Control Environment o Management sets reasonable budgets- minimize incentives to miscode expenditures Risk Assessment o Management has sufficient understanding of procedures and controls to identify unallowable costs Information and Communication o Comparison of budget to actual is provided to project managers for review on a timely basis Control Activities o Program managers approve invoices prior to payment Monitoring o Financial reports provided to appropriate management on periodic basis for review 36 12

Uniform Guidance-Auditee Requirements Compliance-Procurement 200.317-326 Uniform Guidance does not substantially change the procurement documentation requirements under Circular A- 102 200.317-326 describes: o Applicable procurement standards o Methods of procurement that are allowed o Specific items that must be included within contracts under Federal awards At a minimum documentation must contain: o The rationale for the method of procurement o Selection of contract type o Contract selection or rejection o Basis for the contract price 37 Uniform Guidance-Auditee Requirements Compliance-Procurement 200.317-326 States follow the same policies and procedures they use for procurements from non-federal funds (i.e., State procurement statutes Other entities follow the five procurement methods outlined in Uniform Guidance: o micro purchase o small purchase o sealed bids o competitive proposals o noncompetitive proposals (one source) o solicitation of a proposal from only one source (may be used in certain circumstances) Per 200.318, non-federal entities are allowed to piggy-back on State procurement standards 38 Uniform Guidance-Auditee Requirements Compliance-Procurement 200.317-326 200.318 describes mandatory conflict of interest language each entity must have The conflict of interest guidance was expanded from the existing language in A-102 to include a provision for organizational conflict of interest The expansion will require entities to have strong policies preventing organizational conflicts of interest, which will be used to protect the integrity of procurements under Federal awards and subawards Two types of conflict of interest policies must be maintained: Employee conflict of interest and organizational conflict of interest In addition 200.112 requires that a entity must disclose in writing any potential conflict of interest to the federal awarding agency or pass-through entity in accordance with applicable federal awarding policy. 39 13

Uniform Guidance-Auditee Requirements Compliance-Allowable Costs and Costs Principles Need to understand Subpart E- Cost Principles o Describes the cost accounting requirements associated with Federal awards o Includes requirements for indirect costs o Includes requirements for compensation- personal services OMB Compliance Supplement includes a table of selected allowable costs for different types of organizations o Use in conjunction with Uniform Guidance Key areas of focus o Compensation- personal services o Indirect Costs o Items that require prior approval to be allowable ( 200.407) 40 Uniform Guidance-Auditee Responsibilities Subrecipient Monitoring 200.330/331 Determine if subrecipient or contractor Clearly identify subawards to subrecipients Provide certain subaward information at the time of subaward Evaluate each subrecipient s risk of noncompliance Consider imposing specific subaward conditions Monitor activities of subrecipients Verify subrecipient has been audited as required by Subpart F Consider results of subrecipient audits Consider taking enforcement action for noncompliant subrecipients 41 Uniform Guidance-Auditee Requirements 200.330 Subrecipient and Contractor Determinations Pass-through entities must make case-by-case determinations as to whether an agreement designates a recipient as a subrecipient or contractor. Federal and State awards expended as a recipient or a subrecipient are subject to single audit. Payments for goods and services received by a contractor are not considered Federal or State awards 42 14

Uniform Guidance-Auditee Requirements Subrecipient and Contractor Determinations 200.330 Subrecipient Contractor Determine who is eligible to receive federal assistance Has its performance measured according to whether the objectives of a federal program were met Is responsible for program related decision-making Must adhere to applicable Federal program requirements specified in the Federal awards Uses the Federal awards to carry out a program for specific purpose as opposed to providing goods or services for the benefit of the passthrough entity Has a procurement relationship with the entity Provides goods and services within normal business operations and to many different purchasers Provides goods and services that are ancillary to the operation of the Federal program Normally operates in a competitive environment Is not subject to the compliance requirements of the Federal program as a result of the agreement 43 Uniform Guidance-Auditee Requirements Subrecipient Monitoring 200.331 All subrecipients, regardless of the size of the award, must be monitored Requirements include: o Performing a risk assessment of the subrecipient o Following up on any audit findings or other issues revealed in that process o Ongoing monitoring 44 Uniform Guidance-Auditee Requirements Subrecipient Monitoring 200.331 Risk Assessment A pass-through entity should assess the risk of a subrecipient s noncompliance at the outset of the relationship and at least annually afterward. The assessment should be explicit in the criteria used to evaluate risk, and risk factors should be customized to suit individual programs. Documentation of the risk assessment process and results is critical to ensuring that support is available in the event of an audit by external auditors or cognizant agency. Monitoring efforts may result in a determination to impose additional conditions of the subrecipient. 45 15

Uniform Guidance-Auditee Requirements Subrecipient Monitoring 200.331 Follow Up Uniform Guidance makes it explicit (rather than implied) that: o The pass-through entity must actively issue management decisions regarding audit findings identified during the monitoring process o The subrecipient must implement remediation plans Deficiencies discovered: o Should be discussed and agreed upon by both the passthrough entity and the subrecipient o Subrecipient should be given a specified period of time to submit a corrective action plan o The plan should create controls that prevent the situation from reoccurring 46 Uniform Guidance-Auditee Requirements Subrecipient Monitoring Ongoing Monitoring 200.331 To ensure a good foundation of quality monitoring, necessary activities and the parties responsible for those activities should be clearly identified A system should be in place for determining how subrecipients will be monitored Consider the establishment of baseline monitoring procedures that can be applied universally to all subrecipients o Customized plans should then be developed to address specific areas of concern 47 What Does the Auditor Do? Uniform Guidance requires the auditor to plan the audit to obtain a low control risk o That is, controls that operate effectively o Controls are reliable How do auditors get to low control risk? o Document understanding of controls o Test control design and implementation o Test control effectiveness Sampling is often used Ineffective control = finding 48 16

Compliance Testing All applicable parts of the Compliance Supplement should be used to perform a Single Audit correctly o Per the 2015 Compliance Supplement, Part 6 for Internal Controls will be updated for revised language for the COSO framework and the Green Book for 2016 Appendices provide useful information Use the correct year s Supplement 49 Applicable Versus Direct and Material Compliance Requirements Auditor looks to the OMB Compliance Supplement for information on each type of compliance requirement and determines which are applicable to Federal programs Do auditors look at all applicable compliance requirements? o No, only direct and material compliance requirements A entity should comply with all applicable compliance requirements 50 Compliance Requirements FEDERAL STATE A. Activities Allowed or Unallowed 1. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles 2. Allowable Costs/Cost Principles C. Cash Management 3. Cash Management D. Reserved 4. Conflict of Interest E. Eligibility 5. Eligibility F. Equipment & Real Property Mgmt 6. Equipment & Real Property Mgmt G. Matching, Level of Effort, Earmarking 7. Matching, Level of Effort, Earmarking H. Period of Performance 8. Period of Performance I. Procurement, Suspension and Debarment 9. Procurement, Suspension and Debarment J. Program Income 10. Program Income K. Reserved 11. Reserved L. Reporting 12. Reporting M. Subrecipient Monitoring 13. Subrecipient Monitoring N. Special Tests and Provisions 14. Special Tests and Provisions 51 17

Changes Related to the State Compliance Supplements- 2016 SUPPLEMENT SUPPLEMENT NAME CHANGE NUMBER 14.228 Community Development Block There are now 2 supplements for Grants this program: The Infrastructure Fund is separate and administered by DEQ. The Small Cities Program is still administered by Commerce **10.553-CL Child Nutrition Program/Nutrition CFDA s 10.579 and 10.582 have Cluster been added as part of the Nutrition Cluster for the State supplement 15.916, 20.219, Land and Water Conservation Fund These grants are no longer DNCR-5 and Recreational Trails Program administered by DEQ but by DNCR-6 Clean Water Management Trust Fund Natural and Cultural Resources NC Parks & Recreation Trust Fund **Note that the Federal supplement for the Child Nutrition Cluster includes CFDA 10.559. But NC DPI, who administers the program, has decided to issue 10.559 as a separate supplement. Therefore when auditing the Child Nutrition Cluster, both supplements 10.553-CL and 10.559 must be used. 52 State Cluster of Programs Federal and State programs added by State agencies to a OMB s cluster of programs in Part 6 should be clearly separated on the SEFSA from OMB s cluster of programs. OMB s clusters of programs should have a total as required by 200.510(b)(3). There should be a total for the entire cluster of program. o Examples: Subsidized Child Care cluster, Foster care and adoption cluster, Child Nutrition Cluster There should be a footnote stating that programs were clustered by a State Agency (state the name) and was treated separately for State audit purposes. 53 Single Audit-End Result Contents of the Single Audit Submission o Auditor s report on the financial statements of the entity o Auditor s in-relation-to reporting on the SEFSA o Financial statements prepared by the entity o SEFSA prepared by the entity o Auditor s report on internal control over financial reporting and on compliance and other matters to meet Government Auditing Standards requirements o Auditor s report on compliance and internal control over compliance-major programs 54 18

Single Audit-End Result Contents of the Single Audit Submission o Auditor s schedule of findings and questioned costs o Includes summary of auditors results and findings o Schedule of prior audit findings prepared by the entity o Corrective action plan prepared by the entity All of the items listed are referred to as the reporting package Reporting package and the Data Collection Form are submitted electronically to the Federal Audit Clearinghouse by the entity 55 Audit Reports Reports must use up-to-date language and include all appropriate references to Government Auditing Standards, Uniform Guidance, etc. Report on internal control over compliance and compliance refers to major programs in the Summary of Auditor Results o Major programs in the Summary of Auditor Results must be correct and match what is in audit documentation o Ensure that the Data Collection Form identifies the same major programs 56 Uniform Guidance Findings 200.516 The auditor must report the following as audit findings in the Schedule of Finding and Questioned Costs: o Significant deficiencies and material weaknesses in internal control over major programs and significant instances of abuse o Material noncompliance with the provisions of Federal regulations or the terms and conditions of Federal awards related to a major program o Known questioned costs that are greater than $25,000 for a type of compliance requirement for a major program o Known questioned costs when likely questioned costs are greater than $25,000 for a type of compliance requirement for a major program 57 19

Uniform Guidance Findings 200.516 The auditor must report the following as audit findings in the Schedule of Finding and Questioned Costs: o Known questioned costs that are greater than $25,000 for a Federal program which is not audited as major o Known or likely fraud affecting a Federal award, unless already reported as a finding o If follow-up procedures detect that the status of a prior year finding is materially misrepresented 58 Uniform Guidance-Finding Elements 200.330/331 Program Information Criteria Condition Found Context Questioned Costs Whether sampling was statistically NEW valid Cause and Effect Repeat finding from prior year NEW Recommendations View of Responsible Officials Reference Numbers 59 Uniform Guidance Findings Ensure single audit report on compliance and internal control over compliance appropriately identifies findings o Findings listed in the report should agree to the Summary of Auditor Results and the Schedule of Findings and Questioned Costs Include all required elements in the write-up of the finding 60 20

DST SLG Monitoring and Unit Visits Internal Control issues that need at least a management letter: o Computer software issues o Pre-audit function is not working as planned or has flaws (purchasing, budget amendments, etc.) o Interim reports are not being provided to the governing board timely and with accurate information. o Key accounts are not being reconciled timely, primarily checking accounts. o Segregation of duties 61 Schedule of Prior Audit Findings 200.511 Prepared by the entity Must report the status of all audit findings included in the prior audit s schedule of findings and questioned costs Must include the reference numbers the auditor assigns to audit findings Must include the fiscal year in which the finding initially occurred Must include findings related to the financial statements which are required to be reported in accordance with Government Auditing Standards For findings that were not corrected or partially corrected, the schedule must describe the reason(s) for the finding s recurrence and planned corrective action, and any partial corrective action taken 62 Schedule of Prior Audit Findings Auditor must follow-up on prior audit findings Auditor must perform procedures to assess the reasonableness of the schedule in accordance with Uniform Guidance If the auditor concludes that the schedule materially misrepresents the status of any prior audit finding, there must be a current-year finding Auditor must perform follow-up regardless of whether a prior audit finding relates to a major program in the current year 63 21

Corrective Action Plan At the completion of the audit the entity must prepare in a document separate from the auditor s findings, a Corrective Action Plan to address each audit finding included in the current year auditor s report Corrective Action Plan must provide the name(s) of the contact person(s) responsible for the corrective action, the corrective action planned, and the anticipated completion date If the entity does not agree with the audit findings or believes corrective action is not required, then the corrective action plan must include an explanation and specific reasons 64 Data Collection Form Joint Responsibilities of entity and auditor, completed electronically and submitted by the auditee Represents a summary of the information contained in the reporting package Includes contact information for entity and auditor Includes SEFSA information, reference to findings, and relevant compliance requirements Electronic signature of both the entity and the auditor o Authorizes Federal Audit Clearinghouse to make reporting package publicly available o Auditee certifies that submission does not include any personally identifiable information 200.79 of Uniform Guidance discusses personally identifiable information and gives examples of what is considered personally identifiable information 65 Common Reporting Problems Prior loans and loan guarantees that do not have any continuing compliance requirements were listed in the SEFSA and/or footnote to the SEFSA Amounts reported in the SEFSA did not reconcile to the financial records The SEFSA had inadequate notes Auditee identified as low-risk did not meet all of the requirements The calculation of amounts tested as major programs was incorrect. The amount of expenditures tested did not reach the required threshold for the entity 66 22

Common Reporting Problems A Federal program that was part of a cluster was not included in testing major programs Names of programs identified as major on the summary of auditor s results did not agree to program names listed on the SEFSA The schedule of findings and questioned costs did not contain all required elements Findings listed in the auditor s report on internal control did not agree to the summary of auditor s results or to the schedule of findings and questioned costs Findings listed in the report on compliance and internal controls over compliance did not agree to the summary of auditor s results or to the schedule of findings and questioned costs 67 Auditing Standards Board (ASB) issued SSAE No. 18, Attestation Standards: Clarification and Recodification Provides for attestation standards for examinations, reviews, and agreed-upon procedures Restructures attestation standards so that the applicability of any AT-C section to a particular engagement depends on the type of service provided SSAE No 18 allows a practitioner to report on almost any subject matter as long as: o The party responsible for the subject matter is someone other than the practitioner and takes Responsibilities for the subject matter o The subject matter is appropriate o The criteria to be used in evaluating the subject matter are suitable and available o The practitioner expects to be able to obtain evidence needed to arrive at an opinion or conclusion o The opinion or conclusion is to be contained in a written report See paragraph.25 of AT-C section 105 for greater detail about these preconditions 68 Auditing Standards Board (ASB) issued SSAE No. 18, Attestation Standards: Clarification and Recodification Separates reporting requirements for review engagements from examination engagements Requires a written representation letter in all engagements Requires practitioners to obtain a more in-depth understanding of the subject matter to better identify risks of material misstatement in an examination engagement Incorporates detailed requirements that are similar to SASs Effective for reports dated on or after May 1, 2017 69 23

Website - Single Audit Resources www.nctreasurer.com: select Division Local Fiscal Management, select Single Audit Resources. o 2016 State Compliance Supplements o Description of Audit Requirements in NC o OSA Documents o Audit Manual: Sample reports and documents for presentation. o Templates for reporting Subsidized Childcare, Mental Health, and Public Health awards. o Confirmation reports from State agencies (DHHS, DOT, others) 70 Website - Audit Resources www.nctreasurer.com: select Division Local Fiscal Management, select Audit Manual Statutory Compliance Checklist: o Local Government Budget Fiscal Control Act, o School Budget Fiscal Control Act, o Contract/Purchasing/Minority Business Participation o Related Party Transactions and Self Dealing Audit Programs o Local Government Budget Fiscal Control Act, o Conflict of Interest and Self Dealing o Unclaimed Property 71 Website Reporting and Other Resources Financial Reporting Checklist: o NC Municipality onc County onc Board of Education onc Charter School Audit Opinions and Reports Firms providing accounting services 72 24

Thank You! Together we can build and maintain a fiscally strong and prosperous North Carolina. www.nctreasurer.com 25