FEDERAL SINGLE AUDIT

FEDERAL SINGLE AUDIT Uniform Guidance: Lessons learned post-implementation and continuing developments Presented by: Gil Bernhard, CPA Learning Objectives To summarize the changes created by Uniform Guidance (a/k/a Super Circular ) and how they may affect your single audit. To explain the audit hierarchy and the single audit requirements. To discuss the compliance requirements and how some of the new 330 grant PINs affect these in the single audit. 1 1

Uniform Guidance (issued December 26, 2013) Combines 8 existing grants management & audit circulars ( Super Circular ) Subpart A: Acronyms and Definitions Subpart B: General Provisions Subparts C and D: Reforms to Administrative Requirements (the government-wide common rule implementing Circulars A-102, A-110, and A-89 this circular is on the Catalog of Federal Domestic Assistance CFDA) Subpart E: Reforms to Cost Principles (Circulars A-21, A-87, and A- 122) Subpart F: Reforms to Audit Requirements (Circulars A-133 and A-50 this circular is on audit-follow-up) The cost and administrative guidance was effective for nonfederal agencies for awards made after December 26, 2014. The single audit guidance is effective for fiscal years beginning after December 26, 2014 (2015 calendar year-ends and forward) 2 Provides a framework for grants management that aims to curb waste, fraud and abuse, strengthen oversight of federal awards, eliminate unnecessary and duplicative requirements, improve performance and outcomes while lowering costs. 3 2

Administrative Requirements Requirement Conflict of Interest and Mandatory Disclosures Reform Federal agencies will be required to have policies on conflict of interest in Federal awards, and non-federal agencies will be required to disclose to Federal agencies any conflict of interest or relevant violation of Federal criminal law. This means organizations must disclose any conflicts, including those that exist not only around who the organization is contracting with, but any conflicts of interest that might be known as related to award. Use of Grant Agreements and Cooperative Agreements Notice of Funding Opportunities This section incorporates new coverage on fixed amount awards. Payments are to be based on meeting specific requirements or milestones of the Federal awards, and accountability will be based on performance and results. An award amount is negotiated using cost principles as a guide, with review of the costs performed upfront, and no government review of the actual costs incurred. Any significant changes to an agreement, such as a new project partner, scope, etc., will require prior written approval by the awarding agency. Federal awarding agencies must announce specific funding opportunities by posting a public notice through an OMB-designated government-wide website (www.grants.gov.find). The intent of the update is to ensure that award applicants have the skills and capacity to meet the requirements of the award. 4 Administrative Requirements Requirement Federal Agency Review of Merit Standard Application Requirements Performance Measurement Reform Federal awarding agencies must design and execute a merit review process for applications. The process is intended to identify the potential risk of an applicant and thereby determine the appropriate applicant for an award. Items that may be considered by awarding agencies include financial stability, quality of management systems, history of performance, reports and findings from audits performed under Subpart F, and an applicant s ability to effectively implement statutory, regulatory or other requirements. Federal awarding agencies will be required to use OMB-approved applications and standard information collection form to manage Federal awards. By creating standard documents, the goal is to establish a more fair and competitive process. A standard set of 15 data elements must be provided in all Federal awards, and federal award applications must identify coverage in general terms and conditions, in addition to including an indication of the timing and scope of expected performance as related to the anticipated outcomes. http://www.whitehouse.gov/omb/grants_standard_report_forms/ More robust guidance is provided in order to measure performance, with the objective to help entities improve program outcomes, share lessons learned, and spread the adoption of promising practices. While Federal agencies will provide clear performance goals, indicators and milestones, recipients will be required to relate financial data to performance accomplishments. Not-for-profit organizations will need to implement a system that supports analysis of how costs incurred on a program validate performance. 5 3

Administrative Requirements Requirement Reform Procurement Standards A key update is that all non-federal entities, including sub-recipients of a state, must have and follow written procurement procedures that reflect procurement standards. The entity must maintain oversight to ensure contractors perform in accordance with the terms, conditions and specifications of the contract or purchase order. Moreover, the entity must maintain written standards of conduct covering conflicts of interest. A new provision in the final guidance addresses organizational conflict of interest that is, if the non-federal entity has a parent, affiliate or subsidiary organization, the entity must also maintain written standards of conduct covering such organizational conflicts of interest. 6 Administrative Requirements Requirement Procurement Standards Reform 5 Methods of Procurement: 1. Micro Purchase : < $3,500 - may be awarded without competitive quotations if the entity considers the price to be reasonable 2. Small Purchase: <$150,000. Informal procedures acceptable. Prices or rate quotes must be obtained from an adequate number of qualified sources 3. Sealed Bids: > $150,000. Formal solicitation required. Preferred method for procuring construction. 4. Competitive Proposals: > $150,000. Generally used when sealed bids not appropriate. Formal solicitation required. 5. Noncompetitive Proposals: May be used when one or more of the following apply: Item is available from only one source, public emergency, Federal awarding agency expressly authorizes this method; after solicitation, competition is deemed inadequate. Procurement Standards Grace period for one year after the effective date of the Uniform Guidance. Will likely need to be implemented in 2018. 7 4

Deferral of Procurement Provisions Federal Register notice issued on May 17, 2017 extends procurement grace period for one additional fiscal year The implementation date will start for fiscal years beginning on or after December 26, 2017 Year end Implementation Date June 30 July 1, 2018 December 31 January 1, 2018 September 30 October 1, 2018 8 Deferral of Procurement Provisions Procurement Grace Period What do Entities Need to Do? Entities that exercise this option do not need to notify the federal government Entities must document whether it is in compliance with the old or new standards and must meet the documented standard. Acceptable documentation could include: Board or Finance Committee resolutions documented in minutes Internal memo or email Updates to documented policies This is often included in the representation letter 9 5

General Procurement Standards (2 CFR 200.318) Non-federal entities must have and follow their own documented procurement policies 200.318(a) Non-federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions and specifications of their contracts 200.318(b) 10 General Procurement Standards (2 CFR 200.318) Conflict of interest 200.318(c) The non-federal entity must maintain written standards of conduct covering conflicts of interest No employee, officer or agent may participate in the selection, award or administration of a contract supported by a federal award if he or she has a real or apparent conflict of interest Such a conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees or agents of the non-federal entity If the non-federal entity has a parent, affiliate or subsidiary organization that is not a state, local government or Indian tribe, the non-federal entity must also maintain written standards of conduct covering organizational conflicts of interest. Organizational conflicts of interest means that because of relationships with a parent company, affiliate or subsidiary organization, the non-federal entity is unable or appears to be unable to be impartial in conducting a procurement action involving a related organization 11 6

General Procurement Standards (2 CFR 200.318) Avoid acquisition of unnecessary or duplicative items 200.318(d) Use of shared services and goods and group purchasing is encouraged 200.318(e) Entities must award contracts only to contractors with the ability to successfully perform the contract and do so in accordance with the terms and conditions of a proposed procurement 200.318(h) Entities must maintain records sufficient to detail the history of procurement 200.318(i) Rationale for method of procurement Selection of contract type and contractor Basis for the contract price 12 Competition (2 CFR 200.319) All procurement transactions should have full and open competition Contractors cannot provide a request for proposal to the entity Situations that cause restrictive competition: Unreasonable requirements on contractors Requiring unnecessary experience or bonding Specifying only a brand name product rather than an equal product Procurements must have enough qualified sources to ensure maximum open and free competition 13 7

THE PROCUREMENT CLAW 14 Methods of Procurement to be Followed Micro Purchases Purchase of supplies or services using simplified acquisition procedures, the aggregate amount of which does not exceed the micro-purchase threshold ($3,500). The non-federal entity uses such procedures in order to expedite the completion of its lowest-dollar small purchase transactions and minimize the associated administrative burden and cost. To the extent practicable, the non-federal entity must distribute micro-purchases equitably among qualified suppliers. Micropurchases may be awarded without soliciting competitive quotations if the non-federal entity considers the price to be reasonable. 15 8

Methods of Procurement to be Followed Small Purchases Relatively simple and informal procurement methods for securing services, supplies or other property that do not cost more than the Simplified Acquisition Threshold Non-federal entities adopt small purchase procedures in order to expedite the purchase of items costing less than the simplified acquisition threshold The simplified acquisition threshold is $150,000 16 Methods of Procurement to be Followed Sealed Bids (formal advertising) Bids are publicly solicited and a firm fixed price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price The sealed bid method is the preferred method for procuring construction 17 9

Methods of Procurement to be Followed Sealed Bids (formal advertising), continued If sealed bids are used, the following requirements apply: (i) Bids must be solicited from an adequate number of known suppliers, providing them sufficient response time prior to the date set for opening the bids, for local and tribal governments, the invitation for bids must be publicly advertised; (ii) The invitation for bids, which will include any specifications and pertinent attachments, must define the items or services in order for the bidder to properly respond; (iii) All bids will be opened at the time and place prescribed in the invitation for bids, and for local and tribal governments, the bids must be opened publicly; (iv) A firm fixed price contract award will be made in writing to the lowest responsive and responsible bidder. Where specified in bidding documents, factors such as discounts, transportation cost and life cycle costs must be considered in determining which bid is lowest. Payment discounts will only be used to determine the low bid when prior experience indicates that such discounts are usually taken advantage of; and (v) Any or all bids may be rejected if there is a sound documented reason. 18 Methods of Procurement to be Followed Competitive Proposals The technique of competitive proposals is normally conducted with more than one source submitting an offer, and either a fixed price or costreimbursement type contract is awarded. It is generally used when conditions are not appropriate for the use of sealed bids. If this method is used, the following requirements apply: Requests for proposals must be publicized and identify all evaluation factors and their relative importance; Proposals must be solicited from an adequate number of qualified sources; The non-federal entity must have a written method for conducting technical evaluations of the proposals received and for selecting recipients; Contracts must be awarded to the responsible firm whose proposal is most advantageous to the program, with price and other factors considered; and The non-federal entity may use competitive proposal procedures for qualificationsbased procurement of architectural/engineering (A/E) professional services whereby competitors' qualifications are evaluated and the most qualified competitor is selected, subject to negotiation of fair and reasonable compensation. The method, where price is not used as a selection factor, can only be used in procurement of A/E professional services. 19 10

Contracting with Small and Minority Businesses, Women s Business Enterprises and Labor Surplus Area Firms (2 CFR 200.321) The entity must take all necessary affirmative steps to assure that minority businesses, women s business enterprises and labor surplus area firms are used when possible 20 Federal Awarding Agency or Pass-Through Entity Review (2CFR 200.324) The entity must make available technical specifications on proposed procurements where the federal awarding agency or pass-through entity believes such review is needed to ensure that the item or service specified is the one being proposed for acquisition The entity must make available upon request, for the federal awarding agency or pass-through entity pre-procurement review, procurement documents, such as requests for proposals or invitations for bids, or independent cost estimates under certain circumstances 21 11

Procurement Policies Key Takeways Despite the fact that the procurement standards have been delayed again, there is much to do, including documentation of the deferral All solicitations should have the appropriate documentation Entities must have updated and detailed policies and procedures that are approved by the Board of Directors. Ensure that conflict of interest statements are completed annually and evaluated to avoid potential conflicts in this process. The primary goal of these records is to document that the health center used its federal funds responsibly 22 Administrative Requirements Requirement Reform Internal Controls For Federal awards, non-federal entities must establish and maintain effective internal controls. This includes taking reasonable measures to safeguard protected personally identifiable information; complying with Federal statutes, regulations, and terms and conditions; evaluating and monitoring compliance; and taking prompt action on audit findings. It is encouraged to implement effective internal controls earlier in the award process. Best practice documents that may be utilized in doing so include Standards for Internal Control in the Federal Government, Committee of Sponsoring Organizations (COSO) Internal Control Integrated Framework 2013. 23 12

Methods of Procurement to be Followed Procurement by Noncompetitive Proposals Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source and may be used only when one or more of the following circumstances apply: The item is available only from a single source; The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation; The federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-federal entity; or After solicitation of a number of sources, competition is determined inadequate. 24 Internal Controls As part of the new Uniform Guidance, the strengthening of oversight related to federal awards, in particular through internal controls, was consistently and prevalently noted throughout. Not-for-Profit entities that receive federal funding have always known of the requirement to establish and maintain effective internal controls over Federal awards. The Uniform Guidance further expands on that concept and re-emphasizes the need for strong internal controls that provide reasonable assurance that awards are being managed in compliance with Federal statutes, regulation and the terms and conditions of the Federal award. 25 13

Internal Controls Uniform Guidance refers to the following documents for best practices: Standards for Internal Control in the Federal Government (Green Book) issued by the Comptroller General Internal Control Framework issued by the Committee on Sponsoring Organizations (COSO) 26 Internal Controls Green Book 27 14

Internal Controls COSO The new COSO framework does not substantively alter the basic concepts and principles underlying the old COSO framework. Some of the key concepts that remain include the: Core definition of internal control Three categories of objectives and five components of internal control Five components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring activities Requirement that each of these five components be present and functioning for an effective internal control system Important role of judgment in designing, implementing, and conducting internal control, and in assessing its effectiveness 28 COST PRINCIPLES Requirement Indirect Cost Rates Compensation (Time and Effort Reporting) Reform Any non-federal entity that has never received a negotiated indirect cost rate may elect to charge a de minimis indirect cost rate (IDR) of 10% of modified total direct costs (MTDC) which may be used indefinitely. If chosen, this methodology once elected must be used consistently for all Federal awards until such time as the entity choses to negotiate for a rate, which the non-federal entity may do at any time. Federal awarding agencies must accept a negotiated IDR unless a different rate is required by Federal statute or regulation, or when approved by a Federal awarding agency head or delegate based on documented justification. Any non- Federal entity that has a Federally negotiated IDR may apply for a onetime extension of a current negotiated IDR for a period of up to four years. New language in the Uniform Guidance is intended to reduce the administrative burden of documenting time and effort and is less prescriptive regarding documentation, instead placing greater emphasis on internal controls. However, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. With agency approval, the new guidance will allow entities to replace detailed time and effort reports with performance-based reporting (based on milestones). Time and distribution records must be maintained for all employees whose salary is paid in whole or in part with Federal funds, or used to meet a match/cost share requirement. Charges to Federal awards for salaries and wages must be actual not based on budget. 29 15

AUDIT CHANGES AUDIT THRESHOLD New threshold is $750,000 of federal expenditures (increased from $500,000) This level will maintain oversight over 99.7% of federal award dollars and 81% of entities subject to the requirement Eliminates the requirement for approximately 5,000 of the 37,500 entities that currently undergo an audit 30 Low-Risk Auditee Changes A-133 criteria (2 prior years) Annual single audits Unmodified opinion on financial statements in accordance with GAAP Unmodified SEFA in-relation-to opinion No GAGAS material weaknesses In either of preceding two years, none of Type A programs had: Material Weakness Material noncompliance QC that exceed 5% Timely filing with FAC Auditor reporting of going concern would not preclude low-risk Waivers Uniform Guidance (2 prior years) Annual single audits Unmodified opinion on financial statements in accordance with GAAP or basis of accounting required by state law Unmodified SEFA in-relation-to opinion No GAGAS material weaknesses In either of preceding two years, none of Type A programs had: Material Weakness Material noncompliance QC that exceed 5% Timely filing with FAC No auditor reporting of going concern No waivers Percentage of Coverage Rule Change for Low Risk Auditee: Low risk auditees: 20% of total federal awards (reduced from 25%) Non low- risk auditees: 40% of total federal awards (reduced from 50%) 31 16

Major Program Determination Threshold changes Total Federal Awards Expended (includes both cash and noncash awards) Type A/B Threshold Equal to $750,000 but < $25 million $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 32 Major Program Determination Low Risk Type A Programs ( less dependent on auditor judgement) Inherent risk no longer a consideration No internal control deficiencies identified as material weaknesses No modified opinion on compliance No known or likely questioned costs that exceed 5% of the total federal awards expended for the program Must be audited as a major program in at least one of the two most recent audit periods Type B Programs No longer an Option 1 and 2 The only single criterion that would automatically result in High Risk for a Type B program would be a material weakness or compliance problem The number of high risk Type B programs to be audited is reduced to at least ¼ of the number of low-risk Type A programs Small Type B programs that would not be assessed for risk are defined as 25% of the Type A program threshold ($187,500 with a $750,000 threshold) 33 17

SEFA Changes New: Effective for 12/31/15 (not 6/30 or 9/30!) The following now must be on the face of the SEFA (no longer in the notes to the SEFA): Total amounts provided to subrecipients from each federal program (separate column) Total federal awards expended for loan or loan guarantee programs Noncash awards ( for example, free rent, food commodities and donated property) SEFA must also include a total for each cluster Notes to the SEFA: Must now include whether or not the auditee elected to use the 10- percent de minimus indirect cost rate. 34 Schedule of Findings and Questioned Costs UG Changes: The threshold for reporting known questioned costs increased to $25,000 (from $10,000) Must report: Known questioned costs >$25,000 for a type of compliance requirement for a major program Known questioned costs when likely questions costs >$25,000 for a type of compliance requirement for a major program Known questioned costs >$25,000 for a program that is not audited as a major program 35 18

Schedule of Findings and Questioned Costs UG Changes: Both known and likely fraud affecting federal awards are required to be reported, not just known fraud Identification of whether the audit finding was a repeat of a finding in the immediately prior year Audit findings detail should (best practice or recommended approach in the UG) include a statement about whether the sample was a statistically valid sample (not presumptively mandatory) 36 Reports Report on the Financial Statements and SEFA Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with GAS Report on Compliance for Each Major Program and Report on Internal Control over Compliance 37 19

Reporting Package The electronic submission to the Federal Audit Clearinghouse includes the data collection form and the reporting package. The reporting package must include the following: Financial Statements and the SEFA Auditor s Reports A summary schedule of prior audit findings A corrective action plan that addresses each current year finding 38 Summary Schedule Of Prior Audit Findings Prepared by auditee 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. When audit findings are fully corrected, the schedule need only list the audit findings and state that corrective action was taken. 39 20

Corrective Action Plan ( CAP ) At the completion of the audit, the auditee must prepare, in a document separate from the auditor's findings, a CAP to address each audit finding included in the current year auditor's reports. CAP must provide the name(s) of the contact person(s) responsible for corrective action, the corrective action planned, and the anticipated completion date. If the auditee 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. 40 HIERARCHY Single Audit Opine on SEFA and Compliance with Major Programs Yellow Book Audit (GAGAS) Report on Internal Controls and Laws and Regulations Financial Audit (GAAP) Opine on financial statement presentation 41 21

HIERARCHY Financial Audit (GAAP) Independent Auditors Report Financial statements An opinion on the financial statements affirmatively state that the financial statements present fairly, in all material respects, the financial position, results of operations, change in equity and cash flow in accordance with GAAP. 42 HIERARCHY Yellow Book Audit (GAGAS) Report on Internal Controls Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Peformed in Accordance With Government Auditing Standards Government Auditing Standards A report based on our understanding of the controls over financial reporting. Required to disclose significant deficiencies and material weakness in internal controls as well as any fraud, illegal actions, violations of provisions of contracts or grant agreements and abuse. Control deficiency design or operation of a control does not allow the organization to prevent, detect and correct a misstatement (f/s) or noncompliance (single audit) in a timely manner. Significant deficiency is a control deficiency or combination of deficiencies that is less severe than a material weakness yet important enough to merit attention by those charged with governance. Material weakness is a control deficiency or combination of deficiencies such that there is a reasonable possibility that a material misstatement (f/s) or non compliance (single audit) will not be prevented, detected and corrected. 43 22

HIERARCHY SEFA An opinion which states that the SEFA is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Audit the SEFA for completeness and accuracy (balances and CFDA #, etc.) Single Audit An opinion on compliance based upon our audit of the types of compliance requirements that apply to each major federal award that could have a direct and material effect on each of its major programs. A report based on the understanding of the controls over the compliance requirements referred to above and are required to disclose significant deficiencies and material weakness in these internal controls. Single Audit Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by UGG 44 Yellow Book Overview The Generally Accepted Government Auditing Standards, also known as the Yellow Book, provide a framework for conducting high quality audits with competence, integrity, objectivity, and independence. The Yellow Book is for use by auditors of government entities, entities that receive government awards, and other audit organizations performing Yellow Book audits. General Standard Ethical Principals Independence Discussion Conducting audit work in accordance with ethical principles is a matter of personal and organizational responsibility. Ethical principles apply in preserving auditor independence, taking on only work that the audit organization is competent to perform, performing high-quality work, and following the applicable standards cited in the auditors report. Integrity and objectivity are maintained when auditors perform their work and make decisions that are consistent with the broader interest of those relying on the auditors report, including the public In all matters relating to audit work, the audit organization and the individual auditor must be independent in mind and in appearance. Auditors and audit organizations should maintain independence so that their opinions, findings, conclusions, judgments and recommendations will be impartial and viewed as impartial by reasonable and informed third parties. Auditors should apply the GAGAS Conceptual Framework Approach to Independence at the audit organization, audit, and individual auditor level to: Identify threats to independence Evaluate the significance of the threats identified, both individually and in the aggregate and Apply safeguards as necessary to eliminate the threats or reduce them to an acceptable level. The audited entity has to designate an individual who possesses suitable skill, knowledge or experience (SKE) and that the individual understands the services to be performed sufficiently to oversee them. 45 23

Yellow Book Overview General Standard Auditors professional judgment and competence Discussion Auditors must use professional judgment in planning and performing audits and in reporting the results. Professional judgment includes: Reasonable care -acting diligently in accordance with applicable professional standards and ethical principles. Professional skepticism - an attitude that includes a questioning mind and a critical assessment of evidence. Professional skepticism includes a mindset in which auditors assume neither that management is dishonest nor of unquestioned honesty. The staff assigned to perform the audit must collectively possess adequate professional competence needed to address the audit objectives and perform the work in accordance with GAGAS. Competence is derived from a blending of education and experience. Competencies are not necessarily measured by years of auditing experience. Maintaining competence through a commitment to learning and development throughout an auditor s professional life is an important element for auditors. Competence enables an auditor to make sound professional judgments. Auditors performing work in accordance with GAGAS, including planning, directing, performing audit procedures, or reporting on an audit conducted in accordance with GAGAS, should maintain their professional competence through continuing professional education (CPE). 46 Yellow Book Overview General Standard Quality control Discussion Each audit organization performing audits in accordance with GAGAS must: establish and maintain a system of quality control that is designed to provide the audit organization with reasonable assurance that the organization and its personnel comply with professional standards and applicable legal and regulatory requirements,and have an external peer review performed by reviewers independent of the audit organization being reviewed at least once every 3 years 47 24

PROCESS Obtain Draft SEFA Obtain Draft FS Identify Major Programs Planning Risk Assessment Risk Assessment Internal Controls Over financial Awards Internal Controls Over financial Reporting Substantive Testing - Compliance Substantive Testing FS Assertions Reporting & Findings Reporting & Findings 48 SEFA Auditee s responsibility to prepare the schedule of expenditures of Federal Awards ( SEFA ) The SEFA is audited for completeness and accuracy CFDA # Clusters Amount expended Federal vs state awards Flow-through awards Subrecipient disclosures. 49 25

Major Program Determination High/Low Risk Determination Size of Program Program Maturity at Federal Agency Program Maturity at Auditee Complexity Extent of Contracting Multiple Internal Control Structures Use of Sub recipients Extent of Computer Processing Level of Oversight Audit Follow up Personnel and Systems Identified as High Risk Control Risk 50 Risk Assessment Perform a risk assessment on each major program Identify compliance requirements that apply Identify applicable compliance requirements that are DIRECT AND MATERIAL Determine materiality Assess inherent risk Assess control risk (guidance requires an auditor to plan to a low level of control risk) 51 26

Internal Controls Financial Statement Program manager reviews monthly allocation of payroll and approves expense by signature on payroll support. Federal Awards Program manager has knowledge of single audit requirements and attends outside trainings related to single audit requirements o keep abreast of changes. The program manager reviews monthly allocation of payroll and approves expense by signature on time and effort reporting. 52 Compliance Testing Twelve Compliance Requirements! Are auditors required to test all applicable compliance requirements? Only compliance requirements that have a direct and material effect on the major program Primary source is the compliance supplement Part 2 Auditor uses judgment to determine the direct and material compliance requirements (based upon risk assessment) Refer to Part 3 of the Compliance Supplement for general procedures 53 27

Compliance Testing Activities Allowed or Unallowed (A) Allowable Costs / Cost Principles (B) Direct costs testing Indirect costs Cash Management (C) Reserved (D) Eligibility (E) Equipment & Real Property Management (F) Matching, Level of Effort & Earmarking (G) Period of Availability (H) Procurement, Suspension & Debarment (I) Program Income (J) Reserved (K) Reporting (L) Sub-recipient Monitoring (M) Special Tests (N) (330 grant sliding fee scale) 54 Compliance Requirements 55 28

Sliding Fee Findings Sliding fees adjustments not calculated correctly or supported Sliding fee scale not updated for current Federal Poverty Guidelines Sliding fee policy lacking required elements (see new Compliance Manual that replaces PIN 2014-02 56 Practical Implications of HRSA Requirements and Single Audit The new Compliance Manual (replaces PIN 2013-1) impacts numerous aspects of a health center s financial management system and compliance audit requirements Cost allocations Time and effort reporting General ledger systems and separate accounting of Section 330 grant funds Document costs for scope of project Monitoring of 330 grant expenditures Procurement standards Property management standards Drawdowns of Federal grant funds Federal Financial Report (FFR) preparation 57 29

Reporting Summary of Auditors Results Schedule of Findings Report over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Yellow Book Report Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with Uniform Guidance Data Collection Form Due date 9 months (30 days from issuance of FS) 58 Data Collection Form Its primary purposes are to: Distribute single audit reporting packages to federal agencies. Support OMB oversight and assessment of federal award audit requirements. Maintain a public database of completed audits. Help auditors and auditees minimize the reporting burden of complying with Uniform Guidance audit requirements. All submissions Under Uniform Guidance must: Include a standard audit finding reference number format (2015-001) Be unlocked, unencrypted and in a text-searchable pdf format (use pdf validator) Include a Corrective Action Plan on letterhead (separate from the Audit Report) if there was a finding noted. https://harvester.census.gov 59 30

QUESTIONS?? 60 Contact Information Gil Bernhard, CPA, Partner Healthcare Group CohnReznick LLP 646.254.7479 Gil.Bernhard@CohnReznick.com 61 31