1. Renee Messing, CPA, Partner Clifton Gunderson
Stimulus Grant Compliance and ARRA Reporting Understanding and Managing the Grant Compliance Process
Renee Messing, CPA, Partner
Clifton Gunderson

2. ARRA Overview Signed into law on February 17, 2009
Total cost $788 billion (tax cuts and spending)
Immediate Goals:
Create new jobs and save existing ones
Spur economic activity and invest in long-term growth
Foster unprecedented levels of accountability

3. ARRA Accountability Mechanisms
Recipient Section 1512 reporting
U.S. Government Accountability Office (GAO) state and local reviews
Federal agency reviews
State ARRA audits and reviews
Federal Single Audit

4. ARRA’s Impact to the Single Audit
Significant impact expected for 2010 and 2011 year end audits.
Accountability and transparency are key features
QCR’s built into OMB Guidance with results to be placed on Recovery.gov
Auditees are significantly affected by Section 1512 reporting.
Recovery Act Transparency Board (RATB) established to monitor activity and look for fraud, waste and abuse
Interest in single audits increased by federal agencies and Congress

5. ARRA’s Impact to the Single Audit (continued)
OMB has issued guidance to federal agencies.
Data reporting requirements
Standard elements – will have to be reported within 10 days of each calendar quarter
Davis Bacon
Notify of wage rate requirements
Domestic sourcing
Section 1605 of the Recovery Act prohibits use of ARRA funds for construction unless all iron, steel and goods are produce in US

6. Other ARRA Guidance Guidance issued by ED:
Guidance on the State Fiscal Stabilization Fund Program (April 2009)
Guidance on the Maintenance-of-Effort Requirements in the State Fiscal Stabilization Fund Program (May 2009)
OMB ARRA Guidance

7. State Fiscal Stabilization Fund Program
Purpose
Stabilize budgets to minimize / avoid reductions in education
Exchange for state’s commitment to advance essential educational reforms
Two components:
Education Stabilization Fund (CFDA )
Government Services Fund (CFDA )

8. State Fiscal Stabilization Fund Program
New Guidance: Guidance for Grantees and Auditors – State Fiscal Stabilization Fund Program found at
Provides guidance on:
Use the funds / prohibitions for use of funds
Pre-award costs and related documentation requirements
Maintenance of Effort
Recordkeeping, documentation, and reporting requirements

9. President’s Memo 4/6/10
Administration committed to transparency in tracking recovery dollars and to elimination of waste, fraud, and abuse by recipients

10. President’s Memo 4/6/10
Called for federal agencies to intensify efforts
More timely reporting of noncompliant prime recipients to OMB
Detailed actions to respond to instances of noncompliance

11. President’s Memo 4/6/10
Stated potential enforcement actions could include:
Terminating awards
Pursuing suspension and debarment
Reclaiming funds
Initiating or implementing punitive actions

12. Improper Payments Improper Payments Elimination and Recovery Act
Signed 7/22/10
Designed to cut waste, fraud and abuse due to improper payments
Public website to track progress in reducing improper payments
RATB implementing an expanded fraud mapping tool

13. Planning the Single Audit
Auditor shall:
Perform audit of financial statements under GAGAS – the yellow book.
Obtain understanding and test internal controls of major programs.
Perform tests to determine if entity complied with laws and regulations of major programs.
Determine status of prior year audit findings.

14. Planning for the Single Audit
Applicable to entities who spent in excess of $500,000 in federal funds during fiscal year.
Early identification is critical, including identifying ARRA funds
ARRA should be separate awards
May have revised terms and conditions
Expenditures should be tracked separately – even if the agency has not identified a new CFDA number

15. Planning for the Single Audit
Auditee is responsible for Schedule of Expenditures of Federal Awards (SEFA).
In Wisconsin, when federal single audit applies, state single audit also must be conducted and a Schedule of Expenditures of State Awards (SESA) must be prepared.
Applies regardless if funding received directly or indirectly.
Does not apply to vendor relationships.

16. The SEFA is necessary for the auditor to begin its planning process.
Auditee is responsible for identifying:
All federal award received and expended by federal program by federal agency;
ARRA monies required to be reported separately (even if the CFDA number is the same;
Clusters of programs;
CFDA title and number;
Award number and year;
Federal agency
Name of pass-through agency, as applicable
The SEFA is necessary for the auditor to begin its planning process.

17. SEFA CFDA numbers: Required to be provided by Federal Agencies.
Existing programs, may use previous number.
For new programs or those with significant changes, may be assigned new numbers.

18. CFDA.GOV

19. CFDA.gov

20. CFDA.GOV Source to search for CFDA numbers Link to recovery site
Source for information on specific ARRA programs
Identify objectives, uses and restrictions, eligibility requirements, reporting and related programs
Link to compliance supplement

22. Compliance Supplement
Incorporates guidance from previous supplements and addendum
Updated part VII
Low risk auditee status
Extensions
Loans
Major program determination

23. Compliance Supplement
New guidance being issued continuously.
Auditors and grantees, more than ever, will have to use multiple sources to determine compliance requirements.

25. Planning for the Single Audit
Applies to both direct or indirect federal funding:
Recipient, a subrecipient, or a vendor?
Single Audit applies to recipients and subrecipients.
Does not apply to vendors.

26. Subrecipient versus Vendor
Subrecipient characteristics:
Determines who is eligible to receive assistance;
Performance measured to determine if program objectives met;
Responsibility for programmatic decision making;
Responsibility for adherence to program compliance requirements; and
Uses funds to carry out a program as compared to providing goods/ services for a program of the pass-through entity.

27. Subrecipient versus Vendor (continued)
Vendor characteristics:
Provides goods/services within normal operations;
Provides similar goods/services to many different purchasers;
Operates in competitive environment;
Provides goods/services that are supplementary to operation of Federal program; and
Not subject to compliance requirements of Federal program.

28. Major Program Determination
Federal programs subject to testing of internal controls and compliance tests.
Auditor performs risk-based approach as outlined in section .520 of OMB Circular A-133.
Approach considers:
Current and prior audit experience
Oversight by federal or pass-through agencies
Inherent risk of the program

29. Major Program Determination (continued)
Major program determination impacted:
ARRA monies higher risk. Generally will not be low risk Type A.
If ARRA monies are part of Cluster, the Cluster must still be audited as high risk even if Cluster was audited in previous year.

30. Major Program Determination (continued)
Step 1:
Identify larger programs – “Type A”:
Larger of $300,000 or a percentage of total awards expended
All other programs are considered “Type B”

31. Major Program Determination (continued)
Step 2:
Identify low risk “Type A” programs
Low risk Type A requirements:
Audited in one of two most recent audits
No audit findings in most recent audit period
Federal agency did not request it be treated as high risk
Other factors: Oversight by federal agency, inherent risk of the program, phase of the program in its life cycle, changes in personnel, etc.
New guidance surrounding ARRA requires stimulus monies to be high risk.
If program does not meet low risk requirements, considered high risk.

32. Major Program Determination (continued)
Type A program which is otherwise low risk – even a de minimus amount of ARRA would not support low risk
Exception – ALL must be met
Program or cluster had ARRA in prior audit period
Program or cluster was audited as a major program in prior period
ARRA expenditures are less than 20% of the program or cluster expenditures
Auditor has followed guidance and program or cluster is otherwise low-risk

33. Major Program Determination (continued)
Step 3:
Determine high risk Type B programs
High risk considerations:
Current and prior audit experience
Internal control structure - centralized vs decentralized
Prior audit findings
Oversight exercised by federal agencies
Inherent risk of the program
Percentage of total federal awards
Note: Other than prior audit findings, generally no single criteria would automatically cause Type B programs to
be considered high risk.

34. Major Program Determination (continued)
Step 4:
Designate the following as major programs:
All high-risk Type A programs
Set number of high-risk Type B
Option 1: ½ of high risk type B’s, but not more than number of low risk Type A’s
Option 2: 1 high-risk type B fore each low-risk Type A
Additional programs to meet percentage of coverage rule

35. Percentage of Coverage Rule
Low Risk Auditee: 25%
2 preceeding years single audit performed
Unqualified opinions
No material weaknesses in internal control over financial reporting
No findings in type A programs
High Risk Auditee: 50%

36. Auditing Major Programs
For each major program:
Identify program requirements that are relevant and significant to the program.
For each major program, must test:
Internal control over compliance
Compliance

37. Compliance Supplement
Issued by the OMB to assist auditors in performing the required audits.
Allows Federal Agencies to communicate items they believe are important to grants.
Provides guidance in determining:
Compliance requirements relevant to the grant;
Audit procedures to be performed.
Additional guidance issued for ARRA programs
Effective tool for grant managers to review compliance requirements

38. Compliance Requirements
Activities Allowed or Unallowed
Allowable Costs/Cost Principles
Cash Management
Davis-Bacon Act
Eligibility
Equipment and Real Property Management
Matching, Level of Effort, and Earmarking
Period of Availability
Procurement, Suspension, and Debarment
Program Income
Real Property Acquisition/Relocation Assistance
Reporting
Subrecipient Monitoring
Special Tests and Provisions

39. Direct and Material Does the compliance requirement apply?
Will noncompliance have a material impact on the major program?

40. Activities Allowed or Unallowed Allowable Costs/Cost Principles
Is the activity/cost being charged to the program:
Allowed under program regulations?
In accordance with applicable cost principle circular?
No ARRA funds may be used or casino/gaming, aquarium, zoo, golf course or swimming pool

41. Cash Management Reimbursement
Costs must be paid prior to reimbursement.
Advanced
Time elapsing between transfer of funds to disbursement of funds must be minimized.

42. Davis Bacon Act
All laborers/mechanics employed to work on construction contracts > $2,000 financed must be paid prevailing wage rates.

43. Eligibility
Only certain individuals or groups of individuals are qualified to obtain benefits/services.
Unique to each program.

44. Equipment and Real Property Management
Property acquired must be used for its intended purpose.
Equipment records should be maintained.
Physical inventory every two years.
Safeguarded.
Disposition instructions for real property.

45. Matching, Level of Effort, and Earmarking
Required to provide contributions of a specified amount.
Level of Effort
Required to maintain a specified level of service, or a specified level of expenditures from other sources, or funds are to supplement, not supplant, other funding sources.
Earmarking
Requirements to specify a min or max amount on specified activities.

46. Period of Availability of Federal Funds
Required to use federal funds within a specified time period.
ARRA – spending timeframe very tight on some of the funding.

47. Procurement and Suspension and Debarment
States/subrecipient of states: Adhere to state purchasing laws.
Other: Must comply with A-102 Common Rule or OMB Circular A-110.
Suspension and Debarment
Prohibited from contracting with suspended or debarred parties - applies to transactions greater than $25,000.
Auditee is required to either check EPLS website, get certification, or include clause in contract.
ARRA prohibits use of funds unless all of the iron, steel, and manufactured goods are produced in the US

48. Program Income
Income that is directly generated by the federally funded project.
May be used in one of three methods:
Deducted from outlays;
Added to project budget; or
Used to meet matching requirements.

49. Real Property Acquisition and Relocation Assistance
Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970
Provides for equitable treatment of persons displaced by federally-assisted programs from homes, businesses, or farms.
Requires independent appraisals, determination of replacement housing assistance, rental assistance, etc.

50. Reporting Three types of reports Financial Performance Special
ARRA section 1512 applies
OMB has issued multiple guidance documents
Continuous correction period
Audit procedures focus on last quarter – award number and amount, ARRA funds received, ARRA expenditures

51. Subrecipient Monitoring
A pass-through entity is responsible for:
Award identification
CFDA number and title
Award name and number
R&D
Name of federal agency
Applicable compliance requirements
During-the-Award Monitoring
Reporting
On-site visits
Regularly scheduled contact
Other
Subrecipient Audits
Single Audits performed
Issuing management’s decision on findings
Ensuring timely corrective action taken

52. Special Tests and Provisions
Specific requirements unique to program.
Do not fall into other categories discussed.
Recipient’s financial systems must permit the preparation of reports and tracking of ARRA funds
Adequately identify the source and application of ARRA awards separately

53. Communicating Control Deficiencies - ARRA
Early communication encouraged
OMB Pilot Project
Interpretations Nos of SAS No. 112 issued
Addresses early communication as it relates to programs under ARRA.
Provides illustrative language
GAQC #132
Auditing Interpretations Issued on Communicating Deficiencies in Internal Control Over Compliance at an Interim Date as a Result of Recovery Act
Members that are auditing clients with Recovery Act funds should be aware that the AICPA Auditing Standards Board, working with the AICPA Governmental Audit Quality Center (GAQC), has responded to questions about "early" communication of deficiencies in internal control over compliance through the issuance of Interpretation Nos. 2–4 of Statement on Auditing Standards (SAS) No. 112, Communicating Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards, vol. 1, AU sec. 325A).
Why Were These Interpretations Issued?
With the issuance of the American Recovery and Reinvestment Act of 2009 (Recovery Act), the Office of Management and Budget (OMB) has encouraged auditors to early communicate deficiencies in internal control over compliance relating to Recovery Act funds, prior to the completion of the single audit. First, as noted in GAQC Alert #127, the OMB has a pilot project underway at the state government level that is requiring auditors of states that have volunteered for the project to early communicate to management, in writing, the significant deficiencies and material weaknesses relating to certain major programs with Recovery Act funding based on audit work performed as of November 30, Second, Addendum #1 to the OMB Compliance Supplement added guidance to Part 6, Internal Control, encouraging auditors to promptly inform auditee management and those charged with governance, during the audit engagement, of identified control deficiencies related to Recovery Act funding that are, or likely to be, significant deficiencies or material weaknesses (See GAQC Alert #118 for additional information). While this encouraged communication is not required to be in writing, questions have been raised about whether or how auditors might make such an interim communication in writing.
What Do The Interpretations Say?
The interpretations confirm that an interim written communication of control deficiencies in internal control over compliance may be made and provide illustrative language that auditors may use if participating in the OMB pilot project or if voluntarily communicating based on the guidance in Addendum #1 to the OMB Compliance Supplement. Further, the interpretations state that while such a communication is permitted, that it would not be appropriate for an auditor to issue an interim communication stating that no significant deficiencies or material weaknesses were identified as of the interim date.
Finally, note that although AU section 325A has been superseded by SAS No. 115 (of the same title) to reflect changes in the definitions of control deficiency, significant deficiency and material weakness, these interpretations reference AU section 325A because the OMB has not yet revised the definitions in Circular A-133 for SAS No Once it does, these interpretations will be conformed and included as interpretations of SAS No. 115 at AU section 325. The GAQC is currently working with OMB to resolve the SAS No. 115 transition and is hopeful that this will be accomplished during the next month.
* * * * *
Sincerely,
AICPA Governmental Audit Quality Center
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54. Common Deficiencies
Internal control not adequate to ensure ARRA funds were reported properly
Internal control not adequate to minimize excess unspent balances of ARRA funds
Internal control not adequate to ensure ARRA expenditures were allowable
Procurement internal controls were inadequate

55. Common Deficiencies
Internal controls not adequate related to eligibility
Eligible goods or services
Eligible individuals and entities
Auditee not providing subrecipients with timely information about federal award requirements
Internal controls not adequate to ensure timely reporting

56. What Should You Be Doing Now?
Reviewing control procedures over federal expenditures; ensure appropriately designed and operating effectively.
Considering if additional controls and processes should be put in place.
Determining how to properly account for ARRA funds separately and what processes should be put in place to meet stringent reporting requirements.

57. What Should You Be Doing Now? (continued)
Implement proper subrecipient monitoring procedures.
Understand timeline requirements of spending monies.
ARRA requires return of funds not spent within certain time frame.
Budget/consider matching or future funding requirements.
Meet with auditors periodically to determine impact to Single Audit, fieldwork timing, and audit efforts.

58. Resources
OMB Circular A-133:
The American Recovery and Reinvestment Act of 2009 and related OMB Guidance (i.e., Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009 (February 18, 2009) and Updated Implementing Guidance for the American Recovery and Reinvestment Act of 2009 (April 3, 2009)):
Additional information on the ARRA:

59. Recent Changes Recent changes in testing major programs include:
ARRA requirements
Sampling.

60. GAS and A-133 AICPA Audit Guide
Audit Sampling Consideration of Circular A-133 Compliance Audits
New Chapter
Result of a PCIE study.
AICPA established task force to discuss current sampling guidance.

61. A-133 Sampling Task Force The task force concluded:
Sampling guidance already existed.
Clarification needed on how sampling
guidance should be applied to single audit.
A new sampling chapter added. 61

62. Sample Size – Internal Control
Minimum samples for populations >250 - CONTROLS
Importance / Significance of Control Being Tested
Minimum Sample Size
0 deviations tolerated
High Significance and High Risk of Deviation 60
High Significance and Low Risk or Deviation Or
Moderate Significant and High Risk of Deviation 40
Moderately Significant and Low Risk of Deviation 25 62

63. Sample Sizes - Compliance
Minimum samples for populations >250 – COMPLIANCE
Desired Level of Assurance (Remaining Risk of Material Noncompliance0
Minimum Sample Size
High 60
Moderate 40
Low 25 63

64. Sample Sizes – Small Populations
Frequency & Population Size
Sample Size
Quarterly (4) 2
Monthly (12)
2-4
Semimonthly (24)
3-8
Weekly (52)
5-9 64

65. Questions? Renee.Messing@cliftoncpa.com