1. AICPA Governmental Audit Quality Center Member Event Single Audit Fundamentals Part IV: Overview of Single Audit Reporting Requirements and Available Resources March 18, 2010 1

2. Administrative Notes If you encounter any technical difficulties (e.g., audio issues) during this event please take the following steps: –Press the F5 key on your computer –Re-start your browser –Check your speakers, ensure they are not on mute –Turn off your pop-up blocker –Re-start you computer –Call Genesys Tech support 866.814.1918, Conf ID# 1439282 –If none of the above work, submit a request for help on the “Send a Question Box” located on the left hand side of your screen. If are unable to get assistance from Genesys for some reason, e-mail gaqc@aicpa.org or call 202-434-9207gaqc@aicpa.org 2

3. Administrative Notes We encourage you to submit your technical questions – please limit your questions to the content of today’s program To submit a question, type it into the “Send a Question” box on left side of your screen; we will answer as many as possible You can also submit questions to the GAQC member forum for consideration by other members This event is being recorded and will be posted in an archive format to the GAQC Web site 3

4. Continuing Professional Education Must have registered for CPE credit prior to this event; the CPE Credit Approval Form was e-mailed to you Listen for announcement of 4 CPE codes (7 digit codes: ALL_ _ _ _ ) and 4 polling questions during the event Record CPE Codes on CPE Credit Approval Form and return completed form (by fax or mail) to AICPA Service Center for record of attendance; keep a copy for your records If you are not receiving CPE for this call, ignore the CPE codes that we announce, but please answer the polling questions 4

5. Single Audit Fundamentals Series Sponsored by the GAQC What is GAQC? –Voluntary membership Center for CPA firms and State Audit Organizations (SAOs), with approximately 1,400 members –Designed to help CPAs meet the challenges of performing quality governmental audits, including single audits –Member benefits/membership requirements –For more information, please visit the membership section at www.aicpa.org/GAQC or call Cynthia Dillon at 202-434-9207membership section www.aicpa.org/GAQC 5

6. A Note on the Recovery Act In February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was passed Approximately $300 billion additional federal funds being passed down; much of which is subject to single audits Recovery Act does have implications on reporting for single audits Today’s call is focusing on the reporting requirements of a single audit and the resources available to auditors A future GAQC event (not yet scheduled) will provide additional information on the Recovery Act, including its impact on the reporting requirements of a single audit Review the GAQC Recovery Act Resource Center (www.aicpa.org/GAQC) for previous calls and guidance issuedwww.aicpa.org/GAQC 6

7. Today’s Presenters Barbara Cevallos, CPA PricewaterhouseCoopers LLP ___ Scott Simpson, CPA Moss Adams LLP ___ Moderator Corey Arvizu, CPA Heinfeld, Meech Co., PC Chair, GAQC Executive Committee 7

8. Fundamentals Courses Part I – Basic Background & Overview of the Single Audit –Scope of the Single Audit –Auditee & Auditor Responsibilities –Unique Requirements & Provisions of OMB Circular A-133 –Description & Characteristics of Federal Awards –Pass-through Awards and Subrecipients Part II – Understanding Major Program Determination –Applying the Risk-Based Approach for Determining Major Programs –Low-Risk Auditee Determination and Distinguishing from Other Risk Assessments Performed in a Single Audit –Communications with Cognizant or Oversight Agency 8

9. Fundamentals Courses Part III - Understanding Compliance Testing & IC over Compliance Requirements –Description & Characteristics of the 14 Compliance Requirements –Description & Characteristics of Internal Control over Compliance –Substantive Tests of Applicable Compliance Requirements –Tests of Internal Control over Compliance –Documentation Requirements –Introduction to and Using the Annual OMB Compliance Supplement 9

10. Fundamentals Courses Part IV - Reporting Requirements and an Overview of Available Circular A-133 Resources –Reporting Requirements of the Single Audit –Overview and Use of the AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits and Audit Risk Alert –Understanding the OMB Cost Circulars and their Applicability to Audit Procedures –Use of www.cfda.gov and other Web Sites to Facilitate a Single Audit 10

11. TOPICS to be COVERED Reporting Requirements Overview and use of the AICPA Audit Guide Government Auditing Standards and Circular A- 133 Audits and Audit Risk Alert OMB Cost Circulars Use of www.cfda.gov and other Web Siteswww.cfda.gov 11

12. Reporting Requirements Reporting Package –Financial Statement Related: Opinion on Financial Statements (in accordance with GAGAS) Report on I/C over Financial Reporting & on Compliance and Other Matters (Yellow Book) Schedule of Expenditures of Federal Awards – in relation to opinion –Compliance Related Report on Compliance with Requirements Applicable to Each Major Program & on Internal Control over Compliance in Accordance with OMB Circular A- 133 Schedule of Findings and Questioned Costs –Data Collection Form 12

13. Reporting Requirements Financial Statement Related Opinion on Financial Statements –Required by A-133 §.310 –In accordance with Government Auditing Standards –Same organizational unit as the compliance audit –Same fiscal year as the compliance audit Report on Compliance and Internal Control (Yellow Book Report) –Carries the same date as financial statement opinion –Reports significant deficiencies & material weaknesses –Reports material non-compliance (at the financial statement level). 13

14. Reporting Requirements Schedule of Expenditures of Federal Awards (SEFA) Determine whether presented fairly in all material respects in relation to the auditee’s financial statements taken as a whole SEFA is a client-prepared schedule Reports the total expenditures of federal awards and serves as the primary basis for the auditor’s major program determination Circular A-133 §.310(b) includes the requirements Practice aids available on the GAQC Web site: www.aicpa.org/GAQC www.aicpa.org/GAQC 14

15. Reporting Requirements Schedule of Expenditures of Federal Awards (SEFA) Federal AwardsBasis for Determining When Expended Grants, cost reimbursement contracts, cooperative agreements, and direct appropriations When the expenditure or expense transactions occur Amounts passed through to subrecipientsWhen the disbursement is made to the subrecipient Loan and loan guaranteesWhen the loan proceeds are used (See the further discussion on loans and loan guarantees in table 7-2 and paragraph 7.20.) Donated property, including donated surplus propertyWhen the property is received Food commoditiesWhen the food commodities are distributed or consumed Interest subsidiesWhen amounts are disbursed entitling the entity to the subsidy InsuranceWhen the insurance is in force EndowmentsWhen federally restricted amounts are held Program incomeWhen received or used 15

16. Example Entity Schedule of Expenditures of Federal Awards for the Year Ended June 30, 20x1 Federal Grantor/Pass-through Grantor/Program or Cluster Title Federal CFDA Number Pass-Through Entity Identifying Number Federal Expenditures Department of Agriculture Direct Programs Summer Food Service Program for Children - Commodities10.559 $ 46,000 Total Department of Agriculture Direct Programs $ 46,000 Department of Housing and Urban Development Direct Programs Community Development Block Grants/Entitlement Grants14.218 $ 1,235,632 Section 8 Housing Choice Vouchers14.871 800,534 Total Department of Housing and Urban Development Direct Programs $ 2,036,166 Department of Education Direct Programs Impact Aid84.041 $ 372,555 Literacy Through School Libraries84.364 28,655 Subtotal Department of Education Direct Programs $ 401,210 Department of Education Pass Through Programs From: State Department of Education - Title I Grants to Local Educational Agencies84.01023-8345-7612 $ 1,239,398 Total Department of Education $ 1,640,608 Total Expenditures of Federal Awards $ 3,722,774 Note that footnotes have been excluded. 16

17. Reporting Requirements Schedule of Findings & Questioned Costs Part 1: Summary of the Auditor’s Results Part 2: Financial Statement Findings Part 3: Federal Award Findings & Questioned Costs 17

18. Reporting Requirements Schedule of Findings & Questioned Costs Part 1: Summary of the Auditor’s Results Financial Statements –Type of auditor’s report issued [unqualified, qualified, adverse or disclaimer] –Internal Control over Financial Reporting Material weakness(es) identified? Significant deficiency(ies) identified? Noncompliance material to financial statements noted? 18

19. Reporting Requirements Schedule of Findings & Questioned Costs Part 1: Summary of the Auditor’s Results Federal Awards –Internal Control over Major Programs Material weakness(es) identified? Significant deficiency(ies) identified? –Type of auditor’s report issued on compliance for major programs [unqualified, qualified, adverse, or disclaimer] –Any audit findings disclosed that are required to be reported in accordance with §510(a) 19

20. Reporting Requirements Schedule of Findings & Questioned Costs Part 1: Summary of the Auditor’s Results Federal Awards –Identification of major programs including CFDA number and name of federal program or cluster –Dollar threshold used to distinguish between type A and type B programs –Auditee qualified as low-risk auditee? 20

21. Reporting Requirements Schedule of Findings & Questioned Costs Part 2: Financial Statement Findings Findings to include: –Criteria or specific requirement –Condition –Context –Effect –Cause –Recommendation –Views of responsible officials and planned corrective action 21

22. Reporting Requirements Schedule of Findings & Questioned Costs Part 3: Federal Award Findings & Questioned Costs Findings to include: –Information on the federal program –Criteria or specific requirement –Condition –Questioned costs –Context –Effect –Cause –Recommendation –Views of responsible officials and planned corrective action 22

23. Reporting Requirements Report on Internal Control & Compliance Compliance –Express an opinion on compliance for EACH major program –Identify instances of noncompliance Internal Control over Compliance –No opinion on the effectiveness of internal control over compliance –Report significant deficiencies and material weaknesses 23

24. Reporting Requirements Data Collection Form Completed by auditee & auditor Not technically part of the reporting package – rather a summary of the information contained in the reporting package Reporting package and data collection form are submitted electronically to the Federal Audit Clearinghouse 24

25. TOPICS to be COVERED Reporting Requirements Overview and use of the AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits and Audit Risk Alert OMB Cost Circulars Use of www.cfda.gov and other Web Siteswww.cfda.gov 25

26. AICPA Audit Guide: GAS/A-133 Audits Two main sections of the guide –Chapters 2-4: Yellow Book audits –Chapters 5-13: A-133 audits –Chapter 14: Program-specific audits Appendices –Single Audit Act –Circular A-133 –Risk Assessment Standards –Schedule of changes from prior edition 26

27. AICPA Audit Guide: GAS/A-133 Audits Chapter 1: Introduction –Purpose and applicability –Adherence to professional standards and requirements 27

28. AICPA Audit Guide: GAS/A-133 Audits Chapter 2: Planning Considerations of Government Auditing Standards –Discusses ethics chapter of Yellow Book –General standards –Fieldwork standards –Other planning considerations 28

29. AICPA Audit Guide: GAS/A-133 Audits Chapter 3: Financial Statement Audit Considerations of Government Auditing Standards –Internal control over financial reporting –Consideration of financial statement misstatements, including compliance –Abuse –Representation letters –Reasonable assurance 29

30. AICPA Audit Guide: GAS/A-133 Audits Chapter 4: Auditor Reporting Requirements and Other Communication Considerations of Government Auditing Standards –GAAS and GAGAS requirements Reporting requirements Internal control over financial reporting Fraud, illegal acts, violations of provisions of contracts or grant agreements, abuse –Report on the financial statements –“Yellow Book” report –Appendix contains sample reports 30

31. AICPA Audit Guide: GAS/A-133 Audits Chapter 5: Overview of the Single Audit Act, Circular A-133 and the Compliance Supplement –Single Audit Act and Circular A-133 requirements General audit requirements Determining when federal awards are expended Major program determination (high level) Auditee responsibilities Responsibilities of other parties (fed agency, pass thru, cognizant agency) –Compliance Supplement 31

32. AICPA Audit Guide: GAS/A-133 Audits Chapter 6: Planning Considerations of Circular A- 133 –Audit risk considerations –Audit materiality considerations –Efficiency –Joint audits and reliance on others –State and local compliance requirements –Desk reviews and on-site reviews 32

33. AICPA Audit Guide: GAS/A-133 Audits Chapter 7: Schedule of Expenditures of Federal Awards –Auditor requirements –Presentation requirements Pass through awards Non-cash assistance –Example SEFAs for university/nfp entity 33

34. AICPA Audit Guide: GAS/A-133 Audits Chapter 8: Determination of Major Programs –Applying the risk based approach Determine type A/B Risk assessment of programs Determine major programs Percentage of coverage/low risk auditee criteria –Criteria for program risk 34

35. AICPA Audit Guide: GAS/A-133 Audits Chapter 9: Considerations of Internal Control over Compliance for Major Programs –Overview of requirements, definition of IC over financial reporting –COSO elements of internal control –Each major program –Direct and material compliance requirements –Test of operating effectiveness for each major program –Significant deficiencies and material weaknesses 35

36. AICPA Audit Guide: GAS/A-133 Audits Chapter 10: Compliance Auditing Applicable to Major Programs –Identifying direct and material compliance requirements –Performing compliance testing Touches on sampling –Evaluating and reporting noncompliance –Follow-up procedures –Management representations 36

37. AICPA Audit Guide: GAS/A-133 Audits Chapter 11: Sampling Considerations in a Single Audit –Statistical vs. nonstatistical approach –Attribute vs. monetary sampling –Procedures that do not involve sampling –Population considerations –Sample sizes –Sample selection and evaluation –Projecting deviations and exceptions –Dual purpose testing 37

38. AICPA Audit Guide: GAS/A-133 Audits Chapter 12: Audit Considerations of Federal Pass-Through Awards –Characteristics of subrecipients vs vendors –Single audit considerations of pass-through entities Pass-through entity responsibilities Audit planning Internal control over compliance Subrecipient monitoring considerations Reporting considerations 38

39. AICPA Audit Guide: GAS/A-133 Audits Chapter 13: Auditor Reporting Requirements and Other Communication Considerations in a Single Audit –Recommended reporting FS and SEFA Yellow Book Major programs Schedule of findings and questioned costs –Summary schedule of prior audit findings and corrective action plan –Data collection form –Appendix contains example reports 39

40. AICPA Audit Guide: GAS/A-133 Audits Chapter 14: Program-Specific Audits –Most applicable to for-profit entities that receive federal awards –Auditor’s responsibilities with/without program specific audit guide –Submission of report –Appendix contains example reports 40

41. AICPA Audit Risk Alert: GAS/A-133 Audits Discusses: –Emerging practice issues –Auditing developments –Recovery Act –Updates on various standard setters OMB GAO HUD Federal Audit Clearinghouse 41

42. AICPA Publications To purchase AICPA products –call AICPA Order Department at 888-777-7077 –visit www.cpa2biz.comwww.cpa2biz.com 42

43. TOPICS to be COVERED Reporting Requirements Overview and use of the AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits and Audit Risk Alert OMB Cost Circulars Use of www.cfda.gov and other Web Siteswww.cfda.gov 43

44. OMB Circulars States, local governments, and Indian Tribes follow: –A-87 for cost principles, Relocated to 2CFR, Part 225 –A-102 for administrative requirements (common rule), –A-133 for audit requirements Educational Institutions (even if part of a State or local government) follow: –A-21 for cost principles, Relocated to 2CFR, Part 200 –A-110 for administrative requirements, Relocated to 2 CFR, Part 215, –A-133 for audit requirements Non-Profit Organizations follow: –A-122 for cost principles, Relocated to 2 CFR, Part 230 –A-110 for administrative requirements, Relocated to 2 CFR, Part 215 –A-133 for audit requirements 44

45. OMB Cost Circulars Cost circulars directly affect our testing –Allowability of costs –Referenced in grant agreements A-21, A-122 and A-87 were updated in 2004 with conforming language. But, differences exist. –Differences in the elements of cost and in the treatment of certain key compliance requirements Example: effort reporting 45

46. OMB Circular A-110 Uniform Administrative Requirements for Grants & Agreements with Institutions of Higher Education, Hospitals, and other Non-Profit Organizations General Pre-Award Requirements Post-Award Requirements –Financial & program management –Property standards –Reports & records –Termination & enforcement After-Award Requirements 46

47. The Common Rule – Circular 102 Uniform Administrative Requirements to State & Local Governments Common Rule establishes uniform administrative rules for federal grants & cooperative agreements and sub-awards to state, local, and Indian tribal governments Same format as Circular A-110 47

48. OMB Circular A-122 Cost Principles for Nonprofit Organizations Attachment A – General Principles –Allowable Costs –Allocable Cost –Applicable Credits –Direct Costs –Indirect Costs –Indirect Cost Rates –Negotiation & Approval of Rates 48

49. Attachment B – Selected Items of Costs –Provides over 50 examples for establishing allowability Attachment C – Nonprofit Organizations Not Subject to Circular OMB Circular A-122 Cost Principles for Nonprofit Organizations 49

50. Circular A-21 Cost Principles for Educational Institutions Allowability of Costs Direct Costs Facility & Administrative Costs Selected Items of Cost Certificate of F&A Costs Certification of Charges 50

51. Attachment A – General Principles –Definitions –Allowability of Costs –Direct Costs –Indirect Costs –Interagency Services Attachment B – Standards for Selected Items of Cost Attachment C – State/Local Central Service Allocation Plans Attachment D – Public Assistance Cost Allocation Plans Attachment E – State & Local Indirect Cost Rate Proposals OMB Circular A-87 Cost Principles for State, Local, and Indian Tribal Organizations 51

52. OMB Cost Circulars – Effort Reporting Example Cost principles for not-for-profits are found in A-122 Attachment B 8(m) –Reports must reflect after the fact determination of actual activity of each employee –Must be signed by employee or someone with first hand knowledge of the activities performed by the employee –Certification is required at least monthly –Must cover all time expended by employee, federal or not. 52

53. OMB Cost Circulars – Effort Reporting Example, con’t Cost principles for colleges and universities can be found in A-21, section J.10: “responsible person with suitable means of verification that the work was performed.” –Plan-confirmation method – confirmation required at least annually –After the fact method – confirmation required at least monthly or every six months, depending on employee –Must cover all time expended by employee, federal or not. 53

54. OMB Cost Circulars – Effort Reporting Example, con’t Cost principles for Governments are found in A- 87 Attachment B 8(h) –Reflect after the fact actual effort (no budget estimates) –Account for total activity of the employee –Be signed by employee –At least monthly and coincide with one or more pay periods 54

55. OMB Cost Circulars – Effort Reporting Example, con’t Cost principles for hospitals: 45CFR Appendix E to Part 74 aka OASC-3 –Signed by individual or by person with first hand knowledge of the work performed on each research agreement. –Certification is required at least monthly. –Generally only required when someone works on more than one research award, or when someone splits their time between research and other activities of the hospital. –Estimates determined before the performance of services (like annual budget estimates) do not qualify 55

56. TOPICS to be COVERED Reporting Requirements Overview and use of the AICPA Audit Guide Government Auditing Standards and Circular A-133 Audits and Audit Risk Alert OMB Cost Circulars Use of www.cfda.gov and other Web Siteswww.cfda.gov 56

57. www.cfda.govwww.cfda.gov & Other Web sites Various websites and resources available to auditors in completing the single audit 57

58. www.cfda.govwww.cfda.gov & Other Web sites www.cfda.gov –Lists programs by CFDA number, titles –Searchable database –Contains information relevant to auditor regarding purpose of the program GAQC Alert #119 - Problem with CFDA.gov Leads to Inaccurate Notation of Single Audit Applicability 58

59. www.whitehouse.gov/omb/circulars_default/ –Listing of all OMB circulars and the compliance supplement –Recovery Act related addenda to compliance supplement Other Web sites 59

60. Other Web sites http://harvester.census.gov/sac/ –Search the single audit database –File single audit reporting package 60

61. Other Web sites www.aicpa.org/gaqc –Dedicated Center Web site with a complete listing of CPA firm members in your state –Illustrative Auditor’s Reports with examples of Government Auditing Standards, OMB Circular A-133 and HUD reports –Web seminars, webcasts, and teleconferences updating you on a variety of technical, legislative, regulatory, and practice management subjects 61

62. Other Web sites www.recovery.gov –Updated recovery act guidance –Links to agency websites www.whitehouse.gov/omb/recovery_default/ –Recovery Act guidance from OMB –Check back to this site regularly for ongoing guidance http://gaqc.aicpa.org/Resources/Recovery+Act+Resource+Center.htm –Tools & resource for auditors –Open to the public 62

63. RECAP: TOPICS COVERED TODAY Reporting Requirements Overview and use of the AICPA Audit Guide Government Auditing Standards and Circular A- 133 Audits and Audit Risk Alert OMB Cost Circulars Use of www.cfda.gov and other Web Sites 63

64. 64 Questions ?????

65. To Access the Archived 4 Part Single Audit Fundamentals Web Events Archived versions of Part I, II and III are currently available to members on www.aicpa.org/GAQCwww.aicpa.org/GAQC GAQC members will need to log on to access audio and slides Non-GAQC members can send a request to access the archives to gaqc@aicpa.org, please include your name, contact information and organization.gaqc@aicpa.org All four Parts will be available within a week. –GAQC members via the GAQC web site –Non-GAQC members will need to request access per instructions above –If you have questions, please e-mail us at: gaqc@aicpa.orggaqc@aicpa.org 65