Single Audit Changes – What to Expect and How It Will Affect You
Entities that receive federal funds from state and local governments and not-for-profit organizations are subject to audit requirements described in the federal Office of Management and Budget ‘s(OMB) Circular A-133. The OMB has been working on streamlining this guidance and eliminating unnecessary and duplicative requirements. The government is trying to make their guidance easier to read and more user-friendly.
Many of our clients are subject to single audits and we have been communicating the upcoming changes in the guidelines. Some of the bigger changes are summarized below.
Single Audit Threshold – Right now entities that have federal expenditures of $500,000 or more are subject to a single audit, but the proposed guidance is raising it to $750,000. We took a look at the clients that we audit and it does not affect the majority of them, as they were already over this amount. Overall, it is expected to eliminate the requirement for about 5,000 entities and anticipates savings for the government of about $250 million per year. The increase will still provide coverage for over 99% of federal dollars and allows the federal oversight resources to be targeted where the most federal dollars are at risk.
Compliance Requirements – Currently there are 14 compliance requirements that are tested during a single audit. The proposed guidance is reducing it to six in order to focus the auditor’s attention on the compliance requirements with greater risk to the federal dollars. Over time, as more provisions were developed, it created overlapping and conflicting provisions that caused confusion to many readers. The goal is to make the requirements clearer and help reduce audit findings that stem from inappropriate application of the guidance.
Administrative Requirements – Organizations must stay on top of all of the administrative requirements they are subject to with receiving federal funds and reporting requirements. A goal with the changes is to update the current electronic processes and make better use of information technology to move, store and share data.
Program Testing – During a single audit, auditors must evaluate the programs of the entity and determine which ones will be tested. Additionally, based on the amount of money expended for each program, they are classified as either major or non-major. The new guidance would raise the major program threshold from $300,000 to $500,000, which would likely reduce the number of programs that the auditor is required to test. Less testing equals less documentation requested, which leads to reduced compliance costs.
The Council on Financial Assistance Reform (COFAR) is assisting the OMB in implementing the guidance and responding to questions from organizations. They are working towards facilitating the smooth implementation of the new guidance. The 2014 Single Audit Compliance Supplement is the first priority on their list and developing a framework that streamlines the types of single audit compliance requirements and previews the implementation of changes that are being discussed. Federal entities must implement the requirements of the new guidance to be effective December 26, 2014. Audit requirements will apply to audits of non-federal entity fiscal years beginning on or after December 26, 2014.
Our government and nonprofit groups are keeping up with the pending changes and the announcements in order to inform our clients and to ensure we are satisfying the requirements during our audit procedures.
For additional information contact the author Justine Fronheiser at email@example.com.
Justine N. Fronheiser, CPA