By: Lauren Horneff, CPA, MBA
If you receive funding from the federal government, you have probably heard this question from your auditors: “Do you need an A-133 audit?” Common responses include “I don’t know,” “How do you know if you do?,” “What is that?,” “I’ve never heard of that,” etc. Hopefully, we can give you some insight.
The federal government issued OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (the “Circular”). The Circular sets forth standards for consistency and uniformity among departments and agencies for their audits of non-federal entities that receive and expend federal awards. Your regular independent auditor will usually be the firm that will perform this audit on behalf of the government. In this article, A-133 audit will refer to single audit performed under OMB Circular A-133. A single audit is an audit which includes both the entity’s financial statements and the federal awards.
So how do you know if you need an A-133 audit? The answer is relatively simple: if you EXPENDED over $500,000 of federal funds during your fiscal year, you will need a single audit. These are actual expenditures, not funds received or the award amount. In determining your federal expenditures, you will need to include expenditures related to federal funds received directly from the federal government or through a third party. This means if the federal government provided funding to a state or organization who later provided a portion of the grant to you (another nonprofit organization), you must provide that portion in your calculation of federal expenditures. If you are not sure if it originated from the federal government, contact your grantor. In addition to the general rules outlined above, there are also special rules for federal loans, loan guarantees, and other non-cash assistance. If you receive any of these forms of federal financial assistance, you should contact your auditor for assistance.
Even if you determined you do not need an A-133 audit, you may still need to take a few additional steps to comply with the requirements that come with the federal funds. The Circular specifically identifies six auditee responsibilities. Let’s take a look at these requirements:
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Identify all federal awards expended and the related federal programs (described above).
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Maintain internal control over compliance over federal programs.
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Comply with laws, regulations, and provisions of contract or grant agreements related to federal programs.
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Prepare financial statements, including a schedule of expenditures of federal awards.
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Ensure audits are properly performed and submitted when due.
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Follow up and take corrective action on audit findings, including preparing a summary schedule of prior audit findings (i.e., provide a status of prior audit findings) and a corrective action plan for current audit findings.
First, let’s look at compliance. The recipient of federal awards is required to comply with federal compliance requirements and maintain internal control over compliance. Complying with laws, regulations, and provisions of contract or grant agreements related to federal programs refers to actually meeting the government requirements. Maintaining internal control over compliance over federal programs means that there are controls in place to ensure that you are following the government requirements. The Circular includes 14 general compliance areas with which recipients should comply. These 14 compliance areas are the same areas that the auditors will audit during the A-133 audit. Details of the 14 areas can be found in the OMB Circular A-133 Compliance Supplement (the “Compliance Supplement”), which is updated and issued annually. The Compliance Supplement includes the general requirements for each area, control objectives and examples of controls for each compliance area, as well as detailed compliance requirements for each area for select programs. The Compliance Supplement also includes the audit procedures that the auditors will perform for each compliance area tested. It’s kind of like getting your exam questions prior to taking the exam. As you can see, the Compliance Supplement could be an invaluable resource when you receive federal awards to ensure compliance.
In order to comply with the compliance requirements, you will need to determine which compliance areas apply for each program. The Compliance Supplement identifies the applicable compliance areas for select programs (listed by Catalog of Financial Domestic Assistance or “CFDA” number). If your program is not listed separately in the Compliance Supplement, you can contact your grantor. Your auditor can also help you determine if certain compliance areas apply. If a program is selected to be audited, your auditor may ask you which areas apply. Your auditor may figure that if you know which areas apply, there is a greater chance you will be in compliance with the applicable requirements (translation: less work to prepare for the audit and less items to pull for the audit).
A great way to summarize the federal funds you have identified above is to prepare a schedule of expenditures of federal awards (“SEFA”). The SEFA lists all federal awards by agency and program. If you are required to have an A-133 audit, the SEFA is also included as a schedule in the audit package. The programs are listed by CFDA number, which can be obtained by the grant document or the grantor. The Catalog of Financial Domestic Assistance (“CFDA”) is a catalog of the federal programs. The CFDA number identifies the federal program under which the federal funds were provided. All grants with the same CFDA number are generally combined and listed as one program. In addition, the CFDA number and the program name should be the same as used in the actual CFDA. There are two exceptions: (1) any individual research and development (“R&D”) grants and (2) any individual grants received under the American Recovery and Reinvestment Act of 2009 (“ARRA”) should be listed separately by CFDA number, even if they have the same CFDA number as non-R&D and non-ARRA grants. If you’re not sure if an individual grant is R&D or ARRA, contact your grantor. Having a good SEFA to start from will make the A-133 audit go smoother from the start.
Another responsibility is to follow up on audit findings. A status update of prior year audit findings should be provided near the beginning of the audit for the auditor’s review. A corrective action plan for current year findings should be prepared at the completion of the audit and should include your plan to fully correct the finding.
Hopefully, you’ll now be able to answer the question, “do you need an A-133 audit?” with confidence and be able to properly prepare for the audit if you need one. Also if you receive federal funding but you don’t need one, you still have responsibilities to comply with federal laws, regulations, and provisions of contracts and grants.
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Lauren Horneff is a manager in Tate & Tryon’s audit department and can be reached at lhorneff@tatetryon.com.
