By: Katrina Henderson, CPA
Have you ever wondered whether your agreement with the federal government was subject to the Single Audit Act and, therefore, subject to audit in accordance with Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations? Well, that will depend on whether your federal agreement is a contract for services or an award of federal financial assistance (grant, cooperative agreement, or loan). It may also depend on whether your organization is a sub-recipient or a vendor. Finally, the terms of the agreement may specify whether or not OMB Circular A-133 applies. In order to determine what type of agreement you have entered into, you will need to read the entire agreement to determine the nature of the agreement as well as the key terms of performance.
According to OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-profit Organizations, the type of award given will depend on the awarding agency and the needs to be met from the services provided. The awarding agency can enter into a grant, cooperative agreement, loan, or contract for services arrangement with the award recipient. Grants, cooperative agreements, and loans, are used when the purpose of the award is for the direct benefit of the public. However, the level of involvement of the federal agency will vary. A grant does not have substantial involvement of the awarding agency other than some compliance requirements whereas a cooperative agreement will have substantial involvement of the awarding agency. A contract for services will be used when the purpose of the award is to directly benefit the federal government.
Although the award document will dictate who the intended beneficiary of the award is, it’s equally as important to determine whether your organization is a sub-recipient or vendor. A pass-through entity is a nonfederal entity that directly received federal financial assistance which is subject to OMB Circular A-133 but provides the federal award to a sub-recipient to carry out the objectives of the federal program. A vendor is a dealer, distributor, merchant or other seller providing goods or services that are required for the conduct of the federal program. Both pass-through entities and sub-recipients would have a single or program-specific audit in accordance with OMB Circular A-133. If your organization is a vendor, then the agreement is a contract for services which is not subject to OMB Circular A-133. Thus, OMB Circular A-133 is not applicable to the agreement unless the terms of the award say they are.
Distinguishing characteristics of a sub-recipient are when the entity:
- Determines who is eligible to receive the federal financial assistance;
- Has its performance measured against whether the objectives of the federal program are met;
- Has responsibility for programmatic decision making;
- Has responsibility for adherence to compliance requirements applicable to the federal program; and
- Uses the federal funds to carry out a program of the entity as opposed to providing goods or services for the program
Distinguishing characteristics of a vendor are when the entity:
- Provides the goods and services within normal business operations;
- Provides similar goods and services to many different purchasers;
- Operates in a competitive environment;
- Provides goods or services that are ancillary to the operation of the federal program; and
- Is not subject to the compliance requirements of the federal program
Other important elements to consider are the key terms of performance as determining whether the agreement with the federal government is a contract for services or federal financial assistance may be confusing. The agreement may include elements of a contract for services and elements of federal financial assistance. The following terms may indicate your award is federal financial assistance and, therefore, subject to the Single Audit Act:
- The recipient agrees to comply with the organizational audit requirements of OMB Circular A-133.
- The recipient agrees to submit quarterly financial results using the SF 425 Federal Financial Report form or other Federal Financial Reports.
- A Catalog of Federal Domestic Assistance (CFDA) number is provided.
- The grantee must comply with applicable laws, regulations, and/or terms and conditions of the grant or cooperative agreement.
- Provide a schedule of expenditures of federal awards (SEFA).
As with most agreements with the federal government, there are unusual circumstances or exceptions to the above mentioned characteristics. There is a level of judgment that should be used in determining whether the agreement is a contract for services or federal financial assistance subject to the Single Audit Act and requires an audit in accordance with OMB Circular A-133. Therefore, if a determination cannot be made, you may need to contact the awarding agency for clarification.
Katrina is a manager in Tate & Tryon’s audit and assurance services practice and can be reached at email@example.com.