GAQC Alert No. 312 

GAQC Alert
ED Memo on Title IV Funds Treatment in 2016 Single Audits; Individual 2016 Compliance Supplement Sections Posted
August 22, 2016
GAQC Alert #312
In This Alert
The ED Memorandum
A Few Words of Caution
Still Have Questions?
Supplement Sections Available
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Dear Center Members
On August 5, 2016, the U.S. Department of Education (ED) issued a memorandum titled, Applicability of Single Audit Act Regulations to the Title IV Student Aid Programs (the memorandum). The memorandum discusses ED's recently announced policy position that Title IV student assistance programs are required to be audited annually under the Higher Education Act (HEA), as well as how this policy affects an institution's 2016 single audit. Auditors most frequently encounter these Title IV programs when auditing the Student Financial Assistance (SFA) Cluster identified in Part 5, Clusters of Programs, of the Office of Management and Budget (OMB) Compliance Supplement. Consequently, this GAQC Alert will refer to the SFA Cluster for purposes of this communication. This GAQC Alert is intended to:
  Make you aware of the memorandum;
  Inform you about a follow-up meeting the Governmental Audit Quality Center (GAQC) Executive Committee had with ED on this topic to ensure an appropriate understanding of the memorandum's contents;
  Offer a few words of caution regarding your 2016 single audits; and
  Provide you with guidance on what to do if you or your clients have additional questions.
The ED Memorandum
The GAQC delayed communicating the issuance of the ED memorandum until a meeting could be held with ED staff to better understand the memorandum's contents and ED's intent. The following are the takeaways from that meeting:
  While this recent policy announcement seems contrary to the overall concept of rotating the auditing of federal programs on the basis of risk assessment under the Single Audit Act, the ED general counsel's office has been involved in the development of the policy and is confident that the HEA annual financial statement and compliance audit provision stands on its own. ED staff indicated that OMB staff reviewed the memorandum prior to its issuance and approved its release.
  You need to pay attention to the memorandum if your auditee expends funds under the SFA Cluster and it is a Type A program that will not be audited as a major program either because it is considered low-risk under the Uniform Guidance or is not needed to meet percentage of coverage requirements. In this circumstance, the memorandum states that the institution should contact ED's School Participation Division that it normally works with to report that the program will not be audited as a major program in the 2016 single audit.
  Contacts to the respective ED School Participation Division by an institution may be by made by e-mail or phone.
  Upon receiving such contact from institutions, the ED School Participation Division staff will review the prior years' audits and other information they have access to and ensure they are not aware of anything that would preclude the low-risk Type A determination for the 2016 single audit. If they agree, the SFA Cluster will not have to be audited in 2016 as a major program. The institution should ask for written communication of ED's conclusions, as well as retain documentation supporting all correspondence on this matter.
  The contact to the ED School Participation Division is required for single audits that are just starting, already underway, or near completion.
  For single audits that have already been completed where the SFA Cluster was not a major program, the ED School Participation Division will review the submitted audits to determine if they agree. The ED School Participation Division will notify institutions if there is any disagreement.
  ED stated it had not yet determined a formal position on institutions expending Title IV funds below the threshold for audit or when Title IV funds only represent a Type B program. They will consider these situations in future guidance to be developed.
A Few Words of Caution
This memorandum is not the end of this policy discussion. ED will be working to develop more formalized guidance, likely via the 2017 Compliance Supplement development process, in terms of how the required annual audits of the SFA Cluster are to occur in 2017 and beyond. ED staff could not guarantee that they will not re-look at having institutions submit some sort of "retroactive" audit work on 2016 Title IV expenditures once more formal guidance is developed in the future.

ED staff stated that receiving a response from ED regarding its review of a low-risk Type A determination may take up to two weeks in some cases depending on the facts and circumstances. In other cases it may be received very quickly. Auditors should consider advising institutions to reach out to ED as soon as possible to avoid delays in audit work.

The memorandum indicates that the required communication with the respective ED School Participation Division should be made by institutions. While ED stated they would consider such communications made by auditors, members are cautioned not to take on the entire management communication responsibility directly. However, since the purpose of the communication relates to an audit-related topic, assisting management with the communication may be appropriate.

Finally, we have heard from several members whose clients have decided, due to the uncertainty in this area, to voluntarily have their 2016 single audit include the SFA Cluster, even though it would not have otherwise been audited as a major program by the auditor using the four-step approach to determining major programs in the Uniform Guidance. In this circumstance, the program should be treated by the auditor as an "additional" program. That is, the auditor cannot "judgmentally" consider the SFA Cluster high-risk in order to audit it and/or replace other federal programs that meet the requirements for audit as a major program under the Uniform Guidance.

The GAQC will be monitoring ED's future efforts in this area and work to ensure that timely and clear guidance is developed for 2017 audits. We will also be further engaging OMB in this discussion to ensure that ED's efforts are in line with overall federal single audit policy.
Still Have Questions?
ED staff suggested that all questions on the memorandum and related policy be submitted to the respective ED School Participation Division. ED stated that all Divisions are fully aware of the memorandum and that efforts have been made to ensure that consistent answers are being provided by all Divisions.


AICPA Governmental Audit Quality Center
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