GAQC Alert No. 224 


    GAQC Alert
     
    OMB Releases Final 2013 Compliance Supplement
           
      AICPA  
    July 3, 2013
    GAQC Alert #224
     
     
    In This Alert
       
    Accessing the Supplement
    Effective Date
    Key Changes to the Supplement
    GAQC Supplement Practice Tips
    Importance of the Supplement
    GAQC Web Event on 2013 Supplement
    Rebroadcast of GAQC Required Webcast
       
    Designated audit quality partners, designated audit quality leaders, and their staff that missed the live GAQC required annual Webcast can view a continuing professional education (CPE) rebroadcast on Thursday, July 18, 2013 from 1:00 PM - 3:00 PM (Eastern Time). Read GAQC Alert #223 for registration information.
    GAQC "Summer Fun" Rebroadcast Week
       
    Read GAQC Alert #223 for registration information for a week of "summer fun" CPE rebroadcasts of some of the most popular GAQC Web events from the last 6 months. The events will occur the week of August 5th.
    Additional Resources
       
    GAQC Alerts

    Archived GAQC Web Events

    Audit Practice Aids and Tools

    HUD Information
     
    Dear Center Members
    Late yesterday, the Office of Management (OMB) released the 2013 OMB Circular A-133 Compliance Supplement (the Supplement). After reading this GAQC Alert you will be aware of the following important matters:
    How to access the Supplement and its effective date;
    Key changes to the Supplement;
    Best practices for using the Supplement recommended by the Governmental Audit Quality Center (GAQC);
    A reminder on the importance of the Supplement; and
    How to register for the August 9th continuing professional education (CPE) rebroadcast of a GAQC Web event titled, The 2013 OMB Compliance Supplement and Proposed Single Audit Reforms, and instructions for accessing a no-CPE archive of this Web event.
    Accessing the Supplement
    Access the 2013 Supplement here. OMB also includes a link to the Supplement on the Office of Federal Financial Management Single Audit Web page and the grants management section of the OMB Web site (scroll down to the "Audit Requirements" section).
    Effective Date
    The Supplement is effective for audits of fiscal years beginning after
    June 30, 2012, and it supersedes the Supplement dated June 2012.
    Key Changes to the Supplement
    While the following describes many of the broader changes to the Supplement, there are also a number of specific programmatic changes that are important. Appendix V, List of Changes for the 2013 Compliance Supplement, lists these changes by Catalog of Federal Domestic Assistance (CFDA) number. You should check Appendix V for changes to programs that you typically audit, as well as refresh your memory regarding the important OMB announcements in Appendix VII, Other OMB Circular A-133 Advisories, which continue to be relevant to your 2013 single audits.

    The following summarizes some of the more significant changes to the Supplement that you should be aware of:

    Changes to the Matrix of Compliance Requirements. Part 2, Matrix of Compliance Requirements, has been modified to eliminate the applicability of certain compliance requirements in a number of programs previously identified with a "Y." The eliminated compliance requirements include "Equipment and Real Property;" "Procurement and Suspension and Debarment;" "Program Income;" and "Real Property Acquisition and Relocation Assistance." Appendix V states that these requirements were eliminated based on the lack of materiality to the affected program/cluster. Note that these deletions are not shown separately by program in Part 4, Agency Program Requirements, unless there was previously program-specific coverage in the applicable program supplement. The matrix in Part 2 has also been updated to add and remove programs to make it consistent with the Table of Contents and Parts 4 and 5, Clusters of Programs.

    Federal Funding Accountability and Transparency Act (FFATA) Procedure Revisions. The Supplement's suggested audit procedures relating to FFATA in Part 3, Compliance Requirements (see section L on Reporting), have been revised. Previously, the auditor was asked to select a sample of subawards/subcontracts subject to FFATA reporting and compare certain data fields contained in www.USAspending.gov (the public portal for FFATA reporting) to the underlying subawards/subcontracts. The revised procedure modifies the system that the auditor uses for this procedure from www.USAspending.gov to the FFATA Subaward Reporting System (FSRS or www.fsrs.gov). FSRS is the portal where the recipient enters the subaward/subcontract information and is only accessible by the recipient. Therefore, in order for the auditor to perform the required procedures and for recipients to demonstrate that award information has been properly input, the Supplement indicates that recipients will need to coordinate with the auditor regarding to the auditor's review of award information (e.g., by logging into its FSRS account in the auditor's presence so that the auditor is able to find the awards in the system).

    OMB has retained the "Good Faith Effort for Submission" subsection (within the FFATA reporting section) to provide guidance for auditors of recipients who have documented evidence that they attempted to comply with the FFATA reporting requirements but were unable to do so. Although some slight wording revisions were made to update this guidance, it is generally very similar to what appeared in last year's Supplement. It also continues to emphasize that the "Good Faith" guidance does not relieve a recipient's responsibility for the FFATA reporting process and that it is important for recipients to note that they are still required to comply with FFATA requirements and that the FFATA requirements will continue to be subject to audit. Auditors are also strongly encouraged to remind those charged with governance of the recipient of the entity's responsibilities under FFATA.

    Procurement and Suspension and Debarment Changes. Section I of Part 3 which covers the Procurement and Suspension and Debarment type of compliance requirement includes several revisions. First, changes were made to update and clarify the compliance requirements. Second, the suggested audit procedures for testing compliance with suspension and debarment requirements were revised. Finally, clarification is provided that although the $100,000 threshold for procurement under grants will be changed to $150,000 when the Council on Financial Assistance Reform's efforts to consolidate OMB guidance are completed, the $100,000 threshold continues to apply unless an agency/program has issued guidance raising the threshold or the increased threshold is specified in the terms and conditions of award.

    National Science Foundation Awards. OMB added a new section to Appendix VII titled "Treatment of National Science Foundation Awards." It states that effective for proposals due on or after January 14, 2013, that all National Science Foundation (NSF) awards meet the definition of "Research and Development" (R&D). As such, auditees should identify NSF awards as part of the R&D cluster on their Schedule of Expenditures of Federal Awards (SEFA) and the auditor should use the R&D cluster guidance in Part V when testing any of those awards. The guidance also indicates that NSF recognizes that some awards may have another classification for purposes of reimbursement of indirect costs and that the auditor is not required to report this difference in treatment (i.e., the award is classified as R&D for purposes of the single audit but non-research for indirect cost rate purposes), unless the auditee is charging indirect costs at a rate other than the rate(s) specified in the award document(s). The new section also discusses that there will be a transition period (probably 4 years) where SEFAs will include both awards funded previous to this change in approach and awards made subsequent to it. However, it stresses that awards resulting from proposals due on or after January 14, 2013, must be included in SEFA as part of the R&D cluster.

    Guidance on 340B Drug Pricing Program Deletions. Another new section was added to Appendix VII titled, "340B Drug Pricing Program," which discusses the impact of the deletion of the U.S. Department of Health and Human Services 340B Drug Pricing Program from CFDA numbers 93.224, 93.917 and 93.918. Included in the discussion is the effect of prior findings or opinion modifications relating to this program. GAQC previously alerted members to this program change and the impact in GAQC Alert #216.

    Recovery Act Program Deletions. A number of American Recovery and Reinvestment Act of 2009 (Recovery Act) programs have been deleted from Part 4 and Part 5. Appendix V provides a listing of the specific programs deleted. OMB deleted these Recovery Act programs based on their completion or the dwindling amount of funds still subject to audit. However, even though they were deleted from the Supplement, there will likely be some entities that continue to have expenditures relating to the deleted programs. Therefore, a new section was added to Appendix VII titled, "Removal of ARRA Programs from Clusters," to provide guidance on the audit implications for these deleted programs when an auditee has federal expenditures in the current year.

    The new guidance states that the deleted programs would be treated consistent with any other programs not included in this Supplement or not part of a cluster of programs. For example, it states that the program would not be considered as part of a cluster for periods covered by the 2013 Supplement. Additionally, if the program was part of a cluster which was audited as a major program in a prior year, it would be considered as audited in that prior year for purposes of major program determination in the current year, including consideration of any audit findings. Finally, it reminds auditors that the related guidance in Appendix VII titled "Effect of Expenditures of ARRA Awards on Major Program Determination" would apply.

    The GAQC cautions members to remember that if auditing one of the deleted programs in a 2013 single audit, that the guidance relating to risk assessments of type A and type B Recovery Act programs in Appendix VII should be considered. For example, if a deleted program that was formerly part of a cluster becomes a stand-alone type A program in a single audit, such program would have to be considered high risk unless the exception criteria described in Appendix VII are met (see page 8-7-2 for the exception criteria). Meeting those exception criteria may be unlikely in that one of the criterion states that the Recovery Act expenditures in the audit period are less than 20 percent of the total program or cluster. Additionally, if you are auditing a program that has been deleted, you should follow the guidance in Part 7, Guidance for Auditing Programs Not Included, for purposes of determining the compliance requirements to test and procedures to perform. Referring to the related program section from the 2012 Supplement may be useful to consider when following the guidance in Part 7 to formulate your audit program.
    GAQC Supplement Practice Tips
    Because the Supplement is one of the most important pieces of guidance that you use in performing single audits, it is imperative that your staff use it properly. Here are a few tips to consider as the 2013 audit season gets underway.
    Review Appendix V to identify what the major change areas are for this edition of the Supplement. Additionally, you should also review Appendix VII which includes important announcements from OMB regarding changes to certain programs included in other parts of the Supplement, the major program determination process due to the Recovery Act, and other non-Recovery Act guidance (e.g., loan and loan guarantees).
    If you have not done so already, take advantage of the previously held GAQC Web event titled, The 2013 OMB Compliance Supplement and Proposed Single Audit Reforms. See the GAQC Web Event on 2013 Supplement section below for information on how to access this Web event with both a CPE and no-CPE option
    It is important for your engagement teams to be using the correct version of the Supplement. Bookmark the 2013 Supplement to ensure that you are using the correct year. If you are engaged to perform a single audit for the prior year, you should use the 2012 Supplement.
    As part of your single audit engagement team preparation, hold a planning meeting to review the Supplement with your audit team. Focus the review on the programs to be audited and any significant changes made to the Supplement from the prior year.
    The Matrix of Compliance Requirements in Part 2 identifies the compliance requirements that are applicable to the programs included in this Supplement (see Key Changes to the Supplement above regarding changes made to this matrix in the 2013 Supplement). Many issues with using Part 2 have been noted in single audit quality reviews and it is important that you use it correctly. Remember that if the matrix indicates that a compliance requirement applies to a federal program by indicating "Y" within the matrix, it may not apply at a particular entity, either because that entity does not have activity subject to that type of compliance requirement or the activity could not have a material effect on a major program. Therefore, you need to exercise professional judgment when determining which compliance requirements marked "Y" need to be tested at a particular non-Federal entity. Use Part 2 appropriately by:
     
      o Using professional judgment;
      o Assessing each compliance requirement individually;
      o Considering both quantitative and qualitative materiality when deciding whether an "applicable" compliance requirement is material to a major program;
      o If you determine that a compliance requirement that is identified as applicable in the matrix is NOT direct & material to your client, it is imperative that you DOCUMENT your logic for making this decision. Just using an "N/A" or "Not Direct and Material" tickmark is not enough to support your conclusion.
    Because Part 4 and Part 5 of the Supplement do not include guidance for all types of compliance requirements that pertain to a program (see introduction to Part 4 for additional information), you should use those Parts in conjunction with Parts 2 and 3.
    Refrain from using the Supplement as a defacto audit program. Remember that the Supplement includes "suggested" audit procedures. Auditor judgment is necessary to determine whether the suggested audit procedures are sufficient to achieve the stated audit objectives or whether additional or alternative audit procedures are needed. Therefore, you should not consider the Supplement to be a "safe harbor" for identifying the audit procedures to apply in a particular engagement. A good understanding of your client is necessary to be sure you are performing the correct procedures for your client's facts and circumstances. Also, you should understand the various federal programs that your client receives to determine whether modifications to the audit approach are necessary.
    Importance of the Supplement
    The Supplement identifies the existing important compliance requirements that the federal government expects to be considered as part of a single audit and is one of the most important pieces of guidance that you use in performing single audits. It provides a source of information for auditors to understand federal program objectives, procedures, and compliance requirements, as well as audit objectives and suggested audit procedures for determining compliance with these requirements. As the designated audit quality partner for your firm or designated audit quality leader for your state audit organization, you should give the 2013 Supplement your immediate attention and ensure that your staff has the information they need to perform an effective, high quality single audit.

    The GAQC will be monitoring implementation of the Supplement and to the extent we receive common questions on particular areas, we will communicate back to you any information that might be helpful in ensuring an appropriate understanding of the provisions of the Supplement. If you have any questions or clarifications that you think need to be addressed, please e-mail us at gaqc@aicpa.org so that we are aware of any issues or problems that our members are facing.
    GAQC Web Event on 2013 Supplement
    To learn more about the significant changes to the 2013 Supplement, register for a CPE rebroadcast of the GAQC Web event titled, The 2013 OMB Compliance Supplement and Proposed Single Audit Reforms, on Friday, August 9, 2013, from 1:00 PM-3:00 PM (Eastern Time). This Web event is presented by a panel of presenters that have first-hand experience with the Supplement and who have also been involved in related GAQC efforts on single audit reform. Register for the CPE rebroadcast of this Web event or Access the No-CPE archive.

    We hope you find this information useful as you plan your 2013 audits and thank you for your commitment to governmental audit quality.
    *   *   *   *   *
    Sincerely,

    AICPA Governmental Audit Quality Center

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