GAQC Alert No. 111 


The purpose of this GAQC Alert is to provide you with an update on the latest activities relating to the American Recovery and Reinvestment Act of 2009 (the Recovery Act), as well as an update on several other single audit related matters including the issuance of a long-awaited single audit study issued by the Government Accountability Office (GAO). We have been hearing from members that their clients are beginning to ask questions about the Recovery Act. After reading this Alert you will be better equipped

to talk to your clients about:

  • The latest Office of Management and Budget (OMB) guidance issued on the Recovery Act and the related reporting and other requirements associated with Recovery Act funds that your clients may become subject to;
  • What the GAO is doing in this area that might have an impact going forward; and
  • What you and your clients might expect for your single audits going forward.

Recovery Act Update

For previous background on the Recovery Act, you should refer to GAQC Alert #106 . Since that Alert was issued, the GAQC has been closely monitoring related activities and has the following matters to report on.

Impact of the Recovery Act on June 30 th Single Audits. Based on various reports provided by federal agency representatives, we continue to believe that there will not be a significant number of grant recipients that will be impacted by the Recovery Act for their June 30 th single audits, primarily because the federal government has only distributed a relatively small portion of Recovery Act dollars at this time. The Recovery Web site ( shows that as of May 8 th, approximately $36.8 billion of the over $300 billion expected in grants to be provided have actually been paid out by the federal government. Most of these funds have been distributed by the Department of Health and Human Services (for Medicaid FMAP State draw downs) and the Department of Labor.

Certainly, larger entities such as states and larger local governments will have a greater probability of expending ARRA grants by June 30 th since they often receive their federal funds directly from the federal government. With that said, recent grant awards and other related documents for both recipients and subrecipients should be closely scrutinized to determine whether Recovery Act funds are included due to the impact it could have on your client's compliance activities and your single audits and related major program determinations.

Even though much of the information released to date relates to what will be required of recipients expending Recovery Act funds, we recommend you become familiar with it since it will likely impact your single audits at some point in the future. Your clients are also likely to have questions in this area and may look to you as a source of information. Read on for more details on the latest activities.

Updated Federal Agency Implementation Guidance Issued by the Office of Management and Budget (OMB). On April 23, 2009, OMB issued its next round of Recovery Act guidance to federal agencies that can be accessed by clicking here. This document supplements, amends, and clarifies the initial guidance that OMB issued in February and that we described in GAQC Alert #106 . The updated guidance document is lengthy—172 pages—so please be aware of this before printing it. Remember that while this guidance is directed at federal agencies, it includes important information that will impact Recovery Act grant recipients (e.g., additional and/or amended compliance requirements) and their auditors. Therefore, it is advisable for recipients and auditors to become familiar with it.

Question 1.2 in Section 1 identifies the most significant changes made to the document since the February version. Generally, there are 3 major areas that were enhanced in this round of guidance as follows: (1) Data Reporting, (2) the applicability of Davis Bacon, and (3) domestic sourcing ("Buy American") requirements that apply to certain iron, steel and manufactured goods . Note that almost simultaneously, the OMB issued for public comment in the Federal Register information that was also included in this round of implementation guidance. The following two items discuss those Federal Register notices and get into more detail about data reporting, Davis Bacon, and Buy American.

Federal Register Notice Defining Standard Reporting Elements. One of the primary requirements relating to the receipt and expenditure of Recovery Act monies for recipients and first-tier subrecipients is a significant ongoing reporting responsibility. Note that "first-tier" subrecipients are those that receive an award directly from a recipient (e.g., a local government that receives federal pass-through funds from a state government that received its federal funds directly from the federal government. The OMB issued a Federal Register notice in early April titled, Information Collection Activities: Proposed Collection Comment Request , that proposes the definitions for the standard data elements that will have to be used to comply with the reporting requirements under Section 1512 of the Recovery Act. Comments were due May 1 st. Once the standard data elements are approved, each federal agency will have to require its grant recipients (that is, those recipients of grants, cooperative agreements, and loans made under the Recovery Act) to report the information and data electronically. Recipient reporting will have to be made within 10 days of each calendar quarter beginning with the October 31, 2009, quarter-end. Some of the information required to be reported by recipients includes:

  • Award and award recipient information
  • Project/Activity information (including amounts received and expended, evaluations of completion status, employment impact, and infrastructure investments)
  • Subrecipient information for first-tier subawards (in detail for amounts over $25,000 funded in whole or part with Recovery Act funds and in aggregate for those subawards valued at less than $25,000 where the subrecipient's gross income in the previous year was under $300,000)

Section 3 of the proposal describes the information that would be required to be reported by recipients for their first-tier subrecipients that meet the "more detailed" reporting level (see last bullet above). Some of the information required to be reported by recipients for these first-tier subrecipients include:

  • Subrecipient name, DUNS number, location, type, and award number
  • Total amount of subaward and the amount disbursed
  • Amount of subaward, subaward date, and project/grant period
  • Names and total compensation for the five most highly compensated officers of the entity (This must be provided if in the preceding year the subrecipient received (1) 80% or more of its annual gross revenues from federal awards; (2) $25 million or more in annual gross revenues from federal awards; and (3) the public does not have access to this information via other filings defined within the document such as with the Securities and Exchange Commission or the Internal Revenue Service.)

This reporting and its quick deadlines after the end of each calendar quarter could be very challenging for both recipients and their first-tier subrecipients to comply with. You should consider making your clients that will be receiving Recovery Act funds, either directly or indirectly, aware of the reporting requirements they will become subject to once the standard data elements proposed by OMB are finalized. Note also that going forward the reporting required under the Recovery Act will likely be incorporated into the "Reporting" type of compliance requirement in the OMB Compliance Supplement and subject to testing in the single audit.

Federal Register Notice Defining Standard Award Terms for Grants. Because there are so many unusual nuances relating to the Recovery Act funds, OMB has directed each federal agency to ensure that award documents between the federal government and recipients, as well as between recipients and their subrecipients, clearly articulate the Recovery Act requirements. For that purpose, the OMB posted interim final guidance in a notice to the Federal Register titled, 2 CFR Part 176, Requirements for Implementing Sections 1512, 1605, and 1606 of the American Recovery and Reinvestment Act of 2009 for Financial Assistance Awards . It proposes to add a new section to Title 2 of the Code of Federal Regulations to provide standard award terms for grants, cooperative agreements, and loan awards funded with Recovery Act funds. Federal agencies would use the standard award terms in their financial assistance awards to require recipients and first-tier subrecipients to:

  • Maintain current registrations in the Central Contractor Registration (CCR) database;
  • Require recipients to report quarterly on project or activity status, subgrant and subcontract information;
  • Notify recipients of the Buy American requirements (Note that Section 1605 of the Recovery Act generally prohibits use of Recovery Act funds for the construction, alteration, maintenance, or repair of a public building unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.);
  • Notify recipients of the wage rate (Davis Bacon) requirements that apply to certain projects (e.g., programs or activities involving the construction, alteration, maintenance, or repairs); and
  • Ensure proper accounting and reporting of Recovery Act expenditures in single audits.

Subpart D of the guidance covers "Single Audit Information for Recipients of Recovery Act Funds." It provides the award wording for agencies to use to clarify recipient responsibilities as it relates to single audits. For example, it would require recipients to:

  • Maintain records that identify adequately the source and application of Recovery Act funds;
  • Separately identify Recovery Act funds on the Schedule of Expenditures of Federal Awards (SEFA). This shall be accomplished by identifying expenditures for Recovery Act federal awards separately on the SEFA and as separate rows under Item 9 of Part III of the Data Collection Form;
  • Separately identify to each subrecipient at the time of sub-award and at the time of disbursement of funds, the federal award number, the CFDA number, and amount of Recovery Act funds; and
  • Require their subrecipients to include on their SEFA information to specifically identify Recovery Act funding similar to the requirements for the recipient SEFA described above.

Keep in mind that these award requirements (e.g., separate tracking of Recovery Act funds, SEFA and Data Collection Form requirements, Buy American requirements, and Davis Bacon requirements) will likely be additional compliance areas to be tested in your future single audits for clients receiving Recovery Act money.

Compliance Supplement. The OMB is expected any day to issue the 2009 Compliance Supplement. We will send you a GAQC Alert upon its issuance. The Compliance Supplement is expected to include a new Appendix to describe certain Recovery Act considerations that will likely impact, among other things, your major program determinations if your clients expend Recovery Act funds (e.g., it will provide two-year lookback and clustering guidance). Additionally, after issuing the 2009 Compliance Supplement, the OMB is expected to issue addendums to it on an ongoing basis to further address Recovery Act matters. For example, Part 4 will likely be expanded to include several new Recovery Act programs. Additionally, certain of the types of compliance requirements in Part 3 will be expanded to address Recovery Act implications (e.g., Reporting, Davis Bacon, Procurement, etc.). As these addendums are issued we will notify you.

GAO Recovery Act Report. The GAO is also charged with playing an important role in promoting the accountability and transparency of Recovery Act funds and has established a section on its Web site ( to track related GAO activities. They currently have staff on-site in 16 states and several local governments monitoring activity relating to the Recovery Act. In late April, the GAO issued its first bimonthly report on its oversight activities and provided testimony on its work to the Senate Committee on Homeland Security and Governmental Affairs. The report titled, As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential , is over 300 pages long so please be aware of this before hitting the print button. In addition to reporting on its activities, the GAO makes several observations and recommendations, several of which relate to single audits. First, the GAO observes that single audits may not provide timely oversight information relating to Recovery Act funds in that the funds will likely be spent before the audits are performed (remember that single audits in many cases are not due and submitted until 9 months after an entity's fiscal year end). GAO goes on to make several recommendations to help ensure accountability for Recovery Act funds as follows:

  • The Director of OMB should adjust the single audit process to provide for review of the design of internal controls during 2009 over programs to receive Recovery Act funding, before significant expenditures in 2010.
  • The single audit process could be adjusted to require the auditor to perform procedures such as the following as part of the routine single audit:
    • provide for review of the design and implementation of internal control over compliance and financial reporting for programs under the Recovery Act;
    • consider risks related to Recovery Act-related programs in determining which federal programs are major programs; and
    • specifically, test Recovery Act programs to determine whether the auditee complied with laws and regulations.

OMB is currently considering these recommendations which, if adopted, could greatly impact single audits going forward. However, it is not clear at this point how or when OMB will respond to the GAO recommendations. Another possibility is that legislation could be introduced to accomplish some of the GAO recommendations. Much of this is "up in the air" at this point. However, you should know that we are closely monitoring activity in this area and are having ongoing discussions with various stakeholder organizations. We will communicate any developments as soon we become aware of them.

Other Single Audit Activities

GAO Issues Study on Single Audits. As reported to you previously in various GAQC Alerts since the federal study on single audit quality was issued, GAO was asked by the Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security to perform additional work and analysis to identify any further actions needed to improve federal oversight and accountability for federal grant funds. As a result, GAO issued a report titled, Single Audit: Opportunities Exist to Improve the Single Audit Process and Oversight , which includes three recommendations to OMB as follows:

  • Designate an entity or group to (1) evaluate and comprehensively monitor the single audit process government -wide, (2) assess the efficiency and effectiveness of how agencies carry out their single audit responsibilities, and (3) identify additional guidance and resources needed to carry out single audit requirements;
  • Designate a federal workgroup to evaluate the current single audit process to identify simplified alternatives for meeting the accountability objectives of the Single Audit Act for the audits of small entities, while achieving the proper balance between risk and cost-effective accountability for the smallest to the largest entities; and
  • Monitor the status of OMB workgroups, AICPA task forces, and NASBA referral project activities, and evaluate completed actions and their impact on addressing the PCIE report recommendations to improve single audit quality.

Note that Enclosure 1 to the report includes briefing slides that were presented to the Senate Subcommittee staff. Those slides include a detailed summary of the status of the AICPA activities in response to the federal study. Any OMB activities undertaken in response to this GAO study will be communicated to you in an upcoming GAQC Alert.

In Closing

We apologize for the length of this Alert but as you can see from the above described activities, there is a lot happening. We hope that you have found this Alert helpful in understanding the latest Recovery Act activities as you enter the 2009 audit season. We will continue to communicate with you going forward as activities progress.


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